I don't know what happened, but all of a sudden, the 30%-per-year equity increases on my homes have stopped cold.  Gee.  I would have never have thought this would have happened in a zillion years!

Common sense should have told anyone that things couldn't stay this way forever; the bubble was soon to pop.  Home prices continued to escalate while wages stagnated.  Somebody purchased my next-door neighbor's last year for $550,000.  Well, that was nice for my neighbor, but how many people can truly afford a $550,000 home?  Other than this fluke of a sale, who will be moving into my average, quiet middle class subdivision when I want to pack up and split in a year or so?

The average American earns about $32,000 per year.  Let us say that this person is married and his or her average spouse earns the same thing.  That translates to about $2667 per month, or $5333 for the household. 

Now, to understand mortgage financing a little better--  one can qualify for a Fannie Mae, conventional loan with a maximum debt-to-income ratio (DTI) of 45%, with excellent credit.  The maximum DTI is usually lowered to about 38% with fair-to-average credit.

(For this example, let us say that the average Americans for our example have outstanding credit scores.)

They are allowed to borrow up to the point that their monthly debt obligations do not exceed 45% of their pay, or a "45% maximum DTI."

Okey-dokey...  So we take $5333 and multiply it by 45% and we get $2400 available for monthly credit report-type obligations.  Of course, they both own cars and each one of those has a $299 monthly payment.  The couple is hip and young, and so the cars are Jettas, no less.

So we need to subtract the $600 in Jetta money from the $2400 we had set aside for the house payment.  Hmmmm...  That only leaves us $1800 for the house.

Anything else on that credit report?  Of course there is!  Student loans and a maybe few credit cards.  For the sake of this example though, we'll say our average Americans with average incomes have less than average debt.  We'll pretend that they don't go wacky with the credit cards.  We'll pretend that, even though they are hip, they don't drink a Starbucks Coffee each morning.  We'll just go with the two Jettas and work with $1800.

Because taxes and insurance are considered part of the payment, we will say $150 per month for insurance and $150 per month for taxes.  (These are average, for a modest Arizona home.  Taxes are pretty cheap here.)

So now our couple is down to $1,500 to spend on mortgage principal and interest (P&I) only.  We've got the cars and taxes and everything else covered.

Let us just check out an online mortgage calculator and see what we get.  Okay!

If interest rates do not climb beyond 6.5%, they could stretch themselves very thin and get a $235,000 mortgage.  In Arizona, unfortunately, that won't buy them too much.  Also, to be totally honest, most people have more monthly debt (than this example) and lower credit scores.

Yep, Real Estate will be a little slower for the next couple of years, but that's okay- I need the break.