My grandfather was a CPA in the 60′s and 70′s, my grandmother became a real estate agent in the 70′s and 80′s. They are the ones that taught me about money and income. The way they broke it down for an ideal budget was as follows:
Debt ideally should be about 25% of income, 30% max. You should have 25% in savings and investments, concentrated on savings first. Then bills (not credit cards. Stuff like food, electricity, ect) should by no more than 25%. Finally, the last 25% of the budget is discretionary. This is the ideal budget that I was taught to strive for. The caviate is to pay off the house in 10-15 years. As the bills and debt shrinks, more should be allotted towards savings and investments. They thought a 30 year mortgage was servitude and only for dumb people.

However, reality hasn’t worked like that in a looonnnggg time, so it’s an unrealistic basis to crunch numbers on for market expectations. However, anyone that can achieve that and hold it in life will always be comfortable.

I think the people in the “wtf” crowd are partly perma bears. The “wtf” feeling comes from wondering how in the world a 500 square foot box is priced at $500,000. But this is based on looking at income and rental rates. The growth of suburbia is amazing. When I’m in the Midwest, it is unbelievable how they slice and dice land like a jigsaw puzzle and erect rows of housing in a matter of months.

No need for the tin foil hat. You can use this knowledge and become a contrarian investor. Knowledge is power. Or you can always sport Reynolds wrap on the head. The DOW going up was because of slight good news that housing foreclosures slightly improved and the spin doctors were out. This won’t last of course. Summer is bringing no housing rebound.

@hiphopapotamus,

The market run-up is temporary. What about the 415 point loss a few months ago when the subprime market imploded? They are reaching right now. Once we start seeing significant drops in Alt-A tranches, the market is done.

@fkav,

That may be the case for a short while longer. After all, what you’ve mentioned is the reason we are in a bubble. Foreigners view US assets as cheap, at least now. But foreign banks are upping their rates and the Fed will be forced to as well; otherwise the dollar will go lower. This is a global credit bubble. The MBS market is linked to everybody. Keep in mind that the Great Depression impacted more countries than just the US.

@covered,

This housing bonanza has gone beyond the front page. Everyone is suddenly some Trump housing mogul. “Oh yeah, housing appreciates at 10% a year always.” Really, why is that? “Because it is the greatest investment ever!” This is how a recent conversation went. I wanted to tell the person that if that is the case, a $500,000 home will cost $1 million in about 7 years. Do we see income doubling in the next few years? Maybe, but even if that is the case, you would need to earn about $300,000 a year to afford a million dollar home. But why throw numbers into his Hollywood happy ending.

Be ready for these new shows:

Girls in Short Sales
Foreclose This! – Featuring Mike Tyson
My Payment Just What?!
The Price is Right – Home Edition

Then we’ll know the bubble is done.
@michael,

No shame in that. We are racking up the number for those in Apocalypse now. I hope some of the stats turn you into a prudent contrarian investor.

@kristofer,

Another tinfoil hat. Hey, we should all invest in aluminum companies since so many people are going to sport the new look. It is a damn shame that we need to pay more for beer. That is where we draw the line in the sand. This bubble needs to burst otherwise we are heading to hyperinflation or stagflation – my guess is stagflation. Pass the brew.

@don,

It seems like you are also part of the perma bear camp. You are looking at numbers and basing your assumption in reality. The “wtf” feeling comes from running the math. Maybe it isn’t so much a “wtf” mentality but an emotion, like anger or denial. Of course we still have sellers in delusional thinking that we will somehow see 2005 prices again. Maybe they are the people wearing the tinfoil hat crown?

I guess I’m a member of the “WTF???” crowd. I rent in the South Bay. I moved here just as the housing prices started going crazy about 10 years ago. While I was in the market the prices, IMO were outrageous 10 years ago ($350,000 for 2/1 fixer??). Now that same fixer is listed at $500,000+?? My wife and I decided to rent until all the sellers came to their senses. Although the housing market is not in free fall, yet, I have one question. Does anybody think the housing market will return to reasonable prices (i.e. $250,000 – $350,000 for a 3/2)?

Bubbles everywhere!

Would rather not have to keep buying precious metals being that they themselves have more than doubled since 2002, but, when you have ‘helicopter Ben’ inflating at all costs, how is one to protect ones savings? Perhaps the typical ‘real home of genious’ might be worth $500K one day, and the dow will reach 36,000. However, what good is that when the average janitor earns $400,000 a year??

It already costs me 60% more to buy a beer when I visit Germany, this in 5 short years. I’m not happy about that.