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Tuesday, June 9, 2009
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90 comments:
"Me: (I look around for a way out) Oh...great! I bet that was fun..."
Nicely written, Jeff. I call them pomposity bombers.
Decades ago, I dated a woman whose husband "attended a name New England prep school."
Seemed to be a big deal to her.
There are schools that rival those all over the planet. TJ? Pffft. Big deal here, not so big a deal elsewhere.
But about the prep schools. The sitting president attended a "New England Style Prep School."
Like real estate and the discussion of 'hoods yesterday, it's location, location, location.
Yep, I find it funny being in those situations. Usually in those situations I'm talking with someone at the same station in life/rank/etc. and I think to myself 'If X-school was so important, than why am I, who went to state schools, your equal?'
Reposting my "findings" from yesterday on the potential pool of fence sitters, particularly in FFX County.
I'm sure you've all been wondering the answer to the question, how many people were priced out by the bubble and are therefor stumbling over themselves for houses now creating the demand we're seeing.
As a measure of this, I give you the American Housing Survey data for the DC area, DC proper, PG county and FFX county.
American Housing Survey DC 2007
Previously I've reported the fact that from 1998 to 2007, these areas all increased in the percentage of owner-occupied households.
DC area: 68.2 (2007) 64.5 (1998)
DC proper: 44.9, 41.5
PG County: 63.8, 62.8
FFX County: 76.0, 72.0
In all cases this means that more people chose to buy than normally would have under the favorable buying conditions of the long-slow flat period leading up to 1998.
But how many people chose not to?
Here are the totals for renters making more than 60k, (total renters):
DC area: 238k (619.6k)
DC proper: 34.3k (136k)
PG County: 38.1k (106k)
FFX County: 46.3k (88.9k)
Since not all of these people would buy anyway for whatever reason, this represents an upper limit on the number of people sitting on the sidelines as accumulated by 2007. But you'll notice that while most DC and PG county renters could not afford today's prices at all, half of FFX county's 2007 renters could afford to buy if prices came down to 150k. At the $300k price that's sort of typical now, only 22k FFX renters made over 100k/year in 2007. At an inventory of 4k homes in FFX that would take a little over 5 months to burn through every last fence-sitter (assuming all these people even want to buy) aside the ones that have accumulated in the interim. At a guess this means prices need to dip into the affordability level of the cadre of people making 60-80k and 80-100k, and they need to do so this fall. (not all the higher earners are going to jump in at the same time).
For comparison, in FFX County in 1998 only 26.8k renters made between 50k and 100k, and 8.0k made over 100k. This makes the excess of "well-paid" renters in 2007, 14k excess for incomes over 100k, and no excess for incomes over 50/60k.
If one wanted an lower bound on the number of fence-sitters I would therefor put that at 14k or a little more than 3 times the current inventory. So, just 3 months worth of extra buyers than would normally be in the market anyway.
Now, the first big whopping problem with this analysis is substitution. Renters in closer-in areas may buy further out. But closer in areas don't have an excess of highly paid renters, and some of the 200k earners in FFX county are going to buy bigger better houses further out, so I'm hoping that to zeroth order that's a wash.
The second big question is if local renters really are who does most of the "1st time" buying in this area anyway? Perhaps a much larger percentage are moving in to the DC area for jobs, in which case we've got that other can of worms opened last night about their lack of equity.
Now reasons for moving "job transfer" topped the list in 2007, but was more strongly peaked as the most likely reason for renters than owners.
Another problem is all the accumulated fence sitters since 2007. Given that by 2007 it was much more evident that prices might go down, one would expect to steal a lot of buyers from the recent past into now. Sales were down gigantically, and are now up, so we could work on trying to calculate that too.
(continues)
(continued)
But I'm going to go out on a limb here and say that for FFX County there are only 3-4 more months of buyers at current prices than would usually be the case for spring. Since these will not be evenly distributed, some may see spring level sales last through September, others have already dried up. If the fence-sitters spread themselves out they could provide an enhanced buyer pool for at least a year or more, but not at current transaction rates.
But the minimum of 11.28k excess owners in 2007 versus 1998 in terms of percent owner occupant, rivals the 14k fence-sitters. Just need a couple thousand HELOCs and the balance is tipped towards REOs beating out new buyers.
P.S.
and that's without averse economic conditions changing the jobs outlook for both buyers and owners. This analysis is just how many people bought houses before they would have normally been ready to do so, versus how many people were fiscally ready to buy but didn't.
Now, clearly a better analysis could be done, but that's my first crack at it.
Has anyone read about the cash for clunkers program that is being proposed.
http://finance.yahoo.com/news/Congress-to-consider-cash-for-apf-15474492.html?sec=topStories&pos=7&asset=&ccode=
I find this bad that congress is trying to pass something that will pay people to buy more fuel efficient cars, but the appalling part is that you can get $3,500 for turning in a car that gets 18 mpg for a car that gets 22 mpg. Are you kidding me you are paying people to get cars that are 22 mpg, this is still awful. At least mandate the car gets good mileage.
Cara,
That really is some impressive analysis. As far as I know, I have never seen any blog that actually calculates the pent-up demand, if there is any. Great work.
Obviously, I'm more focused on jobs and income driving real estate - higher or lower. I can't be the only one looking at the numbers and deducting that if you are looking for work, you may want to MOVE to the DC area. These people will either rent -- and drive up rent prices -- or buy, pushing up sale prices.
To take an example, most of my open jobs postings show that LA and DC have about the same number of jobs available. However, LA has twice as many people and nearly twice as much unemployment.
I calculate that LA has about 646,000 unemployed people, while DC metro has only 159,000. With the same number of jobs in DC and LA, you would theoretically be 4 times more likely to land a job here vs. LA. I know I'm not the only one figuring this out.
I'll admit I don't understand about all of these unemployed lawyers. I don't see the macro trend that is causing all of these layoffs at law firms. The budget is the same, or higher. Congressmen aren't trimming their staff. Lobbyists seemingly would still be working.
So, someone, TBW, please explain why all of these lawyers can't find work. The unemployment rate in FFX County is 4.7%. With a BS/BA, I'll bet it is closer to 2.5%, or only 1 in 50. So, if you know 50 working professionals, the chance is that ONLY one is unemployed and actively looking for work.
For me, I know more than 50 people, but probably not more than the job situation of more than 50. It's certainly possible I know a person that is unemployed, but doesn't tell me or anyone else.
Robert,
One thing you might find interesting was the shear number of people moving here for job transfers coming up to 2007. 50k ish total, but 40kish of them chose to rent, at least at first.
So that puts another 12 month delay between new job creation and new buyers into the pool. So even if the stimulus quickly brings more buyers, most of them won't be buying until 2010 anyway.
Also, your new-job relocation numbers could be put in context of those 50k people who were moving here at the height of the bubble...
I think this really is more a case of, yes, Virginia, there are job openings, just as yes, there are houses for sale and going under contract. The world doesn't stop turning for what in this area is a recession, not a depression.
@j@-
You dated a woman with a husband?
Hey Robert, you should talk about how great DC will be for jobs.
Robert, I can't explain all the unemployed lawyers, but I can explain some.
This area has a huge percentage of the nation's patent lawyers. The work is overly-concentrated in foreign-origin patent applications.
Starting last year, companies across the globe started cutting costs anywhere they could, and this led to a huge increase in abandoned patent applications and a pretty significant decrease in new filings.
I know numerous attorneys and staffers at numerous firms, including large general practice firms, who were let go.
This is just part of the picture.
On the other hand, things started loosening up about 6 weeks ago, and I know several people in legal and non-legal fields who recently landed new positions. This was good to see, obviously, as it had otherwise been about 6 months before anybody I know had moved into a new position. My firm has about 150 or 175 employees total, and there was not one voluntary departure from last October to May of this year. Normally we'd see at least a dozen.
We are seeing signs of corporate stabilization at (much) lower levels than last year. This is why perhaps 25% of the AMLAW 100 have now reduced associate salaries. I'll expect 90 or 90% to have reduced salaries by the time this plays out. There is also talk of some percentage, perhaps 15% OR 25%, OF THE AMLAW 100 being in immediate danger due to high fixed cost structures... including pension payouts to retired partners.
Robert,
Lawyer employment has been a tough issue across the nation for several years. This area was more shielded by the relatively good pay from government law positions in DC and firm presence, so we attracted a huge number of lawyers. (It was becoming hard for those who went to second and lower tier law schools to find jobs because the big firms generally didn't recruit from those schools but state government/small firm law doesn't pay enough to cover law school loan payments (even from second tier schools). That pushed a huge number of lawyers into this area, and their numbers were exposed when lots of grunt work and their ranks were joined by those laid off went away when M&A slowed down.
And I don't think anyone would argue that DC will do better than anywhere else during a crisis, but I think there's lots of merit to argue that doing better may not mean land values (the house wasn't the part that was moving in value) will rise.
My big concern for this area remains a shift away from outsourcing, I'd expect wages to decline because the stabilty of government employment reduces the compensation required vs working for a contractor.
Here's a good look at why lawyers are hurting more than other sectors. http://www.nytimes.com/2009/06/07/nyregion/07law.html?_r=1
Robert,
Lawyers are hurting because of the economy's impact on their clients. Clients are cutting costs everywhere they can, so for example, right now they aren't bringing patent or copyright infringement cases that they would normally pursue, because they can't afford the legal fees. This results in less work for the firm, and so the firms are cutting salaries and/or laying off attorneys.
Also, there are just too many lawyers out there. In the last 20 years, there have been lots of new law schools that opened all over the country, churning out people with JDs and charging them a fortune (seriously, if I wanted a cash cow, I would start a law school). Compare that to medical schools--very few med schools have opened in the last 20 years.
So combine a glut of supply with a tight, in some areas declining market, and you get lots of unemployed attorneys competing for very few available positions.
"You dated a woman with a husband?"
Two of them at different times. Free thinkers. It was a long while ago and the Age of Aquarius.
I was young. Now I stay home and do the laundry.
continuing on in my own personal thread of the thread.
Wait a second. The excess relative to 1998 is only in those making over 100k. Other than that, there's a decrement. That means, what we already knew, the distress coming from borrowers extending themselves to early in their financial careeers is concentrated in the low end of the market. Duh. But more importantly, there is no waiting fence-sitter pool for the $210k and under price range. There are only marginal buyers pulled in with FHA loans. That's it.
There's plenty of price support at the ~$300k level for properties deemed desireable enough to buy by those with over $100k incomes. But if the over-median earners don't want it? There's no floor until cash-flow investors. Once the $8k bribe is gone (IF it goes), stuff that's not selling for near $300k will fall to cash-flow investor levels. That's what the excess well-to-do renter numbers say, and it's exactly what's playing out now in Burke. Greenfield Farms is toast, and Old Keene Mill Woods is next. But TH's around the Terra Centre elementary school are $350k and will stay near that until/unless the fence-sitter pool dries up a year from now...
This is always how it plays out. Lowest tier is inflated most and at greatest risk, all boats are floated, and then those with the most caution who are also likely to be those with more money, pick the winners and everything else goes reverts to rentals. Though normally, the new housing stock is chosen as the winners, whereas in this bubble in some places there's just too much new housing stock for that to be the case.
But this makes my housing decision even riskier. If I'm not willing to shuck out over $300k for a TH, I can't guaruntee that the rest of the neighborhood won't fall right through the affordability floor and land at cash-flow positive? All the more reason to hold out for the properties with intrinsic immutable value, like lake views, large sq footage and great walking commutes...
Cara,
Your fence-sitter, pent-up demand analysis is interesting, but fails in one important regard.
You are right that homeownership levels got completely out of whack, but these "marginal" buyers are once again renters thus continuing to occupy the housing stock just not as "owners".
So, I believe it's more of matter of supply being absorbed - whether it be by fence-sitters or investors.
While some are doubling-up or moving home, most displaced owners are now renting. We are returning to more historical percentages of ownership.
p.s. also went to any Ivy and have a kid at one now. Why are there so many of us here (and not out conquering the World)?
NoVAWatcher,
I think the Town of Vienna gets a say in traffic planning. It was not all up to Fairfax County government. For obvious reasons they had no desire to make Maple Avenue any more of a commuter road. It would not help residents of Vienna to widen or make Maple Ave limited access. It also would almost assuredly harm the businesses lining Maple Avenue.
[Er meant to note I'm replying to a comment from NoVAWatcher in yesterday's post]
Cara, I was thinking about our FHA discussion from yesterday. I looked up the ZIP code you said you were looking in: 22015, right? From April '09 it was
Conventional 23
FHA 21
VA 9
Assumption 1
Cash 2
Total 56
So 30/56 or 53% were FHA/VA. Do you not consider that a high percentage? It seems high to me. Plus the conventional financing are probably more concentrated at the higher end (like the 22 homes that sold for $400k or more in April).
So, I would guess most of the buyers you are competing with *are* FHA.
Although I do not think it will be a major factor, I have to believe the above-average amount of rain this year (and 6 AM crazy thunderstorms) is not going to help the home market this year.
Va_investor,
Yes, the number of households is roughly constant. No argument there (at least not on this ridiculously rough level that I'm doing here).
The marginal buyers are indeed becoming renters (for the large part anyway). Agreed, my analysis didn't state that explicitly, but it's in there. As those prior owners (or their banks) sell they must sell to someone. One pool of buyers is cash-flow investors, and for this analysis, I'm assuming that this is an unlimited pool that will provide support once the price is low enough to bring a good cash-flow return. But that price level is not the same level as support that would come from incomes on owner-occupants, who don't need to make money over renting, just need to have it be comparable to renting.
So the question I'm trying to address is, how much support is there from fence-sitters to keep houses at owner-occupant pricing, as opposed to falling to cash-flow positive. And my conclusion is that in FFX County, there is support, but it's coming from those who make over $100k a year. Drop below that level to attract buyers and you may very well find a void that won't be filled unless the place makes sense for an investor. This spring there's great FHA financing, and a $8k incentive to pull up a fresh batch of marginal buyers, but going forward, that's unsustainable because these folks will default too just extending the cycle of REOs until all owner-occupants are chased away from that neighborhood.
Ugh. I am hearing the "buy now or be priced out forever" talk again, but specifically with regards to interest rates. People around me are saying interest rates are going to continue to rise because of the looming deficit crisis, and I should buy now because it is only going to get worse.
Bleh.
Anon412,
good point. It was more in comparison to Manassas and Woodbridge that the FHA/VA percentage looks small. The numbers in the AHS show however, that contrary to popular belief? The percentage downpayment changes slowly with income. Yes, for the under $50k earners a huge number have 10% or less and that peak at FHA numbers is larger than the peak at 20%, whereas the opposite is true for the over $80k earners. But it's a smaller effect than you'd think. So, bottom line, my assumption that the conventional loans were evenly distributed amongst price ranges is a little extreme, but it's probably close to the truth. So this says, about 1/3 of my competition is just as well funded as me. So I would categorize Burke as an FHA/$8k aided area, not a FHA/$8k driven area.
paKa
Me too!!! It's frustrating, I agree. Just tell them, sigh, not everyone can buy at the bottom like you did.
Cara,
I believe investors have put a floor in. In Burke, what are the numbers on a 300KTH (rent vs own)?
For my purposes, 200K is the max. I expect positive though, not just b/e.
The big question is how many more foreclosures are coming our way? Clearly, the lowest tier has been bid-up this spring. It remains to be seen if these prices will fall back. I doubt it.
TBW: I'm thinking more along the lines that they should have planned a road around 123, before the population got too thick.
It's water under the bridge, but given the age of the housing stock, I think they had plenty of time to plan ahead.
Here's an example of planning ahead: at the intersection of 28 and Willard, you can see that they reserved room for a future cloverleaf.
http://tinyurl.com/lrnv8k
By the way: did you know that Fairfax County Parkway was once part of a planned Outer Beltway?
http://en.wikipedia.org/wiki/Fairfax_County_Parkway
Hmm, okay, well tomayto tomahto I guess. Those #'s seemed like a lot of FHA / VA to me, and probably higher than most of the region.
I was thinking about this the other day, also - the $8k could really have a distortionary effect on the market in some cases as well. I don't know if this applies to you but if a couple earning more than $150k but is choosing to be conservative and buying in the range where under-$150k couples are buying (say $300k), they are really put at a disadvantage by not having that benefit that their competition has. That's the problem with not phasing it out gradually and instead having a sharp cutoff with respect to AGI.
Va_investor,
In Burke, rent versus own is marginal at $300k, and requires the 5% rates that are disappearing.
(the 50k premium for walk-to-elementary school is about right historically).
I'd put $200k for cash-flow here too for Old Keene Mill Woods, but the Greenfield Farms ones are in a lesser elementary district and really tiny, so need to be $160k for positive earnings. And indeed, that's what both of those places are selling for. I don't expect them to fall below that (hence my assumption of an effectively infinite pool of landlords). And I do, indeed, have the option of just buying in a landlord dominated complex for the cheap price, and not worrying about it falling. When we start looking for real in the fall, we will be considering this option.
Anon412,
Yeah, I think it's purely a wording distinction without a difference, only the numbers themselves matter.
The $8k has a very brief linear phase out to 170k, but yes, that is our problem to a T. It's even worse for single people competing against couples. But I think that's kinda always true, this just makes it worse.
I'd be interested in seeing the FHA percentages for Vienna, Oakton, Fairfax City, Reston, Herndon, or other zips I deem to be approximately comparable to (or one step up from) Burke.
Yes, the effect on singles is crazy. A single person making $80k is not more well-off than a couple earning $149k. A married couple does not have double the living expenses of a single person (even if you live with roomates, you need 2br, when a couple can live in a 1br). I really hope they don't renew the $8k.
anon412,
Yup, it's just evil. The tax discrimination in this country against single people is nuts. It's like, hey, this is a group we can still trample, let's do that!! Gah. (not that I'm single, I just don't appreciate this distortionary BS).
Not to mention if you're in a same-sex relationship where combined you make less than $150k, since it's not recognized as marriage, you don't qualify. Although that would have to mean at least one of you was making less than $75k, but probably the higher-earning partner would be taking out the loan....
Anyway, that's a whole 'nother issue.
NY Times, 10 Banks to repay $68.3 billion in TARP funds but somehow all is still not well? What exactly are these "warrants" the article speaks of? This may be a case where I let the stock market tell me if this is a good announcement or a bad announcement...
Maybe this will make fellow singles feel better.
Couple making $150k (A makes $90k, B makes $60k). Full social security (6.2%) tax on both salaries = $9,300.
Single making $150k only pays the social security tax on the first $106,800 (this year's limit). Social security tax = $6,621.60.
Single saves $2,678.40 in social security taxes.
TBW, that's only because social security is a tax SPECIFICALLY ON THE MIDDLE CLASS, and the guy or gal making $150K a year is no longer middle class--so he gets a BREAK.
This is also unfair and the cap should be eliminated, especially if someone wants to "save" social security (or continue to have it survive so that someone can spend every dime of it on the military, etc.)
100 years from now, after social security is long gone, probably starting in 2030 or so, it will be clearly seen as the most massive transfer of wealth from the middle class to the business class in the history of the world.
The first complete "flip" of a property that I've seen since we started looking seriously in Feb. This place had a mold problem per the comments on Frank's site, and was sold for $200k. Some LLC bought it and it just went up for $359k.
Tyler Park
Falls Church, 22042
http://franklymls.com/FX7079684
cara/tbw:
RE: tax discrimination against singles
I have to gripe about tax discrimination against large families. We have been hit with the AMT ever since we crossed the threshold of six kids. My parents always complained about this, and now it's my turn. For the AMT, you hit a certain number of deductions, you pay the AMT. Doesn't matter if the deductions are for your own children. That just makes me crazy.
On another note, update for friends with almost $500K balance on house worth about $250K:
We had a long, frank talk, and got more horrifying details. Their monthly payment for the two mortgages is over $4000 BEFORE taxes/HOA/insurance, more than half their monthly income. They were hoping for a modification to a fixed interest rate and longer loan term and principal reduction so they could keep on keeping on until, in their words, housing values come back up.
We tried to show them that the chances of their cookie-cutter/4BR/2.5BA/1900sqft/no garage/unfinished basement house being worth half a million dollars again in their lifetime was small, and that if they stayed there until the house was paid off, they would end up paying, like, a couple million dollars in interest for the place. They said they had focused on the monthly payment, rather than the bigger picture.
I don't know what they'll decide to do, but I hope they ditch the effort for a loan modification and just go for a short sale. Their two concerns with that? #1 "But we'll be paying the same amount every month in rent." I showed them dozens of houses twice as big as their house in their neighborhood for rent for half their monthly payment. And reminded them that their payments, which had been interest-only the first three years, were putting only about $100/month towards principal, so they're basically renting from the bank. #2 "But interest rates might be higher in the future when we're ready to buy again." So you'll keep on paying between 8%-11% to this bank instead?
Fred
"all the work is done!" but they're now so strapped for cash that they couldn't wait until they'd taken pictures to get it listed on the MLS? Do I smell fear? Or is this just some fancy reverse psychology? List without pictures to generate mystery, and the feeling of getting a deal!
Yes, TBW, that illustrates how tax code was designed to benefit a working husband and a stay-at-home mom. But times have changed!
My spouse and I are in the same field and earn almost exactly the same salary.
And Tabitha, don't even get me started on the AMT. Fortunately we haven't been hit by it, but I'm sure we will eventually unless something is changed (fat chance, since taxes are going to continue to go up).
Any discussion of social security needs to include discussion of the payout entitlements as well as the paying in. SS is intended to be a minimum payout safety net, to be combined with savings and private or other retirement programs. Specifically, benefits are capped and do not take into account income above the social security max. So if you are a high earner, you will get the same benefit as someone who earned just below the cap each year, and a much lower proportion of your salary than do lower income workers. Hence the rationale for capping the contributions as well.
Further, the married couple is entitled to much higher benefits than is the single person, so it makes sense that they contribute more. This is particularly true if dependent children are involved, who may be entitled to benefits even though they haven't ever paid in.
I'm not arguing about the merits of these provisions, or whether changes are needed. I'm just arguing that at a minimum the discussion needs to factor in both the pay-in and pay-out side, not just one of them.
Tabitha, the reason you are hitting the AMT is not BECAUSE of your kids, but because of at least a modestly high income and the fact that kids (and some other things) aren't allowed as deductions/exemptions for the purposes of the AMT. In other words, if you had a low income and 20 kids, you would not pay AMT. The problem is that the AMT was originally implemented as a way to tax the rich who were escaping taxation, but the income limits weren't changed to reflect inflation. Now the Congress doesn't want to give up this windfall. It is unfair to a LOT of people.
Tabitha,
the AMT kicks in with a certain # of deductions? Gah. That's just stupid. The US Tax code, so broken.
But it sounds like you gave them all the information they needed, or rather did your best to disillusion them from their misinformation. You can lead a horse to water....
I just found out friends of mine who bought at/near peak in 2005 have an 5-year I/O loan. Their incomes have gone up considerably in the meantime such that they could keep paying it at the amoritizing rate once it recasts, but she's all annoyed that they're not being considered for a refi since they're not actually in financial duress. I told her to wait 6 months until the truly problematic people are through the system, and then she might get a better response. My real thinking is that there's no way the bank is going to get them into a new MBS pool at historic lows in interest rates, but might see it in their own best interest to refinance them into a fixed rate once interest rates come back up to "normal" percentages of like 6.5% or more, which would still be less than their adjustable rate is capped at. The bank is still going to have to be able to sell their loan though...
Anon-
"Not to mention if you're in a same-sex relationship where combined you make less than $150k, since it's not recognized as marriage, you don't qualify. Although that would have to mean at least one of you was making less than $75k, but probably the higher-earning partner would be taking out the loan...."
Its not just a same-sex issue, non-married couples also have the same issue. But as long as both peoples names are on the mortgage they can get all of the money if one makes below $75K. The law allows unrelated people to partition the 8K anyway they want. It actually can work out very well for some "single" people. I am engaged and together our income is just over the $150K limit, but since we aren't married we can use her income(below $75K) and get the whole credit. Perhaps we are abusing the system, but if they are going to write the law that way...
Scott,
Social security is here to stay. It's easily fixed by some combination of increasing the tax, increasing the income limit, increasing the minimum retirement age, and/or decreasing benefits.
Now what is going to happen with Medicare is the bigger issue. It's much, much closer to insolvency. And frankly, it's already pretty harsh to have people wait until 65 (people who are 60-65 are priced out of individual plans and few employers offer plans for retirees in that age group.)
Allegedly we are going to work on constraining health care costs and providing universal coverage. We'll see over the next few years how that goes.
But of the two, Medicare is much more likely to go than social security.
"And to date they haven't received a penny of taxpayer money to bail them out, just like many others around the country with burdensome mortgages."
No, they've just received 8 months (and counting) months of free housing.
contrarian,
Why on earth is he reading the blogosphere? Gluten for punishment?
@ housebuyer,
Wow, that is a crazy loophole. Not that crazy in your case, but it would also mean that if couple where one partner made $200k and the other made $60k, they'd get the benefit.
I wonder if this has led any couples to push back wedding dates....
I love Michelle Singletary's columns. She wrote a great one a year or so ago about how mortgages were meant to be *paid off.*
She noted how her grandmother (or mother) had a big party where she burned up the mortgage contract after she had paid it in full. How this was a common party back in the day.
And she blasted the notion that you should always have a mortgage. My generation (and the generation ahead of me) is getting screwed because so many baby boomers did not pay off their mortgage(s) so they are going to work until they are 70 and therefore not clear up enough space for everyone to move up the chain.
I agree with all of you that the AMT is broken along with our tax code, but I disagree on several things. I am sure that my comments will not be popular, but here goes...
First social security is not a transfer from the middle class to the business men. Wealthy people pay at least as much in and get no more out. Instead it is one of the few taxes that are not a transfer of wealth from the rich to the poor. (e.g. everyone gets the same services from the government and rich people pay way more taxes in. I think this is how it should be, but don't say that the poor/middle class are subsidizing the rich)
Second, I think it is crazy that the government lets you deduct kids, interest on your mortgage, and other such things. Why should someone pay more taxes because they don't have a lot of kids. I mean they are already helping to pay for the kids education by paying property tax.
tbw,
I love Michele Singletary too, but at times she seems to rail against "the system" on behalf of "victims" a little too much. (like in this case, where a mea culpa from the borrower is enough to deflect her "anger" entirely to the lenders). But given her mantra of individual empowerment to get out of debt, it makes sense to embolden the "victim" so that they have the back-bone to get out of the mess they made.
Anon-
You wouldn't need to push it back, because you are allowed to redo last years taxes and get the credit immediately. So since they were not married last year they would be fine anyways.
I can't stand Michelle Singletary because she demonizes people who have student loan debt. Sorry, but most of us don't have rich parents, and not all of us grew up in states that had good public universities.
I also can't stand the sanctimony.
Ace, you are certainly correct that if we were low-income, we would not need to worry about the AMT, or any other taxes, for that matter. But I think the income threshold needs to be adjusted, to something over six figures. Considering a family of nine to be "rich" on a military salary is a little silly.
As for deductions for children at all, I know little to nothing about tax code history, but I always assumed that was done to acknowledge the fact that dependents "depended" on the income of the provider, and so a small amount of income would be "set aside" from taxation to go to sustaining that individual's life. Hence deductions for children. Is that incorrect?
contrarian,
Those people still pay payroll (social security and Medicare) taxes.
Also, just because someone is not currently paying taxes does not mean it will always be that way. I did not have any federal income tax liability when I was a student because of the deductions and credits for higher education. Since graduation, however, I have been paying a massive amount of federal taxes.
I agree that Medicare is a MUCH bigger issue--but at least (I think) everyone is taxed dollar for dollar on that, with no cap.
And, NO, social security will NOT always be there, if every dime is stolen out of it for other profitable purposes, like it has been ever since the LAST time soc sec was fixed, under Reagan.
I realize it was SUPPOSED to be an old age and disability INSURANCE program, not an INVESTMENT program, but we're being CHEATED out of the money we put in, and, we're being CHEATED even if we ever DO get checks written to us, because the government hugely UNDERSTATES inflation every year, so the check you will get is NOTHING LIKE what your father gets now, which is nothing like what he got in his first check, which is nothing like what HIS father got---when it comes to something that matters, like the cost of a loaf of bread, a tooth filling, a month of medication, or a gallon of gas.
Come back in 20 years when soc sec taxes are 5% higher bite on salaries and yet the checks buy HALF what they buy today--and THEN tell me soc sec is "still there".
In the last ten years, something like $120K has been "set aside" for me from my compensation, and I guarantee it will prove to be the VERY WORST "investment" in my entire working life. I expect to get NONE of it back--either due to inflation, means testing, or government bankrupting it and saying "sorry".
The reason this is a bigger deal with me than Medicare is that unlike Medicare it COULD be fixed but it WILL NOT BE. Why? Because it's too good a deal for RICH WHITE MEN AND THEIR POCKET POLITICIANS.
TBW-
They do pay some taxes, but the point is they pay very low taxes compared to the services they receive. Saying you pay social security is a bit of a joke. All you are doing is putting money in a retirement account that you will get in the future.
As I said I think wealthy people should pay higher taxes, because they can afford them and because the country has treated them well. Although I think this I think people should be more honest with the fact that taxes are definitely a transfer of wealth from the rich to the poor not the other way around.
Bill Gates is paying a 15% tax rate because his income is all capital gains. Many people say it is unfair his tax rate is lower than their rates and poor people are subsidizing him. I just find it appalling that people think of taxes that way. He is paying a billion of dollars of tax a year and certainly not using a billion dollars of government services.
contrarian,
Those too.
Also, while there are some people with disgusting levels of entitlement and no shame in always being on the public dole, I have found that many people are ashamed to be unemployed, poor, and taking welfare.
I've met people clearly eligible for public assistance who do not sign up for it and live with their families or friends.
Scott,
You are shifting your argument. If you are arguing my generation (Millennials) will have social security represent a smaller share of pre-retirement income than a baby boomer, then yes that seems pretty likely.
But your argument was that in my late 60s I could not expect a social security check. I don't think that is going to happen and it sounds like you are kinda admitting it's not going to happen.
I agree I (and my employer) could do a better job with that 6.2% (me)/6.2%(employer) money for *my* retirement.
However, plenty of Americans are ding-dongs when it comes to financial planning. Some live paycheck to paycheck and never save up anything. Without social security we would have a lot of destitute seniors. The more people like that the higher the crime rate. Yes, even senior citizens can rob a store.
Anything that keeps the public peace is a good investment for me.
housebuyer,
Yes, obviously the tax system works to give more to the poor than they put in.
Although in this region the rich often are getting their income from the federal gov't anyways (federal government job or fed gov't contractor or private sector job that exists only because of fed gov't regulation). So here you have some rich people paying a lot and getting a lot.
Anyone want to predict who will win the VA Democratic governor primary tonight? It could affect home values! ;)
Although I cannot think of any reason why Moran, Deeds, McAuliffe, or McDonnell would affect home prices. None seem particularly interested in infrastructure spending and will likely keep things decaying during their term. It's a shame really.
Tbw,
All of the dems mention infrastructure spending in NoVa to support the jobs here in their prepared WaPo statements. (haven't read the republican's statement since this is just the primaries and he's running unopposed).
Whether that will happen is another thing entirely. Given that I'm getting Creigh Deeds ads in every window that allows ads, I'm going to go with Creigh Deeds as the come-from behind get out the vote winner.
How about the MRIS data that comes out for May's numbers tomorrow? Any predictions? I predict that more things sold than were newly listed for FFX County, and that median and average prices are up MoM (also FFX county).
Relevance to the blog:
Brian Moran:
What is the most urgent problem facing your jurisdiction?
Virginia's families need a leader who will fight for them. 300,000 Virginians have lost their jobs, and thousands more have lost their homes. Hundreds of thousands more worry they will be laid off or unable to make their next mortgage payment. These are the Virginians I wake up to fight for every day. As governor, I'll fight for an economic stimulus and recovery plan targeted at Main Street, not Wall Street, and a Homeowners' Bill of Rights to help Virginia's families stay in their homes. We will ban predatory and deceptive lending to protect the working families of Virginia.
WaPo Candidate statements
His statement reads like "free ponies for all". And of course McAuliffe thinks that pay-day lenders who, by definition, only lend money to those who at least have verified that they have a paycheck, are the easiest of the targets for public ire...
Ah politicians.
"Cara said...
How about the MRIS data that comes out for May's numbers tomorrow? Any predictions? I predict that more things sold than were newly listed for FFX County, and that median and average prices are up MoM (also FFX county)."
I predict that this will be the last month FFX can beat YOY sales figures, causing a few local RE "gurus" to warn this is a sign of "another leg down" - ignoring the fact that its hard to beat YOY sales when there isnt nearly as much inventory to sell.
Note too Cara, thats the only problem I see in your analysis that "some (areas of FFX) may see spring level sales last through September". If inventory doesnt pick up (or at least level off) soon, I cant see sales continuing at such a brisk pace.
That is without rising prices and I seriously doubt that is going to happen.
CRT,
true, if REOs don't pick up the slack in a inventory that's winding down, then the gross sales pace will have to decline. MOI could stay "up" though, i.e. low months of inventory.
Really, that's the only flaw you see in my analysis? You think my figure of 14k fence-sitting high-wage-earning renters (and all of them in being in the over 100k/year category) is a reasonable conclusion?
Any guesses on my conclusion for my friends that banks might be more willing to work with them to fix their amoritizing rate once rates get back up to normal? Or is that also wishful thinking?
"I predict that this will be the last month FFX can beat YOY sales figures, causing a few local RE "gurus" to warn this is a sign of "another leg down" - ignoring the fact that its hard to beat YOY sales when there isnt nearly as much inventory to sell."
We might also see a sudden dramatic jump in medians though now that so much of the low-end inventory is off the market.
I am looking forward to the "The market jumped 15% last month, buy now while you still can!" articles.
"Really, that's the only flaw you see in my analysis? You think my figure of 14k fence-sitting high-wage-earning renters (and all of them in being in the over 100k/year category) is a reasonable conclusion?"
Given the data we have, that seems as good a guess as any. The only other part I would think is there may be others in other parts of the country planning to move here who may be in that same income category - but that is an X factor that seems impossible to know.
"Any guesses on my conclusion for my friends that banks might be more willing to work with them to fix their amoritizing rate once rates get back up to normal? Or is that also wishful thinking?"
Here im not so sure. My fear is that once the big snog of workouts are done, if the economy continues to show signs of life, the banks will (absent political interference) start to scale back on their programs. You didnt say this but I assume your friend cant refi because she is underwater, and doesnt have enough cash on hand to give her a sufficient DTE ratio. If so, the banks realize there are a number of people in this boat, some of which simply want to refinance, but (if push comes to shove) can pay the increased amount once the loan resets. My guess is your friend is in this category, and the bank is assuming the same.
"We might also see a sudden dramatic jump in medians though now that so much of the low-end inventory is off the market."
Yep - just as medians skewed low as the low end was outselling the high end, it may skew high as various areas run out of low end stuff to sell.
CRT,
On the fresh meat for the DC market. Indeed they are the X factor, that Robert's been trying to push. But I think their decreased move-up equity will somewhat cancel any possible increase in numbers (DC's been a great area for jobs all along).
On my friend. Yup. She's totally in the would like to refi, but doesn't need to category. In complete denial that what she needs is really inflation to bring the house price closer to what they paid, and more income to get out from under the albatross by bringing money to the table in a sale. It's hard to tell though, it may be the case that they can handle the initial recast and the first two or three resets thereafter (which are each limited to a maximum jump amount) but would eventually be in trouble. Impossible for me to tell. I feel like I already know too much as it is. She's extraordinarily hopeful that one or two sales back up near her purchase price will enable a refinance. There may be one, but I don't think that's enough to change bank policy.
Wow there are some SPECTACULARLY NAIVE people on here.
I'm not "shifting" my argument. I fully expect to get NOTHING in soc sec because it is projected to go bankrupt 2 years before I reach full eligibility, and I expect by then it will be means tested. I expect my sister, 9 years ahead of me, to get an amount that is SO SMALL relative to inflation that it MIGHT AS WELL be zero.
Why? Because it's ALREADY been happening for 30 YEARS since the LAST "fix". And because EVERY DIME is taken right back out and used to make rich people richer.
This was one of Reagan's masterpiece profit windfalls for the rich. (Nixon's was putting HMO's in place, and we all know how good THAT'S been for the poor/middle class household budget. Bush's was the war of choice, and McCain's was going to be another "fix" of social security--with the money going directly for---CONTINUING TAX CUTS FOR THE RICH.)
"rich people get the same government services" LOL CLUELESS. First of all see the last paragraph. Secondly, SURE, the CEO of Haliburton in the last eight years got "the same" services as every poor and middle class mother who lost a child in Iraq. YUP, same services, same benefits. Yup, the rising tide lifts all boats. Um, sorry, ONLY IF YOU ARE ***IN*** THE BOAT. LOL CLUELESS.
"50% of people don't pay any tax, this is socialistic." First of all that's a LIE in TWO ways, secondly let's have FASCISM instead then. Better? Let's RAISE taxes on the poor, AMT starting at ZERO dollars income and ZERO deductions, until the rich have 100% of the wealth. THAT would be a really GREAT society.
Here's how well that "tax transfer from rich to poor is going" so far LOL:
Share of wealth held by the Bottom 99% and Top 1% in the United States
Bottom 99% Richest 1%
1976 80.1% 19.9%
1979 79.5% 20.5%
1981 75.2% 24.8%
1983 69.1% 30.9%
1986 68.1% 31.9%
1989 64.3% 35.7%
1992 62.8% 37.2%
1995 61.5% 38.5%
1998 61.9% 38.1%
2001 66.6% 33.4%
2004 65.7% 34.3%
Scott-
First of all if your going to call everyone clueless you should at least have solid facts to stand on. Why would you assume that you would get nothing if the social security system had no reserves? They would just need to ensure that the money going out equaled the money going in. So the working generations payouts would have to exactly equal the withdraws. I am pretty sure that I heard this would lead to ~30% in benefits(I am not sure about this though). Either way it clearly is not zero so you will continue to get payouts.
Second way to cherry pick your data. Here is all the data the webpage had and you will notice that we are currently near the historical average
Bottom 99 top 1 percent
1922 63.3% 36.7%
1929 55.8% 44.2%
1933 66.7% 33.3%
1939 63.6% 36.4%
1945 70.2% 29.8%
1949 72.9% 27.1%
1953 68.8% 31.2%
1962 68.2% 31.8%
1965 65.6% 34.4%
1969 68.9% 31.1%
1972 70.9% 29.1%
1976 80.1% 19.9%
1979 79.5% 20.5%
1981 75.2% 24.8%
1983 69.1% 30.9%
1986 68.1% 31.9%
1989 64.3% 35.7%
1992 62.8% 37.2%
1995 61.5% 38.5%
1998 61.9% 38.1%
2001 66.6% 33.4%
2004 65.7% 34.3%
Finally, we are no longer in a time that people are helpless to improve their situation. 100 years it was almost impossible to get rich unless your family was rich. Now if you look at the richest people they are all self made(Gates, Buffet, Ellison, Walton, Bloomberg, ...) You have to go the 6th richest person to find someone who came from a wealthy family. So saying it is the tax systems fault and no one can improve their situation is BS...
* I meant to say the payouts would need to equal the inflows of money
* I also meant to say a 30% cut in benefits. I am getting distracted by all the lightning
One final thing although you are right that rich people probably use slightly more services do you really think they use 40 times more services the website below says they pay 40% of the total income taxes. Its interesting that they only have 34% of the wealth yet they pay 40% of the taxes.
http://www.ntu.org/main/page.php?PageID=6
Does anyone have an idea of why the 8k first time homebuyer's credit expires on 12/1 instead of 12/31? Any thoughts on whether or not this credit will be extended?
As far as taxes goes, don't forget income tax. Even those with no income pay those taxes.
NVAR May 2009 numbers for all of Fairfax, Arlington, Alexandria, Fairfax City, Falls church City, Vienna, Herndon, Clifton
1803 sales compared to 1724 in May 08
8050 active listings compared to 10,757 in May 08
Mean price $433,257 compared to $478,672 in May 08
Median price $375,000 compared to 405,000 in May 08
Pending Sales 2637 compared to 2166 in May 08
I got this short sale in my mailbox:
http://franklymls.com/FX7080175
Two interesting things.
(1) The list price is $599k, but it was bought in 2003 for $442k ($157k less).
(2) Houses like that in that area are not going for $599k. Try closer to $499k.
WOW you completely missed the point. Amazing.
Where did I say anything about what situation some one was born into? Nowhere.
Where did I say anything about being able or not being able to improve oneself? Nowhere.
My point is---if you're going to tax the middle class ONLY, and tax them at 12+% of their compensation, then maybe, just maybe, the RIGHT thing to do would be to NOT SNEAK EVERY LAST DIME OUT, REPLACE THEM WITH IOUs, AND GIVE THEM TO THE PEOPLE THAT WERE LARGELY EXEMPT FROM PAYING IN!!!!!
GOT IT?!?!?!?
And yes, I omitted the years when the Democrats were in power and being accused of being socialists, when the middle class was more prosperous...
And how do I know I'll get nothing? Like I said, TWICE I think---there will be MEANS TESTING once the money is proven gone. Plus, I'm in THE last year of the baby boomers, so all this 1-to-1 parity crap is BS.
I'm fine with that--promise me zero! Just one thing--relieve me of this 12% charitable contribution to people already better off than me, and let me invest for MY retirement, not Shaquille O'Neal's!
"CRT Said...Yep - just as medians skewed low as the low end was outselling the high end, it may skew high as various areas run out of low end stuff to sell."
Very true, making the ho-hum declines seen in Arlington that much smaller.
It was 6 years ago this month that I decided to listen to the doomers and wait til prices came down to buy. I wish I could go back in time and just smack myself.
Scott-
Can you explain to me how you are paying for his retirement. Although you are paying a higher percentage of your wage he is putting at least as much money in as you and will not be getting any more out.
Seeing that you think the whole program will go away Shaq is younger than you. He is 36 thus not a baby boomer so if anything maybe he is helping subsidize your retirement. He is also paying a 35% income tax rate on most of his income. Your top bracket is 28%, so even though he is not paying social security on most of his wages he still has a higher average tax rate.
Seeing that the rich are paying 35% income tax and the middle class are paying 28% or less how can you justify saying the middle class subsides the rich because they have an extra 6% social security tax. I am pretty bad at math but I am pretty sure that 35%>28%+6%
Scott,
Do you realize capitalizing every couple of words makes people think you are angry and screaming and thus discount your arguments?
In any event, unless you are self-employed you are not paying 12.4% of your wages in social security taxes. And if you are self-employed you get to deduct part of that tax and thus are really paying less than 12.4%.
Assuming you work for an employer, your employer is paying half of the tax. You only pay 6.2%. If you think your salary would be 6.2% higher but for social security then you are the one who is naive. Maybe you could argue it'd be a little bit higher -- say 1-2% but 6.2%? Not likely. It cuts into the business's profits.
Scott, the "rich" are paying in more and taking out less. It really is that simple.
Social Security has a lot of problems, but none of them are related to "taxing the middle class in order to give the money to the rich."
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