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Sunday, Dec. 21, 2014

Housing costs hurt buyers, too

Posted Wednesday, October 17, 2007, at 7:04 AM

In all the talk about the nation's supposed housing crisis, one thing's missing.

"The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth," Treasury Secretary Henry Paulson told Georgetown University law students Tuesday.

But if housing prices go up and up and up forever while salaries stay roughly the same or fall, sooner or later we reach the point when only the rich can buy homes. It's already reached that point on the east and west coasts.

Families and individuals shouldn't be expected to spend every penny they make on housing. After all, other greedy companies such as auto manufacturers want us to spend the rest of the money on them.

And then there's everyday expenses such as utility bills, things the kids need...

I'll give Paulson credit for criticizing predatory loan companies who fleece the poor to build up the rich. And Paulson also took a shot at "property speculators," who he says he has "no interest" in bailing out.

I'd guess by "property speculators" he includes landlords who buy home after home and leave them in the poorest condition they can get by with while charging outrageously high rents. But I can't criticize decent landlords who take care of their properties, don' t gouge renters and are just trying to make an honest (note "honest") profit.

I realize homeowners want their property values to go up (as long as the property taxes don't rise too high), especially if they're planning to move at some point. But somewhere down the line the gap between home or rental costs and income has to stop expanding.


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Here is an interesting article that I read yesterday with sort of the same theme.

http://www.msnbc.msn.com/id/21309318/

-- Posted by nathan.evans on Wed, Oct 17, 2007, at 7:48 AM

I am currently house shopping and I am glad that house prices are falling because currently houses in Bedford are at a ridiculous price. The houses that I want are now sitting at anywhere from $140,000 to 170,000 when just a few years ago they would have been around the $100,000. As a single person, it's just down right difficult to afford a home unless you are making a lot of money or you are willing to slum it and move into a bad neighborhood (and I will never do that!).

So I will be selfish and say . . . LET THE HOUSE PRICES FALL!!!!!

-- Posted by jaxspike on Wed, Oct 17, 2007, at 10:19 AM

in 1972 the average home price was-$40,000

the average household income was-$11,116

which is 28% of the family income

in 2006 the average home price was-$217,900

the average houshold income was-$48,201

which is around 22%

this same complaint has been going on by the same group of people for years.

it has no foundation.

this from infoplease.com

-- Posted by tdc on Thu, Oct 18, 2007, at 7:00 PM

actually info please has the 1972 income at-$9697. i was looking at a couple sites, but we will use the high number just for giggles.

-- Posted by tdc on Thu, Oct 18, 2007, at 7:31 PM

Correct me if I am wrong tdc, but my math shows something different here.

If I bought a house in 2006 at say 6% interest on a 30 year fixed mortgage I show my monthly payment not counting insurance or taxes as $1306.42. $1306.42 x 12 months = $15,677.04 annually. $15,677.04 is 32% of $48,201 which would certainly make this family house poor, and we haven't even added in insurance, upkeep, and property taxes.

This example highlights a flaw in the data presented by infoplease.com:

You cannot take two unrelated statistics and group them as if they are related. The figure on average home price in the year 2006 is very relevant because we are talking about the housing costs in a specific year. What is not relevant is the average household income in 2006. The average household income statistic includes not just homeowners, but also contains households that rent, live in RVs, campers, etc. The data that infoplease.com has provided is misleading.

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 9:50 AM

Also, who buys a house and compares what the house costs to what their annual income is? No one! Why, because it won't tell you anything. Sure a house may have cost $40,000 in 1972, but any home owner could tell you that unless you paid cash for that house you paid a whole heck of a lot more in interest than that over 15 to 30 years. This is why people compare monthly payments to monthly income.

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 10:04 AM

nathan,

what david said is that "the gap between home or rental costs and income has to stop expanding. "

total percentage is the only way to figure that.

now lets do the figures on $40,000. @6% for 30 years fixed-$239.82- $2877.94 per year which is less than 26% of the annual household income.

so, using your figures, you are still only talking about a 6% differnce in 35 years. not as astronomical as it was made out to be.

-- Posted by tdc on Fri, Oct 19, 2007, at 2:30 PM

There is a major difference between 35 years ago and today. The difference is that the 1972 $11k average household income usually came from a single paycheck and today's average household income is typically the product of a two income household. Also, when you add a 6% spending increase in housing with the other large increases in spending on health insurance, education, and energy you will find that Americans have less disposable income today than in decades past. I think that there is strong evidence that today's incomes are being consumed by necessities and that there truly is less disposable income available to the average middle class family. Even the evidence that you provided supports this claim tdc.

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 3:04 PM

you are partly right nathan, but the reality is we are also a two income household today because of greed. we want a big house, new car, boat, harley, etc... which in my opinion is turning us in to "part time parents" we dont have anywhere near the hand in raising this generation of kids that were in our raising, our parents raising and so on.

but back to the point, i also read that there were no upper middle class people a generation ago. which is what dominates those figures i presented. upper middle being the two income family which is around the-$62,000 mark. which actually solidates my point being, that the income to house or house payment is more in line that some people believe it to be.

-- Posted by tdc on Fri, Oct 19, 2007, at 3:43 PM

I am partly right and not in touch with reality as you call two income households greedy and "part time" parents. That is funny.

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 3:54 PM

but back to the point, i also read that there were no upper middle class people a generation ago. which is what dominates those figures i presented. upper middle being the two income family which is around the-$62,000 mark. which actually solidates my point being, that the income to house or house payment is more in line that some people believe it to be.

-- Posted by tdc on Fri, Oct 19, 2007, at 3:43 PM

What you said here is not a clear statement. I am not 100% sure what you are trying to say.

No matter what it says I can understand the last sentence of it and I have already proven that housing spending consumes more of a families paycheck in 2006 than in 1972 using figures that you provided.

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 3:59 PM

what i am saying is that YES using "YOUR" figures it is about 6% higher in a 35 year span. so if you call that out of line then so be it.

what i am also saying is that it is possible to live on ONE income even if it is average. i have family that does it, with kids.

-- Posted by tdc on Fri, Oct 19, 2007, at 4:07 PM

if still unclear heres a picture-

$62,000 vs $217,900---smaller % ratio

$48,201 vs $217,900---higher % ratio

-- Posted by tdc on Fri, Oct 19, 2007, at 4:15 PM

Living on one income is tough in today's two income world. I would not recommend it, especially if you want to get braces on your children's teeth, send them to college someday, retire with comfortable savings, etc, etc, etc.

Also the figures are yours not mine and 6% is significant when combined with increases in health insurance (not TennCare) and energy costs. Last year my propane bill to heat my house doubled. The cost to fill my car with gas has doubled. Combine that with double digit percentage increases in health insurance and a 6% increase in housing costs and you will quickly see that 2006 families have more financial stress and less financial freedom than 1972 families.

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 4:27 PM

regarding your recommendations,if i see anyone looking for financial consulting i will send them your way.

however the topic was not about the cost of propane,or braces, it was income vs home prices. and my point was made. wages vs home prices is not out of line. spending is out of line.

-- Posted by tdc on Fri, Oct 19, 2007, at 4:37 PM

Let me get this straight... you are changing your 2006 average household income to strengthen your argument? And also you are saying that there is no way to compare your new number to 1972 because it didn't exist, so instead you compared it your old 2006 number?

Somebody else please explain it to tdc because I don't know any other way to simplify it.

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 4:38 PM

You are arresting your case because you made your point. LOL, Ok... 8~)

Spending is out of line is it... spending on what? Could it be on things like gasoline, propane, electricity, health insurance, college, braces, etc... surely not. I guess all American's spend their money on frivolous things. You want to know what my point is tdc. Here you go:

If spending on housing , health insurance, energy costs, and college were each 6% lower, the one income household that you proudly represent could afford a boat or motorcycle or 55" LCD TV, or a Playstation 3 and you didn't have to put it on a credit card or eat beans for two months to get it. I arrest my case!

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 4:47 PM

you dont arrest a case, you rest it.

-- Posted by tdc on Fri, Oct 19, 2007, at 5:04 PM

Yes, that is what I meant.

-- Posted by nathan.evans on Fri, Oct 19, 2007, at 5:34 PM

I don't think it is the price of the new homes as much as it is the size. People in the 70's weren't building 16 room mansions to live in like everyone seems to think they need now. Why does a family of four need 5 bedrooms and 3 1/2 or more bathrooms?

Seems the houses are getting bigger and bigger; construction costs are going higher and higher; while the quality and workmanship is getting less and less. Some of these newer homes wouldn't stand up to a good stiff breeze made out of 1x's and chipboard.

-- Posted by EastSideMom on Fri, Oct 19, 2007, at 11:15 PM

there are no 1x's used anywhere in the constuction of new homes today. maybe in the interior trim, but not in the framing. however 1x's are all over the older homes, used for roof decking and some floors. trust me with the inspectors we have, trying to be sure they have a job, they go strictly by the book on new construction. they inspect,footers,foundations,framing,septic systems its never ending.

but i do agree with you about your first statement eastside mom.

-- Posted by tdc on Sat, Oct 20, 2007, at 7:53 AM


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David Melson is a copy editor and staff writer for the Times-Gazette.