01-18-2013 07:44 AM - edited 01-18-2013 07:49 AM
- peak to trough decline is 53.4%
- peak to current (dec 2012) payment decline is 45.6%
- dec 2012 payment is about the same as dec 2010; so despite house price increases in 2012 affordability is still high(thanks to ever lower mortgage rates)
- dec 2011 had the lowest payment, not dec 2009 as most people would expect
- dec 2011 had the second largest year-over-year drop in payment
- dec 2012 payments are still lower than dec 1999 payments.
affordabiity is high (meaning payments are low) but paradoxically prices are still high.
the obvious explanation is the 8% interest rate in 1999 has decreased to an incredible 3.35% rate in 2012 (a 58% decrease!) which has greatly reduced pressure on prices. these low rates were achieved by the influence of numerous fed programs (mainly the trillions of dollars spent on QE). the fed reserve has successfully stabilized prices (which is one of their two mandates; the other being stable employment). price stabilization is somewhat illusory since it was at the cost of artificially low rates. when we see more typical prices (slightly lower) and more typical payment (slightly higher than today); we will have returned to a self supporting RE market. data seems to indicate 2012 and 2013 may be the beginning of a true recovery(that is a RE market where fed intervention is no longer necessary).
- these are nominal figures, factoring in inflation, affordability should be higher.
01-18-2013 08:07 AM
Is that the average for all homes or homes sold that month? I'm not surprised 2011 is lower. Prices hadn't really started to rebound yet and rates were lower than 2009.
01-18-2013 03:53 PM
So Mike are you cashing some of your stock gains and buying real estate... What stocks are good to buy? Is Apple done?
Buy Apple before you get left out!
01-18-2013 08:24 PM
thanks Mike_, I always love data.
A couple of issues:
$2k/month at 6% is a $335k mortgage and initially, it's $1650 of it deductible interest and $350 is principal reduction
$2k/month at 3.35% is a $455k mortgage and $1250 is interest, $750 is principal reduction
So in addition to inflation (the y2k dollar is probably worth 20% more than the 2012 dollar), the 2012 person is paying much less in interest. Yes principal is an expense but it's also savings. In terms of money that vanishes at the end of the month, the 2012 person is paying quite a bit less than the y2k version (and he took out a 35% larger mortgage.)
at the same monthly interest payment, prices should probably be +20% to inflation and +35% due to larger mortgage