Reasonable expectations

[kev374]

Forget the current home prices and let’s get an opinion on what the reasonable expectations for a house in SoCal be for a prospective buyer in relation to their income. So describe the kind of house someone who makes 60k, 80k, 100k, 120k or 150k should expect to buy…remember not what this market thinks is reasonable but what YOU think should be expected for that income level.

My opinions,

80k HH income – 3/2 SFR in a mid-level neighborhood (torrance, northridge, fullerton etc.)

100-120k – 3/2 1700sqft in a nicer area like Laguna Hills/Mission Viejo

north of 120k – should comfortably afford a 1800-2000 sqft in Laguna Niguel/Dana Point etc.

Reasonable?

[PerryChase]

Not reasonable in my view. Looks like the people who earn the most have the longest most grueling commutes. Neighborhoods do not segregate by income that way because they evolve over time. Aside from income, people have non-job-related wealth that affect what they can afford.

If I lived in Orange County, I’d live somewhere in Irvine because it’s centrally located and close the employment centers. If I could afford it, I’d live in Newport Beach.

Using your numbers, here’s what I think is reasonable.

80k HH income – $250k home

100-120k – $350k home

north of 120k – $500k home

[sdrealtor]

Delsionary! Laguna Niguel/Dana Point is some of the nicest RE in the country. A 2 earner white collar family with average jobs should earn $150K easily in this area. That is a very middle class situation around here and certainly not one destined to live in LN/DP in a nice size home. I’d put your 120K Household in a townhome in those areas for reasonableness. For a nice size detached home, I’m thinking Fullerton.

[NotCranky]

Looking at it a different way….
Old lending standards, rough estimates.
10% down
60k=225k purchase price
80k=275K purchase price
100-120k= 375K purchase
north of 120K= Pay cash
I am guestimating these things based on the memory of an old house payment calculator thingy that was new 10 years ago. I looked for it but can’t easily find it. It costs 40K a year to live modestly(read,get by) with a wife and a couple of kids now, before rent or mortgage, and it is getting more expensive by the minute! I don’t think 60K will mean anything in San Diego County for SFR unless you are a buddist munk with a penchant for a house in the ghetto.Roomates could help though,been there done that. I think 60K income is definitely Average Condo in Average Location even in the next trough of the cycle.
So if you are entertaining what I am saying at all try analyzing what 225k,275k or 375k might get you if your income is in those brackets and you don’t have a ton of cash. Of course, stretching is safer if you are steril.

[SD Realtor]

Wrong perspective altogether. If you are only using income as a measure of desire then you should only use debt load as the factor you are measuring. Thus if you create income brackets then assign a maximum mortgage payment based on that income. Don’t factor in size of the home, location, or desire.

The reasonable expectations should be that a buyer should not stretch so far as to make his life a living h-ll just to pay the mortgage.

SD Realtor

[kev374]

sdrealtor, someone earning north of 120k is certainly in the top 10% of incomes in the country. You think 1800sqft in Laguna Niguel/Dana Pt. is out of the question for such a household?

Fullerton is not my definition of a great neighborhood, average middle income neighborhood at best.

As I said I’m not looking for a view taking into account current inflated prices but some of these homes in Laguna Niguel were $300,000 in 2000-2001.

[NotCranky]

Realtor
If you are referring to my post when you say this …

“Thus if you create income brackets then assign a maximum mortgage payment based on that income. Don’t factor in size of the home, location, or desire.” ..You don’t understand what I said…

The strategy I described has the would be Buyer calculating what they are shopping with and then what they can shop for.I never suggested factoring in the size of the home, location, or desire except examples of realistic expectations.I would do that after I figure what I could afford and wouldn’t buy if my realistic parameters were left wanting.
Considering over all debt load is a no brainer but the income to purchase price estimates I gave were used during the old conservative debt/income ratios lenders used to use for average buyer’s. I don’t recommend more leverage on a personal home just because debt loads are low at the time of purchase.Do you? As far a stretching goes I agree with you. I was making a joke anyway.Lenders won’t give you more money because you are a non reproductive individual. Buying less than what one can afford fully employed seems prudent if cash isn’t laying around everywhere, especially in a falling market.
If you were answering someone else,excuse me.

Realtor

I just realized there are two realtors in here and you are probably answering the first poster. The other Realtor had already anwered him so thats where the confusion came from.

[SD Realtor]

Hi Rustico –

No I was referring to the original post by Kev, not your post. I was thrown a bit because of how the post equated income level with a certain size home in a given neighborhood and that made no sense to me. What you posted made perfect sense, essentially the expectations of the buyer should be 100% based on what they can afford. That will always be based on market conditions, lending climate, and personal assets.

[NotCranky]

Thanks SD Realtor,
Some Bloggers are so hostile when a guy makes a mistake. Thanks for the decency in your reply to my error.

[sdrealtor]

kev
just me being a smartass as usual re fullerton. I agree that 120K is a top 10% income but Laguna/Dana Point is a top 1 to 3% location. I just dont see an 1800 sq ft home on a 120k income as realistic for a place like that unless you have a nice chunk to put down. the re are lots of other nice places that will be cheaper but I think your initial post didnt pass my reasonableness test.

[PD]

..

[bigmoneysalsa]

This is really easy. History shows that it’s “reasonable” to expect the cost of buying to fall back down to where it only carries a small premium over renting. So if you want to know what X income can afford to buy after the market corrects just look at what X income can afford to rent right now. At 30% of gross income, an $80k HH income can afford $2000 a month, a $120k HH income could afford $3000 a month, etc.

FWIW, there are dozens of 3 bed+ rentals in Dana Point and Laguna Niguel listed below $3000 a month (though only a handful above 2000 sf).

[Author]

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