While we are on the topic of suits, now we need to address the issue of silver linings.

One of the biggest rubs about housing during the run-up in prices was its lack of affordability. This key ingredient incentivized the creation of exotic loan products circa 2003-2004 and the proliferation of subprime and alt-A lending to keep loan volume moving as people dropped out of the hunt.

Yet right now, superficially – housing is the most affordable it has been in 40 years based on the relationship between:

* personal income
* housing prices
* mortgage rates

The NYT’s Floyd Norris writes in his “Housing Market’s Upside: Affordability

>In the summer of 2005, when funny-money mortgages were readily available and helping to drive up home prices, the national median sales price of a home was almost eight times as much as the average per capita after-tax income of Americans.
But by this January, with incomes up and home prices down sharply, that multiple had fallen to less than five.

>That may be little comfort for many homeowners who owe more than their homes are now worth, but it does indicate that home prices have fallen far enough, at least in many areas, to make them affordable.“You have a big debt overhang problem, but you don’t have a house price problem anymore,” said Robert J. Barbera, the chief economist of ITG, an advisory firm.

However, Norris qualifies that personal income stats are flakey, housing prices vary greatly by region and don’t reflect debt and mortgage rates don’t reflect the significantly higher bar for underwriting standards.

Still, it’s encouraging and this is a something to build on. It’s all we have at the moment.

Silly TV alert: Happen to happen onto Morning Joe this morning while surfing – I continue to be amazed how many don’t seem to understand the difference between Banks and Investment Banks. Guest Mike Barnacle had to actually explain to the co-host who didn’t seem to understand the difference. Good grief. Let’s just lump everyone in the same pile and fix ’em the same way.


3 Comments

  1. Edd Gillespie March 9, 2009 at 12:53 pm

    “However, Norris qualifies that personal income stats are flakey, housing prices vary greatly by region and don’t reflect debt and mortgage rates don’t reflect the significantly higher bar for underwriting standards.”

    Excellent disclaimers. Indeed, they are right on. We are not getting the true picture so its impossible to tell a true story. Thanks for the effort at optimism. And its just fine so long as it doesn’t lull us into some form of complacency or denial.
    This crisis is really no crisis. It is a marriage of greed and bad jobs. If the jobs (which is the foundation of affordable [i.e. How can the jobless or the grossly underemployed be expected to afford anything?]) had been there we wouldn’t be economically where we are. Back in the day when even my dog could qualify for a mortgage on her doghouse, the money changers gave only lip service to the concept debt repayment. It is now clear that when debt repayment was mentioned with any amount of sincerity, it was to get somebody to buy a tranch or a CDS.
    If we were in good shape with jobs, then we could figure out how much a house could cost.
    So long as unemployment and average income stats are the consistency of whipped cream we will not be able to figure our way out of a repeat of this thing.
    Oh, while we are at it, the consumer confidence component has got to include something in addition to spending. Until we come to our collective senses the cure for the economy is spend, spend, spend.
    We were flying the free market high (by the seat of our pants) and the trajectory put us beyond the edge of the known economic universe. Unfortunately our limited historical knowledge of the last return trip is not savory.
    We have got ourselves into the spot that we have to downsize everything everywhere to maintain whether the Zombie banks want to play along or not. I admire the Obama willingness to try, but spending got us here and that has to change. Won’t sustain.
    We need jobs that provide a living, and given the globalness of our circumstances that living is going to be something less than we have grown to expect.
    The American dream has got to change from one of opulence to frugalness.
    Trouble is, how much fun is that? A country that gives you the opportunity to save.

  2. JB inNYC March 9, 2009 at 2:04 pm

    I agree with Ed G the “personal income” factor in the affordability equation requires a stable employment psychology, which does not currently exist. That’s why a $795 suit sold for $39 today and may cost $29 tomorrow.

    Around 2003-04, I realized Armageddon was approaching when the expanding array of zany, over-the-top mortgage products combined with what became obligatory seller price and closing cost concessions became the norm in the NYC metro area.

    Purchasers, including not just strivers reaching beyond their income levels but otherwise intelligent high earners who had available cash reserves and should have known better, jumped head first into risky non-traditional loans and walked out of their title closings with sufficient excess proceeds to immediately go out and buy themselves new cars and/or furnish their new homes.

    The financial gimmickry was already commonplace in CA, FL, AZ and NV for years and I was hoping the music would stop to end the “no skin in the game” hoax before it hit NY in a big way.

    JM deserves credit for sounding early warnings about the appraisal business being pressured and subjugated by a mortgage loan industry increasingly corrupting itself at every stage in the process. I can imagine the Chicken Little moniker was heard mentioned at least once or twice during that period.

    I ceased new acquisitions, but did not sell existing assets.

    The heart just did not want to listen to the brain.

    Re: Morning Joe
    Joe Sixpack’s ignorance is understandable. Despite all the prior happy talk about 90% of Americans being invested in the stock market, 97% of them were never required to familiarize themselves with investment banking operations, debt securitization, option trading, derivative strategies, etc. The repeal of Glass Steagle contributed to the haze by eliminating starkly drawn distinctions between commercial and investment banks. Now, Joe Sixpack’s anger is exploding through the roof when he watches news clips of a U.S. Treasury Secretary and former Goldman Sachs CEO unable to explain where, how and why his pension plan was gambled away.

    Around 2003-04, I realized Armageddon was approaching when the expanding array of zany, over-the-top mortgage products combined with what became obligatory seller price and closing cost concessions developed into SOP in NY.

    Metro area purchasers, including not just strivers but otherwise intelligent high earners who had available cash reserves and should have known better, jumped head first into risky non-traditional loans and walked out of title closings with sufficient excess proceeds to immediately go out and buy themselves new cars and/or furnish their new homes.

    The financial gimmickry was already commonplace in CA, FL, AZ and NV for years and I was hoping the music would stop to expose the “no skin in the game” hoax before it hit NY in a big way.

    JM deserves credit for sounding early warnings about the appraisal industry being pressured and subjugated by a mortgage loan system increasingly corrupting itself at every stage in the process. I can imagine the Chicken Little moniker was heard once or twice during that period.

    I ceased new acquisitions, but did not sell existing assets.

    The heart just did not want to listen to the brain.

  3. Bill Giblin March 9, 2009 at 2:48 pm

    The affordability factor of housing is something I’ve been writing on over at my blog, Home Practical, for some time now. I can’t recall when it was that buying a house was the first step to setting up your own home rather than it being “the biggest investment you’ll ever make”. I suspect it was somewhere around the time the U.S. went from a manufacturing giant to a country of “service providers”. This may be a bit simplistic, but give me a town of skilled and semi-skilled factory workers on the job 40 hours a week rather than what we have now.

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