Saturday, May 24, 2008

Southern California Mortgage payments

This is simply a chart of the typical mortgage payment a Southern California borrower agreed to pay since October 2000. The red line is the mortgage payment reported in the press release, the green line is the 1989 peak, which started being inflation adjusted in 2004, as reported in the press release. For some reason the inflation adjusted peak varies but it gives a simple guide to the previous boom. The typical mortgage payment reflects what mortgage people are willing and able to pay during a period of time. While the psychology, the willingness to take on debt, is an extremely important part of any bubble, it is hard to quantify. The money people are able to get from the bank defines their purchasing power. With down payments coming back en vogue and America having a negative savings rate it will be an interesting chart to watch in the future. We are already 33% down from the inflation adjusted peak mortgage payment. This reflects cheaper houses selling and buyers unable to take on as much debt. In the last Dataquick press release median prices didn't fall 33%, this may be a reflection of the inflation adjustment and interest rate difference from a year ago. Unfortunately Dataquick doesn't explain their methodology.

This is yearly mortgage payments for So. Cal. divided by median income for Los Angeles County as reported by the N.A.H.B.. The right scale is the percentage of gross income it took to buy a home. In other words prices were rising not due to low interest rates (monthly and yearly payments remove interest rate variablity) or incomes rising. This is just a rough graph since I don't have the individual county data for mortgage payments but gives an idea of how much debt people were willing to take on and how much the banks didn't worry about getting the money back.

No comments: