What's going into escrow - Irvine and maybe some Tustin too

NEW -> Contingent Buyer Assistance Program
<p>"I think paying 3k a month for a mortgage is very reasonable. That comes out to a 500k loan."</p>

<p>Food for thought: If the lending standards of yore return, i.e., no more than 30%DTI, then that means you're bringing home 108K/year. (Okay, I rounded up to 33% DTI!).</p>

<p>How many people making 108K per year want what is available for 500K right now - a dumpy apartment/condo?</p>

<p>Something to keep in mind going forward.</p>

<p>GGGGRRRRRRRR!!!!!!!!!!!!! (bear growl!)</p>
 
IPO, in case you didn't know, you can check for sold price versus list price for properties sold in the last 6 months by going to catalisthomes.com. The registration is pretty easy doesn't expire. As with other sites, you can search by zip code with a price range. Please disregard if you know this already.
 
<p>I'm a little amazed that people think a six-figure income is something special or that a family with such an income would have exorbitant tastes. Irvine is full of double-income families people. A first year teacher in IUSD, as an example, makes $48K per year. <u>First year as in absolutely no work experience at all...</u> You don't think a young couple, let's say both teachers in there second year out of college and making $100K between them, wouldn't be perfectly happy in a 1400-1500sf condo or townhouse? My gosh, for a double income family to make $100K, they could both be 25 years old and still partying most of the time! My 25 year-old staff accountant makes $45K, her finance $60K. He's 26. They make over $100K between them and would be ecstatic to be in a decent Irvine condo with a payment they could afford... We're not that far away for them.</p>
 
Here lies your problem Ipoplaya.... us DINKs don't want to pay 450k for a 1200 sqft condo. with mello roos and hoa. plus the younger ones usually don't have the downpayment money or they are working on fixing their credit.... college can be tough sometimes.... and if they are out drinking and partying then they defintely don't want to be tied down with a mortgage payment
 
<p>Dinks with the down saved might be foolish NOT to pay $450K for a 1200sf condo. What's it cost to rent such a place? In my part of Irvine, 1200sf condos have been renting for around $2200. $360K financed @ 5.5% is going to be a pre-tax payment of $2,044, let's say prop taxes of around $550/month, and HOA of $250. Total all-in of around $2800-2900. Toss in the tax benefit and on a monthly basis, it's probably pretty much a break even in terms of monthly after-tax spend on housing.</p>

<p>If that $450K was going to become $350K before too long, of course buying would be a stupid idea. But then again, if it's a break-even or even close to B/E with renting on what could be a 30-year fixed mortgage, what's the catalyst for it to fall much further? House prices should stabilize at equivalent rental rates or maybe slightly above... </p>

<p>Assuming long-term fixed rates stay this low, $400K in later 2008 for a 1200sf condo would probably end up being a good financial decision for a young dink couple. They would hedge against future inflation, save some bucks each month vs. renting, and probably build a little equity after a few years...</p>

<p>That's my slightly bullish two cents for tonight! </p>

<p> </p>
 
<p>HS makes a critical point. It came up yesterday on the 20 Edge thread.</p>

<p>If you put 10% down, due to the low interest rates, your current P&I is less than rent. HOA adds a little and Taxes adds about $400 but income taxes reduces it.</p>

<p>The simple and scary answer is at $450K, the interest, taxes and HOA is on par with rent. </p>

<p> </p>
 
<p>With 20% down, a 500K townhome will cost 3187 a month before int and pt deductions ( 6% fix rate, 1.5% total tax, 300 HOA). The tax adjusted net cost is very similar to renting a nice two bedroom apt with attached garage. So 500K is not that bad! </p>

<p>In terms of down payment, educated DINKS here should have no issue saving $100K in several years if they want to - don't have kids, live in a onebedroom, drive a civic vs. a 328, drink diet coke vs. $10 martinis, etc. You can tell me 100 reason why it is not possible to save this much, but I can show you how you can if you really wanted to. </p>

<p>Someone here might argue the opportunity cost of 100K. Well, i don't believe the logic of : ownership cost <= rent cost is the time buy theory. You live once, enjoy it if you can afford it.</p>
 
Question for ipop, NSR, and 123:

After adjusting for interest rates, do you see any reasons why PE/ratios will be significantly higher at the next market bottom than they were at the last one (mid 1990's)? I don't, but I have an open mind.
 
one more thing: if ownership cost of a 450K townhome is on par to renting a 1200 sq ft apt, then the $ / sq ft is $375 a sq ft.Townhome $ sq ft is always higher than single family. That makes 300 sq ft for a single family relatively reasonable.
 
<p>I suspect it will be lower. (After correcting for lower interest rates). By PE I'm assuming you mean price/rent ratio. I also suspect that we'll see a more severe rent softness than in the nineties. That rent softness is caused by the return of idle inventory (empty homes, rentals converted for sale, speculator bought homes, etc) back to the rent marketplace. That softness then causes lower GRMs as the rent quality drops due to increased vacancy rates.</p>

<p>My real concern is about the time the housing downturn really starts to roll in Q4 of this year, the Fed may be facing inflation and having to fight it. At the same time, the market is already starting to price future inflation and increase risk premium into the product. </p>

<p> </p>

<p> </p>
 
405k @ 6.0% yields a P&I pmt of $2,428 a month. The PMI will be at least $180 a month perhaps more. The PMI will probably not be tax deductible, since the borrower's income needed to qualify for this mortgage will be above the threshold.



Taxes will be at least 468 a month. This puts the PITI and PMI monthly nut @ $3,076.18

Add the opportunity cost of interest earned on 45k ($150/month) puts total expense @3,226.18



The tax deduction in the first year would be $24,165. This is the interest paid in the first year. With an traditional, amortizing mortgage, the interest payments DECREASE every month, so your tax deduction will decrease every year. The standard state property tax is tax deductible as well. this would be about $5,616 a year. The total housing expense eligible for deduction would be $29781. Assuming a tax rate of 30%, the tax savings would be $8,934 a year, or, $744.53 a month.



$3,226.18 - $744.53 = $2,481.65 a month net of taxes. If this property would rent for around 2300 to 2500 a month, it seems that this price level is getting close to a rent equivalent. There are additional costs for being a homeowner and the monthly cash flow requirement is still over 3k.
 
<p>also don't forget with that payment, you are also paying towards prinicpal....longer term it is building equity SLOWLY....which renting doesn't do. </p>

<p> </p>
 
Wow. I'm glad these calculations are making sense to me. I agree that now is not the time to buy. The median price of a condo is 400k right now. I think it will be 350k by the end of the year. Payment on a 350k loan would be $2100. For a dual income couple making $8100 a month, they can afford to pay $2100 a month. They still have 6k left for everything else. For a single pharmacist making 160k, I'm pretty sure he can afford $3000/month on a 500K starter home (that's still 100K less than today's median price). I agree with the bears that condos will drop another 50k in value. I also think that SFR will drop another 100K in value. And at that point, people will begin to buy normally. When condos are going for 350k and houses are going for 500k, I know there will definitely be buyers. And I think those will be the prices by the end of 08, beginning of 09. I just hope prices drop sooner rather than later so these buyers can jump in to stabilize the housing market. When prices drop to 2004 level and stay there, sales volume will pick up. I think we'll be seeing 2004 prices for the next 2-3 years.
 
<p>Here's a good example of a new listing at what I would consider close to rent equivalent:</p>

<p><a href="http://www.redfin.com/stingray/do/printable-listing?listing-id=1457443">http://www.redfin.com/stingray/do/printable-listing?listing-id=1457443</a></p>

<p>Mid $500K range at list for a 3/3 in a gated community serviced by excellent Tustin schools - Myford, Pioneer, Beckman. These places have been renting for $2400-2500 typically. If it could be had for let's say $515K, you could finance with a 30-year interest only for under the conventional limit at an interest rate of 6.125% today. Puts monthly after-tax spend (no principal savings component) at around $2100 per month. As maintenance/repairs is probably not $300-400/month on this, it would probably save a renter money at a price in the low $500K range at today's interest rates and current market rents.</p>

<p>IR - if you look at the numbers relevant to this example, do you think this place would need to fall back to around $400K at bottom? At that price, it would appear to be far cheaper than the rental equivalent...</p>
 
Oh gawd... am I going to have to enact graph's law in this thread?





Geez... ipo... what are you doing? That's like committing suicide of your own thread.





Would someone buy a home quick, we need to discuss escrows, not payments. Payments kill threads, and they are the kryponite to forums.





Yes, the beard has to go, and damn I need some more sun.
 
The main reason I wrote the post <strong><a title="Permanent Link to Rent Versus Own" rel="bookmark" href="http://www.irvinehousingblog.com/2008/01/14/rent-versus-own/" linkindex="11" set="yes">Rent Versus Own</a></strong> was to stop these semi-pointless, back-of-a-napkin calculations that improperly estimate the real costs associated with home ownership. If the payment matches rent, you are still losing money to all the other costs, and no, the tax benefits do not cover the difference. Plus, even if a property were selling for a breakeven GRM in today's market, it is ignoring the macro trends which will further erode value. Rents will likely decline as the recession plays out, and interest rates are likely to go into a multi-year tightening phase to curb inflation. Neither of these effects will impact house prices in the next 9 months, but they certainly will over the full ownership period of the property. Also, there is the very real possibility that the foreclosure tsunami will drive prices below the breakeven GRM.
 
It is interesting to watch the psychology of the bubble burst play out. Ya got those who wanted homes and could not afford them and now are willing to wait because they don't want to catch a falling knife. And there are those who maybe could or could not afford a home or a move up and they want to buy or move up so bad, they will provide mega rational for doing so. And some of the rational is quite complicated and convincing.
 
<p>Or you have people like me, who want nothing to do with a $500K home and want to buy bigger. For people like me, no matter how many napkins I use, we are nowhere near any kind of rental equivalent on larger SFRs so any kind of decision to purchase one of those would be darn stupid. Frankly, it scares the poop out of me that my home could have fallen to within 10% of rental equivalent while the larger homes have failed to come down nearly as far. Trust me, this isn't wishful thinking on my part. If we bottomed out at these prices across the spectrum of homes, I'd be screwed.</p>

<p>I'm not saying we are at a bottom... Sellers wants me to pay $1.1M to get 2600sf in NW Pointe. That in no way resembles my vision of a bottom. What I am saying is that with regards to some properties, I think we are close to levels where people will pull the trigger. Right or wrong, 90% of the people analyzing that buying choice vs. renting don't factor any maintenance, repairs, etc. These same 90% of people will use the recent rents they have paid when considering their buy decision. If IAC just hit 'em up for another 5%, do you think the average joes are going to have the perception that rents are softening?</p>
 
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