Tepid wage growth and rising house costs prices out low-income households

[Crewleader]

Tepid wage growth and rising house costs prices out low-income households

August 14, 2014


Irvine Renter 12 Astute Observations

Higher prices and weak wage growth, particularly among lower income Americans, prices out many marginal buyers.


Each prospective buyer investigates current financing terms as part of their process. Lenders apply current underwriting standards and determine the loan balance they will approve and down payment required before they will fund. Since loan plus down payment equals maximum bid amount, prospective buyers house-shop with the budget established for them by their lender. As is human nature, most people spend their full budget.

Every buyer goes through this basic process, and since financed purchases dominate the resale market, price levels of individual properties become tethered to the incomes of individuals who desire that property. If high wage earners suddenly became enamored with living in condos, prices would rise substantially. The substitution effect to similar resale and rental properties keeps income, price and quality in balance.

When supplies are limited, as they are now due to the presence of so many underwater borrowers stuck in the purgatory of cloud inventory, the substitution effect forces buyers at every price level to buy a lower quality house than they otherwise would. At the very bottom of the housing ladder, those buyers who can only afford the least expensive properties get priced out by higher wage earners substituting downward. If the inventory restriction is bad enough, large swaths of wage earners are priced out of the market, and sales volumes necessarily suffer — just as we are seeing today.

Affordability Pyramid Shows Housing Market is Bottom Heavy



http://ochousingnews.com/blog/tepid-wage-growth-rising-prices-prices-low-income-households/#ixzz3AN5MF2UQ

[msongs]

1. "supplies" are not limited. there are millions of empty housing units just sitting there nt

[Crewleader]

2. indeed msongs there's so many empty homes here

Space Coast among tops in US for foreclosure rate

Florida foreclosure rate drops; still leads nation

http://www.floridatoday.com/story/money/economy/2014/08/14/space-coast-among-tops-in-us-for-foreclosure-rate/14052557/

[golfguru]

3. Pretty pictures of new UNSOLD cars!

[Crewleader]

4. Cars made in 2014

I think the 2015 come out September....with all of this year's inventory it sure is the sign of the times.

Thanks golfguru for the photos.