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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: XoFruitCake who wrote (67432)11/29/2006 1:02:00 AM
From: Lizzie TudorRead Replies (2) of 306849
 
while I agree with your point I want to point out the fallacy in this-

The index assumes that a household that can afford to buy a home is spending 28 percent of its monthly income on a 30-year-fixed-rate mortgage with a 6.77 percent interest rate, along with property taxes and insurance.

Based on this index, only 8.8 percent of homes sold in the East Bay in the third quarter were affordable to households earning the median income of $83,800. A year ago, the affordability index in Alameda and Contra Costa counties was 9.8 percent.

28% ratios are obsolete imho, a victim of the law of large numbers. No double earning couple with 160K income ($13,300/mo) needs 72% of their income for non-housing related "essentials"- thats $9576/mo!!!! (say half of this if they are in a high tax bracket).

Thats where these ratios break down and some new analysis needs to be done as to affordability of homes. I remember when I bought my first house a few years ago before I was married, back then they really enforced that 28% rule and it was a JOKE, single people basically had to buy a dinky house and save the rest to "upscale" later. There was no other way. Even if you made 100K, a HUGE amt of money in the early 90s, you could only pay $2.3K mortgage per month, thats all you could qualify for! Those ratios don't really work anymore.
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