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    • Why Last Week's Interest Rate Based Selloff Was Overblown [view article]
      Roger,

      A couple of major points you are missing here. You use the example of a couple making $3k to $4k to buy a $300,000 house.

      The biggest is that you can't find a decent house in the bubble markets for $300k. In California, NYC and Boston, $300k doesn't buy you much, especially here in California.

      Moreseo, the couple you mention would have about $4,000 to $5,333 after taxes assuming typical tax rates and no contributions to retirement funds. So now you are talking about increase the percent of their take home income from 45% to 53%. And that's using $72k/year which is still above the median houshold income to buy that fictious house that doesn't exist in most bubble markets for $300k.

      That's the problem with using averages. You take out the highs and the lows and and you are left with a number that often doesn't mean anything. The problem lies in the bubble markets like California where couples who are making $6k-$8k per month have gotten into $600,000 to $700,000 loans, often with higher rates, based on the assumption that prices will just go up. Any pullback and prices and the house of cards comes down.

      Lets say a dumpy house in Los Angles costs $550k and a dumpy house in Buffalo, NY costs $50k (sadly I've lived in both places and its true) to give you the $300,000 average priced house you use in your example. If prices fall 10% in California and rise 10% in Buffalo in this example, the result is still an average drop in prices of 9.1%. The real problem here is that the rise of the bubble markets drives the median and the average much higher and when things pop at the higher end of the market due to subprime disappearing and interest rates rising, its not just the $300 extra in payments that become a problem, but the mechnism of price increases that let people perpetually refinance that become the problem. It works the same way but in reverse.

      In closing, I just wanted to say you're comment about $300 not making a difference to an averge couple is a bit out of touch. With mortgages, credit cards, car payments and increasing gas and food prices, $300 extra a month is often more than most average people save in a month.       Jun 12 01:45 PM
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