So I have long held the belief that the housing market is way over priced. My thinking is shaped by the rate at which home buyers were using "exotic" mortgages (read interest only / negative amortization, etc.) to buy the homes they wanted. I also believed that most people didn't fully understand what they were doing when they entered into these mortgages, which is why I think there will be a rash of foreclosures at all price points in the housing market.
Having said all that... why is that the data the press and government talks about is around median home prices and volume of houses sold? This is really meaningless data. What really matters, in my opinion, is the "income" (I am using income here as an approximation of the buyers ability to pay their monthly mortgage) of the buyer compared to the size of the mortgage taken. The housing bubble was fueled by "volume" and "median price" watchers, but if anyone analyzed the "income" of buyers compared to the mortgages they took out, it would have been CRYSTAL clear early on that is was a giant house of cards, the same way the stock market was a house of cards in the late 90's.
If anyone knows of a firm that analyzes data around buyer "income" and mortgage amount and structure, please let me know.
1 comment:
Great post. Mark, you actually bring out a very interesting point about the ratio of the mortgage size and income (i.e. ability to repay). That is something certainly worth looking into. And that foreclosure data you pulled in your next post does shed some light as well. The percentage increase of foreclosures is quite frightening.
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