Comments on: Housing and the age of Affluence: Transforming the Definition of Income and Wealth http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/ How I Learned to Love Southern California and Forget the Housing Bubble Tue, 06 Jan 2009 20:00:57 +0000 http://wordpress.org/?v=2.2.2 By: Doug http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1772 Doug Thu, 23 Aug 2007 00:16:00 +0000 http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1772 The downside for savers is that the economic and tax system is giving you (us) every disincentive to do so. If you're earning 5% on a bank deposit and you are a high earner in California, you are paying 45% of that in taxes to the feds and the state, so you are earning less than the inflation rate, which many of us suspect is fudged to look low anyway. You (we) will be screwed again if/when the gov starts to means-test social security (which they are already doing in stealthy ways, like taxing half of it, assessing medicare premiums, etc.). And then there's the mountain of government and personal debt, much of it accumulated current-accounts deficits. How are our leaders going to get out of it? They appear to have only one option left, and that is to climb into the wayback machine and set the dial to 1973. Yep, unfortunately, I think there's a good chance they'll just try to inflate it away. During such times only hard assets hold value. People with low fixed mortgages and houses made out like bandits in the 70s. The market is not pricing this possibility in, and yet still the dollar has been sinking for years. Stock market? Have a look at the total return on the S&P in real dollars during the 70s, no safety there either. Gold did well for a while, but then tanked and even now has not returned to late-70s nominal prices. In short, nowhere to run, nowhere to hide. I'm hedging my bets - I'm keeping the house with the low fixed-rate mortgage, keeping my index funds, and keeping a pile of 1-2 year CDs even though I know I'm slowly losing purchasing power. The downside for savers is that the economic and tax system is giving you (us) every disincentive to do so. If you’re earning 5% on a bank deposit and you are a high earner in California, you are paying 45% of that in taxes to the feds and the state, so you are earning less than the inflation rate, which many of us suspect is fudged to look low anyway. You (we) will be screwed again if/when the gov starts to means-test social security (which they are already doing in stealthy ways, like taxing half of it, assessing medicare premiums, etc.). And then there’s the mountain of government and personal debt, much of it accumulated current-accounts deficits. How are our leaders going to get out of it? They appear to have only one option left, and that is to climb into the wayback machine and set the dial to 1973. Yep, unfortunately, I think there’s a good chance they’ll just try to inflate it away. During such times only hard assets hold value. People with low fixed mortgages and houses made out like bandits in the 70s. The market is not pricing this possibility in, and yet still the dollar has been sinking for years. Stock market? Have a look at the total return on the S&P in real dollars during the 70s, no safety there either. Gold did well for a while, but then tanked and even now has not returned to late-70s nominal prices. In short, nowhere to run, nowhere to hide. I’m hedging my bets - I’m keeping the house with the low fixed-rate mortgage, keeping my index funds, and keeping a pile of 1-2 year CDs even though I know I’m slowly losing purchasing power.

]]> By: Dr Housing Bubble http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1666 Dr Housing Bubble Mon, 13 Aug 2007 23:04:00 +0000 http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1666 @ned,<br/><br/>Try doing some research...<br/><br/>Straigth from the Social Security <a HREF="http://www.ssa.gov/pubs/10022.html" REL="nofollow">website:</a><br/><br/>"The Social Security tax rate for 2007 is 15.3 percent on self-employment income up to $97,500. If your net earnings exceed $97,500, you continue to pay only the Medicare portion of the Social Security tax, which is 2.9 percent, on the rest of your earnings. "<br/><br/>"The Social Security rate of 6.2% has held steady for quite some time, but the threshold tends to increase every year. Social Security taxes are paid on an individual level; there is no discount for being married. If you and your spouse both make $90,000, then your wages will both be fully taxed by Social Security. Social Security withholdings are sometimes referred to as OASDI (Old age, survivors, and disability insurance) or FICA-SS (Federal Insurance Contributions Act - Social Security).<br/><br/>Next comes Medicare. 1.45% of every penny you earn is paid in to Medicare. There is no threshold. Whether you make $5 or $500,000, the entire amount will be taxed for Medicare at a 1.45% rate. This tax rate has been sitting steady for many years as well. Interestingly, when you receive Social Security income in retirement, a small amount is withheld from that money for Medicare premiums. Not only is this something that never really goes away, but the government is starting to significantly raise the premiums of well-off retirees. The law seems to change with the wind these days so I wouldn’t get too excited about this part yet unless you are already in retirement. Medicare may show up on your paycheck as FICA-MC."<br/><br/>Most employers will pay the other half. The number may seem high but unfortunately this is the reality. @ned,

Try doing some research…

Straigth from the Social Security website:

“The Social Security tax rate for 2007 is 15.3 percent on self-employment income up to $97,500. If your net earnings exceed $97,500, you continue to pay only the Medicare portion of the Social Security tax, which is 2.9 percent, on the rest of your earnings. “

“The Social Security rate of 6.2% has held steady for quite some time, but the threshold tends to increase every year. Social Security taxes are paid on an individual level; there is no discount for being married. If you and your spouse both make $90,000, then your wages will both be fully taxed by Social Security. Social Security withholdings are sometimes referred to as OASDI (Old age, survivors, and disability insurance) or FICA-SS (Federal Insurance Contributions Act - Social Security).

Next comes Medicare. 1.45% of every penny you earn is paid in to Medicare. There is no threshold. Whether you make $5 or $500,000, the entire amount will be taxed for Medicare at a 1.45% rate. This tax rate has been sitting steady for many years as well. Interestingly, when you receive Social Security income in retirement, a small amount is withheld from that money for Medicare premiums. Not only is this something that never really goes away, but the government is starting to significantly raise the premiums of well-off retirees. The law seems to change with the wind these days so I wouldn’t get too excited about this part yet unless you are already in retirement. Medicare may show up on your paycheck as FICA-MC.”

Most employers will pay the other half. The number may seem high but unfortunately this is the reality.

]]> By: ned flanders http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1664 ned flanders Mon, 13 Aug 2007 22:44:00 +0000 http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1664 u wrote about "but we pay 15% into a fund we'll never see.....i am pretty sure that the standard SSI contribution is less than 15%...get the numbers right.... u wrote about “but we pay 15% into a fund we’ll never see…..i am pretty sure that the standard SSI contribution is less than 15%…get the numbers right….

]]> By: The North Coast http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1340 The North Coast Wed, 11 Jul 2007 20:27:00 +0000 http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1340 Doctor, what a wonderful concept this is, shortselling your house and getting the debt cxl'd. Why was I not the one to think of such a thing? WOW- it removes a lot of the risk in overpaying for a house. <br/><br/>Tell me, how does this look on the seller's credit score? Does he have to bankrupt, or is avoiding BK the point of the whole business? <br/><br/>Something about the whole idea really smells. It seems to be a way for a person to do insane things without assuming the risk involved. I have never heard of it here in Illinois. Doctor, what a wonderful concept this is, shortselling your house and getting the debt cxl’d. Why was I not the one to think of such a thing? WOW- it removes a lot of the risk in overpaying for a house.

Tell me, how does this look on the seller’s credit score? Does he have to bankrupt, or is avoiding BK the point of the whole business?

Something about the whole idea really smells. It seems to be a way for a person to do insane things without assuming the risk involved. I have never heard of it here in Illinois.

]]> By: Dr Housing Bubble http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1339 Dr Housing Bubble Wed, 11 Jul 2007 05:43:00 +0000 http://www.doctorhousingbubble.com/housing-and-the-age-of-affluence-transforming-the-definition-of-income-and-wealth/#comment-1339 @peppermint hippo,<br/><br/>Good question. It is the case that we are starting to see more short sales occurring. A short sale essentially is the bank allowing the seller to sell a home for less than the mortgage balance. For example, say you bought last year a home for $500,000 with 100 percent financing. The home is now worth $450,000. Say you sell the home minus expenses (say 6% for commission and other expenses) so that leaves you with an end balance of $450,000 - $27,000 = $423,000. <br/><br/>The bank has essentially "given" you $77,000. What you get in return is a 1099-C, the C stands for cancellation of debt. You will need to pay taxes on that $77,000 as income only if you have equity in assets equaling more than the forgiven debt. After all, if you are insolvent what are they going to do, take your underwear?<br/><br/>They cannot go after you if you are insolvent or bankrupt. The laws have changed but there is only so much blood you can squeeze out of a turnip. So many homes in California fall under this criteria I doubt lenders will have much recourse. Cars are leased and many have saved very little in 401(k) accounts.<br/><br/>In the end, they will have to shoulder the brunt of the damage. @peppermint hippo,

Good question. It is the case that we are starting to see more short sales occurring. A short sale essentially is the bank allowing the seller to sell a home for less than the mortgage balance. For example, say you bought last year a home for $500,000 with 100 percent financing. The home is now worth $450,000. Say you sell the home minus expenses (say 6% for commission and other expenses) so that leaves you with an end balance of $450,000 - $27,000 = $423,000.

The bank has essentially “given” you $77,000. What you get in return is a 1099-C, the C stands for cancellation of debt. You will need to pay taxes on that $77,000 as income only if you have equity in assets equaling more than the forgiven debt. After all, if you are insolvent what are they going to do, take your underwear?

They cannot go after you if you are insolvent or bankrupt. The laws have changed but there is only so much blood you can squeeze out of a turnip. So many homes in California fall under this criteria I doubt lenders will have much recourse. Cars are leased and many have saved very little in 401(k) accounts.

In the end, they will have to shoulder the brunt of the damage.

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