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Old 04-11-2010, 09:11 PM
 
55 posts, read 247,827 times
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After following the Boston real estate market the past number of years and seeing the "bubble" burst, but still seeing closing prices stay high on homes, I'm left wondering as the title says, "Is the whole New England region and/or the whole country overspending on homes?"

Back in 1972 here in the Boston 'burbs, median home prices were at about 3x-3.5x median income for this county. Lots of my reading seems to indicate that is a reasonable amount of leverage to get into a home.

Right now, the median home price in the same county is $423,700 with median income at $78,202 - works out to a 5.4x multiplier - which seems ridiculous to me..

Then I think about the extras in our daily lives now that didn't even exist back in 1972 or most folks didn't bother with - cable/satellite TV, cell phones, gym memberships, Internet services. These modern conveniences further shrink income available for PITI.

Are people REALLY REALLY so desperate/determined to get into a house that they will overleverage and leave themselves very little for remaining expenses after PITI?

I realize that nowadays most 2-person households rely on both people's incomes to make end's meet opposed to more single income households back in the early 1970's, but isn't it common advice to suggest that a mortgage should be manageable on only 1 income - especially with the economic/job volatility we're seeing these days and no sense of loyalty either between employees or businesses?

Are young couples looking for starter homes having no choice but to settle into townhouses or condos to start their families (like we did)? Or are they getting chained to an oversized mortgage (per their income)?

Or is there something I'm just not understanding or missing?
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Old 04-11-2010, 09:17 PM
 
Location: Las Flores, Orange County, CA
26,346 posts, read 83,068,188 times
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I've been asking the same questions. It wasn't even as far as back as 1972, try 1997 - things were more aligned to traditional models even then. I'll be interested to read the discussion of this thread. A lot of people think the Alt-A Option Arm resets will be the next wave of foreclosures following the subprimes.

My other question, sort of related - maybe this can be tied to the original post, why did only some places bubble so dramatically: Los Angeles, Nevada, Florida, etc but not other places as much such as Houston not Denver, Atlanta, etc?
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Old 04-11-2010, 09:36 PM
 
2,133 posts, read 5,256,303 times
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Look further north into central and northern Maine. Real estate is much less expensive there.

The midwest is also pretty reasonable because there was never a huge jump in prices in most areas. Just a steady 3 to 5% increase year and year.
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Old 04-11-2010, 09:45 PM
 
Location: Las Flores, Orange County, CA
26,346 posts, read 83,068,188 times
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Quote:
Originally Posted by BacktoNE View Post
Look further north into central and northern Maine. Real estate is much less expensive there.
Places are inexpensive for a reason. Usually no jobs or crappy weather or both. The original poster's question related to price changes in the same location.

Quote:
Originally Posted by BacktoNE View Post

The midwest is also pretty reasonable because there was never a huge jump in prices in most areas. Just a steady 3 to 5% increase year and year.
Like I wrote above. Why? Why didn't the midwest bubble like LA did?
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Old 04-11-2010, 10:48 PM
 
Location: DFW - Coppell / Las Colinas
32,039 posts, read 36,697,670 times
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Quote:
Originally Posted by Charles View Post
Why? Why didn't the midwest bubble like LA did?
CA has always been a place with too many people and not enough nice land to live and build homes. The cost of building is sky high and the demand exceeds supply. Even though they have a bubble they will be one of the 1st places to recover where Vegas, Phoenix & FL will take much longer.

Places like Dallas, Kansas, etc have a lot of land to build on and a relatively cheap non union labor force.

Detroit and much of the north is dying due to lack of jobs. Who wants to live there.

So, it all goes to the founding principals of Capitalism.... Supply and Demand creates prices unless the Govt interferes with the market.
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Old 04-12-2010, 06:43 AM
 
55 posts, read 247,827 times
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I understand the laws of supply and demand, but the affordability factor should also be acting as somewhat of a ceiling on how much people are bidding up the prices even with low supply. Are people "happy" spending 50%+ of their income on PITI and throwing common sense to the wind?

One other factor I didn't include in my original post that also places a large burden on many folks nowadays that wasn't quite so bad is also factoring in student payments nowadays - with many schools now costing between $45k-$50k/year, students are coming out of school saddled with between $90k-$175k in student loans.

Coincidentally, there's an article this morning in our local paper about how untenable it is move deep into the suburbs after factoring in transportation costs -
Cost of long commute offsets suburbs’ bargain housing, study finds - The Boston Globe:

"One of every four communities in the study area has a combined housing and transportation cost that exceeds 58 percent of median household income, which the report defines as an extreme burden."

"In Boston, residents spend an above-average chunk of their income on housing (41 percent), but the comparatively low cost of transportation puts the combined housing and transportation burden in that city at 56 percent."

"Residents of the Boston area spend a lower fraction of their income on housing and transportation than do people who live in the San Francisco area — 59 percent — but more than those in the Washington, D.C., area — 47 percent."

Last edited by mobster75; 04-12-2010 at 06:47 AM.. Reason: Added additional info
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Old 04-12-2010, 09:36 AM
 
Location: DFW - Coppell / Las Colinas
32,039 posts, read 36,697,670 times
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It still all goes back to supply and demand. When people can no longer afford the mortgage on a house the demand will drop increasing the supply which then causes the prices to drop. That in many cases is what's happening in much of the northeast.

When people can no longer afford a home they move to places like TX where the relationship between income and home prices is still in balance. Or they do what many people who migrate here do and have 3 families live in a home and spread the costs.
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Old 04-12-2010, 10:52 AM
 
Location: Las Flores, Orange County, CA
26,346 posts, read 83,068,188 times
Reputation: 17517
Quote:
Originally Posted by Rakin View Post
CA has always been a place with too many people and not enough nice land to live and build homes. The cost of building is sky high and the demand exceeds supply.
This would explain a DC bias, meaning, CA prices would always be a certain percent more expensive than nowheresville, IN.

But it doesn't explain why SoCal prices went up 300% from 1997 to 2006 while many other places only went up maybe 75%. Did nowhereville's value increase 75% in 12 years? Maybe not but possibly close to that.
Did SoCal's value increase 300% in 12 years? No Way.
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Old 04-12-2010, 12:08 PM
 
Location: DFW - Coppell / Las Colinas
32,039 posts, read 36,697,670 times
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Anytime there is a shortage of any product the speculators can push up the price. They've been very good at doing that in So Cal and people keep buying. It has to reach a point where the income of the average 2 income family can no longer afford the house. Then the demand will slack.

The demand is extreme and people are willing to pay. Without Govt controls, gasoline would and should be $5 a gallon or more. Would you keep buying ? Yes cause you need it but you'd figure out a way to reduce your demand and consumption.
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Old 04-12-2010, 12:33 PM
SXN
 
350 posts, read 1,123,640 times
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If you're talking about the city proper and not the burb's it is all about supply and demand, you have people who have bought in the 80's and 90's for pennies on the dollar and will not sell but for a huge mark up - regardless of their income. You also have plenty of foreigners and grad students buying up places and renting out to roommates.

Not to mention Boston is built up on a penninsula with limited space to expand and the zoning laws prevent the build up of new highrise buildings and additional units. Most cities can sprawl when the demand calls for it. Doesn't happen in Boston, instead the prices in surrounding neighborhoods rise.
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