By Elizabeth Stanton
Jan. 4 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund, says the Federal Reserve will lower its benchmark interest rate by a percentage point to 4.25 percent this year.
I am bearish on Real Estate. RE is over priced, and without a price correction, it will flounder. I see it with my own eyes, and there is a problem.
The median Chicago family income of $68,000, and the Chicago median home price of $283,000. Do the math: $68k x 3 = 204. Using the safe traditional model, the median family can only QUALIFY for $204,000! That puts them nowhere near the $283k.
Reverse the math: median home price is $283,000 / median family income is $68,000 = 4.16. Banks have to loan more than 4x the median families' GROSS income to get that family to QUALIFY for the loan. That means nothing when it comes to staying in the loan.
The median family cannot even AFFORD the safe and traditional qualification of $204k. Let's give the median family income a 15% tax. Now they are only taking home $57,800....x 3 = $173,400. That number is what they can AFFORD.
The rate cuts predicted by Pimco, Inc. would be nice IF the sellers held their prices. And we all know they will do nothing of the sort. The dollar signs will pop in their eyes again and prices will rise. Exactly what the market does not need.
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