Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (67476)	11/29/2006 11:25:39 AM
From: XoFruitCake	Respond to of 306849

"Those ratios don't really work anymore." Agreed that the ratio don't work anymore. However, this ratio was used for a long time to qualify buyer with the assumption that buyer who fit this criteria will be able to pay their bill for the duration of the mortgage. Now that people are using ARM/exotic loan etc. The implication is that for these buyer, they are much more likely to run into trouble along the way of paying off their mortgage. I think there is two issues here. (1) the price of house in bay area is depending on the availability of ARM/exotic loan not because of the low interest rate (which was Trade's point, "interest rate is low so it is still good time to buy"). If and when the ARM/exotic loan get tighten up, house price in Bay area will crash. (2) We are going to see a lot of foreclosure down the road in Bay area as some of these buyer ran into trouble and will help driving down the price of house. None of this loan has be tested before, so we will find out first hand how the home owner will react under different economic condition...

To: Lizzie Tudor who wrote (67476)	11/29/2006 12:06:59 PM
From: J. P.	Read Replies (1) \| Respond to of 306849

You don't factor in income taxes, car costs, monthly bills, deducted contributions to a retirement plan. Those that work on salary generally see less than 70% of their gross income on their paychecks, less if they are in the highest tax bracket. Affordability is not a problem for those that bought pre-bubble. For couples making 160K in the Chicago area, a home to suit their lifestyle is probably going to cost 800K (and that's at the very low end of the white collar range). That's about 5000 to 6000K per month mortage/taxes depending on their downpayment (if any). Ok, you say, don't get a home in a neighborhood with people in your same socio/economic situation. The reality is you end up in the top 5% of earners, and you have to live in a neigborhood where they drink beer in the front yard while working on their jacked up muscle cars, or a drunken fistfight breaks out at the block parties (if this is your lifestyle, cool, sorry). Conversely, if you are making an average salary, you may have to live in an area where there may very well be gangs, or way out in the cornfields in a townhouse. Now to realtors and those nicely settled into houses at pre-bubble prices this is all very esoteric, and they say let them eat cake, but the problem is out there. The affordability issue is real, very, very real.