The California Association of Realtors reports today that the minimum income needed to buy an Orange County starter home last summer fell to $85,800.
A year earlier, the minimum income to buy starter home here was over $120,000 a year, and the minimum income was nearly $170,000 in the fall of 2005, just before the housing slump got rolling. The last time affordability here was this high was in the first quarter of 2003, CAR figures show.
CAR’s first-time homebuyer housing affordability index melds home costs, incomes and prevailing interest rates. And there’s an easy answer to “Why the change?” The estimated price of an Orange County starter home this summer was just under $440,000, CAR reports. The typical starter home cost $604,000 in the summer of 2005.
Falling prices have put starter homes within reach of a higher number of Orange County families. CAR estimated that 43% of the households in Orange County could afford starter homes here in the third quarter this year, vs. 23% in Q3 2007. (The median household income in Orange County was just under $73,300 in 2007.)
More than half of households statewide can afford the typical California starter home, CAR reported.
Fifty-three percent of households could afford a starter home in the state based on a typical entry-level price of $287,760, CAR reports. The typical entry-level price of a California condo was $260,070, CAR reported. Fifty-seven percent of households could afford that.
Other recent homebuying trends …
- Fire’s property damage surpasses $142 million
- ‘Housewives of O.C.’ star’s Ladera home up for sale
- Bankruptcy sought for ocean-view homes in San Clemente
- Crystal Cove homesellers stubborn on pricing
- Slice of Nixon’s Western White House? Only $15 million
- Higher-priced O.C. homesellers continue to discount
- O.C. brokers bet $2 million on luxury-home office
- 39% of O.C. home sales are foreclosures
- Econo-clash: When stocks hit 5-year low, do you cry?
My question to those who are older than me or study this stuff more:
What is the difference between a ’starter home’ and a ‘median home’? For example, here’s the median income vs median home price for OC since 1980: http://spreadsheets.google.com/pub?key=pGy0BQU1PZ9And2KJvInRJg (thanks to Provider for this)
Lets say the median income for OC is now ~75k. According to the panel on the right, median price is 440k. This gives us a multiplier of 5.86 - still WELL above the historical norm of 4.6-4.7. In fact, still higher than the highest point in the last boom.
THe biggest problem here is many will agree that the lower priced homes have been selling, thus pulling down the median. This means our ‘multiple’ is even higher than ~5.9!
85K is not enough to be able to purchase a 440K home. Even if you take into account that someone has 20% to put down that puts that loan at 350K. AT 6% this loan will cost 2K a month. Someone who makes 85K would be paying 30% of their pre-tax income for the loan alone. You through in property tax (400 a month), insurance ($100 a month) or possibly HOA 300 a month. So that bumps you up to 38% of your pretax income. Tax home pay for someone making 85K would be roughly 5K a month….I know this because I make just a little bit more than this. This payment would equal more than 50% of their take home pay….not to mention other associated costs.
Also, in this economy, I doubt that most starter families have 88K sitting in the bank for a down payment. So again another incorrect statement made by CAR.
Now if you use the figures at the bottom…287K, well that makes sense.
I’d like to know where these “starter” homes are.
There’s quite a disparity between Santa Ana and Laguna Beach.
I would think of a starter home as a small two bedroom house or more likely a condo.
I would say that the CAR is desperate to get people to buy homes. Anyone that buys a home now is making the biggest financial mistake of their life time. The correction in home prices is just getting started, and prices will fall another 30 - 50 %.
Now is not the time to buy. The time to buy will be in 2012 when prices have fully corrected.
TO DAFOX MORE LIKE MULLIGANHEAD
ANYONE WHO GIVES CREDIT TO PROVIDER IS A GOOFBALL THEMSELVES
I ran the ratios and allowed a 38% FRONT end. That allows a $370,000 loan. And like Samson says, who has $80,000 for the down? CAR is just shameless in its spin.
hwood:
Even a blind dog finds a bone sometimes. I miss Provider.
Free Janet!
Even the median income of $73,300 reported in this article is way off by now. It’s old 2007 data that includes all the capital gains people were making from the stock market and high paying jobs that have been lost from Orange County. The real median income is probably closer to $60,000. Homes still have a long way to fall in price before they are affordable.
anyone watching the dow?
$275,000 for a beaten down REO in Anaheim, hmmm, this is a “starter” home? It’s going to require at least $10,000 in repairs to make it livable. Sorry folks, still too high for a “starter” home. As a comparison, a near new condo in Garden Grove, 1100s.f., 2br/2ba, goes for $350K. That’s a starter home, but the price is hardly “starter”. Secured parking underground, full central air/heating, a decent place for a young family. My sister rents there for $1800 a month and it’s a sweet little pad.
Why would she be crazy enough to pay $1800 to “own” a dump near the freeway in a bad part of town? It’s hilarious.
Well … it looks like the S&P 500 is gonna close at a 11 1/2 year low today. And the reason is Ponzi Scheme mortgages.
Oh, but don’t worry homeowners … Wall Street is gonna start securitizing funny money again … therefore, home prices are near a “bottom”.
8)
BTW, Morons have ruined the America Economy, and possibly jeopardized our way of life!
Starter homes require 85,000?
This is encouraging.
One more point … we have now lost a generation of investors. They ain’t coming back.
Lee,
Although the housing ponzi scheme got the ball rolling, now the markets are searching for their real value……the stock speculators that drove prices up way past their fundamental values, starting in about 1995 are now going to feel real financial pain. Owning stocks for the past 10 years had nothing to do with investing, only to do with speculation.
Ask the average person why a stock or a home has value and they have no clue, they’ve been told, and believe that these assets are great “investments”. Trouble is that the people spewing the “investment” message are pocketing the transaction costs.
The CAR / NAR should stop spending money on advertising and buy up all these bargain homes!
The Dow is down 444 points today.
Downey Savings is getting closer and closer to 0
It closed today at 19 cents/share
I can only imagine what consumer confidence is going to be when people get their 401K statements in January and realized that they just lost 25% in this last quarter. Ouch!!!
Add that the fact that the jumbo conforming limits will go down starting January 1 from the current 729K to 625K. This will be the final nail in the coffin for the OC housing market.
Even “Mr housing cheerleader” Steve Thomas admitted on his latest post that the drop in jumbo loan limits will hurt properties priced at 650K or more.
Fasten your seatbelts folks. The Great Depression of 2009 is about to start.
i said this a while back….
save your credit cards, do not shred them…. they will be a historic collectors item….
we’ll be telling our grand kids….. you would not believe it…. they used to let people buy stuff with just a piece of plastic….
The Dow is down 444 points today.
Downey Savings is getting closer and closer to 0
It closed today at 19 cents/share
I can only imagine what consumer confidence is going to be when people get their 401K statements in January and realized that they just lost 25% in this last quarter. OMG.
Add that the fact that the jumbo conforming limits will go down starting January 1 from the current 729K to 625K. This will be the final nail in the coffin for the OC housing market.
Even “Mr housing cheerleader” Steve Thomas admitted on his latest post that the drop in jumbo loan limits will hurt properties priced at 650K or more.
Fasten your seatbelts folks. The Great Depression of 2009 is about to start.
does anyone else notice the bounce in nat bubble’s step today?
he is in an especially chipper mood
well, what’s not to like?
We (as a country) are finally coming back to reality and I’ve been predicting this for the past 3 years. People like me and many others in this blog how have lived within our means have nothing to fear.
mav Says:
November 20th, 2008 at 1:41 pm
The CAR / NAR should stop spending money on advertising and buy up all these bargain homes!
LOL!!!
what a minute- with the stock market AND housing prices
crashing- how are the federal state county and city guvments
gonna pay all their retired workers those golden parachute
pensions that they promised? I’ll tell you they aint- all those
pie in the sky promises are being dashed on the cold hard
rocks of reality– cuz wez be broke cuz wez done lived beyond
our means on borrowed money for too long and them thar
chickens be comin home to roost right now…… where is ezmoney
ken gary the economist watts pat real data stratagies veling and the rest of those nitwits that couldnt see the obvious?
hiding like the little biatches they are thats where…
http://calculatedrisk.blogspot.com/2008/11/graph-worst-crash-since-great.html
I’ve got a question for you all.
If I’m a renter, feel pretty secure in mine and my husband’s jobs, have no credit card debt, live within our means and have a nice little savings, what can be some of the problems/issues that we can come across if we go into the 2009 Depression?
Your thoughts and ideas???
Sorry not “if” but when we go into the 2009 Depression
tad:
you will be able to own american slaves again.
they are down, i would make sure everything is in cash or t-bills, obviously at the FDIC limits at the various banks
things are not going to be THAT bad, IMHO….. you don’t need a gun or anything crazy like that…. but cash is and will be king…… deflation is a tough force to reckon with and cash is where you want to be….. in general life will be slower, which is not necessarily a bad thing IMO…
don’t buy a home until at least 2012…. by that point if you still have a good paying job you’ll likely be able to buy the home you want with 100% cash….
disclaimer: i could be wrong and rants portfolio of food, supplies, gold, and ammo could be the right way to go…..
TAD,
Keep on renting and save up LOTS of cash as well as get as HIGH of an available credit line in all you credit cards. The reason is that you have that rare opportunity, once in a generation, to buy things at a huge discount IF YOU HAVE THE MONEY. When the opportunity comes, seize it because it’s a rare one.
A lot of us throw around the term “Ponzi scheme” . . . but I haven’t really pondered it much. Of course the housing fiasco doesn’t completely follow the form of a pure Ponzi scheme, but it sure comes close when you consider everything: the motivations, the unaccountability, the ignorance, and the structure.
It seems so obvious, that when looking for guilt amongst Ponzi scheme participants: the blame typically goes “to everyone who participated”. That’s fair isn’t it? That’s the classic way of looking at a failed Ponzi scheme, isn’t it? Everyone who was foolish enough to think that you can get ‘something for nothing’, and that they are ‘smarter than the average bloke’ . . . , “you’ll win as big as I have if you get in now” . .. whatever their failed reason was.
However, with THIS particular Ponzi scheme, there seems to be distinctions of blame depending; on who they were and where on the pyramid they stood. For instance; the low-tier Ponzi buyers who said: “Imagine that; we didn’t qualify in the recent past for a house in even half this price range, but now we do … ”. These Ponzi scheme participants seem to believe more and more that they were victims … innocent victims that deserve reparations in the form of tax-payer derived loan support.
Other more passive Ponzi scheme participants (consisting of more established home owners who thought their homes increased valuations could be treated like captured income . . . who then spent it) feel they are victims as well. Both presidential candidates played on apparent expectations from this broad group of folks, promising legislation to ‘support prices’ … and programs which ‘keep foreclosures on your street from affecting your home values’. I couldn’t believe my ears when even McC said this!
When a Ponzi scheme crumbles, there are very, very few ‘winners’ and huge numbers of losers. (Most of us here know that even us spectators will take a big hit).
How about if we support getting back to basics: WHOEVER participated: guilty.
The Federal Government seems to be increasingly trying to get into the business of rewarding foolishness. They continue to talk about going WAY beyond the reasonable expectation that they maintain a “safety net” for the less fortunate . . . they now offer sock garters, belts, suspenders, bras, neck braces, even those little eye-glass froggie things . . .. for the foolish.
It seems that the village idiot is lost…..anyone seen her?
She feels too humiliated to show herself again. Remember those guys that publicly mocked Peter Schiff? And now they must feel ashamed: http://patrick.net/housing/contrib/schiff.html
because he was right. I think there’s a sense of embarrassment when your foolishness is so apparent.
Mav-
The current rate of population growth is .88% per annum in the US according to wikipedia. At that rate, our population should increase by 9% or around 27 million folks over the next 10 years according to my calculations. How do you think this will affect housing, and in turn the deflationary death spiral?
For comparison purposes, Japan had an average population growth of .32% between 1990-2000. For the lost decade, they would have had 3% population growth for the 10 year period by my calculations. According to this site, their population grew by only 3.3 million from 1990-2000. (Starting in 2004 they began experiencing negative growth.)
What do you think? Do demographic and population trends influence inflation/deflation?
Sorry here’s the site I referred to for Japanese population:
http://www.stat.go.jp/english/data/handbook/c02cont.htm
Table 2.2 is what I looked at.
Per the Webster Dictionary:
Ponzi Scheme ~ an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks
Per Wikipedia:
Ponzi Scheme ~ A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going.
“The typical entry-level price of a California condo was $260,070, CAR reported. Fifty-seven percent of households could afford that”
A little over half of Californians can afford an entry level condo.
This bubble has a long way to go before it can restore fundamentals.
Well said Bill.
One way to reduce the cost of homes is to limit the Realtor’s percentage to 1% of the selling price, to be split by both realtors.
LL, my perception is that population has absolutely zero impact on deflation / inflation.
Deflaiton / Inflation is mostly based around the money multiplier / credit. The money supply is a small factor versus the money multiplier. What matters is the velocity of the money. It’s similar to a factory…. what makes a factory productive? having manufacturing capacity (the multiplier) or inventory (the money supply)…..
In terms of population growth, ask yourself these questions:
1. is the population growth productive? Who is having babies? Is it mostly the poor and uneducated? Where is the bulk of the population? Is it in the unproductive older and younger segments?
2. How much open land does the US have? Have you ever looked out the window of an airplane as you flew across our country? There is vast open space.
Incomes and Credit drive inflation / deflation.
During periods of credit contraction, unemployment, and lower incomes you will have deflation.
During periods of easy money / easy credit, high employment and inflated incomes you will have inflation……
LL, my perception is that population has absolutely zero impact on deflation / inflation.
In terms of population growth, ask yourself these questions:
1. is the population growth productive? Who is having babies? Is it mostly the poor and uneducated? Where is the bulk of the population? Is it in the unproductive older and younger segments?
2. How much open land does the US have? Have you ever looked out the window of an airplane as you flew across our country? There is vast open space.
Incomes and Credit drive inflation / deflation.
During periods of credit contraction, unemployment, and lower incomes you will have deflation.
During periods of easy money / easy credit, high employment and inflated incomes you will have inflation……
For all this garbage talk, 2700 homes change hands each and every month.
Oil at $48.95. Half the problem is s-o-l-v-e-d.
We are getting a lot closer to a depression than “Brad” (provider) thinks.
Shares of General Motors Corp. plummeted to a low not seen since the days of the Great Depression.
When the Kool Aid wears off and the Obamatrons wake up to realize their hero offers nothing even approximating hope or change is when we will come to the conclusion that we’re in for a painful depression.
5 long years of growth in housing and the stock market have been wiped out.
Brad, how many tanks of gas will to bring back your job, foreclosure and 401k?
You ding dong.
I heard an ‘analyst’ describe the other day that “oil should be expected to spike again . . . a 5th surge” as he called it … but this time would stay high. I had to check the date, to confirm he was talking about the present market. Myself; I don’t see it happening.
Funny how it used to be that a huricane approaching the gulf would seem to sent crude up 15 bucks … then it would stay there a while.
Now, a dozen oil freighters captured by (mostly?) Somali pirates . . . . but oil continues its decline.
“At least 12 ships with about 250 crew members continue to be held by pirates. Those include a Ukrainian freighter, the MV Faina, that was captured while carrying 33 tanks to Mombasa.”
http://www.earthtimes.org/articles/show/242142,us-navy-monitoring-hijacked-oil-tanker-as-it-approaches-somalia.html
We’ll, then the other half well just have to reside in RV or SB counties and rely on the bus or metro to come clean my house in S. OC. BTW, do they allow lawn mowers on the bus? Just trying to say ahead of the curve……………….
LOL… Bill is blaming this problem on Obama? Barack is the problem?
Well… Not right now but, in two years he is. LOL
Bill, take a closer look at your boy “W” if you want to know who was playing the fiddle while our money was burning!
But who’s going to lend the money to buy it????????
Mav,
You are wrong in thinking that population doesnt play a role in inflation/deflation….
Nobody is talking about a problem that is just as large, if not larger than housing, CDO’s, auto’s, banks….
Everybody is forgetting about the baby boomers and their MediCare and Social Security.
Here’s the call….dow will not recover for many years, ie: 1970’s.
Inflation….look up Zimbabwe, hyperinflation is more like it.
Depression is coming very shortly too…I work in the precious metals business…clients of mine…prospective clients, holding onto those losses; because they have to come back….
Population has everything to do with inflation/deflation….what about the surplus of homes we have on the market? Consumer credit falling apart at the seams…what was an A paper borrower no losing their home…we need the next generation to pick up the number of homes that will soon be on the market.
Welfare nation!
Blood in the streets
Wait until the Saudis and other oil producing country’s are done accepting US dollars….the only way oil doesnt spike again is if the dollar is eliminated…
Its coming soon….hope you save enough cash to get gas when you have to fill up to search for a new job!
oil at 48 half the problem solved lloolll
right einstein the price of oil is screaming
deflation as in deflationary depression-
want confirmation were nowhere near a bottom
suzie orman announced she bought stocks today….
when she starts pouting about how crumby stocks
are as an investment fire up your scottrade account
and fire away….
Do you think everyone is only making $85k?
The folks making between $25,000-84,000 are still left out in the cold. (there are a lot of them in O.C.) Teachers, police, firemen, etc. are the bedrock of any economy. Until prices adjust down to accommodate this group of buyers, O.C. will be in trouble.
Starter home for 440,000? WHAT A GREAT DEAL!! WOW!!
Its funny how many throw around the term ponzi scheme when many here had a hand in this ponzi scheme. How Ironic.
“Ex OC Broker Says:
November 21st, 2008 at 5:14 am
The folks making between $25,000-84,000 are still left out in the cold. (there are a lot of them in O.C.) Teachers, police, firemen, etc. are the bedrock of any economy. Until prices adjust down to accommodate this group of buyers, O.C. will be in trouble.”
Is that your definition of “fundamentals”? Thats another term that gets thrown around this blog. Everybody here has a different definition of fundamentals that usually supports their specific situation. Do you really think people making $25K should be homeowners? Come on. On the higher end of your example at $85K, there are plenty of options out there.
The fact is you can’t build a home for a person making under $85,000. It can’t be done. The existing home stock will have to be enough for the next few decades. In the future rentals will rule the day, and small ones at that.
deflation is going to teach you some valuable life lessons brad
I agree; my bet is on deflation.
The various Schiff video quotes regarding the expectation of Dollar inflation versus some other currencies turned out to be true for their time . . . when those videos were recorded.
mav, what’s the big deal about people buying with plastic. Heck, aren’t we already buying things with colored papers? And the government keeps on printing those cute colorful papers for us to play with. 700 billion here, a trillion there… all fun and games.
I think the point that is being made is that it is possible for someone that makes 85K to purchase a home. It just isnt very likely for someone that makes 85K to purchase a 440K home. Someone who makes that much does not have a years salary in the bank.
Most likely someone in that salary range would go with the CAL HFA loan and put 5% down. This of course doesnt include escrow, closing costs etc. So even if they bought a home that was 350K, they would need around 20K and that is a lot of money for someone in that income range.
So I believe that an family or person that makes 85K can probably not afford more than 300-350K.. To afford a 440K you would need to have an income well over 100K.
The unemployment rate is now 8.2% in CA. This only takes into account those that are getting unemployment checks. It doesnt take into account those that have exhausted unemployment or never claimed it.
It doenst take into account the under employed or those that were paid under the table and are now out of work. All of these folks fueled the local economy. As these numbers rise the amount of money being spent will decline. They estimate that 20% of the storefronts will be closed after the holidays.
I myself had to do some shuffling around at work in order to keep my job. These are tough times and they will only get tougher.
I see no signs of housing going up anytime soon. Homes will continue to sell, but prices wont go up….just an economic fact.
HEY SCHOCK THE MONKEY I GUESS U TOOK OUR ADVICE AND TOOK THE PLUNGE THANKS READ THE PASSING OF THE MONKEY
http://www.ocregister.com/articles/woman-road-montoya-2235458-car-jump
i bought a home for 580,000 with 10% down. household income is 100,000…go figure. 55% of our take home income goes to mortgage, property tax, and insurance. The bitch of it, is that our neighbors pay about 1,000-2000 in property tax per year and I pay almost 6,000. I am penalized for being younger and not being able to buy a home until now. I would have liked to buy a house when i was 10 but just wasnt making enough money from my paper route. So now my neighbors have the cash to buy all the big screen tv’s, rv’s, nice cars, and we just barely get by…but we probably have the same income. its ridiculous. There needs to be some serious change to property tax law. Im not paying my fair share…im paying way more. My parents make twice as much as me, have a house worth twice as much as mine, and they pay about 1/5 of what I pay in property tax…what a joke.
“c-dog Says:
November 21st, 2008 at 11:04 am
i bought a home for 580,000 with 10% down. household income is 100,000…go figure. 55% of our take home income goes to mortgage, property tax, and insurance. The bitch of it, is that our neighbors pay about 1,000-2000 in property tax per year and I pay almost 6,000. I am penalized for being younger and not being able to buy a home until now. I would have liked to buy a house when i was 10 but just wasnt making enough money from my paper route. So now my neighbors have the cash to buy all the big screen tv’s, rv’s, nice cars, and we just barely get by…but we probably have the same income. its ridiculous. There needs to be some serious change to property tax law. Im not paying my fair share…im paying way more. My parents make twice as much as me, have a house worth twice as much as mine, and they pay about 1/5 of what I pay in property tax…what a joke.”
Cry me a river. You must be in the 20-25 year old range like one of Lee in Irvine’s aliases.
c-dog, your family was making $100,000 a year. Not bad money … but how in hell did you think you can afford a $580,000 house with a 10% down?
What’s more c-dog, if you bought a couple years ago, $580,000 was probably some piece of crap home in a bad neighborhood huh?
Housing is still not affordable based on their “intrinsic value” - what I mean is this. When a crummy broken home is selling currently for $280,000, who is going to buy it?
You say a person who makes $85,000 has “options” - yes, that crummy $280,000 home. Here is the “intrinsic value” part: any fool knows that this home is NOT worth paying $1800 per month for. So that couple making $85,000 per month would rather pay $1900/month to rent a 1200s.f. apartment in a safe part of town with amenities.
Seriously, $280,000 for a decrepit hovel - that’s outrageous! And for that reason alone, housing prices will continue to fall. Until a person who actually “wants” to live in that home can afford that home, nobody will be paying $280,000 to live there. So who would live there? People who don’t mind living in a dirty crowded noisy street near the freeway. These same people most likely do not make $85,000 a year. See the problem? These buyers make $30,000 per year and would have paid $350,000 no problem with a juicy Alt-A/Subprime loan, but in today’s environment, this entire pool of buyer is gone. Which leaves the people making $85,000 to fill the gap.