Wednesday, August 11, 2010

A Tale of Two Graphs (Part One)

OK:  Let's get this out up front, I may be wrong in my approach here, if anyone can pick holes in it, please have at this, I am trying to make sense out of data provided by the government, who seems to be going out of it's way to make the data opaque.   If I am wrong, point it out and I will retract in a front page way, no pg 8 retractions here

There have been a couple of great articles over at Jesse's Cafe Americain and the Automatic Earth (sounds kinda like a rock band when you phrase it like that).  concerning the nature of mortgage debt and other such bad juju heading our way.

Here is the chart that caused all the ruckus.

I can't really argue their logic when faced with this data.  What I questioned was the data that led into it.  I went over and tried to find the original data sets used in the graph.  The FHFA doesn't make this too easy to do.  But, the best that I could sort out is that the property values (shown in the above chart as the red line) is all residential property in the US.

So, with the tried and true method of eyeballing the chart above and plugging my eyeball estimates into a spreadsheet I got a graph looking pretty much like the one above.

Now the real point to this is that the mortgaged property should be compared to the value of the property mortgaged, not the entire housing stock.  So when you type in "Percentage of homes in the US with no mortgage" you get this.

So 30% of the homes are out of the mix.  Now since I am not laying claim to a huge helping of precision here, I figure that you oughta multiply the numbers from the chart above by 0.70.  So, in go the numbers and you get a new chart that looks like this.

You will notice here that the blue and yellow line look pretty similar,  But check out the red line showing the value of the "mortgaged" property.


Mayberry said...

I dunno. Here in my little corner of the world at least, mortgaged homes are losing significant value as the market is flooded with property for sale...

daddynewton said...

home values have dropped because the banks will not loan as much money on them as they once did. get a home appraisal today and it will be 34% less than it was during the boom.I have been thinking about selling and that is what i found out after paying $350.00 to get an appraisal.

russell1200 said...

It is not unusual for the debt load to be higher then the underlying value. It is true of cars and most items bought with a credit card.

But of course most people get a better rate on their home loan than on their credit cards.

So if homes begin to act more like consumer goods, and interest rates go up, price is very likely going to go down.

If you look at how much larger and how much more expensive todays homes are than back in the 1970s, it would not be a big shocker to discover that at least some of the homes out their are not in within a sustainable size/price point.

In the Carolinas, it looks like the $400K to $600K range. You might double that for some more expensive markets.

There just are not enough people around who can support that type of price over a 30 year period with a fixed rate at 8%+.

So the deflationary spiral could keep going on until at some point it overshoots to such an extreme that people sitting on cash will start buying them up. That at least is the way it used to work.

With the baby boomers trying to retire on very low savings, it could get even worse than that.

Too many moving parts though. No way to really predict.