Posted on 06/18/2004 7:45:41 AM PDT by Mr. Jeeves
The minimum household income required to buy the median price home in California rose above $100,000 for the first time in April as affordability sank an annual 7 percentage points to 20 percent, a trade group reported Thursday.
The Housing Affordability Index compiled by the California Association of Realtors slipped one percentage point from March in response to rising mortgage rates and prices that hit record levels across most of the state in April.
Affordability will continue to decrease because price records were shattered again in May and rates, while still low by historical standards, continued moving up, said Leslie Appleton-Young, the association's vice president and chief economist.
"The gulf between the housing haves and have-nots is widening. Clearly people that have owned for the last three, four or five-plus years are very happy with their decision," she said.
Two months ago a household in California needed to earn at least $102,550 to buy a home priced at the median $453,590. That's based on a 30-year loan at 5.42 percent.
This year the average low rate was 5.38 percent for the week ending March 18 and has been climbing since. Freddie Mac's survey for the week ending today found rates averaging 6.32 percent.
By comparison, a minimum household income of $84,510 was required to buy a home priced at the median $364,040 in April 2003.
Nationwide the median price in April was $176,000 and the minimum income requirement was $39,790.
The association's affordability index is based on the percentage of households that could afford to purchase the median priced home in their community. The lowest point was 14 percent in the spring and summer of 1989, a time when prices were lower but interest rates much higher than now.
Mortgage company rule bending has put encouraged a lot of people who can only afford a $300K house to stretch beyond their means and buy a $600K house, with the result that all of the houses that used to sell for $300-$400K have zoomed right up in price to match the amount lenders are willing to loan. It's become very hard to get good value for the dollar in any house below a million dollars, with the rather freakish result (in the Bay Area, at least) that spending $700K-$800K will get you little more than a dumpy, forty-year-old tract home, but if you can manage to spend $1.2 million or more you can still get a large house that's more or less worth the price.
I live in 300K house. Guess what it was worth in 1974 dollars. ;-)
I have a pretty good idea. After my mom died in late 2002, I sold her house for $600K. She bought it in 1973 for $60K.
The housing market bubble has been inflated with monopoly money. Just wait until rates start going up and people can't make their ARM payments.
Everything goes in cycles.
SoCal bump
interesting ... I wonder how it will play out in Texas.
For $453,590, in Alabama you can buy the whole trailer park.
I do mortgages for a living. Could you clue me into this "rule bending" so I can take advantage of it and get customers into homes selling for twice what they can afford and thus make myself twice as much money. Thanks!
According to the reports I've heard, this is not like the previous bubble we had and they are not expecting any "burst" in this market for at least another 10 years. During the earlier experience the prices went up even though there were lots of homes on the market. Now there actually aren't enough homes on the market and they say it will be that way for many more years.
Z,
Are we related?
It may be closer than that -- we've never been seen together.
I go with the common sense test - most reports are wrong (how many predicted anything in the way of stock market crashes when amazon.com was at $350/share?). When you need earn at least $100,000/year to buy a nothing house with rates going up, it means either:
1. People will stop buying or wait
2. People will start getting out when the getting is good - can you believe I sold that shack for $450,000 just a few years ago?
3. People will not be able to afford the houses they are in
4. Yes, I know, they stopped making real eastate a long time ago - but they still make people the same way - and they usually make decision on fear and greed...and fear is about to replace greed.
California and other hyperinflated markets are in HUGE housing bubbles... and will be popping soon.
What's going on, and why?
Simple, with the bombing of the stock market, many people decided to move to real estate.. didn't bother to get any education and are basically being "appreciation sluts"... that means, they are buying anything at any price regardless of whether it cash flows today because of anticipated appreciation over short time. In many parts of Cali (and other areas) a few years of appreciation has meant 100k or equity or more.
Who cares if the thing doesn't cashflow for you.. just wait for appreciation to make you rich....
Secondly, unprecidented low mortgage rates have allowed people to pay more for houses and get lower payments... so this too has pushed prices higher.
I know people in places of cali that are paying 300-400k for duplexes that will only rent for $600 a unit.. absolutely insane.
Now when interest rates rise, you are going to see a lot of people get whiped out and a lot of paper equity in houses disappear as well..... It won't be pretty, and just like the stock bubble the jump on the bandwagon folks who are completely uneducated an inexperienced are going to lose their shirts.
Not for all of America, just in a a few select areas.
What I envision is that houses will keep selling, but since this is California, the houses will be purchased by multiple "non-european" families living with 15 people per house. The raids recently where they found 90+ illegals living in a house were actually test cases.
I heard that argument in the Bay Area just before the tech boom went bust when houses were appreciating 20% a year... then the bubble burst, and mass exodus and houses started falling at 40% a year.... Believe me, California real estate is headed for a burst.
Or a whole city in Arkansas.
I just reported what I heard. We aren't planning on moving for 20 years or so, so I'm just going along for the ride whatever happens.
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