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What's new is that all the places in the country are getting "hot" at once. I mean, prices in every "metro" area one would even remotely want to live are going absolutely nuts and sprinting ahead of incomes like at no other time. Hence my example of Springfield IL. Good luck and "have fun" buying a home there too.... not just Raleigh. Again, form previous post, only 20 homes for sale 300k-600 in a city of 120K; Not a typo....20.... Zillow it...... insane!!!!!!
Places like Lamar, CO might be an exception; but, as I alluded to in a previous post, it is an exception for a reason.
Everywhere I want to live is skyrocketing.
I'm not sure why, but Redfin emails me listings of properties in Camden, NJ all the time. It's still affordable in Camden.
Price/Income is 99% meaningless, because it's completely interest-rate dependent. I don't know the interest rates in the 1960's, but from 1971 to 1993 they were ~7-3/4% or above. They were never much below 6% until 2008/2009, but of course have never been above 5% since late 2009. We are in BIG trouble economically if we're above 5% in the next 2 years.
The meaningful ratio to look at is exactly how the Banks have - generally, shy the loose lending of 06-08 -
*DTI of 28% for housing costs. (and 36%-ish max for all debts)
*for economics/forecasting - how does the median income compare to the median home price that's listed for sale or sold that year.
Since at least 1989 when I graduated and started working for a Bank, the 28/36 ratio has applied. If that didn't "work", then surely by now the Banks would have adjusted. We've had employer health coverage, 401K's as primary retirement vehicle. The inability of a small but very vocal % of college grads to obtain jobs that can amortize their student debt is new, but the last average posted was average $30K in debt at graduation. And you only *need* annual income of $50K (below the average college starting salary) to amortize $30K of student debt over 10 years @ 6%.
You may want to call Stanford, a top 3 college in the country for Economics, and tell them their write up was “99% meaningless” LOL.
Why you focused on a metric that banks use to determine lending amounts at an individual basis, when I was talking about the economic sustainability of a metro area based on the affordability of homes…… is beyond me.
ETA - And yes, I fully realize Banks continue to use the 28/36 DTI figure. And ole Master Dave Ramsey has his own figure (I believe its 25% of monthly net). But, like I said to m378 in the COVID thread, we are talking two different things here my man. You're talking what a person can afford (based on the need for financing) when all of their debts and income are taken into account. I am talking about an area in a macro sense; does the median home price in an area represent a figure sustainable by the median income in the area. Put simply, if I pay cash for a house, your number is completely meaningless, since I need no financing. But that doesn't change the Price to Income metric.
Median income: Raleigh $67,300; Cary $105,000; Wake $80,600; Durham city $58,900; Chapel Hill $73,600
since the median income is relatively static - this, it isn't updated even annually (above uses 2019 info) - I'm going to use the mid-point of median home sale price in 2021 (annual basis as of June 21):
Median Home Price: Raleigh $330,000; Cary $467K; Wake $360,000; Durham $308,000; CH $465,000
Those incomes estimate a Mortgage of: Raleigh $280K; Cary $436K; Wake $335K; Durham $245K; CH $306K
Down Pymt for Median: Raleigh 15%; Cary 7%; Wake 7%; Durham 20%; CH 34%
Chapel Hill is clearly unaffordable, Durham probably is, and Raleigh is getting there.
You could also look at the % of housing units that are owner-occupied, though with 20K students Chapel Hill's is skewed (and no, I'd say ~8,000 Dukies don't skew Durham).
Cary is 68%; Wake 64%; Raleigh 51.5%; CH 50.3%; Durham 50.2%.
You may want to call Stanford, a top 3 college in the country for Economics, and tell them their write up was “99% meaningless” LOL.
Why you focused on a metric that banks use to determine lending amounts at an individual basis, when I was talking about the economic sustainability of a metro area based on the affordability of homes…… is beyond me.
if you'd be so kind to post a link. What I inferred was the old "spend 3x your income on a house" as the rule of thumb, which is wrong. And if Stanford economists are still saying that, then they're wrong in 2022 as well.
Yes this is definitely not helping affordably for hard working essential salt-of-the-earth type folks (teachers, EMTs, nurses, PD, FD, construction, repair). Unfortunately, they are going to be outbid by the foreign investors (any investor really.. doesn't have to be foreign) on that "starter home" and then charged rent = mortgage + mark-up...... when they could of had it just for the mortgage. Meanwhile, as renters, they are not building any equity. This has always been an issue but seems to be accelerating/getting worse in the global economy.
I could easily see cities/states going to a "one residential property per foreign 'entity' " rule. Would have to study what's happened in Canada and compare to the US. Individual subdivisions are already on the "limit on non-owner-occupied owners" bandwagon.
if you'd be so kind to post a link. What I inferred was the old "spend 3x your income on a house" as the rule of thumb, which is wrong. And if Stanford economists are still saying that, then they're wrong in 2022 as well.
Ill see if I can find the link I was speaking to yesterday. The ratio was 2.6. Anything below 2.6 is considered good/sustainable, anything above, represented risk to the area. There are only six metros in the country that fall below 2.6. Meanwhile three metros in CA were above 8, and two above 9. Raleigh metro was at a 3.5 (see my post #63 on page 7)
The write up I saw linked back to data collected/research done by the Stanford Poverty and Inequality Center/Department.
I agree with you. I'm well aware that developers will develop what will make them the most $$$.
Right now, developing plain McApartments and flipping them seems to be the most profitable.
I can anecdotally pinpoint when it started in the Triangle. Kane was going to develop what is now the Alexan in North Hills. It was going to be condos over that retail. They had reservations for well over 100% of the units at a rough price range ($200-250K) before they broke ground. This was ~ 2002. Shortly before contracts were going to be written, he canceled them all and developed the apartment building. Then he sold that for ~ $190MM < 2 years after finishing. He could sell to 1 Buyer, or he could sell to 200 buyers.
From ~2007 on, Banks cracked down on FHA/FNMA (?) rule where a new condo project had to be 50% occupied before a < 20% down loan would be issued. That effectively killed the new condo market, along with the recession, since only folks who could put 20% could get a mortgage.
And so, we already needed more housing, and folks were still moving here. The need for new units didn't really stop - just the method of financing the construction and post-completion. And the ownership of the finished product.
I will agree that it seems to be happening in a lot of places at once. Where we may (?) diverge in opinion is not all areas are created equally with this type of growth. Similar to what we saw in 2008/09, there are places that can boom and then go bust and there are places that can boom, but there is some level of "bust proofness" to them.
If you look at the foreclosure data from the Great Recession, that is what I am talking about. Vegas went boom and then turned into a foreclosure wasteland. We rented a 7 Bed/5 Bath "MTV Cribs House" in a gated community when we got married there in 2011. The house was sold to the investors who rented it for $275K. The previous owners were in for $550K. Where we were at the time, Boston to Providence corridor, things largely kept chugging along. Yes, the boom wasn't as high there, but neither was the bust.
that is the concern. I mean, you could have looked at Vegas demographics at the time and known their median income wasn't sustaining the housing boom. There are exceptionally few markets where I'd say consistent 15+% can be done - and it's all tech (San Fran/Silicon Valley, Seattle, now Austin) or high $ white collar jobs (adds NYC and DC).
Sub-$300K in Cary went down < 5% in the Recession.
that is the concern. I mean, you could have looked at Vegas demographics at the time and known their median income wasn't sustaining the housing boom. There are exceptionally few markets where I'd say consistent 15+% can be done - and it's all tech (San Fran/Silicon Valley, Seattle, now Austin) or high $ white collar jobs (adds NYC and DC).
Sub-$300K in Cary went down < 5% in the Recession.
RE Agents in MA (assuming you aren't in a run down town) will scream from the roof tops if you don't get 7% a year you're a moron, which seems directionally in line with your point, 15% is a massive gain only seen in the upper crust of metros.
Further anecdotal "proof" to your point, my new employer has geo based pay bands.
Band 1 - CA (whether you are in Silicon Valley or not, which would be nice for folks there if they move to the hinterlands of the Central Valley/Inland Empire)
Band 2 - Seattle/NY
Band 3 - Everyone else
Band 4 - UT and MN
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What I inferred was the old "spend 3x your income on a house" as the rule of thumb, which is wrong. And if Stanford economists are still saying that, then they're wrong in 2022 as well.
