Lending Standards

[Ren]

[quote=La Jolla Renter]And, not too long ago…

an investment property cash flowed with 20% down.
[/quote]

They do today, in Murrieta and Temecula. However, I believe there may also be some significant rent drops, so I’m not comfortable buying them just yet.
Next we’ll see it in inland San Diego.

I don’t think lending standards will tighten to the point they were in the past, but eliminating the liar loans is a great first step.

[Scarlett]

[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.

Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.

If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]

Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…

esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.

When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.

The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).

[Scarlett]

[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.

Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.

If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]

Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…

esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.

When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.

The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).

[Scarlett]

[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.

Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.

If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]

Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…

esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.

When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.

The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).

[Scarlett]

[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.

Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.

If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]

Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…

esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.

When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.

The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).

[Scarlett]

[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.

Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.

If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]

Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…

esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.

When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.

The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).

[Author]

Posts