The Bigger the Pain
the Greater the Gain?
While no one is celebrating the
misery of those losing their homes,
no one feels all too sorry for anyone
that bought at the peak of the market
intending to “flip” the home for a quick
buck either. Matter of fact, there’s some
very palatable angst towards those that
played games with the system then
bolted at the first sign of trouble. You
can’t blame taxpayers for being upset
at subsidizing the irresponsible, yet
there is a big picture here and snuffing
the flames before they spread further
verbal brawls and unless you work hard at it, you
is usually the best course of action. While some point
can’t follow anyone’s point as there are usually five
fingers, others will take the initiative.
people speaking over one another. Inflation, deflation,
contraction, expansion, it’s pretty hard to pick a pundit
Declining Economy,
to believe in. There are sharp minds on either side,
Increasing Affordability
yet the bottom line is that we all need a place to live. If
you’re buying first for shelter and second because you
Couple low rates with lower prices and you have the
know that owning works out dramatically better than
best affordability that’s existed. It’s funny that many
renting as math and history prove, then buying when
still think of housing as being expensive. There are
others aren’t can make you pretty smart and pretty
all manner of economists using income to price ratios
happy in the long run. Still, many will wait until safety is
that say things still need to change. The problem with
assured which is tantamount to wanting to get on the
this text book analysis is that it rarely accounts for
plane only once you know it didn’t crash on takeoff.
the real world. On Main Street USA, we don’t buy our
homes, we finance them. Ergo, it matters not the price The Moldy Cheese Conclusion?
vs. income but the payment vs. income. If rates are
Maybe it’s just because I spent too many years as
low enough that the cost to finance doesn’t exceed
a bachelor and hated going to the grocery store or
roughly 33% or your income then the sales price could
maybe it’s because I was at times just hungry enough
be ten times your income and it wouldn’t matter. Fact is
to check, but I have discovered that a little bit of mold
that over the last 46 years, it has cost on average over
on the outside of a block of cheese doesn’t mean the
40% of per capita income to finance a median priced
inside is rotten too. In that somewhat obtuse sense,
home. Currently, that number stands at approximately
I guess a recession is not dissimilar. It may look and
22%. This is the lowest point over this period and is
smell bad on the surface, but with a suitable knife and
manageable by most anyone with average income,
a strong stomach, you can cut through the fuzz to find
reasonable credit and at least something of a down
some pretty good opportunities inside.
payment. If someone offered you the opportunity
to purchase as many homes as you could at 1963
prices, would you? Or should I ask, how many would
Brian Larrabee, CMPS® product architect and founder of
you buy? Well right now using this metric (percentage
Estate of Mind, Inc. has twenty nine years of experience as
an investor, developer, builder, mortgage banker/broker,
of income) homes are now less expensive than they
financial advisor, author, speaker and trainer. His company,
were 46 years ago or at any time since.
Estate of Mind, Inc., produces the Visual Guide to the
It’s Never Over until the Buzzer Rings
Housing Market and other educational tools for the benefit
of consumers, bankers and real estate professionals.
Watching the typical financial newscasts of late,
Brian can be reached at brian@estateofmindinc.com
it’s clear there are dissenting opinions, make that
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