The effect of the credit crunch begins in December

Without the extras - such as BMW's as compared to Toyota's and without the credit card debt I personally believe this mortgage would be doable on that income - it would be tight but definetely doable. However, as someone mentioned earlier - with kids in college it would be pretty tough. Obviously, they have been living a lifestyle that is not comensurate with thier income and have dug themselves a hole hard to get out of - so no, I don't believe they will necessarily be able to make it with the re-set! This is why 30 fixed mortgages are important - it keeps you honest with yourself.
 
<p>Wow. I think paying 2k a month for rent is acceptable. And i think most people pay less than 3k a month for a mortgage. But paying 4 or 5k a month? Isn't that excessive?</p>

<p>1K a month extra is like buying a new 42 inch plasma every month. 2K a month extra is like getting a new 52 inch LCD!</p>

<p>I seriously think that middle class people were willing to pay 4 or 5k a month because they thought their home would always appreciate and earn them a sizable profit.</p>

<p>Now that prices have no chance of going up for the next few years, they realize that they're throwing a k or 2 away each month.</p>

<p>I think it's still manageable for many, but it sure is a waste of money.</p>

<p>Personally, I don't think the market will normalize until an average new mortage is between $2000-$3000/month for interest payments.</p>

<p>As long as it's 4-5K/month, prices will stay flat or fall further.</p>
 
<p>hs_,</p>

<p><em>Nobody</em> has been paying $5K a month on thier mortgage on a SFR. Most weren't paying $2K!</p>

<p>In a nutshell, this is exactly the problem. Welcome the option ARM. Wait, you can't write them anymore. All you can do is conforming 30 paper. And if you can only afford 3K a month all inclusive (insurance, HOA, mello roos) with a 3K cap, what's that do to prices?</p>

<p>Go stick 3,000 into a mortgage caluclator at 6%, 30 yrs, fixed and see how much money it buys you.</p>

<p>Since '02, I have crowed on how this was like the bond valuation they teach sophmore finance majors, except the coupon payment is what you can afford for a payment and the terms determined how much you could finance (as opposed to the bond price). Yank away the terms and your ability to pay doesn't change, but the prices of the financing availible sure go down real quick.</p>

<p> </p>
 
<p>if there are only 30 yr mortgages left then WHO! is still buying these homes? People with large down payments? As I have been saying about CA for real estate for as long as I can remember - </p>

<p>I just dont get it!!!!!!!</p>
 
<p>At 3k/month with 6% 30 yr fixed - the loan amount is roughly 500K.</p>

<p>That's what I think the median home value will be by the end of 2008.</p>

<p>At 2k/month with 6% 30 yr fixed - the loan amount is roughly 333K.</p>

<p>I think that will be the median condo value by the end of 2008.</p>

<p>PEOPLE will buy homes if they pay 3k a month.</p>

<p>PEOPLE will buy condos if they pay 2k a month.</p>

<p>That's truly what I sincerely believe.</p>

<p>Current median condo value is 408K - I think it will drop another 75K ~ 18%</p>

<p>Current SFR value is 634K - I think it will drop another 134K ~ 21%</p>

<p>The market will turn back to normal once payments are between 2-3K/month.</p>
 
HS Teacher





So how much do you think we will be paying a sqft? You can give us a low / high end but to me that is much more beneficial than a median price of $500K
 
UW's use gross income because you can deduct your mortgage interest payments from your wages.





HS,





You are quoting payments for a 500k mortgage, thus the value would be 625k. 500 = 80% of 625k purchase price. This means your RE taxes would be 7800 a year or 651 a month. Insurance will be at least 125 a month, so you'd be looking @ PITI of 3,776 a month. That's a lot of money.





Your calculations are not assuming a down payment. People would buy homes if their payment was 3k a month AND they could easily put down 125k as a down payment!
 
moving,



By the looks of things, not very many people. That's why the volumes are down. I don't think it has anything to do with the falling prices keeping people on the sidelines - I think it's lack of EZ financing and fact that they are actually making people qualify for loans these days.



hs_



Close, BUT - you didn't factor in taxes, maintance, HOA, or mello roos, or PMI. Those come off the top of the $2K-3K. Some place with HOA/Mello Roos should trade at a discount to a similar place that doesn't have any - all things being equal. In some of these neighborhoods, that could be $600-700. Most people can't just s__t $700 a month, much less $4K like the DI couple mentioned by LM. This is a real number.



It is my opinion that your number is overstated, but I do give you mad props for having enough brains to get an answer!



And what happens to your interest factor goes up to 7%? Remember, we are at a 40 year low for interest rates.
 
yeah but your deductions do not provide enough "return" to bump you up to your gross income. It's just my opinion but I think when buyers look for homes they really should use their "net income" even if an underwriter is willing to approve their loan on their gross income.
 
It's all about percentages. People have different tax brackets, write-offs, etc. If you save 10% a month into your 401k you'd be hurting yourself when it comes to income qualification.





Now, when it comes to the actual buyer, then yes I agree with you. People should look at their take home pay when making a purchase.
 
Lenders have always been willing to lend far more to my family than we have been willing to borrow. Thing is, we like have a life, eat out, buy books etc.
 
Those of you who are figuring what affordable prices will look like in the next couple years may want to consider that price inflation for neccessities may decrease the amounts available for housing costs. When they have extended their credit as far as it will go, folks may no longer be able to purchase gas and groceries on credit cards, and the cost of neccessary commodities will come straight out of their take home pay.
 
<p>I don't think any of my numbers will ever be exact. But rather than making so many projections, I just wanted to estimate what reasonable mortgages/home prices should be.</p>

<p>Realistically, with the way things have changed, I think people WILL buy condos for roughly 350K. I also think that people WILL buy SFR for 500K.</p>

<p>I think that prices and payments will continually change. But I think normalcy will occur at the 350-500K price range and 2K-3K payment range.</p>

<p>Of course there will still be those who can make 10K payments on million dollar homes.</p>

<p>I know plenty of friends who can make 2k-3k mortgage payments who are willing, able, and ready to buy with those terms.</p>

<p>As for those with equity, they can trade up to 600-750K homes and still pay roughly 3K/month.</p>

<p>Let's just hope buying season starts this June when 3K/month mortgages become the norm.</p>
 
OMG! Why is that housing blogs always seem to veer off topic to housing payments? I mean, it happens all the time. It happens here in the forums, the blog, and almost weekly on Lansner's blog. It goes in the same direction every time too. Someone always underestimates the actual payment. Someone always over or under estimates the tax break. Someone will bring up AMT. Someone will bring up option ARMs. Someone will bring up higher interest rates. Someone will bring up equity. Someone will bring up being upside down. Someone will bring up foreigners. Someone will bring up mello roos and HOA dues. What is sad, is it ends up in the same place every time... NO WHERE!





I didn't start this thread to discuss what payments people can, or are willing and able to make. I started this thread to discuss the thousands of people who <em><strong>ARE NOT </strong></em>making their payments.





It is getting to the point, that housing payments are like what Nazis are to <a href="http://en.wikipedia.org/wiki/Godwins_law">Godwin's law</a>. The same thing happens, the thread deteriorates to the same endless conclusion. Maybe, I have been around the housing blogs too long, but this subject has been rehashed at ad nauseam. I'm over it, and I would think there are others that feel the same.





So, if you want, we can call it graphrix's law, and it states that once housing payments get brought up, the thread will go NO WHERE!. Once graphrix's law is brought up, it means the death of the subject of housing payments. And, I am invoking the law here and now. If you want to discuss payments that can or are being made, then start a thread about it. If you want to discuss the people who can't or will not make their payments, then discuss it here.





{rant over}





Now, back on topic. Monday there are 179 homes scheduled for the foreclosure auction at the Santa Ana courthouse. Granted, many will be postponed or canceled, but originally there were 215 scheduled. This is huge! It wasn't that long ago, that I would see a number like this for the month, and only recently would I see this for a week. The MSM missed the point that the NTSs were, and are still going up last month, and that it will mean more foreclosures. In fact, the NTSs were higher than the NODs last month.
 
<p>Not to irritate Graph any further, but I need to make a point about using a HELOC to make payments to forestall foreclosure: Most HELOCs are not fixed rate, but an adjustable rate pegged to something like 1-yr LIBOR and adjusted at preset intervals. Which means the interest due can rise overnight, spike the payments and instantly force people into default on both loans. More importantly, defaulting on a HELOC means they can come after your other assets to satisfy the debt, even if they can't do that on the first mortgage. Certainly not rent free in any case.</p>

<p>In my case, Wells Fargo was kind enough to keep raising the limit of our HELOC well past the comp sales in our area. Originally we maxed it out to use towards the down payment on our townhome (thanks for the help WF!), and we closed it at the first opportunity... yesterday, in fact. It took us 13 months to pay off, but the original agreement required us to keep it for at least 3 years, hence the delay in closing it. We are now sitting back and watching the world implode from the safety and security of our 30-year 5.75% fixed rate mortgage and thanking our lucky stars that we don't owe anything on that HELOC with it's (now) 13.5% interest.</p>

<p>/rant</p>

<p>One more thing... payments of $3500+ a month for a house is just plain insane. While the demand may drive prices to that range, the idea itself is insane. Why would anyone dedicate that much of their income to own something that is an illiquid investment with wildly fluctuating value? Same for $2500 for a condo. It doesn't matter how much you make or where you live, somethings just don't make any (financial) sense. Irvine's nice and all, the coastal areas of OC are gorgeous, but there is soooo much more you can do with your money that sending most of it to someone else for the priveledge of stucco and smog just seems dumb.</p>

<p>/end rant</p>
 
Blah, I would have not even been annoyed until you said: <em>Most HELOCs are not fixed rate, but an adjustable rate pegged to something like 1-yr LIBOR and adjusted at preset intervals. Which means the interest due can rise overnight, spike the payments and instantly force people into default on both loans.





</em>Right, HELOCs are an adjustable rate loan, but they are tied, 98% of the time, to the prime rate. Plus or minus a margin in most circumstances. So, as long as Bernanke and crew drop rates, then my HELOC drops in rate too. No preset levels, but when Ben says down, it goes down, and when he says up, it goes up. If a HELOC is tied to anything else other than prime, then run or get out ASAP.





I will agree, $3500 a month for a stucco box is insane. And, it is really nice here, but reality is a long way from here.





And, for those who were curious if a HELOC is callable, yes... yes it is. It is a <em>line of credit,</em> not a home equity loan. In the loan docs, it will state if a payment is missed, then it is due and payable now. Better check the loan docs in case that missed payments includes other credit lines.
 
<p>The surge in foreclosures and NODs is directly related to current and future payments and the ability for people, even the wily foreigners that will save the market , to make.</p>

<p>It's the psychological line in the sand. Often, to me, it seems like bargaining. "People will pay $3000 (so I'll be okay)" type of statements. </p>

<p>If you look back to the recent past, you'll see average/median payment was closer to $2000 than $3000. Does anybody have access to the old charts from the OC Regiser? The charts I'm thinking of where the ones always included at the bottom of the zip code home price chart. It broke down expected payment and tracked it over the last year to compare to home prices. It went up, but slowly.</p>

<p>We're a debt and debt service driven economy. Hence what matter more than a down payment is the ability carry the on-going payment. If large down payments become de riguer, the housing market in SoCal will grind to a deeper halt.</p>

<p>In the meantime for defaulting, I think we see a common problem. When the borrowers can use any of a variety of tricks to keep their payment low, they are okay and make their payment. When the payments larger, they default.</p>
 
"The surge in foreclosures and NODs is directly related to current and future payments and the ability for people, even the wily foreigners that will save the market <img alt="" src="images/smiley/msn/confused_smile.gif" />, to make."





Some portion is. Especially for people who could only afford houses during the time that teaser rates were in effect.





But as housing prices collapse, a certain segment of people who lack ethics will not want to be underwater in their houses, and will stop living up to their obligations. I am new to this area, so wasn't around the last time. But I have read about people that were underwater who bought better and cheaper homes as second homes, then stopped paying on the houses they were underwater on before they toasted their credit.
 
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