Sunday, June 27, 2010

Look UP "Reversion to the Mean"

Prices can only remain at levels where they are supported by real wages produced by the sale of goods and services. In a system such as ours, which has enjoyed ever expanding amounts of credit for nearly 20 years, when that credit is removed (massive excess credit), which it inevitably must be, prices do something very typical called REVERSION TO THE MEAN. That is, they wildly fluctuate around (in a general downward trend) until they find a level of price support, meaning HOME PRICES WILL FALL UNTIL REGULAR PEOPLE MAKING GENUINE, DURABLE SALARIES CAN AFFORD THEM. This little nugget of wisdom is otherwise known as supply and demand or else, COMMON SENSE. Buttressing this common sense argument is something very important in economics called DEMOGRAPHICS, that is, the layout in a given region of women, men, age, race, education and the like. Our current demographics in the U.S.? DREADFUL. We're not Japan, but the picture ain't pretty. Essentially, we are mostly baby-boomers, that is people between the ages of 46 and 64, roughly. These people will be looking to retire. This almost always means DOWNSIZING and selling their McMansion to.... someone. See, that's the sticky part of economics. Prices (stock, bonds, real estate, etc.) are up! Sell! Get rich! Ok, sell to whom? If there is no buyer, no sale can take place. Now every government imbecile (official), every realtor, bankster and fraudster (mortgage broker) for 6,000 miles is preaching YOU MUST BUY NOW! PRICES HAVE FALLEN! They have also completely corrupted most government programs making home ownership loans so as to encourage you to buy more house than you can afford by raising the limits of the loan awards in these programs to 4, 5, and 600,000 dollars. This is of course, insane and will be a total failure. You can give Joe Sixpack a home loan for 800 grand, but if he can't cover utilities, taxes and insurance plus the mortgage plus all his other bills with 36% of his income (banks and mathematicians know what you can afford far better than you can, genius), called Debt to Income ratio or DTI, then it doesn't matter how much he's loaned. He can't pay it back Cuz he JUST DOESN'T HAVE THE MONEY. And when his interest rate resets or when the house needs a new roof or water heater or furnace or mold removal or if his wife loses her job or has his hours cut or his income cut, THAT'S IT, GAME OVER.

People late on their mortgage? They're right here:

And sadly, THEY'RE SCREWED. They're not paying because they can't afford to pay. They were sold a home they couldn't afford and now they're extremely screwed. Meanwhile, the bankrupt banks holding their "paper" (loan documents) are insolvent, that is BANKRUPT FOR THE NEXT TWO DECADES OR MORE. But these banksters own - literally have bought - our government officials, men and women who seem to have made a life out of trying to sink to new depths of deceit and corruption.

NOW we shall revert to the mean. We shall revert to what people can afford and by people I mean that small chunk of folks in their late 20s and early 30s who can afford a 200k to 350-400k (at the very high end) home with many starter homes of 1000-1400 square feet going for much less. Or as your grandfather will tell you: "You know what something's worth son? WHAT SOMEONE IS WILLING TO PAY YOU FOR IT." Good luck baby-boomers. You'll need more than luck to sell that McMansion to someone your kid's age. You'll need a goddamn miracle. And banksters don't take miracles as collateral.

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