San Diego Housing Bubble News and Analysis

From the article:

"Buyers needed to earn $82,200 to afford financing $411,170, the price the trade association estimated for an entry-level home during the quarter."

OK, I realize that southern California is "different" from the mid-sized east coast city that I grew up in, but this seems ridiculous. I don't even have to run the numbers.

Where I grew up, someone making $82K wouldn't even dream of paying more than $225K (and I'm being aggressive) for a home. It shows you just how screwed up things are out here. What can I do but laugh?

no, thats pretty much dead on. you can afford, about at the most, about 5x your income. I went with about 4x my income, but I guess I like to do other stuff than just sit in my home and think how much I'm spending on a hut.

I think its funny how 411k is an "entry level home". Not many people come out of college making 80k+, and 411k in SD is a townhome/condo generally. Also, the assumption of 10% down and using an ARM... didn't they used to use 20% down and a 30 year? no wonder why we're where we are now.

Apparently you are all too poor to own a home, so they are just going to sit empty and rot forever.

Sorry, folks.

If you lose your job you can always squat in them, though.

"Is it just me or is their idea of affordability completely out of whack. Quick rough calc - approx. 3k per month housing costs (not factoring in electric, water, etc.)/ take home pay (assuming no responsible stuff like 401k contribution) = 4.6k."

monthly payment is $2269, property tax is roughly cancelled by mtg deduction. Married couple earning 82k will be paying at MOST 15k in all taxes combined (federal+state+ss+medicare) so their take home pay would be somewhere in 5.5-6k range.

I saw the headline and didn't even bother to read it. The headline was enough for me to laugh. Almost every single credible economist out there is pretty much saying the real estate market will suck for at least another year. Anyone that held out this long would be quite foolish to run out and buy now. I look at houses out there for sale w/owners who are maxed out and can't reduce that will be bank owned by year end. The more inventory, the lower the price. Why overextend yourself now, knowing if you buy, you will lose equity upon signing docs.

"Not many people come out of college making 80k+, and 411k in SD is a townhome/condo generally. Also, the assumption of 10% down and using an ARM... didn't they used to use 20% down and a 30 year? no wonder why we're where we are now."

Not many single people coming out of college think about buying a house right away, homebuyers are typically young couples. Two incomes easily add up to 80k even straight out of college. And 411k in SD is this

http://www.redfin.com/stingray/do/printa...

or this

http://www.redfin.com/stingray/do/printa...

or this (2466 sf)

http://www.redfin.com/stingray/do/printa...

or even this (92024 zip code)

http://www.redfin.com/stingray/do/printa...

With 20% down and 30 year you need slightly more than 80k, maybe 100k.

It's articles like these from CAR or NAR that make me distrust realtors.

I'm not convinced their fiduciary responsibility will be true to me...

However there is plenty of data showing greedy realtors contributed greatly to the price run up (see ocrenters website http://bubbletracking.blogspot.com)

I saw the headline and didn't even bother to read it. The headline was enough for me to laugh.
To me the headline states the obvious. Prices were lower in the last quarter of 2007, compared to 2006. Furthermore interest rates were lower. Therefore, housing is more affordable than the previous year. I don't see why this is controversial. This is what we have all been observing here. The article does not say that it won't get more affordable in the future. Regardless of the flawed metric being used, homes are getting more affordable. Isn't this what we expect ?

It's so affordable now. Quick. Everyone run out and buy b/c they're not making land anymore and this will really be your last chance to buy.

"Everyone run out and buy b/c they're not making land anymore"

Actually, the earth is still geologically active, volcanoes still do erupt and create new islands. "They" are still making land, in fact.

Maybe that'd be a more fun way to object to that reason to buy.

It's so affordable now. Quick. Everyone run out and buy b/c they're not making land anymore and this will really be your last chance to buy.

Funny, when I read the article I didn't get any of these messages from it. By any metric homes are more affordable by the mere fact that prices have dropped by 20% or more in some cases.

Actually, the earth is still geologically active, volcanoes still do erupt and create new islands. "They" are still making land, in fact.

Just imagine a volcano erupting in the downtown area and creating a new island there.

Just to be clear, I wasn't quibbling about whether homes are more affordable now. I had issues with what they considered to be affordable with the annual income noted in the article.

By the way, my "flawed" calc was due to the fact that I used a traditional 30 year mortgage calc with 10% down.

It's just my opiniont, but I think telling people that this is affordable is pretty terrible. It does not seem to take normal expenses or any of the fun financial suprises that people have into account.

It seems ridiculous to most of us on this board, but there are a lot of people that trust realtors to help them understand what they can afford. Of course, I guess that is pretty apparent these days....

"Funny, when I read the article I didn't get any of these messages from it. By any metric homes are more affordable by the mere fact that prices have dropped by 20% or more in some cases."

I got that pro-spin message. It is one of those support articles that they will then cite in an oped piece or someother RE promo as evidence to buy now.
There is a positive tone to this piece because they word it as 33% of households can afford an entry level house, and then cite the improvement over last year. Anyone could turn it around and give it a negative tone, saying 67% of household in CA CANT afford an entry level house, even if 80% couldnt last year. Id like to see that come out the the CAR mouthpiece some month (and not have it liked to a plea for a Gov bailout).

BTW, does this take into account all CA housholds? I mean, my parents could afford an entry level home in CA today, they could afford 5,(infact they own 4, plus the very non entry level house they live in) not that they are in the market.

How is it a healthy market or an improving market when the only people who could play are the ones who dont want to?

I think there is a Volcano starting where they have been having all those earthquakes in Baja (next to the border) last two weeks or so.

4X HH Income? Personally I wouldnt go above 3X but I guess I'm just a conservative SOB.

Assuming 20% down you end up with a $330K mortgage (on a $410K home) and a monthly payment (including taxes and insurance) of about $2,500 (at 6.375%). A couple earning $82,000/year is going to pay about $17,000 in taxes, including SS, medicare, etc. (using my handy California tax calculator, and including the mortgage interest deduction), which leaves about $5,400/month in net after-tax income. So that $2,500 payment is 46% of the couple's monthly after-tax income. And this is considered "affordable"? There was a time, not so long ago (like prior to 2000...) when it was frowned upon when a mortgage (etc.) payment was going to be greater than 35% of take home pay. My how far we've come...

(At current interest rates, a median price of about $300K yields a mortgage payment equal to 35% of after-tax income - at $82K pre-tax - assuming a 20% down payment and the current 30-year mortgage rate of 6.375%.)

I think there is a Volcano starting where they have been having all those earthquakes in Baja (next to the border) last two weeks or so.

So there's going to be an island there soon?

"So there's going to be an island there soon?"

An Island ?? OK sure..

Maybe a big hill,

Could be a View involved as well.

I swear I am not math challenged. My numbers are different because the calculator I use includes estimates for taxes, etc. http://www.insidermortgage.com/articles....

I guess I am just conservative. I like to look at total monthly costs and round up.

Either way you slice it, it is still a large portion of your income to commit to housing.

I agree with sdrealtor 3x income is the high water mark, 2x income for the loan is ideal, there is a lot more things in life that require money depending on your situation you may want to have less house and more disposable income.

I agree 3x your income may be too high for many, depending on your circumstances and other debts. For example, a young professional or newly minted medical doctor may have a significant chunk of debt in terms of student loans. Young parents may be saddled with alot of expenses related to raising small children, etc. Likewise if you have significantly higher income/assets later in life you may be able to handle more housing debt relative to your income.
For first-time buyers I would assume most could handle somewhere in the range of 38-38% of their income towards the combination of debt and housing PITI.

Re: Calculations

Where are you purchasing these homes and coming up w/these calculations?

If you purchase a condo, please don't forget to include the HOAs, some are quite pricey.

If you are purchasing in a semi-new or new neighborhood, don't forget to add in the calculation the Mello Rouse.

If everyone went with < 3X income, half the sales from this century wouldn't have happened!

Most calculators allow a total debt-to-income ratio of no more than 36 percent. And home payment to-income ratio of 28% for our conservative estimate, and 33 percent for the aggressive one. In CA, 40% and 50% ratios were routinely used and that's what helped cause home prices to double from 2001 to 2005, not the common notion that QCOM employees were completely responsible for jump.