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Old 02-07-2013, 08:02   #26
DanaT
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Originally Posted by Dennis in MA View Post
Oh, it's definitely not a long-term trend. We got suckered for 30 years on "debt helps the economy." But household debt is DROPPING faster than payments on said-debt would be.
High debt will pick right back up as consumer confidence picks up

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Originally Posted by Dennis in MA View Post
Cars are flying out of showrooms. Do you really think the average 'Murican can't get credit??? And if we are in a recession, wouldn't debt payments, as a percentage of income, go up? (Is debt falling or are overall wages increasing???? Dang. Good news or . . . good news. Hmmmm.)
Incorrect assumption.

http://www.denverpost.com/opinion/ci...cas-money-tree

Considering that over half of Americans can't come up with $2000 in 30 days, I seriously doubt that cars, averaging about $30k, are being paid for with cash/savings. Credit has eased up a lot and likely people are just paying higher interest rates. That doesnt make debt ratios go up, but it does affect end cost.

For example, if you borrow money at 5% you still have the same debt ratio as if you borrow at 10% but your expenditure for the debt increases.
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Old 02-07-2013, 08:03   #27
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This isnt exactly a poor decision.

1) They get a tax break and lower their income tax bracket based upon mortgage interest and property tax paid.

2) The house, including the financed part, is appreciating. As long as the appreciation is equal to or higher than than the finance interest rate, one is making money on the house. Debt that you make money on is good debt. In the financial world this is called "leveraging"

If you combine number 1 and 2, it is actually not a decision to have a valuable piece of property.
I don't want this to look like I'm starting a pee-ing contest, Dana. LOL If so, I need to drink more water first. LOL

BUT. . . .

5x salary for a house is a baaaaaaad idea for everyone.

1. Even at today's rates, a person would be spending too much of their total income on housing. One little blip and we have a massive housing problem. . . again. It's nicer now because interest rates are down, but you are still talking PITI of 30%+ Back when I bought my first house in '94, PITI was somewhere around 24% max and PITI+totaldebt was 27%.

2. Tax break - FUDGE THEM! This was the biggest part of Simpson Bowles I wanted enacted. Basically I'm paying the moron to buy a 5x house. Because they get a tax break, I pay more. F that. It deludes them into thinking #1 above is do'able (and with a blip in their income, they can't afford the mortgage AND they have no tax break in the first place to fall back on).

5x salary homes are a pipe dream and should be discouraged by banks. Thankfully, they are at this point.

3. You are assuming a LOT of appreciation. Good luck with that. I've been through 2 housing crashes so far. The math doesn't work that way.

4. You can't spend your house. Let's say you buy House X for $150,000. You leverage it to the hilt for 30 years. In 20 years, you owe $50K on it and the house is worth. . . .$300K. (Aside: I purchased my house in the LAST housing recession. If I were to sell it today, 19 years later, it's worth about 50% more, not double, but I'll give you a double.) So I've got $250K of equity. PARTAYYYYYY!!!! Until I have to eat it. My choices are mortgage it back to the hilt and hope I don't lose it, reverse mortgage or sell it and buy DOWN. (Something I don't see people doing in practice. People buy SIDEWAYS at best.) You don't gain some sort of edge, financially. You gain the same house, nothing more. What it is worth now and/or later are just mathematical place-holders with no real value because you can't eat the woodwork.



Don't buy a 5x house, people. Not now, not ever. It's a bad move.


PS - no one is buying a 10x house now. The banks won't allow it. I'd argue they won't do a 5x anymore. At least not for another decade or so.
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Old 02-07-2013, 08:05   #28
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I hope that you weren't insulting me, Dennis.
LOL

Not you, dufus, the dufus you are talking about. LOL OP meant Original Post. I feel like a dufus now.
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Old 02-07-2013, 08:12   #29
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Originally Posted by Dennis in MA View Post
I don't want this to look like I'm starting a pee-ing contest, Dana. LOL If so, I need to drink more water first. LOL

BUT. . . .

5x salary for a house is a baaaaaaad idea for everyone.

1. Even at today's rates, a person would be spending too much of their total income on housing. One little blip and we have a massive housing problem. . . again. It's nicer now because interest rates are down, but you are still talking PITI of 30%+ Back when I bought my first house in '94, PITI was somewhere around 24% max and PITI+totaldebt was 27%.

2. Tax break - FUDGE THEM! This was the biggest part of Simpson Bowles I wanted enacted. Basically I'm paying the moron to buy a 5x house. Because they get a tax break, I pay more. F that. It deludes them into thinking #1 above is do'able (and with a blip in their income, they can't afford the mortgage AND they have no tax break in the first place to fall back on).

5x salary homes are a pipe dream and should be discouraged by banks. Thankfully, they are at this point.

3. You are assuming a LOT of appreciation. Good luck with that. I've been through 2 housing crashes so far. The math doesn't work that way.

4. You can't spend your house. Let's say you buy House X for $150,000. You leverage it to the hilt for 30 years. In 20 years, you owe $50K on it and the house is worth. . . .$300K. (Aside: I purchased my house in the LAST housing recession. If I were to sell it today, 19 years later, it's worth about 50% more, not double, but I'll give you a double.) So I've got $250K of equity. PARTAYYYYYY!!!! Until I have to eat it. My choices are mortgage it back to the hilt and hope I don't lose it, reverse mortgage or sell it and buy DOWN. (Something I don't see people doing in practice. People buy SIDEWAYS at best.) You don't gain some sort of edge, financially. You gain the same house, nothing more. What it is worth now and/or later are just mathematical place-holders with no real value because you can't eat the woodwork.



Don't buy a 5x house, people. Not now, not ever. It's a bad move.


PS - no one is buying a 10x house now. The banks won't allow it. I'd argue they won't do a 5x anymore. At least not for another decade or so.
10X!! Who-hooo. I am moving to Aspen!! Of course a small house...but Aspen none-the less. I just need someone to loan me their jet so I fit in.
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Old 02-07-2013, 08:18   #30
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LOL

Not you, dufus, the dufus you are talking about. LOL OP meant Original Post. I feel like a dufus now.
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Old 02-07-2013, 08:19   #31
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Originally Posted by Dennis in MA View Post
2. Tax break - FUDGE THEM! This was the biggest part of Simpson Bowles I wanted enacted. Basically I'm paying the moron to buy a 5x house. Because they get a tax break, I pay more. F that. It deludes them into thinking #1 above is do'able (and with a blip in their income, they can't afford the mortgage AND they have no tax break in the first place to fall back on).
Whether you agree with it or not doesnt matter. It is in the tax code and likely not going away. At certain points, you start doing things for tax breaks.

I just had my taxes finished (starting next week I am out of the country until after tax date). There are many things I had to do to lower my taxable income legally.

Google Section 179 depreciation. I am not sure current year 179 rules, but in past year you could buy (if you were a small business owner) a $70-100+ k SUV (as long as it was GVWR of over 6000 lbs) and take 100% write-off (lowering you taxable income by that amount) in a single year? Straight line depreciation means that you could take 20% each year for 5 years. Why buy "average" when you can go whole hog and get a better tax write off?
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Old 02-07-2013, 08:20   #32
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True - but in the 60s and 70's it only took one wage earner to do that; now two as you say.



Do your homework - research 1960s to now

Percent of workers covered by defined pension plans

percent of workers provided with health benefits

wages & inflation
It would only take one wage earner now....if such a person lived in the exact same way as a person did in the 60's.
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Old 02-07-2013, 08:32   #33
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It would only take one wage earner now....if such a person lived in the exact same way as a person did in the 60's.
Exactly!!

Kind of hard to do in some places like much of urbanized/suburbanized California, BUT it is possible.

I look at people making less than me, living a higher standard of living than me and complaining about the economy and the evil banks taking people's homes. These people are nuts!!! Live within your means... Wait I should have said, live well BELOW your means!
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Old 02-07-2013, 08:34   #34
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The middle class has been getting hammered for decades. Since the 70s the middle class has lost pensions, health benefits, wages haven't kept up with inflation and jobs have been sent overseas. What is called middle class now - was lower middle class in the 60s/70s
The "middle class" as you want to remember it only lasted for a couple of decades. "Health benefits" were created by government wage controls during WWII.

Besides, as Rabbi points out, today's middle class family has 2+ cars and the average house is more than twice the size it was back then. By any reasonable standard, today's middle class family is rich compared to a 1950's middle class family.
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Old 02-07-2013, 08:48   #35
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It would only take one wage earner now....if such a person lived in the exact same way as a person did in the 60's.
Not true. Depends where you live.

I know plenty of houses/locations in SoCal (where I was born and lived for over 30 years) that where built in the 60's, where very middle class affordable back in the 60s on 1 income families and now cost 600k+. I don't think getting rid of your TV/Cell phone/1 car is going to make it affordable for a 1 income middle class family.

When my wife and I graduated we where able to afford a nice house in SoCal on our entry level salaries. Today, that house costs 3 times as much, 600k+, and entry level salaries for the same positions are almost exactly the same as they where 15 years ago. No way we could afford that house today if we just graduated.

Even if we get rid of TV/Cell Phone/extra car, it still would not be affordable and this is on 2 incomes not 1.

Cost of living vs income is definitely worse today compared to 15 years ago and as well as when my dad was my age even with the same standard of living.
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Old 02-07-2013, 09:01   #36
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When my wife and I graduated we where able to afford a nice house in SoCal on our entry level salaries. Today, that house costs 3 times as much, 600k+, and entry level salaries for the same positions are almost exactly the same as they where 15 years ago.

<snip>

Cost of living vs income is definitely worse today compared to 15 years ago and as well as when my dad was my age even with the same standard of living.
This is a demonstrably false statement.

As you said, there is a great deal of regional variability, but today's housing prices are within spitting distance of the historical average in California when measured as a multiple of median income.

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Old 02-07-2013, 09:03   #37
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Here's 3 different real estate markets on the same chart:

The Okie Corral

Note that, again, the California market--while it saw much more volatility--is basically back to the historical norm again.
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Old 02-07-2013, 09:04   #38
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This is a demonstrably false statement.

As you said, there is a great deal of regional variability, but today's housing prices are within spitting distance of the historical average in California when measured as a multiple of median income.

The Okie Corral
It is a real world example that is 100% true.

The homes where I lived in SoCal that where being lived in by 1 income middle class families in the 60s are not affordable to 2 income, let alone 1 income, families of today, even with the same standard of living. Which proves my premise from my first post, depends where you live.

Your graph is not showing SoCal numbers.

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Old 02-07-2013, 09:07   #39
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or a balck swan event
What did you think of Taleb's book?
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Old 02-07-2013, 09:09   #40
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Old 02-07-2013, 09:11   #41
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It is a real world example that is 100% true.
I don't doubt that your example is 100% true. I'm sure that you can point to a house, or houses, that "prove" your case.

But your statement:

Quote:
Cost of living vs income is definitely worse today compared to 15 years ago and as well as when my dad was my age even with the same standard of living.
is about averages, by definition. And like I said, this statement is demonstrably false when you look at California housing and incomes.

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Your graph does not show Socal housing as used in my real world example.
It's not "my" graph. It's a graph that was created by Los Angeles County. Last time I checked, Los Angeles was in Southern California.

Your issue is that you don't understand the difference between an anecdote and data. Yes, you have personal experience with a single data point. Yes, that can be emotionally powerful. But it doesn't--can't--tell the whole story, and the whole story is that on average, you are wrong. That's what the numbers say. No matter how much you want to believe differently, the numbers are what they are.
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Old 02-07-2013, 09:15   #42
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I don't doubt that your example is 100% true. I'm sure that you can point to a house, or houses, that "prove" your case.

But your statement:



is about averages, by definition. And like I said, this statement is demonstrably false when you look at California housing and incomes.


It's not "my" graph. It's a graph that was created by Los Angeles County. Last time I checked, Los Angeles was in Southern California.

Your issue is that you don't understand the difference between an anecdote and data. Yes, you have personal experience with a single data point. Yes, that can be emotionally powerful. But it doesn't--can't--tell the whole story, and the whole story is that on average, you are wrong. That's what the numbers say. No matter how much you want to believe differently, the numbers are what they are.
The graph shows Sacramento which is not in Socal. No where close to Los Angeles.

My example holds true for the entire coastal region of Southern California. It is not just one point or one house, which proves what I said, location matters.

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Old 02-07-2013, 09:17   #43
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Your graph is not showing SoCal numbers.
For San Diego, it's actually lower than the historical average and within ~7% of the value in 1977:

The Okie Corral
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Old 02-07-2013, 09:19   #44
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The graph shows Sacramento which is not in Socal. No where close to Los Angeles.
Apparently, you can't read legends either.

I've posted three graphics: one (the first one, that you're responding to here) is the overall California average. The second shows Sacramento, Milwaukee, and Madison. The third shows San Diego specifically.

All tell the same story. You are wrong. Demonstrably, statistically wrong. No matter how much you want to believe it, what you think simply isn't true.

That doesn't change the truth about the street you grew up on or whatever. I don't know why the prices have increased so much there. But on average, prices vs. income are right where they've been for most of recent history.
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Old 02-07-2013, 09:22   #45
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They'd make $180K here. LOL And 80% pensions. And health care. Why are my taxes so high again??

Because, in MA you got more greedy liberals per sq-in than the Oprah show. I know ... I fled.

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Old 02-07-2013, 09:30   #46
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Apparently, you can't read legends either.

I've posted three graphics: one (the first one, that you're responding to here) is the overall California average. The second shows Sacramento, Milwaukee, and Madison. The third shows San Diego specifically.

All tell the same story. You are wrong. Demonstrably, statistically wrong. No matter how much you want to believe it, what you think simply isn't true.

That doesn't change the truth about the street you grew up on or whatever. I don't know why the prices have increased so much there. But on average, prices vs. income are right where they've been for most of recent history.
For some reason only the one graph was showing when I was looking at the thread, but I do see the SD graph now, not the third though.

Draw a line through the SD graph and it will have an overall upward long term trend showing an increase in the ratio of income vs housing prices.

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Old 02-07-2013, 09:35   #47
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Here is Orange County. Proves what I am saying.

Also shows the long term upward trend of the ratio housing to income.

The Okie Corral

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Old 02-07-2013, 09:37   #48
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Here is Orange County. Proves what I am saying.

Also shows the long term upward trend.

The Okie Corral
Nope. This is a different kind of graph entirely. It's a plot of OC home prices divided by US average home prices.

What it says is that houses in OC are more expensive than the US average, not that they're more difficult to afford for the average OC resident.

You can't pick-and-choose your data. If you want to look at OC prices, you need to look at OC incomes as well.

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Old 02-07-2013, 09:40   #49
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True - but in the 60s and 70's it only took one wage earner to do that; now two as you say.



Do your homework - research 1960s to now

Percent of workers covered by defined pension plans

percent of workers provided with health benefits

wages & inflation
Which is the Catch-22. All the good paying manufacturing jobs have moved to Mexico and then to China, which lowered average earnings, but also made products cheaper to buy. Decades of raiding Social Security and pension funds kept taxes lower than they should have been and also offset lower paying jobs.
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Old 02-07-2013, 09:41   #50
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Nope. This is a different kind of graph entirely. It's a plot of OC home prices divided by US average home prices.

What it says is that houses in OC are more expensive than the US average, not that they're more difficult to afford for the average OC resident.

You can't pick-and-choose your data. If you want to look at OC prices, you need to look at OC incomes as well.
LOL. I picked up the wrong graph from a different article. Hang on. Having a bad day I guess. but the SD graph does have a long term upward trend.

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