Author: cdwan

I found myself sitting up late last night wondering how it is that the whole world (relatively speaking) can be working on the problem of our imminent financial collapse and yet not find any good solutions.

I think that one of the core problems is that the people most directly involved in the situation (the finance industry) are not interested in an equitable solution that involves addressing the core issue. They’re interested in minimizing their own losses, and even squeezing a profit out of these lean times. Everyone is still trying to hide and shuffle around bad debts rather than addressing the reality of a new economy that contains considerably less equity. As we dither, the economy is stalling out and consumers are going into hiding, no matter what the Fed does. Laws and incentive packages are being written to “keep people in their homes,” but also to give the banks a path other than foreclosure and holding on to homes that nobody will be able to buy. This acts to prop up the banks and their wealthy owners, not to address the core imbalances in the economy.

The finance industry does not, on the face of it, produce anything. It acts as a catalyst for other production, and thus enables the growth of the “real” economy. The finance industry is fundamentally a leech. Any profits in the financial sector really need to be read as “losses” for the real economy. If their catalyzing effect overcomes their leeching, then all is right with the world. When the finance industry is perceived as the primary driver of economic growth, then of course it’s not real and of course the house of cards will eventually fall.

I’m trying to figure out the dynamics of the housing market, in preparation for looking at houses.

First of all, yes, I’m well aware that the market is still massively overpriced. Yes, I’m aware that the rent:own ratio is over 2, where it should be less than 1. Yes, I’m also aware that the credit contraction and plummeting interest rates mean that housing values will continue to drop, since people won’t be able to get as much credit. The only things fighting this trend are the faint hope (ha!) of massive inflation in the dollar, and the idea that foreigners with stronger currencies might want to keep our realty expensive for a while by purchasing vacation homes.

I’m also painfully aware that I feel like a transient in this apartment. I can’t set up a little shop, nor install raised beds. Yes yes, I could drive half an hour to a community garden … but history says that I don’t do that. Also, I can hear my neighbors flush. I desire to own a house again.

Anyway, thinking on these things this morning: The rule of thumb on a mortgage is that a family can pretty easily manage a mortgage between 2 and 3 times their annual (gross) income. This means (by and large) that houses in a neighborhood should cost 2 to 3 times the average salary in that neighborhood. Except that in the past 20 years or so, the majority of households have become dual income. If there was nothing else in play, that *ought* to increase the price of houses in that neighborhood by a corresponding amount. Same families, more money, more expensive houses. That’s how it works.

Mostly, I’m trying to figure out how savagely to underbid on this gorgeous house we saw this weekend.