Chatter

Statistics Fun

This is a criticism of fib-by-numbers. There's a little bit of white vs. non-white in here, but that just relates to one of the fibs.

According to Bush, 68% of Americans own their own home. If you look at the Census Bureau breakdown towards the end of the same story, over 75% of whites own their own home and less than 49% of minorities own their own home. Bush is using the 68% home ownership figure to rally the minorities around his "ownership society", but the details of the numbers don't paint such a rosy picture for minority homeowners.

According to the Census Bureau population estimates, whites make up 68.9% of the American population. 75% of them own their own homes so that means that 51.7% of the population (75%*68.9%) is made up of white home owners. 15.2% of the population (49%*31.1%) is made up of non-white, a.k.a. minority, home owners. Comparing apples to apples, this means that 77.3% of home owners are white and 22.7% of home owners are not. This implies that the wealth distribution (assuming a direct relationship between wealth and home ownership) is still skewed towards whites. If the wealth were distributed equally among the races, home ownership percentages should mirror the race percentages. Of course, the wealth distribution is probably actually more skewed than this. We haven't considered the ownership of multiple homes, incomes, and other assets.

So basically, Bush is running around trying to rally minority voters by using numbers that really say "whites still have way more homes and money, proportionally and otherwise, than you".

Outside of the whole minority thing, Bush's use of the record high 68% overall home ownership rate is still misleading. That 68% figure is very tenuous and like to drop quite a bit within a few years. Home ownership rates are high because interest rates are at record lows and people are buying based on how much mortgage payment they can afford. Low interest rate driven demand has helped push housing prices way up. See the irony?

If rates go down and prices go up, you basically get the same house/mortgage payment for an overall higher price tag. What was a $300k house with a $3000/mo mortgage becomes a $500k house with a $3000/mo mortgage. For the higher price tag, you don't get any more land, rooms, bathrooms, fireplaces, etc. You do get higher property taxes, though, since property taxes are basically pegged at the buying price and moved incrementally from there and not necessarily in step with the market value of the house. If you went for an adjustable rate mortgage (ARM) or an even more risky interest-only mortgage, you're screwed and totally screwed, respectively.

The interests rates are going to jump higher. You kind of want them to. The interest rates are low now because the Federal Reserve thinks that the economy is weak and needs the help. Interest rates get bumped up when the economy is doing really well and needs to be slowed down a little so that it doesn't get tired out early like the hare. You want the economy to get better than it is today, right? Doesn't that seem inevitable?

When the rates go up, the people with ARMs will find that it's much harder to make their mortgage payments. The housing prices will probably also drop because of cooled demand caused by higher interest rates and the fact that many of the new home buyers today are people that would have bought homes later if it hadn't been for the attractive interest rates (and therefore won't be in the market to buy a home later [even if they are, it's presumably with the sale of their existing home resulting in no net change]). This is when the people with interest-only loans will commit seppuku.

Their interest rates will go up when their interest-only payment period ends, they will have no equity in their home, and after years of payments, they will be looking at refinancing a $500k loan (the full amount, remember that none of the payments applied to the priciple) for a house now worth $300k. "Oh ... the agony ... I didn't realize-this-would-hurt-so-much-please-chop-off-my-head-now..."

Inevitable. I'm going to start learning about how to buy foreclosures.