The Return Of Flipping Is A Return Toward Normal
The Times Tribune reports from Pennsylvania. “House-flipping activity in the Scranton/Wilkes-Barre metro area more than doubled in the first half, compared to the same 2012 period, according to RealtyTrac. ‘The return of flipping is a signal of a return toward a normal housing market,’ said Austin Jaffe, Ph.D., chairman of the insurance and real estate department at Penn State University. ‘When housing prices stabilized in recent days, downsize risk is limited for investors who wish to flip. The average gross profit on first-half flips was 43 percent in the metro area and 31 percent statewide, according to RealtyTrac. The national average was 9 percent. The averages exclude investments made between the purchase and resale. ‘The prospects of significant appreciation will fuel a new flipping boom, if one exists,’ Dr. Jaffe said.”
“Mike Stuenzi’s return to house flipping builds on earlier experience. ‘I’m very cautious about how I’m getting back into it,’ Mr. Stuenzi, of Dalton. ‘When things were good, we were turning them around in three months. In 2010, it got real bad. I carried a couple houses for a long time.’”
“Mr. Stuenzi concentrates now on modest properties. An investor in his company provides financing for acquisitions and Mr. Stuenzi does the labor. He has an agreement to buy a two-bedroom South Abington house in the mid-$60,000 range. He plans to invest about $30,000 over two months to install a new kitchen and first-floor bathroom, renovate ceilings and the second-floor restroom, landscape and sell the property for about $105,000. It would leave his company with a profit of about $10,000. ‘It’s not an ideal margin,’ he admitted. ‘It’s still very difficult.’”
The Patriot News in Pennsylvania. “The central Pennsylvania housing market is back. But it’s not all the way back. Homeowners who bought at the tippy-top of the market’s peak in the halcyon housing years of 2006-07 often come up short when they decide to sell. That is, these owners still can’t reap a price equal to what they paid. This doesn’t mean that they are underwater. Often, these prospective sellers have equity in their homes.”
“Instead, it’s more of a psychological barrier, real estate agents say. These owners want to feel like their home purchase was a good investment. But if they can’t sell for at least what they paid, many are left with negative feelings.”
“‘That continues to be an issue,’ lamented Bernie Campanella, an agent with Fine Line Realty, Harrisburg, of homeowners who purchased at the peak. ‘Overall, have we totally recovered in terms of price? Not really. There have been pleasant increases in selling prices as buyers come out and drive demand. It remains a buyer’s market in the new home market.’”
“When the homeowners sells for less in a still-recovering market, he or she often buys a replacement home for less, too. This is the philosophy that agents try to instill in reluctant sellers unwilling to take a loss. ‘A seller has to understand that even though he is selling for less than he believes his property to be worth, he can realize that the home he intends to purchase, be it an existing home or a new build, will be available for less than he would had paid at the height of the housing boom before 2008,’ Campanella points out. ‘In the total equation, he will buy for less after selling for less.’”
“Greg Rothman, partner with RSR Realtors in Lemoyne, told of one recent deal where a seller’s losses on his first house were more than made up by the value gains on his second. Consider the case of the seller’s 2,500-square-foot home in Fairview Twp. He had purchased it in 2006 for $300,000. Now, seven years later, it was worth only $265,000 — a hard-to-swallow loss, to be sure.”
“But the bitter aftertaste lifted when that same seller became a buyer, purchasing a 3,500-square-foot home in East Pennsboro Twp. with river views for $600,000. That same home had sold for $800,000 during the boom. All in all, the seller made out. Unfortunately, many sellers just don’t see it this way. ‘People feel better when they are selling over market value,’ Greg Rothman says. ‘But they are also buying a house for lower than expected. What we explain is, if they are selling they are also buying. Real estate is a portfolio. Who cares?’”
The Week on New Jersey. “In 2008, MaKenna Grae and her husband prequalified for a $2 million mortgage. The couple was stunned. They had never expected to buy a home with a seven-figure price tag. So, rather than heed the bank’s advice, the Graes sat down and figured out how much they could comfortably pay every month. Before they looked at their first house, they had settled on a budget that had nothing to do with the bank’s recommendation. Instead of shopping for $2 million sprawling mansions, the couple set out to find a home for about $500,000 in northern New Jersey.”
“‘I cannot imagine what our stress level would be or how crazy our lives would be if we had listened to the banks about what we were approved for and bought a $2 million home,’ says Grae, who ultimately bought a four-bedroom house for about $425,000 in Elmwood Park, New Jersey.”
“For buyers who were shut out of the mortgage business for the past five years, the ability to buy is suddenly real again. But just because a bank thinks you can afford a multimillion-dollar house doesn’t mean it’s a wise financial choice. ‘Remember, the bank is in the business of making loans, and they want you to borrow as much as they are comfortable risking on you — and not a penny less,’ says Ellen Derrick, a certified financial planner with LearnVest Planning Services.”
“The general rule of thumb: Mortgage payments should not exceed 28 percent of your monthly take-home pay, says Derrick. So, if you take home $9,000 a month, your mortgage payments should be no more than $2,520. Another way to look at it: The house shouldn’t cost more than two and a half times your annual salary. So, someone earning $100,000 a year should be looking at houses that cost no more than $250,000. You should also have enough money set aside in a rainy-day fund to cover six months of household expenses so you can keep making those payments.”
“With interest rates creeping up and housing prices skyrocketing in some markets, many buyers, fearing they’ve missed the bottom of the market, are eager to buy a home now. Buyers are putting down less cash, making it easier in the short term to buy a more expensive home. The average down payment on homes with a 30-year fixed-rate mortgage dropped to 16.1 percent in May, down from 17.6 percent in 2011, according to a LendingTree report.”
“‘When I hear people say, ‘Yeah, I know I’d have a hard time making the payment, but I just feel like I need to buy something while rates are low,’ I just cringe,’ says Derrick. ‘Just because interest rates are low does not mean you should buy a house.’”
The Daily Journal in New Jersey. “At 768 square feet and two bedrooms, Marc and Bethany Olmeda knew the Ocean County house they bought in spring 2009 wasn’t large enough to accommodate the couple and their three sons. But the housing bubble finally was deflating, interest rates were relatively low and the federal government was offering $8,000 to first-time home buyers. They decided they could always renovate the house. So they made the leap. Whoops.”
“The Olmedas had been renting for many years before they bought their home for $230,000 at an interest rate of 5.5 percent. It had only two bedrooms, which meant their three boys would need to share one room. It seemed like a good deal. By the time they purchased their home, the housing bubble that inflated during the decade had begun to collapse. But they thought the housing market would bottom out and they still could build up equity that they could use to remodel, giving their sons rooms of their own. ‘It obviously didn’t work out that way,’ Bethany Olmeda said.”
“In rosier times, home-equity loans and lines of credit were the way many consumers chose to go, and for good reason. Consumers could use them to borrow money at a lower interest rate than a credit card. They could tap into the funds for 10 years. They could repay the money on a flexible time frame, for as long as 30 years. And, depending on their income, they could deduct the borrowing from their taxes, said Kelly Kockos, a home-equity product manager for Wells Fargo. ‘If you have equity, it’s a good option, as long as you’re going to use it responsibly, because you are leveraging your home,’ Kockos said.”
“With home prices soaring in the 2000s, home-equity loans followed suit. They rose from $242 billion in the first quarter of 2003 to a peak of $714 billion in the first quarter of 2009, or 195 percent, according to the Federal Reserve Bank of New York. It helped consumers upgrade their homes, pay their bills in case they lost their job and buy luxury items — essentially maintain their standard of living in an era when their wages were stagnant.”
“It didn’t last. Many homeowners took on more debt than they could repay. When they began to default, it touched off a global recession. Home values fell by nearly a quarter. And trillions of dollars in home equity was erased. ‘It’s always a bad bet to have declining asset values securing increasing debt,’ said Patrick J. O’Keefe, director of economic research for CohnReznick, a New York-based accounting firm.”
“Home values have begun to recover nationwide, according to a recent report by the National Association of Realtors trade group. But home-equity loans have only continued their slide; in the second quarter, consumers had $540 billion in home-equity loans outstanding, down 24 percent from their peak and back to 2005 levels, according to the Fed.”
“Running out of patience, the Olmedas signed up for a renovation loan. Backed by the federal government, the so-called 203(k) loan allows homeowners to borrow money not based on the home’s current value, but its future value after the renovation is completed. It comes with fees for consultants and appraisals. And homeowners need to make a down payment of 3.5 percent of the loan amount. But once approved, borrowers can’t fritter the money away on frivolous items; it has to be spent on home improvements.”
“The Olmedas considered their options. They could move, but they likely would have had to sell their home for less than they paid. They could rent, but they would need to find a tenant who would pay enough to cover their mortgage payments — these days, more than the market rate. Or they could choose the renovation loan. The loan increased their monthly mortgage payment by about $200. But they added 495 square feet to their home. They increased the home’s value. And during a recent visit, their sons were stretched out — in their own rooms, in their own beds.”
“‘The return of flipping is a signal of a return toward a normal housing market,’ said Austin Jaffe, Ph.D., chairman of the insurance and real estate department at Penn State University.”
And here is yet another gem for the quote-board. Pinheads of this magnitude are found almost exclusively in either academia or politics.
To his credit, his lame comment got him quoted in The Scranton Times-Tribune with full attribution of his superior academic credentials.
My first question was whether a Ph.D. can be revoked. What an astonishing statement. We’ve discussed the phenomenon of university real estate departments here before, as industry-funded propaganda pretending to be legitimate scholarship.
On the other hand, maybe total irrationality is our new cultural baseline, with sober thinking replacing mania as a periodic, clinical episode.
‘The return of
flippingbullsh!t is a signal of a return toward anormalhousing bubblemarket,’“Homeowners who bought at the tippy-top of the market’s peak in the halcyon housing years of 2006-07 often come up short when they decide to sell. That is, these owners still can’t reap a price equal to what they paid. This doesn’t mean that they are underwater. Often, these prospective sellers have equity in their homes.”
Underwater litmus test:
1. Does water get in their eyes if they open them? CHECK
2. Do they feel a constant wet sensation against their skin? CHECK
3. Do they find breathing difficult due to water entering their lungs whenever they inhale? CHECK
Nope…they can’t possibly be underwater.
P.S. Whether they have equity seems like a bit of a red herring. For instance, if a home buyer made a 20% downpayment, only to see the value of the home they purchased drop by 20%, then technically they would be at 100% of loan-to-value and hence not underwater. However, if they sold, they would lose 100% of the downpayment, which was mistakenly viewed as equity until it disappeared.
There’s a difference between being under water and selling at a loss.
Really?
Let’s try another hypothetical example: An all-cash investor buys at the peak 2013 Echo Bubble price. Two years later the price is down by 25%, due to higher interest rates, race to the exits, etc.
Is this hypothetical investor underwater by 25% or isn’t he?
Really?
Technically yes. You can sell at a loss and still walk away from closing with a check in your hand. If you’re underwater you will need to write a check at closing.
Bear,
How can a person be “underwater” (which means he owes more on a loan secured by the house than the house is worth or than he would get on sale after closing [I've never been sure if the agent's fee is supposed to be included]) if there isn’t any loan secured by the house? You are messing with the definition of underwater.
Selling at a loss is emotionally painful, but possible without any huge ding to your credit or bringing money with you to finish paying off the loan. Selling when you are underwater requires 1) bringing a check to the table, 2) getting the bank to accept a short sale 3) not selling at all, but walking away which is never great but could be a serious mistake in a recourse state, 4) [is there another possibility?]. Very, very different scenarios.
“Technically yes.”
LOLZ
After paying massive installments month after month for years, just because you “walk away with a check in your hand” doesn’t mean the losses don’t exist.
You’re not under the radar. Not even close. Keep it up.
“You are messing with the definition of underwater.”
Absolutely.
But there was a method to my madness, which is to point out that the relevant issue is how much investors lose when they buy at bubble prices and later have to sell at a loss. A 100% downpayment will not save them from their losses, and the underwater issue is somewhat irrelevant unless the investor has lots of money available to throw away.
We are talking two definitions of “underwater”.
One is owing more on a loan than what you can sell the collateral for.
The other is how the finance-types view any investment that sells at a loss.
If you write a check for a ____, maintain it by dumping $___ into it to offset depreciation, sell later for a price less that the check + maintenance costs, you’re underwater.
If you finance that loss? Priceless.
The thing that always drives me nuts about this is that the “business model” behind flipping is fundamentally flawed. Yes, it’s possible to buy a house, add value to it, and sell it for a profit. But it’s very difficult to do that in a normal housing market without doing much/all of the work yourself. What we used to call flipping was “sweat equity”, using your own 2 hands to do things to make the house nicer and thereby, increasing the value.
What flipping is now, it seems, is to hire a bunch of contractors to come in and make improvements while you watch, then sell the house for some obscene amount over what the cost of the property + the cost of the contractors was. That’s a broken business model, right from the start. Why would I pay you to select contractors and make improvements that I may or may not like? Why not just hire my own contractors and make the decisions myself? Where’s the “value add” that you bring as the house flipper?
I love it when on HGTV they show a 50K improvement that nets the homeowner “150K in value” as soon as it’s finished. If you could really do that (net 2-3X in a few months) reliably, no way in HE** Wall St wouldn’t be all over it; there would be “Toll Brothers” style companies dedicated to buying, fixing and re-selling houses.
The reason that you don’t see Toll Brothers/hedge funds doing this is because its far too risky. It only works when the market is going up and you have stupid homebuyers willing to pay you money to select the tile and paint for them. You would think that others would recognize that this is an obvious problem with the model, but, alas, they don’t.
What flipping is now, it seems, is to hire a bunch of contractors to come in and make improvements while you watch
You WILL lose every penny if you do this. That is a guarantee.
The actual business model behind flipping is pretty much the same as retailing.
Wal-Mart gets access to products at prices that I can’t get. I can’t buy a shirt from a Chinese sweat shop for $1. You only get that price if you are buying the shirts by the millions.
I can’t ship a single shirt across the ocean for $0.10. You only get that price if you are shipping an entire container of shirts.
So, WalMart gets the shirt to the store for $2, then sells it to me for $10. I can’t bypass WalMart and buy for $2 because I don’t have access to those deals.
Flipping is the same. Most people don’t have $100K sitting in pure cash. I can’t show up at the court house with a $100K cashiers check, and use that money to buy a foreclosure on the court-house steps.
I don’t buy and sell a dozen houses a month, so I can’t bribe people to bring me insider info on the best deals.
I’m not selling a dozen houses a month, so I can’t bribe realtwhores with oversized commissions to find me a house at a good price. Instead, to get access to MLS listings, I have to use a Realtwhore who is colluding behind my back and is receiving bribes (commissions) to try to talk me into overpaying for a house.
So, like retail, flipping is based on access to deals not available to others, and then getting others to overpay using advertising to lie to the customers (paid in the form of commissions to the RealtWhores that talk people into paying too much. The more you overpay, the bigger the commission the RealtWhore, who claims to be working for the buyer, receives from the seller).
I do not understand how the current NAR model is not criminal fraud based on conflict of interest, or at a minimum, civil malpractice.
It’s not fraud because of Jenny McCarthy. A Playboy Model who convinced many people that vaccines caused autism. This has led to many deaths. But why on earth would anyone accept advice from her? Does the blame lie more with her or more with a parent who believes such nonsense because it comes from a pretty celebrity.
Same with NAR. Why anyone would believe them is beyond me. Especially where anyone with a brain knows them for the proven shills and liars they are. Also they don’t owe a duty to anyone and can spout off about whatever they want.
But Jenny McCarthy didn’t directly profit from her ignorance.
Her ignorance was institutionalized as a monopolistic business model based on conflict of interest between a client and fiduciary representative.
I would argue that Jenny McCarthy has directly profited from her ignorance. She hasn’t exactly been tearing up the acting circuit, but my how her whole spiel on how vaccines are bad for you has put her in the spotlight and allowed her to gain more celebrity from it.
She has written 3 books (2 on “curing ” autism) and just recently has been given a late night show.
I would argue that she would not have had that much without her whole crusade against vaccines.
Jenny McCarthy is doing Darwin’s work. Leave her be.
A flipper is an honest person, though maybe not the brightest. They borrow large sums so that they can eat, sleep and breathe dirt and dust while working long hours and seven day weeks for below minimum wage. They don’t have to be social or set an alarm clock. They get a 10% discount at the lumber yard, but they do not do anything by container loads or bribery. Their business model was the price of the house goes up while they are diddling with it. Now is not their time.
You romanticize it, methinks. I think most flippers simply buy a house, or a condo, with the intention of doing nothing besides selling it again in a year or less. I never saw a whole lot of home improvement going on, which is fine, because not everyone has those skills. In fact, some of the efforts at home improvement that I did see looked a lot more like home damage.
It’s honest, but there’s not a whole lot of difference between house flipping and daytrading stocks, and I bet there’s overlap between the two groups. The big money treats those people like patsies and sheep.
We don’t have cookie cutter developments or Condos around here for the kind of flipper you seem familiar with. The traditional flipper here is a DIY renovator jack of all trades. Their model is busted at present.
“Flipping” means selling it before you close your purchase, thus same day escrow closings.
“Resale” means selling after you close your purchase and generally after you have done your “upgrades”.
Real “Flipping” is $1,000 deposit, a long closing (three to six months), wiggle room (conditions), options (earlier closing), a “flip” with a $10,000 deposit with enough cash to cover the purchase and a gross profit of not less than 25%, unconditional.
Preferably without real estate agents but often sale part covered by them on reduced commissions as “flip” is never listed.
“Flip” deposit always held by yourself, never ever the overpriced broker.
Feedstock generally from insurance companies, banks, referrals.
At least those are Canadian definitions - eh
As an accountant I worked on these “flips” for clients.
Thanks for the explanation Patrick. I guess the word is used pretty loosely by my neighbors here. That still doesn’t make Daryl’s rant remotely sensible.
What is this “price recovery” nomenclature these articles are peppered with? Honestly I don’t understand it considering a period of price discovery has to occur before a market exhibits price recovery. This hasn’t happened yet and if it did, prices would be 65%-75% lower.
Remember this readers……… A “housing recovery” is falling prices to dramatically lower and more affordable levels by definition. The losses are large at current prices. Do not be a buyer right now.
Caveat Emptor
“The loan increased their monthly mortgage payment by about $200. But they added 495 square feet to their home. They increased the home’s value. And during a recent visit, their sons were stretched out — in their own rooms, in their own beds.”
Only $200 a month for an extra 495 square feet? Sounds like a great deal until you plug it into your present value calculator, which shows that the present value of $200 a month paid over 30 years at recent rates around 4.3% is north of $40,000 — $80 a square foot.
My HBB sources say they overpaid.
They didn’t overpay the contractor, they are overpaying the bank, for being debt donkeys. The contractor gets $40/ft2. The interest is the other half.
Shouldn’t the comparison be to the cost of putting up the (presumably) adult or almost adult kids in a motel where they can have their own bedroom AND their own bathroom when they come home to visit? How often is that?
I guess, in a twisted way….
For the last 30 years we’ve had bubble after bubble after bubble.
Junk Bonds bubble that fueled an M&A stock bubble. Mini-real estate bubble that took out the S&Ls. Tech stock bubble. Real estate bubble. Bubbles have become the norm.
The return of flipping signifies the return of bubble, so a return to norm.
Wouldn’t it be great if we STOPPED the economic policies that have created an economy based on bubbles?
What did we do in the 60s and 70s that required we begin relying on bubbles since the 1980s?
“For the last 30 years we’ve had bubble after bubble after bubble.”
Well yeah. A perpetually collapsing economy is hell on worker bees, though it does create incentives for interesting career trajectories.
How do you stop people from buying things they cannot afford?
That is easy. Take away access to debt.
The harder part is doing that, without crashing an economy with massive trade deficits that every year, drains 10% of GDP money from active circulation.
First came imbalances. Then came access to debt so that new money could be created to fund the imbalance. Then came the bubbles that are created by excess money and easy access to debt.
Loving the imbalances while hating the debt is like loving that the ugly chick got pretty, but hating the alcohol that caused it.
How do you stop people from buying things they cannot afford?
Make credit next to impossible to get.
But the banksters will never go for that.
Stop having the government insure the debt.
Force lenders to retain most or all repayment risk.
The most curious thing I saw about the housing bubble was seeing lenders make loans they didn’t care about having repaid.
If you want to make sure people can’t borrow more than they can afford, make the lenders take the losses if the debt defaults.
It is a very, very simple solution.
And the race to the bottom continues. More softening of Qualified Residential Mortgage and Risk Retention rules.
Basically, if the loan originator can get the government to buy his loan, he can wash his hands of repayment risk. And the standards for the loan keep dropping.
QM/QRM was a total Trojan Horse.
“You keep giving money to me, I keep giving money to you.” That sums up the state of the financial regulation in this country.
US regulators soften risk retention rule on residential mortgages
By Tracy Alloway in New York
August 28, 2013 6:06 pm
Financial Times
US regulators have moved to boost the country’s housing recovery by softening new rules that would force banks to hold a slice of packaged mortgage loans.
Banks and other financial entities which bundle mortgages into “securitisations” will have to hold part of the final product under new rules aimed at avoiding a reprise of the recent financial crisis. Home loans that meet certain standards – known as “qualified residential mortgages” – are exempt from the risk retention rule.
http://www.ft.com/intl/cms/s/0/fa535f6e-0ff9-11e3-a258-00144feabdc0.html
The Trojan Horse angle is that they just keep broadening the definition of QM/QRM. Very slick on the FIRE sector lobbyists’ part.
“It is a very, very simple solution.”
To the wrong problem.
The problem is not the debt. The problems is the trade imbalances that make the debt necessary to prevent economic collapse.
Turning off the debt, without first attacking and reversing the trade imbalances is a formula for economic collapse.
Trade does not occur until financing is in place, either actual money or guaranteed credit at the ready.
What did we do in the 60s and 70s that required we begin relying on bubbles since the 1980s?
I don’t think it was required at first. But I think it’s continuously been easier than taking our medicine. And now the medicine might kill us.
I took a looksie at the survivalist end of the world short story the other day, the one where the credit cards stopped working and the lights went out.
I don’t think that will happen. When you look at other countries that had their economies collapse, the lights did not go out, and these were 3rd World Sh!t holes.
Agreed.
Economic collapse is uber rich people waking up to find themselves broke and the middle class waking up to find themselves unemployed….
Like where we were heading in 2008…. just let it run another couple years.
What did we do in the 60s and 70s that required we begin relying on bubbles since the 1980s?
August 15, 1971, Nixon defaulted on US IOUs when the option of gold redemption was eliminated to only worthless fiat $.
Property taxes on a $500,000 in Northern NJ - approx $17,000/year
Property taxes on a $2,000,000 in Northern NJ - approx $45,000/year
Really. Those are average numbers.
They can not imagine what it is like to be a slave to property taxes and the whims of public unions…
“‘I cannot imagine what our stress level would be or how crazy our lives would be if we had listened to the banks about what we were approved for and bought a $2 million home,’ says Grae, who ultimately bought a four-bedroom house for about $425,000 in Elmwood Park, New Jersey.”
You deserve a gold medal for the passion.
Stay on ‘em.
I live in the ‘poor’ part of Bergen Co. along the Hudson / Essex Co. border in No. Jersey. I rent the upper flr of a SFH. Nice spacious 2 BR apt in a quiet neighborhood with great public trans to NYC. The landlord are an 80+ year old couple who raised their family in that same house. What I pay in rent doesn’t even cover their property taxes. There are lots of rental units available. What they told me is that they had several ‘tenants from hell’, and they just wanted someone who is honest and keeps their commitment to pay the rent.
Property taxes are insane in NJ. And there is NO shortage of rental units. Just a shortage of good tenants.
Here’s a comment to the Times Tribune article:
‘Aunt Nancy: Two months work to split $10,000 in profit between two parties? If the numbers are true, you may want to consider a different approach.’
Yeah…. that jumped off the page. Risk $100k for a $5k profit? LOLZ
Staying in the game until things improve. At least the handyman probably gets to live in the reno rent free.
Let’s say you buy a house for $60,000. You spend $30,000 on upgrades and think you could sell for $105,000.
Didja stop ta think what the neighboring houses are valued at? Will the neighboring houses be upgraded to nearly double their values?
Silly me for wonderin.
I think the idea is that you find a “diamond in the rough”: an underpriced beater house in a nice nabe, so that when you fix it up, it’s up to par with the neighbors. Of course a bubble makes this relatively easy. The trick is to find the beater house for a good price, which can be hard in a red hot bubble.
When I was still looking last year that is exactly the kind of house I sought and I had no trouble finding several….however my offers (20% down, full price or slightly above, preapproved loan) were all ignored as I was competing with specuvestors and flippers offering 100% cash…am now patiently waiting for Bubble 2.0 to pop and renting more or less happily in the meantime.
A guy at work was telling me about his brother who recently bought a “modest” home in Sillycon Valley. I was guessing it might have cost $800K+; my guess was way low — sale price was north of $2 million.
Housing affordability continues to slide in 2nd quarter
By Rose Meily, for Silicon Valley Community Newspapers
Posted: 08/19/2013 07:34:05 PM PDT | Updated: 9 days ago
It became more difficult for families to afford to buy a home in California, particularly in the San Francisco Bay Area and coastal regions, during the second quarter of 2013. With the high prices and mortgage interest rates rising, it may get even more difficult to purchase a home in the Golden State in the near future.
According to the California Association of Realtors Traditional Housing Affordability Index, the percentage of home buyers who could afford to buy a median-priced, existing single-family home in California fell to 36 percent in the second quarter of 2013, down from 44 percent in first quarter 2013 and from 51 percent in second quarter 2012. The index measures the percentage of all households that can afford to purchase a median-priced, single-family home in the state.
California home buyers needed to earn a minimum annual income of $79,910 to qualify for the purchase of a $415,770 statewide median-priced, existing single-family home in the second quarter of 2013. The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $2,000, assuming a 20 percent down payment and an effective composite interest rate of 3.64 percent. The effective composite interest rate in first-quarter 2013 was 3.55 percent and 2.82 percent in the second quarter of 2012.
The median home price was $316,490 in second-quarter 2012. To qualify, home buyers at the time needed to earn an annual income of $62,440 to purchase a home at that price.
According to the state group, nearly all regions in the state experienced sharp quarter-over-quarter declines in housing affordability, with Bay Area and coastal regions recording the greatest decreases in the index due to higher home prices. At 17 percent, San Francisco and San Mateo counties tied for the least affordable counties in the state.
In Santa Clara County, 24 percent of home buyers could afford to buy a median-priced, existing single-family home in second-quarter 2013, a significant drop from 30 percent in the previous quarter and 32 percent in second-quarter 2012.
Home buyers needed a minimum annual income of $155,400 to qualify for the purchase of an $808,500 median-priced, single-family home. With a 20 percent down payment, their monthly payment on a 30-year fixed-rate loan, including taxes and insurance, would be $3,880. This is a big decline from first-quarter 2012, when 42 percent of home buyers could afford to purchase a median priced home in the county.
While some analysts are concerned about a housing bubble due to the sky-high home prices in the region, others are skeptical. Carolyn Miller, president of the Silicon Valley Association of Realtors, believes there will always be intense demand for homes in the region.
“Silicon Valley’s economy has rebounded stronger than ever, thanks to the boom in the tech industry. But the high demand for homes here is also due to other amenities, especially our excellent public schools, colleges and universities. Rather than have their kids living in a dorm, many foreign buyers who want their children to study here are purchasing homes because they see the investment opportunity. And an overwhelming number of these buyers pay all cash,” said Miller.
…