patrick.net

@Bubblebaby

The point of this fictitious scenario is that I think there is a whole generation of people, most of whom are in their late 20’s or early (maybe even mid) 30’s that are now effectively, trapped.

Good, we need to take this away from you opportunistic wolves who see buying a home as the opporutnity to turn a 300K profit.

Now is the time for the markets to be reset and for the USA to stop financing GDP with equity. Rising home values have made Americans feel wealthy. And tapping into the Home Equity has been the source of purchasing power. Fuelling consumption and GDP growth. Since 1980 the Housing Valuation has exceeded GDP. Since 2000, it also appears that The Housing Bubble has not been pushing up the GDP as much, and the Gap between the two has been rising. May be the Housing Bubble is no longer effective in pushing up the GDP as much. This last bust was it's final sprint before busting after a 40 year expansion.

I just saw another hole...

You bought in 2002 and have earned 30+% on your home? Where is this? Most places are back to 2002 prices (in CA that's still a few years into the bubble). How many people bought for 200k in 2002 and have more than 100k in equity?!

To have that kind of equity most likely you bought in 1998 or before, and most likely if you were younger...you sold out and moved up and have negative equity!

I'm not sure I understand the point. Are you saying that falling or stagnating housing prices will trap people in their current homes? Or that people aren't getting good raises anymore so their earning power doesn't allow them to buy bigger houses as they get older? Or both?

Tude says

I find it fascinating that someone would claim that 90k a year supports 400k! I have locked in ultra LOW property taxes ($2k a year) and a $1527 mortgage payment. We still struggle to save large amounts of money, save for retirement, and pay bills/eat.

90k is supporting a 276k mortgage, not a 400k mortgage. 90k is base on the traditional benchmark where no more than 30% of you income should be spent on housing. If 90k is an unrealistic figure, then the 30% benchmark is wrong and a new standard maximum percentage needs to be set.

why are people still getting to buy houses with 3.5% down???? Why are people still being approved for mortgages at 6x annual pay! Why is the government applauding this type of behavior? and WHEN is it going to STOP for real this time!!!!! 20% down, fixed rate, normal values-- NO EXCEPTIONS, then there will be hardly any foreclosures, and people could afford their houses, AND still have enough money to go out and stimulate this horrible economy! can they not see this?????

Lilsuperstar

Our government is financing GDP with equity. If we stop, then we would have to bring back all those manufacturing jobs...and we couldnt do that because big business would cry foul play. It would start a policy war, Dems would have to counter Republicans and vice versa. CNN would counter FOX and vice versa.

Dems vs Republicans = Oldest gang warfare in America

This seems to be the easiest most party neutral way to do things. It was done in 89 by Bush Sr. to save the world from the S&L crisis of 89 and it is being done now...corporate and homeowner bailouts!

lilsuperstar16 says

why are people still getting to buy houses with 3.5% down???? Why are people still being approved for mortgages at 6x annual pay! Why is the government applauding this type of behavior? and WHEN is it going to STOP for real this time!!!!! 20% down, fixed rate, normal values– NO EXCEPTIONS, then there will be hardly any foreclosures, and people could afford their houses, AND still have enough money to go out and stimulate this horrible economy! can they not see this?????

OH now that's just CRAZY talk!!

d3 - the "new" tax credit would be expanded. $6500 to anyone who is "trading up" (has lived in thier current home for 5+ years and is looking to purchase a new one

This started because I wondered "How much difference would this credit make

tatupu70 - my point is that stagnating prices will keep people in their current homes longer, and the new tax credit helps only a small amount.

TechGromit - Thank you for the analysis. I like your counterpoints. I didn't consider the singe people who own now and may trade up once their family expands.

Not to get too far off topic but two observations.
1) better educated, higher wage earners (who are under 40) generally have student loan debt, sometimes substantially so. This erodes purchasing power.
2) with two spouses working, child care can get expensive.

FWIW - that the real cost of living being what it is, the 30% benchmark may no longer apply. 30% of net income is more realistic.

4x - I don't mean to come across as an "opportunistic wolf" I agree with much your basic premise.

EastCoastBubbleBoy says

FWIW - that the real cost of living being what it is, the 30% benchmark may no longer apply. 30% of net income is more realistic.

Here! Here!

EastCoastBubbleBoy says

FWIW - that the real cost of living being what it is, the 30% benchmark may no longer apply. 30% of net income is more realistic.

There is a net income benchmark as well, but I think it's more like 50%...

EastCoastBubbleBoy says

TechGromit - Thank you for the analysis. I like your counterpoints. I didn’t consider the singe people who own now and may trade up once their family expands.
Not to get too far off topic but two observations.

1) better educated, higher wage earners (who are under 40) generally have student loan debt, sometimes substantially so. This erodes purchasing power.

2) with two spouses working, child care can get expensive.
FWIW - that the real cost of living being what it is, the 30% benchmark may no longer apply. 30% of net income is more realistic.

The house me and my wife purchased a house 2 years ago (340k mortgage) comes in at about the 30% of income level, while things are tighter then I would like, it is still affordable to us. I think the 30% benchmark is a good one. Keep in mind this is the maximum, ideally it should be lower, depending on your comfort level for debt.

As for student loans, point taken, but not every college graduate has massive student loans. My wife has a master degree and graduated with no student loans (and no rich daddy paid her way).

if you buy now, you better buy the house you want to stay in for the next 10-20 years... or have some serious money to bring to the table when you're underwater and need to upgrade/trade-up... but no one buying now get this--they still have the "can't lose in housing" mentality-- which is why they think they are making a great decision in buying now, while prices are "low" (not really...) and they get a wonderful tax credit (which isn't so great because they just paid 8k+ more than they should have for the shack).. stupidity...

"Trading up" has never made sense unless you can AFFORD IT. That means that you have enough money to pay for basic expenses, plus saving for retirement, and you don't need a HELOC in order to pay for basic house maintenance. If the government allows the housing market to correct itself maybe more people would be able to "trade up" and buy the McMansions that the babyboomers need to sell so they can afford to "downsize" and retire. Honestly, I see no way that we are going to see a true rise in house prices, no matter what the government does to keep them propped up. Unemployment is going to be the monster that unravels the entire market (including real estate). If there is no one making money, there will be no customers for goods and services. Having no customers means that profits disappear and stock prices, commodity prices, prices for any goods, and prices for services tumble due to lack of demand. Rinse, dry, and repeat for a few cycles if the government continues to be aggressive in attempting to inflate house prices. The calamity that is here will rival the "Great Depression." We might call that one the "Little Depression" in retrospect. Good luck in "trading up" in this environment.

The (stupid) government is financing stupidity. And guess who always loses because we pay for it (THE SMART ONES).

Why not add our Corporate Masters, Realtorâ„¢ Association Hacks, and Banker Overlords to your blame for who is financing stupidity and driving this economy into the depths of Hell? Why is it that some people would gladly step in line behind their Corporate Masters and Banker Overlords while blaming only government when they are all in bed together?

simchaland says

Why not add our Corporate Masters, Realtorâ„¢ Association Hacks, and Banker Overlords to your blame for who is financing stupidity and driving this economy into the depths of Hell? Why is it that some people would gladly step in line behind their Corporate Masters and Banker Overlords while blaming only government when they are all in bed together?

What you are referring to is called the Reagan Divide. He used this method to win the whitehouse in 1980 labeling government as the problem. Many partisans enjoy using this as reasoning for why government is bad and/or why corporations are evil empires with satanical plots against humanity.

Personally, I see this economic downturn as one of the negative traits of capitalism (Bubbles, Inflation, Deflation, etc.) as noted by Marx...many of us have a negative perception of Marx as his solution was even worse. Yet, his description of the Capitalism was right on point.

Peace GOD

Clarence, say it like it is, brother.

Reagan was all about "divide and conquer." We were all patriotic Americans before he came on the scene. He and his lot changed our dialogue so that some people were seen as "unAmerican" like liberals, gays, non-Christians, non-whites, and poor people. The thing is that they did something remarkable, they convinced the middle class and poor to vote against their own interests by beating the "patriot" drum and by invoking the term "moral majority" that meant absolutely nothing.

The 1980s onward have been marked by relentless greed, division, and hate mongering.

This isn't the America I was born into and saw growing up in the 1970s. This America has become a sick and violent shadow of its former self. Open rebellion bubbles up just above the surface when you hear politicians talking about secession, "looking into the whites of their political opponents' eyes," and arguing that it is perfectly fine to bring fire arms to political rallies where the president is to be speaking.

What we have is a sad, dumb, violent, angry, and divided country. I hope we can step back from the brink of oblivion so that our Union can endure and our government may be brought back under the control of "We the People." I'm afraid that our wealthy masters won't allow it and that we have already stepped over the edge of the cliff into the abyss of insanity that could lead to open rebellion.

History will judge Reagan and his entire movement harshly in retrospect. Didn't someone say, "Judge them by the fruits of their labors?" Too bad we have poisoned fruit.

Simcha and Clarence, you are preaching to the choir here. I'm just not as articulate as you. There is plenty of blame to go around. Thanks for the excellent posts.

Oh come on, saying this started with Raygun divide is nonsense. Utter nonsense.

Who is kidding themselves about people aged 20-30 not having massive student loans lurking behind their middle-income profession? If they can even find middle-income employment? In Ye Olden Dayes, yes, probably lots of people went to graduate schools and somehow emerged with low or no debt. Not so sure about that anymore, though. This will probably be one of the defining characteristics of my age group (or even generation) as we get older.

I can only be anecdotal here, as I really don't know where one finds published statics on the matter, but when I was graduated, I had 4 friends personally that left college with $50k+ in student loans and could not find any kind of entry-level professional employment. I knew of 2 people in our social circle that were *over $100k*. A lot of people were in the $25k range. And we are not talking a fancy university; this was just FSU.

What they were doing with that money is another matter, but it was not uncommon to abuse the school loan system as an ATM the same way we abuse credit cards--or the HOME loan system, for that matter. I knew of very few people that left having entirely paid off their college.

What you are referring to is called the Reagan Divide. He used this method to win the whitehouse in 1980 labeling government as the problem. Many partisans enjoy using this as reasoning for why government is bad and/or why corporations are evil empires with satanical plots against humanity.

But unlike government, "evil" corporations and their investors have their own money and jobs at stake when making decisions. Government, on the other hand, is spending/wasting other people's $$ with little or no accountability as to the results. Hence, the massive govt waste and idiotic actions like sending stimulus checks to felons in jail, etc.. If a health insurer gains a reputation of not paying legit claims for example, businesses and individuals in most cases have a choice to switch to another insurer resulting in financial suffering and/or bankruptcy to insurers who unreasonably withhold payment. Same thing with grocery stores who sell old/rotten fruits and vegetables in that customers choose to buy their fruit elsewhere. When govt. is in control, no such choice exists.

Hilarious to read you hate-filled uneducated liberals and your pathetic "explanations" blaming Reagan, who was the greatest President in modern history.. as if you have any clue what you're talking about.

ZippyDDoodah says

Hilarious to read you hate-filled uneducated liberals and your pathetic “explanations” blaming Reagan, who was the greatest President in modern history.. as if you have any clue what you’re talking about.

Yes--he was great. If you enjoy huge federal deficits. Spare me the partisan bashing...

tatupu70, in case you're a typical uniformed lib, Congress controls spending, and congress was controlled by Dems during Reagan's Presidency. You can thank me later for educating you. It's fair to "blame" Reagan for spending to rebuild a military which had been demoralized and underfunded under Carter..., but the rest of the spending and deficits were pure Democrat porkbarrel waste.

Zippy--

Actually, Congress was split for most of Reagan's presidency with Republicans controlling the Senate and Democrats controlling the House.

And just so you know--the President does have something called the Power of Veto which allows him to stop any bill he doesn't agree with.

tatupo, Reagan made a "devil's pact" with Dems in Congress. If they agreed to let him rebuild a decimated military, he would agree to some of their wasteful social spending. With Dems in control of Congress, he had no choice. I note that you didn't chime in to point the accusatory "partisan bashing" finger at the hyperpartisan bashing comments to which my original comment was responding. If you want to complain about the partisan aspect of comments, then don't be so dishonest about it by singling out only the partisan comments to which you disagree.

People in the 20's don't trade up. People in their 40's trade up. I could see buying a condo, get married, have a kid and you have to "trade up", but 4000sqft with 3 car garage and a travertine bathroom for the guest room is not trading up, its gluttony. 1000 sqft is enough for a family of 5, but don't let the Consumer Police hear you say that.

ZippyDDoodah says

If a health insurer gains a reputation of not paying legit claims for example, businesses and individuals in most cases have a choice to switch to another insurer resulting in financial suffering and/or bankruptcy to insurers who unreasonably withhold payment.

That's not true at all. You don't have choice, because there are only a couple insurers in each state, which all act pretty much the same way. Insurers are exempt from anti-trust laws, because they've paid off Congress - both parties.

So there's no free market in health insurance, and that's the way they like it. They weasel out of claims. You go bankrupt, or die, or both. We desperately need reform.

Patrick, I thought that they finally did away with the insurer's "anti-trust exemption" just a week or two ago. Am I mistaken?

It still doesn't remove the actual monopolies they have but it's a start.

That’s not true at all. You don’t have choice, because there are only a couple insurers in each state,

That's a demonstrably false statement. Run a check yourself on pretty much any state you want on this site. http://www.ehealthinsurance.com/ehi/Census.fs I ran a spot check in CA, NY and TX resulting in MANY different insurer options in each state, not just only a "couple".

If your position with regards to healthcare rests on the misinformed belief that there is no competition other than a "couple" of insurers in every state, then perhaps you should rethink that position

Pretty much a red herring. Insurers aren't exempt from anti trust laws. They must be licensed in each state which is the limiting factor. Each state has it's own rules about what must be covered and what doesn't. The frequently cited cheaper insurance policies across state lines almost always have less coverage or reflect a less expensive operating environment.

All this is even less relevant because only 17 million people buy their own policies while 159 million have health insurance through their employer. Changing an employee health plan is a massive undertaking even for a relatively small business. So most companies (meaning most people) stay with the same insurance company unless there is a very compelling reason to change. The whole competition thing is just a smokescreen that allows politicians to appear to be doing something to earn their paycheck while ducking out on actually making any hard choices.

It does make great political theatre. Republicans say more choice will lower prices. Democrats say they need to maintain protection for consumers. But it's all this really not where the problems lie. The CBO , which almost always has very good numbers, did a study and said it just won't make that much difference.
http://www.cbo.gov/doc.cfm?index=6639&type=0

Bob2356, judging by the number of insurances companies and pricing differentials which are offered, it's quite a stretch to call insurance competition a "red herring", as real competition with real choices between many insurers does in fact exist. The link I provided earlier gave a good glimpse. Another example here http://ur.lc/dtw and http://ur.lc/dtx and more http://ur.lc/dty. LOTS of health insurance companies competing. Not as many as I would like to see, but a helluva lot more than just a "couple". You are correct to note that there are unfortunate state imposed limits restricting insurance competitors in each state, but there are too many choices to dismiss it as a red herring. And although it may be difficult for companies to switch health insurance carriers, it does happen, and the choice exists. My employer switched carriers 3 years ago, and my employer before that made a switch as well.. although I honestly don't know how difficult it was for them to switch. So if a health insurance company fails to deliver, businesses and individuals do have real choices, even if those choices aren't as fluid or as broad as many of us would like to see.

Regarding the CBO link you cited, unless I missed something, that study scores on how much it would cost government, which is not the point. The point is offering more choices for private businesses and individuals. More competition and more choices offers more bang for the buck and better offerings for individuals and businesses, just as widespread competition does in everything else

The red herring part is the frequently heard claim that if insurers could freely compete across state lines there would be large savings in health care costs. Just ain't so. You are making my argument on this one. As you say there are lots of carriers in most states. Allowing in additional carriers won't increase competition all that much. I'm not against it, let them compete. It would help a little but it's far from the be all end all advocates claim or the disaster that opponents claim. It would be nice to know who is paying to push the issue and what it will gain them. Corporations never spend large amounts of money lobbying an issue for out of a philanthropic desire to save consumers money. Any time I hear about a law that will allow more "competition" and save me money I grab my wallet. Even so, I still think the issue is mostly political noise for later consumption at election time.

The most relevant passage from the CBO is:
"In general, health insurance that includes coverage of mandated benefits will cost more than it would if those benefits were not required. In aggregate, this estimate assumes that if only those benefit mandates imposed by the states with the lowest-cost mandates were in effect in all states, the price of individual health insurance would be reduced by about 5 percent, on average. "

I don't think 5 percent savings in a system where annual jumps for 10-15% aren't unusual is such a big deal. It would help, but the big money is other places.

thanks for the clarification. I agree with pretty much everything you wrote, although I don't share your paranoia over the lobbying, as it's perfectly reasonable for companies to try and gain access to markets where they feel they have been unfairly restricted due to local state politics. No conspiracy theory needed to explain that one. And the CBO report ignored other state govt. interferences which drive up healthcare costs. For example, states limiting permits to open dialysis clinics to only a limited # of providers, thereby making dialysis treatment prices artificially high. As you correctly pointed out, there are other large factors in play affecting health care costs.

My main point, which was challenged by Patrick (who erroneously claimed that there are only a "couple" of insurers in each state), was that if an insurance company gains a reputation for unfairly denying claims, in most cases individuals and companies have the option to switch to another carrier. There ARE choices in our current system, even if the competition isn't as broad as most of us would like to see. If govt was the only choice for healthcare, tough luck if you don't like the care. You have no choice to switch

The big problem with health costs are that under our perverse taxation system, employers end up providing health insurance rather than individuals making choices since employers can deduct insurance costs but individuals cannot. Instead of having the choice to insure myself for a catestrophic disease or accident with a $10,000 deductible and pocketing the savings myself, individuals have to live with much narrower choices controlled by the employer, choices which typically offer over-generous coverage compared to what I would buy for myself if I could keep the savings. And since the employer typically pays the lion's share of the health insurance including extremely low co-pays and deductibles, individuals are more prone to use it for every sniffly nose with little or no shopping of doctors based on price. And might as well use the high priced prescription for allergies rather than over-the-counter generic Claritin.. After all, the employer is paying for it and it's only a $15 co-pay, right?.. That system cultivates quite a different mindset and behavior as compared to individuals spending their own money which drives up costs.

Three points.

The amount of lobbying money spent in America (not just for medical issues) is staggering. Obviously companies feel that they will get back more in profits than the lobbying costs or otherwise it would not make sense to spend on lobbying at all. This return on the lobbying dollars can only come from two places the taxpayer or the consumer. That would be me and you. There is no free lunch, the money has to come from somewhere. I don't consider this paranoid.

How exactly would one find out if an insurance company is unfairly denying claims? Even congress with it's unlimited subpoena powers finds getting that kind of information from large corporations to be a struggle at best. I haven't the foggiest idea of the denial rate of any insurance carrier I've ever been covered by or how it compares to other carriers. I don't even begin to know where, if it is even possible, to get that information. How many people or businesses are going to do that level of research? Have you ever done it? I would guess that almost all decisions on medical coverage are made on price.

You do realize under the various congressional health care bills catastrophic type of coverage is history don't you? I've always used catastrophic coverage when I had to carry my own policy so that really sucks. Maybe I am paranoid but I am curious who pushed this through.

Mby start a new thread? This is getting awfully medical. =)

input needed: (not my personal story)... bought 3/2 for 375,000 in 94579 this month, put between 5-10% down (maybe 3.5%) made too much money did not get tax credit (so sad, not good planning!!!- would have qualified if waited!), wants to move up within 5 years to lets say-dublin, san ramon, pleasanton, danville... prob to a 4/2 by then.. POSSIBLE?????

crash-olah says

input needed: (not my personal story)… bought 3/2 for 375,000 in 94579 this month, put between 5-10% down (maybe 3.5%) made too much money did not get tax credit (so sad, not good planning!!!- would have qualified if waited!), wants to move up within 5 years to lets say-dublin, san ramon, pleasanton, danville… prob to a 4/2 by then.. POSSIBLE?????

This person should expect for this place to be worth 300K in the next 2 years and to stay in the home for the next 10 years. Congress wont be able to keep propping up home prices forever.

4X says

Congress wont be able to keep propping up home prices forever.

Fast forward to 2022 - go figure

DD214 says

4X says

Congress wont be able to keep propping up home prices forever.

Fast forward to 2022 - go figure

Since 2009 prices went down, slightly up, slightly down, way up, and going down again.

I was not expecting rates to go as low as they did when I first posted this; nor stay low for so long.

Prices have been all over the map. It's regional to be sure, but I'll use my house as an example. Built in the 80's. Original owner sold in 2003 for $460k. I purchased in 2013 (forclosure) for $300k. This spring house a few doors down sold for $500k which was the top of the market. According to the county, FMV is only $440k.

Now that rates have shot back up, bubble 2.0 should burst... but we'll see what happens in due time. Dosent matter to me. This is my home.. not an investment vehicle.