Indentured Servants

[greekfire]

Home prices and financing vehicles have started to remind me of the indentured servants in the newly discovered Americas. Servants from Europe would be indebted to serve for a master, typically for 7 years, in exchange for passage by ship from Europe to the Americas. Fast forward to the 21st century and what we now have, IMO, are many commoners leveraged to the hilt (indentured) in a contract for the eventual ownership of their own home.

50-year mortgages and death-bed mortgages (originally posted by Technovelist here) are just a couple of the financing vehicles that helped me arrive at this particular train of thought. On a macroeconomic scale, it seems as though we are in a period of shifting wealth from consumers (generally middle or lower class Americans) to producers such as developers, home construction contractors, realtors, and financiers.

One would have to assume that the government would also be in favor of this current dynamic as they get a cut of each transaction. How else can we explain the monthly mortgage payment on homes increasing from about 22% of income to 45% of income in just 7 years in San Diego?

[img_assist|nid=1369|title=San Diego Mortgage Obligation (Source: NAR)|desc=|link=node|align=left|width=400|height=301]

 

 

[powayseller]

Hey, you are on fire with all those links and graphs. Love your post! Now I need to get motivated to make good posts like you.

Can you imagine if we need to get back to the trough of 22% of income spent on debt? I see a huge crash. Too many optimists here… No way will we go down 30%; we are going down hard.

Did the indentured servants run away, like our dear homeowners are bound to do? With 1/3 of mortgages I/O, 25% of homeowners having zero or negative equity, this doesn’t look good. If these zero and negative equity homeowners walk from their homes, the MLS listings could increase to over 100,000. I think you all need to start thinking about seeing MLS of 100,000 by 2008, and sales of 5,000 per year.

We have never had junk bond guidelines extended to housing.

In every past housing bust, borrowers had equity in their homes, and mortgage payments they could service. For the first time in our history, bank collateral is NOT the value of the home, but the expected increase in the value, and loans were made based on a temporary low payment without any regard to how those payments would be made once they increase 50-75%, and make up 90% of the borrower’s income.

My estimate for Summer 2008 MLS in San Diego: over 100,000 homes. Sales will be 2,000.

Schahrzad Berkland

[greekfire]

Hey, you are on fire…

Pun intended?

A couple earning $60K/year ($5K/month x 12) back in 1997-98 would spend $1,100/month (22% of $5K) on just their mortgage. Fast forward to today and that same couple would now be spending $2,250/month (45% of $5K), an increase of $1,150/month! Where's that money going? Banks? Realtors? Contractors? Retail? Others? All of the above? It seems like this extra amount is what has kept our economy raging ahead for the past 7-10 years, and it seems to be predicated on a well-oiled production/consumption machine. The problem that we are seeing is that the machine is losing oil and is showing signs of malfunction.

 

[powayseller]

greekfire, I wrote it and then realized it was in your name. An unintended pun.

Your graph clearly shows why the Fed or financial sector (as another poster wrote) cannot save this housing bubble. The trend we’re on requires a borrower to pay ever increasing percentages of his wages on housing. That is not sustainable, nor is it healthy.

We should all root for housing to fall 50%, so we can use our nation’s capital for research, development, production, investment, education, instead of consumption of homes.

[JES]

Any figures on consumer debt for the county to add to that? Home equity loans, credit cared debt have all gone up and it would be interesting to see the rise and the total debt.

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