Comments on: Inflated Median Housing Value to Income Ratio

By: Ming Smokes Dope

Ming Smokes Dope — Sat, 20 Sep 2008 00:26:37 +0000

“If people can afford … and are willing to pay it … prices won’t go down much”. Nothing like smokin’ that Northern California HomeGrown. But seriously dude, you just don’t get it. If you are only making $50K you can only afford $140. You can’t afford $300, $400, or $800. Let me state it another way. Noone is going to write mortgages like that anymore. Nobody. Noone. The only reason why banks didn’t go broke 10 years ago is that there were bigger idiots willing to buy the overpriced homes with to even more leveraged buyers. Many people used their homes like ATM machines. Who do you think is going to pay $800, and where do you think they will get the money? Throw in Real estate taxes, throw in insurance, throw in the fact that anything with plastic (an oil product), metal, glass, wood, etc. is going to cost more to fix things because the dollar will decrease in value as the Feds print money to pay for the housing bubble mess. Ming not read article. Ming living in time of Ming dynasty. Ming watch lot of TV. Ming for Congress!

By: wcrealestate

wcrealestate — Wed, 12 Mar 2008 21:41:49 +0000

Aaron,

Yes, it’s one thing to afford it when you purchase, or for a few month. But you’re absolutely right, long-term it doesn’t work out if you’re forking over that much for your mortgage AND going on a spending spree.

Paying your mortgage out of a home equity line!? Wow. Crazy. Sad part is – that’s even rosy – some don’t even have equity to tap!

People need to live within their means – and if they did housing prices would go down. Sadly, it seems like there are still people out there willing to do this. And lenders were all to happy to fan the fire by giving ‘funny money’ to these eyes-too-big-for-your-wallet crowd.

The amount of ‘funny money’ is going down dramatically, so perhaps the market will help people get the reality check they desperately need. The recent move by the Fed to buy these distressed loans back from lenders might allow ‘funny money’ to flow again.

That’s sad, and dangerous since it just delays the inevitable, both in new overburdened homeowners and the fact that the lenders will eventually have to buy the distressed loans back from the Fed.

Thanks for your comment and stay financially strong!

By: Aaron

Aaron — Wed, 12 Mar 2008 21:30:02 +0000

I disagree. Poeple cannot afford it. They have simply been living off of the equity in their homes. It seems that a whole generation of people considered the equity they borrowed against their homes as income.
To qualify for an 800,000 loan with 30,000 down you need an income of over 200,000.
The equity lines are being yanked and people are going to be in serious financial trouble in the upcoming future.
This is just my opinion and what do I know. Several of my friends are in this exact situation. They went out and bought new cars and tons of other crap that they didn’t need. When expences increased it was no propblem because they had that equity line to help them pay. I watched in amazement but didn’t say anything. Can you imagine paying your mortgage with money your borrowing out of your house??!!
Anyway they got a letter and have been cut off and this is in Marin and sorry to say but our shitboxes are worth much more that your shitboxes in walnut creek.
Without the financing and forcing people to truely qualify for mortgages is going to reduce the price of real estate. There is no more funny money.

By: wcrealestate

wcrealestate — Wed, 12 Mar 2008 19:27:03 +0000

Ming,

Well it depends on your definition of afford. You’re right, many people can buy into a house and pay a large percentage of their income to the mortgage and property tax. Essentially they’re house poor – living in a decent house but living on Ramen and never getting to go on vacation, not to mention under-saving for retirement.

The question is why people are willing to do this? Previously it was the idea that the value of your home would appreciate and it would be an asset to rely on in the future. If things went haywire you could always sell and make a profit. That and the instant gratification of being in a nice home.

The problem is that’s no longer the case. Even if you believe housing isn’t going to fall dramatically I think you’d be hard pressed to believe it will increase much (if at all) over the next 5-7 years. So, suddenly real estate is a very normal investment, 5-10% return, instead of 100%.

So with housing flat or falling, these house poor folks aren’t spending much which is a HUGE drain on the economy. The single most important factor of our economy – consumer spending – would continue to be crippled.

People can afford it, and are willing to pay it – the question is whether that’s smart for them specifically, smart for us as homeowners and smart for us as a country/economy.

My belief is no, it’s not smart. In fact, it’s this mentality that created the subprime mess. Taking on too much in the hopes that things will turn out right is a bit reckless. We need responsible home ownership so they can save and spend, protecting both our future and current economy.

By: Ming

Ming — Wed, 12 Mar 2008 19:03:25 +0000

If people can afford the house, the price won’t go down too much.
The life style is elastic, so if housing budget is 20% of your income, you will live a good life, have $40 per pound beef everyday, but if it’s 40% of your income, you can eat more ramem, buy everything in Costco rather than Macy’s or Andronico’s, so you still can live a fair life. And if Walnut creek guy earn more and pay more percentage of his income to housing, but the absolute value of income leftover is also more or comparable to those we earn less and pay less to house.

My opinion is even if the the house price is 12.5 times of median income, people here can afford it, and willing to pay it, the price won’t drop too much.