[(former)FormerSanDiegan]

I don’t know what the median homeowner household income is and neither do you. Those stats are not readily available. The idea that you can derive it as being proportional to price is laughable. You are throwing out guesses. Also, there are a non-trivial number of households above the median who rent.

If we assume that people have to actually qualify for their loans based on income, I would conjecture that the buyers of median-priced houses are those above the median in income.
Would you agree ? disagree ?
Any realtors have insight into this ?

Regardless, here is another shot at getting my point across with a simpler example and fewer assumptions …

You are right that the median household income of 83K cannot afford the 600K house. However, over 21% of the households in Irvine have incomes over 150K and could easily afford the 600K house. In fact over 41% of Irvine households have incomes that exceed 100K per the 2005 Census bureau. These households would likely afford homes in 470K + range, assuming 20% down.

I believe that these incomes (if sustained) would support the median price in the 450-550 K range going forward.
Obviously this will be lower/higher depending on incomes, interest rates, unemployment, psychology, etc.

[(former)FormerSanDiegan]

I don’t know what the median homeowner household income is and neither do you. Those stats are not readily available. The idea that you can derive it as being proportional to price is laughable. You are throwing out guesses. Also, there are a non-trivial number of households above the median who rent.

I was trying to make a concrete point via a thought experiment that required some assumptions.

[(former)FormerSanDiegan]

I was responding to this …
Median household income in Irvine is 83K according to the Census Bureau. Such households cannot afford a 600K home, even at 5 percent rates.

[(former)FormerSanDiegan]

My point is that ultimately income drives how much house people can qualify for and/or afford (not always equivalent).

The median price home sales are for people who are buying today, not those already in during more affordable times.

I am not saying that prices are not out of whack. They are.
I’m simply stating that comparing median household income to loan qualification standards for a median priced house is flawed.

for example my Aunt is 70years old, owns a home worth $800,000 in Laguna Hills but earns like 35k/yr from her retirement and benefits! so your math is of little value!

Kev – Is she buying the home on her 35K income ? NO.
You have it backwards.

Your example has no relevance to the discussion.

[(former)FormerSanDiegan]

According to the 2005 Census Bureau estimates …

41.2% of Irvine Households make more than 100K
21.1% make more than 150 K
10.2% make over 200K.

So, the typical median home buyer likely makes between between 100-150K, not 83K. Still overpriced at 600K, but not as out of whack as comparing median household income and median price makes it to be.

http://factfinder.census.gov/servlet/ADPTable?_bm=y&-geo_id=16000US0636770&-qr_name=ACS_2005_EST_G00_DP3&-ds_name=ACS_2005_EST_G00_&-_lang=en&-redoLog=false&-_sse=on
(NOTE: Based on Household Income… the Family income numbers also reported on the link indicate that almost 54% of Irvine families make more than 100K)

FWIW …

30% of Orange County Households make more than 100K.
13.5% make more than 150K
7% make more than 200K

[(former)FormerSanDiegan]

Median household income in Irvine is 83K according to the Census Bureau. Such households cannot afford a 600K home, even at 5 percent rates. Get your facts straight cashman.

Comparing median income to median priced homes is a flawed argument. 50% of people in OC make more than 83K. What is the home ownership rate ? Suppose it is 60%.
Therefore, it is not the median income family buying the median income house. The median income family is in the bottom 17% of homebuyers (assuming income proportional to price).

It would be more correct to compare say the 70-75th percentile income to the median price, if you want to take statistics and make an appropriate example out of them.

[(former)FormerSanDiegan]

I never mentioned 20% I am glad you could read between the lines and extrapolate that out of my post. That takes a certainly subtlety I am not usually capable of.

Josh – You are correct, you did not say 20%. I stand corrected. I got the 10-20% down from the original post, not yours. I assumed (wrongly, I suppose) that you were implicitly suggesting from your response that you would expect a buyer to save that much down.

Regardless of the number, there are plenty of reasons not to save for a down payment if the market provides 0% to 10% down.

Another example. Joe NewHire gets a new corporate job and has the option to put 25% of his income into the company 401k or saving the equivalent in after-tax income towards his down payment. I would have to advise him to put it into the retirement account rather than save for a down payment.

In any case, I think your general message of fiscal responsibility, with which I would agree, was somehow lost in the name-calling.

[(former)FormerSanDiegan]

How much water can we save by everyone putting in those Phoenix type front yards ?

I remember about 10-12 years ago there were a lot of green-painted gravel front yards in certain parts of town. Maybe those will come back into vogue ?

[(former)FormerSanDiegan]

On Downpayments and entitlement.

Whether one has a down-payment when they are ready to buy a house has nothing to do with entitlement. You can make an economic case for less than 10% down under some conditions.

Sometimes, the economic conditions and your stage in life dictate whether you have a downpayment or not.

Consider this…
In 1996, after a decade of college and graduate school, you land a pretty decent government job. Prices in San Diego are at a once-per decade low by any measure. You make enough with one income to support purchasing the median priced house. Your spouse also works. You have good credit.
Should you buy ? with 5% down and pay PMI ? (which seems like it will come back in style)

If Josh ruled the world, you would have to save 20% down. But you know that prices are cheap. Everybody hates real estate, and it’s nearly the same monthly outlay as renting at that point in the cycle. I say that person should buy.

What if someone enters the workforce at the bottom of the cycle. Are they not an idiot for waiting.

What about Johnny P. Frugal. Who determined that housing was too expensive in 2002 for him to buy in ? He decides to save enough for a downpayment. After 5 years, Johnny has done very well. He has socked away 150K. And on March 12, 2007 he hits the point where he has 20% down and will qualify for a 30-year fixed on 20% of his income for a 750K house. Should he buy today ?
Probably not.

My point is that down-payment savings is not the only metric by which to measure whether a person should or should not buy a home. There are plenty of conditions and examples of people who should buy a house based on economic and personal conditions that are independent of whether they have 20% down.

I would not use that single measure to label some as having a sense of entitlement.

[(former)FormerSanDiegan]

oops, you mis-typed the link. SHould be …

http://westsideremeltdown.blogspot.com

[(former)FormerSanDiegan]

Nice find. I think the marginal parts of Santa Monica are already taking a hit. That particular house is in an area that is likely zoned multifamily or possibly even commercial. Perhaps they had grand ideas that didn’t pan out …

I think the small number of sales for January in both Rancho Park and Westwood are good indications of the slowdown in sales. But the small numbers are not good indications of price. I’ll see what I can find.

[(former)FormerSanDiegan]

latesummer2008 –

GLad to see someone jumping in on the westside…
I think that the westside is/will be one of the last areas of SO Cal where the bubble plays out.
Instead of starting off my comments on your blog in what could perhaps be perceived as negative, I’m going to offer a suggestion here.
Please show the evidence for a “10-15 % drop in prices everywhere else on the Westside since the Fall of 05” (everywhere else, meaning except Santa Monica)

I have not observed a 10-15 % drop in Westwood for example, when comparing similar properties. Perhaps in Mar Vista or Culver City this has happened. My suggestion: Pick an area and show some numbers to get the ball rolling.

[(former)FormerSanDiegan]

Bay area is on same sales trajectory as So Cal, though SF city proper is holding up. Perhaps it will be the last place to fall.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/16/BUGQ8O5J151.DTL

http://www.dqnews.com/RRBay0207.shtm

[(former)FormerSanDiegan]

touche Cow_tipping, but I was trying to be nice,
so I left out …

hurricanes
property taxes
hicks
drug boats
Don Johnson
more hicks
New York retirees
People who can’t count votes
country music
swamp gas

[(former)FormerSanDiegan]

italics off

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