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01/18/2013

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John D

If you watch HGTV's House Hunters, you see this behavior on every episode. Working class families 'need' a $500,000 home. First time buyers absolutely cringe if they walk into a home and don't see granite countertops and shiny hardwood floors. "What, no theater room"? When my family relocated several years ago we downsized, realizing the kids would be out of the house in a few years.

These folks are in for a rude awakening. 30 years is a long time to commit to a high monthly payment.

JohnWDB

But Paul Krugman says "your spending is my income and my spending is your income". How can saving help "the economy"? It only helps the saver, and that is just selfish. Spending more than you make is noble, in a sense, because it gives other people (bankers) jobs and it generates income (for bankers). We should also pay a little more in taxes to subsidize industry (financial services) that "creates jobs" (for financial services). The average income will rise, and so long as the average American doesn't know the difference between averages and medians, he will feel optimistic about "the economy" and borrow even more against his expected future earnings.

Brian

It's hard to find any real drivers of the "recovery" outside of "free money" (read debt) and population increases. Virtually every piece of recovery "evidence" can be traced back to one of these. Growing money supply and growing population may, over time, push gross numbers over their previous highs, but they will not result in a sustainable recovery. Worse, what you see is that many of the numbers, while approaching or surpassing previous gross highs, are nowhere close to highs in real per-capita terms. Why don't we see those numbers in the MSM? Never mind, we know why.

King of Buffalo

John D you hit it dead on! Today's first time buyers, for the most part, are looking for a newer home or an older one that has upgraded kitchen, bathes. And the main reason, IMHO, is shows like HGTV as well as the glut in many areas of short-sale REO homes that were only built in the last 8 years or so.

I still don't know how countless Boomers expect to sell their $500k "nest egg" when the all retire over the next decade. The first time buyers and "move up" crowds are already dealing with loads of debt. If I was a Boomer with a $500k house, it would already be on the market while the getting is good.

Jim

Does anybody have a link to the percentage of home loans that are fixed vs. variable in the United States? I found this, but it's for Australia (although one could assume it's similar to the U.S.):
http://www.theaustralian.com.au/business/property/home-buyers-shun-fixed-rate-mortgages-in-hope-of-more-rate-cuts/story-fn9656lz-1226549593654

It basically says that the percentage of fixed rate loans has dropped from about 25% of home loans to about 20% because of recent interest rate cuts. It means that in Australia many of the new loans are variable (or people are re-financing as variable).

Talk about no exit strategy. This is a time bomb embedded in another time bomb.

Jim

Hey, three related articles both very much related to this one:

http://www.counterpunch.org/2013/01/11/housing-bubble-on-the-horizon/

http://dealbook.nytimes.com/2013/01/17/mortgage-crisis-lingers-on-at-citigroup-and-bank-of-america/

http://www.bloomberg.com/news/2012-09-13/fed-plans-to-buy-40-billion-in-mortgage-securities-each-month.html

Tie these with yours and the Australian story about the increase in variable rate mortgages. The ONLY things the banks learned from the previous housing crisis was that: 1) the governments will bail them out, and 2) the only area concern was legal settlements from the fallout (now passed off to the government via recent legislation).

The banks now have EVERY incentive to offer as many junk loans as possible, package them off, and let the government carry the risk.

It'll work as long as growth continues, the interest rate stays low, and inflation doesn't take off. Oops. Game, set, match. The next crash is baked into the cake.

James

Yep, all the pieces are lining up for another fall. Of course, nobody has really gotten off their feet, so it's more like another kick, I guess.

But it's hard to feel bad for people like the one in the article. That's just stupidity. No wonder the crooks at the top keep getting away with it. If I thought I could get my asking price I would sell today and get a smaller house with less upkeep and lower taxes. Only way I would go bigger is if it was land capable of supporting food crops and/or livestock so at least I can eat.

Makati1

"Suckers are born everyday."
"Fools rush in where angels fear to tread."
Greed is rampant in the world today. Then there is the inferiority that we feel can be changed by what we live in, drive, and wear. Or so the commercials tell us. The West has been brainwashed to consume. Especially Americans. The Great Depression generation is mostly gone. No one remembers how it was that time. This time will be 1,000 times worse. There will be no NEXT TIME.

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