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A great exercise is to compare the median family incomes in a town to the median home value, particularly in a place with a distorted housing market like Fairfield County. Many show nearly a 10:1 ratio of home value to gross income.
People are just astonishingly leveraged. Sure, there's some distortion because there are wealthy retirees with relatively low incomes, people who have inherited wealth that's not necessarily reflected as income, people who moved to town decades ago when it was less expensive, etc. But let's cut that figure in half, as an exercise. Having a 5:1 housing debt : gross income ratio (which is not considered remarkable by any means) would have been absolutely inconceivable just 50 years ago.
It seems pretty clear that widely-available, insane mortgages are driving housing prices. E.g.: Pass a law eliminating the ability to get a mortgage for more than $100k. The number of houses asking >$1mm would be, at the very, very least, cut down by 70%. Most home buyers, particularly families, don't have anywhere near that kind of liquidity, even people making a substantial income.
And of course the two-parent working families thing is, in many ways, counterproductive. When people have more income and can afford to pay more, prices go up so it ends up as, on the whole, largely a wash. Except for people who don't want to delegate their child-care to strangers or who don't want two incomes for other reasons, who are pinched.
The whole thing is depressing.
You're assuming that everyone buying a house is only putting down 20%. The reality is in a lot of these towns people are putting down more than that. Some are paying cash. Income does not equal wealth.
The real question is what are people's monthly mortgage payments as a percentage of their income. If its 20 to 30%, that seems pretty reasonable. If its 40 to 50%, there might be a problem.
You're assuming that everyone buying a house is only putting down 20%. The reality is in a lot of these towns people are putting down more than that. Some are paying cash. Income does not equal wealth.
The real question is what are people's monthly mortgage payments as a percentage of their income. If its 20 to 30%, that seems pretty reasonable. If its 40 to 50%, there might be a problem.
I'm not making that assumption. I stated in my post that I was assuming that even 50% of people in those towns have no mortgage at all or aren't leveraged for a variety of reasons. Still, these are suburban, commuter towns. Most have a plurality of households with children under 18 at home. Many/most people live there because of the towns' proximity to New York or Stamford, and it's therefore fair to assume they work for a living.
Still, I agree that the best metric is income: mortgage ratios. Citi-data actually has some such data, but it's a little dated. However, in 2009 (when the market was much softer than it is now) the average mortgage amount for people getting mortgages was over $800,000 in Darien and over $950k in New Canaan. Both towns have about 4 mortgaged homes for every 1 home without a mortgage. So I think it's safe to say that there's no reason to believe that there is an extraordinary number of landed gentry without mortgages and with little income skewing the data.
My larger point is that home mortgage availability drives prices up for everyone, causing everyone, even the relatively wealthy, to be leveraged. I think that's generally not a good thing.
Yep, and an $850k mortgage is doable for a married couple where each makes in the low-mid $100k's, which is not a very high salary for a professional NYC career. Not to mention those that make way more in finance.
And on top of that, with the low taxes in those towns, things become even more affordable.
Most people that buy homes are just stretching to do so.. Partly proximity, partly status, partly being afraid to not send your kids to the 'best' schools.
I'm not making that assumption. I stated in my post that I was assuming that even 50% of people in those towns have no mortgage at all or aren't leveraged for a variety of reasons. Still, these are suburban, commuter towns. Most have a plurality of households with children under 18 at home. Many/most people live there because of the towns' proximity to New York or Stamford, and it's therefore fair to assume they work for a living.
Still, I agree that the best metric is income: mortgage ratios. Citi-data actually has some such data, but it's a little dated. However, in 2009 (when the market was much softer than it is now) the average mortgage amount for people getting mortgages was over $800,000 in Darien and over $950k in New Canaan. Both towns have about 4 mortgaged homes for every 1 home without a mortgage. So I think it's safe to say that there's no reason to believe that there is an extraordinary number of landed gentry without mortgages and with little income skewing the data.
My larger point is that home mortgage availability drives prices up for everyone, causing everyone, even the relatively wealthy, to be leveraged. I think that's generally not a good thing.
Income to mortgage ratios completely ignore that turnover in most towns is low and most folks are living in home purchased for a ratio that at the yime of purchase was 3 or 4 times to one. The average price paid by a currwnt resident is much less than current transactions. Not much exuberance if you peel back the onion. This is how ratios ought to be calculated- over a long period of time.
Income to mortgage ratios completely ignore that turnover in most towns is low and most folks are living in home purchased for a ratio that at the yime of purchase was 3 or 4 times to one. The average price paid by a currwnt resident is much less than current transactions. Not much exuberance if you peel back the onion. This is how ratios ought to be calculated- over a long period of time.
I agree that is how ratios should be calculated. I'm not trying to say that the data I referred to is conclusive, because it clearly isn't. The data shows that in a given year, the vast majority of people in these very wealthy towns had mortgages, and that new mortgages taken out in that year are pretty significant (at least 80% of purchase price). Nothing more, nothing less.
I'm really just trying to point out how factors like the availability of credit and two-income households, which seem like a great thing, are often in theory self-defeating. What's the point of easily-available credit when it drives home prices up? Or the preponderance of two-income households, which does the same?
I agree that is how ratios should be calculated. I'm not trying to say that the data I referred to is conclusive, because it clearly isn't. The data shows that in a given year, the vast majority of people in these very wealthy towns had mortgages, and that new mortgages taken out in that year are pretty significant (at least 80% of purchase price). Nothing more, nothing less.
I'm really just trying to point out how factors like the availability of credit and two-income households, which seem like a great thing, are often in theory self-defeating. What's the point of easily-available credit when it drives home prices up? Or the preponderance of two-income households, which does the same?
But credit has not been easy to get post-2008. Borrowers have to have at least 20% down and stellar credit scores to qualify for a mortgage. On jumbo mortgages, the bank may ask you to post more than 20%. The real culprit is low interest rates, which have allowed buyers to purchase more home for their dollar.
But credit has not been easy to get post-2008. Borrowers have to have at least 20% down and stellar credit scores to qualify for a mortgage. On jumbo mortgages, the bank may ask you to post more than 20%. The real culprit is low interest rates, which have allowed buyers to purchase more home for their dollar.
The figures I posted were for 2009, so it wasn't well after the height of crazy-easy-money mortgages, during a time when credit was actually a lot tighter then than it is now and the housing market was relatively soft, so prices were lower.
Unfortunately, having excellent credit and 20%+ to put down is far from required to get a mortgage with a decent rate, even on relatively high-end homes, in 2014. I was under the impression, as you are, that credit tightening post-crisis was here to stay, before I talked to people working in real estate--it's not. Low rates are just one culprit of many.
Million dollar homes make up less than 2 percent of the market in 44 of the nation’s 100 largest metropolitan areas, according to a new analysis released last month by Trulia. But here in Fairfield County, Connecticut, the rate is 15 times higher, making the area one of Trulia’s top million-dollar metros in the area.
In total, 29.7 percent of Fairfield County listings on the real estate website are priced at or above $1 million, the analysis states. That really sets the market apart from the rest of the nation.
Baloney. With Norwalk, Stamford, Bridgeport, Fairfield, the modest parts of Greenwich, Stratford, Shelton, Trumball, New Fairfield, etc., how is it possible that 29.7% of the listings are over $1,000,000?
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