What the bubble?!?

[gld2]

Is the $8000 the after tax income, after the mortgage payment and real estate taxes & mello roos?

That's why I think everyone in Irvine who buys at these prices at this income level either gets help from their parents or they are move up buyers.  They have equity from their previous house + savings from the last X years  so it is more than 20% down.  Some may have a combination of both. 

The high DTI crushes the taxes you need to pay.  Build a sample budget, with a $800K loan on a $200K income at 4.5%. 

FICA takes about $11K.
Invest $35,000 in the 401Ks and you're down to $165K taxable income.
interest, property taxes, state taxes blows $65K+ off your taxable.  Take your exemptions and child credits and you're down to under $1000/month in Fed income tax.
State income takes another $500/month.
That leaves about $8000K a month for living, on top of the assume $1000 other "Debt" which hopefully covers the cars or your just spending too much.

Are we really saying you can't get by on $8000 SPENDABLE a month?


While I wouldn't want to stretch that far, it's not unmanageable.  And while it's much more financial prudent to purchase a home below 3X your gross income, historically in SoCal, it's been 3.5x-4X and that was back in the day when mortgage rates were 8%+

 

[nosuchreality]

^^^Yes, but I made a spreadsheet mistake.  I forgot to back out the 401K.  So it's closer to $5000/month, after taxes, after parking $35K in the 401K, after the Mortgage and Property taxes.

Is the $8000 the after tax income, after the mortgage payment and real estate taxes & mello roos?

That's why I think everyone in Irvine who buys at these prices at this income level either gets help from their parents or they are move up buyers.  They have equity from their previous house + savings from the last X years  so it is more than 20% down.  Some may have a combination of both. 

The high DTI crushes the taxes you need to pay.  Build a sample budget, with a $800K loan on a $200K income at 4.5%. 

FICA takes about $11K.
Invest $35,000 in the 401Ks and you're down to $165K taxable income.
interest, property taxes, state taxes blows $65K+ off your taxable.  Take your exemptions and child credits and you're down to under $1000/month in Fed income tax.
State income takes another $500/month.
That leaves about $8000K a month for living, on top of the assume $1000 other "Debt" which hopefully covers the cars or your just spending too much.

Are we really saying you can't get by on $8000 SPENDABLE a month?


While I wouldn't want to stretch that far, it's not unmanageable.  And while it's much more financial prudent to purchase a home below 3X your gross income, historically in SoCal, it's been 3.5x-4X and that was back in the day when mortgage rates were 8%+

 

[daedalus]

What's the general rule of thumb?  If your annual household income is $200,000, you should be able to afford a $600,000 home, right?

I know it's very general and DTI and stuff like that come into play, but isn't it something like 3x your annual income?

Personally, I would say you are looking for trouble if you were to take out a mortgage greater than 2.5 times your gross household income.

Its better to save up and buy something cheaper or to look somewhere more affordable.

For folks considering that, why be so highly leveraged?

Then who could actually affford a $800,000 home in Irvine?  20% down is $160,000 and you would have a $640,000 loan amount.  I highly doubt the average annual income for someone looking to buy is $256,000 and that would be a starter home in Pavilion Park and a starter detached in Cypress Village or a starter in Laguna Altura.

Add in a Montessori, 1-2 car payments (if you don't have one, I guess your driving a paid off 2007 Bmw X5 or paid cash for 2012 Camry), a couple small credit cards.

I guess everyone will be close to 45% dti with a 30 year fixed at 4.25%.

The point has been made repeatedly and backed with excellent data--"average" doesn't mean diddly squat.    The average has been going up very quickly because desire and means are pricing out the rest, anchored by long-term owners and renters.  Should a Ferrari cost less because the average income of those who want one is $50k?

No kids or car payments here.  A 3x-income loan amount would be quite comfortable for us.

 

[irvinehomeowner]

It also didn't include certain revenue sources:

1. revenue from allowing non IUSD zoned students to use their address to send their kids to IUSD school

Hmm... can I advertise this service on Craigslist?

www.PretendYouLiveInIrvine.com

 

[OpenSky]

 

[OpenSky]

 

[nosuchreality]

The reason i brought up that 3.8% tax, is the AGI it affects just happens to fall within the analysis that NSR did above.

And for anyone who bought during the bottom or near the bottom, a profit in excess of $500K is not impossible.

Just outside what I calc-d.  Remember 401K is pre-AGI.

More importantly, that's the max stretch, you're not spending money on much else.  i.e. you're not doing a big car payment for a few years and you don't really need daycare for kids.

and even more importantly, that's for $200K, which is the 87th% percentile in Irvine and assuming a loan at 4X on a home purchase price of 5X.

again, the driving factor is 2% of the housing stock is in the window of SFR on larger lot and not literally target to 'multi-millionaire' homes and 5% of the housing stock is non-motorcourt SFR on smaller lots.

Versus somewhere in the 10-20% in the income range and household situation to want them.

or IOW,  a whole lot of people are going to get pushed down in what they settle to buy.  i.e  You make $200K, you're the target demographic for area A of Orchard Hills in the middle homes on the motorcourt.  And you better bring $200K for a down and closing.

 

[Irvinecommuter]

The reason i brought up that 3.8% tax, is the AGI it affects just happens to fall within the analysis that NSR did above.

And for anyone who bought during the bottom or near the bottom, a profit in excess of $500K is not impossible.

No but extremely unlikely. 

 

[paperboyNC]

I think only a million of your primary residence is deductible.

Personally I like to sleep at night. I could put down more and owe less or I could invest the money I didn't put down in stocks......... which may and have gone down 20% in one day. Houses can do that too but not in one day at least. If I'm not overleveraged, at least I have a house to live in.

I too am anti-leverage. Leveraged folks could have gotten completely wiped in 2008/2009 between the 50% drop in the stock market (margin calls) and the 30% drop in home prices and not been able to hold on to their investments long enough for them to bounce back.

 

[yaliu07]

I think the new Debt-to-income limits are around 45%. 200K/yr = $16,677/mo.  45% = $7500. If you are spending $1000/mo on other debt, you have $6500/mo left for a home. At current interest rates your payment breakdown is something like this:

0.35% = monthly mortgage payment (4.25% APR) with 30% down
0.17% = monthly property tax (2.0% / YR)
0.02% = HOA / Insurance
-------------------
0.69% total

That means you can afford a $1,200,000 home with 30% down and your monthly payments would be:

$4142 - mortgage
$2000 - property tax
$150 - HOA
$208 - Insurance
******************

Total

And this is fairly aggressive. Bankrate.com claims a DTI ratio max of 36%:http://www.bankrate.com/finance/mortgages/how-much-house-can-you-buy--1.aspx

When I got my mortgage last year they said I could go up to 55% I think which seems to high since taxes are at least 20% which would only leave me with 25% of income after debt payment.

I am sorry.  But doesn't Uncle sam take around 20% first?
Second, dont you want to put some down in your 401K because Uncle sam will not take care of you?

 

[paperboyNC]

I think the new Debt-to-income limits are around 45%. 200K/yr = $16,677/mo.  45% = $7500. If you are spending $1000/mo on other debt, you have $6500/mo left for a home. At current interest rates your payment breakdown is something like this:

0.35% = monthly mortgage payment (4.25% APR) with 30% down
0.17% = monthly property tax (2.0% / YR)
0.02% = HOA / Insurance
-------------------
0.69% total

That means you can afford a $1,200,000 home with 30% down and your monthly payments would be:

$4142 - mortgage
$2000 - property tax
$150 - HOA
$208 - Insurance
******************

Total

And this is fairly aggressive. Bankrate.com claims a DTI ratio max of 36%:http://www.bankrate.com/finance/mortgages/how-much-house-can-you-buy--1.aspx

When I got my mortgage last year they said I could go up to 55% I think which seems to high since taxes are at least 20% which would only leave me with 25% of income after debt payment.

I am sorry.  But doesn't Uncle sam take around 20% first?
Second, dont you want to put some down in your 401K because Uncle sam will not take care of you?

When the banks look at your debt-to-income ratio they ignore Uncle Sam. My post mentions the money to Uncle Sam at the bottom. The bank doesn't care how much you put in your 401k for debt to income ratio either.

I did not buy a home with 55% debt to income ratio. My debt to income ratio is around 30% not including my pension plan income.

 

[Irvinecommuter]

I think the new Debt-to-income limits are around 45%. 200K/yr = $16,677/mo.  45% = $7500. If you are spending $1000/mo on other debt, you have $6500/mo left for a home. At current interest rates your payment breakdown is something like this:

0.35% = monthly mortgage payment (4.25% APR) with 30% down
0.17% = monthly property tax (2.0% / YR)
0.02% = HOA / Insurance
-------------------
0.69% total

That means you can afford a $1,200,000 home with 30% down and your monthly payments would be:

$4142 - mortgage
$2000 - property tax
$150 - HOA
$208 - Insurance
******************

Total

And this is fairly aggressive. Bankrate.com claims a DTI ratio max of 36%:http://www.bankrate.com/finance/mortgages/how-much-house-can-you-buy--1.aspx

When I got my mortgage last year they said I could go up to 55% I think which seems to high since taxes are at least 20% which would only leave me with 25% of income after debt payment.

I am sorry.  But doesn't Uncle sam take around 20% first?
Second, dont you want to put some down in your 401K because Uncle sam will not take care of you?

When the banks look at your debt-to-income ratio they ignore Uncle Sam. My post mentions the money to Uncle Sam at the bottom. The bank doesn't care how much you put in your 401k for debt to income ratio either.

I did not buy a home with 55% debt to income ratio. My debt to income ratio is around 30% not including my pension plan income.

Banks use debt to income ratios to gauge risk...not affordibilty.  It is related but not directly.  20% down payment is the magic number because risk of foreclosure dramatically increase when you get below 20% while it pretty stays the same above that.

 

[quattroporte]

"Price reductions at highest level in 3 years."

http://www.doctorhousingbubble.com/...uctions-california-income-price-down-payment/

 

[yaliu07]

found this today
http://www.cnbc.com/id/101192450

 

[Irvinecommuter]

found this today
http://www.cnbc.com/id/101192450

Owning a home is not supposed to be an investment.  Also, even if it is, in some ways it's better than other types of investments because once you pay off your home...you own it.  It's shelter..you will always need shelter.

 

[Irvinecommuter]

found this today

http://www.cnbc.com/id/101192450

Owning a home is not supposed to be an investment.  Also, even if it is, in some ways it's better than other types of investments because once you pay off your home...you own it.  It's shelter..you will always need shelter.

False.  It is an asset like any other.  When you purchase a home, you are essentially making a decision with your portfolio that your equity in the home will increase in value more quickly than if you invested  the marginal difference between what your mortgage payment is and what an equivalent home could be rented for.


For example, If you buy a 3 BR home, and your total cost (PITI)+ HOA+MR = 4K / mo, vs. the $3500 it would cost to rent an equivalent home in the same neighborhood - the $500 / month that you are investing in the home should generate a higher return (between the purchase and the time you sell it) than if you rented a home and invested that same amount in the market over the same period of time you could have owned a home.

Again...house is not meant to be an investment.  Renting is not the same as owning.  It may not make economic sense to own a house at certain periods of the economic cycle but there is also no guarantee that your investments will do well. 

There are non-economic reasons to buy over renting.

 

[Irvinecommuter]

found this today

http://www.cnbc.com/id/101192450

Owning a home is not supposed to be an investment.  Also, even if it is, in some ways it's better than other types of investments because once you pay off your home...you own it.  It's shelter..you will always need shelter.

False.  It is an asset like any other.  When you purchase a home, you are essentially making a decision with your portfolio that your equity in the home will increase in value more quickly than if you invested  the marginal difference between what your mortgage payment is and what an equivalent home could be rented for.


For example, If you buy a 3 BR home, and your total cost (PITI)+ HOA+MR = 4K / mo, vs. the $3500 it would cost to rent an equivalent home in the same neighborhood - the $500 / month that you are investing in the home should generate a higher return (between the purchase and the time you sell it) than if you rented a home and invested that same amount in the market over the same period of time you could have owned a home.

Again...house is not meant to be an investment.  Renting is not the same as owning.  It may not make economic sense to own a house at certain periods of the economic cycle but there is also no guarantee that your investments will do well. 

There are non-economic reasons to buy over renting.

Maybe in your view of things, but everyone else sees it as an investment.  Including banks - who lend you money at interest rates for collateral (e.g., the title to the property), the county board of revenue who provide you a nice tax bill for the land, with improvements (e.g. the home), insurance companies - who offer to value the home differently than they do a life or auto policy, and investors (ever heard of a REIT?).


[font=verdana, arial, helvetica, sans-serif]Earlier you made a comment suggesting that you understood investing as well as financial professionals.  Since that's the case for you, calculate your net worth and determine where you put your home in that calculation.  After accounting for mortgage balances, does the equity you have in your home fall under the asset column?[/font]

I know other parties in the loan pipelines see it as an investment but a buyer should not see it as an investment.  Historically, real estate has appreciated fairly poor as compared to other investment so to see it as an investment a bad idea. 

You buy a house to live in it.  If you sell it down the line and make money off it, it's an unexpected benefit.  If you sell it and break even, you were essentially renting.  There is no reason to sell your home if you will lose money unless it's an emergency or you fall on financial difficult times.   

A house/home is a low ceiling, high floor purchase.  If the price stays flat or goes down, you still have a house to live in if you can afford the payments.  A car has a similar nature, it depreciates in value as soon as you drive it off the lot but it provide a vital and non-financial benefit. 

As to your question, I do not count the equity in my home as an asset because it's like counting your chickens before they hatch.  The equity in my home becomes an asset if and only when 1) I sell the property and 2) I own the property outright. 

 

[morekaos]

Very difficult calculation because of so many variables and intangible values.  If you really strip away the leverage, taxes and intangibles than stocks win every time over the long haul on a dollar for dollar basis. Dump a lump of money in a decent mutual fund and the same unlevered dollars in a house over long periods of time (10-20 years).  Stocks will usually win.

 

[Irvinecommuter]

Very difficult calculation because of so many variables and intangible values.  If you really strip away the leverage, taxes and intangibles than stocks win every time over the long haul on a dollar for dollar basis. Dump a lump of money in a decent mutual fund and the same unlevered dollars in a house over long periods of time (10-20 years).  Stocks will usually win.

Absolutely...historically stocks win as an investment.  That's why if you are looking at it from a strict financial POV, one should never buy a house.  But again, there are many non-financial factors and benefits to owning rather than renting.

 

[test]

Absolutely...historically stocks win as an investment.

Only in appreciation not in cash flow.  You can't eat stocks.