From the U-T:
Housing was slightly more affordable for first-time buyers in San Diego County in the opening months of 2010, as interest rates remained low and prices stayed relatively flat.
The California Association of Realtors said first-time-homebuyer affordability rose to 58 percent in the first quarter, heading toward the record 60 percent set in the first quarter of 2009. It was the third straight quarter-to-quarter increase and paralleled a similar climb statewide.
The number is based on how many households have the income to afford an entry-level, single-family resale home — defined as 85 percent of the realty group’s median price for all homes in a given area, a 10 percent down payment and an adjustable-rate mortgage at 4.3 percent.
For San Diego, the realty group said the entry-level price in the first quarter was $322,120, the qualifying income $54,330 and the monthly payment $1,810. The 58 percent affordability rate was up from 57 percent in the fourth quarter of last year and 56 percent in the third quarter.
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There was no mention or explanation of the higher-end markets, like North SD County Coastal, where there were 204 detached sales over the last 30 days. The median sales price was $770,000, and the average sales price was $1,039,327 (avg. $365/sf).
Over the same period last year there were 172 sales, with a median SP of $726,500, and average SP of $1,001,878 (avg. $370/sf).
In the last 12 months there have been 2,172 detached sales in North SD County Coastal, with an average sales price of $1,017,352 (avg. $358/sf). What a run!
North SD County Coastal includes Carmel Valley, Del Mar, Rancho Santa Fe, Solana Beach, Cardiff, Encinitas, and Carlsbad.
(92007,92008,92009,92010,92011,92014,92024,92067,92075,92091, and 92130)
92024 is not moving
“$322,120, the qualifying income $54,330 and the monthly payment $1,810” – if that’s the equation, those that attempt to make it happen are living on the edge IMHO. It would explain (to me) why so many resale homes on the market appear dated and/or neglected.
“defined as 85 percent of the realty group’s median price for all homes in a given area, a 10 percent down payment and an adjustable-rate mortgage at 4.3 percent.”
There’s your bullsh*t right there. 10% down means you have to pay PMI, which is the same as a price increase. An adjustable rate mortgage is asking for trouble.
If housing is not affordable at 20% down and a fixed 30 year, it isn’t affordable and these people are full of crap.
Great call AE.
Let’s face it, as soon as you read, “The California Association of Realtors said,” you know it’s crap.
Cehwiedel (person that posted the link), is there some reason you couldn’t just post your comment about this topic on Jim’s board, unless you two are partners in profit?
I cringed when I saw you were using his blog to bring users to yours. Are you having trouble getting people to visit your blog?
Boo
If housing is not affordable at 20% down and a fixed 30 year, it isn’t affordable and these people are full of crap.
With that assumption the monthly payment goes down to $1,651 per month. Is it possible their affordability statement is more about how people are most likely to buy homes. If you assumed 20% down 30 year fixed loans affordability would go up.
“If you assumed 20% down 30 year fixed loans affordability would go up.”
JordanT, you beat me to it. For the most part affordability is very high currently. I think if you can get rent parity with 20% and a 30 year fixed it is a good time to buy because you are essentially locking in your rent payment for 30 years and then you have the house free and clear to retire in, generate supplemental income, or pass to your children. If you can’t come up with 20% then I’d say you are better off renting until you can.
A starter home near the coast is probably around 500k currently. With 20% down you are financing 400k which gets you within the conforming limits. With the current rates and figuring in the mortgage deduction you should be pretty close to rent parity even after figuring in taxes and insurance.
I agree with #8, and #9, but you have to consider the down payment in affordability. How many first time buyers looking at $500k homes have $100k cash to put down?
I’m a move up buyer (keeping my first home as a rental) and I have been having a REAL hard time finding something decent in the 500-550K range along the coast, even with excellent credit and 20% down. But I’ve been a picky about good schools, avoiding busy streets, power lines, etc. We finally found a great place for 520K, but its a twinhome and a short sale. We’ll see what happens. After the mortgage deduction, it will cost us slightly less than renting.
JtR:
Where is the house in the picture? Is that one of your listings? I’m not sure how it is linked to the post, but very nice!
“$322,120, the qualifying income $54,330 and the monthly payment $1,810? – if that’s the equation, those that attempt to make it happen are living on the edge IMHO. It would explain (to me) why so many resale homes on the market appear dated and/or neglected.
Sol | May 15th, 2010 at 9:19 am
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Agreed. And this is exactly why we have a foreclosure “crisis.” As long as the sheeple believe these numbers are “affordable,” we will have wave after wave of foreclosures.
There is no way a household earning $54K can afford a $322K house, not to mention the $1,800K payment. Not. A. Chance. Throw some kids in there, and this hypothetical family is living very much on the edge and getting deeper and deeper in debt with every month. This leaves absolutely zero buffer in the event of an emergency or job loss, etc.
With the 10% down payment (which will be eaten up in transaction fees), you’ll have another foreclosure within four years. I’d say it’s almost guaranteed.
Good point CAR. Those are precisely the kind of buyers that will walk as soon as prices drop because it is a huge sacrifice every month just to make the house payment. Of course these are very tight lending standards compared to what we had during the bubble with the 0% downs and stated incomes.
Jinx
How will you feel if mortgage rates move up and other people make the same calculation. The price needs to be much lower to be less than rent in that case.
I know rates have not moved up in 5 years, but historically speaking 7% used to be a good rate as recent as 2000.
Sorry this is off topic but it’s worth a read. What’s that saying about when you are in a hole ….
“Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.
Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more.
Las Vegas is trying to recover by building what it does not need.”
http://www.nytimes.com/2010/05/16/business/16builder.html?hp
This is insane.
Re: #15, good point. I’ll feel OK if rates rise (and home prices go down) because we’ll be in a fixed loan, can easily handle our payments, and we plan on staying put for 15+ years. I don’t think now is the right time for everyone to buy though. Most listings I see still seem way overpriced, but what do I know?
10. I agree with #8, and #9, but you have to consider the down payment in affordability. How many first time buyers looking at $500k homes have $100k cash to put down?
I know this doesn’t answer your question, but I bought my first house using pretty close to those numbers for price and down payment. A little lower on price, a little higher on down payment actually.
Unfortunately, that was in 2004 and I’m still living in the house.
Awesome that people gloat when young couples earning in the top 5% income bracket can’t buy a home. Enjoy the cheese while it lasts, and have fun when your pensions break.
Pension? What pension? You mean the money that I’ve been saving since my mid twenties?
How can anyone actually believe what CAR says? When the housing market starting crashing in 2006, they kept saying prices were stabilizing all the way down -lol
“…defined as 85 percent of the realty group’s median price for all homes in a given area, a 10 percent down payment and an adjustable-rate mortgage at 4.3 percent.”
When rates go up, then what?
“If you assumed 20% down 30 year fixed loans affordability would go up.”
Agree w/The Blur. It would be very interesting to see how many people have 20% to put down on a million dollar house. I don’t expect affordability to go up.
Agree w/CAR. Tack on car payments and maybe student loans. Good luck trying to afford it.
“21.How can anyone actually believe what CAR says? When the housing market starting crashing in 2006, they kept saying prices were stabilizing all the way down -lol”
Prices have come down in some areas 50%. Many reasons why it hasn’t continued, including government intervention and accounting tricks by banks. Now that government is slowly pulling out and banks are starting to release inventory, things might change.
In the end, you still have to make money AND qualify for the loan, a loan banks are reluctant to give and pretty much government through FHA is providing, which is already suffering.
Keep taking crazy pills. Everything is fine.
Mikey,
It’s amateur hour for the next 60 days, with only the most desperate sellers able to get their price right. The rest? Drunk on the hopes of that perfect young couple coming along and “loving the 50-cent improvements we’ve done”.
Thanks #7, I thought the same thing, Cehwiedel could have linked direct to the article to make the point – instead, linking off this blog in order to what? build a blog audience?
Shameful – Cehwiedel, did they teach you that in blog school?
Art and others,
The CAR has published this survey for years, and are using the same criteria for their template that they’ve used since the beginning.
They aren’t recommending that people finance that way.
Photo is from the Estancia resort in LJ. No connection.
In my opinion, those who think that starter homes on the coast in prime areas like Encinitas are going to drop by 30-40% if we get interest rates in the 7-8% range are underestimating the number of cash buyers such a move in prices would generate.
Hi Jim,
Re #25 and the affordability index:
Didn’t the NAR change how they calculated this index near the height of the boom? I believe affordability, at one time, was based on a 20% down payment and a 30 year fixed. By this metric, “affordability” slipped to the single digits, at least in SD. And so the NAR revised what constitutes affordability, lowering the reqs to 10% down and an adjustable rate.
Susan
“Photo is from the Estancia resort in LJ. No connection.”
Ah. Figures. Nice …
The “post” by Cehwiedel is almost certainly from a “Search Engine Optimization” bot. The point of the post is not for people to go visit it. It’s for Google to follow it and thereby boost the destination’s pagerank in search results. In other words, it’s bullsh*t.
Jim: You can delete the post without hazard.
Thanks ewhac, I deleted it!
CA renter-I make $40k, am single, and can just afford my $150k house on a 30 year fixed with 20% down. For a $322k house, I would want at least a $85k income or so, more if you have a spouse and kids.
Agree w/The Blur. It would be very interesting to see how many people have 20% to put down on a million dollar house. I don’t expect affordability to go up.
I don’t think you’re using the same definition of affordability as the CAR. The CAR is looking at monthly payments, not the ability to come up with a down payment. If they moved to monthly payments based on 20% down with a 30-year fixed loan is going to lower monthly payments and increase affordability.
The ability to come up with a down payment is not easily determined by stats available to us.
Geotpf,
Yes, what you wrote sounds much more reasonable.
I would also add that having kids adds A LOT to a family’s expenses, so would be even more conservative with a family.
Personally, I’d feel more comfortable with a $100K income (at least) on a $322K purchase with 20% down.
Of course, this is why the bears are beating their heads against a wall. We’re trying to be much more conservative in a world where fools set prices. As long as they are given the rope to hang themselves (large, less conservative mortgages), they will continue to do so. The govt has stepped in where the private market rightly fears to tread. This will end badly (again), IMHO.
CAR, this is all part of the government’s “cash is trash” policy.
The idea is that to the government cash is so worthless that they will lend it at below market rates to people who have no hope of paying them back all in the name of trying to prevent a complete collapse of a housing bubble that they worked so diligently to create.
That about sums it up, pemeliza. 🙁