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Submitted by sjk on February 3, 2014 - 11:36am

Thought I would pass this along for all the housing bulls out there.......Right, all is well,maybe not....


The Middle Class Is Steadily Eroding. Just Ask the Business World.


Submitted by CA renter on February 4, 2014 - 3:25am.

Excellent, as always, sjk. They've hit the nail on the head.

Thank you for sharing these.

Submitted by joec on February 4, 2014 - 8:39am.

The problem I have with these articles is that housing is always local at the end of the day...and these articles tend to generalize so much.

I REALLY don't think "middle-class" people, making say 60k-80k total household income are meant to buy a home with how tough it is to get a loan now, especially not in the markets we care about in CA with our prop 13 taxes and great sunny living.

If we look at places in the coast (which is relevant to us in San Diego) and places like LA and the bay area...unemployment is incredibly low and inventory is non-existent. Prices in San Francisco is crazy and some of the places my parents own are well past the 2007/08 bubble price. With non-existent supply, wealthy twitter/facebook/google millionaires, I again say and doubt there is any real bubble in these markets.

Yes, the places in unlimited land maybe different (TX, AZ, NV), but again, real estate is local and I can care less about those areas since it doesn't affect me nor many of the people on this forum...Even San Diego which tends to lead the housing market isn't showing crazy bubbles .... yet of course...

Also, people who bought in the past 5 years were all pretty well capitalized to get a loan so it's unlikely they will panic or sell at a price they don't want. They can easily, again keep the property and RENT for more than their carrying cost...I see it in a few places around where I'm at already with people renting out places lower than their loan since they can.

Again, this doesn't mean we don't have bubble areas, but for the places we care about and for people here, I don't think these alarmist articles do anyone that good since it's not what's happening in your local market and some of these folks were saying the same thing 5 years ago (at the low)...

Lastly, maybe more like Japan, we might not see interest rates jump as much as people think...

Europe is concerned with deflation now...

I think interest rates will stay low for a long time since there is absolutely no wage inflation to begin with.

Submitted by CA renter on February 5, 2014 - 2:02am.

But you have to look at the big picture, Joe. What these articles are describing is much bigger than local housing markets. It will affect ALL markets and all asset classes. It is a very big deal.

Just read these articles and step back from your personal situation and think about it from a more objective, distant perspective. It's truly frightening to think about what's been done to our global economy and the financial systems around the world.

Adding this from the "stock market" thread because it's all related:

CA renter wrote:
This is a good post about how the debt-to-income ratios are being ignored because the debt servicing ratio looks more benign. This particular write-up is about household debt, but we can look at govt debt the same way.

I just don't see any easy ways out. We should have taken our medicine in 2008-2012 as this would have let those who caused the crisis (both foolish borrowers and foolish lenders) take the brunt of the hit. With what they've done, we will ALL be taking a huge hit. Meanwhile, those who caused the crisis have been busy protecting themselves and putting more and more distance between themselves and the damage they've caused.


This focus uniquely on debt service costs with no regard to debt to income or debt to GDP levels – what I call “The debt servicing cost mentality” – is extremely dangerous. What I see – and what Roach seems to be pointing to – is the less steep falloff in debt to income ratios. And this makes sense because policy rates are at or near zero percent, meaning that the next recession will not witness such a large divergence in debt service cost and debt-to-incme ratios. For debt service ratios to recede in the next downturn, debt to income ratios must be reduced at the same rate, whether through lower debt from default and debt forgiveness or increased income. Likely, default will play the overwhelming role, at least initially.

As I outlined over two years ago, the origins of the next crisis are the simultaneous attempt for the public and private sector to deleverage simultaneously across a broad swathe of large industrialised countries. What we should anticipate – and what we have already seen in the euro zone – is failure and debt deflation because you must have massive defaults and debt forgiveness to effect simultaneous deleveraging in the public and private spheres. If and when the United States joins the party, that’s when the full ramifications of our policies will become evident.


And this...

CA renter wrote:
livinincali wrote:
SK in CV wrote:

Deleveraging of what? Household debt? It's been happening for the last 6 years. By some measurements, it's at the lowest level in decades.

There's been a little deleveraging in household debt but it's not nearly as big as everybody thinks it is. Just go look at the Fed Z-1 and you'll see that household debt peaked at 13.968 trillion in Q1 2008 and it's currently at 13.083 trillion Q3 2013. Is a 6% decrease in household leverage a massive deleverging event. 10 years ago (2003) it was 9.463 trillion.

Take 1980 until 2013.

1980 Nominal Median Income = $16,542
2013 Nominal Median Income = $50,099
Increase of = 308%

1980 CPI = 77.8
2013 CPI = 232.9
Increase of = 299%

1980 Total Household debt = 1.3960 trillion
2013 Total Household debt = 13.083 trillion
Increase of = 1067%

All leveraged assets will get hit if their really is a deleveraging.

Yes. BTW, are you using nominal CPI numbers (I haven't fact-checked your numbers)? If so, the way they calculate CPI means that the inflation number here is understated, too.

Personally, I think that housing, healthcare, food, energy prices, and education costs need to be weighted more heavily than they are. We should also include other asset prices like stocks or bonds, because that's the only way for most people to climb out of their paycheck-to-paycheck reality. I don't really give a damn about the price of an iPod or a computer if I can't afford food or healthcare.

And, as spdrun already noted, margin debt...


The first chart shows the two series in real terms — adjusted for inflation to today's dollar using the Consumer Price Index as the deflator. I picked 1995 as an arbitrary start date. We were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July, 2007, three months before the market peak.

Nominal margin debt is at an all-time high. In real (inflation-adjusted) terms, the latest margin debt is at an interim high, 0.7% below the all-time real high in July 2007.



They have been piling leverage on top of leverage on top of leverage. The credit bubble is alive and well. This is almost always what has caused the bubbles -- and ensuing collapses -- in the past. The Fed/govt fixed nothing with all of their manipulations over the past few years. To the contrary, they have made things much worse, IMHO.

Here's a better link to some of the above information with more charts and explanations:


Submitted by Jazzman on February 7, 2014 - 1:59am.

The last thing anyone wants, including central banks, is low interest rates to go on for ever. It distorts markets and leads to volatility. There's always going to be high-priced neighborhoods, but they are often driven by different factors. When the housing market gets over-heated it has a habit of spreading and becoming an epidemic. That effects us all.

Submitted by kev374 on February 7, 2014 - 6:27pm.

I've quit believing these market is crashing and middle class is vanishing stories. They've been saying that the middle class is vanishing for the last 10 years yet people are spending more on just about everything including homes that have increased in value upto 40% in just the last 2 years but people are still tripping over each other to buy them. Does not look like an eroding middle class to me!!

The truth is that the stock market is skyrocketing and people are getting richer, home values are rising steadily and people are feeling the wealth there as well. The economy and jobs picture is improving each month and that's another bonus.

Reality - The economy is in overdrive and people are doing very well

Media - Everyone is suffering, the market is going to crash

And there is no reason low interest rates will not go on for the foreseeable future. My guess is that rates will not rise much for the next 2-3 years at least. Thats plenty of time for the stock market and home prices to rise even more and after that if there is a correction of 20% who cares, the overall picture will still be extremely positive.

In 3 years if the DOW rises to 20,000 and we lose 20% (and thats a big IF) it will come back down to 16000 which is still ahead of where we are today, if homes prices rise another 20% in 3 years and there is a 20% correction we're still at current values. Not a big deal.

Submitted by spdrun on February 7, 2014 - 7:04pm.

Nationally, home values have gone up about 10-15% in that time period, and the increases are very local. Fortunately (for me as a potential buyer), for example, the Northeast is still in the midst of a foreclosure storm. Vacant homes are hitting the market, auction sites, and Homepath site like a January blizzard (blow baby blow). Don't confuse what happened in San Diego with the US as a whole.

As far as stocks, don't confuse speculation with reality. Also, look at levels of margin debt -- pretty much at 2007 levels. Not a recipe for further gains.

I'd say that the economy is muddling along nationally. Not wonderful but not horrible either.

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