Sunday, March 01, 2009

A friend sent me an email saying:


Please watch this.

RE Market:
 

So I did. And I decided to look into it a bit.... and replied...


That is an interesting graph. And I thought he should have been indicating a lower point on the graph as my understanding was that housing prices had dropped by 50%. If he is right then there is more pain to come.


I have chosen to not keep a track of housing. A friend of mine told me to not buy a house unless it is for myself. But he preferred that I rent while saving up to buy a house when the time is right.


My question is. Why are house prices continuing to fall? Well the average income is $50,000 per year as of 2007. Rule of thumb is to use 25% for purchasing a house =$12,500 = $1,000 per month. This applied to a 30 year mortgage is a house worth approx 150,000. This should be the average price of a house in the USA. Currently it is about $250,000 (283,400 per economagic.com)


The banks have loaned out approx $250,000 on something worth $150,000 possibly based on a false reported income.


So, yes, that graph does have to come down to half its peak as only then it approximates what the average person can afford.


Now what makes this more interesting is to find out how many homes are empty. Because that can depress the market even more. An excess of inventory will depress the asking price.


It does indeed look as if there is a long way to go. How can anyone try to fight such a market force? If inflation starts, then after wages increase, the two levels will converge, but right now, wages are being forced down by unemployment and voluntary salary decreases. So both graphs are heading downward.


It looks to me like someone needs to kick inflation into action. And they have already started it with a huge deficit budget. I have not calculated what portion is going into creating real value vs being re-distributed to the indolent. But there is certainly enough printing press money happening to start inflation counteracting the deflation! But that money is not yet floating into the economy so until it does, both graphs continue downward.


Now look what you got me into. An analysis and prediction model for Armageddon! I just might see if I can graph these and predict what the low point in housing will be.



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