Sunday, November 19, 2006

What you really pay for your house.

Entry for Friday, 25 August, 2006


Here is a blurb from a recent article by famous economist Roubini:

"How bad are the signals coming from the housing sector? As a recent news headline clearly put it: it is simply UGLY. Indeed, all the indicators from the housing sectors - including the latest housing starts and the homebuilders (NAHB) forward looking business conditions - indicate a housing sector that is literally in free fall. New home sales started to fall since the beginning of 2006 and in some regions they are down over 30% relative to a year ago. As Bloomberg summarized today the new housing data: “Sales of previously owned homes in the U.S. fell more than expected in July, resulting in the biggest supply of unsold homes in more than a decade, as higher mortgage rates discouraged would-be home buyers.. Purchases declined 4.1 percent last month to an annual rate of 6.33 million, the lowest since January 2004, from 6.6 million in June, the National Association of Realtors said today in Washington. Sales fell 11.2 percent compared with a year earlier.” Indeed, the number of unsold homes and the ratio of unsold homes to new home sales has therefore risen sharply to over 5.5 months of supply. Similarly the ratio of unsold homes to existing home sales has also sharply increased. These are clear indicator of a glut of unsold homes in the market. Housing starts are also sharply down elative to a year ago and expected to fall further over the next few quarters. Note also that, while overall mortgage applications are still up in the latest figures published today, due to sustained refinancing applications, applications for purchase applications have fallen 1.0% during the last week, this being fifth fall in the last six weeks. Moreover, there is a large amount of evidence that suggests increasing cancellation of initial mortgage applications, as the slump in the housing market and in the economy is now scaring households considering buying a home. Thus, the official data on purchase mortgage applications are very likely to exceed actual home sales."

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The simple fact is that now, even with two incomes, most families can no longer afford to "buy" a home. This is the direct and unavoidable effect of usury loans. Each family that sells a house has to make more on it than they have spent, otherwise they sell at a loss. Most people don't own the home for the entire 30 years of the mortgage, which turns out to be a good thing, as you will see in a minute. And many sell their homes at what they think is a "profit" based on their original purchase price, without realizing that they actually lost money. Here's how it works:

If you haven't looked lately at your mortgage papers, I suggest you do so - because your actual cost for buying the home is about 3x the purchase price due to interest accumulation. If you pay all the payments on your $150,000 mortgage over 30 years, you will have paid about half a million dollars. So think about this for a minute. If over 30 years the price of your house appreciates to double what you paid for it, you have still lost money - almost the entire original price of the home - because you paid 3x in payments what the purchase price was once all your interest payments are added in. And if you have ever sold a house before it was paid off, I'll bet you never sat down and added up the total of the actual payments that you made to see if you were really making a profit. I'll bet that in the majority of cases, you didn't, because it never occurred to you to check and see before you set the selling price. (Not to mention the actual costs of all the repairs and remodelings you did.) And worse, if you have owned the house for more than a few years, chances are there's no way in the world you could sell the house and get more than you have actually made in mortgage payments and actual costs, even before prices starting falling through the floor. You have paid far more in usury for the house than you can ever charge to sell it.

That means the US mortgage companies have been sucking in trillions of dollars (yes, with a "t") of your money that has been vanishing down a rat hole, never to appear again - because most people cannot sell their home for 3x their purchase price, even in the most aggressive housing markets. That would be 100% appreciation every ten years - which is extremely unrealistic. And those aggressive markets are now, unfortunately, falling rapidly due to the fact that even the purchase price is now far beyond any sort of reasonable capability of middle class people to pay - much less the usury added on after the fact.

The ugly truth is that buying property is not an investment anymore. It doesn't make you money over the long term, because of usury. Instead it takes money from you that you will never see again, and puts it in the pocket of fat-cat robber-baron CEO's of mortgage companies. It's a scam. The property that you think you "own" has been "paid for" over and over and over again, for millions of dollars, and no one ever "owns" it but the bank. Even if your parents managed to pay off their mortgage, you will still have to sell or re-mortgage the property to "fairly" divide their estate, most of the time. So the banks even end up being the real owners of property that was completely debt-free! As I said, it's a scam.

And the costs of all this usury are now more than the market can bear. It's as simple as that, class. And don't wait for your handy-dandy congresspersons to be willing to do anything about the fact that your mortgage company is making 200+% profit on every house they mortgage. Unlike your home, congress is bought and paid for.

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