Comments on: A Math Formula to Solve the Housing Market? Mathematically Determining how Much Home you can Afford.

By: david herr

david herr — Sat, 25 Oct 2008 03:24:33 +0000

One comment about the US “public” debt being at $10 trillion. The debt held by the public, i.e., actual bonds paid for by investors in the market and tradeable in the market, is closer to $6 trillion. The rest is funny money government trust fund debt. It’s not really relevant, since it is not held by investors, and is explicitly, by law, not tradeable on the market. It gives Social Security a political, but not legally binding, claim on future government revenues, but it can be welshed on, and will be, without violating the full faith and credit of the US government to real investors in the market place.

Of course, in the new era of frugality, government will have to be frugal too. I say, cut back all discretionary non-defense programs to FY 2000 levels, completely cut farm subsidies and other corporate welfare, completely eliminate HUD and SBA, and roll all welfare programs into an enlarged EITC program, where everyone gets the same amount as a refundable tax credit, that either eliminates taxes up to $20,000 or so, or, for those earning less than that, eliminates taxes and gives a modest cherry on top. The key is to eliminate the bureaucracies and give everyone the same amount. Right now, some poor get a lot and others work really hard and get nothing.

And no more bailouts, other than those baked into the cake, such as FDIC.

By: Matt

Matt — Wed, 22 Oct 2008 21:37:26 +0000

No – you still have to pay property tax – which is based on the assessed valur of the home – not your mortgage amount. Some places have 2.5% per year of the assessed value in property tax. That is a lot of money on a 1.3 million dollar home.

By: MafiaDon

MafiaDon — Wed, 22 Oct 2008 17:25:12 +0000

Finally someone has injected some sanity into this insane housing market. During the height of the bubble I had a “friend” suggest that I go out and get a “ninja” mortgage for a house. When I pressed my “friend” on why I should put myself and my family in financial jeopardy her response was “Why not? Everyone else is doing it.” Well now lots of the “everyone else” are facing foreclosure. Maybe I should be doing that too.

Keep up the excellent work!

By: Dave Eriqat

Dave Eriqat — Wed, 22 Oct 2008 17:24:48 +0000

Yeah, I’ve been advocating this for years. It seems preposterous coming from California, where people were buying houses that cost more than ten times income, but it’s necessary if one wants to be able to afford the house comfortably, through thick and thin.

I’ve recently been urging people to go a step further and buy a house without a mortgage at all! Impossible? How about living with a family member for five years, rent free, scrimping and saving the whole time. It ought to be possible to save up three years worth of gross income over five years, at which point one can go out and pay cash for a house. They they can extend the same favor of rent free housing to someone else.

Dave
http://daveeriqat.wordpress.com/

By: Nick Norman

Nick Norman — Wed, 22 Oct 2008 06:58:04 +0000

This is surely a rule of thumb – but it completely excludes interest rates – and this is why Greenspan is culpable. The rule should be that you can afford a house that a third of your income can pay off in a 25 year mortgage at a given interest rate. Of course we cannot predict interest rates – but if we artificially depress interest rates as the Fed did, then we can say with surety that people will borrow as much as one third of their incomes will allow them to, and look at whatever is available at that price. The average wage in London is £24,000. £72,000 will not buy you a studio flat within a hundred miles of the capital. Even after this shitstorm plays out it still probably won’t.