The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: MulhollandDrive who wrote (3251)	7/8/2002 5:00:10 PM
From: GraceZ	Read Replies (1) of 306849

I don't sell houses but I've worked with a lot of people to help them figure out what they can afford before they get involved in the market and I've bought a lot of houses. Realitors "qualify" buyers in a certain sense just so they don't waste a great deal of time selling them a house at a price if a lender won't lend them the money, but it is the lender or mortgage consultant who figures out whether or not you have the income for the loan. Realitors do pay attention though because nothing is worse than a contract where you spend a great deal of time with the buyer and then the lender refuses to lend them the money. Keeping track of median incomes is almost worthless, aside from the fact that median and average are both skewed by the high and low end. Its the distribution of income levels to home levels that matters. In other words, how much supply is available for the demand at a particular price level combined with the interest rate. You can have a low median income in an area where people with higher incomes are migrating. This is very much the case where I live in Maryland. The older existing housing is small and funky, but the McMansions are going up daily with higher income buyers looking for bargains in the next area to go up. The other reason its almost worthless to look at median, is because you can have two households with identical incomes with extremely different spending and saving habits. I've worked with people who had 60k in yearly income who have been able to save enough to buy a 400k house (which became a 600k house in the time they owned it) and I've also worked with people whose household income was in the 200k range that were legally bankrupt (although they never declared bankruptcy) and only able to buy a house in the 200-300 range. Both were able to pay their respective mortgage payments for years and years on time. The 60k couple had zero debt and large savings even though they lived in a very expensive area, the bankrupt couple had great cash flow with a negative net worth because of their debt load. I think you'd be amazed at how little income some high net worth individuals used to build up their fortunes. Almost no one would be surprised at how much income is consumed on the high end (and the low end as well).

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