tag:blogger.com,1999:blog-13164186.post117018902251766015..comments2024-01-27T19:26:32.604-05:00Comments on Bubble Meter: MarketWatch Slams David 'Paid Shill' LereahDavidhttp://www.blogger.com/profile/11169148764438565562noreply@blogger.comBlogger48125tag:blogger.com,1999:blog-13164186.post-85469338635017715002007-02-17T23:19:00.000-05:002007-02-17T23:19:00.000-05:00I'm about to make a first time offer on a 1BD+1BA+...I'm about to make a first time offer on a 1BD+1BA+Den condo in downtown dc that will be delivered in 2007. I am thinking about asking 20-24% off the listing price and I am not working with a broker. Do you think I'm totally going to get laughed at? The condo is priced in the mid-500s.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170991177209517702007-02-08T22:19:00.000-05:002007-02-08T22:19:00.000-05:00Thank you all for your comments. Except Anon 1:15...Thank you all for your comments. Except Anon 1:15. What the hell are you talking about? Feigning pity is a poor excuse for a supported argument, and smacks of unjustified arrogance. If you are saying I believe people make poor persons choices based on poor person thinking ala <I>Rich Dad, Poor Dad</I>, I plead guilty. I believe people are buying more house than they can afford. But if your argument is otherwise, go look up the definition of <I>argumentum ad hominem</I> before your next post.<BR/><BR/>Keith,<BR/><BR/>I think you are right that the rental market is the largest potential source for first-time home buyers, but not the only source. In fact, the imbalance in the rental market in the late 90’s caused some or much of the boom that followed. I have heard anecdotal evidence both that rents are rising and rents are falling. According to the post below regarding the NY Times article, condominium developers over built, speculators over bought, and the next few years should see a glut of rental units. After all, the speculator’s mantra is “If I can’t sell it for a profit, I can always rent it out.”<BR/><BR/>HousingTracker.net has some interesting analysis of historical trends on affordability:<BR/><BR/>http://www.housingtracker.net/affordability/dc/Washington<BR/><BR/>one of which is the price to rent ratio comparing the median single family home sale price to the median annual rent for a 3 bedroom apartment in Washington DC as determined by HUD. This ratio fluctuated between 175-200 throughout 2001-2004, but has since risen to about 290, suggesting that rents are getting cheaper relative to home sale prices. Or at least rents in that segment. Looking at the mortgage payment to rent ratio, it was roughly equal (1.0) from 2001-2002, then dipped in 2003 to where buying was cheaper than renting from 2003-2005. It equaled out again in 2005 and since has risen to closer to 1.5, suggesting it has become more expensive to own than to rent.<BR/><BR/>I also agree that foreclosures have been relatively low in DC, which has historically been the case. Although, the craziest IOs and ARMS that were taken out at the height of the frenzy in 04 and 05 have not reset yet, and interest rates have not risen too far above the historical lows. I have heard, again anecdotally, of people who are on the verge of foreclosure, have taken all the equity out of their house, and are just waiting for the sheriff to come knocking. If anyone has a good source to track foreclosures in the area, I love to see it.<BR/><BR/>And, Keith, you are also right that I overstated my conclusion on first-time home buyers. The median first time home buyer, and those making less, assuming they make up the bottom of the market, is only 19%, and this does not make things look as crazy. My apologies. But affordability has a distribution too. Some buyers have zero debt and a sugardaddy with deep pockets, they can probably afford 40%. Someone with larger student loans can afford less. If the median first-time home buyer were really following their financial advisor’s advice, they would be looking at houses in the $270-290K range. You are right this is not as far out of whack as I thought. Sorry for ringing the alarm bell.<BR/><BR/>But in rethinking my analysis, I realize I did not prove what I had set out to prove, which is first-time home-buyers are being priced out of the market. I can’t do that by looking at buyers who are in the market. What I have proven (at least to myself) is that people are buying more house than they can afford relative to traditional economic analysis. Going back to our median home buyer, he or she should be able to afford a house between $340,000 and $350,000, or perhaps up to $400,000 if they have no debt. If the median asking price of $440,000 is discounted 7%, this is still $409,000. To me, this is a significant disparity and tells me people are paying too much for houses.<BR/><BR/>I think a more useful analysis for my point is to compare median salary to first-time home buyer salary, and realize that the former is almost half that of the later. Granted, it doesn’t prove the point.<BR/><BR/>But if you look at HousingTracker.net (Hey, I’m not getting paid by these guys, I just think they have some information worth examining) the price to income ratio from 1997 to 2002 hovered just above 2.0. By 2003 it had climbed to 3.0, by 2005 it was up to 4.0 and as of the last quarter of 2006 it is at 5.0.<BR/><BR/>Lance,<BR/><BR/>You are setting up straw men and then gleefully knocking them down. If you are talking about houses that are passed through families that never go on the market, then I guess you are not talking about the affordability of the housing market, are you? These a receivers of gifts, not buyers of homes. <BR/><BR/>Yes, we are talking about ABLE buyers, and my argument that the pool of able buyers is shrinking. Buy you counter what you allege to be an unfounded assumption that income and savings are a first-time buyer's sole resources, by making the conspicuous-by-its-breadth inferential leap that one example means “a great number of people” in the market can rely on family wealth. You follow this with your own unfounded assertion that every entry level buyer does not have a car payment or credit card debt, completely blowing by the point. It is because many people do have this debt that they cannot become first-time home buyers because they are being priced out of the market. <BR/> <BR/>So if your answer to my question of “Where are all they buyers going to come from?” is “An endless supply of trust fund near-do-wells and fiscally responsible 20 somethings” then yes, the sky is truly the limit for home prices. Give me some hard data on this and I will submit a contract today.Caveat Emptorhttps://www.blogger.com/profile/14417158283171016454noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170968408486414602007-02-08T16:00:00.000-05:002007-02-08T16:00:00.000-05:00Anon 6:40 said:"This dosen't apply to me, I can af...Anon 6:40 said:<BR/>"This dosen't apply to me, I can afford my new truck, goodies and still sock away enough for a large down payment on my future house. So, I can have my "cake and eat it too. Renting makes more sense by far."<BR/><BR/>So, you're saying that were we to look at your financial position in 2000 and compare it to your financial position in 2007, the amount you have "socked away" in the last 7 years far exceeds the extra amount you'd have to pay for a house now? I doubt it ... You're just rationalizing spending your way through life vs. biting the bullet now for a better life in the future. Watch out or you will end up a still a renter twenty years from now ... With nothing to show for your spending other than faded photographs of all those new cars along the way which seemed like such a good investment "back then". We are not all born with silver spoons in our mouths ... And those of us who aren't can't compare ourselves to those who are. If we really want a chance at buying the same houses and condos which for them are so affordable, we have to sacrifice. We can't expect to live the same lifestyle as then AND get that house someday. The resources just aren't there. And the pittance you are able to put away after blowing your money on new vehicles "goodies" won't help you much. And when you say "truck", please at least tell me you are referring to one of those small stripped down, fuel efficient small pickup trucks ... and not one of those expensive to maintain, all-frills, gas hogs. If it's the latter, you'll really be validating my suspicisions as to why a housing price bust is your only chance of affording your own home ... on the little that is left after you've blown through your paycheck on instant gratification!Lancehttps://www.blogger.com/profile/12216089306021385355noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170945607507240452007-02-08T09:40:00.000-05:002007-02-08T09:40:00.000-05:00"This is very enlightening. Entry level buyers who..."This is very enlightening. Entry level buyers who don't have family or personal wealth backing them DON'T have $350 car payments of $100 credit card payments. They buy a cheap cheap junker for cash and they make sure they never charge more on their credit cards then they can pay off that month. You can't have your cake and eat it too."<BR/><BR/>This dosen't apply to me, I can afford my new truck, goodies and still sock away enough for a large down payment on my future house. So, I can have my "cake and eat it too. Renting makes more sense by far.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170944954781291192007-02-08T09:29:00.000-05:002007-02-08T09:29:00.000-05:00As Robert pointed out, those prices on tracker are...As Robert pointed out, those prices on tracker are asking prices. These days, you can shave 5-7% (and then some!) off of that and of course have the seller pay closing costs.<BR/><BR/>So a buyer will end up paying 330 on a house with an asking price of 350. That would mean that the median first-time buyer can afford more like 30% of the houses on the market. <BR/><BR/>Prices still have a ways to fall in many parts of the DC area. But not as much as we might think.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170942702211964112007-02-08T08:51:00.000-05:002007-02-08T08:51:00.000-05:00Lance said... “This is very enlightening. Entry le...Lance said... <BR/>“This is very enlightening. Entry level buyers who don't have family or personal wealth backing them DON'T have $350 car payments of $100 credit card payments. They buy a cheap cheap junker for cash and they make sure they never charge more on their credit cards then they can pay off that month. You can't have your cake and eat it too.”<BR/><BR/>So, entry level buyer’s can’t afford $100 credit card payments and $350 car payments, but they <I>can</I> “afford” current housing prices? Then why all the “creative financing” of the past few years? Why the run up in foreclosures? Talk about having your cake.<BR/><BR/>And for an extra slice, you then post that they can only “afford” it if mommy and daddy lend a hand:<BR/><BR/>Lance said... <BR/>“Your logic is faulty because you make the unfounded assumption that current earnings (i.e., income) plus the "20% deposit" are a buyer's sole resources. In the example given a few weeks ago, it was shown that most middle class houses in northeast DC never go on the market but instead get passed on to the kids”<BR/><BR/>You know, for about a year, we had a person posting as “Lance”, and he too would regularly post contradictory assertions.roberthttps://www.blogger.com/profile/10354810363004791622noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170941977669833082007-02-08T08:39:00.000-05:002007-02-08T08:39:00.000-05:00"First, if 1st time homebuyers made up 38% of all ..."First, if 1st time homebuyers made up 38% of all buyers, and we believe that 1st timers are nearer the bottom of the homebuying distribution, then the median 1st time homebuyer is on the 50th percentile point of the bottom 38% of homebuyers, which puts them at 19%. And if 19% of the homebuyers can afford 25% of the homes, then things aren't that bad. <BR/><BR/>Now, I'll allow that not all first time homebuyers are at the bottom end, so that the median first-time homebuyer might be above 19%."<BR/><BR/>I have a couple corrections to your corrections.<BR/><BR/>First, The numbers he is using came from the absolute top of the bubble. By spring of 06 things were already so skewed that the data is faulty to begin with. The people who were still able to buy late in the run-up just as the market turned are not a normal sampling. <BR/><BR/>What would make this an interesting exercise would be to find similar data points from 5, 10, 15, and 20 years ago and compare them. We already know that housing prices more than doubled over a period when wages increased only incrementally. <BR/><BR/><BR/>Also, I think your are overestimating the extent to which first time buyers are at the bottom of the market. The bottom of the market is made up of crappy one bedroom condos... many many first time buyers are young couples or families and will buy something at least slightly better than that. Additionally... those same bottom end properties are the same ones that are targetted most heavily by speculators. In this market speculators recently made up a double didget percentage of the total market, heavily skewed towards the low-end.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170941320423807122007-02-08T08:28:00.000-05:002007-02-08T08:28:00.000-05:00LOL Yeah lance... everyone will just use their tru...LOL <BR/><BR/>Yeah lance... everyone will just use their trust fund to buy whatever they want. <BR/><BR/>This is right up there with your stupid saudi princes buying up housing idea.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170940963038909042007-02-08T08:22:00.000-05:002007-02-08T08:22:00.000-05:00Redskins said:"Now, a home "owner" is someone with...Redskins said:<BR/>"Now, a home "owner" is someone with $5 in his pocket and a willingness to say whatever he wants on a stated income doc."<BR/><BR/>I can buy the $5 part of your argument (though it's more like $5,000 since at minimum their closing costs had to be covered by buyers when sellers had their choice of buyers), but I think you greatly overestimate the use of "no doc loans" (which is what I'm assuming you mean by "say whatever he wants on a stated income doc.) "No doc loans" are considerably more expensive (interest-wise) than regular loans and they require a large downpayment ... so it wouldn't be the $5 down guy using 'em. Unverified income loans are used by doctors, lawyers, and other self-employed professionals who have the bucks but don't have an employer who can verify their income for them. The average person (and ALL those $5 down guys) MUST have whatever they put down on the application verified. Of course, in today's hi-tech environment, that verification can be as simple as a credit check, but it is still verfied. Perhaps you think it isn't verified because it just happens quicker than you think possible? I bet you think that when Home Depot gives you a credit line "on the spot" they haven't verified? Wrong .... they have ... Just like the lenders of home loans have.Lancehttps://www.blogger.com/profile/12216089306021385355noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170933828275888192007-02-08T06:23:00.000-05:002007-02-08T06:23:00.000-05:00"That's right ... renters always have more resourc..."That's right ... renters always have more resources than homeowners. (Okay ... I couldn't resist ... This once ...)"<BR/><BR/>Traditionally, no. But now, maybe yes. Traditionally, a homeowner was someone who had put down at least 20% of the payment of a home, and had passed a rigorous bank income examination, one that many people could not pass. Now, a home "owner" is someone with $5 in his pocket and a willingness to say whatever he wants on a stated income doc.<BR/><BR/>A Redskins fanAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170898242561677102007-02-07T20:30:00.000-05:002007-02-07T20:30:00.000-05:00caveat emptor said:"Lets run the numbers for our m...caveat emptor said:<BR/>"Lets run the numbers for our median entry level buyer. Assume the median annual income has risen with inflation and is at $89,000 for 2007, and assume thier monthly debt load is $600 ($350 car payment, $150 student loan, $100 credit card"<BR/><BR/>This is very enlightening. Entry level buyers who don't have family or personal wealth backing them DON'T have $350 car payments of $100 credit card payments. They buy a cheap cheap junker for cash and they make sure they never charge more on their credit cards then they can pay off that month. You can't have your cake and eat it too.Lancehttps://www.blogger.com/profile/12216089306021385355noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170886998902091962007-02-07T17:23:00.000-05:002007-02-07T17:23:00.000-05:00Caveat Emptor,Your logic is faulty because you mak...Caveat Emptor,<BR/><BR/>Your logic is faulty because you make the unfounded assumption that current earnings (i.e., income) plus the "20% deposit" are a buyer's sole resources. In the example given a few weeks ago, it was shown that most middle class houses in northeast DC never go on the market but instead get passed on to the kids ... the same kids who under your assumptions would not be in a position to buy ANYTHING in this metro area. Additionally, as Va_Investor's example shows, a great number of people buying those places that are for sale can depend on family money either already in their possession or accessible when needed. Not everyone is in that position? Correct. But like the bubbleheads like to say, prices are determined at the margins ... by those willing sellers and ABLE buyers who end up at the table dealing. NOT by the whiners out in their rentals looking on ...Lancehttps://www.blogger.com/profile/12216089306021385355noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170882927752479402007-02-07T16:15:00.000-05:002007-02-07T16:15:00.000-05:00caveat - you make a lot of poor person's assumptio...caveat - you make a lot of poor person's assumptions. i feel bad for you.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170882633564210012007-02-07T16:10:00.000-05:002007-02-07T16:10:00.000-05:00Caveat Emptor said... “Again, HousingTracker.net s...Caveat Emptor said... <BR/>“Again, HousingTracker.net says that the median price of houses on the market in the area in Feb 2007 is $439,800, and the 25th percentile is priced at $330,000.”<BR/><BR/>Heads up, HousingTracker uses asking prices, not sold prices.<BR/><BR/>-The numbers provided here are asking prices derived from MLS listings.-roberthttps://www.blogger.com/profile/10354810363004791622noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170881986813612852007-02-07T15:59:00.000-05:002007-02-07T15:59:00.000-05:00Actually, as I look at your analysis, Caveat, I se...Actually, as I look at your analysis, Caveat, I see an important errors in reasoning. Mainly, you unintentionally assume that the median first-time homebuyer is equivalent to all first time homebuyers, which creates severe problems with your analysis.<BR/><BR/>First, if 1st time homebuyers made up 38% of all buyers, and we believe that 1st timers are nearer the bottom of the homebuying distribution, then the median 1st time homebuyer is on the 50th percentile point of the bottom 38% of homebuyers, which puts them at 19%. And if 19% of the homebuyers can afford 25% of the homes, then things aren't that bad. <BR/><BR/>Now, I'll allow that not all first time homebuyers are at the bottom end, so that the median first-time homebuyer might be above 19%. <BR/><BR/>But once we factor in that first time homebuyers are more likely to be on the low side of the buying distribution, and that the median first-time home buyer is poorer than exactly half of the other first-time homebuyers, then prices don't look as crazy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170880391206139152007-02-07T15:33:00.000-05:002007-02-07T15:33:00.000-05:00"My question is what economic factors indicate tha..."My question is what economic factors indicate that buyers will suddenly be willing to pay more money that they have not been willing to pay in the last year?"<BR/><BR/>Rising rents. Rents are rising. I think your analysis of the median income first time buyer is useful, but we have to remember that that potential buyer is making a buy/rent decision. If they're already spending a lot on rent, then paying slightly more to buy isn't as crazy as it seems. In most areas, prices haven't fallen enough to move the buy/rent equation back to the buy side, but they're a lot closer than they seem if you don't factor in rising rents. You don't need prices to fall as much to achieve a correction if rents are rising, too.<BR/><BR/>And again, I point out that foreclosures fell in the DC area during '06, which is pretty amazing since it was a down year and there were a lot of ARM resests during that period. <BR/><BR/>Maybe the ARM resests will do it this year, and give us the big scenario of rising inventories pushing down prices which then forcing more rising inventories due to borrower distress, but if resetting ARMS and falling prices didn't force foreclosures in DC in 06, even when the rest of the country had a major increase in fotreclosures, what makes us so sure they will now? It looks like the decline in prices during 06 was just sellers cashing out after the market hit its peak in 05. <BR/><BR/>Let's also remember that inventories actually rose during Fall of 05, which gave us the first leading indicator of a fall in prices, but fell during Fall 06, so it's a big wild card as to what will happen to inventories come this spring. <BR/><BR/>A quarterly history of inventories:<BR/><BR/>4600 in Sep 05<BR/>7000 in Dec 05<BR/>8000 in Mar 06<BR/>12000 in June 06<BR/>11500 in Sep 06<BR/>9500 in Dec 06<BR/>8400 today<BR/><BR/>So the question is, will we see the same seasonal pattern this year as we did last year? If so, expect more price decreases as inventory increases.<BR/><BR/>But should we expect the same pattern across Spring 06 and Spring 07, since the seasonal pattern of Fall 05 (rising inventories) differed from the seasonal pattern of Fall 06 (falling inventories)?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170868068366618762007-02-07T12:07:00.000-05:002007-02-07T12:07:00.000-05:00Anon 5:24I reject your premise that median income ...Anon 5:24<BR/><BR/>I reject your premise that median income is “meaningless,” or that you can settle that debate by fiat. If you are willing to dismiss one-half of the population as excluded from being a potential source of first-time home buyers, I reiterate my question, where are all the buyers coming from?<BR/><BR/>But setting that point aside for now, I gladly accept your invitation to try again. After all, my point was that first-time home buyers are being priced out of the market. Lets look at the median income for first-time home buyers in Northern Virginia.<BR/><BR/>From the WaPo 3/25/06:<BR/><I>The median income of entry-level Northern Virginia buyers was $86,100, and 68 percent of first-time home buyers were ages 25 to 34. First-time home buyers accounted for 38 percent of the houses bought in Northern Virginia, compared with 40 percent nationally. . . . The median income of all home buyers was $104,600, compared with $71,600 nationally.</I><BR/><BR/>Lets run the numbers for our median entry level buyer. Assume the median annual income has risen with inflation and is at $89,000 for 2007, and assume thier monthly debt load is $600 ($350 car payment, $150 student loan, $100 credit card). Net gross monthly income is $7,400. Using the 25% to 40% scale, financial advisors would tell this buyer that they can afford a monthly payment of between $1,700 and $2,700 per month. With 100% financing at 6.5% on the first tier and 7.75% on the second tier with a 30-year fixed, the buyer can afford a home priced between $235,000 and $375,000. With an 80/15/5 loan at those rates, the buyer could afford between $245,000 and $395,000, but they would need to have $27,000-$35,000 in the bank.<BR/> <BR/>HousingTracker.net says that the median price of houses for sale in the area in Feb 2007 is $439,800, and the 25th percentile is priced at $330,000.<BR/><BR/>This means that our first-time buyer can afford only one in four homes on the market. Think about this. 38% of the buyers who are actually in the market (and haven’t already been priced out) can only afford 25% of the homes. Hence my point: first-time home buyers are being priced out of the market. And hence my question: Where will the buyers be coming from to clear the increased inventory?<BR/><BR/>Just for smiles, I ran the numbers on the median incomes as well. Assuming a 2007 annual salary of $108,000 with the same $600 a month debt load, the median buyer can afford homes between $290,000 and $465,000 with 100% financing and $305,000 to $485,000 on an 80/15/5 loan (with $30,000 to $40,000 in the bank). These numbers suggest that if the market is to clear at current levels, many buyers will have to be willing to become house poor. Perhaps they will. My bet is they will not.<BR/><BR/>If the only answer lies in creative financing with interest only and ARMs, I put that answer with those in beginning of this decade who suggested that this is a “new economy” and price to earnings ratios do not matter. NASDAQ 5,000? That was nearly seven years ago. Today it is still half that.Caveat Emptorhttps://www.blogger.com/profile/14417158283171016454noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170867675292710442007-02-07T12:01:00.000-05:002007-02-07T12:01:00.000-05:00Anon 5:24I reject your premise that median income ...Anon 5:24<BR/><BR/>I reject your premise that median income is “meaningless,” or that you can settle that debate by fiat. If you are willing to dismiss one-half of the population as excluded from being a potential source of first-time home buyers, I reiterate my question, where are all the buyers coming from?<BR/><BR/>But setting that point aside for now, I gladly accept your invitation to try again. After all, my point was that first-time home buyers are being priced out of the market. Lets look at the median income for first-time home buyers.<BR/><BR/>From the WaPo 3/25/06:<BR/><I>The median income of entry-level Northern Virginia buyers was $86,100, and 68 percent of first-time home buyers were ages 25 to 34. First-time home buyers accounted for 38 percent of the houses bought in Northern Virginia, compared with 40 percent nationally. . . . The median income of all home buyers was $104,600, compared with $71,600 nationally.</I><BR/><BR/>Lets look at our median entry level buyer. Assume the median income has risen with inflation and is at $89,000 for 2007, and assume their monthly debt load is $600 ($350 car payment, $150 student loan, $100 credit card). Net gross monthly income is $7,400. Using the 25% to 40% scale, financial advisors would tell this buyer that they can afford a monthly payment of between $1,700 and $2,700 per month. With 100% financing at 6.5% first tier and 7.75% second tier on a 30-year fixed, the buyer can afford a home priced between $235,000 and $375,000. With an 80/15/5 loan at those rates, the buyer could afford between $245,000 and $395,000, but they would need to have $27,000-$35,000 in the bank. <BR/> <BR/>Again, HousingTracker.net says that the median price of houses on the market in the area in Feb 2007 is $439,800, and the 25th percentile is priced at $330,000.<BR/>This means that our first-time buyer can afford only one in four homes on the market. Think about this: 38% of the buyers who are actually in the market (and haven’t already been priced out) can only afford 25% of the homes. Hence my point: first-time home buyers are being priced out of the market. And hence my question: Where will the buyers be coming from to clear the increased inventory?<BR/><BR/>Just for smiles, I ran the numbers on the median incomes as well. Assuming a 2007 annual salary of $108,000 with the same $600 a month debt load, the median buyer can afford homes between $290,000 and $465,000 with 100% financing and $305,000 to $485,000 on an 80/15/5 loan (with $30,000 to $40,000 in the bank). These numbers suggest that if the market is to clear at current levels, many buyers must be willing to become house poor. Perhaps they will. My bet is they will not.<BR/><BR/>If the only answer lies in creative financing with interest only and ARM loans, I put that answer in the same category with those who at the beginning of this decade suggested that this is a “new economy” and price to earnings ratios do not matter. NASDAQ 5,000? That was nearly seven years ago. Today it is still half that.Caveat Emptorhttps://www.blogger.com/profile/14417158283171016454noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170854650403998392007-02-07T08:24:00.000-05:002007-02-07T08:24:00.000-05:00caveat empetor,we've beaten to death the subject o...caveat empetor,<BR/><BR/>we've beaten to death the subject of why the median income is a meaningless figure in dc. try again.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170822990210821132007-02-06T23:36:00.000-05:002007-02-06T23:36:00.000-05:00mytwocents,The data from 91 is interesting. And t...mytwocents,<BR/><BR/>The data from 91 is interesting. And that flatline from 91-98 is certainly a painfull memory for many, particlarly those who sold in 98. It would be interesting to see how many interest only and ARM financings were in the market at that time. And how many speculators. And how big of a margin between median incomes and median home prices.<BR/><BR/>I have no doubt that there are many buyers that have held off making purchases in the last year to six months such that there is a backlog of buyers. I know because I am one. But what is going to get them into the market? Higher prices? This seems to be NAR's strategy to recreate the frenzy. But the frenzy of the last 5 years or so was started by good old demand outpacing supply. The demand was fuled by several factors which are unsustainable, and created "froth." How much froth we will have to wait and see. I am suggesting that one buying season is not going to resolve the matter that was created over many years but, instead, could make it worse if there is also a backlog of sellers who have held off putting their home on the market (or removed their home from the market) waiting for prices to go back up. I have seen indications that this is the case. <BR/><BR/>My question is what economic factors indicate that buyers will suddenly be willing to pay more money that they have not been willing to pay in the last year?Caveat Emptorhttps://www.blogger.com/profile/14417158283171016454noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170821501734503802007-02-06T23:11:00.000-05:002007-02-06T23:11:00.000-05:00Re: First time home buyers priced out of the marke...Re: First time home buyers priced out of the market:<BR/><BR/>From a Nov 2005 article in the Washington Post:<BR/><BR/><I>District home prices have risen so rapidly that more than 80 percent of the properties for sale last year were financially out of reach for the average city household, according to a report by Urban Institute researchers released yesterday.<BR/><BR/>The report used the example of a public school teacher to show the effect of rising house prices. A teacher with a typical $45,000 income buying a first home could have afforded one-third of the D.C. homes for sale in 2001. By 2004, with a $52,000 paycheck, that teacher could afford only 17 percent of the properties on the market. That means a household with a $44,926 income -- the city median last year, according to estimates by the demographics data company Claritas -- could afford even less.</I><BR/><BR/>Here is the math. Assume the median income in 2007 has risen to $50,000. This family’s monthly gross is $4,167. Financial consultants will tell you that housing costs should be between 25% and 40% of your gross monthly income, after deducting your other debt payments. Assume our family has payments of $400 a month in auto loans, student loans, and credit card payments. This means that they should be able to afford between $640 and $1270 per month in housing costs.<BR/><BR/>If a family finances 100% of the cost of the house with a first tier mortgage at 6.5% and a second tier mortgage at 7.75%, the monthly payment they can afford is between $89,000 and $175,000 (including taxes). With an 80/15/5 loan at these same rates, they can afford $93,000 to $180,000, but they need to have between $16,000 and $22,000 in the bank for closing costs (including the 5% down).<BR/><BR/>According to housingtracker.net, the median asking price for homes on the market for Feb 2007 is $440,000. For the 25th percentile, the asking price is $330,000. <BR/><BR/>Of course, banks have been willing to lend people more than they can afford with interest only and ARMs. But this is a house of cards that will take 3-7 years to collapse when the principal payments become due or the rate adjusts. People have made huge bets that (1) intrest rates will remain low; and (2) their incomes will go up sufficient to cover the added costs. And it will accelerate. As housing prices boomed over the last 5 years, people became more and more extended.Caveat Emptorhttps://www.blogger.com/profile/14417158283171016454noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170811152698333502007-02-06T20:19:00.000-05:002007-02-06T20:19:00.000-05:00Redskins said:" I suspect people like me can pay r...Redskins said:<BR/>" I suspect people like me can pay rent longer than people like then can pay mortgages, taxes, and insurance. We shall see."<BR/><BR/>That's right ... renters always have more resources than homeowners. (Okay ... I couldn't resist ... This once ...)Lancehttps://www.blogger.com/profile/12216089306021385355noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170791510477633342007-02-06T14:51:00.000-05:002007-02-06T14:51:00.000-05:00If you look at Housing Tracker, you'll see a big i...If you look at Housing Tracker, you'll see a big increase in inventories during August 05 to November 05, but then a fall in inventories between August 06-November 06. I think that's an important difference in terms of what we can expect in prices.<BR/><BR/>To get some big price decrease in 07, you really need a story here that has ARM resets driving a lot of selling and foreclosures. But foreclosures in the DC area fell during 2006 even though 2006 was a down year and even though foreclosures shot up in the rest of the country. <BR/><BR/>I think the big drop is still a possibility, but it's looking less likely, especially for close in areas.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170786740554866372007-02-06T13:32:00.000-05:002007-02-06T13:32:00.000-05:00"Inventory plunged again to its lowest level since..."Inventory plunged again to its lowest level since March 2006. 6 more weeks and we'll be back to unchanged year over year - or better."<BR/><BR/>Yes and I will be hunting leprechauns whilst riding atop my unicorn.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1170786533547670182007-02-06T13:28:00.000-05:002007-02-06T13:28:00.000-05:00People, please stop twisting contrarian theory to ...People, please stop twisting contrarian theory to your own purposes. The true contrarian philosophy only states that the crowd is usually wrong at key inflection points (tops, bottoms, trend reversals, etc.) not that they are wrong ALL of the time. In fact, when the crowd joins in something, that is usually the trends largest and strongest move. For example, when all of the daytraders joined into the tech bubble, or when all of the specuvestors jumped into real estate we saw huge moves in both of these assets.<BR/><BR/>So stating that because the MSM has now started to pick up on the housing bubble/bust and that somehow this means that the trend will reverse is absurd. Remember the HUGE move (down) is still in front of us as the crowd starts to realize that RE isn't the place to be and stampedes for the exits. <BR/><BR/>So in several years when the MSM runs a story on the cover of Time about how RE is terrible and it will always be lousy, then PERHAPS we will have seen a contrarian trigger where a key inflection point is missed and the contrarians will know the time to buy has arrived.Anonymousnoreply@blogger.com