From: Brad Shantz <bshantz@nwlink.com>
Date: Sat, 27 Jul 1996 05:30:46 +0800
To: tcmay@got.net
Subject: Inflation and Housing
Message-ID: <199607261750.KAA15397@montana.nwlink.com>
MIME-Version: 1.0
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To: tcmay@got.net, cypherpunks@toad.com
Date: Fri Jul 26 10:53:17 1996
Tim May wrote: 
> So, what do we have now? Salaries are 2-4x higher, gold is at $375 an
> ounce, a new 3-br house averages about $100K 

As a person in the process of buying a house, I see the price of mortgages 
in a slightly different light than just inflation.  Oh, it's still 
inflation, no argument there.  I see it mainly as a problem with debt.

Back in the early sixties (which I don't remember, by the way) houses cost 
just slightly over what the average salary was...cars cost considerably 
less.  Sometime right around then, there was a boom in people 
needing/getting credit.  In fact, I'd even be willing to say it was right 
after WWII when all the GI's suddenly hit the civillian economy and were 
buying houses, and getting into college with the new-fangled GI bill.

As a result of huge people getting large amounts of credit, we have become 
a debt ridden society.  Now it takes 40% of the "husband's" monthly income 
to go toward housing cost, whereas it used to be the 25% rule.  People 
don't even blink twice now when the terms of a 30 year fixed mortgage comes 
up.   That's "just the way it's done."

Now, I also see a problem with people my age (25) wanting what took their 
parents 30 years to get in the first 3 years out of school.  (i.e. Big 
house, 2 or 3 cars, kids, dogs, cats, horses, stocks, etc.)  It is rare now 
to see people buying a "starter" home and then selling it and moving on up. 
 Why?  Well in Seattle, the starter homes are in really "NASTY" areas of 
town.  Nobody wants to live there.   So, then the starter homes in "nice" 
areas that are bought are promptly remodelled and sold as "regular" homes. 
  Uh, hello, doesn't mean that another "starter" home has been removed from 
the market.  Anyway, my point is that people here aren't buying the starter 
homes, they are buying the bigger homes.   In order to do that, they have 
to take bigger loans.

Bigger loans mean that the cycle of debt continues.

So, yes salaries are 2x to 4x higher, but there is a problem in the amount 
of credit being given to young people.  There is something inherently wrong 
with the amount of our economy that deals with debt.   We can't continue to 
purchase things on margin, or on credit.   Another recession is going to 
come, and when it hits, it will hit HARD.  At least that's my opinion.

Brad

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