Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I don't have an example in Santa Barbara, but I hear the "this is a highly desirable area that always has and always will command higher prices" bit where we are too.
(OC California)
But explain this to me...
5 bedroom/3bath
2841 sq ft
7,000 lot
sold for $380,000 Nov 1998
sold for $1,010,000 Nov 2005
In simplistic terms that's $90,000 appreciation per year, every year, for 7 years.
The $380,000 back in 1998 was no doubt a high price/income ratio.
It's back on the market again and the million+ it's currently listed for makes no sense whatsoever, at least IMO.
What changed to make the property worth that much more $$$$
BTW, a similar house in the same neighborhood is available to rent for $3,100 per month.
Yes, I understand homeowners do not want to see prices go down. But when they were seeing appreciation rates like the ones above... what did they expect? How could those kinds of gains possibly be sustainable?
You can't have this discussion based on anecdotes. You have to run off statistical quantities. I sold a house in OC in 1995 for about $480K. That tract ran up to a million at peak. This does not sound nearly as desirable but with far higher appreciation. Does not compute even in OC where everything is extreme.
The sustained ratios of income to price have nothing to do with particular anecdotes. Likewise the have nothing to do with fairness.
OK, so no specific examples. I could give you more just like the one above btw... and I agree that it does not compute. That's my point.
So back to affordability and statistical quantities:
From 4th annual Demographia International Housing Affordability Survey 2007
Affordability ratings are based on median house prices/median household incomes.
Affordable 3.0 or less
Moderately Unaffordable 3.1 to 4.0
Seiously Unaffordable 4.1 to 5.0
Severely Unaffordable 5.1 & over
On a personal note: I think 2.5 is probably a better multiple to use, especially for those wanting to build wealth via their primary residence and then move up, as has been suggested earlier on this thread.
Remember this is an international study, yet the 5 least affordable markets are in the United States (4 of them in CA)
Los Angeles (which I believe includes OC in this study) is the least affordable market in the six surveyed nations with a median multiple of 11.5, which is approaching four times the historical affordability standard of 3.0
In the US there are
46 Affordable markets
30 Moderately Unaffordable
25 Seriously Unaffordable
28 Severely Unaffordable
Between 1980 and 2000 an average of less than 2 markets in the US were severely unaffordable, although there was a peak between 1989 and 1993 when 3 - 5 were severely unaffordable.
The highest multiples during that period were Honolulu at 7.6 and San Diego at 5.8
By 2006 there were 23 severely unaffordable markets.
I'd say the current affordability crisis (in many locations, not all) is unprecedented.
In Los Angeles, 29% of the median household income was required to pay the median mortgage in 2000. By 2007, that figure had risen to 82%
Another statistic:
According to US Bureau of Census estimates the most expensive housing markets lost nearly 4,000,000 residents to other, less epensive, parts of the nation between 2000 and 2006
Hmmm... supply and demand accounts for the high prices in the expensive areas?
Personally I'm thinking this had a whole lot more to do with the high prices:
"The mortgage crisis in the United States is often referred to as the “sub-prime” crisis. However, there is much more involved in the financial distress than sub-prime loans. The unprecedented liberal loaning practices at the root of the crisis extend far beyond sub-prime borrowers, even to prime borrowers. One report indicates that in California, prime borrowers could finance $1,000,000 homes on $90,000 incomes, which is 11 times income. This is nearly four times the historic norm. In a responsive market a $90,000 income borrower could have qualified under conventional lending practices for a $270,000 house (at a Median Multiple ceiling of 3.0)"
Yep, I had both real estate agents and lenders tell me... this is California, you have to throw conventional lending rules out the window here.
If you happen to be a first time buyer in one of the Severely Unaffordable markets good luck using the work harder, save, buy down, move up suggestions on this thread.
Were you folks buying that first home in an area where the price of a median house was 10 times or more the median salary?
OK, so no specific examples. I could give you more just like the one above btw... and I agree that it does not compute. That's my point.
So back to affordability and statistical quantities:
From 4th annual Demographia International Housing Affordability Survey 2007
Affordability ratings are based on median house prices/median household incomes.
Affordable 3.0 or less
Moderately Unaffordable 3.1 to 4.0
Seiously Unaffordable 4.1 to 5.0
Severely Unaffordable 5.1 & over
On a personal note: I think 2.5 is probably a better multiple to use, especially for those wanting to build wealth via their primary residence and then move up, as has been suggested earlier on this thread.
Remember this is an international study, yet the 5 least affordable markets are in the United States (4 of them in CA)
Los Angeles (which I believe includes OC in this study) is the least affordable market in the six surveyed nations with a median multiple of 11.5, which is approaching four times the historical affordability standard of 3.0
In the US there are
46 Affordable markets
30 Moderately Unaffordable
25 Seriously Unaffordable
28 Severely Unaffordable
Between 1980 and 2000 an average of less than 2 markets in the US were severely unaffordable, although there was a peak between 1989 and 1993 when 3 - 5 were severely unaffordable.
The highest multiples during that period were Honolulu at 7.6 and San Diego at 5.8
By 2006 there were 23 severely unaffordable markets.
I'd say the current affordability crisis (in many locations, not all) is unprecedented.
In Los Angeles, 29% of the median household income was required to pay the median mortgage in 2000. By 2007, that figure had risen to 82%
Another statistic:
According to US Bureau of Census estimates the most expensive housing markets lost nearly 4,000,000 residents to other, less epensive, parts of the nation between 2000 and 2006
Hmmm... supply and demand accounts for the high prices in the expensive areas?
Personally I'm thinking this had a whole lot more to do with the high prices:
"The mortgage crisis in the United States is often referred to as the “sub-prime†crisis. However, there is much more involved in the financial distress than sub-prime loans. The unprecedented liberal loaning practices at the root of the crisis extend far beyond sub-prime borrowers, even to prime borrowers. One report indicates that in California, prime borrowers could finance $1,000,000 homes on $90,000 incomes, which is 11 times income. This is nearly four times the historic norm. In a responsive market a $90,000 income borrower could have qualified under conventional lending practices for a $270,000 house (at a Median Multiple ceiling of 3.0)"
Yep, I had both real estate agents and lenders tell me... this is California, you have to throw conventional lending rules out the window here.
If you happen to be a first time buyer in one of the Severely Unaffordable markets good luck using the work harder, save, buy down, move up suggestions on this thread.
Were you folks buying that first home in an area where the price of a median house was 10 times or more the median salary?
Here's the problem. All those markets you listed are not the same "size". You might have the "amarillo, tx" market that might be affordale, however you could have the "west palm beach" market which is unaffordable w/a much larger population. Could be very deceiving....
Can you give us the population breakdowns so we can judge if this is the case?
I don't think that information is available in the report.
It used to be that these guys only covered the largest markets, the reason they expanded to cover some smaller markets is because they're interested in the effect of households moving from more expensive markets to smaller and less expensive markets, which they say they are seeing more evidence of.
They're all about urban planning by the way.
As of the 3rd quarter of 2007, I happen to live in what they have determined is THE least expensive market in their survey of major urban markets in Australia, Canada, Ireland, New Zealand, United Kingdom, and the United States.
So while I respect the suggestions of Captain Bill, momof2dfw, and others who advocate buying within your means and/or working harder to increase said means... that becomes very difficult, if not impossible, if you happen to live in an area where the median home costs 11 times the median yearly household income.
(at least without using creative CA financing)
Sure I guess all first time homebuyers could pick up and move to a less expensive area, but is that really the answer?
Anyway I'd say there definitely is an affordability problem in many, many markets and no one needs to look back after the fact to see that, as olecapt suggests.
I don't think that information is available in the report.
It used to be that these guys only covered the largest markets, the reason they expanded to cover some smaller markets is because they're interested in the effect of households moving from more expensive markets to smaller and less expensive markets, which they say they are seeing more evidence of.
They're all about urban planning by the way.
As of the 3rd quarter of 2007, I happen to live in what they have determined is THE least expensive market in their survey of major urban markets in Australia, Canada, Ireland, New Zealand, United Kingdom, and the United States.
So while I respect the suggestions of Captain Bill, momof2dfw, and others who advocate buying within your means and/or working harder to increase said means... that becomes very difficult, if not impossible, if you happen to live in an area where the median home costs 11 times the median yearly household income.
(at least without using creative CA financing)
Sure I guess all first time homebuyers could pick up and move to a less expensive area, but is that really the answer?
Anyway I'd say there definitely is an affordability problem in many, many markets and no one needs to look back after the fact to see that, as olecapt suggests.
You misquote olecapt. He merely points out that affordability is used to explain the housing markets. Explainations don't drive markets. It is quite possible for a particular market to sustain in the long term pricing which prices out the median salary. See Santa Barbara, See Malibu, See Key West, See Old Westbury. Some of these have affordable areas not impossibly far away...but some don't. Solutions? Tough. But it does not involve reducing the median home price. In some cases it may involve driving those who make median salaries from the area.
Las Vegas has historically been a low ratio market. It has however pretty much run out of cheap land. At that point one is no longer going to have an affordable median price. Now that does not imply a CA 5 or 6. But it is going to be higher than the Dallas 2. So we shall see. It will be interesting.
You misquote olecapt. He merely points out that affordability is used to explain the housing markets. Explainations don't drive markets.
Capt - you do realize that you are referring to yourself in the third person don't you? Or are you and your good wife using the same computer and forgot to switch handles?
As of the 3rd quarter of 2007, I happen to live in what they have determined is THE least expensive market in their survey of major urban markets in Australia, Canada, Ireland, New Zealand, United Kingdom, and the United States.
I'm not normally in the habit of quoting myself, but talk about a glaring error...
I don't live in the least expensive market
I live in the least affordable market
Capt - you do realize that you are referring to yourself in the third person don't you? Or are you and your good wife using the same computer and forgot to switch handles?
When the literary muse pushes him in that direction olecapt will resort to third person narratives. Exactly why he does so is obscured in mystery and psycho-babble. Let us just say he enjoys that perspective on occasion.
His style is sometimes pompous and overly grand. But he cannot be expected to be perfect.
Calling Dr. Phil, calling Dr. Phil please report to the CD forum stat!
olecapt would point out that that is the "pyscho-babble" piece.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
