Who can truly afford a home in Irvine?

I

Irvinecommuter

New member
The wife and I were discussing our future plans to purchase a home and began looking around at homes/mortgages.  The more I began to look, the more shocked I was.

Basically one has two options to get a loan these days

1)  FHA, which means a low down payment (3.5%) but a housing payment to income ratio of 29% and DtoI ratio of 41%

2)  Traditional loans which means excellent credit and 20 percent in interest rate and a debt to income ratio of 28/36.

Make the assumption that an average 4 bedroom 2,200 square ft home in Irvine is approximately $750,000, the result would be

1)  FHA:  Down payment of about $25,000 but would require a monthly income of approximately $17,800 or an approximately $215,00 annual income ($4,156 mortgage payments + $1,000 for insurance)  That's assuming that you only have an additional $2,000 of monthly payments (to qualify for the 41% LoI requirements)

2)  Traditional:  Down payment of $150,000 which results in an income requirement of approximately $190,000 (since you're financing less)

I haven't even factored in the HOA fees of $100-500 a month.

So, the question who can really qualify for a loan in Irvine?  The median income for a family in Irvine is about $111K.  So who are the people who will be able to purchase homes in Irvine.  I understand Irvine is desirable and thus the prices are high but how can prices be maintained even at this level?
 
The scenario becomes worse now that the jumbo conforming is dropping to $625k from $729k.

Another question here is that since Irvine prices has been skyrocketing... someone is able to afford the homes and regardless of what some people think... it hasn't been all Ninja loans and zero down financing because down payments have been relatively higher than 20%. That also does not explain that since the disappearance of questionable financing the last few years, people are still buying houses at these still inflated prices.

That's why I think that median income, which is important, is only one piece of this puzzle.
 
According to the last IrvineRealtor's report I saw, downpayments were 40% for SFRs so people are bringing lots of cash.  Where this cash is coming from is the debate and some of that discussion is at:http://www.talkirvine.com/index.php?topic=1865.30

My belief is that its a combination of higher incomes for incoming families than the median captures and a higher savings rate in these new incoming families.  This is based on the demographic shift and increased development of Irvine in the last 10 years.  Also the massive addition of apartment communities and condo developments over last 10 years changes the median as well.

I think prices will continue to fall but I think people with good incomes, think household $150K with a couple $100K in savings will be buying these houses.

 
I think a good question to ask is "who is buying these homes"? Are they first time homebuyers? If so, how old are they? Are they older buyers? There are people with so much money. It can deter first time homebuyers and young buyers who don't have a lot of cash stored up.
 
Debt ratios can be pushed. FHA loans, even with minimum down payment, rise to about 45 / 55%, well above the numbers in the original scenario. FNMA allows DTI's to 50%, but once Desktop Underwriter 8.3 is released in September, you've got to have some pretty extraordinary compensating factors. Remember also that most OC'ers are Dual Income households. Two $75kpy incomes can purchase quite a few Irvine homes.Personally, I'm very much against these ratios allowed to be this high. It might work out well for a few, every rule has it's exception, but the rule itself stands: 55% DTI means you are no longer a free person.

It's either big cash down, or Debt to Income ratio pushes. That's how someone can afford to live not just in Irvine, but the OC as a whole.

My .02c

Soylent Green Is People.
"Remember, Tuesday is Soylent Green Day"
 
Row Labels Average of LIST PRICE Average of LAST SALE PRICE
El Camino Real 605,779.97 590,643.33
Northpark 819,979.90 788,100.00
Northwood 723,151.80 704,488.41
Oak Creek 829,462.50 817,875.00
Portola Springs 624,703.33 622,536.67
University Park 702,550.00 667,500.00
Walnut 634,772.73 611,627.27
West Irvine 727,211.00 713,125.00
Westpark 722,723.08 708,269.23
Woodbridge 774,613.17 757,334.75
Woodbury 777,750.00 786,120.50
Grand Total 706,069.47 688,742.19

Here are the averages for 4 bedroom SFR from Redfin for last 12 months. I excluded QH & Turtles.

To qualify for the loan using 20% down and a DTI of 45% based on 1.5% property tax, 150 HOA, 800 insurance, and P&I, the income assumptions are 91k. At more traditional 28% DTI for housing, the income requirements are 147k.

While these numbers are averages, it doesn't seem impossible that two income earners could make that, even in their 30's.

Also, as per IHO's statement, median is important but so is the distribution of the new buyers (vs existing owners where the vast majority of the actually data will be based off.)

Of course none of this has to nothing to do with what the properties are worth or whether they go up or down, but it doesn't seem like a huge statistical stretch that NEW BUYERS are either stretching to high end of DTI or that there are two income earners to combined make the 150k to purchase the non-existent average home :).


(edit: interesting quark I just noticed. It shows that woodbury average selling was higher than average listing! list pricing strategy? lol)
 
This topic actually reminds me of an article I read in the OCReg on Sunday (yes... the actual paper newspaper):

Latinos, Asians make big gains in housinghttp://www.ocregister.com/news/homeownership-310147-hispanic-county.html

Some quotes:
Angeline Wu of Irvine is emblematic of these new homeowners. Growing up in Hacienda Heights, her parents drilled two things into her head: Always put aside savings for a rainy day. And buy a house.

The first adage came early to Wu, and by the time she got engaged to Michael Ahn, she already had put aside a sizable nest egg. That made the second goal easier.

Next week, the newlyweds will celebrate their first anniversary in the new, two-story home they bought in Irvine last summer.

"It was always ingrained by family to own a home," said Wu, 27, a second-generation Chinese-American who works for a title insurance company. "(They said) it's the best purchase you can make in your life."
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"I have investors with cash, and they ask me to buy multiple homes for them," said Kim Vu, a Vietnamese immigrant who works as an agent for Evergreen Realty in Irvine.

"Our children have good jobs and are buying houses," added Phillip Park, 67, a Los Angeles real estate working for New Star Realty and Investment, which caters to Korean immigrants. "They're more like Americans. Young people own houses."

Rising population is, of course, a primary reason the rising number of minority homeowners. But that alone does not account for the increase. Several Asian real estate agents suggested other factors are at work, including:

?Opportunity: While non-Hispanic whites have soured on real estate, minority home shoppers see the current market as a chance to buy property at bargain prices.

"If you even mention to (Caucasians) to buy something, they think you have three heads. They see prices dropping," Vu said. " ... The minority (buyer) is different. They look at it as a golden opportunity right now."

?Financial security: While Asian immigrants may not be familiar with stocks or 401(k) plans, they see buying a home as a sound investment.

"Real estate," said Aaron Yu, president of the Orange County chapter of the Asian Real Estate Association of America. "That's tangible."

?Long-term investing: Asians buy homes for the long haul, not for flipping, Yu said. Hence, they're less worried about fluctuations in the market.

"If the market's high, they'll still buy," Yu said.

?Affordability: In countries like Korea and Japan, where land is scarce, home prices are out of reach for many. Not so in the U.S., where tax credits, foreclosures and falling prices make buying a home easier.

"Homeownership is very important to Asians. Even back home in their homeland, it was important," said San Francisco broker Allen Okamoto, founding chairman of the national Asian Real Estate Association. "The market has made it available for Asians to buy."

?High saving rates: While images abound of wealthy Chinese and other Asians buying up property, most Asians are of modest means, Yu said.

"They're going to save as much as possible to afford the best school district and community for their children," he said. "That's their mentality. 'We're doing this for the betterment of our children.' ... They would save from five to 10 years and have enough down payment to purchase the home."
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Although the article says both Latinos and Asians are buying... it seems to focus more on the Asian factors.
 
Thanks for all the input. 

I think it's obviously a great time to buy if you have a lot of savings but how many people really has $150K sitting around for a 20% downpayment?  Especially in this economy and the aftermath of the meltdown.

I understand the whole Asian buying reasoning but I believe it's completely overblown for a number of reasons:  1)  many Asians bought very very high in the bubble and have suffered.  In my complex, there are many Asian families that had to severely downsize after losing their homes, 2) there are much fewer immigrants from Asia.  Most people are content to stay in Asia now or are moving to China for better opportunities.  Prices are high in the cities but in the countryside/city outskirts, prices are very affordable, and 3)  Asians only make up about 10 percent of the population and it's not like their desire to buy houses is new.

Also, there is factor that few talk about...student loans.  I have about $1,000 in monthly payments for student loans from law school.  I was lucky in that 1) I had no undergrad loans and 2) I finished law grad just before the tuition went insane.  My student loans are 20/30 years so they'll be around for awhile.  To the extent that individuals who are high earners, most of them will be degreed professionals with $250-$350K student loans.
 
Irvinecommuter said:
Thanks for all the input. 

I think it's obviously a great time to buy if you have a lot of savings but how many people really has $150K sitting around for a 20% downpayment?  Especially in this economy and the aftermath of the meltdown.

Also, there is factor that few talk about...student loans.  I have about $1,000 in monthly payments for student loans from law school.  I was lucky in that 1) I had no undergrad loans and 2) I finished law grad just before the tuition went insane.  My student loans are 20/30 years so they'll be around for awhile.  To the extent that individuals who are high earners, most of them will be degreed professionals with $250-$350K student loans.
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You are probably correct. But hopefully, the kind of degreed professionals with 250k and 350k, will earn more than 150k after a few years under their belt. Or that along with that higher earner, the spouse earns a decent living too. 60k to 80k?

The down payment is different a tricky part...but as an a real life anecdote, I know someone who makes 1,000 a month in Asia. He lives at home and saved 500 a month and takes bus, doesn't eat out much, etc. After 5 years, he already has 30,000+ in savings for a down payment and he doesn't even have a college degree and is 25 years old. Seems crazy that someone making 1000 a month could save so much with just $500 dollars but time flies by it seems when you can be disciplined about saving.
 
so_scared said:
While these numbers are averages, it doesn't seem impossible that two income earners could make that, even in their 30's.
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I think 2 college graduates should be making $150K together pretty easily by their 30s.  My wife has been working in the HR industry for nearly 10 years and is constantly amazed by the pay offerings and how few applicants the positions get.  Even right now, with unemployment as high as it is, there are many companies hiring in SoCal with very good pay.  I am not saying it super easy but based on her experience and what she has seen, the number one problem people have with increasing their pay is not looking for higher pay.  Many people stay in their jobs and never even apply. 

Setting aside the pay, I wrote about how common it is in the Indian community to stay with parents until marriage or even a little after marriage.  Take a second to think about that and how much money is saved.  Obviously anecdotal but amongst my Indian friends, savings is in the multiple 100K and we all graduated from college roughly 10 years ago.  This isnt money given to us by parents, its just money we have saved due to lifestyle choices.  Even if you are making $50K and living at your parents for a couple years, its not hard to save a ton and take 2 people doing that and you can see how 2 30 year olds have $200-400K for their first house.

 
Soylent Green Is People said:
Debt ratios can be pushed. FHA loans, even with minimum down payment, rise to about 45 / 55%, well above the numbers in the original scenario. FNMA allows DTI's to 50%, but once Desktop Underwriter 8.3 is released in September, you've got to have some pretty extraordinary compensating factors. Remember also that most OC'ers are Dual Income households. Two $75kpy incomes can purchase quite a few Irvine homes.Personally, I'm very much against these ratios allowed to be this high. It might work out well for a few, every rule has it's exception, but the rule itself stands: 55% DTI means you are no longer a free person.
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I would never go near those ratios for the reason you mention, but what happens when someone has no other debt?  Does the front end then just match with the back end?

Granted, most of my friends are in their 20's but the few of them that I've seen buy are

1.  gift from parents (seen the whole house as a gift, not just downpayment assitance)
2.  DINK couple with good income but spouse also got an inheritance
3.  FHA loan's (some had the down themselves, some needed for that down)  that are close to those high ratios.  Why they go for something in the 400's instead of slightly cheaper so they arent spending so much on housing.....its just built into their mentality it seems.

Just like someone mentioned above, I do see a good amount of my friends coming out of college or higher with student debt, some above 100k (they usually add some sort of car loan shortly after).  Those ones are generally not even thinking about buying though.

I know for me and my gf, we are going to be buying a lot smaller than we can qualify for just so we can have the flexibility in case she wants to stay home with the future kids.  I plan way too far in advance.  Well and I will admit, I would never ever feel comfortable if I was at 40-50% DTI, that added stress is just not worth it to me.  I don't think I will ever make it up to 20% though, probably just 10% which would free me from PMI from some lenders since I am a first time homebuyer.

edit:  I should probably add I am not really looking in Irvine due to the prices, but more like Aliso Viejo, Lake Forest, Ladera, and South OC.  I'd prefer Tustin Ranch, but that is probably too high as well.
 
so_scared said:
You are probably correct. But hopefully, the kind of degreed professionals with 250k and 350k, will earn more than 150k after a few years under their belt. Or that along with that higher earner, the spouse earns a decent living too. 60k to 80k?
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The problem is that with this economy, even degreed professionals are taking a hit salarywise.  I will speak to the legal profession.  5-6 years ago, 10-30% graduate of a top 25 law school could expect to receive $150K salary from the big law firm.  The reminder would have a good chance of making $70-$100K.  But now, the $150K jobs are gone.  Big law firm are dropping salary and decreasing recruiting.  They are hiring non-partner track attorneys that make $60-70K coming out of good law schools.  This has a trickle down effect with new law grads struggling to even find jobs (let alone good paying ones). 

 
@rkp: While anecdotal, I can verify your story with at least two other parties who also were able to save quite a bit and are of Indian descent.

What gets me is how low to mid 20 years olds are able to do it. Or maybe they just look like they are that young because of their ethnicity and they are really 30+. I guess if you graduate from college at 23 and save ALL your income by living with your parents, if you're earning $50k, that's probably $100k over 3 years.

When starter homes were $150k, 5% down first time buyer loans were easy because you needed only about $10k to close, Today, with a 3.5% FHA on a $300k home, the cash to close is more at about $14k but the income requirement to carry a $290k loan is much greater than that $142k loan.

About the student loans thing... do many ethnic families carry those? Depending on where you go and what kind of degree, there may not be any. For most IT positions, friends that I know just had BS degrees and didn't have loans at all because they didn't need to get a graduate degree to find a job (they usually end up getting those later when their company pays for it). And as so_scared says, for those who have larger loans for more specific fields, they are probably earning much more than just the average college graduate.

P.S. Nice to see you back here 26inIrvine (or should that be 27 now?).
 
26InIrvine:

Ratios can be pushed to 45/45, but not always 45/50 or 55 using FHA. Lenders look at capacity to repay as an Underwriting factor. If you've been living at home, have saved up 3.5%, and are about to go from zero house payment to 45% of your gross income towards housing, your capacity to repay is unknown. Your loan will be turned down.

In a situation as you've described where a person has no debt, I'd highly recommend putting a house payment away every month, starting right now. If your rent is $500 and the house payment you're expecting is $2,500, on the first of every month pay your rent then put $2,000 in an account marked "house savings". That will demonstrate your ability to make the budgetary jump Underwriters are concerned about. The longer you deposit that amount the better, 6 months being a start.

Make sure also that the funds source can be seen. If you're re-selling Ipods / Ipads on Craigslist and get cash to put into your house savings, that's not going to work. Transfer funds from your main account to the "house savings" account on a consistent basis. Why a separate account? It's easier to document real savings, not aggregated savings from bits here and there.

My .02c

Soylent Green Is People
"Remember! Tuesday is Soylent Green day".
 
Student loans suck. My wife had a nice array of grad-school loans with the following interest rates:

8.5
8.0
7.5
6.88
6.5

We have been paying off these loans as aggressively as possible, but instead of us sitting on a down-payment, we have halved her loans. I am sure a lot of late 20s/early 30s couples are in a similar position to us. Actually, SGIP - mind if I PM?
 
Thanks SGIP, I was just curious if both ratios become the front or the back end if someone has no debt.  You described my exact plan.  One more thing I've been curious about is this clause at SchoolsFirst:  "Programs available with no PMI: 5/1 and 7/1 terms with increases applied to interest rate/APR and margin; loan-to-value range from 80.01% - 90%; minimum down payment is 10%; primary residence single-family homes only (no condominiums)."

1. why wouldnt they offer this on the fixed rate program?
2. does townhome mean condo too in this case? 
3.  Are these kind of terms common elsewhere?


Thanks IHO, I've always been here, but like I think i said on the old boards, I have a problem where I write these long posts then for whatever reasons I just don't think its worth posting and delete it.  Whether its cause I think it doesn't fit right with the topic, or I am reveaing too much or think it could be taken the wrong way, I tend to delete more than I post haha.  and yes it is 27 now...getting old!

I will add this since I think this fits the topic perfectly, here is an example of a place me and my gf look at and love:
http://www.redfin.com/CA/Tustin/2983-Player-Ln-92782/home/5430881

Things we love:  1. Easy commute to work  2.  close to peters canyon/the market place/many other places we like 3.fairly new

The part that is hardest for me to get my mind around is for someone to comfortably afford that, you probably need to be making somewhere in the mid six figures.  And to me, it just feels like if I was a couple making that much (I'm not)  I would think my income would get more and that would be more of a downer.  Then you see, that it sold in the late 90's for under 250k and that makes a lot more sense.  This seems like more of a starter home, not a place where someone making really good money way above the median income should live.

For our situation, we would love to live there but even at 10% that would pretty much drain 100% of our savings.  Could we qualify? Probably based off both our incomes, but even that would probably be a higher DTI than we would want.  And if we went FHA, we'd still probably qualify but just like how I hate paying interest period, (cause it feels like wasted money I don't have to spend if I would save up) my mind couldn't get around paying the extra costs that come with a FHA loan, not to mention PMI.


 
I'm usually surprised by how many potential buyers walk into a sales office with parents from either side. Its interesting that the parents do most of the talking including asking the questions. The sales counselors sometimes don't know who to direct their comments/questions at: the young couple or their parents.
 
I hate to be Debbie Downer but:

There will always be buyers of homes:  Those with money before they were born, those who save, those who get money from relatives but the question is whether those individual can sustain the current $700K+ median home prices in Irvine?  The bucket of potential buyers must of dropped by at least 50-75 percent and will remain that way for at least 5-7 years to come. 
 
I can honestly say that out of 10 of my friends who bought in Irvine (Age 24 at the time), 9 of them were paid in full cash by their parents.  I'm also not talking about the detached condos in the mid 500's to the 600's.  I am talking about the once priced $1Mill plus homes in Northpark/NPKSQ/Woodbury. 

For my wife and I, we were not as fortunate as our friends but are grateful we saved enough for a 20% downpayment on a detached condo in the high 500's while paying for our student loans. 

It's real discouraging leaving for work and passing by the $1mill homes and you see all the young home owners  playing with their kids (They don't work, don't need to when they get an allowance from their parents at age 28+) then coming home after work and you see them still playing with their kids.  :'( 

/RANT  :p
 
Irvinecommuter said:
I hate to be Debbie Downer but:

There will always be buyers of homes:  Those with money before they were born, those who save, those who get money from relatives but the question is whether those individual can sustain the current $700K+ median home prices in Irvine?  The bucket of potential buyers must of dropped by at least 50-75 percent and will remain that way for at least 5-7 years to come.
Click to expand...

Completely agree that buyer pool is reduced but the point is that Irvine is attracting different buyers than they did before 2000.  Different demographics and more development of shopping and restaurants have changed the city.  The question is that will these buyers stabilize the falling market and create a bottom soon or will prices revert to the ratio of incomes to prices from the 90s? 

Dont get me wrong, I think that Irvine prices are still falling but my gut says that there might be 10% or so give.
 
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