Ownership Cost: Income, Payments and House Prices

Today I have an in-depth look at how borrower income levels impact payments and house prices; plus, I profile an epic HELOC abuser.

32 Summerwind Irvine, CA 92614 kitchen

Irvine Home Address … 32 Summerwind Irvine, CA 92614
Resale Home Price …… $640,000


You always keep me guessin
I never seem to know what you are thinkin
And if a fella looks at you
It’s for sure your little eye will be a-winkin
I get confused, cause I don’t know where I stand
And then you smile, and hold my hand
Love is kinda crazy with a spooky little girl like you

If you decide someday to stop this little game that you are playin
I’m gonna tell you all what my heart’s been a-dyin to be sayin
Just like a ghost, you’ve been a-hauntin my dreams
So I’ll propose on Halloween

Spooky — Atlanta Rhythm Section

I revisited my post on Rent Versus Own where I talked about the cost of ownership. Many of the questions people have about our IHB Property Valuation Reports are related to the various cost inputs and how they impact values. Therefore, I want to take each of these costs and talk about them in more detail. In order to do this in a logical flow, I have broken this task into a series of five posts that will be debuting all this week. These posts are:

Ownership Cost: Income, Payments and House Prices

Ownership Cost: Interest Rates and Downpayment Requirements

Ownership Cost: Property Taxes and Mello Roos

Ownership Cost: Homeowners Associations

Ownership Cost: Taxes and Opportunity Costs

I haven’t finished them yet, so we will see if my performance matches my ambitions….

Four Major Variables that Determine Market Price

There are four variables that determine the purchase price of a property:

  1. borrower income,
  2. allowable debt-to-income ratios,
  3. interest rates, and
  4. downpayment requirements.

These variables are impacted by some other minor cost inputs which I will be discussing on Wednesday through Friday, but for the most part, the variables above determine market pricing. The first two variables are the focus of today’s post, and the last two are the topics for tomorrow.

Payment is a direct link to borrower gross income. The debt-to-income ratio allowed by a lender applied to the borrower’s monthly income is the maximum allowable monthly housing expense an underwriter will consider. From this amount, a lender will subtract an allowance for taxes and insurance to calculate the total amount of the available housing expense applicable to debt service. Here is where interest rates enter the calculation.

Lenders have complex formulas — which thankfully are distilled into simple spreadsheet commands — that are used to calculate loan balances, payments and other important numbers. If the payment is known (which we calculated above), and you apply an interest rate and amortization schedule, the inputs can be put into a spreadsheet or financial calculator (or it can be laboriously calculated by hand) to come up with a loan amount.

Once the largest loan amount a certain level of borrower income can support is known, adding the downpayment requirement to the loan amount equals the amount a borrower can pay for a house. At that point it is a numbers game. Are there more buyers at these income levels than properties available? If so, then prices stabilize or go up. If there are fewer buyers than available property, then prices go down. As a society are we going to allow banks to be the new housing cartel releasing product only as they get their price? That is where we are headed.

Borrower Income and Wage Inflation

Borrower gross income is the basis of all lending… or is it? With Stated Income (liar loans), income doesn’t matter… When you think about that for a moment, it isn’t a mystery why liar loans went away first; they undermine the foundation of all lending — accurately measuring borrower capacity.

Wage inflation is the slow increase in aggregate wages over time in a given area. Wage inflation is a driver of price inflation because workers will use wage increases to bid up the cost of goods and services they demand. in a housing market, wage growth pushes up prices as follows:

Assume a worker is earning $100,000 and can borrow $400,000 to bid on property in today’s market. In one year, if this worker gets a 3% raise (not this year), he will be making $103,000, and if other terms do not change, he will be able to borrow $412,000. If he has also increased his savings, the amount he can bid on real estate has also increased by 3%.

A property that might sell for $500,000 today can sell for $515,000 in one year and it is no more expensive in terms of its financial impact; debt-to-income, savings impact, time of amortization — the key variables remain the same. This is “normal” home price appreciation.

Prices should mirror incomes

In a normal real estate market, people at each income strata compete with each other for available properties in their price range. If there is a shortage of supply, shoppers learn to settle for less. Rather than a 3/2, someone settles for a 2/2 with a den. A shortage of supply does not necessarily make for higher prices; it can simply result in a lowered standard of living as people take the income they have and compete for what is available.

Assuming supply is sufficient — which in the long term it always is — the most desirable properties will be held by the highest wage earners, and the least desirable properties will be inhabited by the lowest wage earners. That is how markets work. Is there a better way? The median income will control the median property over time, and the median home price should represent the median income applied to conventional financing metrics.

In Irvine, the last reported median income is $91,101. I doubt it has gone up. If you take $91,101 / 12 x 0.31 = $2,353. That is the maximum amount a median wage earning household should be putting toward housing costs. Looks similar to the median rent, doesn’t it? If you calculate the largest loan amount $2,535 can service at 5.1%, you get $433,454 (real loan balances would be lower due to taxes, HOAs and insurance). If you assume this is 80% of a purchase amount (20% down), then the total purchase price would be $541,818 — a number very close to the current Irvine median.

I am not saying we are at a bottom because I do not believe the government props are stable, and there are future supply issues, but I believe payment affordability is the best it has been in years, and it may not improve even if prices fall further.

What would create demand?

Payment affordability is at an all-time high thanks to the Federal Reserve. IMO, this indicator is likely near its peak for the cycle. The Federal Reserve can make the cost of borrowing so low that any price can be made to cashflow.

Markets like Irvine have not crashed as hard as subprime markets, and since prices are still greatly elevated here, a huge increase in affordability brings the ridiculous into reach. In the beaten down subprime markets, affordability is remarkable.

Here is where it gets strange — prices will continue to fall, and interest rates will be allowed to creep upward resulting in lower payment affordability even as prices move lower. The slow erosion of payment affordability is the inflationary push the economy needs to motivate idle cash — like all of us fence sitters.

People who buy now will experience payment affordability at unprecedented levels in many markets. They will endure a slowly sinking ship that reaches low tide in three to five years. Prices will get back to their entry points in 2015 to 2020. If they wait it out or take a minor loss (amortizing loans with downpayments give them flexibility), they still have mobility, and future ARM meltdowns should be averted.

Buyers over the next three to five years will get lower prices, but it will cost them more to get it because payment affordability will decline with higher interest rates. Perhaps prices will fall fast enough to increase payment affordability, but with the shadow inventory remaining in the shadows, there is no reason to believe prices will be dropping 30% until this inventory hits the market.

Payments using conventional financing are now affordable. Will they remain that way?

Allowable Debt-to-Income Ratios

The Allowable Debt-to-Income (DTI) Ratio is a limit lenders determine is the largest percentage of your wage income you can give them before you go into default on the loan. Lenders have been steadily increasing allowable DTIs since the 1970s. They are out to squeeze every available penny out of your life.

Lenders permit these higher DTIs ostensibly to allow customers to bid on more expensive homes. The result is a higher equilibrium price for all properties in a market and a higher percentage of income that the general population is putting toward debt service. Lenders are knowingly putting their customers in a state of perpetual servitude.

Borrowers sacrifice disposable income in order to service a higher DTI — wait! — is there a way to increase disposable income and service a higher DTI? It would be a panacea…. Lenders solved this problem with the Option ARM, and they used it to inflate The Great Housing Bubble.


The moment lenders allowed customers to pay debt with increasing debt, it became a Ponzi Scheme, and it was doomed to crash. It is amazing how large it became; hundreds of billions of dollars flowed into these Ponzi Scheme assets. The collapse of the subprime home mortgage Ponzi pyramid was a precipitating factor that lead to the financial meltdown of 2008.

The beauty of the arrangement was the sales pitch; you can get a huge pile of spending money, pay less per month on your mortgage, and whenever you needed more, the California ATM house will magically refill itself with money through home price appreciation. It was self-reinforcing delusion used to hide a Ponzi Scheme beneath.

I can see why the idea is popular with bankers and customers alike; lenders get to write larger loans which put more investor money to work, and borrowers get to borrow and spend like maniacs. Ponzi Schemes work well in the beginning.

In the end, we are left with a large number of people who greatly overborrowed. The overleveraged masses are realizing that they will have to give up the disposable income and lavish lifestyle if they are going to keep their homes. It is the inevitable result of the failure of lenders to resolve the basic dilemma of increased payments with increaseed borrowing. Many people are walking away.

The mortgage market is struggling to find an equilibrium DTI where borrowers do not default. The first round of loan mods back in 2008 tried to use 38%, and it was a dismal failure. The latest round of loan mods is using 31% (like the FHA), and although the success rates are not much better, the current defaults are strategic based on being underwater, not because they cannot afford the payment.

In short, allowable DTIs are going to retreat to stable levels between 28% and 32% before terms stabilize and we begin on the next Ponzi Scheme.

Interest Rates

Tomorrow’s post is part 2 Ownership Cost: Interest Rates and Downpayment Requirements.

32 Summerwind Irvine, CA 92614 kitchen

Irvine Home Address … 32 Summerwind Irvine, CA 92614

Resale Home Price … $640,000

Income Requirement ……. $119,139
Downpayment Needed … $128,000

Home Purchase Price … $284,000
Home Purchase Date …. 9/9/1994

Net Gain (Loss) ………. $317,600
Percent Change ………. 125.4%
Annual Appreciation … 5.2%

Monthly Mortgage Payment … $2,780
Monthly Cash Outlays ………… $3,620
Monthly Cost of Ownership … $2,720

Redfin Property Details for 32 Summerwind Irvine, CA 92614

Beds 3
Baths 2 full 1 part baths
Size 2,091 sq ft
($306 / sq ft)
Lot Size n/a
Year Built 1981
Days on Market 105
Listing Updated 10/5/2009
MLS Number S581455
Property Type Condominium, Residential
Community Woodbridge
Tract Wc

According to the listing agent, this listing may be a pre-foreclosure or short sale.

Wow,Woodbridge Beauty, Inside The Loop, Close to Lake & Swimming Lagoon. It’s Gorgeous,3 Bedrooms,2 1/2 Bath,Plus Upstairs Bonus Room/Office. 2 Car Direct Access Garage,Remodeled Kitchen and Bathroom,Granite Countertops,Custom Lighting,Beautiful Cabinets,Designer Flooring,Engineered Wood,18’x18′ Porcelain Tile Stainless Steel Fridge Microwave, Window Blinds,Separate Family Room and Living Room with Gas Fireplace With Large Mirror,Master Bedroom Retreat Area,If That Were Not Enough,Enjoy The Enclosed Gardener’s Delight Landscaped and Hardscaped Yard With Covered Patio,Enjoy All That Woodbridge Has To Offer,Lakes,Lagoons,Swimming Pools,Tennis Courts,Walking & Bike Trails,Excellent Schools,It Just Feels Like Home.

Title Case? Why Do People Write In Title Case? You Have To Remember To Press Shift At Each Word, And It Slows You Down. Plus It Is Very Difficult To Read.


  • This property was purchased on 9/9/2004 for $284,000. The owners used a $213,000 first mortgage and a $71,000 downpayment. The 2000 purchase amount was part of a divorce settlement and does not reflect the price of the property at the time. After the split, our remaining owner began sipping kool aid.
  • On 6/18/2001 he opened his first HELOC for $20,000.
  • On 10/10/2003 he refinanced the first mortgage for $341,000.
  • On 10/10/2003 he opened a HELOC for $99,000.
  • On 10/28/2005 he refinanced the first mortgage for $600,000.
  • On 11/4/2005 he opened a HELOC for $250,000.
  • Total mortgage debt is $850,000 assuming he maxed the HELOC.
  • Total mortgage equity withdrawal is $637,000 including his downpayment.

This guy borrowed and spent over $600,000 in about 3 years (2003-2005). It must have been quite a party.

50 thoughts on “Ownership Cost: Income, Payments and House Prices

  1. granite

    “They will endure a slowly sinking ship that reaches low tide in three to five years.”

    This is exactly what I went through in the early 90s. Bought a house at a somewhat reduced price, only to watch it continue to go down for over 6 years. This bubble was so historic that people’s memory of easy money has not faded. So we get bidding wars because they have to get on the train before it leaves.

    I’ll take the train “in three to five years”. Just signed an 18 month lease.

    1. thrifty

      Our experience mirrors yours. Bought a house in 1992 knowing prices were on the decline. 2 years later the house next door – same builder, size, quality, etc., sold for 20% less than we paid. It was year 2000 before our house was worth what we had originally paid. I think it will be at least 2 years, possibly longer, before equilibrium among interest rates, incomes and home prices is again reached (despite, not because of, government intervention which is serving only to delay the process).

    2. same here

      Same here. Bought a condo in early ’92 and was not able to get out with some equity (actually nice equity) till 2002. It took ten years but all worked out fine in the end ;). Still, boy, did I sell too soon too.

    3. LC

      My experience during the good times was nothing special. I basically got all of my payments back when I sold. That was nice, but a shoe box would have worked.

  2. MalibuRenter

    I keep watching outside regulatory factors. Oddly, I expect that the same thing which brought Federal support will end it: high expected losses. When the losses guaranteed or paid directly look endless if subsidies persist, the subsidies will be harder to keep in place.

    1. IrvineRenter

      Nice catch. I put the wrong date into the post and it gave wrong information about appreciation as well. I am not too proud to fix a mistake. By the time people read this, nobody will see the error.

      1. Chris

        Yeah, took me by surprise as well that the property cost less than $300k in 2004.

        And I thought I overpaid my $400k Irvine condo back in ’04….wait….I think I did 🙂

    2. IrvineRenter


      Last weekend you asked for increased function in the calculator using the time-to-payoff feature. I have just completed it. Go to the calculator and scroll to the bottom. I hope this helps.

  3. thrifty

    I’ve been following San Clemente prices on Redfin for a couple of years. Over the last 3 days there has been a dramatic increase in the number of new listings (short sale, reo and occasional equity sellers) in the Talega development. All of the asking prices (including equity sellers) are in the mid $200/sq ft. ($230-$270); nice homes built since 2000 in the 2200-3300 sq. ft range. Listing agents vary as well. Could this be the beginning of another big downleg in prices, particularly with the 10 yr treasury rates trending up again?

    1. wheresthebeef

      I personally don’t follow San Clemente listings, but what you are describing will hit ALL areas in OC soon.

      The government can’t hold interest rates down forever and banks certainly can’t keep ignoring the growing supply of foreclosures. Couple that with a lousy economy and record unemployment and you have a recipe that could see very rapid real estate price declines.

      The negative factors regarding housing far outweigh the positives:

      1. Interest rates can’t stay low for much longer
      2. Home buyer credit expires
      3. Foreclosure moratorium ending
      4. Spring/summer rally season over
      5. Foreclosures rising…shadow inventory
      6. Record unemployment
      7. California in all sorts of financial trouble
      8. Higher taxes are on the way nationally
      9. OC housing prices are still too rich compared to income and economic fundamentals

      I wouldn’t be a buyer just yet, there is too much uncertainty. You could still lose a significant amount of money if buying today.

      1. Geotpf

        Most of the things you are describing things that constrain demand (number of purchasers). thrifty is describing an increase of supply (number of houses for sale). Supply has been extremely tight in recent months, especially on the low end, which has stopped, and in some cases, reversed, the price decline. If that changes, watch out. But one weekend in one area isn’t enough data to say that this is happening-yet.

  4. newbie2008

    What are P, L, c and n in your formula?

    Let’s not forget the negative amortization loans, liar loans with a negative down to boost the sales price on new construction. The lies came from both ends. Been waiting for the CA income to match the house price for 8 years. Each round a new creative financing comes into play. Now 3.5% down, substidized interest, and tax credit.

    What’s with the picutres of the girls? They look as if their on something. Like the old fashion ads using the heroin-look. Was so sickly, I don’t see who would buy those fashions?

    Thrifty, Was in HB ~1/2 mile from beach. Lots of for sale signs. $1.5 million plus for nice looking house iwth no yard, but at $600 psf on 2 stories, still steep. Would be over $18,000 in just taxes and MR per year. Also looks like a jump in public FC notices.

  5. Sue in Irvine

    OMG. This guy took out over $600K in 3 years? This condo is near me. They are attached by one wall. At the crazy height (2006?) it may have sold for over $800K. I’m going to walk my dog over there tonight and let him do his poo-poo. ;-P

  6. Blueberry Pie

    My gross household income this year is probably going to be $112,000. That means the maximum I should be putting toward rent is $2900. That’s crazy. If I was paying that much towards rent, I’d have very little money left for anything else. My rent is $2000 and we are barely able to put $200/month in savings.

    1. Nomono

      It’s a wonder how people would even be able to take vacations or spend money on entertainment when they’re paying that 1/3rd their income towards rent/mortgage.

      1. Blueberry Pie

        Are there actually responsible people making smart financial decisions and committing 31% of their gross income to housing costs? Or is that just some BS number that a mortgage broker came up with to sell loans?

        1. KJB

          31% of gross probably a bad idea. 31% of net is a different story.

          Plus with 69% left and you should be able to save easily. I question what someone deems required spending. Everyone doesnt need a Benz and to go to south coast and take expensive vacations. At 112k if you cant afford 2k in rent and save money I question spending habits.

          112k = 9,333 a month gross after taxes and 10% out for retirement = 6066.45 lets take out another 5% plus rent and you have 3.5k plus some change. Transport should = less then 1k, food less then 1k, 500-1k in savings is easy per month.

          The problem is the spending bubble isnt just huge housing payments, its a lifestyle.

          1. Blueberry Pie

            Yeah, we’re looking at about $6k/month take home after taxes and retirement, then:
            $2,000 – Rent
            $800 – household expenses (electric, phone, tv, etc.)
            $500 – gasoline
            $900 – debt service (including car payment and student loans)
            $400 – Groceries

            That leaves us with about $1400/month for: savings, entertainment, clothing, buying stuff for the kid, vehicle maintenance, etc. It goes fast.

            Anyway, my point is more that the 31% of gross number seems high.

    2. p35flash

      That’s because your income is taxed to death. If you actually kept most of the money you made you’d be fine.

      1. Arkansas Traveler

        Sure, you’d be fine … unless you wanted to send your kid to the school that was previously supported by your taxes, or drive on paved roads to that school, or have police to patrol those paved roads and keep them safe or (etc, etc, etc) …

  7. IrvineRenter

    I received this piece of Spam today:

    FW: Urgent Fannie Mae Updated Guidelines

    You may have heard that Fannie Mae is implementing the first of December some very restrictive new guidelines regarding back-end debt-to-income ratios. Currently we have seen DU approve loans with ratios as high as 60% but with the new guidelines we will all be restricted to 45% and some will allow up to 50% with really strong assets and credit histories. What this is going to do is cause many buyers to buy smaller homes, or if they have the assets pay down more debt, come in with larger down payments or opt to take on more adjustable rate mortgages that carry a lower interest rate and consequently a lower payment and debt-to-income ratio.

    This is just another in a series of tightening attempts by Fannie Mae to lower the risk in mortgage lending. If I have given you a pre-approval in the last several months and your clients do not buy a home prior to the first of December (December 12) is the date I have seen, then I will most likely have to re-calculate their files and come up with a new pre-approval or strategy to get their DTI percentages at or below 45%. This is just another nail in the coffin for the real estate industry as we try to recover from one of the worst real estate markets of all time. There are virtually no more stated loans, negative amortization loans have been outlawed in California, mortgage PMI companies are making it hard to go over 80% on conventional loans, the minimum FICO score has been increased to 620, the appraisal industry has been taken over by the HVCC’s companies and costing the consumer much more money and on and on.

    It is a challenging time in the real estate and mortgage lending business but if we work together up front then problems further in the process will be averted and your clients will be much more informed and understand what they can and cannot afford. This is going to put more pressure on the higher end market as the guidelines to qualify will make it harder for higher income clients to push their debt ratios over a very restrictive 45%. In some ways this is good as it will force many clients to get rid of expensive automobiles and credit card debt in order to push down their back end ratios.

    1. thrifty

      If this was actually written by someone in the real estate home lending business, it’s pathetic. Someone in a position of responsibility literally bemoaning the beginning of a return to responsible lending criteria; DTI is still way too high.

      1. IrvineRenter

        Yes, this was part of a solicitation email, and the DTIs are ridiculous.

        “make it harder for higher income clients to push their debt ratios over a very restrictive 45%.”

        Since when is a 45% back-end DTI restrictive?

    2. tony

      OMG… appraisers following the Home Valuation Code of Conduct (HVCC).

      45% DTI restrictive…

      What “challenges” me is the realization that the RE industry sounds like a bunch of drug pushers with no thought about the long term well being of its customers.

      They should make drugs legal, DTIs over 35% illegal.

    3. newbie2008

      The MB are solving half-dozen short-term problems:
      1. Borrower wants money. We supply their needs.
      2. MB wants commissions and/or points.
      3. Lender wants commissions, points and paper profits.
      4. RE industry and US govt want housing bubble reinflated.
      5. Banks, RE, MB make money on each transaction, so they want more tansactions.
      6. FHA is willing to loan, so 1-5 can continue.

      Long-term problems created:
      1. Future FC or pay back with inflated currency.
      2. Excess DTI.
      3. America as a debtor nation or repossed nation.

      WGARA replies:
      MB: why should I care?
      Washington, DC: As long as the implosion is not on my watch and Wall Street lines their pockets and mine. It’s the PRC fault.
      Taxpayers: As long as I don’t personally pay for it — Let my children and grandchildren pay for it.

  8. matt138

    Affordability is attractive right now. Wouldn’t our dire economic situation warrant further affordability?

    1. IrvineRenter

      Not if interest rates go up. In the world of financed transactions, terms impact affordability as much as the price.

      1. jay

        For those responsible renters like me who have to buy soon, ie early 2010 (family reasons etc), and have a sizeable downpayment saved, what is the best strategy?
        -One option is to put down the largest downpayment I can (upto 40% of purchase price), and have an affordable DTI.
        -The other option is to only put in the minimum down payment (eg FHA loan) and finance the rest with a fixed rate mortgage. The principal owed will inflate away, if high inflation is anticipated in a couple years? (My job is secure, BTW).
        The cash reserves can be put away in inflation indexed bonds or suchlike….
        Does this make sense?

        1. Craig

          No one “has to buy soon”, ever. You can always rent a similar dwelling, usually for less money, in this area at least.

          With interest rates this low and likely to go up, I would opt for a smaller down payment now. If inflation ratchets up, yields on even the safest investments will approach and surpass today’s mortgage rates. If inflation doesn’t show up, you can always pay down the principal sooner.

          1. Jay

            Thanks Craig.
            -Thats what I figured.
            PS: WRT the decision to buy vs rent, we have been ‘holding off’ since 2003(!), when I felt that Boston prices did not make sense. 7 years will have been a long wait. Holding off for the absolute bottom in 2012-13 will likely cause too much marital disharmony. Since we plan to stay put after buying, a medium-term further fall hopefully wont have too much of an impact. My 0.02 anyhow.

          2. matt138

            You had to throw in the marital card! In that case buy with both hands. It’s 6 one way and 1/2 a dozen the other so just buy it and enjoy it.
            It’s the single people buying homes right now that I question. Buy affordable, enjoy harmony.

        2. Eat that!

          The problem might be with inflation that doesn’t yeild increases in income. That’s a definite possibility in our global economy. The demise of the dollar and our dependency on cheap manufactured goods and energy from overseas might lead us into a situation where our buying power is limited and we have high debt servicing ratios. What happens to home values remains to be seen, since foriegn buyers (which love SoCal) may use their stronger currency to buy SoCal RE but what if they don’t? Afterall, there are alternatives.

      2. mike in irvine

        I have been thinking about the impact of interest rates on the Irvine Housing Market in particular. My feeling is that any increase below 100 basis points is not going to have a significant impact on this market and i dont see mortgage rates reaching 6+% anytime soon. Baring any major upheavels i think that the housing market will remain the same for the next 12-18 months. Most home owners will struggle to make monthly payments but still do their best to stay current while some will get to stay free till the FC process is complete.

        It is similar to the story about the frog which falls in the water that is being heated slowly…it doesn’t realize that the water is getting hot and it is too late to jump out when he does.

  9. Barren_Irvine

    I was driving down portola springs last Saturday and the sheer number of For Sale signs posted on Culver is mind numbing. Things will not be pretty next year, I can say for sure…

    1. thrifty

      Given the extent of fraud (20-30% of transactions; into 100,000+) I’m surprised the government would extend it.

  10. AVRenter

    Like painted kites, those days and nights
    They went flying by
    The world was new beneath the blue
    Umbrella sky

    Then softer than a piper man
    One day, it called to you
    I lost you I lost you to
    The summer wind

  11. Craig

    I think you’re greatly underestimating the effect of supply on prices. Compare Orange County to other counties around the nation with similar income levels. The allowable debt-to-income ratios, interest rates, and down payment requirements are the same nationwide, yet areas with abundant housing have much lower prices. California simply doesn’t allow enough houses to be built, not even in the long run.

  12. NOT

    Typo Alerts:
    “If you take $91,101 / 12 x 0.31 = $2,353. That is the maximum amount a median wage earning household should be putting toward housing costs. Looks similar to the median rent, doesn’t it? If you calculate the largest loan amount $2,535 can service at 5.1%, you get $433,454 (real loan balances would be lower due to taxes, HOAs and insurance)”

    $2353 is not equal to $2535.

    “This property was purchased on 9/9/2004 for $284,000. The owners used a $213,000 first mortgage and a $71,000 downpayment. The 2000 purchase amount was part of a divorce settlement and does not reflect the price of the property at the time. After the split, our remaining owner began sipping kool aid.”

    9/9/2004 > 2000, also it was mentioned that the original purchase was in 1994 or something.

  13. NOT

    I am getting the feeling by reading today’s post that we really should give the Govn’t a round of applause as they have managed to create a “soft landing” where everyone feels sick to their stomach for a long long time but no one actually throws up.

    Everything went according to plan!

  14. norcal

    I think that was the idea – a relatively softish landing as opposed to a one-year 70% price plunge on housing, massive deflation, 30% unemployment, etc. In fact, a recession rather than a second Great Depression.

    There’s still a LOT of bad debt in mortgages that has to be resolved before housing prices settle for sustainable levels. But at least it didn’t get resolved all at once. We’ll just be paying for it for about a decade or so instead.

  15. whatever

    I JUST sold a house that I bought 11 years ago. Yeah, I missed the peak a couple of years ago, but I am in a divorce so was forced to sell now. Not the best of times, but I had to.

    On paper I “made” $190K. After everything, I pulled in about $160K. (that I had to split, but not the issue here). Soooo much money was lost in:

    – Relator fees
    – Escros Fees
    – Taxes
    – etc., etc.

    Look at that. 15% of the gain was paid out in various people who had their hand out. And that market is over. If you bought today and had to sell in 5 years, after realtor fees (even if you did it yourself), termite inspection, escrow, etc, etc., etc., how much would you REALLY have to gain to make money.

    If you are buying because a “home” is important, then okay. If you are buying for “gain” forget it. No way.

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