The Irvine/OC price premium

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Oh IR,

I still think you should go for 50% DTI because tomorrow, one of these things may come your way to lower your DTI:

1. Interest rates drop a couple of points and you can refi

2. If you single, maybe you meet someone who already owns a home, debt free. Or has similar income, then DTI becomes 25% overnight.

3. You had to take another job thay pays 25% more.

4. Your target of 28% DTI may never materialized.

Of course you may disappear from the earth...then you would not care. (hope not the case at all). Or you loose your job temporarity and recoup quickly.

Anything can happen tomorrow.
 
NIR, that's exactly the type of Realtor Speak that has helped this housing market go out of control. You are trying to feed on people's fears. By doing so, it is for your benefit....not theirs. Please stop preaching this junk. Do your part to help this market normalize.
 
For a 400k condo, the monthly mortgage would be $2200. Add in HOA of $300 and your payment will be $2500. Property tax/ Mello Roos can be paid off by the federal tax savings. Hence, I strongly believe that an $85K income can support a $2500/month housing payment. If not, rent out a room. I don't recommend buying now, but stop making excuses for affordability. Just about anyone in Irvine pays at least $700-$800 to rent a room. Someone with a good job can pay $1500 for their own apartment. Someone with an 85K income should be able to afford a $2500 mortgage. As for homeowner's insurance, it's less than $500/year if you own an SFR... so it's not even that much. $2500/month is $30K a year. That stills leaves you with 55K for tax, food, and everything else. The market is not that technical. If rent is around $2000/month for a 2bed/2bath apt, don't expect a mortgage payment to ever be less than $2500. It's highly unlikely that new mortgage payment should ever be lower than market rent. I don't know why some are shocked by a $2500 mortgage and not by a $2000 rent payment? With the cost of housing being so high in Orange County, people tend to have roommates. I had roommmates all through college, and even now I'm sharing housing expenses with my girlfriend. Living alone is definitely a luxury in the OC. IMO, intelligent people are all analyses and no actions. Prices should and will drop... but it's not going to drop below rents.
 
Trooper,

As much as it sounds like Realtor Speak; I do not think anything I said was illogical. Moreover, I am just speaking from my own experience. I sincerely appolize if I offended anyone.
 
HS - What interest rate are you using? By my math, a $400K loan at 6%** is $2,400 month. In my circa 2002 community, taxes and Mello Roos are $4,800/yr and combined HOAs are $250/mo. I'm coming up with a monthly nut for the basic expenses of $3,050. An annual salary of $85K yields, before income and other payroll taxes, $7,083.33/mo. Let's assume an combined income tax rate of 25%, which would reduce take home (before any optional payroll payments like health, dental, life insurance, cafeteria plan, 401K, etc) to $5,312.49. That leaves $2,262.49 a month to pay utilities, food, insurance, car payment, cable/internet, savings/retirement, clothing, and the like. Can it be done? Yes, but I wouldn't dare run the air conditioning, get sick, or have a penchant for filet mignon.

** If you find a 6% loan, right now, please let me know.
 
teach,

Getting a little touchy, are we? I think $2500 is stretching as it will acount for about 36% of your gross income, but it is not terrible or unmanageable. And I completely agree with you that you should never expect mortgage to fall below rent for a comparable place. It can and sometimes do happen, but that's just over-correction. Having said that, a 2/2 in a place like Avalon rents for around $1800, and when you consider a comparable condo, I have yet to see one below $400K in Irvine. And even if there was one, that would be $1800 rent vs. $2500 mortgage, which is a 1.4 ratio. Historical ratio is around 1.2, so that's a bit high. I would expect something closer to $2200 mortgage, which would be the right ratio. And keep in mind, your $2500 is based on 20% down, which is additional cash that renter would not have to outlay, and instead put in the bank. That is additional $300 or more in earnings that the homeowner does not get, so the actual comparison would be more like $1500 vs. $2500. Big difference, IMO.

So no, "intelligent" people are not always all analyses and no actions, sometimes their inaction has a purpose.
 
eff,

Worse than dice roll. You get what you get in life. The only thing you can do is to take or not take an opportunity (including gambling) when you see one. I am sure someone like Graphrix can relate to what I just said.
 
IR,

You misunderstood my comment.

I did not say they should pay when the damage is done, and they have already been foreclosed upon.

What I said was that they would, and should, continue to pay because a) it is the morally correct thing to do, and b) they are only out money "on paper" which could turn around in the same amount of time as healing from a bankruptcy.

Also, just because people excuse medical bankruptcies, does not mean that those doing it do not incur financial penalties.
 
inre the foreclosure stigma, I suspect this will subside somewhat over the next few years. There will be too many applicants walking in the door with a bombed credit profile. It's already happened with DUI's.
 
There is nothing wrong with eating ramen, just not for the rest of your life.

Back in 1998-2000 I saw many of my friends go aggressive on irvine RE. We didn't make a lot of money back then and our furniture were cheap stuff. Ate a lot of ramen but it was worth it in the long run.

I think there is a right and wrong time to extend or stretch yourself to buy property. Now is probably the wrong time in Irvine. A "right" time will come again, after that we'll take another ride on the RE roller coaster.

P.S. I would gladly pay a premium to live close to work
 
Janet,

"What I said was that they would, and should, continue to pay because a) it is the morally correct thing to do, and b) they are only out money "on paper" which could turn around in the same amount of time as healing from a bankruptcy."

This is all true. It is item "B" in your list that is the real issue. If the market tanks for 3 years and roars back for the next 4, you could theoretically be better off trying to make the payments. I just don't think that is going to happen.
 
hs_teacher,

"It's highly unlikely that new mortgage payment should ever be lower than market rent. "

Bear markets do not end until mortgage payments are less than market rents. That is what finally knocks buyers off the fence and causes enough buying to form a market bottom. This happened in 1983-1986 and 1997-1999. Until mortgage payments are less than rents, only those who wish to overextend themselves to purchase a depreciating asset buy homes. Since this isn't the wisest financial decision, there typically are not enough of these people to support prices in the market (see 1990-1996).
 
I find it quite amusing that people saw prices rise 20-25% a year for 5 straight years, but now feel prices can't drop 30 to 40%. A simple understanding of supply and demand as well as the cost of financing vs home prices will clear things up.

People always confuse demand for housing with demand for homes. Everyone needs housing, yes, but they can rent and still satisfy that need. The need for shelter will drive people to rent in the comng months and years. The cost of ownership is just too damn high right now, and people want a roof over their heads. The party is over and people are starting to wake up. I overhear conversations at the grocery store or at the dog park and I can sense the tension in the air.

My personal prediction is that we will look back at the month of September and see it as the start of the slide into recession. When the August home sales report comes out in mid/late september, it's going to hit home hard. The NEW HOME sales report will come out first, and it will be the better of the two (if that's possible.) When the EXISTING HOME sales report comes out, jaws will drop. Hang on--October will be much worse. It will be the powerful upper-cut of the one-two punch combo. There were some residual July rate-locks that funded in August before the secondary market explosion occured. This will make August sales look a little bit better. By now, all of those "fantasy land" jumbo rate-locks have either expired, or funded. September sales released in October will be the first full month of sales after the credit crunch.

Hold on to your seats, and please make sure your tray tables are stowed and your seat in its upright position.
 
Lendingmaestro

although i agree with most of what youve said, i think that there are a lot of people sittin gon the fence so to speak.

some willing to wait for 10% some for more, i doubt that we will see 40% drop, but i can see another 10-15% in some areas of irvine.
 
Maestro,

What programs has your bank cut? Are you strictly agency at this time?

No disrespect - I really want to know where everyone is on this.

I just got an email from Countrywide, and they are still making aggressive loans "85% Non-Prime Stated", same with IndyMac.
 
we can do stated up to 90% CLTV still. 720 FICO. SELF EMPLOYED ONLY. No stated wage earner.

A 10% price drop is nothing, especially when we had 20%+ annual appreciation. The same buyers that fall for that garbage are the same people that think they're getting a great deal at Neiman Marcus..."Hey Hun, those $375 dollar Gucci Jeans are now on sale for only $337 dollars!!"

Bank of America Analysts came out recently and stated that 40% of all homebuyers in 2006 could not even QUALIFY, let alone afford, the same house in 2007. Even if you cut those numbers in half to 20%, it still spells out dire consequences,
 
Selling into the secondary market?

What a strange time to be in charge of deciding risk levels!

Even at 90%/720 there could be some downside.

I guess it's a case of damned if you do, more damned if you don't!

Yeah, stated W-2 or retired is gone - rightly.

As you and I both know, that was never the intention.
 
Selling mostly, and the first mortgage must be 417k or lower. I am getting some crazy DU and LP approvals. If the first mortgage is above 417k though, the game is up. This factor alone is the nail in the coffin for CA.
 
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