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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Perspective who wrote (43680)	12/31/2005 2:28:53 AM
From: mishedlo	Respond to of 116555

Still what if I showed a more normal pattern? Say 2 at 80K and dotted above and dotted below. At some point those dotted below can no longer afford the median house. Of course perhaps they are not buying the median house either. Or are they? Rising defaults and reliance on creative financing and the fact that subprimes went from 2% of the market to 13% of the market suggests a hefty segment of the population can not afford to buy the house they are buying. I also do think salaries are skewed by some amount although not as much as my example showed. The point of that example was not to be realistic but to show an example as to how it MIGHT be incorrect. I did throw that example out there on my blog as follows: Let's now take a look if there can be any possible distortions in relation to median income. Consider this obviously made up example: Assume there is a subdivision with one hundred houses. Assume everyone paid $250,000 for them. Assume that 2 households in that subdivision make $80,000. Assume 48 households make something in excess of $80,000. Assume the remaining 48 households make close to $20,000. The median income is $80,000 but 48% of the people in the subdivision have way more than stretched their housing budget to buy that $250,000 home with no money down have they not? Medians and averages can play tricks. Yes that is a made up example. But is it not possible? Considering that close to 70% of the population owns their own home and given that pay raises have not exactly be equitable or evenly distributed over these past few years, one can only wonder what percentage of people in the median priced home that really can afford to pay that median price. I believe the negative savings rate and rising consumer debt levels answer the question. One final point: Sub-prime mortgages account for 13.4 percent of all mortgage debt outstanding according to the Mortgage Bankers Association. That is up from 2.1 percent in 1999. Is that a sign of affordability or is that a sign of speculation by lenders as well as marginal buyers all hoping without reason for prices to forever keep going up?