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Discussion in 'The Okie Corral' started by Restless28, Feb 7, 2013.
They'd make $180K here. LOL And 80% pensions. And health care. Why are my taxes so high again??
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.
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.
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.)
The number of people acting like the dufus in the OP is DECLINING, not increasing.
The only debt we have to have continued concern over is student loan debt. Because 'Murica hasn't turned the corner on "wait, this $200K piece of paper won't get me $200K more than the $50,000 piece of paper from Ayatollah State U." I'm hoping that's soon. I can't see how a Belgian Waffle Station, nice gas fireplaces and a teacher that got an article in Obscurity This Month is going to translate into a higher wage after graduation. (The BW station is my alma mater - which no longer gets any $ from me, the gas fireplace is at the library AT THE LOCAL STATE U! ARRGGGHHH!! Did I mention they have a 15M shortfall and may have to cut education. . . . because of fireplaces? Ugh.)
I hope that you weren't insulting me, Dennis.
Where I live, probably 150K. or more.
High debt will pick right back up as consumer confidence picks up
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.
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.
Not you, dufus, the dufus you are talking about. LOL OP meant Original Post. I feel like a dufus now.
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.
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?
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.
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!
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.
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.
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.
Here's 3 different real estate markets on the same chart:
Note that, again, the California market--while it saw much more volatility--is basically back to the historical norm again.
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.
What did you think of Taleb's book?
It's a castle in the air, no foundation to support that lifestyle. Welcome to America 2013, the people aren't bothered by their g