Excellent, as always, sjk. They’ve hit the nail on the head.

Thank you for sharing these.

But you have to look at the big picture, Joe. What these articles are describing is much bigger than local housing markets. It will affect ALL markets and all asset classes. It is a very big deal.

Just read these articles and step back from your personal situation and think about it from a more objective, distant perspective. It’s truly frightening to think about what’s been done to our global economy and the financial systems around the world.

Adding this from the “stock market” thread because it’s all related:

[quote=CA renter]This is a good post about how the debt-to-income ratios are being ignored because the debt servicing ratio looks more benign. This particular write-up is about household debt, but we can look at govt debt the same way.

I just don’t see any easy ways out. We should have taken our medicine in 2008-2012 as this would have let those who caused the crisis (both foolish borrowers and foolish lenders) take the brunt of the hit. With what they’ve done, we will ALL be taking a huge hit. Meanwhile, those who caused the crisis have been busy protecting themselves and putting more and more distance between themselves and the damage they’ve caused.

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This focus uniquely on debt service costs with no regard to debt to income or debt to GDP levels – what I call “The debt servicing cost mentality” – is extremely dangerous. What I see – and what Roach seems to be pointing to – is the less steep falloff in debt to income ratios. And this makes sense because policy rates are at or near zero percent, meaning that the next recession will not witness such a large divergence in debt service cost and debt-to-incme ratios. For debt service ratios to recede in the next downturn, debt to income ratios must be reduced at the same rate, whether through lower debt from default and debt forgiveness or increased income. Likely, default will play the overwhelming role, at least initially.

As I outlined over two years ago, the origins of the next crisis are the simultaneous attempt for the public and private sector to deleverage simultaneously across a broad swathe of large industrialised countries. What we should anticipate – and what we have already seen in the euro zone – is failure and debt deflation because you must have massive defaults and debt forgiveness to effect simultaneous deleveraging in the public and private spheres. If and when the United States joins the party, that’s when the full ramifications of our policies will become evident.

http://www.creditwritedowns.com/2012/10/us-household-debt-to-income-debt-servicing-cost-ratios.html%5B/quote%5D

And this…

[quote=CA renter][quote=livinincali][quote=SK in CV]
Deleveraging of what? Household debt? It’s been happening for the last 6 years. By some measurements, it’s at the lowest level in decades.[/quote]

There’s been a little deleveraging in household debt but it’s not nearly as big as everybody thinks it is. Just go look at the Fed Z-1 and you’ll see that household debt peaked at 13.968 trillion in Q1 2008 and it’s currently at 13.083 trillion Q3 2013. Is a 6% decrease in household leverage a massive deleverging event. 10 years ago (2003) it was 9.463 trillion.

Take 1980 until 2013.

1980 Nominal Median Income = $16,542
2013 Nominal Median Income = $50,099
Increase of = 308%

1980 CPI = 77.8
2013 CPI = 232.9
Increase of = 299%

1980 Total Household debt = 1.3960 trillion
2013 Total Household debt = 13.083 trillion
Increase of = 1067%

All leveraged assets will get hit if their really is a deleveraging.[/quote]

Yes. BTW, are you using nominal CPI numbers (I haven’t fact-checked your numbers)? If so, the way they calculate CPI means that the inflation number here is understated, too.

Personally, I think that housing, healthcare, food, energy prices, and education costs need to be weighted more heavily than they are. We should also include other asset prices like stocks or bonds, because that’s the only way for most people to climb out of their paycheck-to-paycheck reality. I don’t really give a damn about the price of an iPod or a computer if I can’t afford food or healthcare.

And, as spdrun already noted, margin debt…

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The first chart shows the two series in real terms — adjusted for inflation to today’s dollar using the Consumer Price Index as the deflator. I picked 1995 as an arbitrary start date. We were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July, 2007, three months before the market peak.

Nominal margin debt is at an all-time high. In real (inflation-adjusted) terms, the latest margin debt is at an interim high, 0.7% below the all-time real high in July 2007.

http://www.businessinsider.com/nyse-margin-debt-2013-12

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They have been piling leverage on top of leverage on top of leverage. The credit bubble is alive and well. This is almost always what has caused the bubbles — and ensuing collapses — in the past. The Fed/govt fixed nothing with all of their manipulations over the past few years. To the contrary, they have made things much worse, IMHO.

Here’s a better link to some of the above information with more charts and explanations:

http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php%5B/quote%5D

I’ve quit believing these market is crashing and middle class is vanishing stories. They’ve been saying that the middle class is vanishing for the last 10 years yet people are spending more on just about everything including homes that have increased in value upto 40% in just the last 2 years but people are still tripping over each other to buy them. Does not look like an eroding middle class to me!!

The truth is that the stock market is skyrocketing and people are getting richer, home values are rising steadily and people are feeling the wealth there as well. The economy and jobs picture is improving each month and that’s another bonus.

Reality – The economy is in overdrive and people are doing very well

Media – Everyone is suffering, the market is going to crash

And there is no reason low interest rates will not go on for the foreseeable future. My guess is that rates will not rise much for the next 2-3 years at least. Thats plenty of time for the stock market and home prices to rise even more and after that if there is a correction of 20% who cares, the overall picture will still be extremely positive.

In 3 years if the DOW rises to 20,000 and we lose 20% (and thats a big IF) it will come back down to 16000 which is still ahead of where we are today, if homes prices rise another 20% in 3 years and there is a 20% correction we’re still at current values. Not a big deal.