For Chr@#$@kes! The Housing crisis ends when the median income can afford the median home!!

It is not rocket science! Whatever combination of events leads to that outcome wins.

It could be greater wages, it could be declining prices, it could be lower interest, it could be special loan programs, it could be any combination of the above.

It also means that "speculators" will be driven for the most part out of the market when we go back to investor loans needing large down payments and proof that positive cash flow results.

Positive cash flow - what a concept!!! That would that investor properties would need to be able to generate enough average rent to show "profit". In other words, no more reliance on market inflation procuring profits.

i've been browsing home listings and wishing to win the lottery. Winning the lottery ... not a sound financial strategy, but those are the kinds of mental torture games i play when i'm pissed off and frustrated about being unable to afford a house. Every time someone says it's a good time to buy, I want to scream. They don't get it! To quote you,

"For Chr@#$@kes! The Housing crisis ends when the median income can afford the median home!!"

yeah! it's not rocket science! but apparently adding and subtracting is too difficult for way too many people who have put us in this mess.

Meanwhile, the master manipulators have made out like bandits.

I've said much the same thing for months (on Investor Village) .......there wouldnt have been a financial crisis if our buying power hadnt declined since the late 80's in real terms.

The defaults and decreasing property values would not have happened if people were making enough money to afford to pay on the loans.

Instead of paying people enough money to keep up with inflation US businesses were relying on the ability of people to get easy credit to make up the lost wages (while padding their own market value in the stock market by increasing profits), and we reached the saturation point where the credit owed by the average American became too big a burden without wages increasing.

Which is the last thing either the Wall Street types or the Fed wants to admit.

we're in a profit squeeze, & all the classic techniques in play.

easy credit
sweat shops
speed-up
automate
privatize/asset grabs/fraud

but it always ends in bust.

= lower stock valuations= lower bonuses for executives who were getting rich off options dished out like candy

We need to completely divest executive compensation from stock performance, as its led to short term profits over long term goals, and ruined too many once famous companies.

In addition to lowering our standard of living.

If executive compensation is tied to performance, why have the execs at the foundering financials been getting bonuses?

Seems to me, their compensation isn't tied to performance closely enough, and they should base it on LONG TERM performance.

if wage shares go up, profit shares go down.
(besides, that story is a wives tale...)

Pay people more and they'll spend it.

anyway, we're talking apples & oranges.

We're at the end of a cycle, not the beginning. The truisms change as the cycle evolves. Presently, everyone's scrambling so as not to be left holding the bag 'o debt. Nobody's going to raise wages in this environment - though it would be a good idea, if everyone did it at the same time.


"Raff and Summers (1987) conduct a case study on Henry Ford’s introduction of the five dollar day in 1914. Their conclusion is that the Ford experience supports efficiency wage interpretations. Ford’s decision to increase wages so dramatically (doubling for most workers) is most plausibly portrayed as the consequence of efficiency wage considerations, with the structure being consistent, evidence of substantial queues for Ford jobs, and significant increases in productivity and profits at Ford. Concerns such as high turnover and poor worker morale appear to have played a significant role in the five-dollar decision. Ford’s new wage put him in the position of rationing jobs, and increased wages did yield substantial productivity benefits and profits. There is also evidence that other firms emulated Ford’s policy to some extent, with wages in the automobile industry 40% higher than in the rest of manufacturing (Rae 1965, quoted in Raff and Summers). Given relatively low monitoring costs and skill levels on the Ford production line, such benefits (and the decision itself) appear particularly significant."

http://en.wikipedia.org/wiki/Efficiency_wages

(He didn't raise wages so his workers could buy cars. If his line workers were his customers, he'd have gone broke. That was a later phase - & Ford cut wages in the Depression.)

cars were cutting-edge technology. Even the prevailing auto wage of $2/day was "good money" then, in comparison with other alternatives for similarly skilled workers.

The goal in a cutting-edge environment is to get the jump on your competitors & take the biggest cut of market share early. think microsoft. remember when ms wages & bennies were the envy of everyone & regularly discussed in the media? the new economy, they said. it was always gonna be like this.
now think of the "micro-temps" of today & the system admins working at home depot.

ford raised wages to attract better workers & run his lines more efficiently, turn out more cars, & drop prices to get a bigger jump on his competitors. it paid off: for a while he had more than half the market, & his cars were the best-built, lowest-priced choice. his workers were better-paid than others, but his profits were way better than others, too.

but when he started losing money in the depression, he dropped wages from $6/d to $4/d, for 3 years.

once production gets fully automated & the market shakes out, profit margins drop. long story short, there are various methods to try to keep them inflated, but raising workers' wages isn't one of them - unless everyone more or less agrees to do so, e.g. in the US circa 1945-1975, europe post-war to the 90s.

we're in a different environment now, the various factions of capital are jockeying for global position again, & finance capital has had (& may still have) the upper hand.

that the mortgage, taxes and insurance eat up no more than 28-30% of gross income.

Meaning that once it was understood that a person might have cars, utilities, food, entertainment, etc.etc.

In other words, once the underwriting standards were REALISTIC

In order to avoid defaults.

That changed.

When they no longer had to be concerned about DEFAULTS.

One might ask oneself WHY formerly sober bankers and mortgage brokers no longer cared about the underlying soundness of the mortgages they were writing . . .

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