Forbes: Housing Woes Hit High End Too

[Bugs]

mgubnyc1,

Now that you’ve identified yourself as not being local to SDs market I can understand why you aren’t seeing what we’re seeing.

RE markets are all local. There are a lot of markets that never got grossly distorted; those markets are not subject to significant corrections. San Diego and many of the other metro markets are not among those relatively stable markets and so they are subject to corrections.

Different areas entered into the increasing market trends at different times and will likewise enter into declining trends at different times.

“Hasn’t happened yet” was a favorite rationale used by the bulls to explain why the bears were wrong in their predictions that an overwound market must eventually unwind. Obviously here in SD those bulls have had to eat crow as current events have proven that “Hasn’t happened yet” does not equal “Won’t happen”. You don’t want to follow their example and make their mistake.

How the market reacts in you area is subject to local economic conditions. Hopefully your region’s RE pricing structure is reasonably in balance with its economic fundamentals. If not, anyone who’s overexposed might be well served in considering their exit strategy now.

[SHILOH]

I am in the NE, north of Boston…..there are homes for sale EVERYWHERE. Both Condos and Single Family.

This morning on talk radio they were talking about housing having reached bottom.

But, aside from hospitals, lawyers and biotech, universities and some tourism, Boston isn’t an industrial place either.

The second wave of ARMs is coming. I think SD had more ARMs than Boston, but the papers and talk shows here are featuring stories about credit&housing. I am pretty certain New England will continue to adjust down. I don’t pay much attention to this NE market, except to notice a lot more for sale signs…

No one’s flocking here for sunshine…that is for sure. About two years ago there were articles about high tech (and Biotech) having difficulty attracting the “best” professionals…due to the exploding cost of living (homes) vs salaries. It’s not at all attractive when you are coming from out of town –there is no premium to live in a blizzard zone. Unless you are one of the strange sailors who live for ice sailing…..

[newguy]

Quotes from mgubnyc1:

JC, maybe you should look into a better paying job?

JC with 65k a year you will have a hard time buying a house anywhere in the USA. You have to earn more money!

jc you live in America, anything could happen, you may even wil a lotto.

What pisses me off is why these people were able to get these loans in the first place. In other countries you can’t just borrow what ever you want, even if you have hundreds of thousands of dollars in equity! If you can’t prove to the lender you could make the payments they won’t give you the loan no matter how much intrest you’re willing to pay!
The problem wasn’t the nurses or the idiot’s it’s the lenders!!

————

So obviously, the way to solve this whole mess is to:

You have to earn more money!

and

you may even wil a lotto.

There it is. It’s SO simple. Just have people make double the current median. Thank God we’ve finally found the slution. Come next year, I’ll be able to afford that 250K condo. Wait a minute…if I make double the money…maybe I can afford that 300K house…or maybe I can stretch it out for that 400K house…

[mgubnyc1]

So you think someone making 65K a year should buy a house, even they were to buy one at 250K with a 20% deposit it doesn’t work. Here we go again let’s give people loans to buy homes they can’t afford.
This is no different then giving the guy making 130K a year a 500K loan
Sorry but if you only make a small salary then you had better have a lot of cash or you could wait for home prices to fall to 1980 levels.

[bsrsharma]

JC with 65k a year you will have a hard time buying a house anywhere in the USA. You have to earn more money!

Very good reason why bubble should pop (and it will). FED should take note. If I am correct, 65K is a fine middle class income isn't it? If a middle class household can't buy a shelter, obviously it is a market distortion.

As for the "more money" comment – 65K puts a person in probably top 2% of income in the world. And the other 98% are not all stupid. Flat world will ensure that "more money" is harder to come by.

[bsrsharma]

Sorry but if you only make a small salary

mgub: Would you tell me what is your idea of a salary good enough to qualify a household to buy a house? Obviously 65K is small. Would 130K be good enough? BTW, If you exclude 65K and below, you remove about half of US households. What do you think of a country where half the population can't even aspire to own their shelter? Would you like to live there? Would you be proud of it?

[mgubnyc1]

Come on compare apples to apples try the income’s with other countries like Canada, England, certain European Countries and you will see that 65K is not the within the top 2%

[Sandi Egan]

With all the wisdom and enlightening of mgb’s posts, no wonder why everyone got sold on this one:

with 65k a year you will have a hard time buying a house anywhere in the USA

The median home price in the US is 230K. By definition it means that half of all homes sell below that mark. And as we know, right now the median is distorted upwards.

3-second google search will give you any number of perfectly fine homes under 100K or even 50K in any continental US state. (although, I’ve got to admit that the majority of them are located somewhat east of I-5)

[bsrsharma]

majority of them are located somewhat east of I-5

Sandi – that was a good one! Even the White House is east of I-5. Some might argue it has been a dump for some time.

[34f3f3f]

There does seem to be a little inconsistency in your argument. On the one hand you admit to the mess we are in, and that mortgage companies and the industry in general should be accountable, and on the other hand you seem reluctant to accept the mess being put to rights. You can’t have your cake and eat it, as the saying goes.

I think many of us are victims, whether our homes have appreciated, or whether we weren’t able to step onto the property ladder. The point really is that, if prices fall, and they seem to be doing that, then the sharp increase in property values that we have seen over the last few years has been largely artificial. It is not real ‘value’, but speculative value and therefore you haven’t necessarily lost anything, if your home does devalue. Moreover, it is possible that in a few years, prices will be back to where they are now, and hopefully will reflect more of the fundamentals that have determined pricing prior to the bubble.

[Bugs]

There are lots of areas of the nation where you can buy a starter home for $100k or less. Not counting property taxes, a $100k mortgage requires a payment of $630/month. That’s well within the means of a $40k household no matter how you cut it.

[JC]

For the record, the 65k figure is the average median income in San Diego.

As we know, housing is local. I picked that figure to illustrate why it would be so hard for the “average” person to buy a decent plant here with a conventional loan.

For those interested, here are more stats (you’ll note my original figure was generous).

As of 2006, there were 2,941,454 people, 1,067,846 households, and 663,449 families residing in the county. The population density was 259/km² (670/mi²). There were 1,118,410 housing units at an average density of 96/km² (248/mi²). The racial makeup of the county was 52.3% Non-Hispanic White, 5.6% Black or African American, 0.86% Native American, 10.2% Asian, 0.78% Pacific Islander, 13% from other races, and 5% from two or more races. 29.9% of the population were Hispanic or Latino of any race. [2] 67.0% spoke English, 21.9% Spanish, 3.1% Tagalog and 1.2% Vietnamese as their first language.

There were 994,677 households out of which 33.90% had children under the age of 18 living with them, 50.70% were married couples living together, 11.60% had a female householder with no husband present, and 33.30% were non-families. 24.20% of all households were made up of individuals and 7.90% had someone living alone who was 65 years of age or older. The average household size was 2.73 and the average family size was 3.29.

In the county the population was spread out with 25.70% under the age of 18, 11.30% from 18 to 24, 32.00% from 25 to 44, 19.80% from 45 to 64, and 11.20% who were 65 years of age or older. The median age was 33 years. For every 100 females there were 101.20 males. For every 100 females age 18 and over, there were 99.70 males.

The median income for a household in the county was $47,067, and the median income for a family was $53,438. Males had a median income of $36,952 versus $30,356 for females. The per capita income for the county was $22,926. About 8.90% of families and 12.40% of the population were below the poverty line, including 16.50% of those under age 18 and 6.80% of those age 65 or over.

[edit] Current estimates
According to estimates by the San Diego Association of Governments, the median household income of San Diego County in 2005 was $64,273 (not adjusted for inflation). When adjusted for inflation (1999 dollars; comparable to Census data above), the median household income was $52,192.

[JC]

Sorry, clearly meant “place” not “plant”. I am not the world’s best typist.

Hmmm. Maybe if I brushed up on those skills I could earn more money. jk!

[LA_Renter]

Continuing with the theme of this thread, here is another article on the front page of Finance Yahoo saying subprime is hitting the high end of the market

“Subprime Mortgage Crisis Spreading to High-End Housing Market”

http://biz.yahoo.com/ap/070829/expensive_homes.html?.v=2

This part of the article is what I found interesting and important

“But aside from the financial impact of higher rates, in certain high-priced real estate markets, the effect of the suddenly tighter lending environment is more psychological, mortgage bankers and real estate agents say, as buyers and sellers alike don’t want to plunge into an uncertain future.

“Showings are down, contracts written are down, and sellers are just as backed away as buyers are,” said Lou Barnes, a partner in mortgage bank and brokerage Boulder West Financial Services in Boulder, Colo. The company arranges for financing on many higher-priced condominiums and houses in the state.

“I think the psychological damage is worse than the financial damage” which is already bad enough, he said. Even for buyers who have plenty of cash or can easily afford higher mortgage rates, the sudden change in the financing environment reduces “the ardor to buy a house unless you have to,” he adds.

With numerous buyers and sellers sidelined, the higher cost of big mortgages is bound to put downward pressure on home prices should the lending environment stay tight for a long period of time, said Ellen Bitton, president of Park Avenue Mortgage, a mortgage bank and brokerage that does business in several states, including New York, Florida and Utah.”

Will August 2007 be the moment of this bubble where Psychology truly shifted?? I have people that I know (friends, family, work) that were skeptics of the housing bubble and me for the past 2 years that are literally going out of there way to ask me my opinion on what is going on. That speaks volumes to me. Evidence to support a profound shift is right here in the South Bay of LA and the almighty Manhattan Beach where pendings in the super high end have come to a trickle

“Question: Is anyone even looking in the $2m+ range?

A quick glance shows a total of 10 new escrows/pending sales in August (SFRs, west of Sep.), most of those in the first week of the month. That’s about half the monthly volume for Spring and Summer this year, but the dropoff after Week 1 is the part that startles.

Meantime, we see hints of one late-stage escrow in trouble, but let’s wait till that’s news.”

When Manhattan Beach is hitting a brick wall, we are all hitting a brick wall. I am making a call that on the human psychological level August 2007 is when we heard the bubble go “POP”.

[bsrsharma]

When Manhattan Beach is hitting a brick wall, we are all hitting a brick wall

How about run on a major bank – Countrywide. Not a sign of good times.

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