Another Housing Crash

[Joe Flacco]

I think there are many factors that are not being considered when considering affordability.

 

[Joe Flacco]

Median price to median income ratio is too basic.

 

[Joe Flacco]

Multiple buyers qualified to purchase every property means there is no affordability issue currently.

 

[George Hatch]

The payment on a 2006 purchase of $245k @ 6.15% was $1476. The 2006 median income was $48,201, so that $17,712 annual mortgage payment amounts to 36.75% of that income.

The payment of a 2018 resale of that particular 2006 purchase of $311k (due to inflation) @ 4% is $1484. The 2018 median income is being reported at $59,055, so that $17,808 annual mortgage payment amounts to 30.15% of that income.

FRED reports that the actual 2018 median is $328k, which beats the CPI rate a little. The payment for that at 4% is $1566. At the 2018 median income that annual $18,792 annual mortgage payment amounts to 31.82% of that income.

That's national, which means relatively little in terms of what's happening locally. Both in 2006 and in 2018. But IMO the combination of inflation and different mortgage rates makes the use of 2006 pricing as a benchmark pretty sketchy.

 

[Joe Flacco]

Look at Manhattan. Median income: $66,739 (2014). Median home price: $1.3 million.

How is that kind of income/price ratio possible? Trust me. California can get a lot more unaffordable than it is now.

 

[George Hatch]

If the 1Q2018 median price of $328k increases at the same rate over the next 12 months as it did during the prior 12 months (4.8%) the 1Q2019 price would be $343,000. If the 1Q2019 income increases at the same rate over the next 12 months as it has over the last 6 years (~3%/yr) we get $60,826.

If mortgage interest rates went to 4.25% over the 12 months that comes out to $1687/mo or $20,248/yr in mortgage payments, which in turn bumps us to 33.29% of that median income. Those assumptions are all speculative, though.

 

[Joe Flacco]

You Cali guys should visit NYC and see how people live in a real high cost city.

 

[George Hatch]

Look at Manhattan. Median income: $66,739 (2014). Median home price: $1.3 million.

How is that kind of income/price ratio possible? Trust me. California can get a lot more unaffordable than it is now.

And maybe it will. I've been talking about national and I already mentioned all RE is local. Manhattan is a geographically constrained district in NYC, the majority of whose workers commute, and there's a lot of imported money in their RE market. This is also the case for some of the other cities like DC, Seattle, San Francisco. and the like. But that isn't the case for even the surrounding suburbs to NYC itself, let alone the entire nation's housing stock.

Median home price in Brooklyn is reported at $733k and the median in Queens is reported at $614k and the median in Staten Island is reported at $512k; and they're part of NYC itself.

If you want to deny that on a national basis there has always been a relationship between pricing and incomes then knock yourself out. But the numbers don't lie.

 

[glenn walker]

You simply include the data that's available. You make observations about trends prices, incomes and affordability. Plus the lending requirements that have been loosened allowing the marginal buyer with marginal credit to enter the market.

Actually I am not sure if the analysis and mentioning of lenders loosened requirements or especially talking about marginal buyers with marginal credit is or could be assumed to be redlining a community or a certain race of people. I would hate to be the appraiser today in this environment who got involved in a transaction where he-she completed a report and was basically saying the lenders-the underwriters the government who writes and approves these loan programs is intentionally selling and funding loans that are designed to fail. I was surprised to see the post from a California appraiser because even though I agree data is data we have been warned many times over the years that some data is acceptable and others is not and commenting about government agencies underwriting and guidelines is the same as being called a heretic by your local church. Much safer to just do your appraisal and when it crashes blame appraisers because it's always there fault anyway.

 

[Joe Flacco]

And maybe it will. I've been talking about national and I already mentioned all RE is local. Manhattan is a geographically constrained district in NYC, the majority of whose workers commute, and there's a lot of imported money in their RE market. This is also the case for some of the other cities like DC, Seattle, San Francisco. and the like. But that isn't the case for even the surrounding suburbs to NYC itself, let alone the entire nation's housing stock.

If you want to deny that on a national basis there has always been a relationship between pricing and incomes then knock yourself out. But the numbers don't lie.

I think what you guys crying affordability might not be considering is that peoples housing expectations may just have to decline. Most of us are all just spoiled. You go to Manhattan and people rent a 100 SF room in a 300 SF **** hole in a 7 floor walk up and pay like $1,000. You think that kind of "unaffordability" can't happen in SF or LA?