The Dark Lining of Record-High Home Ownership Rates

Nick Gillespie | September 12, 2007

Gallant says: "Homeownership has climbed to record levels across America."

Goofus says:

An Associated Press analysis of the new Census data shows that since 1990, homeowners have faced a growing gap between their incomes and the price of their homes.

Nationally, median household income grew by about 60 percent from 1990 to 2006, roughly matching inflation. At the same time, the median home value - the point at which half were more and half were less - more than doubled, to $185,200, according to the analysis.

The widening gap in all but a handful of the nation's 500 largest cities helped make the recent boom in housing prices unsustainable, according to analysts. The rising prices were fueled largely by low interest rates and risky borrowing, rather than increasing incomes.

More here.

Jeff Taylor on subprime stuff here.

Comments

|9.12.07 @ 10:27AM|#

The latest housing bubble was really a pyramid scheme and when you run out of new investors, the last ones left are out for it all.

|9.12.07 @ 10:30AM|#

"Homeownership has climbed to record levels across America."

Could this mean our supply of "next greater fools" has been exhausted?

*In "preview" I see I have been preceded to the punch by L_I_T; oh, well....

The Extispicator|9.12.07 @ 10:55AM|#

When baby boomers bought their first houses, the average middle-class house price was roughly equivalent to one year of their annual salary. Nowadays, that would put most of us in crackhouses.

Jennifer|9.12.07 @ 11:16AM|#

You're not a "homeowner" until the mortgage is paid off. Until then, you're renting from the bank.

|9.12.07 @ 11:38AM|#

Another analysis of home ownership:

http://www.tcf.org/list.asp?type=PB&pubid=537

|9.12.07 @ 11:40AM|#

When baby boomers bought their first houses, the average middle-class house price was roughly equivalent to one year of their annual salary.

Wow, I don't know where you were living.

Pretty much anywhere I've lived two and a half times annual salary was the rule of thumb for house buying. That gave you monthly payments around one quarter of your monthly income.

That rule went out the window in the late sixties when interest rates started to rise (going from around six percent to around eight or nine).

|9.12.07 @ 12:12PM|#

Nowadays, that would put most of us in crackhouses.

Crackhouses? Are you mad? I can't afford a crackhouse!

|9.12.07 @ 12:18PM|#

I can't afford a crackhouse!

The price is based on the future stream of income; buy the place and raise your prices (target the upscale crackhead market by scraping the puke off the floor once in a while; and don't forget to put sheets on the bed in the bridal suite).

|9.12.07 @ 12:20PM|#

For the purposes of this blog, my key is that the Bush Administration and the Feds don't attempt some kind of bullshit "bailout." In addition to possibly letting bad actors off the hook, such actions are only more likely to make things worse by spiking interest rates.

As a general matter, this housing bubble is no different than any previous one in U.S. history (and there have been many), other than that it seems to be nationwide and has ensnared Wall Street more deeply this time around. I think there are risks to the larger economy from all this, which is why I worry about dumbshittery by the administration.

|9.12.07 @ 12:55PM|#

P Brooks - I've never been good at marketing.

|9.12.07 @ 1:20PM|#

ChrisO: I must say, I have been very suspicious about the securitization of real estate investments since the time the practice became popular in the 1980's: there is simply too much distance between the investor and the investment; so there is no way to know what you are buying. It's not surprising that the trend spread to residential mortgages, but the pyramid scheme aspects that have arisen in the past few years make this different than a typical housing bubble. Regulation is, unfortunately, going to be needed, and as usual it will overreach.

x,y|9.12.07 @ 1:53PM|#

If Jennifer's position is followed to its natural conclusion you're never a homeowner as long as you have to pay property taxes. The state can place a lien on your house the same way a bank can. The only difference is one is a tax lien and the other is a mortgage.

|9.12.07 @ 2:06PM|#

Regulation is, unfortunately, going to be needed

No, it's not. The market had identified the problem and reacted before the uber-smart regulators were even aware there was a problem.

Investors simply stopped buying the CDOs.

Russ 2000|9.12.07 @ 2:40PM|#

If Jennifer's position is followed to its natural conclusion you're never a homeowner as long as you have to pay property taxes.

Same with eminent domain. You are a homeowner as long as the state says it's OK.

|9.12.07 @ 2:54PM|#

Dr. K.: Time will tell. If there is no more fallout than we have seen so far, I will probably agree with you. If it begins to affect people who had nothing to do with the ponzi folks, I probably won't.

|9.12.07 @ 6:39PM|#

If it begins to affect people who had nothing to do with the ponzi folks...

Define "affect." I and others like me are already "affected" because, thanks to speculators, we can't afford to buy a house. (Of course, I personally don't want to buy, because I don't think my job is sufficiently stable to take on a thirty-year financial obligation that limits my mobility. Other renters disagree, and they're certainly affected by the recent bubble.)

"My transaction affects the market" is a stupid reason to invoke government regulation, as every transaction affects the market. The difference is only in degree, not kind.

|9.12.07 @ 9:42PM|#

"Affording" a house is pretty subjective and dependent on personality, values, and other things.

For example, I could probably afford to spend a much higher % of my income on housing than most people as I don't have the "need" to have 2+ luxury vehicles and take exotic vacations, so on. Having a nice place to live is something I value more than other things and I have no need to show-off to people.

Through my own observation, I find that most people who spend "too much" on housing spend too much on every/most things. They tend to have terrible personal finance habits and relationship with money. The type of people who will live in a trailer park but drive a Mercedes and never consider that they could afford a nice house if they drove a ____ instead and didn't get their furniture at Rent-a-Center.

I wonder what people spent money on back in the day when they only spent 1/4 of income? For me, my utilities, food, insurance, and everything else probably add up to less than 27% of my net income. I guess this is progress- as technology advances "stuff" costs less.

Cool things cost less these days and one can afford to sink a lot of money into a house. Unless everyone is spending money on crack?

|9.12.07 @ 9:47PM|#

BTW, if you can't afford to buy a house where you live, you can always move. You might take a paycut, but if you are an educated professional there are many places where you could live better on less.

I, of course, work for myself. So I'm not dependent on the local Man/economy. However, where I live, someone who worked at McDonald's could probably buy a decent house in a nice neighborhood. Ok, maybe it would take a couple ( 2 McDonalds incomes) or a single person working 2 jobs. But anyone breathing can find something to do to buy a house and not really worry about it.

scandalrag|9.12.07 @ 11:19PM|#

Of course, out here in bubble land (Vegas) I could never think of buying a house. Luckily, the banks that foreclosed on everyone else's house need to have some minute income and upkeep, so I get to live WAY above my means by renting. My rent barely covers the HMA dues.