When was the last time?

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Submitted by moneymaker on March 18, 2017 - 7:09am

When was the last time an average household income in San Diego could afford a new SFH? Currently average HH income is $63,400 which if you use the 5 times income rule would translate into a house that sells for $317k. I know you can get a condo/mobilehome/RV for that but the question is when was the last time average person could afford a new SFH?
http://www.lao.ca.gov/reports/2015/finan...

Submitted by ltsdd on March 18, 2017 - 8:43am.

I think the rule-of-thumb of using 3x, 4x or 5x income multiplier is a bit outdated; it needs to be adjusted to reflect the current low interest rate for a more realistic comparison. If 4 times income was used when the interest rates were 8%, then shouldn't the multiplier be something higher if rates are at 4%?

Assuming 0% down and interest rates at 8%, hh income of $63,400--> $317K loan --> $2,326 mortgage payment

A $2,326 monthly payment @4% means one can borrow about $500K

That tells me the multiplier for the current interest rates should be closer to 8x income than the 4x or 5x rule of thumb.

Submitted by millennial on March 18, 2017 - 9:29am.

I don't think that your calculation is right. There is a P component to the mortgage equation. If your calculation was right then 2% would be a 16x multiple and 1% would be 32x.

Submitted by millennial on March 18, 2017 - 9:33am.

moneymaker wrote:
When was the last time an average household income in San Diego could afford a new SFH? Currently average HH income is $63,400 which if you use the 5 times income rule would translate into a house that sells for $317k. I know you can get a condo/mobilehome/RV for that but the question is when was the last time average person could afford a new SFH?
http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx

Just doing a quick calculation the rule seems about right. Assuming that you made the average after tax and insurance you're looking at around 30% debt to income assuming a 30/30 fixed at 4%

Submitted by ltsdd on March 18, 2017 - 9:53am.

millennial wrote:
I don't think that your calculation is right. There is a P component to the mortgage equation. If your calculation was right then 2% would be a 16x multiple and 1% would be 32x.

Not really. At 2%, the multiplier is right around 10x and at 1% it's about 12x or there about.

Submitted by Rich Toscano on March 18, 2017 - 2:22pm.

moneymaker wrote:
When was the last time an average household income in San Diego could afford a new SFH? Currently average HH income is $63,400 which if you use the 5 times income rule would translate into a house that sells for $317k. I know you can get a condo/mobilehome/RV for that but the question is when was the last time average person could afford a new SFH?
http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx

The 5x rule of thumb doesn't really apply in SD, as it's always been more expensive here. Doing a quick calculation, it looks like the typical historical multiplier is closer to about 7. (That is, the ratio of the median home price to median HH income).

As for when that last happened... between the end of 2008 and the beginning of 2013.

Submitted by no_such_reality on March 18, 2017 - 3:30pm.

It does apply. 5X with around 4% loan equates out to a front end DTI of 40% on a $317 loan. So technically with no debt basically you're tapped out to $317k plus down payment

Low down payment adds PMI.

Submitted by HLS on March 18, 2017 - 4:48pm.

Loan qualifying is based on total monthly minimum payments on a credit report + housing expense. Front end ratio doesn't matter.

$63,400 annual gross income = $5283 mo.
43% is pushing the ratio for most ppl = $2272 TOTAL monthly payments.

Assuming NO car payments, student loans or credit card minimum payments & a 4.00% rate with a 20% down payment:

$450K purchase price & $360K loan
1757 Payment
450 taxes
75 Insurance
-----------
$2282

If there is HOA or Mello Roos, car payment or other monthly debt the loan payment will need to be less to qualify.

It might be possible to go to a higher ratio, as approvals can vary based on multiple factors.

Submitted by Rich Toscano on March 19, 2017 - 8:56am.

no_such_reality wrote:
It does apply. 5X with around 4% loan equates out to a front end DTI of 40% on a $317 loan. So technically with no debt basically you're tapped out to $317k plus down payment

Low down payment adds PMI.

It doesn't look like SD homes have EVER sold for 5x (median home vs. median hh income), even at their cheapest.

How can you say this rule of thumb applies in SD, when it's never actually happened that way? I guess you can argue that it SHOULD apply, but that's a whole different point from the one I was trying to make.

Submitted by millennial on March 19, 2017 - 4:54pm.

So if the median person in San Diego can't qualify for a conventional loan I'm assuming the majority of San diegans are renters.

Submitted by no_such_reality on March 19, 2017 - 7:45pm.

Rich Toscano wrote:
no_such_reality wrote:
It does apply. 5X with around 4% loan equates out to a front end DTI of 40% on a $317 loan. So technically with no debt basically you're tapped out to $317k plus down payment

Low down payment adds PMI.

It doesn't look like SD homes have EVER sold for 5x (median home vs. median hh income), even at their cheapest.

How can you say this rule of thumb applies in SD, when it's never actually happened that way? I guess you can argue that it SHOULD apply, but that's a whole different point from the one I was trying to make.

I read it as a multiplier of affordability not a multiplier of what median should be. I.e. At current rates a person can by roughly 5x their in one. Previously at different t time depending on rates they said 3x or 4x

The OP said what people could afford is 5x. The next argue that median a have never been 5x and I pointed out that 5x still caps what a person can buy (with a loan). ( actually that's all messed up several people between there). It was you saying it's more and I agree it is. But that doesn't change the the question of what can a income by and when could a median income buy a new SFR here

I give up trying to fix typos on this iPhone

Submitted by bewildering on March 19, 2017 - 9:10pm.

millennial wrote:
So if the median person in San Diego can't qualify for a conventional loan I'm assuming the majority of San diegans are renters.

Retired folks might have a low income but own their home. They just bought a long time ago. The big advantage of buying a house is that a fixed mortgage ignores inflation.

I would actually love to see the median price 'paid' for all SFH in San Diego (Both nominal and real median price). I imagine the median 'paid' price for SFH would be in the low 200s.

Submitted by millennial on March 19, 2017 - 9:20pm.

bewildering wrote:
millennial wrote:
So if the median person in San Diego can't qualify for a conventional loan I'm assuming the majority of San diegans are renters.

Retired folks might have a low income but own their home. They just bought a long time ago. The big advantage of buying a house is that a fixed mortgage ignores inflation.

I would actually love to see the median price 'paid' for all SFH in San Diego (Both nominal and real median price). I imagine the median 'paid' price for SFH would be in the low 200s.


Good point forgot the retired folks. If that's the case then the 5x median income wouldn't really make sense in areas with significant appreciation

Submitted by Rich Toscano on March 20, 2017 - 8:10am.

no_such_reality wrote:
Rich Toscano wrote:
no_such_reality wrote:
It does apply. 5X with around 4% loan equates out to a front end DTI of 40% on a $317 loan. So technically with no debt basically you're tapped out to $317k plus down payment

Low down payment adds PMI.

It doesn't look like SD homes have EVER sold for 5x (median home vs. median hh income), even at their cheapest.

How can you say this rule of thumb applies in SD, when it's never actually happened that way? I guess you can argue that it SHOULD apply, but that's a whole different point from the one I was trying to make.

I read it as a multiplier of affordability not a multiplier of what median should be. I.e. At current rates a person can by roughly 5x their in one. Previously at different t time depending on rates they said 3x or 4x

The OP said what people could afford is 5x. The next argue that median a have never been 5x and I pointed out that 5x still caps what a person can buy (with a loan). ( actually that's all messed up several people between there). It was you saying it's more and I agree it is. But that doesn't change the the question of what can a income by and when could a median income buy a new SFR here

I give up trying to fix typos on this iPhone

Gotcha...

Submitted by SoCalBakerman on March 21, 2017 - 3:45pm.

I agree that based on average income to SFH price, their is no correlation. Most people that I know that got into house in an expensive neighborhood are people where family helped out or parents died or grandparents died or something.

San Diego now, not before the 80s, is a victim of outside money raising housing costs. Uber rich guy from China or New York overpays for a house in RSF or La Jolla, Doctor gets priced our and moves Encinitas, Engineer gets priced out and moves to Rancho Bernardo or Carlsbad, which prices out Policeman or Fire Fight which moves to Temecula.

Temecula has single handedly saved San Diego from a major labor shortage. I really wished the government would keep statistics on foreign purchases of real estate and mortgage vs non mortgage properties, so you can really see the true picture of housing.

Because if you 10,000 houses that are 2,000,000 each but don't have a mortgage you can't say we have a housing affordability issue.

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