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I agree that we need to get back to fundamentals, but a 2 or 2.5 multiple would pretty much close most people out of the major urban areas-- L.A., NYC, SF, DC, Boston, Chicago, etc., etc. Middle classers and upper middle classers just don't make enough to afford housing in those areas at that multiple. And those areas are where the high paying jobs are.
For housing prices to drop to that multiple would be a 60 or 70% reversal in some of these areas. Many would consider that a doomsday scenario, since we were at a 3, 4 or 5 multiple back in the 80s in these places. Parts of CA were even higher, even then.
I just don't think we can wrap this one in a nice little box. Creditworthiness has many factors, and the mortgage industry is going to have to get back to looking at borrowers as individuals, not cash cows. But there is going to be some shake-out... and there should be. If the puppetmasters would just stop the manipulating, we could get it over with and start to rebuild. In the long run, that's better for everybody. JMO.
I am from NYC and can assure you, 2.5 to 3.5 is not a stretch of the imagination.
Anyway to see whats going to happen just look at what happened last time this crap took place
One rule, affecting low- and moderate-income renters, is the Government's index for how much of their income should be paid in rent. For decades, that limit was 25 percent of income, but it was raised to 30 percent under President Ronald Reagan and has since been set at 30 percent by Federal, state and city housing agencies across the nation.
For home buyers, the rule had traditionally dictated that no more than 28 percent of their income be devoted to mortgage payments, real estate taxes and home insurance premiums. The 28 percent limit was intended to prevent people from going too far into debt. It also stipulated that the totality of a home buyer's debt obligations, including payments on the home loan, car loans, credit card purchases and other personal debts, should not claim more than 36 percent of income.
Last edited by Wild Style; 05-25-2008 at 08:25 AM..
I lived in L.A. during that same period and the nicer parts weren't at a 3 to 3.5 multiple back in one of the worst real estate slumps the city has ever had. I paid a 5 multiple in Santa Monica in 1996 and a 4 multiple in D.C., back in the late 80s. I have always paid a high multiple to live in the more desirable parts of top urban areas. Sure, you can live in the crap parts and pay 2.5 or 3 times income, if you're willing to dodge gunfire on the way to your car. Personally, I'll pay the premium.
To get back to a 2.5 or 3 multiple will take us back two decades in the nicer parts of some cities. Maybe it'll happen, maybe it won't, but all the hoping and cheerleading in the world isn't going to get it there any faster. I don't see it EVER getting there in coastal L.A., unless the Big One hits. But I know a lot of people who would love to see it get there.
I lived in L.A. during that same period and the nicer parts weren't at a 3 to 3.5 multiple back in one of the worst real estate slumps the city has ever had. I paid a 5 multiple in Santa Monica in 1996 and a 4 multiple in D.C., back in the late 80s. I have always paid a high multiple to live in the more desirable parts of top urban areas. Sure, you can live in the crap parts and pay 2.5 or 3 times income, if you're willing to dodge gunfire on the way to your car. Personally, I'll pay the premium.
To get back to a 2.5 or 3 multiple will take us back two decades in the nicer parts of some cities. Maybe it'll happen, maybe it won't, but all the hoping and cheerleading in the world isn't going to get it there any faster. I don't see it EVER getting there in coastal L.A., unless the Big One hits. But I know a lot of people who would love to see it get there.
thats called living above your means.
I want to see federal mandate that says people are not allowed to get mortgages for more than 3.5 times annual income DEPENDING on how much their debt at that time is. This will stop this run up from happening again.
Actually I give a lot of credit to Texas. You guys really learned from the oil bust during the 80's. And for the most part you guys didn't get involved with the housing bubble to much. Grant I've been hearing rumor of a lot of Californian's heading your way to escape the cost of living in CA. Hopefully they come and add to Texas and don't start fooking I up.
Oh and one last thing actually I looked a couple homes in Texas for a vacation home. One in rockport and one in sabine pass. They both fell through and truth be told I very luck the second one fell through. If you recall sabine pass was basically ground zero for hurricane Rita. The town got I believe 20 feet of water in it. But I'll tell you what. Texas has some of the nicest coast line in all of the gulf. And maybe in a couple of years I might start thinking about buying there again and eventually becoming a "Winter Texan"
No way would I buy on the Gulf Coast, unless I had money to fritter away and tropical storm damage wouldn't phase me, LOL. I lived 25 miles inland and we all watched as the major home insurers changed our policies and doubled our premiums, stopped writing new policies, and then, eventually, canceled all windstorm coverage. Folks have had to go to the state risk pool to be insured.
Yes, sigh, we are getting overrun with people from the West Coast, particularly in the Austin area. Isn't it ironic that the far lefties find themselves in a muddle and then run to a "Red State" for a better quality of life? I think we should cede them Austin (not the government part, of course) but if they start venturing into West Texas, we'll have our shotguns ready, LOL.
I want to see federal mandate that says people are not allowed to get mortgages for more than 3.5 times annual income DEPENDING on how much their debt at that time is. This will stop this run up from happening again.
I'm in accord with your goal, just not your logic.
And, no, it's not always living above your means.
Borrower A: Zero debt, no kids, an escalating income, a high down payment, a lot of savings and a high FICO-- 4.5-5.5 multiple.
Borrower B: $1000/mo. in car payments, $20K in credit card debt, job with low COLA, 2.5 kids to put through private school, minimal down payment, no savings and a low-to-moderate FICO-- 3.5 multiple.
Now which borrower would you rather loan money to?
See why sweeping generalizations don't always apply.
I'm in accord with your goal, just not your logic.
And, no, it's not always living above your means.
Borrower A: Zero debt, no kids, an escalating income, a high down payment, a lot of savings and a high FICO-- 4.5-5.5 multiple.
Borrower B: $1000/mo. in car payments, $20K in credit card debt, job with low COLA, 2.5 kids to put through private school, minimal down payment, no savings and a low-to-moderate FICO-- 3.5 multiple.
Now which borrower would you rather loan money to?
See why sweeping generalizations don't always apply.
Again, it is about living above your means. This is not my logic or a invention I came up with. Just read the links I posted
I would like to see a return to lenders evaluating borrowers as individuals, as opposed to trying to cookie-cutter people into arbitrary slots that do not-- cannot-- take singular circumstances into account.
And the only entity that can decide that I'm living above my means is me, since I'm the only one who knows what my means really are.
I would like to see a return to lenders evaluating borrowers as individuals, as opposed to trying to cookie-cutter people into arbitrary slots that do not-- cannot-- take singular circumstances into account.
And the only entity that can decide that I'm living above my means is me, since I'm the only one who knows what my means really are.
million of homes owners said the same thing between 2001 and 2007 and we see where that lead now didn't we?
To get back to a 2.5 or 3 multiple will take us back two decades in the nicer parts of some cities.
I had an argument with someone about what the right multiple is for Southern California after we looked at the data it seemed that the multiple for the area as a whole was around 3.2~4. I'm not sure why some people insist that the multiple has to be the same for every area, its has never been that way historically. Although, I think your average Southern California community will come down to 3~3.5. In fact I'm seeing around 4.3 right now in the decent but not great areas.
To make manners more complicated income is only a good measure in communities where the folks depend largely on incomes to make their purchases. Someone could have millions in assets yet only realize 50k a year as income from dividends, part-time work etc. I think this is partly why you see higher multiples in areas like Santa Monica, people are buying homes with cash and only realize small parts of their wealth as income.
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I think we should cede them Austin (not the government part, of course) but if they start venturing into West Texas, we'll have our shotguns ready, LOL.
