Middle class income fell 7% in the last 10 years

This is important since your income will determine how big of loan you can qualify.  In addition, food and energy prices have increased during this period. 

Last week, the government made gloomy headlines when it released the latest census report showing the poverty rate rose to a 17-year high. A whopping 46.2 million people (or 15.1% of the U.S. population) live in poverty and 49.9 million live without health insurance.

But the data also gave the first glimpse of what happened to middle-class incomes in the first decade of the millennium. While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.

For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996.

And over the 10-year period, their income is down 7%.

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High Desert homes at 12 year low

This is the most amazing part.

The average home price in the High Desert dropped for the second straight month, hitting the lowest since 1999 for the month of August.

Local home prices last month declined 0.6 percent from July to the average of $60.03 per square foot, according to data compiled by Larry Trombley of Century 21 Rose Realty in Hesperia. That’s 10.2 percent lower than the same month last year.

Let's 1,800 square feet times $60 is...$108,000 and this was an investor driven market, because....

“It seems like there are a lot of people who’d like to buy homes but just don’t qualify,” Trombley said. “I hear that from lenders, too.”

People who lost their homes to foreclosures generally wouldn’t qualify to buy another house for two or three years depending on their loans, Trombley said. They haven’t come back into the market yet

Most of the foreclosed home owners were sub prime borrowers that will not qualify for new loans.  Some of these people will be renters.

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Investors turning more properties into rentals

You have to wonder how many of these rentals can cover the loan expenses with their rents.

Investors are pulling back from the housing market as the flipping model loses speed on weak homebuyer demand, according to the latest  Campbell/Inside Mortgage Finance survey.

The HousingPulse Tracking Survey showed demand for properties is low, forcing investors to rent out half the homes they acquire. With few investors satisfied with this model, July investor activity declined, making it the third consecutive monthly drop.

Investors accounted for 19.6% of home purchases last month, down from 23% in April and the lowest level in the 12 months.

Survey results showed the proportion of first-time buyers did rise to 36.9% last month from 35.4% in June. Campbell surveys concluded current homeowners are unlikely to acquire distressed properties, creating a situation where recovery still depends on investor activity.

"The inability of most investors to resell homes in the current housing environment has put a damper on their participation in the housing market this summer," according to Campbell.

Of the properties acquired by investors in July, 48% will be turned into rentals for now, according to the Campbell report. A year ago, only 28% of properties acquired by investors were kept as rentals.

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Linkage in Income, Home Prices Shifts

Home prices in some of the nation's hardest-hit metro areas have fallen far below pre-bubble levels, stirring concerns that properties in those markets are undervalued.

In a recent analysis, real-estate firm Zillow Inc. studied the correlation between home prices and annual incomes over the 15-year period that ended in 2000, before home prices began to surge

Look at the impact of mortgage affordability products.

The analysis underscores a broader point: While the nation's housing markets largely fell and rose together during the housing boom and bust, they aren't likely to hit bottom and begin recovery at the same time or pace. The Zillow analysis shows that many markets still appear to be overvalued.

For the U.S. as a whole, home prices were around 2.9 times incomes from 1985 to 2000. But during the housing boom, values increased at a much faster rate than incomes. The price-to-income ratio peaked at around 5.1 in 2005. Home prices have since fallen so that on average, nationally, prices are around 3.3 times incomes, or about 14% above the historical trend.

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Average Default Amount Nearly $80,000 on California NODs in May 2011

That's a lot higher than expected.

Maybe it does make sense to strategically default, at least if you live in California.

If you're a California homeowner who stopped making your mortgage payments in the last few years, you could have "saved" $80,000 on average in housing costs, according to an analysis of Notices of Default that were entered into the RealtyTrac database in May 2011.

However, I shouldn't be shocked according this CoreLogic report this morning from Calculated Risk.

This report provides a couple of key numbers: 1) there are 1.7 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale, and 2) there are about 2 million current negative equity loans that are more than 50 percent or $150,000 “upside down”

US Housing Crisis Is Now Worse Than Great Depression

I think to be fair, before the Great Depression was a unprecedented housing bubble.

Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.

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Americans' equity in their homes near a record low

This is going to contribute to more strategic defaults, which will then put additional pressure on housing prices.

Falling home prices have shrunk the equity Americans have in their homes to nearly the lowest percentage since World War II.

Average home equity plunged from more than 61 percent at the start of 2001 to 38 percent in the January-March quarter this year, the Federal Reserve said in a report Thursday. That drop comes as home prices in big metro areas have reached their lowest level since 2002.

The Fed's quarterly report shows how much wealth, or net worth, Americans have gained or lost. Net worth is the value of assets such as homes and stocks, minus debts like mortgages and credit cards.

Americans' overall net worth grew 1.65 percent in the January-March period, to $58.06 trillion, because of stock market gains. Stock values as measured by the Dow Jones U.S. Total Stock Market Index gained $970 billion last quarter. But since then, they've lost $651 billion through Wednesday's stock market closing.

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Could private debt lead to our own ‘Lost Decade’?

I think they mean two decades.  Now, that prices are closer to 2002 prices.

What's at the root of the problem? In a nutshell, consumers and businesses took on too much debt--especially in real estate--during the years before the housing bust and the financial crisis. In early 2008, total private debt was nearly three times the size of GDP. It's true that since the recession began, the level of private debt has fallen, as people and businesses have started saving more. but existing debt levels are so high that consumer spending is sluggish, since few people want to spend when they're already in debt. And until consumers start spending again, the economy won't fully recover.

Granite kitchens come at a high price.

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‘Underwater’ Homeowners Rise to 28 Percent, Zillow Says

I think we might see more homeowners walk away from the homes/mortgages as this percentage increases.

More than 28 percent of U.S. homeowners owed more than their properties were worth in the first quarter as values fell the most since 2008, Zillow Inc. said today.

Homeowners with negative equity increased from 22 percent a year earlier as home prices slumped 8.2 percent over the past 12 months, the Seattle-based company said. About 27 percent of homes were “underwater” in the fourth quarter, according to Zillow, which runs a website with property-value estimates and real-estate listings.

Home prices fell 3 percent in the first quarter and will drop as much as 9 percent this year as foreclosures spread and unemployment remains high, Zillow Chief Economist Stan Humphries said. Prices won’t find a floor until 2012, he said.

“We get tired of telling such a grim story, but unfortunately this is the story that needs to be told,” Humphries said in a telephone interview. “Demand is still quite anemic due to unemployment and the fact that home values are still falling. And that tends to make people more cautious about buying.”

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‘Squatter Rent’ May Boost Spending as U.S. Mortgage Holders Bail

Banks are now taking longer to foreclose on a home due to the issues with foreclosure-gate and robo signing.

“We didn’t pay it for about 24 months,” said White, who quit her job as a beautician during that period after becoming pregnant with her first child and experiencing medical complications. “What we had, we could put towards food and the truck payments and insurance and health things I was dealing with.”

Millions of Americans have more money to spend since they fell delinquent on their mortgages amid the worst housing collapse since the Great Depression. They are staying in their homes for free about a year and a half on average, buying time to restructure their finances and providing an unexpected support for consumer spending, which makes up about 70 percent of the economy.

So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that’s equal to about half the estimated savings generated by cuts to payroll withholding in December’s bipartisan tax plan.

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America’s Middle Class Crisis: The Sobering Facts

I'm back...I was on vacation.  Now, back to the grind.

Here are just some of the sobering facts:

-- There are 8.5 million people receiving unemployment insurance and over 40 million receiving food stamps.

-- At the current pace of job creation, the economy won't return to full employment until 2018.

-- Middle-income jobs are disappearing from the economy. The share of middle-income jobs in the United States has fallen from 52% in 1980 to 42% in 2010.

-- Middle-income jobs have been replaced by low-income jobs, which now make up 41% of total employment.

-- 17 million Americans with college degrees are doing jobs that require less than the skill levels associated with a bachelor's degree.

-- Over the past year, nominal wages grew only 1.7% while all consumer prices, including food and energy, increased by 2.7%.

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Americans Shun Cheapest Homes in 40 Years as Owning Loses Appeal: Bloombreg

Due to the bubble and now decreasing home prices a strange dynamic is happening.  You have 30% of home sale now cash, which way above historical lows.  And you know you have people that could purchase a house renting, which decrease your pool of buyers.  

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”

This is very detailed article and I would read the whole article.  However, this article says real estate is the best the buy in four decades, I have major issues with that statement.  I think it was much cheaper in the early 1990's, currently there is too much mortgage interest rate risk if rates go back above 7%

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Smaller is Better in a Post Housing Bubble Era

This is not just accidental.  Now loan underwriting is going back to pre-2000 standards.  Now, your income must qualify you for a standard loan and not a affordability product.  A bigger new house cost more to build, so builders are just making homes based on what people can afford.

"A new housing market is emerging, and even with the recession in the rear view mirror we expect the popularity of smaller homes to persist," said Bob Jones, chairman of NAHB and a home builder from Bloomfield Hills, Mich. "Builders are responding to a new mindset among home buyers that has been shaped not just by a weak economy, and it is transforming the product they deliver."

The current decline in home size can be attributed to factors like the desire to keep energy costs down, the amount of equity in existing homes available to be rolled over into new ones, tighter credit standards, less interest in buying a home as an investment and a growing presence of first-time buyers.

"While the Census Bureau shows characteristics for new homes that have been completed in a given year, we decided to tabulate the characteristics for the homes that were started," said Paul Emrath, the report's author and NAHB's vice president for survey and housing policy research. "This eliminates several months of lag time while the home is being constructed and can provide a more current picture of the marketplace, which has been changing rapidly."

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Government job cuts ravage California

These jobs are probably just he start and will put pressure on the housing market just like jobs losses in the private sector, since 2007.  With state budget shortfalls, growing pension costs, and now increasing medical costs there will be layoffs.  In addition, the global warming taxes and surcharges start January 1, 2012 which will greatly impact housing costs and rents costs.

What's more, analysts see more job cuts ahead as California faces an estimated $10-billion shortfall in the state budget that the next governor must address. Cities and counties, meanwhile, are still struggling with tepid sales and property tax revenue.

"Local governments are adopting austerity measures," said Jerry Nickelsburg, an economist with the UCLA Anderson Forecast. "They don't have confidence that they're going to get money to do otherwise."

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Foreclosure Crisis: Stealth Stimulus for Defaulters

I've said before all this free housing expenses add to the personal consumption bubble.  This adds to the economy possibly misleading actual and sustainable consumer spending

While delays in the foreclosure process are costing bond holders and mortgage servicers, defaulting homeowners living in–or even renting out–their homes are getting a pretty tidy subsidy, writes the WSJ’s Mark Whitehouse in today’s paper. That subsidy is worth about $2.6 billion a month, according to a WSJ analysis. That’s .25% of U.S. personal income, roughly equivalent to the benefit top earners receive from Bush-era tax breaks.

Will any of that money find its way back into the economy, as a stealth stimulus? It’s hard to say, writes Mr. Whitehouse. Some defaulters save their mortgage payments in the hopes that a mortgage modification will finally come through, others who have lost their jobs just need the money to keep on going–for food, car payments and the like.

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Millions of homeowners keep paying on underwater mortgages

I think what this article is missing is that any increases in food, fuel, or goods will probably cause more straigetic defaults.

How could that be a source of future trouble? Because, with home prices stagnant in much of the country, payments on mortgages that are underwater could absorb billions of dollars that might be used for other forms of consumer spending — a drag on family finances, the housing market and the overall economy.

 Of the estimated 15 million homeowners underwater, about 7.8 million owed at least 25% more than their properties were worth in the first quarter of this year, according to Moody's Analytics' calculations of Equifax credit records and government data

And how long this problem could last?  A lot longer than most people think.

But nobody is expecting a return of rapid real estate appreciation any time soon. If home prices were to rise at an annual rate of 3%, not an unlikely scenario, it would take the Hineses about 11 years to get to a point where their mortgage balance was even with their property value.

Refinancing the Hineses' 6.5% interest loan could be a big help, saving them almost $600 a month. But lenders won't even consider them.

And unless borrowers fall behind on their mortgage payments or face a high risk of defaulting, there's little chance that lenders, even with federal incentives, would reduce their principal or lower their interest rates.

"They feel completely left out," said Fred Arnold, past president of the California Assn. of Mortgage Professionals, referring to many underwater borrowers.

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American incomes post largest drop in 14 months

You won't  have a housing recovery without a economy recovery this just nearly impossible.  This report show the economy is still weak even after 2 1/2 years worth of recession.

Incomes fell 0.1 percent in September, following a 0.4 percent rise in August that had been pushed higher by the return of extended unemployment benefits.

The weak growth in spending and incomes underscored how fragile the economy remains. Consumers facing high unemployment and slow job growth remain reluctant to spend.

Also note that once of the only reasons income is staying at the same level is that unusually long employment benefits are giving the unemployed money in the pockets.

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85% of college grads move home

This is important because this means very new households are not formed.  So it puts downward pressure on rents and home values.

So hard that a whopping 85% of college seniors planned to move back home with their parents after graduation last May, according to a poll by Twentysomething Inc., a marketing and research firm based in Philadelphia. That rate has steadily risen from 67% in 2006.

"It's peaking at levels we have not seen before," said David Morrison, managing director and founder of Twentysomething.

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slowest growth in the number of new households since the second World War

According to IHS, there are two, actually: The fall in immigration and the growing number of young people moving back in with their parents amid a frustratingly tough job market. These factors have contributed to slowest growth in the number of new households since the second World War.

The underlying reason why inventory remains unnervingly high is essentially the same however you see the troubled housing market: Overall economic weakness – in particular, unemployment, which federal officials last week reported was unchanged from August at 9.6%.

Here are some more detailed stats

Admittedly, the trends in immigration and "doubling up" aren't easy to track. Hard data on immigration does not exist, but IHS points out that households headed by those foreign born under the age of 35 dropped by 338,000 in 2009.

What's more, it appears more young people are moving back in with their parents or doubling up with others to save money. The number of households headed by 15 to 24 year-olds fell by 124,000 in 2009 from the previous year, while the number of households with six or more people increased by 355,000 or 8% during the same period. In fact, the number of households headed by all younger age groups – those in the 15 to 24, 25 to 34 and 35 to 44 age brackets -- fell in 2009, while the number in all the older age brackets increased.

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Roubini Sees 40% Chance Of Double-Dip; Volcker Predicts 'Prolonged' Unemployment

I knew about the comments from Roubini, but I didn't know about the comments from Volcker.

"This has not been an ordinary recession," Volcker, who chairs the president's Economic Recovery Advisory Board, said in a Toronto speech Thursday, according to Bloomberg, and he added that it's "very difficult to find a sector in the American economy that has any spark to it."

And today the Gallup Unemployment rate came out today. Some experts are stating that we have until 2014 before this are back to pre-recession norms.

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