Low-End Payment Affordability

The payment affordability at the low end the market is so good that a wage earner making $12.50 per hour can now afford to buy in Irvine.

275 STREAMWOOD Irvine, CA 92620 complex

Irvine Home Address … 275 STREAMWOOD Irvine, CA 92620
Resale Home Price …… $126,140


I’ve been sitting here ’bout half the night.
Oh, mama, fill my cup up.
Bottoms Up
Said I came to waste some time.
I think I’m gonna jump up.
I’m singin’, I’m dancin’ most every night.
And I want to do that with you babe.
Let’s do this bottle right.
Oh, oh, baby, bottoms up.

Bottoms Up — Van Halen

“PRICES HAVE BOTTOMED!!!” said Kool aid man in his new condo, “Are you ready to PARTY!!! BOTTOMS UP!!!” I’ll spare you the “bottoms up” photo… you can still see it, can’t you?

Is this a bottom in pricing? That depends on interest rates, but I feel confident that I can call the bottom on payment affordability. It will never be less expensive on a payment basis for a relatively low-income wage earner to buy property at market prices.

Over my years of working in the land development industry, I have worked on a number of low-income affordable projects. I worked on my first one in my mid 20s, and I felt noble about helping working families get good housing. Without going into a treatise on affordability programs, I will tell you they all rely on some form of market price controls to ensure properties stay affordable.

Low-income units are in high demand, and the demand often fails to meet the supply. It is very unusual in California when market priced homes compete with low-income subsidized housing. When it does, the activity is great for the community and for the low end of the housing market. Those who seemingly had been “priced out forever” can finally afford homes — assuming some flipper doesn’t crowd them out.

Payment Affordability

From today’s listing, “WHY RENT WHEN YOU CAN OWN?”

Income Requirement ……. $23,481
Mortgage Interest Rate ………. 5.10%
Monthly Mortgage Payment … $548
Monthly Cash Outlays ………… $900
Monthly Cost of Ownership … $720

It seems to me that we do not need to subsidize low-income housing when open-market condos go for prices that allow people to live there who make $24,000 a year ($12.50 per hour wage). Payment affordability is extraordinary at these interest rates. It is not surprising that anything below the $500,000 price level in Orange County gets snapped up by 20 eager bidders.

The myriad of government distortions to the market has created a shortage of supply in price ranges where the GSEs and the FHA underwrite, and almost nothing at other prices. Armageddon awaits the non-GSE supported markets; they do not enjoy government price support.

There is no guarantee the Government will continue price supports in the face of political or financial market forces. It is likely they will maintain some level of backstop support as long as necessary to prevent a national catastrophe — possibly worse than the current recession. Sometimes the Least Bad Scenario is the correct path to chose. Since this path is also bad, it will endlessly be second guessed.

Both the Government and the lenders are crossing their fingers and hoping they can absorb the upcoming foreclosures without causing the cascading defaults that really crush prices (think Las Vegas). We will almost certainly see pockets of this throughout Orange County, and the substitution effect will create ripples in price and volume that will create unusual (unsustainable) price spreads between neighborhoods.

Selling homes at the last market bottom

Back in September of 2007, an astute observer known as Bubblegum sent me some images of marketing materials produced in 1997 — the last market bottom time. I originally posted them in The Market Bottom:

Market Bottom 2

I followed that image with this line, “Since I began writing on this blog, I have stated I will buy when the
cost of ownership equals the cost of rental. An advertisement like this
— when it reflects reality — would motivate me to buy. How about you?” Well, as you can tell from my statement, I had no clue that the Federal Reserve and the GSEs would increase affordability artificially lowering interest rates.

The equation has changed for me. With payment affordability, I believe a window is open, but only if you really are going to be a long-term homeowner. Unfortunately, most people who buy plan on staying long term, but life intervenes, and sometimes they need to move. Statistics show home ownership lasts about 7 years. Between Government manipulation and the inflation that is likely to follow, it does not make sense on an inflation adjusted basis to buy today and have the same amount of a devalued currency later, but on a nominal basis, the numbers may look right.

Sometimes all the deflation and inflation talk does my head in, but they are important concepts, and they can have a big impact on your financial life.

BTW, today’s featured property is not a one-off: 338 STREAMWOOD Irvine, CA 92620.

275 STREAMWOOD Irvine, CA 92620 complex

Irvine Home Address … 275 STREAMWOOD Irvine, CA 92620

Resale Home Price … $126,140

Income Requirement ……. $23,481
Downpayment Needed … $25,228

Home Purchase Price … $61,000
Home Purchase Date …. 12/12/1994

Net Gain (Loss) ………. $57,572
Percent Change ………. 106.8%
Annual Appreciation … 5.0%

Mortgage Interest Rate ………. 5.10%
Monthly Mortgage Payment … $548
Monthly Cash Outlays ………… $900
Monthly Cost of Ownership … $720

Property Details for 275 STREAMWOOD Irvine, CA 92620

Beds n/a
Baths 1 bathCalifornia Home Foundations
Size 415 sq ft
($304 / sq ft)
Lot Size n/a
Year Built 1977
Days on Market 2
Listing Updated 11/11/2009
MLS Number U9004904
Property Type Condominium, Residential
Community Northwood
Tract Othr

According to the listing agent, this listing is a bank owned (foreclosed) property.


Just to illustrate the impact of interest rates on pricing, take a look at today’s property which as originally purchased in conditions very similar to ours in 1994; in fact, I would go as far as to say 2009 is most similar to 1994 as things play out. When this property was purchased in December of 1994, the contract mortgage interest rate was 9.2% — very near the 40-year average of 9%.

Let’s calculate the owners income based on a the affordable payment based on an 80% loan, a 9.2% interest rate and a 31% DTI… the payment is $400… HOAs were lower then, but the monthly out-of-pocket would still be $550… so, $550 / 0.31 = $1,775 monthly gross income or $21,300 per year. If you inflation adjust this number forward to allow for local income growth since 1994, you get $31,311 in today’s income dollars. Back in 1994, this was not as payment affordable as it is today.

The Government controlled housing markets enjoy payment affordability,
but price ranges outside the conforming loan limit are subject to
market forces, and price and supply pressures will build at higher price ranges, but as long as the interest rates stay low, prices will remain high relative to historic measures.

55 thoughts on “Low-End Payment Affordability

  1. Freetrader

    Irvine Renter Calls Market Bottom!

    Not exactly, but an interesting and gutsy call. You may get attacked by a few of your erstwhile fans (since many of them seem to respond favorably only to predictions impending doom, and an eventual collapse of prices and the economy), but the logic is sound.

    Now if we can just keep the economy from collapsing again for a few years, things may someday get back to “normal”…8% interest rates with prices about where they are now because inflation has caught up to the pricing. Things are going to stay interesting for a few years, though.

    In the meantime maybe I’ll check out that guy’s new “Investing for fun and profit in Las Vegas” blog. Just kidding.

    1. IrvineRenter

      The bottom of payment affordability doesn’t mean a bottom in pricing because prices can still go down as interest rates go up, but I do believe prices on the low end properties are as payment affordable as they ever will be.

      1. AZDavidPhx

        Praise God, the middle class can stop their whining now. 415 square foot condos are now affordable on a 30 repayment schedule! LOL!

        Just imagine the headway we could make with 40 or 50 year repayment schedules!

        1. IrvineRenter

          As long as we keep people on some kind of amortization, we are better off than with interest-only ARMs and Option ARMs. Although, 30 years would be a long time in this condo….

      2. mike in irvine

        what about the bottom of payment affordability for the mid range (550k-700k) in Irvine? I am praying for a 10% price drop but all i see is 5-8% gain for ’09. A significant number of purchases this year were purely based on the montly affordability and not the eventual price.

        1. IrvineRenter

          Yes, people are buying because the payments are low. They are hoping/betting that they do not have to sell when interest rates go up and prices are depressed.

          1. mike in irvine

            My realtor friend(i consider her to be a friend) made an interesting comment this weekend. She said, if you had listened to me and purchased in May you would be sitting on a 10% gain and you would have locked in your low payments for 30 years.

            Now who can argue with that logic, i could, but she wouldn’t understand my point just as i dont understand her’s. Her views reflect the majority opionion and it becomes difficult to argue with a trend.

            There is wide schism between these two thought’s both have their own merits but looking at the mindset in Irvine and the fact that i am getting tired of waiting and second guessing myself, I might just bite the bullet and move over to the dark side in a couple of months 🙂

          2. AZDavidPhx

            I am genuinely starting to become concerned about inflation. The government is leaving interest rates at zero and has no exit strategy. Not seeing it in local prices yet, but our currency is being whored out to foreign speculators who wipe their asses with dollar bills. Government shows no sign of doing anything about it and appears to be willing to flood the casino with easy money for foreigners to gamble with.

          3. AZDavidPhx

            Lee you may not be crazy.

            My biggest concern is the inflation bomb. I have worked hard for years saving a downpayment that while is significant today could be worthless within 5 years if all the money pumped into the casino gets into the hands of the masses in significant quantities. At least right now they are keeping mostly among themselves, but what happens when the government starts adding more and more makework jobs to itself or starts buying more and more bridges to nowhere for no reason than to make jobs?

            I would rather buy in an overpriced market before the minimum wage jumps to 50.00 an hour, personally.

          4. Fracture

            I’d worry about inflation since the gov’t has 2 options:

            1) Cave now and raise interest rates, and, by default raise inflation.

            2) Do nothing and continue printing money until the value of the dollar falls to the point that inflation happens outside the control of the Fed.

            One of these scenarios is controllable, the other isn’t.
            Either do nothing and let the stock market rise and maintain affordability
            Change it now, hurt the market, make houses less affordable and stop the cycle of surplus building and incentives that created the situation in the first place.

          5. AZDavidPhx

            Beecause the banks are sitting on it! Did you notice that our money is becoming increasingly worthless in those places that we buy all of our stuff from?

          6. norcal

            Hi AZDave.

            I think a lot of the foreign money is going to Australia now, where you can get CDs returning 5.25%. Compared to the 1.7% I can earn at ING Direct from the US, that’s a fortune.

            Don’t worry about inflation; I won’t rehash all the economists’ arguments right now, but if the gov’t could lower interest rates below 0% it would to ease unemployment.

            Perhaps what you and IR are worried about is increased TAXES in the future, which may be a valid point, but if housing costs and general household debt are lower then, they may cancel out. Inflation is something else, a natural increase in prices caused by increased competition for goods and services – not our current problem, nor likely to be for some years.

          7. AZDavidPhx

            I hope that you are correct but they appear to be acting evermore desperate with each new scheme being pushed on us. What is stopping them from giving out 100K to each new home buyer? They are reckless enough to try it.

          8. Walter

            If you can stay in the house for 10 – 15 years, you should be OK, if you get a fixed rate loan.

            I am in the same boat, but I am moving to be closer to work, and I am not sure the job will last that long. And even if it does, they could move the company. They have done so before.

            Because I am not sure of my time frame, I guess I will suffer with the commute and wait.

          9. grabasnorkel

            David, it’s simple: you are reacting to your own fears. Fears of $50 minimum wage and $100k handouts in the near future are irrational.

          10. Freetrader

            Well, of course there is no ‘10% gain’ — thinking of one’s house as a hedge fund is how we got into this mess in the first place. And with the downward pressure coming from the tidal wave of resets, that ‘gain’ is likely to be temporary and illusory. However, she is correct in that — as IR points out — the somewhat lower prices and low interest rates have made the payments more affordable, so provided one locks in the rates for 15 or 30 years and expects to stay around, buying may be a good answer for some people.

          11. Walter

            You mean things like rent? Around where I work, rents are down about 10% in the last year. A co-worker just moved and is saving about 15% for a better place.

            I am concerned about inflation, but outside of things like oil that are affected by the falling dollar, there is not much of it around. Yet…

          12. Chris

            “She said, if you had listened to me and purchased in May you would be sitting on a 10% gain and you would have locked in your low payments for 30 years.”

            If you purchase DIA/SPR in May, you would be sitting on MORE than 10% gain.

          13. AZDavidPhx

            My example was an exaggeration, but the point is that they do not appear to have any plans of stopping the giveaways. I do not see how we are not going to experience significant inflation down the road.

      3. norcal

        Yes, that’s the low end, which has been leading the foreclosure race for many months. I’m still waiting for housing affordability for those of us who don’t want to live in one-room apartments – er, condos. We can only hope that as the foreclosure wave moves up-market, the prices on SFHs will crater too.

  2. lowrydr310

    Close to schools! What a great selling point for a 415 square foot condo!

    Now why does every post of mine initially get flagged as spam by Akismet? Is it because I’m using of the ‘free’ email accounts?

    1. IrvineRenter

      Yes, I don’t picture two wage earners making minimum wage splitting expenses to form a “household” here either, but it is theoretically possible.

      The email account shouldn’t be the issue, but I don’t know what would cause Akismet to pick on your post, particularly since you didn’t use any hyperlinks.

    2. AZDavidPhx

      Yes! Close to schools! Come on kids, we’re moving to Irvine to take advantage of this once in a lifetime opportunity!

    3. alan

      You don’t buy it for yourself, you buy it for your teenage kid so you can get him out of your house and this property is convenient so that he can walk himself to school.

  3. Anonymous

    Hey, don’t knock it. If I were a single mom with one kid who was bright, this might indeed be a good investment – the kid could go to a great school, learn enough to get a free university scholarship, then get a great paying job to help both if us later in life.

    BTW regarding size – I just did the computation and if I were. Single mom with one kid – I’d have more sq ft per person than the IAC rental my larger family is crammed into now.

    1. AZDavidPhx


      1.00 says this comment came from an Irvine House Debtor.

      Get over yourself and your fancy pants schools for over privileged youth. Being smart and successful is more about personal aptitude, self motivation, stable family, and luck.

      Just imagine all the waste of space students attending your schools whose fate will be dropping out of college to do something else.

      You people who break your backs for yuppy schooling of your yuppy children are ridiculous.

        1. AZDavidPhx

          I am tired of hearing the ‘school excuse’. Using it to suggest that a family shack up in a small condo as a means to have the child succeed and get money to help the parent is just flat out bizarre. I am sure one or two successful people came out of your inland empire.

          The thing I find the most offensive regarding Irvine House Debtors invoking the ‘school excuse’ is that most of the teachers in those schools that everybody worships can probably not afford to live there.

          1. norcal


            You have a lot of good points to make, but I really wish you’d leave out the ad hominem attacks. If you want to start a thread about teacher pay levels and home affordability, go ahead. Otherwise you’re starting to sound like NewportSkipper, who was evicted from the site for trolldom.

            Now I’m waiting for you to call me names…..

          2. AZDavidPhx

            I’m not going to call you names. I was just reacting to the original author making a ridiculous argument and of course offended people along the way. I felt that the post warranted a strong rebuke – it certainly was not intended to be gratuitous ad hominem.

          3. Freetrader

            So THAT’s what happened to NewportSkipper. I was wondering. I certainly don’t miss him, though.

          4. Chris

            “Hey, don’t knock it. If I were a single mom with one kid who was bright, this might indeed be a good investment – the kid could go to a great school, learn enough to get a free university scholarship, then get a great paying job to help both if us later in life.

            BTW regarding size – I just did the computation and if I were. Single mom with one kid – I’d have more sq ft per person than the IAC rental my larger family is crammed into now.”

            AZ: “and of course offended people along the way”

            I don’t see any offense in the first 2 paragraphs. Perhaps my English skills need more fine tuning.

          5. AZDavidPhx

            Chris –

            Let me tell you what is offensive. I have been seeing house debtors use the school excuse as some kind of justification for borrowing a bunch of money that they are never going to pay back.

            The original poster suggested that it would be in a single mother’s best interest to at least consider raising her child and in effect making a sacrifice for her child so that they may attend a good school so the child can go get a good job as though going to school in Irvine is some kind of future job guarantee and going to school elsewhere is not.

            First of all, the school excuse is Bull. It’s one of those lame excuses that house debtors use to psychologically justify buying more than they can afford. The old “We’re doing it for the children” canard.

      1. CA

        going to a ghetto school in the inner city isn’t fun either…check out that innocent girl who got shot at a football game in long beach or the gang rape in richmond. i don’t recall ever seeing that happen in irvine…that alone makes it worth it for me.

        of course, yuppies who grew up privileged think it’s saintly to live amongst the poor in a run down inner city and knock at someone’s perogative to change school districts. yup.

        1. Freetrader

          I think I agree. Assuming I were I kid, I would much rather grow up in a small condo in a place like Irvine than many suburbs, or almost any city. But it all depends on the specifics of one’s situation.

        2. AZDavidPhx

          This is a distortion of reality and a false dilemma. You watch too much television and it has you thinking that your only options are going to school in the ghetto where you get raped and shot or going to school in Irvine. Do you think that every school outside of the Irvine bubble is inherently unsafe?

  4. bltserv

    415 Sq Feet ? Thats just a 20 x 20 room. And your talking about over $ 300.00 a Sq/Ft. Now take into consideration its 32 years old. This rathole
    should be priced under $ 100K. Make that like $ 75,000 and it almost makes sense.

    Imagine a crammed IAC Rental thats 32 years old ?
    Not a nice picture is it.

    It might make sense for a single college student.
    But no way should a “Family” live in a single room like this. Even if its a single parent.
    Imagine sharing this “Intimate Residence” with a teenager ?

  5. newbie2008

    The month payments seem to make sense until you factor the age of the place. Lots of upkeep. Condo = HOA and possible make up assessment or deferred maintenance $ and with lots of free owners, i.e., pseudo owners defaulting. New owner and paying owners will need to make up for the loss.

    As bltserv observered $300 per sf. Will be expensive dorm room or cheap IUSD rental/tuition.

  6. freedomCM

    Does anyone know what the current FHA/FNM/FRE policy is on condos like this?

    I see several around OC where the real estate sales ads indicate “no FHA financing”.

    I guess this is due to either too low owner-occupancy or too high HOA default. Is this true?

    1. just an opinion

      I cannot offer facts, just an opinion. I think FHA just changed their policy where each complex is evaluated each time there is a purchase to be financed by FHA. It used to be that a complex was either FHA-approved or not approved. The policy change is because of the rapid change that can occur in the situation of a condo complex, nowadays, related to the criteria that you state: owner-occupancy, shortage of HOA reserves…etc. As far as policy, I’m not sure what occupancy percentages or HOA reserves are required

    2. Geotpf

      Another reason for no FHA financing could be that the seller is a flipper and the 90-day seasoning rule is effect. (FHA won’t loan on propetries where the current owner has owned the property less than 90 days, to prevent them from making loans on flipped prices for too much.)

  7. lowrydr310

    Our consumerist culture is fixated on ‘monthly payment’ affordability for big ticket items. Go ask a car salesman and see how many people really care about the total purchase price. Even with a home, the main thing that drives the final sale price is monthly payment affordability.

    Your friend said, “if you had listened to me and purchased in May you would be sitting on a 10% gain and you would have locked in your low payments for 30 years.”

    Great, now what happens if you don’t want to stay there for 30 years? If timing is right between bubbles and busts you might come out ahead, but what happens if you’re forced to sell when home prices are significantly lower? For any homeowner staying put long-term, who cares about gains in your property value? Market value only matters when it comes time to sell (and it matters a little bit at tax assessment time).

    1. newbie2008

      Don’t you realize that you are a millionaire, so you can afford to keep it until the market turns. As least according to A.Gore. Irvine medium income is $85,000, so in 12 years you will have over 1 million in income, so you’re a millionaire. Quit complaining a pay like a good house debtor should. :}

  8. momopi

    If you’re just starting out, something like this is acceptable for Ikea living. But I’m not sure about paying $126k for a studio.

  9. KJB

    I think you are corret the low end has hit a bottom due to interest rates.we will see what happens when rates start to climb and how far prices will decline on the bottom end.

    Honestly this property seems to me like a great bet for a rental unit, if the inside is even liveable, a big question for that development.

    People may scoff but as prices go down and rates go back to a “normal” level, rent will go up as well. If we factor that into consideration it could be an interesting long term residince to rental property for someone starting out.

    So say you are a 25 year old with a good job making 60k, you can live there for less then splitting a two bedroom apartment and then rent it out in 3 years once you are ready to move on.

    Also I have seen some of the older properties are built with a better bone structure then the 80s and early 90s properties.

Comments are closed.