Bubble, Bubble; Toil and Trouble- Making House Payments

**FromMyColdDeadHand** · 06-16-17, 22:04

http://money.cnn.com/2017/06/16/real...ard/index.html

39 million households are paying more for housing than they can afford

Nearly 39 million households can't afford their housing, according to the annual State of the Nation's Housing Report from Harvard's Joint Center for Housing Studies. One-third of households in 2015 were "cost burdened," meaning they spend 30% or more of their incomes to cover housing costs. Of that group, nearly 19 million are paying more than 50% of their income to cover their housing needs.

This is the kind of crap that gives me the willies. We have a major financial ebola attack about once a decade. 1987 S&L , 1997 LTC, 2007GFC, 2017.......

When people start not to be able to afford their houses, that is a sign of a bubble. Who can buy the houses? That is pretty much the definition of a bubble. When you look at interest rates increasing and the fact that people are overburdened with the payments now- as rates go higher, we could see a major drop in housing values and another loan-liquidity problem. And the real issue is that we haven't reloaded, or hit our monetary refractory interval- i.e. we shot our wad for the GFC and all the viagra (low interest rates) haven't gotten us to the point where we could go another round if something like a GFC hit.

**Buckaroo** · 06-16-17, 22:44

Just wait for fuel costs to rise. I am convinced that the 2008 crisis was due to the the increase in the cost of gas as much as the mortgage crisis that Bill Clinton set us up for by signing the law to make housing "affordable."
Once fuel doubled folks had to choose between driving to work and paying their mortgage. Guess what we chose...

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**tylerw02** · 06-17-17, 04:01

Originally Posted by Buckaroo

Just wait for fuel costs to rise. I am convinced that the 2008 crisis was due to the the increase in the cost of gas as much as the mortgage crisis that Bill Clinton set us up for by signing the law to make housing "affordable."
Once fuel doubled folks had to choose between driving to work and paying their mortgage. Guess what we chose...

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You're absolutely correct.

As somebody who studied economics at the university from 2002-2006, I predicted the 2008 crisis largely, because of fuel spikes, interest, and historic trends. I was told by my economics professors, literally, "don't be silly, the Fed won't let that happen".

I personally saw those in rural areas more than 20-25 miles from the larger, developed towns selling their homes and moving to town. With $4 gas, people couldn't afford to drive their gas-guzzling trucks and SUVs 50 miles a day at 15 miles a gallon. It was enough to push them over the edge. Rural homes for cheap and rental apartments in town saw a spike. The housing market it town wasn't nearly as hurt as the surrounding areas.

Once fuel prices began to trend down around 2009-2010, those rural homes suddenly increased in value and sold much more quickly.

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**HMM** · 06-17-17, 06:40

just because the bank will give you the loan doesn't mean you should take it. I ran the numbers on 30 vs 15 and was amazed at how much I would pay in interest. We found a place we could stomach on a 15 year note. And it still bothers me how much I'm paying in interest alone.

**ABNAK** · 06-17-17, 06:46

Originally Posted by HMM

just because the bank will give you the loan doesn't mean you should take it. I ran the numbers on 30 vs 15 and was amazed at how much I would pay in interest. We found a place we could stomach on a 15 year note. And it still bothers me how much I'm paying in interest alone.

Generally speaking, the payment for a 15 year loan is only 16% higher than the same amount financed for 30 years. People think it's almost doubled (duh!) when it isn't even close.

**Irish** · 06-17-17, 06:55

Look at the stock market. Definitely not sustainable.

Buy the dip!

**Talon167** · 06-17-17, 07:02

Originally Posted by ABNAK

Generally speaking, the payment for a 15 year loan is only 16% higher than the same amount financed for 30 years. People think it's almost doubled (duh!) when it isn't even close.

Not to mention, when you do a 15 year you'll get a better interest rate than a 30. At least that was the case for me.

**Alex V** · 06-17-17, 08:27

Originally Posted by Talon167

Not to mention, when you do a 15 year you'll get a better interest rate than a 30. At least that was the case for me.

But you only get 15 years of tax write offs for the interest. :-)

We purchased our condo right after the crash. We looked at town homes that were twice the price but still below the amount we were pre-approved for. We chose the cheaper option and thank god for it. My wife went back to school and didn't work for two years strait. Had we chose the more expensive townhouse, there is no way we would have been able to afford for her to go to school. Now she just graduated and as soon as she gets her lisence the earning potential is twice as much as her previous vocation.

People just seem to make dumb choices. I know people who naught way more house than they needed just to keep up appearances. Some had the house for closed on, other are just house poor and are lately scraping by. But they got a giant house tho!

**M Sadler** · 06-17-17, 08:44

Home prices are not a reflection of market value anymore and haven't really been since the early 70's. They're propped up by the three legged stool of stupidity which is comprised of real estate agents using MLS stats to set sale prices, appraisers falling in line and buyers willing to pay top dollar for homes that are not in top condition. Realtors armed with MLS access are the biggest problem and were largely over looked during the mortgage crisis. A bubble has to have someone blowing into that bitch to make it bigger. Look no farther than your neighborhood Realtor.

For a number of reasons, I'd argue a 30 year fixed is a better option. You can payoff a 30 year note in the same amount of time by making extra payments. Depending on the amount and number of extra payments, you may actually pay less in interest over the life of the loan because 100% of your extra payments are applied to principal. The 30 year option can give breathing room if you take a financial hit. You just stop making extra payments.