“Mortgage Reset And Equity Strain” In California
The California realtors have the affordability index out. “The percentage of first-time buyers in California able to afford a median-priced home stood at 24 percent in the third quarter of 2006, compared with 28 percent for the same period a year ago.”
“The minimum household income first-time buyers needed to purchase a home at $478,710 in California in the third quarter of 2006 was $98,890, based on an adjustable interest rate of 6.58 percent and assuming a 10 percent down payment.”
The Union Tribune. “The percentage of first-time buyers able to afford a median-price home in San Diego County remained steady at 21 percent during the third quarter of 2006, according to figures released Monday by the California Association of Realtors.”
“The minimum household income first-time buyers needed to qualify to purchase a median-priced home at $511,590 in San Diego County was $105,680. At 39 percent, the High Desert region was the most affordable in the state, followed by Sacramento at 38 percent, according to CAR.”
“Santa Barbara was the least affordable region at 14 percent, followed by Monterey at 17 percent.”
“El Cortez condo owners feel cheated. They bought homes in the historic hotel with luxury in mind, but their sinks back up, their homeowners association is broke and there’s no doorman to welcome them at the end of the day.”
“The fact that developer Peter Janopaul is now planning to build a new condominium tower where their pool and parking is, well, that’s just one more slap in the face. Disputes have generated a flurry of legal actions, including at least a half-dozen lawsuits and a request for a restraining order.”
“‘They made a lot of money off of all of us and then they turn around and do this?’ El Cortez resident Rob Mills said incredulously. ‘They just say, ‘We’ll put another building in front and ruin all your investments?’”
The Voice of San Diego. “Leslie and James Alkire have a foreclosure counseling agency, a venture they launched to satisfy a growing need, the rapidly accelerating number of people facing foreclosure who are wondering what to do.”
“The number of homeowners receiving notices of default is skyrocketing. The County Records Service reported the issuance of more than 1,100 notices in the county last month. That compares to about 400 in October 2005.”
“And more homes are reaching the next stage in the foreclosure process: lender repossession of the home. There were more than 400 trustee sales, homes up for bid in an auction, in October, more than four times as many as a year ago. And the real-estate-owned foreclosures, when a lender hires a real estate agent to sell the home, numbered almost 200, compared to 15 in the same month last year.”
“As prices started leveling off and dropping in many areas of the county this year, the safety net of being able to sell a home for more than a homeowner paid has vanished. Mortgage broker Paul Smith said he warned people about exotic loans for years, only to have them go to another lender to get one. Now, he said, many of them are stuck with rising payments and decreasing home values.”
“‘These homeowners are in a bind,’ Leslie Alkire said. ‘They’re over-leveraged. This is happening all over the city. People get into these interest-only loans, the rates start climbing. And the property [value] rates are dropping.’”
The Modesto Bee. “Foreclosures are soaring dramatically in the Northern San Joaquin Valley as homeowners struggle with rising mortgage rates, falling home prices and a stagnant real estate market. A higher percentage of Stanislaus County homeowners were in default on their mortgages last month, 0.47 percent, than in any other California county.”
“Many Merced County and San Joaquin County homeowners also are in trouble, with default rates over 0.35 percent. Merced had the third highest percentage of defaults in California. San Joaquin had the fourth highest. The three Valley counties had more than 1,600 homes in default on mortgages in October. That’s about eight times as many as in October 2005.”
“There were 128 homes in Stanislaus, Merced and San Joaquin counties taken over by lenders during October. Compare that with October 2005, when 10 homes were lost to foreclosure in the three counties, according to DataQuick.”
“A new analysis predicts 4,866 homeowners in Stanislaus, 7,591 in San Joaquin and 2,309 in Merced likely will lose homes to foreclosure because adjustable-rate mortgages will push their payments too high during the next five years. That’s on top of foreclosures caused by traditional problems.”
“Christopher Cagan, director of research and analytics for First American Real Estate Solutions, recently published two studies on foreclosures, and his predictions for the Northern San Joaquin Valley aren’t pretty. Cagan warns ‘the double whammy’ of adjustable mortgage interest rates on homes with little or no equity will force borrowers into foreclosure.”
“Homeowners in the biggest trouble are those who bought homes with little money down and ‘teaser’ rate mortgages. Such adjustable-rate mortgages aren’t new, but what’s changed is the real estate market.”
“During 2004 and 2005, Cagan said, homeowners who had mortgages adjust to unaffordable levels had ways to get out of trouble. That’s not the case now because home prices have dropped about 5 percent compared with last year in the Northern San Joaquin Valley.”
“‘Some homeowners will find it hard to sell or refinance because they may have little or no equity in their residences,’ Cagan said.”
“He calculated that about 19 percent of homes that were purchased or refinanced since 2004 in the Northern San Joaquin Valley are likely to be foreclosed during the next five years because of what he calls ‘mortgage reset and equity strain.’”
“Borrowers who agreed to such adjustable-rate loans with little or no down payments may not have comprehended what they were getting into, said Frank Mandella, president of the San Joaquin Valley chapter of the California Association of Mortgage Brokers.”
“‘I’m sure some of those loans were made to people who did not understand the advantages and disadvantages,’ Mandella said. ‘Maybe they were not educated properly on how the lending program worked.’”
“Mandella, who owns Meadow Lake Mortgage in Stockton, said that during the past few years there were mortgages available for as much as 125 percent of a home’s assessed value. ‘They were designed for people to consolidate debt,’ Mandella said. He said there also were loans for 103 percent of value to enable buyers to pay for a home and its closing costs.”
“Homeowners who choose the wrong mortgage and have their homes foreclosed may end up watching their property get auctioned on the county courthouse steps. More times than not these days, however, no one bids on foreclosed houses because lenders are owed more than the property is worth. That means the starting bid often is too high to attract buyers.”
“Lenders then end up taking possession of the foreclosed homes, and they list them with real estate agents. Increasingly, those houses end up selling at a loss. ‘They don’t want to sit there holding onto it,’ Cagan said.”
“He estimated lenders may lose $1.8 billion because of foreclosures in the Northern San Joaquin Valley during the next five years.”
‘MANTECA — The housing market might be cooling but developer proposals indicate people can expect to keep seeing the city’s edges expand. Maps show requests or some form of approval to build more than 7,000 homes. They line the east, west, north and south fringes.’
Ameriquest Mortgage For Sale
Dow Jones reports: Ameriquest Mortgage Hires JPMorgan To Advise On Sale
Starting bid is $1 !
Crispy, that was funny. But seriously, do you think anybody would really pay that much for that POS?
I’ll bet some Private Equity group will pay a few billion dollars and think they stole it. LOL
Just think of all the bad debt you could end up responsible for for just one dollar
Who would buy this steaming pile? Truly, Ameriquest is one of the sleaziest. This is based not only on their lawsuit settlement, but also from those who have worked for them.
BTW, anyone else annoyed by CAR using 10% down in their affordability analysis? Based on the median, they are assuming that people in CA have almost $50K to plunk down. I don’t think so! What a joke they are, the CAR. Using assumptions like they do makes their “analysis” useless. True affordability is much closer to ZERO.
Didn’t they formerly use 20%? The 10% figure masks comparison with earlier affordability levels, which is now the lowest in history.
I especially like the fact that they are now basing their figures on an adjustible mortgage. So, now they are basing affordability figures on HALF as much down with an ARM, and affordability is STILL dropping.
Oh yeah, CA is bullet-proof….
And on a mortgage which is 4.85 times the household income (98K, says CAR)! What happened to 2.5-3 times? And that used to be 2.5 times ONE income, not two. I hope nobody loses a job..
Awesome news for us bubble sitters!:
“Big Cities / Big price declines.
New York, L.A., and San Francisco finally see big price declines!” San Francisco median price drops $9,000 last week alone!!!
News links at http://www.realestatedecline.com
I’m encouraged! Santa Barbara is much more affordable under the new formula than Stockton under the old formula. When CAR finishes revising affordability We’ll all be able to move to Beverly Hills!
I’ve probably told this story before, but about a year ago, a neighbour (realestate agent) was trying on the if you don’t buy now you’ll never get in bs… I finally told her we did not buy in 2000 and never got in, and went on to tell her we had been eyeballing a rather nice home on 5 acres of well manicured coastline in la Jolla, with a huge gate house and close to 20 bedrooms and bathrooms, which had recently been reduced by a million. I told her that at $29 million, I could no more afford this than any other home in a decent area of San Diego, and wanted to “think big”. She has not spoken to us since.
Let’s buy it with a 1% down payment, a 1% interest rate loan (good for 5 years) and $ 500 Million cash out at closing of sale. Plus, we can add a $ 1 Billion equity line of credit. JPMorgan to credit back 3% to buyer. Wait a minute, this sounds like the private equity guys!! Is this a great financial system or what!
NAR/CAR has been successful.
Even the faithful at Ben’s blog forgot that they changed the affordability calculation.
Suddenly LA/OC went from low single digit affordability to mid 20’s affordability, if you buy with an ARM and make the median income and buy 85% of the median price home.
Don’t forget.
Oops never mind, posters here didn’t forget but I am disappointed it was much further down the thread.
This should be the headline.
SBG -
Did you see the OC price reports on my blog? Look in the comment section of my last post. I also posted that info at the OC Register Kool-Aid Drinkers Blog.
The Debt to Income numbers are UGLY.
This makes me think of the “renormalization” of SAT scores a few years back. I watched and said they will wait a couple of years till people forget there was a decline then trumpet about score increases.
Milan Kundera “The struggle of man against power is the battle of memory against forgetting”
Crispy:
The correct term is fugly.
Do you think I could buy it on a stated income I/O loan and flip it? After all they are not making any more mortgage companies.
Check this read out by John Mauldin, requires adobe reader:
snip…
I continue to forecast a 25% fall in median single-family prices nationwide. This sounds
like a big drop, and is far larger than the 5% to 10% decline that other housing bears foresee. But it
would take a 35% fall to bring house prices back in line with the CPI (see Chart 1 from above) and
a 40% plummet to re-establish the stable level of real quality-adjusted house prices that held in the
previous post-World War II era (see Chart 2 from above). And recall that overblown markets don’t
just return to trend, but overshoot on the downside just as the housing market has on the upside.
http://www.frontlinethoughts.com/pdf/mwo111706.pdf
Great article for us here in Clownifornia, Ben. This is just the tip of the proverbial iceberg here in the soon-to-be less than Golden State. Soon you will be able to call us the Foreclosure State! Look out AZ, NV, and CO, here comes CA!
I guess that means we won’t be The Illegal Immigration State any more… hooray!
Talk about a snowball. At close to 40 million people, we’re the nation’s largest state with like 13% of the country’s (documented) population. And real estate prices absurdly high for what most Californians make. Which has led to the largest proportion of toxic loans of any state.
…..this is bound to get good.
add Utah to that list…
This is never going to stop is it?
“He estimated lenders may lose $1.8 billion because of foreclosures in the Northern San Joaquin Valley during the next five years.”
But……but…….but, real estate NEVER goes down…..hehehe
Yeah, what did Enron lose? Something like $600 million?
Ben:
The first tranche of Enron failures was ~$600M but that was before the Greenspan put kicked into gear in late 2001.
That was back when $600M was some real money.
sarcasm off
$1.8 billion for this region. Extrapolate this to the entire state = $10b-$20b. No bubble here, move along…
Not to mention what this would do to the comps of EVERY neighborhood in Ca. Multipy this # by 20 times. UGH!!!
That’s the direct effect. But money doesn’t work that way. I’m guessing that for every $1 of loan default it causes a chain reaction that will lose the economy another $10 - $20. That $10 billion - $20 billion quickly becomes $200 billion or $300 billion. Even in an economy the size of California that is a massive amount.
Now you have to assume that people are not prepared to withstand a downturn. Remember that negative savings rate? We could literally be talking about a $500 billion hit or more. $#%*ing ouch!!!
Exactly. Straight line extrapolation is helpful (it’s all we have right now), but it underestimates the depth of the bust. Once things get cranking any rationality behind individual decisions will evaporate and the effects will compound until the final damage far exceeds even our best estimates today. To think otherwise is to believe we’ve tamed capital’s vicious cycle. Of course some folks (read: The FED) think they’ve done just that.
It’s going to be a big, big, big splash.
Isn’t San Joaquin Valley small part of CA. Wait till Bay Area and hood areas of Oakland chime in. I think you have to think big 40-50Billion.
“Isn’t San Joaquin Valley small part of CA.”
Yes, and the unemployment rate during a good year is usually north of 12%, and that’s in the good neighborhoods!
These Central Valley towns are probably the worse case in CA.
There are going to be problems statewide but they’ll be greatest in these towns with long commutes that lack high paying, local jobs.
$50 billion for a more than $1 trillion economy. i guess not enough to collapse the state’s economy.
“The minimum household income first-time buyers needed to purchase a home at $478,710 in California in the third quarter of 2006 was $98,890, based on an adjustable interest rate of 6.58 percent and assuming a 10 percent down payment.”
What is a down payment?
Riggght ten percent down. I just had that conversation with one of my coworkers ( who fits that demographic exactly) about how many of his age group actually have $50K in actual cash available…not many was the response.
And you are in SD. How many have that down in the IE or Central Valley, even a lower %. $50 K is still a decent amount of money.
Here’s the kicker…those who do actually have it (cash) are probably all bubble sitters on this blog. Seriously.
Good point, JWM. People with significant sums of cash laying around are likely too smart to put it into housing. They would get better odds in Vegas.
If things get as bad as it looks they are going to get, even having money in the bank will not guarantee you’re not in for a rough ride. Remember the dollar sliding?
And just now we are getting a good return on our previous anti-USdollar bets.
I’m buying some gold. Good old fasioned metal. I have some paper gold, but I want the real thing for a while. If it ends up being a stupid thing to do, I still think it is less stupid than buying this house in my neighborhood that already bleeding red ink (probably an overly optimistic flipper). Check it out:
MLS# R20443628
2146 Pelham Ave, LA 90025
11/29/04 $735,000
6/03/05 $989,000
They say it is remodelled, and the asking price now is $1,075,000. I would assume they’ve lost more that I ever will lose buying some gold.
I will start a nest egg for my kids with it…
I’m one!
After lurking for a number of months, thought I’d chime in and offer a hearty “Thank you!” to Ben and the rest of the posters…. it’s nice to have a level-headed view after nearly drowning in the Kool-Aid that pours forth from the mainstream media.
We sold our Florida condo Aug. 2005 (zip 33715, pure luck - not trying to time market), and we’re sitting on our cash, renting a nice 3 br in WeHo (90046)
Thanks again, everybody! Don’t know what silly thing I may have done if not for this blog!
Why are they basing the calculation on an adjustable interest rate? And why did they conveniently omit the assumed percentage of household earnings going toward the mortgage payment which was used to come up with this 24 percent number? And aren’t they ignoring the fact that adjustable rate loans run a risk of resetting at a higher rate?
Something about this calculation really stinks to high heaven.
If you’ll remember, when they went to quarterly affordability reporting, they stopped using a 30 year fixed model (which I admired them for) and went to this ARM biz. A huge change.
Ben,
Sarcasm? Or do you think purchasing with a shorter term loan is economically sound? I’ve always felt that when interest rates are at or near historic lows, it is risky to enter into an adjustable rate mortgage. If one were to purchase a new home today and the rates gradually rose over the course of a decade while prices were flat or falling, it would be pretty devastating for a homebuyer. At least with a fixed, you are on firm footing if interest rates were to move up towards normal levels. This is one of the primary reasons I support buying at some point; lock in a payment that will get smaller and smaller in real terms as you head towards retirement.
Why would anyone take out a loan to buy a house? This just creates greater demand for houses - pumping up prices, no? (Outside of speculative investing, higher prices aren’t good for much besides higher property tax). Plus, you have that damn old fool called interest working *against* you.
I think Ben was trying to say he admired that they had been using the 30-year fixed rate model. I don’t believe he admired that they went of the fixed model, and the sentence structure was just confusing.
Why would anyone take out a loan to buy a house?
Every individual has their own way of working with money. Like any financial tool, there is nothing wrong with debt per se. Whether it is good or bad for you depends on the amount of respect you give it. And like any other financial tool, the danger lies in when you forget or willfully ignore the risk/reward balance.
Tax deductibility of interest and property taxes. Can turn a $4,500 payment into a $3,300 payment after tax breaks. Add in about $500/month of principle, you get a “net” cost of $2,800.
Given that renting something decent (but still smaller than a house that size) costs $2,000/month it doesn’t seem like such a bad plan.
The real problem is that too many people (including people on this blog) consider the primary purpose of a house as an investment, not something that you derive a substantial benefit from each and every month.
I recall the old affordability index being under 10% (20% down, 30-year fixed).
It was not that long ago, SFer. They have changed their assumptions to paint a rosier picture. Kind of like CPI. Their offices must be next to Capitol Hill in DC. They are definitely using the same play book.
“Their offices must be next to Capitol Hill in DC.”
Actually it is. The NAR is one of the biggest PAC’s on the hill, dealing out $$ to both parties. Anyone from the business gets double dips.
Take for example Frank Raines (Ceo Fannie Mae) and the Accounting Fraud plus the flat lies during his testimony to Congressional committe. Yet this guy because his connections walks free and no criminal charges to be brought up. Everyone wanted Enrons CEO head on a spike for the $500M yet chump change compare to Fannie 10B… yes Billion of Accounting Errors/losses.
All because Frank “The Screwdriver” Raines (his Mafia Name) is well connected.
Raines was a Clinton stoogie but was smart enough to grease enough palms in DC. Ken Lay only gave to one side
Anyone who wants the backstory and details on the CAR’s “new and improved” Affordability Index, look no further:
http://patrick.net/wp/?p=285
6.58% is probably a reasonable rate even for a 30-yr fixed. And the median price vs. income sounds reasonable if you assume the traditional 28% gross-to-mortgage calculation. That is the good part. The bad part is that this ratio is P&I only, not tax,insurance, HOA, etc. If you add those in, it comes to nearly 40% gross-to-mortgage. Also, the actual median income is somewhere short of $70K, so the $98K they require is quite a bit higher than median. How many above average income households would be first-time buyers? Moreover, do you know what you can buy in SoCal with $480K? A 1000sf, 2/2 condo in a decent area.
Right GetStucco ,the affordability is about less than 5% because people don’t have the 10% down payment . What a joke .
Affordability has mutated into the ability to maintain a certain level of debt.
… for a short period of time.
Maybe we could start including available lines of credit in the savings rate figures.
Thank you all for restoring my sanity after I listened to some a$$h0L3 on “Nightly Business Report” argue that the economy will be strong next year because we are seeing signs of a recovery in housing. (According to him, increase in new-home buying. Also, inventory reduction — which we here have already discussed as probably a seasonal phenomenon.) Barf.
The speaker was Bernard Baumohl. I just watched the same clip. He’s just a talking head.
“…because we are seeing signs of a recovery in housing.”
Rhetorical question: Did he mention any signs of recovery?
Answer: No he did not. He was merely repeating the truthiness he heard out of the mouths of the experts on high.
“What is a down payment?”
Most first-time home buyers (especially in SD) certainly don’t know what a down payment is. If I recall correctly, I think something like 35% of ALL buyers in SD in 2005 put nothing down.
down payment - Its the latest mortgage product where along with negative amortization your monthly “payment” goes “down” each month giving you more savings to let you but more investment properties…
LOL!
““The minimum household income first-time buyers needed to qualify to purchase a median-priced home at $511,590 in San Diego County was $105,680.”"
Ummm, is there something seriously wrong with that statement or am I just crazy???
Having lived and worked in SoCal from 1998 to 2005, I found even WITH a degree those 105K/yr. let alone 98K jobs are few and far between in the southland. We had to both find new jobs in 2001 and found nothing but hilariously low pay for skilled jobs. We gave up and returned to the Bay Area. I know home prices are high here (we’re not buying again until AT LEAST 2007) but we could find jobs that paid 35% more than in SoCal. What’s the median family income down in SoCal…55K/yr?
check melissadata.com for income statistics by zip code.
I lived in Anaheim Hills (AGI $77,338 in 2004) until 2001. Was an engineering manager with income of over $100k. House pmt was $1540, taxes $250, ins $75, HOA $125 total$190 per month.
Homes in that area now $850K.
Let’s try to buy one.
Put $170k down
loan $680K pmt approx $4700
taxes $700
HOA $150
Ins $100
Total $5650 per mo. or $67800 per year.
At 50% of gross requires $135,600 income per year
Using 40% of gross requires $169,500
Of course $170k requires saving $25k per yr for about 7 yrs.
This is too much.
So I guess try ZERO down
pmt approx $6000 per month.
Grand total approx $6950 per month or $83,400 per year.
Still too much
so….
Next step Option no doc loan at $3000 per month with negative amortization of $3000 per month or $36k per year.
So now affordable, haw haw, at $4000 total pmt per month or $48k per year.
So after 5 years owe $180k more than cost.
Is this a recipe for disaster or what???
after 5 year try to sell at $1.1m just to break even.
The whole engineering staff including me was replaced by So African engineers who work for $15k to $20k per year.
Another 10 jobs lost to outsourcing.
I still work as a software engineer, but have been laid off in the past due to off shoring. Obviously, the dollar is WAY to strong to compete globally, and needs to come down a factor of 5 to be competitive. This happens to bode with my future predictions of hyper-inflation, or more likely some painful form of stagflation which drags out for 20 years or more. The US is unique in the world, in that we have a third world country layered over what remains of a first world country, but make no mistake, our failure to educate and support our engineers will not end well for any of us unlucky enough to be stuck here when it all falls apart.
Oh, and affordability - frankly, I am not comfortable paying over $2000 / MO for housing costs at $100K, and that is only 25%
The outsourcing problem is just as pronounced in biotechnology. The “Biotech Beach” was supposed to save high-paying jobs in San Diego, yet the reality is something entirely different.
http://www.signonsandiego.com/uniontrib/20061126/news_1n26biotech.html
The loss of ~100 jobs at Accelyrs (i.e., a supercomputer firm that does sophisticated modeling of proteins and peptides for drug therapies) in San Diego and Cambridge is especially interesting, given that they hired 74 in Bangladore, India to perform the same tasks. It is particularly ironic, since many of those Indians initially trained at U.S. universities.
Stephen Roach has termed this ‘global labor arbitrage’, in which even high-education jobs in the U.S. are being outsourced to third-world countries at 20% of the dollar. While this may sound like a good idea to the corporation, the loss of these high-value jobs will ultimately destroy the U.S. middle class.
“55K/yr?”
“According to estimates by the San Diego Association of Governments, the median household income of San Diego County in 2005 was $64,273 (not adjusted for inflation). When adjusted for inflation (1999 dollars; comparable to Census data above), the median household income was $52,192.”
http://en.wikipedia.org/wiki/San_Diego_County,_California
Well that works out to about what we were were making when we left last Nov. Now it’s far better and with decent benefits. What a difference a year makes…in so many ways
what? 100k+ jobs are all over.
You’re in LA, no? You’d be amazed at the difference between LA pay and SD pay. SD is 10+ years behind LA (during inflationary times).
There are very, very few $100K jobs in SD.
That surprises me. Was in San Diego for 3 days and L.A. for 1 day on a vacation and San Diego looked to be a much nicer city. (Then again, I was staying near UCSD/La Jolla).
The only part of L.A. that looked nice was Beverly Hills. Was surprised at how crap Hollywood was.
San Diego is a ‘nicer ‘ town than LA. North County SD is also nicer than many LA areas. Hollywood, yes what a let down that was. Great weather, that’s about all I can say about SoCal. I tried to be involved in community events and organizations while living in Oceanside fro seven years. But i have to say that there is so much ‘illegal’ dislike/hate simmering just below the surface in SD & OC it’s just get old after awhile. (I’m sure this observation will provoke some comments!) I know the pay is better in LA. But seriously, driving on LA freeways is just plain frick’in crazy. Add rain to it and boy the fun REALLY starts. No thanks, I had to drive up there a couple times a week for work. I don’t think they could pay me enough for that stress everyday.
“The percentage of first-time buyers in California able to afford a median-priced home stood at 24 percent in the third quarter of 2006, compared with 28 percent for the same period a year ago.”
———————————————————————————-
I suspect the affordability percentage (for 1st Time Buyers) is a lot lower than what the CAR is claiming. My guess is that fewer than 10% could qualify for a $ 478 k loan and probably less if you apply traditional financing standards.
Last I saw it was tipping under 10% using traditional Fixed Rate. Now its at 28% with Variable Rate.
LOL! Drunk with Kool Aid… I really want to see CAR crash and burn with the bubble.
May all the realtor associations go the way of the dinosaurs. A useless bunch of hacks. After seeing this latest report the tobacco industry probably has more credibility.
I think it was at about 14% during the 1990 bubble implosion, and when it got below that this time is when they changed the formula (I think it was 9% in LA County before they changed the formula). The argument was that they updated the calculation to reflect contemporary situations, which has some truth to it. Very few buyers used 30 year fixed loans with 20% down in recent years in CA.
My guess is that fewer than 1% could come up with $50K to pay a 10% downpayment plus closing costs on a home priced at $478K.
Oh ,I didn’t see this post GetStucco . Up above I said the very same thing you just said .
I don’t know what the NAR/realtors hope to gain by stating that more people can afford the California prices than can .I guess with those 50k to 100k incentive kickbacks you can party hardy for a while as a new buyer .
I predict that years from now they will talk about the fraud that went on in the real estate business to get people into homes they couldn’t afford .The whole mess makes me sick .
I too posted similar at the top. Sorry, but I was so ticked-off at this garbage report that I had to rant ASAP.
Part of me wonders if the NAR campaign and this last report is to make people feel like they are gaining ground on a subliminal level so the general population will keep shopping this Xmas. Noone wants JohnQPublic to feel the economy is doing badly during the holiday shopping season.
But then I see conspiracies everywhere. If you put your ear to the ground and hear hoofbeats, expect horses - not zebras.
I have a question about the new and improved affordability index. The quoted paragraphs below suggest that 24% of FIRST TIME BUYER HOUSEHOLDS (i.e., those that do not currently own a home) have a household income of about $100,000 so as to be able to afford a $475,000 home. I have not seen recent data, but my recollection is that only about 25% of ALL HOUSEHOLDS have a household income of greater than $100,000. And many/most of those probably already own their homes. How is it, then, that of the 30% to 50% of households that do not own, almost a quarter of them have household incomes around $100,000? If I have the numbers wrong, please let me know. It just doesn’t seem to add up even with the “new and improved” parameters. I would add that under the NAHB index, the affordability is much, much lower.
” The percentage of first-time buyers in California able to afford a median-priced home stood at 24 percent in the third quarter of 2006, compared with 28 percent for the same period a year ago, according to a report released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
C.A.R.’s First-time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of first-time buyer households that can afford to purchase a home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.
The minimum household income first-time buyers needed to purchase a home at $478,710 in California in the third quarter of 2006 was $98,890, based on an adjustable interest rate of 6.58 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $3,300 for the third quarter of 2006.”
Thats the trick… in the prior as in the current method … only 10% and now of ‘current homeowners’ could go out and buy their own home they ‘currently own’.
The monthly payment including taxes and insurance was $3,300 for the third quarter of 2006.
And my monthly rent is $1700. Someone explain to me why owning is so much better than renting as to justify that kind of spread? ;p
15% appreciation forever is what makes it worth it.
Well see if that gambit works soon enough.
What is the starting salary in Cal. for a engineer right out of college? Who may also be married (or not)to a teacher or nurse. Not gender specific! The engineer is a woman and the nurse is what ever. They are right out of college an are renting and puting one of their incomes in the bank for one year for a down payment. Do the math.
Does the CAR have a formula called the FTB-FFI, First Time Homebuyer-Future Foreclosure Index that explains what happens after the ARM resets, I’m sure that index is just as rosy as the FTB-HAI they are trying to pass off as realistic.
I recall the affordability index in the SF Bay being something like 12-14% a year ago. The average home in the area is 644k, which means you would need to have an annual income of close to 150-160k just to make the payments. Realistically speaking, you need to make well over 200k to eek out a living as a middle-class busybody.
The truly sad part about some of these numbers is that they indicate areas that are in some cases mostly dependent on agricultutural business or manufacturing. A 450k home in Manteca might as well be a 700k home in SF.
Another interesting fact is that as of last year, the affordability index was removed from the list of statistics by the NAR in order to “re-evaluate” the situtation. I’d say the affordability rate is actually far worse than these numbers. They are meant to sound ‘better’ than the likely reality, which is quite awful.
Right you are jetsonboy, in SF Bay Area is much worse.
If you’d like the backstory and details on the CAR’s “new and improved” Affordability Index, look no further:
http://patrick.net/wp/?p=285
“A 450k home in Manteca might as well be a 700k home in SF.”
Scratch that. If things were right in the world, a 450K home in Manteca would be the equivalent of an American Taj Majal. No reason to live there unless you want to grow crops or milk cows.
OK how about $400K for a 700 sq condo (Apt conversion) in Santa Clara.
Kool Aid Please!
150K income for a 600K house? Are you kidding? Our HHI is more than twice that and there’s no way I feel we can afford a 600K house.
Same here!! I am not going to risk my financial future to make these idiots rich!!
That is the most sane thing I have read here.
300k income=25k monthly income. 600k loan @6%=3597.30+650 for property tax+100 for ins.=4,347.30 per month. How much do you need to make to buy a 600k home, $10 million?
I’ve been meaning to ask you, what exactly do you(both) do? I see references to your market plays all the time, does that mean that you are a stock broker?
TX is a realtor and part time mortgage broker. On weekends she sells imported Chinese toys and other crap on e-bay.
But her big dream is to be a developer!
LOL!!!
It depends on what the definition of afford is.
Some people think they can afford their house but simply can’t from a realistic cash flow perspective. “I can only afford my house at the teaser rate” = “I will be broke very soon unless I can flip this thing.”
Some can afford it from an immediate cash flow perspective. I know of one couple that thought they were doing things the right way by cutting back their expenses and then buying a house. They will keep the house, but every $ they own goes into their house. Their entire net worth will consist of their house for who knows how long. When they hit retirement age, they might not think that this was a good idea. If they hit a bump in their career roads, they might not think that this was a good idea.
To me, the people in the second group cannot afford their home. But then to some other guy, I can’t afford my house because when I do eventually buy, I will probably get a mortgage instead of buying it outright.
I agree about that second group. IMHO, it’s insane to allocate any more than 28% of your gross income to housing expenses — and I would be uncomfortable with it being that high.
That’s why there is going to be a lot of pain with this downturn. The vast majority of recent buyers can not come close to **truly** affording their homes, especially when one considers retirement savings, “rainy day funds”, kids’ college, healthcare, etc. That’s not even considering all of life’s normal expenses.
Seriously, someone earning $100K gross/year should not be paying more than $2000 **tops** on PITI payments, IMO.
Seriously, someone earning $100K gross/year should not be paying more than $2000 **tops** on PITI payments, IMO.
And guess what, we have a very healthy retirement account, rainy day savings, and our new twin boys have growing college funds since birth. We do own a nice house and did do some improvements, but it is only 1600 sq ft. which I think is very managable and requires a lot less heating and cleaning.
I agree with the above statement and have spent years convincing my wife that even though I am high income (I make close to $200k and she is a stay at home mom now), that these ridiculous homes in the $600k plus range are an insane proposition. Of course, she keeps seeing younger and younger people owning these homes and just thinks I’m cheap. Well, I am.
“And more homes are reaching the next stage in the foreclosure process: lender repossession of the home. There were more than 400 trustee sales, homes up for bid in an auction, in October, more than four times as many as a year ago. And the real-estate-owned foreclosures, when a lender hires a real estate agent to sell the home, numbered almost 200, compared to 15 in the same month last year.”
“As prices started leveling off and dropping in many areas of the county this year, the safety net of being able to sell a home for more than a homeowner paid has vanished. Mortgage broker Paul Smith said he warned people about exotic loans for years, only to have them go to another lender to get one. Now, he said, many of them are stuck with rising payments and decreasing home values.”
“‘These homeowners are in a bind,’ Leslie Alkire said. ‘They’re over-leveraged. This is happening all over the city. People get into these interest-only loans, the rates start climbing. And the property [value] rates are dropping.’”
A big iceberg has broken away from the Antartic ice sheet. But would-be buyers in San Diego would be well-advised to wait for the entire Antartic ice sheet to thaw out before getting into the water…
A big iceberg has broken away from the Antartic ice sheet. But would-be buyers in San Diego would be well-advised to wait for the entire Antartic ice sheet to thaw out before getting into the water…
Or risk getting clobbered by their own ARM
I just got an image of a bad bar fight, where a protagonist breaks someone’s arm off and uses the severed arm to beat the downtrodden further.
That would be good.
C.A.R. changed their affordability criteria to make it look like more people can afford a home.
glad to see they”re using a 40% front end ratio (on a 90%LTV loan) to qualify buyers. By the time you throw in a Tall Station Wagon payment (aka SUV), a couple of credit cards, etc. you have a >50% back end ratio.
ain’t loose credit standards wonderful???
Yeah, why don’t they just say 70% of gross income and 99% LTV? The stats should be based on a reasonably formulated criteria. CAR formulates the criteria based on what stat they would like to see. It’s a joke of a number, really.
It’s a number which is a constant source of puzzlement to financial journalists who report on it. “How can people keep on buying homes when affordability is so low?”
Liar loans , no down ,big cash incentives . These home buyers are still going to go down while the realtors still get their commisions and the mortgage scum still gets their commissions .Commissions are what it is all about with this crowd ,never mind the disaster they are helping to create in the near future .
DON”T PUT PEOPLE IN HOUSES THEY CAN”T AFFORD .(Sorry I’m yelling ).
That’s ok, HW, you can yell…we feel your pain. But you *are* preaching to the choir.
I spent Thanksgiving with family in LV and I was kinda yelling when I was explaining to my sister and youngest daughter (22) what was going on in RE. My daughter asked, “Mom, how do you KNOW these things??” I replied, “Sweetie, I educate myself, plus read a wonderful blog whose participants are financial wizards. I have learned and am still learning a LOT. More people should educate themselves.”
(Thanks Ben!)
BayQT~
The downturn in the U.S. real estate market has exposed folly and fraud in an orgy of mortgage borrowing over the last five years.”
I have been away from the board trying to ween myself off, but I saw the MASS blog and LMAO on this statement
also, these qualifying standards only apply to older areas of the state, not the newer masterplanned areas (like Ladera Ranch and so many others in the OC) with monthly association fees and Mello Roos tax fees which can increase effective tax rate to 2% or more.
Good point, these extra monthly outlays are often overlooked. Their analysis only looks at purchasing the home, as far as I know. What about taxes? What about maintenance? I really would like to own, but right now it is just stupid to do so.
In so many of these new communities, the HOA, prop taxes, Mello-Roos, etc. are more than what a standard PITI payment should be. What’s amazing is that the buyers don’t seem to discount the price because of it. I’d be deducting, dollar for dollar (and then some, for loss of freedom), these extra carrying costs from the P&I payments and derive the selling price accordingly. People are strange, indeed.
“El Cortez condo owners feel cheated. They bought homes in the historic hotel with luxury in mind, but their sinks back up, their homeowners association is broke and there’s no doorman to welcome them at the end of the day.”
hahahahahahahahahahahahahahahahh ROFLMAO! Oh you poor, poor liddul babieeeees. So now do you want papa Bernanke or uncle Arnold to come kiss it and make it all better? How about you’ve been collectively cheating this country and our future for the last five years with your stupid blind greed. Screw you.
The lesson here: do your damn homework when you enter into the biggest investment of your life. If you buy a home, take some time and find out whether the other side of the street is zoned R1, R2, or commercial; whether the homes in the subdivision have mutual covenants; what the terms of the homeowners association are; etc. etc.
Nobody cares about these things when the market is hot, but selling a home with an 8 story office buidling across the street is much tougher than if you have a 1500 square foot home.
If you buy a second, third, fourth or fifth home, do even more homework first (and I don’t mean watching “Flip that House” on TV)!
do I detect a lack of sympathy? LMAO
LMAO as well. I love the smell of schadenfreude in the morning! Or afternoon, and evening as well.
Ric said: Screw You.
Beautiful. Absolutely beautiful. Reap the whirlwind and realize it is nothing more than a house.
A friend bought into El Cortez last year and still hasn’t been able to move in. Worse, he bought with his (now) ex. It’s been one disaster after another in shoddy workmanship. The walls don’t even have any insulation and the plumbing is a joke. Lots of lawsuits.
I have no sympathy for those who bought in, thinking they were going to make a killing with a pre-construction or short term flip. I do feel for those who actually bought with the intention of purchasing a place where they were going to live.
Wasn’t that some kind of homeless shelter or Section 8 housing before the conversion? I remember seeing some poor people being kicked out of their hotel/apartments in SD before the new condo conversion. Wonder if this was it. Sad…
I almost blow a gasket everytime I see the new affordability numbers. They are such… (deleted)
During the next six months ARMs will start to reset in significant numbers and enough properties are not going to move. At this point, if home prices go up… so does the number of jobs leaving the state.
2Q 2007 is looking very interesting.
California is indeed (in OC Dan’s words) about to become the foreclosure state. Nothing is going to stop that. With FL and CA going down… its going to tighten credit. Think of the Billions loaned out to companies right now (like builders) that won’t get repaid. Think that won’t impact the credit market?
I see Walmart had a bad Black Friday weekend… Hmmm…
Neil
I see Walmart had a bad Black Friday weekend… Hmmm…
Neil, I wonder if “Black Friday weekend” 2006 will mark the real turning point for all things financial……..when we look back in years to come……..interesting
I do too. My boss is into Elliot wave theory. He can’t decide if this is the “Big 5″ or not.
It just might be…
But our ship is sinking. In rather famous words, “Sir, this ship is made of iron. It can sink.”
Note: I predict a recession (a big one) not a depression.
Just wait until housing completions slow… then its going to get ugly (due to unemployment).
Neil
Neil, a depression isn’t so much a big recession as a long one. Care to reconsider? IMHO it’ll be both.
I also consider a depression 25% unemployment.
Somewhere someone in America is creating something that’s going to employ thousands.
What? I have no clue.
This will be bad, just not *that* bad.
Neil
How about 25% unemployment or underemployment as in most new jobs are low wage retail and service jobs.
My Black Friday included visits to:
1. A post office. And I was the only customer.
2. An Ace Hardware. (Needed to make 3 trips, actually. Home repair project.) At no time was it terribly busy.
On Saturday, I went to the credit union, and dang if I almost had that place to myself too.
Where have all the shoppers gone…
My black Friday included an early morning trip to Mervyns for door buster specials. Lots of people were there (Valencia) buying the cheap Chinese made crap! At least the FB’s were out buying our masters goods! We have to keep buying their stuff so they can continue to finance our debt… But just wait til they really start “diversifying” their investments! The dollar will fall a lot further…. It always does under Democratic administrations. I see a big recession on the horizon….
“It always does under Democratic administrations”
la– unless I missed a newsflash (I can only hope), georgie boy was still strokin himself @ 1600 Pennsylvania.
‘The dollar will fall a lot further…. It always does under Democratic administrations.’
The dollar fell about 28% during the first three years of Bu$hco. Had this happened during the previous administration (the one when we had all that peace, prosperity, and budget surplus), the Wall Street Journal would have run headlines about “the Clinton Catastrophe’, but given that Bu$hco 9/11ed us into stupifaction the mainstream media was rather silent about the dollar’s collapse.
Actually the dems are the only fiscally responsible pols left. Clinton not only cleaned up Ronnie and Sr.’s mess, he left a big pile of cash for chimp to blow.
“Actually the dems are the only fiscally responsible pols left. Clinton not only cleaned up Ronnie and Sr.’s mess, he left a big pile of cash for chimp to blow.”
Sorry, Joe Momma: there is no vital distinction between Reaganism and Clintonism. The former launched the era of vicious market fundamentalism that the latter happily and uncritically furthered.
Clinton “cleaned up” nothing. By shipping U.S. jobs to Mexico and inflating a stock bubble, he was as injurious to our long-term economic chances as the Bush gang. His only real accomplishment was curtailing military waste–for that, we owe him some thanks.
But don’t get so carried away. Consigning Americans to non-living wage jobs with reduced benefits in order to inflate stock values while slashing the social safety net is the kind of “fiscal responsibility” that would have made the Gipper proud of his Arkansas protégé.
Read Thomas Frank’s excellent One Market Under God when you are ready to face up to Bill’s Reaganism.
Actually the dems are the only fiscally responsible pols left.
The fiscally responsible pols are individuals, not parties. Both Dems & Reps will spend every penny. The Dems will reach for your wallet, the Reps reach for your kid’s wallets.
There is no fiscal restraint, and that’s why we are going to have a terrible remainder of the decade.
I think it is counterproductive for this blog to be partisian. I agree both parties spend to much. Know one will know what would of happened after 9/11 (I live in NY) if we did not have the decrease in interest rates. Do we remember, how fast do we forget. No one wanted to get back on an airplane. Hello! It was consumer spending that keep us out of recession. The consumer’s via home equity that kept the economy going until business started to expand again. Most of the spending via home land security kept unemployment down. The economist John Keynes talked about when government uses their money to keep the economy going. So we were in a good place to borrow during 9/11. Now we are in a good place to save. It is just having people know how to turn off the spout.
Neil,
Ever been to AZ? I hear there are a lot of cheap houses out in Florence area SE of Phoenix. Maybe your company could use some of the buildings vacated by Intel in Chandler.
Really, once you live there it doesn’t feel very hot until it hits 110 deg F.
Hey, I like the heat.
My fiancee hates it…
We’ll see. I expect no decision for a year to 18 months. Hopefully by then SoCal realestate is well into rationalizing.
Neil
Residents concede they signed documents acknowledging that another building could be constructed just 40 feet away, but many say they were told it wouldn’t happen for a long time.
long time = until we were able to flip these babies and make a bundle of cash
Residents with this developer as their friend don’t need enemies.
The developer made money the old fashion way by cheating his clients. (Like the old Smith Barney commercial in the 80’s - We make money the old fashion way, we churn it.)
Do they really think they have a law case when they signed documents disclosing the future building ? More GF’s and FB’s mad that they didn’t make a mint on some stupid condo project gamble .
And nobody cares about the “mineral rights” clause until they put an oil well in your back yard.
“…say they were told it wouldn’t happen for a long time…”
LOL
Yeah, good job signing a contract with that kind of reassurance.
For the poor Cortez condo folks - BOOHOOO BBBOOOOHHHHOOOO. Call me Mr. Unsympathetic. Go cry a bucket of tears into your plugged up sink.
For the poor Cortez condo folks - BOOHOOO BBBOOOOHHHHOOOO. Call me Mr. Unsympathetic. Go cry a bucket of tears into your plugged up sink.
You can say that again!
I remember seeing the Cortez about eight years ago. I was staying at the Marriot and I looked out my window and thought wow that place looks like it is haunted or something. It sat there all broken down and very gothic looking. Maybe the sinks backing up are from all the ghosts like in that Amityville horror movie. That was a toilet, but I bet those do not work either. Stephen King should write a book.
“Leslie and James Alkire have a foreclosure counseling agency, a venture they launched to satisfy a growing need, the rapidly accelerating number of people facing foreclosure who are wondering what to do.”
Any advice or suggestions how I could start offering such service, and how to charge (and not get stiffed) by some of these many soon to be broke and insolvent FBers? I have the knowledge, qualifications, and time.
1. get a business license
2. troll craigslist
3. charge by the hour, cash up front, no checks
4. Sell the personal data you collect to the Russian mob.
Just kidding.
Bill,
That’s EVIL…
You can get licensed as a credit counseler to render the service to people who file bankruptcy. They are required to undergo credit counseling as a condition of discharge. So there is no chance of not getting paid.
Next boom business???? I see this as a new field for all the newbie real estate turds out there! They are truly SCUM!!
‘Any advice or suggestions how I could start offering such service’
Need a partner? I won’t slap them. Not hard. I promise.
“Borrowers who agreed to such adjustable-rate loans with little or no down payments may not have comprehended what they were getting into, said Frank Mandella, president of the San Joaquin Valley chapter of the California Association of Mortgage Brokers.”
“‘I’m sure some of those loans were made to people who did not understand the advantages and disadvantages,’ Mandella said. ‘Maybe they were not educated properly on how the lending program worked.’”
No, you are kidding me? I thought all of these clowns buying in CA were well educated on every step of the process? I know that nobody would sign for a loan from $500K and up without fully understanding every single aspect of it?
Does this statement then apply to the folks that I had to ‘educate’ about 2 yrs ago after they had bought a $850K house and ‘thought that they had a $2000 fixed payment at 1% for 30 yrs’, and found out they had the neg am voodoo watch the payments rise to $12K over the years? Now, I wouldn’t think that the people that provided this loan were fraudulant and crooked now would I?
Yeah, the sad thing is most borrowers can’t even balance their checkbook, much less understand an option ARM and a concept like negative amortization. The loan officer might as well be talking Japanese … assuming he she even “remembered” to tell them that the “1% rate” is good for all of a couple months. Now, the lending industry is shocked … SHOCKED … to find that “maybe they were not educated properly on how the lending program worked.” Gee, you think?
“I know that nobody would sign for a loan from $500K and up without fully understanding every single aspect of it?”
The folks who “fully understand” are not involved; they know better.
So - can anyone work out how many first time buyers in CA are out there in actual numbers and how many can afford to buy?
I was also wondering if anyone could work the numbers under the old affordability standards and let us know how they compare to the new ones.
Still the tip of the iceberg. After four years where only one or two in ten foreclosures went back to the lenders, I’m seeing 6 in ten going back now. Investors are dropping out, going back to real bargain hunting and generally ignoring the heck out of what people think the “current market” price is. They’re looking at 30% off “current” before they consider it worth investing now.
That’s not to say that people aren’t losing their shirts and shorts to equity locusts. That business is going like gangbusters. Anytime you can get someone to sign over a couple of hundred thousand dollars in equity to you for a song, it’s a great day. I raise this point because “Foreclosure Consulting” might be a great front for a locust. Now cashing in that equity may be another matter altogether. If trouble comes suddenly they may get caught too.
My realtor friends are getting lean and mean from hunger… gotta pay for the Lexus, Mercedes or Beemer, right? They’re downright surly because nothing is moving in Northern Virginia. Zero sales = zero fees. Hope those grasshoppers put away something for the winter… who am I kidding?
Not only zero sales, but the broker agencies are no longer “carrying” their agents. Now it’s pay your accrued charges with a check each month.
Bill,
Accrued charges? Please forgive the question, but I thought that agents generally received about half of the comission (1.5%) with the other half going towards fees, advertising, and rent. What’s the real scoop?
Neil
Scoop is somebody still has to pay the fees, advertising and rent when nobody makes a sale to generate a commission.
I get those in the mail all the time. Loan payment of $476 for a loan on $187k. I throw that crap out. I see the asterisk that indicates the rate is 1% for 12 months and that the loan cannot exceed 9.5% during the life of the loan. I am thinking that I can get the 1% for the 1st year and then it will adjust to 9% on the 13th month. How the hell does that make sense. Now I realize it won’t go 9% at month 13, but whatever it adjusts to will be a rude awakening.
I can see a bright opportunity for ARM chiropractors. Whenever your rate resets, you get an “adjustment.”
El Cortez Tower is dump in not a great location. It is right next to the 163 and the 5. There is nothing around there, the park is on the other side of the freeway. It is in a sketchy neighborhood. I guess this is going to be the next part of the cycle, people will start to sue developers and blame them. It should get interesting! Lawyers are the biggest business here in downtown San Diego!
El Cortez Tower is a dump in a bad location.
“El Cortez Tower is a dump in a bad location.”
Cabrini Green — West?
Maybe they can loot the copper pipe like Cabrini Green residents did in Chicago. Downtown San Diego is one flipper after another, they can’t even get out if they wanted to.
Let the finger pointing begin! Here in America it is ALWAYS someone else’s fault.
Almost every article in MSM indicates that all over CA current prices are 10x annual income (e.g., income $60k and home price $600k in a given area). Of course this isn’t mentioned by CAR machine.
And before this madness, banks would NEVER have loaned 10x annual income. 3x was tops, and that was with a downpayment and cash in the bank and no credit card debt.
Banks don’t do mortgages any more. That’s why we have Fannie Mae. So they don’t get stingy and hurt the economy.
We have to help people by giving them option-ARM loans
I’m still trying to figure out where the NAR got their “23%” first-time-buyer affordability figure.
If they did what I think they did, they committed a monumental error.
I’m assuming that they arrived at that figure by:
1. Calculating the income required to service a median-priced home, dedicating a set percentage of income to mortgage-debt service. Using this calculation, they got $98,000 required to buy a $478,000 house.
2. They then determined what percentage of California households make $98,000, and came up with 23%.
3. Ergo, 23% of first-time homebuyers can afford a median-priced house.
Anyone see the faulty assumption between steps *2* and *3*?
Right. What’s the logic in assuming that the income distribution of the pool of first-time buyers exactly reflects the income distribution of the general population? First-time buyers tend to be younger and less well established in their careers. They are almost certainly disproportionately concentrated at the left side of the income-distribution curve. I would be very surprised indeed if fully 23% of “first-time homebuyers” in California made $98,000.
In other words, NAR is very likely counting affluent people who already *have* homes as “first-time homebuyers.”
Anyone with better information, or other comments, please chip in.
It’s OK. I’ve figured it out. The Census Bureau is skewing household income DOWNWARD to make us all feel like we are wealthier than the average joe. In reality, 98% of households have an income of more than $125,000. NAR/CAR are just using the real numbers, not the fake stuff the U.S. Gov puts out. Rest easy. We can all afford a $500,000 home here in the good old US of A.
See Harm’s link.
Lower downpayment
ARM mortgage
85% of median price home
Voila! higher affordability numbers.
Yes, and let’s not forget the part about allowing up to ~60% of gross income to go towards PITI. That one’s a “biggie” in juicing CAR’s new magical mystery numbers!
http://patrick.net/wp/?p=285
60% of gross income to PITI. My God that is insane. This needs to stop now.
Sure , Tom, it’s like this:
After engineering a housing mania that convinced a bunch of folks that they were wealthy, based on nothing but a big float of nonexistent money, the Realtor Perps are just making up a bunch of $h!t and calling it statistics.
I saw the same thing, and I think you are correct in pointing out their faulty assumption.
Beyond that, though, I even question some of their hard data. For example, in Orange County, they claim that 22% can afford a median home, and that the minimum income necessary is $123,800. I’m sorry, but I have a very hard time believing that 22% of Orange County households (let alone first-time homebuyer households) make $123,800 or more, when the Census Bureau statistics indicate that median households in Orange County earn around $65,000. It seems like there would have to be a pretty steep income curve to get from the 50th percentile making $65,000 to the 22nd percentile making $123,800. Am I missing something, or do these numbers just not seem to make any sense (even forgetting their basic flaws in computing affordability)?
You guys missed one of the other assumptions. It says “household income” so, that includes the 20 illegal aliens that will occupy a house. This where the six figure avg comes from. Duh!
The data is correct. Affordability is at historic lows. What that does not stop is the buying and selling of property to the large population that all have large CA equity in their existing homes that were bought years ago (5+). Its a swap with a 6% transfer cost to the realtor cartel. Buying up? trade your $600K home and take out $200 in HE loan. It is new home buyers without grandpa’s or Mon and Dad’s inherited property that have no skin in the game that are cold and alone on the sidelines. Buying “into” this market is insane. Rent don’t buy.
are they using capital gain on real estate as income?
i wouldnt put anything past these hucksters:)
remember those talking heads saying that the american consumer balance sheets have never looked better. that was using real estate
appreciation into the formula.
Congratulations Thomas! You have passed the test for employment as a NAR/CAR statistician. You now have to prove to them that you are capable of twisting the statistics in just the right way to present the correct message to the MSM and public. In addition you will need to pass the “I can lie with a straight face” detector and finally serve up your most financially insecure relative to the “Process” for complete and utter financial ruin.
sarcasm OFF : nice work Thomas. It’s exactly this type of due diligence that John Q Public needs to be able to do when presented with any “Proof” or statistics from anyone or group that is trying to sell him something. Sadly, I have grave doubts that the general public has the skill or even the knowledge that independent analysis is required any longer.
“‘I’m sure some of those loans were made to people who did not understand the advantages and disadvantages,’ Mandella said. ”
For the average person, there are NO advantages to those kind of loans.
I disagree, this type of loan allows them to pretend to be wealthy for a year or two.
(““The minimum household income first-time buyers needed to qualify to purchase a median-priced home at $511,590 in San Diego County was $105,680.”” Ummm, is there something seriously wrong with that statement or am I just crazy???)
We have an obesity crisis in this country, so 5X income is a good thing. People stop eating, and (this is California remember) keep their looks.
It is truly a rare 1st Time Buyer who makes anywhere near $ 98 k and even more rare to have any significant down payment. It’s REAL hard to save $ 10 k for most people.
It’s not so rare when you’ve been priced out for years. I.e. think 35 year old first time buyer, such as myself.
Haha. Yes. This is true.
We’ve been priced out of our first home purchase too for years. Renting was the only sane option. All those years of saving means our powder will be dry when the pendulum comes back our way.
My wife and my combined income was over $100K in the Bay area. I refused to sign for any kind of toxic loan. So we did the American thing AND LEFT CA. I did financial services there for about 3 yrs. Most of the folks I serviced didn’t make anything near $98K (and bought the POS with some voodoo loan). So, the CAR/NAR are full of $HI^T when they spew this crap. And thanks for the info on the business bit. I will take it up there. I will be returning to CA for a week. Looking forward to see the progress downward of this most entertaining bubble event.
Ok…let’s talk about the definition of “first time buyer”. I don’t know if this has been touched on yet. The general understanding of first time buyer is one who has never purchased RE before, yet the criteria in some areas only require that you have not applied for a home loan for 3 years, 5 years (could be different in different states)…and you can even own property in other states, counties while qualifying as a FTB. So this “first time buyer” statistic is deceiving, as well.
As an example of this, I am adding a couple of links, one for CA and another for NY:
http://sunnyvale.ca.gov/Departments/Community+Development/Housing+Division/Affordable+Housing/
http://www.nyhomes.org/home/index.asp?page=60
BayQT~
Regardless of the definition, the way it is being used by CAR is straight-up deception. And it should be noted that the justification for the revised parameters was the typical approach of the “first time buyer.” A “first time buyer” who already owns a home is not likely to take that approach (i.e., buy a home for 85% of median). The old version did not purport to focus on some segment of the population, it simply asked what percentage of households could buy the median priced home given certain assumptions (whether or not that household already owned a home).
Bottom line is this barrel o’ water ain’t got no bottom.
From The Daily Reckoning…
“So far, however, few people expect the (housing)slowdown to do much damage.Householders themselves show no sign of panic. From the retail sector comes news that the lumpen continue to spend. Sales on Thanksgiving Day’ alone -which marks the beginning of the holiday shopping season - rose 6% over a
year ago. Only Wal-Mart bucked the trend, with a tiny decline in
same-store sales from the previous year. Householders may be on board the Titanic, but they’re going to enjoy the trip!
This too is remarkable. Since ‘02 one of four new jobs has been created in the housing industry. What are those people going to do now that there are fewer nails to pound and less concrete to pour? We don’t know…maybe they’re trading derivatives…”
WaitingintheOC = based on my observation of OC, I think everybody there is independently wealthy and $100K is nothing put pocket money to throw around to impress all of their other wealthy neighbors. I mean, everybody drives a BMW, has plastic surgery, buys their clothes from Rodeo Dr, etc. I mean, everybody is RICH, RICH, RICH. (OK now - came back from OZ and put away the fairypunch!!!! LOL)
Well here you go……..everythings a-ok.
http://money.cnn.com/2006/11/27/markets/citigroup_outlook/?postversion=2006112712
I have saved this page and will e-mail it to the writer in 6 months time along with my comments. Just 2 words…..B*ll Sh*t
http://globaleconomicanalysis.blogspot.com/2006/11/mortgage-brokers-synopsis.html
A Mortgage Broker’s Synopsis
The following post is an email from Michael J. Dorff, a mortgage broker with Trans World Financial about the state of affairs in Orange County California. Monday evening I will have an update from Mike Morgan to share.
Mish,
Here is a synopsis of the mortgage side of things here in Orange County and for that matter California in general.
What people don’t see, the NAR in particular, is the upcoming train wreck. I am talking about all the sub prime loans for refinances as well as purchases that were taken out 2 to 3 yrs ago and are now all coming due to reset. My guess is that 99% of all sub prime loans are all done on a 2 or 3 yr fixed interest only type program. People thought that it made no sense to take a 30 year fixed loan those homes when the short term rates were a lot lower, but they were all wrong.
The time bomb is about ready to go off. All of the subprime loans taken out 2 to 3 years ago have margins of at least 5% or higher and usually based on the London LIBOR program. Those loans are starting to reset now at fully indexed rates somewhere in the high 9% to 10% range. When those loans were initiated 2 to 3 years ago, they all had start rates of high 5% to low 6%. As of now, the LIBOR alone stands at 5.388 for the 6 month and 5.336 for the 1 year. Take those LIBOR indexes and add the margins to see what is going to happen.
Yep. Follow the money.
What these yahoo economists and others simply don’t get is that, and I’ll say it again for the umpteenth time is,….YOU CANNOT KEEP RUNNIG THE ECONOMY ON DEBT FOREVER. How many of these yoyo shoppers actually pay cash, or, if they chrage, pay it off in full. Even though consumer credit numbers did rise as sharply last quarter, they were still up. Bottom line…someone is taking on more debt. At some point in time this whole jig is up. At some point in time there will be no more greater fools to buy into these toxic loans or get more credt. As Neil said earlier, if credit tightens, as it will when the mortgages go bad, look out. Things are going to get real ugly for some. When you are maxed out and there is no cash available, what are you going to do? Pay the crazy mortgage or put food into your kids’ mouths? I think we know what the answer is to that. I also foresee a lot more bankruptcies even with the new laws in place. People are going to be suffering and when puch comes to shove, they will eat and feed their family before paying off bills. I for one agree that this country is in for a major recession. I have also said I think a depression may even come. Of course, I am not hoping for it, but living in a country where the savings rate is negative, so much fraud has gone on, and the gubmint just prints money to pay off old debt, which just perpetuates new debt, is quite honestly, NUTSO CRAZY!!! Next year is going to be one interesting year, which I don’t think the American consumer can weather. You can only pull that piece of plastic or HELOC checkbook out so often before that well runs dry and needs to be repaid.
I know a FB that just abandoned his three bedroom two bath toxic mortgage and began renting a better place for about half. They had his payment so tight to what his monthly bills were that if he had a slight increase in expenses he was screwed. Guess what his insurance stopped covering his presciption medicine to the tune of $400 a month. Plus the mortgage readjusted up $600 a month. He told me that the loan officer told him if the mortgage did adjust it would be small. So he spent three times more in one year on that crap box house than he would have if he rented. I really feel for the guy. He believed the hype. So people are dumping the keys and leaving. This will be in droves soon. Instead of leaving the keys on the counter they should leave them in the toilet with a little present.
OcDan,
I totally agree. Todays people… they’ll walk They don’t even need as dire a situation as you described (although, we’ll see people having to chose between kids and the mortgage payment).
I have to agree with “Need 2 leave CA”
AMEN brother!!!!
Neil
OC DAN - AMEN, brother!!!!!!!
Have just done my part for today. Refused a request for an $80K loan towards the purchase of an $86K mobile-plus-lot-plus-clubhouse-privileges. The wannabe buyer said she might be willing to give me a second on her house in Sacramento. I didn’t say “POS” but I did tell her I had no faith at all in her supposed 40% equity in Sac house (based on a June 06 appraisal). Who wants a second on anything anyway. Tough to enforce even in a rising market.
Someone else will give her the 110% no-doc loan
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A fool and his $3,995.00 are soon parted.
See John T. Reed’s website for RE guru rankings for some fun reading on these clowns.
http://www.johntreed.com/Reedgururating.html
No one ever seems to ask:
“If all this guy is saying is true, that millions can be made virtually effortlessly, why is he not simply DOING IT and making himself more fabulously rich by the minute?”
If someone gave the information away free, gee, I might look at it. But why charge a mere $4,000 or so if you have “secrets” that yield millions? Seems irrational, no?
They bought homes in the historic hotel with luxury in mind, but their sinks back up, their homeowners association is broke and there’s no doorman to welcome them at the end of the day.
My god, this makes Darfur look like a picnic!
LOL. Thanks for the perspective check.
SAN DIEGO — City workers need to get ready for more layoffs and residents should prepare for more cuts in municipal services and programs, under Mayor Jerry Sanders’ financial plan for San Diego.
The city currently employs about 11,400 employees, and cutting the 959 positions would represent a reduction of about 8.4 percent of the city’s workforce.
San Diego really is the “canary in the coal mine”. Most local, county & state governments have huge pension & health care problems that will become apparent once revenues trend downward.
good- get self reliant
city probably employs over 1000 “councilors” and professional baby sitters
I heard from a canary here in San Diego plans are being quietly drawn for an early year bankruptcy filing. I take this with somewhat of a grain of salt, but the source was credible.
‘ “As prices started leveling off and dropping in many areas of the county this year, the safety net of being able to sell a home for more than a homeowner paid has vanished.” ‘
This is news to me - I had not realized that “safety net” is synonymous with “gamble”. I thought it had a very different meaning.
“adjustable interest rate of 6.58 percent and assuming a 10 percent down payment.”
Uhh what about all of us first time home buyers that do not want an adjustable rate mortgage?