Our financial system is crumbling this week.

[Popeye_Card]

Why are they buying a house if they are month to month on their bills? That's a horrible idea. If someone bought a house in 05 and got laid off in 08 and has a year of mortgage payments built up and in 09 runs out of money, then that i understand.....however, that's not what is going on. a lot of people bought thinking they'd make a quick buck, then foreclosed when they realized they couldn't/couldn't afford their mortgage.

Just b/c a lot of people did it doesn't make it any less dumb.

Well define "month to month on their bills". Like I said, I have a stable income, savings, etc. And I own a house. But if I lose my job--and in the current job market it's no sure thing that you'll find a new one soon--I would look to put my house on the market about 1 month after being jobless. Because right now, it'll take several months to move a house unless you absolutely slash the price. And while my savings can last me a little while, without dipping into my 401k* etc., I can't afford to make house payments for over a year.

If nobody bought houses unless they could cover the payments for over a year in case of emergency, hardly anyone would be buying a house.

EDIT: * Oh yeah, and if I had to dip into my 401k currently, I'd take and absolute beating overall, cashing out at the lowest point in the market.

[Popeye_Card]

One also has to consider that the rising home prices/values made everyone have to spend more to buy a house. Or if not buying, spend more to rent a house/apartment. I'm guessing that the average home price inflation outpaced the average salary inflation over the last 25 years by a good margin.

The current housing bubble started around 2000 or so, but over that period, house prices have massively outpaced inflation (the historical home price trend). Interestingly, rents did not really increase. A clear bubble signature. In the bubble markets, it was pretty much impossible to buy a house without paying a bubble price.

How have salaries fared against inflation?

[AWvsCBsteeeerike3]

Why are they buying a house if they are month to month on their bills? That's a horrible idea. If someone bought a house in 05 and got laid off in 08 and has a year of mortgage payments built up and in 09 runs out of money, then that i understand.....however, that's not what is going on. a lot of people bought thinking they'd make a quick buck, then foreclosed when they realized they couldn't/couldn't afford their mortgage.

Just b/c a lot of people did it doesn't make it any less dumb.

Well define "month to month on their bills". Like I said, I have a stable income, savings, etc. And I own a house. But if I lose my job--and in the current job market it's no sure thing that you'll find a new one soon--I would look to put my house on the market about 1 month after being jobless. Because right now, it'll take several months to move a house unless you absolutely slash the price. And while my savings can last me a little while, without dipping into my 401k etc., I can't afford to make house payments for over a year.

If nobody bought houses unless they could cover the payments for over a year in case of emergency, hardly anyone would be buying a house.

Not month to month: (Savings + Unemployment for a year)/12 - Monthly Bills > 0

I guess that doesn't really define "not month to month" and it ignores a lot of stuff. But, back to my original point, that's how I would approach any loan, not just a mortgage.

[TimeForGuinness]

One also has to consider that the rising home prices/values made everyone have to spend more to buy a house. Or if not buying, spend more to rent a house/apartment. I'm guessing that the average home price inflation outpaced the average salary inflation over the last 25 years by a good margin.

The current housing bubble started around 2000 or so, but over that period, house prices have massively outpaced inflation (the historical home price trend). Interestingly, rents did not really increase. A clear bubble signature. In the bubble markets, it was pretty much impossible to buy a house without paying a bubble price.

I disagree with that statement based on the location of your house. If you bought on the coasts, yes, you are paying bubble prices...but in the Midwest, not really...unless you consider bubble prices 8-10%.

[Arthur Dent]

One also has to consider that the rising home prices/values made everyone have to spend more to buy a house. Or if not buying, spend more to rent a house/apartment. I'm guessing that the average home price inflation outpaced the average salary inflation over the last 25 years by a good margin.

The current housing bubble started around 2000 or so, but over that period, house prices have massively outpaced inflation (the historical home price trend). Interestingly, rents did not really increase. A clear bubble signature. In the bubble markets, it was pretty much impossible to buy a house without paying a bubble price.

How have salaries fared against inflation?

Over that period, not much change, but home prices have tended to track the overall price level and not salaries.

[Popeye_Card]

One also has to consider that the rising home prices/values made everyone have to spend more to buy a house. Or if not buying, spend more to rent a house/apartment. I'm guessing that the average home price inflation outpaced the average salary inflation over the last 25 years by a good margin.

The current housing bubble started around 2000 or so, but over that period, house prices have massively outpaced inflation (the historical home price trend). Interestingly, rents did not really increase. A clear bubble signature. In the bubble markets, it was pretty much impossible to buy a house without paying a bubble price.

I disagree with that statement based on the location of your house. If you bought on the coasts, yes, you are paying bubble prices...but in the Midwest, not really...unless you consider bubble prices 8-10%.

Thankfully a bubble hasn't really popped in the midwest (yet). The market is still flooded though, and people are losing jobs here as-fast or faster than on the coasts.

Prices in St. Louis have risen ~60% (total) overall over the last 10 years, falling less than 1% over the last year. St. Louis City is around 100%, and has risen ~3% in the past year. US average peaked at 106% over 10 years, is currently ~80%, and dropped 11% this past year.

Small bubble markets exist within relatively stable markets though. For instance, even though St. Louis City has gone up, and the 63104 area code has gone up, the Lafayette Square neighborhood has dipped over the last year.

EDIT: I stand corrected. Lafayette Square has gone up. I guess just my house has gone down for some unknown reason. McKinley Heights has really spiked after getting historic district status. Soulard has dropped.

[Arthur Dent]

One also has to consider that the rising home prices/values made everyone have to spend more to buy a house. Or if not buying, spend more to rent a house/apartment. I'm guessing that the average home price inflation outpaced the average salary inflation over the last 25 years by a good margin.

The current housing bubble started around 2000 or so, but over that period, house prices have massively outpaced inflation (the historical home price trend). Interestingly, rents did not really increase. A clear bubble signature. In the bubble markets, it was pretty much impossible to buy a house without paying a bubble price.

I disagree with that statement based on the location of your house. If you bought on the coasts, yes, you are paying bubble prices...but in the Midwest, not really...unless you consider bubble prices 8-10%.

That's why I said "in the bubble markets". For the most part, the Midwest wasn't a bubble market. If you lived in San Diego on the other hand, you were going to pay a bubble price. Your alternatives were to rent or move. I have trouble characterizing everyone who didn't do that as greedy.

[sighyoung]

One also has to consider that the rising home prices/values made everyone have to spend more to buy a house. Or if not buying, spend more to rent a house/apartment. I'm guessing that the average home price inflation outpaced the average salary inflation over the last 25 years by a good margin.

The current housing bubble started around 2000 or so, but over that period, house prices have massively outpaced inflation (the historical home price trend). Interestingly, rents did not really increase. A clear bubble signature. In the bubble markets, it was pretty much impossible to buy a house without paying a bubble price.

I disagree with that statement based on the location of your house. If you bought on the coasts, yes, you are paying bubble prices...but in the Midwest, not really...unless you consider bubble prices 8-10%.

Thankfully a bubble hasn't really popped in the midwest (yet). The market is still flooded though, and people are losing jobs here as-fast or faster than on the coasts.

Prices in St. Louis have risen ~60% (total) overall over the last 10 years, falling less than 1% over the last year. St. Louis City is around 100%, and has risen ~3% in the past year. US average peaked at 106% over 10 years, is currently ~80%, and dropped 11% this past year.

Small bubble markets exist within relatively stable markets though. For instance, even though St. Louis City has gone up, and the 63104 area code has gone up, the Lafayette Square neighborhood has dipped over the last year.

I'm betting that areas with a lot of sub-prime lending also saw housing values rise sharply, and now fall sharply. My parents live in the 63115 zip code in St. Louis, in a nice 30's cottage that never appreciated much in value because of their neighborhood. Three years ago, however, sales prices rose dramatically. But with the number of foreclosures in the area now, I'm sure their house's value has dived.

Meanwhile, I'm not sure what my house's value in Louisville might be. I live in a nice, desirable subdivision close to the city which always had solid property values. I bought in the mid-100,000's in 1995, but 10 years later, the house across the street goes for $325,000. Yet overall, Louisville's housing market is as steady as clockwork, only rising 3-4% a year.

[TimeForGuinness]

One also has to consider that the rising home prices/values made everyone have to spend more to buy a house. Or if not buying, spend more to rent a house/apartment. I'm guessing that the average home price inflation outpaced the average salary inflation over the last 25 years by a good margin.

The current housing bubble started around 2000 or so, but over that period, house prices have massively outpaced inflation (the historical home price trend). Interestingly, rents did not really increase. A clear bubble signature. In the bubble markets, it was pretty much impossible to buy a house without paying a bubble price.

I disagree with that statement based on the location of your house. If you bought on the coasts, yes, you are paying bubble prices...but in the Midwest, not really...unless you consider bubble prices 8-10%.

That's why I said "in the bubble markets". For the most part, the Midwest wasn't a bubble market. If you lived in San Diego on the other hand, you were going to pay a bubble price. Your alternatives were to rent or move. I have trouble characterizing everyone who didn't do that as greedy.

Oops, missed that...my bad.

(begs for forgiveness)

[TimeForGuinness]

One also has to consider that the rising home prices/values made everyone have to spend more to buy a house. Or if not buying, spend more to rent a house/apartment. I'm guessing that the average home price inflation outpaced the average salary inflation over the last 25 years by a good margin.

The current housing bubble started around 2000 or so, but over that period, house prices have massively outpaced inflation (the historical home price trend). Interestingly, rents did not really increase. A clear bubble signature. In the bubble markets, it was pretty much impossible to buy a house without paying a bubble price.

I disagree with that statement based on the location of your house. If you bought on the coasts, yes, you are paying bubble prices...but in the Midwest, not really...unless you consider bubble prices 8-10%.

Thankfully a bubble hasn't really popped in the midwest (yet). The market is still flooded though, and people are losing jobs here as-fast or faster than on the coasts.

Prices in St. Louis have risen ~60% (total) overall over the last 10 years, falling less than 1% over the last year. St. Louis City is around 100%, and has risen ~3% in the past year. US average peaked at 106% over 10 years, is currently ~80%, and dropped 11% this past year.

Small bubble markets exist within relatively stable markets though. For instance, even though St. Louis City has gone up, and the 63104 area code has gone up, the Lafayette Square neighborhood has dipped over the last year.

EDIT: I stand corrected. Lafayette Square has gone up. I guess just my house has gone down for some unknown reason. McKinley Heights has really spiked after getting historic district status. Soulard has dropped.

I think most of the devaluation is happening in new areas of the county (past the suburbs) and areas where they are tearing down smaller houses and building McMansions (Town & Country comes to mind). The city seems fairly stable from what I've seen and has established a good foundation to jump when the market/credit improves again. The only rough spot that I've heard is the lofts downtown. Why buy a used one when you can get a new one tailored to your specs in a few months? Soon as that buildout subsides, I'm sure downtown will have a nice market too. (BTW, The Roberts Tower is coming along nicely)