The 50% Club

[no_such_reality]

While looking at the recent 2005 Census Bureau’s data for income, I came across a set of numbers that I think show the “on the ground” status of the housing market. Perhaps it’s been covered before however a quick check of the site didn’t show it up for me. So I’ll post.

A basic principle behind living wages and sound lending practices steers housing or renting costs to be 30% or less of income. Yet, San Diego in the last six years has seen owners stretch excessively. In fact, a sizeable portion of homeowners in 2005 had mortgage costs that exceed 50% of their income. Which occur while the number of homeowners increased over 35%.

[img_assist|nid=2197|title=|desc=|link=node|align=left|width=466|height=291]

In the same time period, while the percentage of owners around the 30% mortgage cost of their income, stay relatively constant, the more affordable ranges decreased.

[img_assist|nid=2198|title=|desc=|link=node|align=left|width=466|height=291]

[img_assist|nid=2199|title=|desc=|link=node|align=left|width=466|height=291]

Finally just looking at the raw number of owner households, we see how many of our neighboring homeowners are really biting off a big chunk to chew.

[img_assist|nid=2201|title=|desc=|link=node|align=left|width=466|height=291]

Yes, there are 89,000 households with a mortgage cost running over 50% of their income. More concerning for the housing market, there are 168,000 households with a mortgage costs running over 40% of their income.

These numbers were for 2005, before the housing sales and appreciation stalled. We already have 15% of all homeowners with 50%+ of their income going to their mortage before the 60-80% of purchases in 2004 & 2005 done with ARMs or exotic loans reset their payments to market rates.

It’s unlikely renters will step in to fill the void. Looking at the 2005 rent as a percent of their income in the data shows nearly 30% equally stressed with over 50% of their income needed to pay rent. Nearly 60% of renter households also have rents exceeding 30% of their income.

[img_assist|nid=2202|title=|desc=|link=node|align=left|width=466|height=291]

At current housing prices, owning is more expensive than renting. Obviously, the majority renters don’t have the finances to pick up a home even after the market starts to correct.

If time allows, later this weekend, I’ll look at SF & NYC as “glamour” city comparisons and the LA, OC and Riverside metro areas to see how it looks compared to our sister areas.

[no_such_reality]

Minor correction, it’s 137,000 households with mortgage costs exceeding 40% of their income. It’s 178,000 with mortgage costs exceeding 35% of their income.

( is there a way to edit a Topic posting after submission?)

[bubble_contagion]

In my opinion everybody that could buy in the last 2-3 years already bought. The peer pressure and the fear of being priced out was just too much. I assume all these charts are for after tax income.

[sdrealtor]

NSR,
Just curious as to how these numbers were compiled. Were they compiled by asking “What percentage of your Gross Income goes toward Housing Costs/” or were they compilied by combining Income Numbers and Houshold Cost numbers?

SDR

[powayseller]

If true, this is catastrophic, esp. if you consider that 70% of buyers have adjustable rate mortgages.

If even half of those people end up having to sell, that would increase our inventory from 22,000 to 90,000 or more. Let’s see, at current sales levels, that’s about 28 months supply. Yikes!

Where’d you get the data? (No way to edit a topic after posting, other than asking Rich to do it for you)

There is actually a lot of pent up demand, according to my realtor friend. I see it too. Look at all the people on piggington who are either priced out, or purposely waiting for prices to drop. Look at all the people going to Open Houses and auctions. Lots of demand out there, but not enough transactions at current prices.

[Nancy_s soothsayer]

The next spring buying season is DEAD. The so-called pent up demand will be met by unwilling lenders. Credit contraction is underway, folks. Why? subprime lenders are biting the dust one by one. If you go to Ben’s blog, many posters a few days ago (over 380 posts on that popular discussion thread) were all agog and a-twitter about the recent VERY SUDDEN demise of several subprime lenders this week. A very witty, very articulate, very smart and logical poster named “tweedle-dee (not dumb)” reminds me of Powayseller. These subprime lenders are closing their shops so fast to avoid repurchasing the toxic loans they originated. Pass the buck to the biggest bag-holders of all, the MBS buyers, who are just now waking up to the fact that they might have been suckered, big time.

[Anonymous]

Very nice work, nsr. Keep it up!

[powayseller]

Nancy, so you think they are closing shop to avoid having to repurchase the loans? In the case of Ownit, which was 15% owned by Merrill Lynch, is Merrill responsible for repurchasing the bad loans?

Why hasn’t CA adopted the new lending guidelines, and what do the federally regulated banks think about this uneven playing field? Wells Fargo and Washington Mutual and Citibank have new lending constraints, but their state regulated competitors do not. How long until they complain to the state about this?

[powayseller]

Nancy, so you think they are closing shop to avoid having to repurchase the loans? In the case of Ownit, which was 15% owned by Merrill Lynch, is Merrill responsible for repurchasing the bad loans?

Why hasn’t CA adopted the new lending guidelines, and what do the federally regulated banks think about this uneven playing field? Wells Fargo and Washington Mutual and Citibank have new lending constraints, but their state regulated competitors do not. How long until they complain to the state about this?

[powayseller]

Nancy, so you think they are closing shop to avoid having to repurchase the loans? In the case of Ownit, which was 15% owned by Merrill Lynch, is Merrill responsible for repurchasing the bad loans?

Why hasn’t CA adopted the new lending guidelines, and what do the federally regulated banks think about this uneven playing field? Wells Fargo and Washington Mutual and Citibank have new lending constraints, but their state regulated competitors do not. How long until they complain to the state about this?

[powayseller]

Nancy, so you think they are closing shop to avoid having to repurchase the loans? In the case of Ownit, which was 15% owned by Merrill Lynch, is Merrill responsible for repurchasing the bad loans?

Why hasn’t CA adopted the new lending guidelines, and what do the federally regulated banks think about this uneven playing field? Wells Fargo and Washington Mutual and Citibank have new lending constraints, but their state regulated competitors do not. How long until they complain to the state about this?

[powayseller]

Nancy, so you think they are closing shop to avoid having to repurchase the loans? In the case of Ownit, which was 15% owned by Merrill Lynch, is Merrill responsible for repurchasing the bad loans?

Why hasn’t CA adopted the new lending guidelines, and what do the federally regulated banks think about this uneven playing field? Wells Fargo and Washington Mutual and Citibank have new lending constraints, but their state regulated competitors do not. How long until they complain to the state about this?

[powayseller]

Nancy, so you think they are closing shop to avoid having to repurchase the loans? In the case of Ownit, which was 15% owned by Merrill Lynch, is Merrill responsible for repurchasing the bad loans?

Why hasn’t CA adopted the new lending guidelines, and what do the federally regulated banks think about this uneven playing field? Wells Fargo and Washington Mutual and Citibank have new lending constraints, but their state regulated competitors do not. How long until they complain to the state about this?

[powayseller]

Nancy, so you think they are closing shop to avoid having to repurchase the loans? In the case of Ownit, which was 15% owned by Merrill Lynch, is Merrill responsible for repurchasing the bad loans?

Why hasn’t CA adopted the new lending guidelines, and what do the federally regulated banks think about this uneven playing field? Wells Fargo and Washington Mutual and Citibank have new lending constraints, but their state regulated competitors do not. How long until they complain to the state about this?

[powayseller]

Nancy, so you think they are closing shop to avoid having to repurchase the loans? In the case of Ownit, which was 15% owned by Merrill Lynch, is Merrill responsible for repurchasing the bad loans?

Why hasn’t CA adopted the new lending guidelines, and what do the federally regulated banks think about this uneven playing field? Wells Fargo and Washington Mutual and Citibank have new lending constraints, but their state regulated competitors do not. How long until they complain to the state about this?

[Author]

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