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SF does NOT have the population density of NY or Paris. The larger Bay Area is sparsely populated in comparison to major world cities. And if you look at the house-hunting/want to house hunt demographics of Bay Area, it's skewed toward the young with a large proportion of them being non-citizens, both are factors which plays into who's driving the market. Simple supply and non-speculation demand does not account for the real estate prices. Consequently, as tech cycles continue (tech bubble of 99 was unsustainable business practices, which is liable to cycle even tech as a whole keep moving forward), only when speculative demand decreases will real estate prices come down.
The question becomes then at what point will people stop hoarding houses (including the small number of new constructions) in order to rent to newcomers...
1) There need to be fewer newcomers, which means fewer new jobs, not necessarily lower employment.
2) Prices become such that they can't get profitable rents to pay off the mortgage of their properties (and thus further difficulty of accumulating the principle sum for the 20% down for additional properties)
For prices to actually come down significantly. Not only do the previous two conditions be met, but high-income employment need to actually decrease (ie exodus of tech workers elsewhere, the non-profitable companies dissemble *cough*useless apps*cough*), decrease in entry of no/little new wealth (including IPOs, Chinese money), people/companies who *time* the market start selling inventory.
Some people are already seeing some of that, but those are trends. What would be an *obvious* impact would be the rising of interest rates after the election which has the twin effect of discouraging housing speculation by increasing maintenance cost and discouraging Chinese economy from using it to balance against their own inflation rate.
This could be the beginning of a downward cycle or it could be the summer slump. We need more data to make that call.
My thoughts?
A slowdown is inevitable because housing markets are cyclical.
BUT even with a slowdown, we're nowhere near affordability. If you're a middle class family making even $120k per year, does it matter if the average home price is $900k, $1.2m or $1.5m? It's still a rich person's game. A slump is not the same as a crash.
Me and my wife just moved to the bay few months ago, bring home $190-200k and got approved for a $950k new town home, idk how it was very shocking
our projections is for our salary to rise to 50-60k next year, however we still wouldn't spend that much right now.
currently we Bring home close to $10k, the mortgage was $5,345 with 10% down, PMI and HOA FEES included... we don't have any car notes or large student loan payments so maybe that helped.
But still it was crazy to see we got approved
everyone says that prices wont drop & it will never be a recession because its WAYYYYYYYY harder to get a loan now vs years in the past. Is that staemtn really true seeing we got approved for basically a million home with only making 200K ????
is this the norm are there alot of people in the bay living like this ????
Me and my wife just moved to the bay few months ago, bring home $190-200k and got approved for a $950k new town home, idk how it was very shocking
our projections is for our salary to rise to 50-60k next year, however we still wouldn't spend that much right now.
currently we Bring home close to $10k, the mortgage was $5,345 with 10% down, PMI and HOA FEES included... we don't have any car notes or large student loan payments so maybe that helped.
But still it was crazy to see we got approved
everyone says that prices wont drop & it will never be a recession because its WAYYYYYYYY harder to get a loan now vs years in the past. Is that staemtn really true seeing we got approved for basically a million home with only making 200K ????
is this the norm are there alot of people in the bay living like this ????
Me and my wife just moved to the bay few months ago, bring home $190-200k and got approved for a $950k new town home, idk how it was very shocking
our projections is for our salary to rise to 50-60k next year, however we still wouldn't spend that much right now.
currently we Bring home close to $10k, the mortgage was $5,345 with 10% down, PMI and HOA FEES included... we don't have any car notes or large student loan payments so maybe that helped.
But still it was crazy to see we got approved
everyone says that prices wont drop & it will never be a recession because its WAYYYYYYYY harder to get a loan now vs years in the past. Is that staemtn really true seeing we got approved for basically a million home with only making 200K ????
is this the norm are there alot of people in the bay living like this ????
Not sure what your interest rate is, and if property taxes are included in your $5,345 calculation. It seems that it does and the rate is about 3.75%. If so, then this is only 32% of your gross income. You say you have no other debt, so then your total DTI ratio is 32%. Back in 2005, lenders were lending up to 48% total DTI. There were also stated income loans where they inflated salaries to get to this 48% DTI. Furthermore, people could only qualify with a 1 year ARM, negative amortization and 5/1, 7/1 10/1 ARMs.
So, no I am not shocked at all you were approved. I'm surprised they couldn't approve you higher, but the only 10% down may have something to do with that. The fact that you were only approved with a total DTI at 32% still shows lenders are really strict. I know, I refinanced in February, and it was more stringent than 1996 at the bottom of the prior cycle.
The cycle will start again when you see interest rates increasing and lenders loosening standards, then a couple years after that prices will probably start their decline again. We are about 4-5 years into this recovery, so in my opinion we still have a couple more years before a decline starts barring any major event.
I'm sure there are many in the Bay area living like this, but then many aren't. I know you come from Houston, so DTI are likely a little higher here than there. I don't know, when we were living in TX in 2011, our real estate agent said many people barely got by and make really small downpayments, so I didn't really encounter the fact that TX lenders are more strict like so many tend to say. We bought and also refinanced in TX and the same DTI ratios applied there that do in CA. Of course, maybe getting a super conforming or jumbo loan is more difficult in TX since only the true highly affluent areas (River Oaks, Memorial, Highland Park, etc) have many $1M homes.
I wrote this was with 10% down, included details of mortgage
Sorry, missed that.
The mortgage doesn't seem totally "bubble"-like (as in the loans that were being handed out in 2005-2007). It's still below 1/3 of your take home pay, right?
I guess that's the upper end of what you could afford, but it's still in the "acceptable" range of affordability that most people would agree upon (<= 1/3 of your take home pay).
Not sure what your interest rate is, and if property taxes are included in your $5,345 calculation. It seems that it does and the rate is about 3.75%. If so, then this is only 32% of your gross income. You say you have no other debt, so then your total DTI ratio is 32%. Back in 2005, lenders were lending up to 48% total DTI. There were also stated income loans where they inflated salaries to get to this 48% DTI. Furthermore, people could only qualify with a 1 year ARM, negative amortization and 5/1, 7/1 10/1 ARMs.
So, no I am not shocked at all you were approved. I'm surprised they couldn't approve you higher, but the only 10% down may have something to do with that. The fact that you were only approved with a total DTI at 32% still shows lenders are really strict. I know, I refinanced in February, and it was more stringent than 1996 at the bottom of the prior cycle.
The cycle will start again when you see interest rates increasing and lenders loosening standards, then a couple years after that prices will probably start their decline again. We are about 4-5 years into this recovery, so in my opinion we still have a couple more years before a decline starts barring any major event.
I'm sure there are many in the Bay area living like this, but then many aren't. I know you come from Houston, so DTI are likely a little higher here than there. I don't know, when we were living in TX in 2011, our real estate agent said many people barely got by and make really small downpayments, so I didn't really encounter the fact that TX lenders are more strict like so many tend to say. We bought and also refinanced in TX and the same DTI ratios applied there that do in CA. Of course, maybe getting a super conforming or jumbo loan is more difficult in TX since only the true highly affluent areas (River Oaks, Memorial, Highland Park, etc) have many $1M homes.
thanks alot for your info, actually it was a lender on site that gave us the projections for a home there we were kinda interested in after gathering our information. He said we would have no problem for the plan we checked out that day for that price, however there were plans lower and some higher. So we maybe could've been approved for more
He did mention one thing in regards to my wife only being a nurse for 1 year and 10 months, but her career was in medical research before, so he said it should be fine because its still the medical field.
He said they require you to at least be in the same career field more than 2 years. So I guess it is strict. We were unaware of that, lenders didn't tell us that in Houston.
It was a grand opening for a new town home community. Maybe the mortgage was higher because the HOA was $160 a think.
It was just an eye opener to see, so I can see why people can afford to live year. Were projecting bringing home 14K next year. I dont think were going to go back to Houston if that happens. My wife just needs to switch hospitals she settled on pay because the higher paying ones required 2 years experience and needed a job fast. Me, its a little more complicated, I have have to actually get a promotion to an administrator job but it seems doable if not next year soon.
In houston property taxes are alot more so the same $950k home would've been $7,000-8,000 there easy & our take home would be half of what it is now. We would be looking more in the $250-350 range which we were at first in houston, $2500 mortgage max. So this was crazy to see an a EYE opener, guess I cant always worry about the price.
its cooling but its not what some people think is going to happen.
i know a lot of people thinking detached single family ranch style 2story 2500 sq ft homes that are no older than 2000 built will all of a sudden go from their usual asking price of 800-1mil down to 2-300K lol
as i keep telling them, if things cool off and prices dip, it wont be drastic. maybe that 800K home will go down to 700K but even then most wont be able to afford it. but those who can i guess will find it as a "good deal" all of a sudden. but its still ridiculous.
the only thing that becomes realistic is that 500K fixer upper 800 sq in the ghetto becomes more realistic at 400K hahah
Me and my wife just moved to the bay few months ago, bring home $190-200k and got approved for a $950k new town home, idk how it was very shocking
our projections is for our salary to rise to 50-60k next year, however we still wouldn't spend that much right now.
currently we Bring home close to $10k, the mortgage was $5,345 with 10% down, PMI and HOA FEES included... we don't have any car notes or large student loan payments so maybe that helped.
But still it was crazy to see we got approved
everyone says that prices wont drop & it will never be a recession because its WAYYYYYYYY harder to get a loan now vs years in the past. Is that staemtn really true seeing we got approved for basically a million home with only making 200K ????
is this the norm are there alot of people in the bay living like this ????
950K for a new TOWN HOME, that is sickening. as someone like you from tx, dont you feel disgusted like someone bent you over and your taking it. knowing that kind of money gets you a damn mansion in TX. or 2 or 3 beautiful single family detached homes.
does that estimate include property taxes? you didnt mention it so ill assume no. so thats another 10,000 to look forward to paying each year. your take home is $10K , after that mortgage and whatever you need to save monthly for the property tax, and your needs to live --utilities, food, cellphone, etc. i guess your still "ok" but isnt it risky. if one of you were to lose your job you would be in deep trouble because it seems pretty close to living paycheck to paycheck if you add all your monthly expenses unless you really plan to live frugal, and you dont own a smart phone which usually cost $100-200 for 2 lines a month for data,and you aren't going to get internet/cable that is another $1-200 a month. and not planning to own any new cars or have any fun etc. it seems tight.
also when you say approved--was it just the casual sit down with the sales person in the community and they ran the numbers with you? they tend to always be more lenient in those casual approvals. they want your money to reserve the lot/home. but once you get down to actually applying for the mortgage it might be different, but if you actually did get approve for that.. congrats, but imo risky. i like to have some leeway, and be comfortable and not get the maximum home just because you get approved for it. good luck either way on your decision. i still find that crazy. and yes its the norm. make $200K and live in a townhome.
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