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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (11450)	7/3/2003 3:53:57 AM
From: Amy J	Read Replies (1) \| Respond to of 306849

Hi Grace, RE: "You have to remember these numbers represent macro numbers" Macro-economics (using Total rather than Median) doesn't accurately represent the individual consumer. RE: "they assume people are paying the minimum payment" And it also doesn't reflect total debt at all. Only minimum payment. It assumes credit card debt-service is minimum payment (2-1/2 percent of the balance per month.) So, Debt service isn't the same as Debt. It excludes 97.5% of total credit card debt. It also assumes the revolving 30-day balance is not paid off in full, an overstatement in some cases because some people pay off their credit card in full (they seem to assume no one does). I would imagine there are statistics on Total Debt, not just Debt Service. But I can see how Debt Service is a very handy measure of how close a country's citizens might be to bankruptcy as a group (esp if Median were used.) And it doesn't even look close, when you look at these figures, contrary to media reports. RE: "The reason this seems low to you is because it is in comparison to where you live. California is one of the most expensive places to live in the country and people there have adapted themselves to living with an extremely high level of debt" In Dec of 1997 a broker told me 80% to 90% of all the people who buy $1M homes pay for them in cash. i.e. no mortgages. So, it could be that Silicon Valley has adjusted to higher income & stock than the rest of the country (as oppose to adjusting to only higher debt, as you suggested.) But it's amazing to see housing prices increase even after the stock bubble burst. At this point, I think new buyers are mistakenly carrying more housing debt due to the resulting confidence from increases in housing prices. RE: "there are two kinds of homeowners...The majority of the houses in my area have no mortgage at all, as do a little over a third of the houses in the US." This is an excellent read. It gives me the impression folks are thankfully much better off than what the media implies. Which brings a sense of relief because we're all connected in this. RE: "This kind of thing which exists in areas like mine all across the US makes the macro measurement appear quite a bit lower than your experience." Macro measurement doesn't seem like a valid measurement of the median consumer's behavior. And maybe that's why the Stanford professors had to write a book on the behavior of (median) consumer as house prices change. RE: "I can honestly tell you that at the time when I bought those two houses...it seemed like an impossible amount and it was a large percentage of my income." It works in a modest inflationary economy, but not a deflationary economy. America's well-being is completely set up on this model of a modest 'inflationary' economy such as we've have, not a deflation economy. Deflation would break the formula people have relied on for many years. And the only other time this formula you described didn't work, was during the Gr Depression, and we definitnely don't want to go there. But while today's environment is very interest rate "friendly", there were 1.5M people bankruptcies and 1M auto repossessions over the past year - so what happens when interest rates go up, considering banks apparantly have a 57% exposure to mortgages? How can the gov't guarantee all or a portion of that money? Seriously, how? How large is the guaranteed amount? There had better be jobs available for folks before interest rates go back up. AG is really trying to stretch this to allow businesses to recover first, but at the cost of strange imbalances in the system. Who loses with decreasing interest rates (assuming no deflation)? - Any retiree living on revenue streams thru their TBills are taking a bath, with each drop in interest rates. - New workers take a bath when they pay 10X higher property taxes than older neighbors, they will most likely pay for their health care when they eventually retire (if it cost GM $1B for health care for 800k people, how can this country afford health care for 280M people), and new workers may also pay a higher than normal amount for their house due to a 45-year low in interest rates. - People who are anti-debt are taking a bath by not taking advantage of the lowered interest rates. - Mature businesses who find banks chasing mortgage deals more than mature business deals. (Obviously, lowering interest rates have stimulated the housing industry, more than the high-tech industry.) - Who wins: Joe & Jane Six Pack with a large debt-ridden house. The very old & very young don't seem to be winning in this deal, do they? Regards, Amy J