Friday, March 14, 2008

Got food?

Housing values crashing around the state? Affirmative, Captain.

Home foreclosures in California increasing? Holy mother of God, yes! Do you even have to ask?

Increased loss of jobs? Yes

Consumer confidence falling? Yes

Cost of oil rising? Yes, and damn you hybrid drivers all to hell!

Cost of grain for food rising? Yes. And yes again.

And what about food!? This might be considered somewhat off-topic in terms of the housing market crash and smoldering ruins all around us. But it is important. And why? Because of how it fits into a family's monthly household budget. Housing expenditures make up the lion's share of any household budget, whether you're renting or in debt with a mortgage. For a family with 2 children in Lake Forest, California, households may be paying anywhere from $1500 to $4500 per month to put a roof over their heads from the most basic to the more elaborate. With the cost of gasoline and the cost of food rising, this will place added strain on household budgets in the coming months and perhaps years. A $400.00 grocery bill that now becomes a $500 to $550 monthly grocery bill can strain already tightening family budgets.

Given the ongoing national and state budget deficit crises, the likelihood that both federal and state income taxes will be raised over the next 4 years is quite high. The current rate of government borrowing can no longer sustain itself as the cost of money steadily increases.
Higher income taxes too will subtract less from the top line of household budgets.

In the housing market, something has got to give here. Home price corrections, such as the one underway in Orange County, California, typically take years, not months, to play out completely. And real estate is local, so some areas will correct faster than others.

Even if customer confidence were to soar overnight for some explicable reason, the fundamental problem remains the same.

What is the take home pay of median (the majority) of families in Orange County, California? And after monthly budgeted expenditures for groceries, gasoline, clothing, insurance for vehicles, maintenance expenditures and savings, is there enough money left over to purchase a house and meet the monthly mortgage payment obligation? Is there enough money left over to pay the rent? And finally, what is the delta between what I would pay to rent a house versus pay to "own" a house?

The answer to these questions right now is not encouraging for the majority of Orange County residents. And this is why the brutal housing market correction we are witnessing has still a long way to go in Orange County.

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