Visual guide to the crisis at hand
The current crisis in the financial and housing markets has been pretty clearly defined in the attached link. People that are having a hard time understanding the lead up to the situation should take a look at this.
Today is a good day for the common man to look around and take stock in what we hav and what we are doing. The high return "quick buck" that so many have come to expect may just be fiction after all. Maybe my retired banker friend is right, bonds are the way to go.
If homes appreciate at approximately 10% per year over a decade but the average income only increases 4% annually over that same period of time, lenders start to run out of qualified home buyers. So the answer has been to lower the lending requirements. No more 10% down payment. Now you can use 50% of your annual gross income instead of 30% to pay for your mortgage. Now we have less qualified people purchasing more expensive homes. Who can't see the problem with this? The numbers below show an example of this phenomenon over a ten year period.
Hypothetical Income level increases of 3% versus Housing Prices at 10%
40,000.00 income average and 125,000.00 home average
41,200.00 income average and 137,500.00 home average
42,436.00 income average and 151,250.00 home average
43,709.08 income average and 166,375.00 home average
45,020.35 income average and 183,012.50 home average
46,370.96 income average and 201,313.75 home average
47,762.09 income average and 221,445.13 home average
49,194.95 income average and 243,589.64 home average
50,670.80 income average and 267,948.60 home average
52,190.93 income average and 294,743.46 home average
Does anyon else see a problm with this disparity?
Today is a good day for the common man to look around and take stock in what we hav and what we are doing. The high return "quick buck" that so many have come to expect may just be fiction after all. Maybe my retired banker friend is right, bonds are the way to go.
If homes appreciate at approximately 10% per year over a decade but the average income only increases 4% annually over that same period of time, lenders start to run out of qualified home buyers. So the answer has been to lower the lending requirements. No more 10% down payment. Now you can use 50% of your annual gross income instead of 30% to pay for your mortgage. Now we have less qualified people purchasing more expensive homes. Who can't see the problem with this? The numbers below show an example of this phenomenon over a ten year period.
Hypothetical Income level increases of 3% versus Housing Prices at 10%
40,000.00 income average and 125,000.00 home average
41,200.00 income average and 137,500.00 home average
42,436.00 income average and 151,250.00 home average
43,709.08 income average and 166,375.00 home average
45,020.35 income average and 183,012.50 home average
46,370.96 income average and 201,313.75 home average
47,762.09 income average and 221,445.13 home average
49,194.95 income average and 243,589.64 home average
50,670.80 income average and 267,948.60 home average
52,190.93 income average and 294,743.46 home average
Does anyon else see a problm with this disparity?
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