Rich getting richer? Wealth-effect in action?

I have the feeling the sub-million dollar sales have been primarily sub-prime driven, whilst the million+ are more conventionally financed. I mean this in the most general of terms, however. I could also be totally wrong (and would love to be corrected).

Imagine all the FB’s taking out suicide loans, re-financing and HELOC’ing new cars, boats, kitchen remodels, etc. All that money has to go somewhere, i.e. local business. I’m sure the guy selling yellow hummer’s is doing great (for now).

So even if the FB’s foreclose and lose their toys the equity they pulled out is still going to be floating around the local economy. And since I don’t know too many folks using home equity to shop at the thrift store or buy big macs, its likely primarily going to end up in the pockets of the already very wealthy. This in turn creates a feed-forward mechanism that is further inflating prices in the high end.

Of course, this will all come grinding to a halt when the free money disappears and *everyone* feels the hurt. I have a hunch it will take a fair bit of time for this to percolate up into the high end, though. All those HELOC’s have created a massive equity cushion for the super-rich.

Maybe we can call this the ‘trickle up’ effect?

I have looked at the models at Carriage Run and, personally, I think they have atrocious floor plans. OK, that is a bit harsh. I did not find any of the Carriage Run models that appealing. Don’t know if I represent an average Joe on this sort of thing and whether my opinion of those homes may be why they are not selling. Just one data point.

Derby Hill has stayed the same, no increases, no decresases, $1.2-$1.3M.

There are plenty of zero down buyers in the 1M+ crowd as well. Do not worry stupidity runs across all price ranges.

Actually I have looked up the tax records and 75% of the 1M+ homes in new tracts such as Derby Hill and IvyGate and others are zero down or very little down and folks mortgaging $1M+ with mortgages of $4K/$5K+ per month. Just a matter of time before they all go belly up.

I have a friend in Bressi Ranch and they were checking the MLS and nearly everyone in their little enclave is mortgaged to the hilt, with 2nd’s. His wife is a RE agent with access to the MLS and they were curious if my ramblings had any truth. They were surprised at the types of mortgages in their nabe.

Or when they think about how much they are going to be paying in taxes over the next 5 years because they aren’t going to sell at a profit anytime soon. Yikes!

Total monthly cost to support a $1.3M house at 5% downpayment (30 year at 6.25%) is about $9,600/month. The owner, if they are in the highest tax bracket, can get about $3K in total tax deduction. Still, $9.6K is the gross cash cost assuming about 1.4% in total tax and HOA; about $300 in insurance and $200 in misc maintenance.

So what income is needed to support this? $240K ($20K/month) at the minimum? Basically, give 50% of your income to support this house. Two very good professional jobs will actually achieve that in San Diego, so maybe not everyone is doomed. What do you all think?

“So what income is needed to support this? $240K ($20K/month) at the minimum? Basically, give 50% of your income to support this house. Two very good professional jobs will actually achieve that in San Diego, so maybe not everyone is doomed. What do you all think?”

What % of San Diego households gross over $240k per annum? And are not dependent on bubble-related business?

And have done the sensible thing and re-fi’ed to lock in a low rate, rather than use their house as an ATM to furnish a more lavish lifestyle?

I’ll suspect not enough to finance a soft landing.