When is the best time to buy??????????

[no_vaseline_IHB]

You made a post about leverage. Lets extrapolate my $375K example a little.

$375K

38% D+I

$91,168.42 a year to qualify

That's almost exactly the median income in Irvine. What does $375K buy a median income (half above and half below) buyer in Irvine these days?

 

[No_Such_Reality_IHB]

For example a $500k house could "drop in price" by 1% (or $5,000) but it could actually have an increase in the relative price if the net effect of an interest rate change is greater than one discount point.

<snip>

The best time for you to buy, if you can afford it and choose to do so, is when the situation makes the best sense for you. It's possible that the known savings in taxes, gas, and time might overweigh the unknown profit (or loss) that you'll incur from a change in prices or financing options. If you have a sustainable long-term purchase then it won't matter that much at the end of the day if you buy today or tomorrow.

<snip>

I can give you examples of people who have bought at the top and at the bottom and many points in between. More often than not, it's the long-term plan and micro-economic focus (i.e. your situation not the rest of the world) that works best.

Prior bubbles weren't nearly as distorted as this one. Purchasing wasn't 2X+ the monthly cost of renting after taxes and that is after the bubble in rents.

If you're going to quibble whether the market is going down 1%, frankly, the discussion is over. You can game the numbers anyway you want. In reality, the question is "is it going down 10%, 20% or another 30%?"

And frankly, there's a world of difference between okay meaning they didn't lose the house and having an extra $1000, $2000 or more cashflow a month to invest and live on. Go on, use the FV function in excel and see what $1000/month at 8% interest is after 10, 20 or 30 years...

 

[asianinvasian_IHB]

$375K

38% D+I

$91,168.42 a year to qualify

That's almost exactly the median income in Irvine. What does $375K buy a median income (half above and half below) buyer in Irvine these days?

The median income in Manhattan is $47,030. What does that buy you there when the median home price is $1,000,001?

 

[bigmoneysalsa_IHB]

The median income in Manhattan is $47,030. What does that buy you there when the median home price is $1,000,001?

Good point. And the median household income in Plano, TX is about $80K. Any guess what $320K would buy there? I wish people would drop the whole income argument.

 

[no_vaseline_IHB]

$375K

38% D+I

$91,168.42 a year to qualify

That's almost exactly the median income in Irvine. What does $375K buy a median income (half above and half below) buyer in Irvine these days?

The median income in Manhattan is $47,030. What does that buy you there when the median home price is $1,000,001?

It would help if you could get your facts right. You have enough time to check them since you aren't selling any homes.

There were 738,644 households. 25.2% were married couples living together, 12.6% had a female householder with no husband present, and 59.1% were non-families. 17.1% had children under the age of 18 living with them. 48% of all households were made up of individuals and 10.9% had someone living alone who was 65 years of age or older. The average household size was 2 and the average family size was 2.99.

Manhattan's population was spread out with 16.8% under the age of 18, 10.2% from 18 to 24, 38.3% from 25 to 44, 22.6% from 45 to 64, and 12.2% who were 65 years of age or older. The median age was 36 years. For every 100 females, there were 90.3 males. For every 100 females age 18 and over, there were 87.9 males.

Manhattan is one of the highest-income places in the United States with a population greater than 1 million. Based on IRS data for the 2004 tax year, New York County (Manhattan) had the highest average federal income tax liability per return in the country. Average tax liability was $25,875, representing 20.0% of Adjusted Gross Income.[101] As of 2002, Manhattan had the highest per capita income of any county in the country.[102]

The Manhattan ZIP Code 10021, on the Upper East Side, is home to more than 100,000 people and has a per capita income of over $90,000.[103] It is one of the largest concentrations of extreme wealth in the United States. Most Manhattan neighborhoods are not as wealthy. The median income for a household in the county was $47,030, and the median income for a family was $50,229. Males had a median income of $51,856 versus $45,712 for females. The per capita income for the county was $42,922. About 17.6% of families and 20% of the population were below the poverty line, including 31.8% of those under age 18 and 18.9% of those age 65 or over.[104]

Lower Manhattan (Manhattan south of Houston Street) is more economically diverse. It is also racially diverse like all over Manhattan and the rest of New York City. As of 2000, the population is 41% Asian , 32% non-Hispanic white, 19% Hispanic and 6% black. 43% of residents were immigrants. These figures are affected by the demographic weight of Chinatown, which accounts for 55% of the population of Lower Manhattan. While the Financial District had few non-commercial residents after the 1950s, the area has seen a significant surge in its residential population, with estimates showing over 30,000 residents living in the area as of 2005, a jump from the 15,000 to 20,000 before the September 11, 2001 attacks.[105]

Manhattan is also diverse in religion. The largest religious affiliation is the Roman Catholic Church, whose adherents constitute 564,505 persons (more than 36% of the population) and maintain 110 congregations. Jews comprise the second largest religious group, with 314,500 persons (20.5%) in 102 congregations. The next largest religious groups are Protestants, with 139,732 adherents (9.1%) and Muslims, with 37,078 (2.4%).[106]

The borough is also experiencing a baby boom. Since 2000, the number of children under age 5 living in Manhattan grew by more than 32%.[107]

http://en.wikipedia.org/wiki/Manhattan

Good point. And the median household income in Plano, TX is about $80K. Any guess what $320K would buy there? I wish people would drop the whole income argument.

Why? Since the upper limit of lending is 38% DTI, this shows that the average wage owner in Irvine can now only finance $375K. This is where home prices are headed. This is all they can borrow. They are likely selling plenty of homes in Plano since people can qualify to finance them. Have you looked at Irvines numbers lately? Not so good. It's little wonder why..............when all you can qualifiy for is $375K.

To state otherwise is to be ingorant in the face of the facts.

 

[bigmoneysalsa_IHB]

Why? .

Because there are all sorts of reasons a particular city may have exceptionally high median income to median price ratios, even absent an economic bubble. Maybe a large part of the workforce commutes in from elsewhere. Maybe it presents such unique opportunities that people will put up with very high rents and prices for a relatively crappy home. Maybe the market is small and dominated by people who don't purchase based on loans. Maybe a lot of the people there are move-up buyers with bubble profits from their last home sale, or people who got money from Mommy and Daddy. Etc, etc. Maybe my examples aren't great but you can think of others I'm sure.

It works the other way too. There are cities with a median income close to Irvine's where $200K will buy a very nice SFR. People spend the extra money on other stuff.

Because different markets can have vastly different income/price ratios in NORMAL times, looking at income/price ratios is an unreliable way to decide whether a market is overpriced.

 

[graphrix_IHB]

Because different markets can have vastly different income/price ratios in NORMAL times, looking at income/price ratios is an unreliable way to decide whether a market is overpriced.

Actually, if you take the median income, median home price, and what the payment of that median price would be at the current interest rate would be then you would have a percentage of what people spend on their homes. Now in 1991 the peak of the last bubble it reached 45%, and dropped to 26% in 1996. Between 93 and 96 we had job growth, so prices still go down when jobs are being created. In 2006 that ratio got as high as 65%. Will it go as low as 26%? Well if we don't start creating jobs, you can say that it will be in the bag.

Anyone who thinks that income to price ratios is different here, failed micro econ 101. Or they work for Mark Boud, who uses those numbers but in 2006 didn't think that they were too much of an issue in 2006 and everything would be fine. Either way, it consistently shows that on average the ratio should be 30%, but as it goes way above average, then it will have to go way below average.

 

[No_Such_Reality_IHB]

If you're putting 38% of your gross to your mortgage, you're going to be one sad puppy.

 

[columbussquare.com_IHB]

Every year, AMT renders the standard "Real Estate has Tax Advantages" advice more and more obsolete. Banks will soon reflect this reality and factor thier debt/income ratios (especially in California), allowing less leverage than what they've taken in the past, further depressing house prices.

But I wouldn't expect you to know that because you sell houses and aren't a EA or a CPA.

If you would, please focus on the merits or weaknesses of my arguments. I don't claim to know you or your situation and you shouldn't claim to know mine. Are you attacking my resume because your case is weak?

As a point of clarification:

- No I do not "sell houses"

- I am not a CPA but I have an OC firm on retainer

- AMT doesn't always kick-in for every taxpayer but it is a consideration so everyone consult a CPA before going into escrow!

 

[no_vaseline_IHB]

Every year, AMT renders the standard "Real Estate has Tax Advantages" advice more and more obsolete. Banks will soon reflect this reality and factor thier debt/income ratios (especially in California), allowing less leverage than what they've taken in the past, further depressing house prices.

But I wouldn't expect you to know that because you sell houses and aren't a EA or a CPA.

If you would, please focus on the merits or weaknesses of my arguments. I don't claim to know you or your situation and you shouldn't claim to know mine. Are you attacking my resume because your case is weak?

As a point of clarification:

- No I do not "sell houses"

- I am not a CPA but I have an OC firm on retainer

- AMT doesn't always kick-in for every taxpayer but it is a consideration so everyone consult a CPA before going into escrow!

No, rather, because you lack command of the facts, and what you are spewing is just wrong.

If you haven't noticed, AMT is growing out of control. Given the odd - $1 trillon the USG just dumped on the back of taxpayers, real tax relief for real middle/upper income folks is dead no matter who wins the election.

http://www.smartmoney.com/tax/filing/index.cfm?story=amt

You should definitely run the numbers if your gross income is above $75,000 and you have write-offs for personal exemptions, taxes and home-equity loan interest. Ditto if you exercised incentive stock options during the year, or if you own a business, rental properties, partnership interests or S corporation stock. If you earn more than $100,000, run the numbers for that reason alone.

Looky there, our hypothetical $375K mortgage owner just got clipped!

http://en.wikipedia.org/wiki/Alternative_Minimum_Tax

The AMT was introduced by the Tax Reform Act of 1969[1] and became operative in 1970. It was intended to target 155 high-income households that had been eligible for so many tax benefits that they owed little or no income tax under the tax code of the time.[2] The original AMT targeted tax shelters used by a few wealthy households. However, when Ronald Reagan signed the Tax Reform Act of 1986, the AMT was greatly expanded to aim at a different set of deductions that most Americans receive. "A law for untaxed rich investors was refocused on families who own their homes in high tax states."[3]

I picked one thin slice of your paper thin argument and picked it apart. No realtor (with any sense of self perservation) will advise their client that AMT will likely negate thier tax benifits they just sold them, mostly because they just got done lying to them what a great deal it is to dodge the tax man.

 

[columbussquare.com_IHB]

They just extended that law with the bailout plan.

More foreclosures are coming, more foreclosures mean lower prices, lower prices mean that it is better to wait no matter what your situation is. You can't time the bottom perfectly, but it doesn't take more than a three year old's level of common sense that it is going to be better to buy at a lower price later.

Were you living here in the 90s? Do you know how housing cycles work?

Are you referring to the Emergency Economic Stabilization Act of 2008? If so, could you refer to the page and line number where that is included? Because I didn't see it.

As a moderator, I would have thought that you would have listened to IrvineRenter in the New Members Start Here thread when he said, "When people express opinions not shared by the consensus, we should listen and reply thoughtfully, not attack and condemn to drive away the heretics. If our consensus opinion is the correct one, the strength of our arguments will prevail."

I'll ignore your comments about three-year-olds and lack of knowledge of housing cycles.

If you believe that more foreclosures will occur and prices will continue to drop... what do you predict prices will be in the Irvine area in twelve months and/or five years? What is your basis for this price level? Do you have any other arguments besides income or rent levels?

The assumption on this thread is that purchases are limited to 100% financing by people paying comparable levels to rent and 38% DTI. What about those who can afford, 20%, 50% or 100% of the purchase price in cash? Not all of the comps in a market come from first-time homebuyers.

 

[no_vaseline_IHB]

Why? .

Because there are all sorts of reasons a particular city may have exceptionally high median income to median price ratios, even absent an economic bubble. Maybe a large part of the workforce commutes in from elsewhere. Maybe it presents such unique opportunities that people will put up with very high rents and prices for a relatively crappy home. Maybe the market is small and dominated by people who don't purchase based on loans. Maybe a lot of the people there are move-up buyers with bubble profits from their last home sale, or people who got money from Mommy and Daddy. Etc, etc. Maybe my examples aren't great but you can think of others I'm sure.

It works the other way too. There are cities with a median income close to Irvine's where $200K will buy a very nice SFR. People spend the extra money on other stuff.

Because different markets can have vastly different income/price ratios in NORMAL times, looking at income/price ratios is an unreliable way to decide whether a market is overpriced.

How much crack did you have to do before what you just spewed made sense to you?

 

[bigmoneysalsa_IHB]

Actually, if you take the median income, median home price, and what the payment of that median price would be at the current interest rate would be then you would have a percentage of what people spend on their homes. Now in 1991 the peak of the last bubble it reached 45%, and dropped to 26% in 1996. Between 93 and 96 we had job growth, so prices still go down when jobs are being created. In 2006 that ratio got as high as 65%. Will it go as low as 26%? Well if we don't start creating jobs, you can say that it will be in the bag.

Right, the ratios change for a given place due to things like housing bubbles. What I'm saying is that you can't tell what the correct ratio "should" be for a given place. So affordability, as reflected in the price/income ratio, tells you nothing by itself.

Anyone who thinks that income to price ratios is different here, failed micro econ 101

No. It is different here, and everywhere. That's my whole point. Different places have different "correct" price/income ratios, as determined by normal non-bubble market forces. Look at these numbers from 2000.

Laguna Beach, CA

median SFR price 653,900

median hh income 75,808

ratio 8.63

Plano, TX

median SFR price 162,300

median hh income 78,722

ratio 2.06

Cleveland, OH

median SFR price 72,100

median hh income 25,928

ratio 2.78

Irvine, CA

median SFR price 316,800

median hh income 72,057

ratio: 4.40

I'm sure 1996 had a similar dynamic, and that so will 2010.

 

[bigmoneysalsa_IHB]

How much crack did you have to do before what you just spewed made sense to you?

OK. Let me try again. People in different places are willing and able to spend different percentages of their income on housing. Even when there's no bubble. So looking at the price/income ratio by itself isn't all that helpful.

 

[flmgrip_IHB]

Can I get a conventional 30 year fixed on $385K for $1750 a month, including impounding taxes, with $2000 down? Thought so. When I can rent an equivlent property for half what I can buy it for, either my rents are going to skyrocket, or prices are coming down. This much imbalance between rents and ownership costs can't exist. I'm not laying my money on rents skyrocketing.

Assuming that you could get 100% financing (which is becoming less likely these days) I would estimate the monthly cost for principle, interest, insurance, and taxes on a $385k home to be $2,887. So it would have a monthly difference in cost of $1,137. But that isn't accurate since the renter is paying for housing with after-tax dollars. My guess is that renting would costs more than $2,000/mo in this scenario. The current system doesn't allow you to keep the money, it has to either go to the bank or the government. With the government there is very little upside potential on a personal level. [/i]

My brother and his wife purchased a home last year. The addition of the "RE income tax deduction" pushed them over the AMT cap, because your personal deductions (personal exemptions and those for for dependents, state income tax, property tax, and your mortgage interest) are considered "tax shelters". Too many individuals find this out the hard way because they don't do adaquate tax planning. My wife and I are in similar circumstances. If we were to buy a home, the tax advantage would be negative compared to renting unless prices fall off another 40% or more. If we were in Nevada it would be different, but we're in California and we have the highest effective state taxes in the nation.

Every year, AMT renders the standard "Real Estate has Tax Advantages" advice more and more obsolete. Banks will soon reflect this reality and factor thier debt/income ratios (especially in California), allowing less leverage than what they've taken in the past, further depressing house prices.

But I wouldn't expect you to know that because you sell houses and aren't a EA or a CPA.

this statement is just plain wrong. property tax will work in yout favor for AMT, not against it

 

[No_Such_Reality_IHB]

<snip>

Right, the ratios change for a given place due to things like housing bubbles. What I'm saying is that you can't tell what the correct ratio "should" be for a given place. So affordability, as reflected in the price/income ratio, tells you nothing by itself.

<snip>

Bubble primertime.

Perhaps the historical picture will help.

Oh yes, that 62% over valued was way back in 2005.

Or perhaps you need a little more color and it spelled out in terms of inflation.

BubbleBuster.com will summarize it for you.

 

[no_vaseline_IHB]

Can I get a conventional 30 year fixed on $385K for $1750 a month, including impounding taxes, with $2000 down? Thought so. When I can rent an equivlent property for half what I can buy it for, either my rents are going to skyrocket, or prices are coming down. This much imbalance between rents and ownership costs can't exist. I'm not laying my money on rents skyrocketing.

Assuming that you could get 100% financing (which is becoming less likely these days) I would estimate the monthly cost for principle, interest, insurance, and taxes on a $385k home to be $2,887. So it would have a monthly difference in cost of $1,137. But that isn't accurate since the renter is paying for housing with after-tax dollars. My guess is that renting would costs more than $2,000/mo in this scenario. The current system doesn't allow you to keep the money, it has to either go to the bank or the government. With the government there is very little upside potential on a personal level. [/i]

My brother and his wife purchased a home last year. The addition of the "RE income tax deduction" pushed them over the AMT cap, because your personal deductions (personal exemptions and those for for dependents, state income tax, property tax, and your mortgage interest) are considered "tax shelters". Too many individuals find this out the hard way because they don't do adaquate tax planning. My wife and I are in similar circumstances. If we were to buy a home, the tax advantage would be negative compared to renting unless prices fall off another 40% or more. If we were in Nevada it would be different, but we're in California and we have the highest effective state taxes in the nation.

Every year, AMT renders the standard "Real Estate has Tax Advantages" advice more and more obsolete. Banks will soon reflect this reality and factor thier debt/income ratios (especially in California), allowing less leverage than what they've taken in the past, further depressing house prices.

But I wouldn't expect you to know that because you sell houses and aren't a EA or a CPA.

this statement is just plain wrong. property tax will work in yout favor for AMT, not against it

No, it won't. AMT considers your property tax and mortgage interest expense a "tax shelter".

I know of someone who lives in Bakersfield, makes $38K a year as a waitress, is a single mother of one, and owns a pretty plain condo - who is subject to AMT because they consider her personal exemption, her exemption for her daughter, her property tax exemption, her mortgage exemption, and her California state income tax exemption as a "tax shelter". As you ratchet your incomes up, it gets worse. Nobody cares about AMT untill you get clipped by it. I have been paying my CPA to effectively calculate two returns since 2003 for exactly this reason. I have been able to take some steps to minimize my AMT exposure. If I buy a property it all goes out the window because I am under the AMT caps by the narrowest of margins.

What the columbussquare person wrote USED TO be correct, but isn't anymore, especially in SoCal where incomes and property values are higher than BFE Plano or Bakersfield. Over the past five years, it started to become "well sometimes" and then "more often" and without Congresional action (which isn't coming in light of the deficts we have committed ourselves to over the past 7 1/2 years) will become "totally standard".

 

[graphrix_IHB]

Actually, if you take the median income, median home price, and what the payment of that median price would be at the current interest rate would be then you would have a percentage of what people spend on their homes. Now in 1991 the peak of the last bubble it reached 45%, and dropped to 26% in 1996. Between 93 and 96 we had job growth, so prices still go down when jobs are being created. In 2006 that ratio got as high as 65%. Will it go as low as 26%? Well if we don't start creating jobs, you can say that it will be in the bag.

Right, the ratios change for a given place due to things like housing bubbles. What I'm saying is that you can't tell what the correct ratio "should" be for a given place. So affordability, as reflected in the price/income ratio, tells you nothing by itself.

You can tell what the right ratio should be for a given area, if you look at the history of the median income, median home price, and calculating what percentage of that median income is going towards their payment when you factor in interest rates. If you do this, it is plain a day to what "normal" is and where we are headed. You can cite census stats all you want, but you need to factor in interest rates, otherwise you will not get a true ratio. This is also why I cited the years and ratios that I did, to show history and to show how bad it got. Seriously, this is a basic econ stat that should be taught in high school and re-taught to all the economists who get paid for their info from the RE industry, like Mark Boud.

 

[columbussquare.com_IHB]

What the columbussquare person wrote USED TO be correct, but isn't anymore, especially in SoCal where incomes and property values are higher than BFE Plano or Bakersfield. Over the past five years, it started to become "well sometimes" and then "more often" and without Congresional action (which isn't coming in light of the deficts we have committed ourselves to over the past 7 1/2 years) will become "totally standard".

OK, then we are all in agreement. Talk to your CPA and make sure you're prepared and not surprised. Then call your senators and representatives to have them fix the AMT. I agree that having two sets of rules makes it difficult to play the game. There are times when you can deduct real estate expenses on your taxes. When that happens, great you just got a bonus. Thank you for bringing attention to an exception that is real and exists for more and more people in the 'middle-class'.

What about the other points including:

- talking about prices as they're impacted by available financing

- the long-term impacts of Prop. 13

- the non-cash benefits of being able to do whatever you want with the property (as compared to renting and having a landlord's rules)

- the availability factor (every property is unique; some are more desirable then others)

- proximity to work, church, social activities, etc may influence purchase timing (this also applies to job changes)

- your personal situation is unique (external factors like an unexpected inheritance or parental gift and personal circumstances like having a baby or just getting married might be a catalyst for you and make the difference between one time or another)

Or what about my previous post highlights including:

- failing to consider the various business models, and contingency plans, for a property that they are purchasing

Or these points:

- mortgage rates stay flat with a fixed rate loan while rental rates are basically guaranteed to increase over time

- if mortgage rates increase then prices will stay flat or drop but affordability even less than it is today

- leverage is a multiplier for your equity when property values change in value. the more you bigger your DTI (debt-to-equity) the greater the impact (positive & negative)

Let's discuss these points and how they'll impact prices.

Here is my view: Prices (as adjusted for financing) may still drop an additional 5-10% (from previous highs). However, the next 12-24 months could just as easily stay flat or bounce back 5-10%. Given this uncertainty if you're prepared and your budget is solid then it's ok to buy anytime within the next 18 months. There will a lot of people trying to time this market and not everyone will be right.

If you believe differently then factor that into your decision (you can't know the future). Develop measurable benchmarks and watch for things to change. For example, tomorrow is a big day for the mortgage market if rates drop more then you could expect slower price declines or prices to actually increase. Set a targets for multiple factors and be prepared to move if you're actually a willing and able buyer. If not, then this whole discussion is just academic.

 

[bigmoneysalsa_IHB]

<snip>

Right, the ratios change for a given place due to things like housing bubbles. What I'm saying is that you can't tell what the correct ratio "should" be for a given place. So affordability, as reflected in the price/income ratio, tells you nothing by itself.

<snip>

Bubble primertime.

Perhaps the historical picture will help.

Oh yes, that 62% over valued was way back in 2005.

Or perhaps you need a little more color and it spelled out in terms of inflation.

BubbleBuster.com will summarize it for you.

Thanks for the link, but I read that article 34 months ago. Rich is my hero. LMAO! You guys think I'm an RE bull or something? I was a bubblehead a year and a half before this blog existed. I'll probably be calling IrvineRenter a knife-catcher when he buys.

You can tell what the right ratio should be for a given area, if you look at the history of the median income, median home price, and calculating what percentage of that median income is going towards their payment when you factor in interest rates. If you do this, it is plain a day to what "normal" is and where we are headed. You can cite census stats all you want, but you need to factor in interest rates, otherwise you will not get a true ratio. This is also why I cited the years and ratios that I did, to show history and to show how bad it got. Seriously, this is a basic econ stat that should be taught in high school and re-taught to all the economists who get paid for their info from the RE industry, like Mark Boud.

I know how bad it got. But the price/income ratio can change for any number of valid reasons having nothing to do with economic bubbles. Only the invisible hand can figure out what homes in one place should cost compared to other places. And where does the invisible hand show itself? Rents. It's all about the P/E. It will always be all about the PE.