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I just did a quick search for my area (I rent in Los Gatos). The median household income for this area (which is pretty affluent) is currently at around $120,000. The median home price however is at around $1,000,000. Nearly ten times actual median income.
Yep, that's the norm - most people I know are leveraged close to 10x their annual income. If they are partnered, it reduces to 5-6 x combined annual income roughly, still too much.
A lot of you guys don't seem to understand that Silicon Valley is not just startups. Even at a "regular" tech company you have RSOs, stock matching 401s and employee stock plans. Separate from my salary, I was averaging 10,000 shares a year at around 2.50 cost basis (for the stock plan--free in the 401) over 5 years. Stock hit $10 last year. That's half a million that I wasn't planning on.
Yeah, but they are outnumbered by those who don't have that extra income and are leveraged 5-10x or more their annual salary. Plus, when market turns options will be mostly worthless for the newcomers (like they were after the dot com bust post-2000) and then they will not be able to afford those house prices.
Sold my condo last year. Bought it 3 years ago to avoid paying rent in SF for $580k. Sold at $850k and moved into my fiance's place.
That was probably smart, even if you didn't time the top exactly. I'd be a seller now.
Yep, that's the norm - most people I know are leveraged close to 10x their annual income. If they are partnered, it reduces to 5-6 x combined annual income roughly, still too much.
That most definitely is NOT the norm. Please tell me where you can get a loan for 10X income.
There's no wrong or right answer. Just be smart for your financial circumstances.
Give me a break and admit luck also.
I refuse to believe that more than 10% of people in the fortress are making half a million annually in stock options that are just an added "bonus" of living there. I refuse to believe that the majority of those who do will continue to do so for years to come.
However, I do find it hilarious that people who get boners on the "half million unplanned" are also paying multiple millions for shacks and traffic :-)
Please tell me where you can get a loan for 10X income.
As long as your credit score is below 600 and you can sign your name on a line. Wait, wrong decade...
Yep, that's the norm - most people I know are leveraged close to 10x their annual income. If they are partnered, it reduces to 5-6 x combined annual income roughly, still too much.
That most definitely is NOT the norm. Please tell me where you can get a loan for 10X income.
Read the second sentence. Depends on the banks, brick and mortar banks currently lend up to 5x annual income again, online lenders are a bit looser. You get easily to 10 x with a "partner" on combined income. Assuming that roughly 50 percent of partnerships (marriages etc.) fail and then add another xx percent where at least one of the two loses their job, and watch out below.
Read the second sentence
I did. You said "if" which implies that some are not partnered. If you are combining your income, then it's not 10X--it's 5X.
In any event--the median income doesn't buy the median house, so the analysis is faulty.
Please tell me where you can get a loan for 10X income.
As long as your credit score is below 600 and you can sign your name on a line. Wait, wrong decade...
LOL. Honestly I don't care at what leverage they want to lend/borrow as long as they don't get bailed out. If I were running a bank though I would only go to 2 x annual income from a single person (nothing of this combined crap), a hefty down payment (nothing of this FHA crap), 25 percent absolute minimum, 30+% percent preferred, plus register additional valuables that can be sold as collateral. Or - as AF would say - it's cash or fuck you, America ;)
Read the second sentence
I did. You said "if" which implies that some are not partnered. If you are combining your income, then it's not 10X--it's 5X.
In any event--the median income doesn't buy the median house, so the analysis is faulty.
You do know that jumbo loans are making a comeback?
http://cal-lending.com/california-home-loans/california-home-loans.html
"Stated Income Jumbo Loans ARE available in 2012. No verification of income required for verifiably self-employed or white-collar W-2 persons. Loan-to-value is less than a full doc loan, and caps at $1.5 million. Excellent credit and asset reserves required."
You do know that jumbo loans are making a comeback?
http://cal-lending.com/california-home-loans/california-home-loans.html
Does anyone have any insight on that Cal-Lending.com site? Their site seems shady to me. Are they just offering these products with super high interest rates? Or maybe just massive PMI premiums for some of them? How do the Cal-Select loans work (for licensed professionals -- CPA, lawyer, doctor, dentist)?
The lenders will find ways to lend, right or wrong their goal is to initiate loans..........Expect the shady practices to continue.
as long as they don't get bailed out. If I were running a bank
And herein lies the problem. As long as they get bailed out a monkey could run them. And they know they will get bailed out.
I would only go to 2 x annual income from a single person (nothing of this combined crap), a hefty down payment (nothing of this FHA crap), 25 percent absolute minimum, 30+% percent preferred, plus register additional valuables that can be sold as collateral. Or - as AF would say - it's cash or fuck you, America ;)
I don't know what annual income limits existed pre-Depression, but home loans were essentially 1 year ARMs. Each year you had to convince the bank to re-lend you the money and if rates went up, well hope you found a second job! Sounds reasonable to me. It would create a more reasonably priced market with responsible owners and it would reduce America's dependence on bullshit interest rate manipulation. So yeah, I'm with you...down with the FHA. Although their new PMI rules are hilarious: if you only have 3.5% down, no problem. Pay ~1.2% of the home value annually for 30 years. It's basically forcing people into a 40% downpayment payable over the life of the loan...haha
I don't know what annual income limits existed pre-Depression, but home loans were essentially 1 year ARMs. Each year you had to convince the bank to re-lend you the money and if rates went up, well hope you found a second job! Sounds reasonable to me. It would create a more reasonably priced market with responsible owners and it would reduce America's dependence on bullshit interest rate manipulation
Not really. It would create a society of renters and bunch of very rich landlords. How would that be better than now? Prices wouldn't go down--there would just be more rental houses and fewer owner occupied.
This should be obvious by looking at what happened over the last 5 years. Hedge funds, all cash investors were prevalent.
Again--how is that better?
I don't know what annual income limits existed pre-Depression, but home loans were essentially 1 year ARMs. Each year you had to convince the bank to re-lend you the money
Not entirely sure where you got this. The typical loans before the Depression were:
1) 5-year balloon, usually around 50% loan to value, maybe 60% max -- this means that the loan was not fully amortized, and had a substantial balloon payment due in 5 years. Often times, people rolled this into another 5-year balloon, which made sense during a bubble, but could be disastrous in a credit crunch.
2) approx. 12-year amortizing loan -- usually this required less down than the 5-year balloon and fully amortized in 11-12 years or so. This was more often offered by savings & loans. This is obviously a much higher payment than the typical 30-year fixed, so when times were tough, people had trouble paying them.
3) a hybrid of the above two -- you would take a balloon for a portion of the loan and amortize the rest. Often people rolled over the balloon for this too or tried to get an amortizing loan for the balloon, which meant it was also disastrous in a credit crunch.
Prices wouldn't go down--there would just be more rental houses and fewer owner occupied.
Of course they would go down - massively. People can only rent for what they can afford RIGHT NOW. No extend and pretend. You cannot find enough wealthy people to charge hefty rents.
This should be obvious by looking at what happened over the last 5 years. Hedge funds, all cash investors were prevalent.
This is only due to cheap money and leverage due to favorable conditions if you have more buying power, the hedge funds will bail as soon as there are no renters, In fact they are bailing already.
Again--how is that better?
In other countries people save from birth on via special vehicles or regular long-term saving accounts so that you can pay down 50% at the minimum or build your own house on a lot with that money. Much better/stable than taking out a mortgage.
This should be obvious by looking at what happened over the last 5 years. Hedge funds, all cash investors were prevalent.
Powered by the government's choice to drop interest rates and make investment in anything other than stocks and RE pointless.
Prices wouldn't go down--there would just be more rental houses and fewer owner occupied.
Then the rentals would cost less. Landlords would not be exchanging property as frequently. Purchase prices would then be lower. It would be utopia. jkjk. It would be different, absolutely. And if it happened today, it would wreak havoc. But I really think we need to move beyond FHA bullshit and go with conventional financing as corn tortilla said...at least 20% down.
LOL. Honestly I don't care at what leverage they want to lend/borrow as long as they don't get bailed out. If I were running a bank though I would only go to 2 x annual income from a single person (nothing of this combined crap), a hefty down payment (nothing of this FHA crap), 25 percent absolute minimum, 30+% percent preferred, plus register additional valuables that can be sold as collateral. Or - as AF would say - it's cash or fuck you, America ;)
You do understand that nobody will come to your bank, pretty soon your bank will fold and use the taxpayer money to bail it out
In 2008 smaller banks and credit unions who did not participate in loose lending practices were ready to take the spot of the TBTFs, but they were denied the change and healthy mobility/rotation was thwarted.
I just did a quick search for my area (I rent in Los Gatos). The median household income for this area (which is pretty affluent) is currently at around $120,000. The median home price however is at around $1,000,000. Nearly ten times actual median income.
I suspect that the median income of buyers is not the same as the overall median income. You can see this effect in the Fortress areas from LG up to Palo Alto and Menlo Park. Older person or couple is in a house that they had bought in the 60s or 70s. In retirement their median income is not so high, pulling down the average. They pass away or move to a retirement home, and sell the house. The people buying the house are one or two-income high-earners.
I can see this on my street - I bought a house like this, and several other neighbors are double-income high-tech workers who bought from older folks. Mix in a bit of magic commie dragon gold (and these people may have zero USA income, pulling down the median) and I can see how this happens. In fact in my immediate neighborhood, 100% of the people that I know that have moved in during the last 5 years are either double-income high-tech or magic commie dragon gold. And the people who have lived there for 15+ years probably couldn't buy their house now on their current income. Anecdotal, yes, but it's something to consider.
magic commie dragon gold
How many actual Chinese nationals are we talking about? How do you know they are not Chinese immigrants who have been here for a while? When I go to open houses in the Bay Area and see people speaking Chinese (as realtors always say), most of them appear to be either people who were born here or immigrants who have been here for more than a few years. I've seen very little evidence of actual Chinese nationals, at least not to the extent claimed by realtors.
SiO2,
Observed similar anecdotes in my neighborhood. In fact, if they come here recently, many got help from parents.
Not entirely sure where you got this. The typical loans before the Depression were:
Are you asking for my source or just quoting the wikipedia page "National Mortgage Crisis of the 1930s?" Seriously.
My source is a peer-reviewed article in the Journal of Economic Perspectives by Richard K. Green and Susan M. Wachter titled, "The American Mortgage in Historical and International Context."
A few quotes from the article:
The US mortgage before the 1930s...feature variable interest rates, high down payments and short maturities. Before the Great Depression, Americans typically renegotiated their loans every year.
...residential mortgages were available only for a short term (typically 5-10 years) and featured "bullet" payments on principle on term. Unless borrowers could find means to refinance these loans when the came due, they would have to pay off the outstanding loan balance.
...very low LTV ratios of 50% or less...did not place substantial stress on lenders, because when borrowers were short of cash their property could be sold if necessary to redeem their loan.
So in the old days, people renegotiated annually and the bank foreclosed if they couldn't pay when the loan matured (or before it matured in the case of a default). Then along came the government. Why? Because in the depression, banks couldn't foreclose without taking a loss. So, after a short restructuring period for loans (HLOC), FHA and Fannie Mae's daddy were born to protect lenders from having any losses on the books.
And here we are today with high prices, bailed out banks, and people mortgaged to their eyeballs in debt, not just in California. All in the name of protecting the consumer. Bullshit.
magic commie dragon gold
How many actual Chinese nationals are we talking about? How do you know they are not Chinese immigrants who have been here for a while? When I go to open houses in the Bay Area and see people speaking Chinese (as realtors always say), most of them appear to be either people who were born here or immigrants who have been here for more than a few years. I've seen very little evidence of actual Chinese nationals, at least not to the extent claimed by realtors.
Hi Controllio,
actually, i was copying a phrase used earlier on patrick.net. I agree with you, the vast majority of foreign-language speakers here have been here for some time and made the money to buy the house here. These are the dual-income high-tech families I mentioned earlier.
I do personally know two families who made enough money in China to buy Fortress houses. It's not common, but it does happen.
Guys like me who put the equivalent of a California trailer in AAPL shares in 2009 are able to buy a house for cash and have lots more left over.
And people say SOcal is full of conceited braggarts.
Social welfare for the rich abounds in post bailout era.
It was best to buy between during 2008 through 2011 especially with the fixed 30 year mortgage rate hovering around 3.5%.
The NY Times rent vs buy calculator is of great value as far as getting a good estimate on the comparison between buying and renting.
Of course they would go down - massively. People can only rent for what they can afford RIGHT NOW. No extend and pretend. You cannot find enough wealthy people to charge hefty rents
Right--they would go down to rental parity. Which in the vast majority of places is about where prices are today.
This is only due to cheap money and leverage due to favorable conditions if you have more buying power, the hedge funds will bail as soon as there are no renters, In fact they are bailing already.
Because we're at rental parity. But, if prices went down again, as you are proposing they would, then the hedge funds would come right back again. They'll go where there is money to be made.
In other countries people save from birth on via special vehicles or regular long-term saving accounts so that you can pay down 50% at the minimum or build your own house on a lot with that money. Much better/stable than taking out a mortgage.
How is that better?? Until banks gave out loans like candy to anyone that signed their name, we never had an issue. If they kept reasonable underwriting standards, then the 20% down system is MUCH preferable to a required 50% down. Why do you want to create an ownership class that preys on the renters?
The only true way to reduce prices is to build more.
I guess a great question to posit at this stage is to ask the question: what will happen when interest rates start to rise?
We are at historic lows for interest rates and while the low rates could persist for some time, I am guessing we will at some point return to more normal levels, which would be interest rates (non jumbo) between 7-8%. That will put downward pressure on prices although a recovering economy could offset that somewhat.
How is that better?? Until banks gave out loans like candy to anyone that signed their name, we never had an issue. If they kept reasonable underwriting standards, then the 20% down system is MUCH preferable to a required 50% down. Why do you want to create an ownership class that preys on the renters?
The only true way to reduce prices is to build more.
No, it's to stop supporting this corrupt sector with floods of cheap credit and buying of MBS. There are countries that are far far more densely populated than the US and you don't see such rollercoaster speculation crap, prices remain fairly stable. The US has enough land and houses for the foreseeable future. What it doesn't have are high enough interest rates.
rollercoaster speculation crap
I have been told that Berkshire Hathaway Home Services, which used to be Prudential has a new business plan.
An army of Real Estate agents is going to go out and look for properties, not for a listing, but to offer to buy the property for cash whereas then the corporation will do repairs and remodel and then flip it for a higher price.
The agent gets 50% of the profit plus the usual commission.
It was best to buy between during 2008 through 2011 especially with the fixed 30 year mortgage rate hovering around 3.5%.
Complete bullshit because...
We are at historic lows for interest rates and while the low rates could persist for some time, I am guessing we will at some point return to more normal levels, which would be interest rates (non jumbo) between 7-8%. That will put downward pressure on prices
How many of your parents who purchased at 10% are still riding out that 10% interest loan? THEY are the ones sitting at 3.5% now.
If you want to start at 3.5%, you have to buy an overpriced abode. You know a home's "value" is in it's monthly payment, right? When interest rates go down, prices go up.
Unfortunately, if the US spikes interest rates, 1) our national debt payments will balloon and our economy will contract, 2) Wall Street will whine like a bunch of fucking babies. So we might be low for the foreseeable future.
But, if prices went down again, as you are proposing they would, then the hedge funds would come right back again. They'll go where there is money to be made.
If prices go down, hedge funds first have to leave; they are the ones who drove it up last year. They are just speculators. Once the appreciation is drained out of this rag, they will be on to the next "big thing"
The home is back in the market much improved and ready to move in
and costing way more than the flipper put into it
What is the point of this posting?
People can read into the posting in any way they choose.
The purpose of a blog, I would think. To get information not readily available elsewhere.
When interest rates go down, prices go up.
I know your statement seems intuitive, but historically there is basically no correlation between interest rates and housing price movement.
If prices go down, hedge funds first have to leave
No--they are making money off the rent. If prices go down, homes become cash flow positive again and hedge funds will buy them up for the rental income.
I have been told that Berkshire Hathaway Home Services, which used to be Prudential has a new business plan.
An army of Real Estate agents is going to go out and look for properties, not for a listing, but to offer to buy the property for cash whereas then the corporation will do repairs and remodel and then flip it for a higher price.
The agent gets 50% of the profit plus the usual commission.
You've been told? And the agent gets 50% of the profit plus the usual commission? Who told you that? Santa Claus?
What it doesn't have are high enough interest rates.
Well, you should be on board with reducing wealth inequality then. That's what will drive up interest rates. Right now, there is literally a sea of cash looking for a place to go because the 1% has more than they know what to do with....
When cash gets back to the folks that spend it, interest rates will go up.
When interest rates go down, prices go up.
I know your statement seems intuitive, but historically there is basically no correlation between interest rates and housing price movement.
Are you being serious? In the short term (YoY) there may be truth to your statement, but in the long term there is a whole lot of truth to mine, at least outside the moat of the fortress. I can give you calculations if you want them.
No--they are making money off the rent. If prices go down, homes become cash flow positive again and hedge funds will buy them up for the rental income.
Landlords are but not flippers. What you said certainly can work, but as SFH rentals increase, I would expect downward pressure on rent prices. But I don't know that we have a precedent for this, so I'm not really sure what to expect.
Who told you that? Santa Claus?
Yes, I have been told. I certainly not divulging personal and private information on a public blog.
Time will tell.
Who told you that? Santa Claus?
Yes, I have been told. I certainly not divulging personal and private information on a public blog.
Time will tell.
Time will tell what? Agents wouldn't get 50% of the profits and their usual commission, would they? That part is obviously nonsense, so...
Time will tell what?
That the posting is based in fact.
Called this person, no answer, sorry!
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