By Get in the Game

February 7, 2008 2:19 PM | Link to this

Whatever!

I been on this blog since Aug ‘07 stating that about every 6 months or so, Mr. Yun and his all-seeing info is going to adjust numbers downward. That’s his job guys, he is supposed to make everything cheery, even if he must lie, or he might not have a job at NAR.

So, I keep asking why make the predictions? First, they are way off. Second, he needs to actually get out of these conferences and look around.

Demand now = 20% (or more) down payment, proven income, and decent credit.

A combo of these three and you have yourself some house debt.

Again, difficulty is: 1) not many people have 20% for a down payment, 2) insufficient income to pay the debt services (income x 2.5 = the house one can afford), and 3) auto/credit card/education debt companies are clamping down…so credit scores are suffering (not to mention debt ratios are through the roof).

All told, stop guessing on the market. Just understand that America cannot afford the houses right now. Even with the massive government subsidies, just not going to happen. Even with all the printing of money. Drop the interest rates to sub 2%, doesn’t matter.

Seller = wait until 2011

Buyer = wait until 2011

Then Sellers shall have reduced their prices properly AND Buyers have enough saved for their initial house debt payment.

By WAKE UP

February 7, 2008 3:49 PM | Link to this

2.5x? We’re getting really conservative now aren’t we? With that logic the national median house price must be of by nearly 50%. A family with an income of $45,000 can only afford a $112,500 house. Not even close to the $200,000 median. Gosh, I guess we’re going to see a depression of epic proportions…no not really. Problem is that as income increases, so does “disposable income”. For example, take 2 families - husband, wife, 2 kids. Basic expenses are the same - (for grins, let’s just say that all expenses and 401k, yada yada are covered in this amount) say $2,000/month for insurance, food, clothes, cars, gas, etc. (no housing). Family A has an income of $50,000, so they only have $26,000 left for housing. This would give them about $2,000/month to spend and they could afford to cover the mortgage, tax and ins on a roughly $200k home (pretty close to median - take monthly allotment and divide by 1%). Family B makes $100,000 (not unheard of for a 2 income family, especially in PB). They have $76,000 left over or $6,300/mo - sure, sure a family with more money will have more expenses, so let’s say they only have 50% more expenses, so they’re left with $64,000 or $5,300/mo. Income has doubled, but expendable cash has tripled…$5,300 divided by 1% is $530,000…Catching my drift here? I know these numbers don’t take taxes into account, but I think I’m making my point. 2.5x income only works up to a point. I’m also not condoning spending all of your available cash on your mortgage. It’s just a personal observation regarding affordability.

By Get in the Game

February 7, 2008 6:15 PM | Link to this

Conservative?

How about since 1999, the ratio of median income to median house prices has been irrational?

I keep telling everyone irrational on the way up = irrational on the way down.

If you use the government’s stats (gasp), the ratio has been about 2.9 to 3.1 for the last 40 years (since that’s all they supply).

Well folks we were at 4.5+ from 2004 on? Hmmm…

Something is going to give guys and gals.

1) I am going with banks are going to return lending to normal, historic trendlines (re-read many of my posts before).

1a) Asian CREDITORS (where most of the money originates for our debt) are worried about govt tinkering, the US economy, and their non-performing guarantees from the house debt collectors. Therefore, creditors are forcing banks to re-price risk. This translates to larger upfront fees and more house debt obligations conforming to Fred/Fan standards (for some reason). Also, banks are realizing the houses are not nearly worth as much as previously advertised, so they are finally placing pressure on appraisers to do their job correctly (which is actually a joke, since the banks helped inflate the numbers initially).

1b) Which means 20%+ down (heard Sun Trust is already working on raising the limits to 30%), proven income (limited breaks in employment, up to 4 years (from Wachovia)), and a decent credit score (read the articles on SLM’s downgrade (b/c they have little CASH, and COF, AMEX raising interest rates and reducing limits in high-risk business sectors & personal accounts, as well)).

1c) Debt ratios are all of a sudden (no way) going to be important again. And many people shall be not allowed to play in the house game due to extremely high levels of outstanding debt. (Re-read previous posts “everyone cannot ‘own’ a house)

2) The Fed has only one choice since they now are politicians, to slash rates (talk about ridiculous inflation that is enroute some other time) while the other politicians continue to further subsidize housing (see the increased Fred/Fan limits).

3) Hopefully, the govt doesn’t meddle with ‘freezing’ rates, because our Asian creditors are going to be pissed, and take a step back from immediate funding.

4) Couples are going to be forced to save money (which is great news).

All the while this financial fiasco is occurring, Sellers are going to balk because they feel they are entitled to 2006 or 2005 or even 2004 pricing. That’s why it’s going to be a LONG time for Sellers’ pricing to meet Purchaser’s income.

So, this is a very quick synopsis of why I type the words the Fed can slash rates below 2%, the govt can throw a $1 Trillion stimulus package in the air, doesn’t matter too much.

In the end, the largest determinant of demand is income. If you cannot afford something, then the transaction shall not be conducted (of course w/o the use of BORROWED money).

And since banks are going to reduce their exposure to debt or become insolvent, Americans shall learn that CREDIT is NOT CASH. Once Americans save money and purchase what they can afford, then we can move along.

Sad part though, is these bankers never seem to go away too long with their financial engineering, and they shall return in 10 years or so with a new round of gimmicks to goose the system yet again.

By Boca Condo King

February 8, 2008 8:52 AM | Link to this

Here is a question for the peanut gallery.

I am looking to buy an office/warehouse condo. I am not buying for investment, I am buying to have a place to run my business and pay a mortgage vs rent.

What are the fair numbers to pay?

Looking at a spot that is asking 175 psf, but half that is warehouse.

Any ideas peanut gallery?

By Deputy Sheriff

February 8, 2008 11:00 AM | Link to this

But seriously folks, I need to find some real clients. I’ve been referred to T’s Lounge and Lake Worth on a Sunday, any other hot spots with good respectable clients? I am new to the area and this market, but no worries you will all be on lock down in slolitary once my name is on the lips of the Haitain community.

I am not expecting Captain Condo King to give away any of his leads, but would be dang appreciative if anyone else could help me out. Anyone that does gets a free frank and beans dinner with me (typically is a deal I throw in with a lease agreement). I will be at T’s tonight with the Cowboy Hat on looking for clients, don’t hesitate to grab good Ol Deputy Sheriff and buy him a double of whiskey! YYYEEEEE HHHAAAWWWWW

By Whats going on here?

February 8, 2008 4:36 PM | Link to this

It’s called WHINING you big baby. Get over it, some of us are making boat loads of cold hard cash while you blab about blog censorship.