Housing 80% overpriced in many markets...

[LADoc00]

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Here is a nice math summary I found at the bubble blog highlighting the issue at hand:
http://thehousingbubbleblog.com/?p=1770#comments

Here is the fundamental problem as I see it: We have had record low interest rates that allowed lender to get really, really creative. This unfortunately let people qualify for mortgage they really can't afford. From the IRS website, here are the floors for each income threshhold (i.e. the smallest income for that bracket) from 2003 (the most current):

Top 1%: 295,495
Top 5% 130,080
Top 10% 94,891
Top 25% 57,343
Top 50% 29,019
To understand these numbers, they show that if you earned $29,019 in 2003, you were the lowest income in the top 50% of all incomes.

Now, using a mortgage qualifying calculator at http://www.webbuildersolution.com/calculator/MortgageQualifier.cfm?calcid=2&id=17629, and assuming NO OTHER DEBT beond the mortgage, here is the home you can qualify for:

Top 1% 881,606
Top 5% 382,435 (wow! what a drop)
Top 10% 288,335 (yikes!)
Top 25% 177,365
Top 50% 93,516

So, in my analysis, once underwriting returns to more normal proportions, only 1 in 100 households can qualify for these $1,000,000+ properties. So it seems to me that an artificial demand was created by underwriting guidelines. If the lenders tighten up, then fewer and fewer people will qualify, and that means less demand and we all know what happens as supply and demand try to find thier equilibrium.

HARD LANDING, HERE WE COME!


http://www.businessweek.com/the_thr...sing_2.html?campaign_id=rss_blog_blogspotting

 

[mshheaddoc]

😕

1) your links are a little confusing they don't support what you're trying to say and 2) what exactly are you trying to say about this?

The first link you have posted is their article referring to a "fraud" ring which has been going around in the US where there is artifical inflation and doesn't make sense to your post.

And as for underwriting concerns you have, I'd agree with you on the subprime lending aspect but not on underwriting as a whole. Income is just a piece of the pie, credit and downpayment (as well as employment history) speaks volumes for someone who even has bad credit.

 

[LADoc00]

😕

1) your links are a little confusing they don't support what you're trying to say and 2) what exactly are you trying to say about this?

The first link you have posted is their article referring to a "fraud" ring which has been going around in the US where there is artifical inflation and doesn't make sense to your post.

And as for underwriting concerns you have, I'd agree with you on the subprime lending aspect but not on underwriting as a whole. Income is just a piece of the pie, credit and downpayment (as well as employment history) speaks volumes for someone who even has bad credit.

You didnt read the link then. The first link is where I cut and pasted this analysis from: the housing bubble blog. look over it again and you will see the guy who originally posted this.

The second is unrelated but I added it in for additional housing info.

There is no one questioning housing in the US is seriously overpriced. Everyone agrees. The real question is how much overpriced is it and that really depends on where you are talking about. In some California markets, Ive seen numbers of between 30 up to 90%.

 

[mshheaddoc]

I did read your link and your link was of the "shell" fraud and I'm really not seeing WHERE you cut and paste that information or any articles even relating to that topic? Your link ""A Major Shift In The Market"" is not a "Nice" math summary of what you are comparing it too unless you are drawing your own analysis from it.

And this is bad underwriting (and the appraisers should be scrutinized) for this botch up:

n the process of researching what had happened to her, Carpenter found the house she bought for $93,000 suddenly had become valued at $160,000 by an out-of-town appraiser whose inspection she felt was cursory, at best. He called her near-downtown neighborhood "suburban" and missed on the square footage of the house by about a third, she said.

Bitterly, Carpenter noted that the appraisal of her home as part of the foreclosure process placed its value at about $40,000.

I'm sure other foreclosures in her area hurt her hard as well.

As for housing prices, inflation hit areas harder than others. Analysts are now thinking prices might just stay stagnant and fall down a little until "income" supposedly increases as well. Again, the sample isn't representative of the whole "population". People still have to move, but the refinance era is gone. Those with ARM's are screwed, those who have these "shell" frauds are screwed, and falling prices aren't going to help those trying to make a big buck (or those like this poor woman who was taken advantage of) but overall chicken little, the sky is not falling. And housing is NOT overpriced by 80% on the US markets. Some of the linked articles to the links you gave are claiming more like 20%.

Now YOUR area is overvalued more like 50% but will prices drop? Not as much as they probably SHOULD (price for "city" living), but the main cities you'll find will stay stagnant, especially with the smell of "recession" on the edge of peoples lips.

 

[LADoc00]

Look down the comment list to the "Comment by Borax Johnson
2006-11-06 09:14:52"

Yes the link shows the very first comment which is on shell fraud, READ DOWN.

 

[Whodathunkit]

A friend of mine has a 2 bedroom condo near UCLA Med Center. Was trying to sell it for 775K. No hits. Dropped the price. No hits. Had open house. Only a few people were showing up.

Now, rather than sell it, they are renting it at $1500.00/month to a friend.

Can't wait till this happens where I live, it's in desperate need of people being humbled.

 

[curious1]

LADoc -

Your logic is a bit flawed. You can't draw a direct line between income and ability to spend because it ignores wealth. Most of my friends who have bought homes did so with a lot of help (few hundred k) from their parents. If someone has 3 million invested, their "income" derived from that may be less than 100k, but they have a lot of spending power. I hope housing comes down a bit because I am in the market, and prices suck. Just wanted to point out that you need to look at all the factors, and there are a lot of rich families in the US.

 

[me454555]

There are definatly a lot of rich families in the US but not enough to sustain the current housing market. If you look around certain neighborhoods you can't find houses under 500 or 600k. This just isn't right. If you think about the average yearly income needed to afford a house like that, there just aren't enough rich people in the US who can sustain this market. Thats the essence of what LAdoc is trying to say. Most people are buying houses w/significant cash help and mortgages they have trouble affording. Once this whole thing equalizes, real estate prices will move closer to their intrinsic values.

 

[ncalcate]

Check out the following blog:

http://iamfacingforeclosure.com/

This 24 year old real estate "investor" is way over his head with houses he tried to flip. Now it has finally caught up with him. I'm wondering how much of the price appreciation of the past 3 years were driven by people like him... as well as how many like him are now in his predicament.

 

[bla_3x]

Once this whole thing equalizes, real estate prices will move closer to their intrinsic values.

God I can only hope.
We want to stay "home" however, and home is Las Vegas. While the rest of the county, at least a good part, seems to be going down a little, LV seems to be locked in at this ridiculous inflated level. Analysts state that b/c of the "thriving local economy with no end in sight" that LV housing can and will stay inflated.
My in-laws just bought a 1400sf house with absolutely NO yard for almost 500K. This is in a nice but by far not best area. This house is AT MOST "really" worth only 180K
The only visible thing is that housing dev. aren't selling out in 24H like they were, but the real estate just wont go down in price...So incredibly aggravating for someone looking to buy a home here and has a family.