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Old 08-05-2008, 08:38 AM
 
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I mentioned this several times in many different threads about housing costs still higher than the average household income (including wife and husband's income). What I don't "understand" is why the government is trying to stop the price drop of homes when it is obviously still overpriced? I guess they are afraid of foreclosures and economic instability than affordability.. Then there is still argument from real estate companies about "access" to homes WITHOUT looking at affordability... I don't get it... I guess they still want more money from you with still overpriced homes, knowing you can't afford it... What I don't get is that lenders are still lending to people who are buying these overpriced homes that are propped by the U.S. government... I have a feeling people are going to blame the "free market" for the government's work...
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Old 08-05-2008, 09:39 AM
 
74 posts, read 614,173 times
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Quote:
Originally Posted by evilnewbie View Post
I mentioned this several times in many different threads about housing costs still higher than the average household income (including wife and husband's income). What I don't "understand" is why the government is trying to stop the price drop of homes when it is obviously still overpriced? I guess they are afraid of foreclosures and economic instability than affordability.. Then there is still argument from real estate companies about "access" to homes WITHOUT looking at affordability... I don't get it... I guess they still want more money from you with still overpriced homes, knowing you can't afford it... What I don't get is that lenders are still lending to people who are buying these overpriced homes that are propped by the U.S. government... I have a feeling people are going to blame the "free market" for the government's work...
The reason you don't "understand" is based on your view of affordability. More specifically, your assumption that homes are "obviously overpriced."

Many people will argue with you that current home prices are not inflated and homes are actually underpriced. However, as others have said, it is extremely difficult to take any of these numbers and draw any sort of conculsion. One problem is that there are many, many famililies below that median that do not own. Also, real estate prices are extremely localized so taking national averages does not tell you anything.

Another argument for home prices being reasonable right now is that many homes today can be purchased for less than (or about the exact amount) it cost to build. There are new homes on the market right now that are being sold for the price of the materials and labor and the land is basically being given away. The seller would argue that, because they are taking a net loss that they prices are actually too low, not too high.

As others have stated, the key to long term home ownership is patience and financial discipline.
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Old 08-05-2008, 10:04 AM
 
472 posts, read 772,367 times
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It's almost impossible to nail down national averages when markets vary so wildly from state to state, city to city. Take Binghampton, NY where values are actually rising... an average house is $120K. Of course, that's following a 30 year exodus of residents, employment and real estate values. And now... even for a cheap house there are very few employment opportunities. The to buy might seem affordable, however the cost of ownership is not if you lose your job.

And that's where things can get confusing.. the cost of the home, and the cost of home ownership. Even as housing values drop the cost of true ownership is increasing double digits. It may be in increased costs of heating oil, or electric... or an increasing in property taxes. The fact is many Americans are at the brink with home expenses, debt. A simple ARM reset on a mortgage payment is enough to push a home owner over the cliff of foreclosure. Many people in the housing industry will say now is the time to buy... and in some markets that may be the case. But if you buy into a house, who's value is pointed downward.. and your expenses are moving upward, chances are you'll be in an uncomfortable position for a few years.

In my market (northwest of NYC) the average median price of a home at the high of the bubble was $365K. Today it is still $310K... yet the median household income for the county is $71K. Wages have unchanged and unemployment is creeping upward. At today's current prices, the local median household can't qualify to buy even a starter home. So Real Estate Agents are almost completely dependent on migration from other higher priced markets in the region. This method worked well WHEN houses were selling in days instead of weeks or months in the NYC area. now that the dust has settle, my county has seen a 12% decline in prices and the worst housing period since 1995. In 2004 we were named the 3rd fastest growing county in the US.

Prices will continue to come down... because there is a lack of qualified buyers who can buy. Wages have not increased in our county for over a decade. The build up in demand for housing was fueled primarily by compromising loan agreements. At this point there are few people who can sell their houses to move here (a 2 hour commute to NYC) and first time buyers with excellent credit will not meet the qualifying income levels to buy in to this market. In my county, where rent can average from $1000-1800 for a two bedroom apartment... it is still far cheaper to rent than to own.

My wife and I (both in our mid 30's) purchased a modest house for $320K in Jan. We went with a 30 yr fixed FHA loan with 5% down. Between our down payment and closing costs we put down over $31K in cash. Our combined income is over $100K per year and we average over $7K per month in net income per month. Our DTI with all our debt included at closing was 37%. This was within our budget. However that was factoring in the prices of six months ago. Our monthly budget has been blown out of the water due to $4.40 a gallon gas, $4.91 home heating oil, milk, bread, shampoo... all of our groceries increasing. Our school budget was just turned down... had it passed it would have added an 11% increase in our property taxes... which already average over $7K for my community. I can easily see how any family with kids to provide for can easily fall behind in their mortgage payments in this market. Buying into this market for any couple under the age of 30 is nearly impossible.

Last edited by ocnymonty; 08-05-2008 at 10:35 AM..
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Old 08-05-2008, 11:21 AM
 
1,738 posts, read 3,887,570 times
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And bear in mind that all this talk of affordability presupposes the household consists of two incomes. When did this become ratified gospel?? That we accept it as normal is one thing, but who came up with it? If you were to get serious and transpose the median home price against the median INDIVIDUAL income (40K) now you really see the true lack of affordability of homes in America. 40K is 5x 200K , the median home price. Factor in the ability of said individual to come up with 40K in a timeline that actually beats inflation, while making 40K/yr and yeah, good luck with that. And people wonder why divorce is so high in this country, we got a society full of mortgaged relationships, people have their spouses as collateral to be able to afford a home. When 50% of your purchasing power is hedged against your spouse, I don't call that being able to afford a home, hence why I don't buy the "well a couple is making 150K not 40K, hence they can afford" argument. My version of affordability is the ratio of median individual income to median home price. The rest is just creative financing and (even more scary) relationship mortgaging.
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Old 08-05-2008, 02:04 PM
 
1,851 posts, read 2,912,849 times
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Default I can't seem to follow...

Quote:
Originally Posted by ocnymonty View Post
My wife and I (both in our mid 30's) purchased a modest house for $320K in Jan. We went with a 30 yr fixed FHA loan with 5% down. Between our down payment and closing costs we put down over $31K in cash. Our combined income is over $100K per year and we average over $7K per month in net income per month. Our DTI with all our debt included at closing was 37%. This was within our budget. However that was factoring in the prices of six months ago. Our monthly budget has been blown out of the water due to $4.40 a gallon gas, $4.91 home heating oil, milk, bread, shampoo... all of our groceries increasing. Our school budget was just turned down... had it passed it would have added an 11% increase in our property taxes... which already average over $7K for my community. I can easily see how any family with kids to provide for can easily fall behind in their mortgage payments in this market. Buying into this market for any couple under the age of 30 is nearly impossible.
37% DTI - did that include your new mortgage? I'll assume yes. If this is the case, then your taxes are what's "sabotaging" your income. Why are your taxes 7K/year for your community?? Your home only cost 320K. Is there a private guard at your door - LOL! Just teasing! With a down payment of 5%, that means your mortgage is based on a loan of $304K. Your interest rate is awesome, so your monthly payment with PMI should be less than $1,600. If you and your spouse bring in 7K after taxes, then this leaves you with a little over 5K a month. Your taxes however, are eating up close to $600 a month of your income...this leaves you and your wife with $4,400 a month. It's your taxes...people often ignore to factor in their home taxes when buying a home.

So I'm left to assume you have long commutes, two car payments, credit card debt and other loan debt (such as student loans), or that you are aggressive savers?? Otherwise, even with food costs, there is plenty left over to "live" on and "make it." Throw in two kids, in public schools, and a couple should still be fine earning over $100K annually.

It's the excessive living standard that many have become accustomed to that makes it seem so "hard" to live/get by nowadays. I don't know how you and your wife live, I'm just saying many young professionals confuse "needs" with "wants."

Anywho...there is still affordability in housing, what's so hard for many to now accept is that their fabulous lifestyles will need to be sacrificed in order to become a homeowner.
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Old 08-05-2008, 03:30 PM
 
Location: Los Angeles Area
3,306 posts, read 3,330,414 times
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Quote:
Many people will argue with you that current home prices are not inflated and homes are actually underpriced.
They will? Who are these people, wait let me guess folks associated with the NAR?

Quote:
Why are your taxes 7K/year for your community?? Your home only cost 320K.
Thats about 2.2% property tax, many states have property tax that high.

Quote:
My version of affordability is the ratio of median individual income to median home price. The rest is just creative financing and (even more scary) relationship mortgaging.
I think you are going a little far with this. If an individual can't afford the median home price that isn't so bad. The median home is usually a 3-4 bedroom house. So unless you have kids that is over kill.
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Old 08-05-2008, 04:24 PM
 
Location: Denver, CO
1,434 posts, read 3,880,939 times
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Well, I suppose to ensure that you are not over paying for a house, you can just purchase the land and build your own house. That's one way to know for sure how much a house is worth. Of course that doesn't factor in the mystical 'extra' you pay for the privilege to live in a certain area. Just like a Picasso painting probably only cost about $100 of materials, but somehow it's worth a bit more than that.
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Old 08-05-2008, 04:27 PM
 
Location: Stanwood, Washington
658 posts, read 615,102 times
Reputation: 172
This is a thread about the living wage. The what? The living wage. What it takes to get by in middle-class America. If you're in Cincinatti, it's about $55k. In San Francisco, it's about $145k. Totally dependent on where you live and the local price of housing, health insurance, transportation and items we buy every month. If you spend the time to map out those expenses by locale, you will know the answer to your question.

Forget about federal indexes for pricing, they don't work. Just do the math for the city you want and you will have the data. Why those prices? Because they represent almost 90% of monthly expenses for the average household, after taxes.

BTW, A living wage only required on parent to work to pay all the bills and mortgage... until about 1960. Thank the boneheads for taking the dollar off the gold standard.
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Old 08-05-2008, 04:55 PM
 
Location: Wilkes-Barre, PA
1,689 posts, read 3,110,076 times
Reputation: 1233
What I don't get about the math stuff is don't you all have pay stubs? It is clear to see that the average amount lost after all expenses is about 30%. That is a huge amount taken from us all every paycheck.

Last edited by Chefkey; 08-05-2008 at 04:56 PM.. Reason: typo
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Old 08-05-2008, 04:59 PM
 
Location: Wilkes-Barre, PA
1,689 posts, read 3,110,076 times
Reputation: 1233
Quote:
Originally Posted by HurrMark View Post
This has been something that has been bothering me for a long time. I realize that things have come home to roost recently with foreclosures ramping up in recent months. But what surprises me is how more people aren't foreclosing...especially among those who bought in the last five or six years. It's very simple math.

The average household income in the US was about $48,000 in 2006, or the peak of the housing boom. Since many lower income people can't afford to buy, let's say the average home buyer grosses $55,000. Let's say for argument's sake that after taxes, benefits, and perhaps a nominal 401(k), one is left with $36,000, or roughly $3,000 a month post-tax. During the peak of the boom, the average existing single-family house was about $220,000. Let's say for argument's sakes that the average buyer put 10% down. So he/she would require a $198,000 mortgage. That means that at a low 5.25% rate on a fixed 30 year mortgage (I know a lot of people had interest only...those scare me even more, actualy), the mortgage payment would be roughly $1,100 a month. PMI would require another $100 a month. Taxes would be about $200 month give or take, depending on where the person lives. Insurance would be about $75 a month. Utilities...perhaps $150-250 a month. And if there is a homeowner's association fee, tack on another $200. So add this up, and you have $1,600-1,900 a month for housing alone. That means for everything else...car payments, gas, food, insurance, entertainment, etc., you have $1,100-1,500 a month. I just don't see how one can easily make it on that, especially if there is more than one mouth to feed.



Am I calculating this incorrectly? It boggles my mind...
You are calculating it correct as I just checked via the last post.
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