Let’s try to figure out the profile and number of bubble sitters. To me, a bubble sitter is a person who qualifies to buy a home that meets his expectations, but chooses not to. The lender has told them they qualify to get that $650K median priced house with a 30yr mortgage using less than 30% of income, but they will wait until prices come down. You need to earn $185K to buy the median priced home with a 30 yr mortgage, no money down. (3.5 x 185K = $650K). Less than 5% of San Diegans earn that much, and I think most of them already bought a home. Since less than 3% of San Diegans earn over $150K, and most of them already bought a home, at today’s prices o maybe 1/2% of San Diegans are bubble sitters.
Some renters will never qualify to buy due to low wages, low FICO, mental problems, unstable lives, unstable employment or finances). Other renters know they will be here only a few years, bec. of a temporary assignment, hopes to move up the corporate ladder, military moves, visa expiring, etc. These people are not bubble sitters. They are permanent renters in this market.
Ok, so I’ve covered the bubble sitters as the people earning enough money to afford a home with a traditional mortgage, one in which they are paying off part of their principal each month. I’ve covered the renters who will never qualify due to some problem or temporary living situation.
That leaves the group that is renting and not buying because they are simply priced out. They are not bubble sitters in my definition. They can’t really afford to buy, because buying would mean giving up retirement saving, shopping, traveling, eating out, maybe even the cable TV. The $120K engineers are priced out, and I would call them “wanting to buy but priced out”. The desire for homeownership is so strong, that these co-workers are just giving you a line, IMO; they desperately want a house, and would buy one if they could. They merely say they are bubble sitters because they really can’t afford to buy right now. They are priced out. Someone earning $120K/year, even with with $50K to put down, is priced out. How could they possibly make the mortgage payment on a $600K loan ($650K median priced house)?
In my opinion, and I want to be corrected on this, if there aren’t enough “wanting to buy but priced out” people in San Diego today to move the market. Most people who wanted to buy, have done so. Until 2004, you could get an ARM and make your median priced home affordable, i.e. less than 45% of income.
My thinking is that the “wanting to buy but priced out” people moved here after 2004, and wanted to buy, but were priced out. They didn’t want a suicide loan, and couldn’t qualify for a 30 year fixed.
So can you tell us about these co-workers who are renting? Is their rental choice due to not knowing how long their jobs here would last? Is there a chance their visa expires, and they didn’t want to be locked into a house? Did they come here after 2004 and were priced out? What are they waiting for to buy?
There is a difference between a bubble sitter, a renter who is never going to be qualified to buy, and a person who wants to buy but is priced out.
These co-workers who earn 6 figures, how much do they make? $105K? $199K? If they earn $150K, then they will qualify for a 30 yr fixed for a roughly $525K mortgage. That’s if they have no other debt, i.e. student loan, car payment, credit cards. Realtors, loan officers, please correct me if I’m a little off on my percentages. Usually total debt can be 33% of income, and mortgage can be 28% of income. That’s the traditional loan.
So I am very interested in how many people came here before 2004 and decided not to buy, vs. the people who came here in 2005 or 2006 and were priced out. I think most of the renters came to San Diego in 2005 or later and were priced out, and they will be priced out for a long time. Even if prices go back to 2004 levels, where they could have qualified for a $120K salary, they won’t want to buy bec. they don’t want to catch a falling knife, and lending standards are tightening too.
