With down payment requirements going up, many Americans do not have the required savings to make a down payment on a house. Where will this money come from?
Irvine Home Address … 35 WONDERLAND Irvine, CA 92620
Resale Home Price …… $559,800
I'm comin' up for air so I can
Check myself again and I stand
Proven to the man but sheltered
Confidence we tend to (shove in)
Unexpected hunger traps me
Tantric — Down and Out
When the housing market finally bottoms, many will look at the pieces of their shattered lives and wonder how they will ever own a home again. Gone are the days of easy financing and zero money down mortgages.
Lenders are now requiring 20% down. First mortgages with lower down payments are still available, but between the higher interest rate and the private mortgage insurance, the costs of these nonconforming products is prohibitively high. To make matters worse, lenders who lost billions on second mortgages are unwilling to extend bridge financing for those who need it to buy a home.
Many people still hunger for home ownership, particularly those who still mistakenly see it as a path to riches or unlimited HELOC spending money. However, desire is not demand, and despite the longing for home ownership, those who do not have the necessary savings or a sufficient credit score do not contribute to demand. Many will abandon their dreams of home ownership, but many more will carry on.
Down Payment on Home Out of Reach for Half of U.S., Poll Finds
Jun. 3 2010 – 1:13 pm — Posted by Gail Cunningham
Buying a home usually represents the largest investment most people will ever make. According to the National Foundation for Credit Counseling’s (NFCC) May online survey, that investment could now be out of reach for many.
The NFCC recently asked consumers about their ability to meet the down-payment requirements associated with buying a home in today’s market. Of the more than 2,000 respondents, almost half (49 percent) admitted that they’d never be able to save enough money for a down-payment on a home. This is discouraging news for the housing market in general, lenders, potential buyers, as well as existing homeowners.
How many of you would be able to save the $120,000 down payment on a $600,000 Irvine home? Most American's don't save much, and with the pressures to look prosperous here in Orange County, the ability to save such prodigious sums is largely out of reach. Anyone living paycheck-to-paycheck has the odds stacked against them.
Owning a home has traditionally been considered a significant part of a person’s wealth-building strategy. With almost half of the poll respondents indicating that they would never be able to save enough money for a down-payment on a home, the implication is that they feel that buying a house is, and may always be, out of reach for them.
Historically, finding the money for a down-payment was only a problem for first-time home-buyers. After buying the first home, between the equity growing due to making monthly house payments and the value of the house appreciating, buyers could satisfy the down-payment requirement on the new home from the proceeds of the sale of the former house. This is often no longer the case.
Realistically, unless our system changes, FHA loans are the only way first-time homebuyers and former homeowners with insufficient equity will be buying homes. First-time homebuyers have traditionally used the FHA or subprime, but now with so many former owners who lost everything in the aftermath of the housing bubble, many more people will find themselves in need of down payment assistance.
Due to today’s turbulent housing market, the problem has now spread to those who currently own a home. Many mortgages are underwater. Thus, even if the homeowner is able to sell their current house, there may be no profit available to satisfy the down-payment on the next home. Exacerbating the problem is that as home prices have decreased, many lenders have increased the down-payment amount required to obtain a mortgage loan.
Equity has evaporated at a time when equity is most needed to buy a home. Some of it due to falling prices, and some of it do to irresponsible HELOC borrowing and dependancy. As is always the case at the bottom of a recession, cash is king.
With the average home price in America just below $200,000, a 20 percent down-payment is near $40,000, a nice chunk of change by any standard. Some may still be able to obtain an FHA loan with a low down-payment requirement, but those with poor credit will likely have to put a larger amount down. Even with the economy improving, considering the staggering number of people who are out of work and those whose retirement plans have been decimated, buying a home may no longer be a part of the American dream, at least not in the near future.
Many people who didn't lose their net worth in the housing bust may have had to spend their savings to survive the recession making the buyer pool with 20% down that much more depleted.
Others responding to the survey indicated that their mortgage loan would either have to require a much lower down-payment (20 percent), or they would have to borrow the down-payment regardless of how much it was (18 percent). Further bad news for anyone associated with housing is that the lowest number of respondents indicated that they’d have no trouble coming up with a 20 percent down-payment (12 percent).
Very few people have the 20% down. Only 12% of those polled said they could comfortably come up with the money. This is a serious problem for housing demand going forward.
Where will the down payment money come from?
Realistically, there are only two sources: savings and borrowing. Some may receive gifts, but those who don't have wealthy family members to give them money, they will either need to save it or borrow it.
Even in a booming economy, it takes years to save the necessary 20% down payment on a house. Most people are either unable or unwilling to endure the austerity such a sacrifice requires. Many will save their money and follow this path to home ownership. Kudos to those who succeed.
Most people will only save the minimum necessary and instead borrow the money. Those that follow this path will get less home than those who save because the borrowers will face much higher costs than the savers. For instance, the current FHA insurance premium is over 1% of the sales price. Its like paying double taxes. This extra expense comes out of qualifying income and thereby reduces the loan balance available to borrow.
In the future, demand for second mortgages will prompt some adventurous lenders to try this market again. Currently, lenders hold billions of worthless second mortgages on their books, so originating new ones is not in their business plan. To make these loans today would be to light more money on fire as falling house prices will quickly put these second mortgages underwater. It won't be until well after the market bottoms that second mortgages will be made available to the masses again.
For the foreseeable future, mortgage demand will remain weak. At first it will be due to continuing unemployment and weak earnings, but as the economy recovers, the reasons will not be income qualification, it will be the lack of a suitable down payment.
More than 25% off it's new 2004 price
i remember watching with amazement as people paid outrageous prices for these Northwood II homes back in 2004 and 2005. Most of these buyers put 20% down as there was so much demand that builders on the Ranch could be choosy. Nearly all of those buyers have lost their down payments, and any who refinanced are underwater.
Many of these properties were bought as investments, after all, prices only go up in Irvine — except when they don't.
At the current price, the low interest rates are making this place payment affordable even with the sky-high HOA and Mello Roos.
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599
sales@idealhomebrokers.com
Irvine House Address … 35 WONDERLAND Irvine, CA 92620
Resale House Price …… $559,800
Beds: 3
Baths: 3
Sq. Ft.: 2146
$261/SF
Property Type: Residential, Condominium
Style: Two Level, Mediterranean
View: Faces Northwest
Year Built: 2004
Community: Northwood
County: Orange
MLS#: S643218
Source: SoCalMLS
On Redfin: 198 days
——————————————————————————
DOUBLE MASTER BEDROOMS: ONE DOWN STAIRS, ONE UPSTAIRS! The third bedroom is downstairs, too, large and with a private bath. Very spacious, clean and well maintained home. Upgraded cabinetry, computer niches (more than one), corian counters in two full baths, double sink vanities. UPSTAIRS MASTER HAS LARGE COUNTER WITH SIT DOWN LADY'S VANITY! Lots of living space and room for a family. Desirable interior facing location, super quiet and private. Lots of windows, direct garage access. Kitchen has stainless steel appliances, including refrigerator, granite counter tops, five burner stovetop, built in oven and microwave. Kitchen counter sits four people, room for a large dining table. Enclosed patio, accessed by french doors. Upstairs, in front of master, large loft, a second living room or multi-use area. Very open and bright. Behind the gates, beautiful common pool and recreation area.
——————————————————————————————————————————————-
Proprietary IHB commentary and analysis
Resale Home Price …… $559,800
House Purchase Price … $712,000
House Purchase Date …. 9/30/2004
Net Gain (Loss) ………. ($185,788)
Percent Change ………. -26.1%
Annual Appreciation … -3.4%
Cost of Home Ownership
————————————————-
$559,800 ………. Asking Price
$111,960 ………. 20% Down Conventional
4.48% …………… Mortgage Interest Rate
$447,840 ………. 30-Year Mortgage
$97,021 ………. Income Requirement
$2,264 ………. Monthly Mortgage Payment
$485 ………. Property Tax (@1.04%)
$200 ………. Special Taxes and Levies (Mello Roos)
$117 ………. Homeowners Insurance (@ 0.25%)
$0 ………. Private Mortgage Insurance
$292 ………. Homeowners Association Fees
============================================
$3,358 ………. Monthly Cash Outlays
-$377 ………. Tax Savings (% of Interest and Property Tax)
-$592 ………. Equity Hidden in Payment (Amortization)
$185 ………. Lost Income to Down Payment (net of taxes)
$90 ………. Maintenance and Replacement Reserves
============================================
$2,664 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,598 ………. Furnishing and Move In @1%
$5,598 ………. Closing Costs @1%
$4,478 ………… Interest Points @1% of Loan
$111,960 ………. Down Payment
============================================
$127,634 ………. Total Cash Costs
$40,800 ………… Emergency Cash Reserves
============================================
$168,434 ………. Total Savings Needed
——————————————————————————————————————————————————-
20% may eventually become the norm, but some 100% financing, and 80-10-10 10% down programs are still out there. There are multiple ways to qualify someone, and if you can get 1-2 extra percent on all or part of the loan by going with a smaller DP, you look for a way to qualify them.
The way is lower DTIs. Which is more dangerous: 10% down with a 15% DTI, or 20% down with a 40% DTI?
Here’s the other scenario. Let’s say you’re at a 20% DTI for that $600k home. Income is around $200k. At 10% saved/yr for the DP it takes 6 years. Manageable, as you can use a 401k loan plus some to speed up. If you only need 10% down, it’s 3 years. Now go to the more prevalent in Irvine DTI of 40%. You’re at about $100k. 10%/yr and it takes 12 years for the 20% down. Plus, you’ll have much less left over to put additional payments into paying down debt once you move in.
Even if prices move 10%. The DP is still 108k. So it’s 11 years instead of 12 for the 40% DTI.
Is the problem down payments or the lack of higher incomes for higher priced homes?
I think the solutions are a combination of those two factors. Down payments would not be a problem if houses were reasonably priced, based upon local incomes. Increasing incomes requires action on someone’s part (assuming we don’t expect rampant inflation) while housing prices can fall naturally over the next 5 – 10 years. Someone needs to lose their shirt to see this market recover, and I’m not seeing any volunteers… so this will probably drag on for awhile.
“desire is not demand”
well put.
next time a realtor tells me about pent-up-demand, i’m going to use this.
I demand a 5 bedroom, 5 bathroom, 4,500 square foot luxury home with an ocean view for $400,000. And I am pent up.
“Many mortgages are underwater. Thus, even if the homeowner is able to sell their current house, there may be no profit available to satisfy the down-payment on the next home.”
this point is interesting.
those that short sale or foreclose are out of the housing market for the next several years.
not just because of their low credit scores, but their lack of a down payment. this does, however, assume a substantial down payment is needed to buy their next home.
considering distressed sales are currently anywhere from 25% to 50% of all sales, this will be a drag on future sales.
This phenomenon is not new. It started with people using refi’s to extract cash for DPs on 2nd, 3rd and 4th homes. Remember that Vacation- and investment-home sales both set records in 2005, with the combined total of second home sales accounting for four out of 10 residential transactions, according to the National Association of Realtors®. Four out of ten. Repeat that. The ability to use appreciation fueled equity to fund DPs for non owner-occupied homes ended around late 2007, early 2008. Four years ago. Bubble markets relied heavily on appreciation-equity fueling an unsustainable move-up market. However, non-bubble markets saw much more modest growth and thus savings played a much bigger role in funding DPs.
Assume a deflationary environment. Construction costs fall, and landowners accept lower prices for lots because a dollar is worth more today than it was yesterday. Why would you buy a 3 year old home instead of a new one – assuming any construction is going on? Unless prices fall dramatically, you could get new construction because they could undercut prices.
Because the resale market is such a big component of the overall market (as contrasted to something like TV’s), declining prices and costs of new inventory are debilitating. Home prices need a combination of wage & rent inflation to keep existing home prices from falling further.
Your conclusions sound sensible. I’d bet on overall deflation.
The only hiccup I can imagine is rising energy & commodity prices, which might limit construction or make it more pricey.
Also, since I’m currently renting a 90-year-old house with basement seepage issues, a new place has a nice ring to it right now.
I don’t see how things for renters will not get better in a 3-4 years. Just have to wait out the last collapse of the rotten real asset infrastructure.
Okay: Now I’m smugging. If I keep this up, my desk will start to feel like a paid-for Irvine home.
Corrigendum: “renters” should be “renting families”.
HydroCabron publications regrets the error.
The key is “landowners accept lower prices for lots”……it really doesn’t matter much where or what you build, the sticks and the bricks cost about the same. The differences in finished product prices lie in the cost of the land. Don’t look for much change in that in Irvine anytime soon. While it is well known that Mr. Bren wants to build out as much as he can in his lifetime, he seems unable to return to land prices achievable in 2000. Therefore, he has to build the newer product himself, compensating for the loss in land value with any profit from the finished product. In other words, he’s taking the position of developer and merchant builder. No if only the darn things would sell!
“Therefore, he has to build the newer product himself, compensating for the loss in land value with any profit from the finished product.”
And offering subpar recycled floor plans.
Bring back the 3CWG!!
It’s back to Levittown. Even the 30%+ investors that bought at Woodbury are not interested because they are all stuck in a market with no discernable price appreciation. The premium for Laguna Altura is outrageous considering the negative aspects of the site and the sameness of the floorplans. It will be a long, hard, slough through the mud there and will put a damper on the Irvine marketplace for many years.
Well there is seller financing, heck the builders do it and I think you will see more of this type financing from individuals as well.
But
I think that when the housing market has proven itself (slowly rising home prices year over year) at some point in the somewhat near future (3 to 5 years from now maybe),
I think there will be a lot more second loans available and 100% financing will make a comeback.
I think It will be awhile yet (unfortunately for the economy and especially anyone look for a Job), but it will be back.
5 years old, but More on 2nd homes
I imagine there is a small non-vocal group sidelined and waiting… I’m in this group (guess this post violates that ;-p)… bought in ’09, then sold in 2009 after doubling up… the original house we purchased was 14% DTI… 28% is too high for us… we’re shooting for 20% or below… the reason for us is costs… retirement savings, college savings, emergency fund, and buying when one income can support the payment in case of job loss… this dti allows risk mitigation and margins a house purchase out of the ‘investment’ arena, although it allows for quicker equity building by paying it down much faster… anyways, my 2 pennies… and not planning on buying again anytime soon… best to all…
I agree with the 20% housing DTI limit. We’re at 21% today (PITIA) and we’re able to save for all of the other things.
Not to bring politics into this arena, but…
Our PITIA (principal, interest, taxes, insurance, HOAs) take 21% of our gross income, while income/payroll taxes take 35%, and Obama tells us nearly every day that we’re not paying our “fair share.”
Remember to include the SS/MedCare fee of 15%. Or maybe not because that’s for a Ponzi scheme. Will I see it or will I be abducted by aliens first? Some will be there but at the rate we are going the fund will need to be increased to 30% from the generation X’er to keep it going.
The whole point of high housing cost is to create a neo-fedual state where you pay the overlord (banks) and the govt. May folks in CA are paying over 30% for PMI, 8% CA income tax and property, 20% Fed. Income, 15% SS. The banks would like the PMI to be raised to 50% for the debtors to jump upon command.
Yes, I’m including the employee’s share (not the employer’s share) of SSI & Medicare in my calc. What’s scary, is that includes the mortgage interest deduction. Were we renting, the percentage would be a few points higher.
…to create a neo-fedual state…
I don’t think such a concept is too far fetched.
I have often wondered if it is possible that the
banks (overlords) that are currently holding distressed properties will in fact ultimately sell them to government created/sponsored REIT’s.
Presto! such properties are taken off the banks books while the price is held way above market.
Don’t know about the aliens though <;)
Worse forces are at work. ‘Redevelopment Agency’ is one of them. SCAG should evoke fear into the hearts of all who believe in property rights.
My aliens comment is from a 1980’s that more generation X’er beleive in exterterrestial visiting earth/abductions than that SS will be around to pay them their retirement benefits.
My CA renters deduction is not possible. The AMT may also cap out lots of my future mortage interest deduction. the house will be for shelter and not tax gimmicks. I don’t know how to get around the AMT eating way the Sch A deductions.
I’m not a Hollywood’er nor exec., so can’t reallocate my income to long term capial gains. Still on salary and working 10-11 hour days without any OT pay. Too bad the hour rate days are gone.
Since the housing bust, the next cycle of paying the overlords will be increases in taxes for interest payments obligations and paying interest on student loans.
Redevopment Agency have been a tool for transferring RE property from the middle and lower class to the politically connected weathy by eminent domain. A fair system would allow the prior owners cash and shares in the new development.
“Obama tells us nearly every day that we’re not paying our “fair share.”
My sister is part of the working poor. She works hard every day and picks up as many over time hours she can. She has two children she is trying to support and feed. sometimes I pick her kids up from school and baby sit when she gets an opportunity to work 12 hours instead of 8. she lives in a trailor park in Westminster because that is what she can afford. Even at that the rent takes up half her take home pay. She gets an earned income credit every year which helps pay her bills. She pays taxes on everything, pays into medicare, Social Security, state taxes, sales tax and gas tax. I am sure she would happily trade places with you in a minute.
Don’t want to react to politics but this just hit a nerve.
I admire your sister.
@Shannon Just because someone works hard, and I believe your sister does, that alone does not entitle her to home ownership. It’s honorable that you help her out. Most American families do that. We think that home ownership is a desirable goal because it does create more stable communities and allows young folks to see and achieve goals. Obama is not speaking to her with regard to paying “fair share”. He is speaking to corporations and unfair tax codes that favor certain types of corporations.
I believe he was alluding to what I hear constantly about how 50% of the people in the US don’t pay taxes. This is not true. and… What is this “fair share” quotations. The President is asking upper wage earners to pay 3% more and only 3% more on wages above 250k. The tax rate would be the same for wages from 0-250k. Not a huge sacrifice. I never said she should have a home. She is happy but exhausted. Not to garner any sympathy but her youngest was diagnosed with cancer at the age of 8. She is now 13 and it hasn’t returned. We are holding our breaths until we get the cancer free banner from the doctors. My sister is my hero.
One more thing and I am done. Social Security caps out at 106800.00. Therefore in wages earned above and beyond are social security contribution free.
I wasn’t alluding to 50% of households who pay no federal income tax. I was specifically talking about Obama attacking higher-earners with rhetoric that they’re “millionaires and billionaires not paying their fair share riding in corporate jets and living in mansions.”
The threshold is $209K of Taxable Income too, not $250K. The 2nd highest joint income tax bracket starts at $209K: http://www.irs.gov/pub/irs-pdf/i1040tt.pdf
May I paint the opposite picture for you? Imagine you were one of your sister’s kids (from a low-income single-parent home). Imagine you studied in high school to get good grades and made it through college doing the same. Imagine you got into grad school, studied for more years. Then, in your late 20s/early 30s you start actually making some real money, but you’re also paying-off a ton of student loans (because you’re not from a wealthy family). Then imagine you marry someone just like you and your already high income doubles!
You’re a dentist and your spouse is a lawyer and you’re making $300K. Guess how much is going to income/payroll tax? $100K! That’s ONE HUNDRED THOUSAND DOLLARS before you ever spend a dime, and that’s before you pay any property tax, sales tax, etc.
Now imagine your President lecturing you every day about not paying your fair share…
Net after student loans
Or, put another way, imagine you’re that same high-earning couple above, and your household is grossing $25,000 monthly, but you’re only taking home $16,500 of that due to:
Federal Income Tax
California Income Tax
SSI
Medicare
SDI
You’re such a great American family that you’re contributing $8,500 PER MONTH right out of your paycheck directly to your state and country, yet instead of gratitude, your President wants more and chastizes you for even suggesting that you’re already paying enough.
It is the screaming Democratic Party class warfare that really bugs me too, Perspective. If you want to tax millionaires and billionaires, then do it. But it has to be a wealth tax, not an income tax. My income is above the $209k line that somehow makes me ‘wealthy’…but how I am going to accumulate wealth with the cost of living in SoCal, Fed and State Taxes taking HALF (not enough for you BO???) of my income, and being priced out of any safe neighborhood within an hour commute to my downtown LA office?
So please stop with the nauseating hypocritical rhetoric Mister Presdient, I have had enough to last me a while. Half is enough.
best of health to your neice.
The tax rate is high, but for many corporations the deductions are so freely given, don’t make any money, so 35% Federal tax and 10% state tax on $0 income is zero tax.
BHO during the campain said it was time to end the tax deduction for funding exporting American job oversea and closing US sites. Time for a change. Well the change was to increase the banksters’ bailout from $1 trillion under Jorge Bush to $3 trillion with BHO. We got not only o improvement to prevent a reoccurance of a bubble but bailouts to encourge and fund future bubbles and exporting of jobs. Lots of change.
Same old smoke.
I think I would be mildly annoyed, but also grateful that I was doing well enough to be able to afford to pay $100k in such taxes. If you think the six-figure income bracket is terribly oppressed in the US, try investigating the tax rates for such incomes in Europe.
What was your point, again?
The point is, stop saying households earning $209K+:
aren’t paying their fair share;
are millionaires and billionaires;
are flying around in their corporate jets;
are all hedge fund managers paying a tax rate less than their secretaries; and
are vacationing in their yachts.
Shannon: “My sister is part of the working poor. … Don’t want to react to politics but this just hit a nerve.”
Well, let’s examine this sob story. Did your sister pay attention in school and at least try to get good grades? Did your sister attempt to get additional classroom education beyond high school? Did your sister attempt to obtain marketable skills in addition to post-high school education, such as a trade school or technical certifications? Did your sister make intelligent decisions regarding her sexual activity, or did she get pregnant young and unmarried? Does your sister live within her means now and has she in the past, or has she repeatedly made unwise decisions about her finances that she is still paying for today?
I’ve done some work with the homeless, the working poor, and financial counseling, and I’ve found that there is ALWAYS a story behind the sob story. Our society should strive to be compassionate, but we should also be careful that we do not become enabling. In most cases, people in trouble don’t need a handout, they need to hit rock bottom (whatever that is for them) and learn to help themselves. Unfortunately, these questions get VERY complicated when kids are involved, and that is the dilemma: how to protect and provide for children of irresponsible parents without enabling the parent’s behavior.
-Darth
Thanks Darth. I started writing that exact comment, then deleted it.
That’s funny, I started writing comment explaining exactly how big of a tool you two are, but since I’m tapping this out on my iPhone its far more trouble than you two are worth.
Fornicate you both sideways with a hardbound copy of Atlas Shrugged.
Not a libertarian, but thanks for the advice.
And you’re right. Personal choices have nothing to do with any of our finances.
Other end here – my best to your sister, but here is our situation.
Part of Obama’s “rich”. Buy discount ground beef marked down to 99 cents a pound all the time, the four kids routinely eating almost spoiled meat cooked thouroughly. Husband works far more than your sister – usually works 11 hour days M-F and sometimes more that that (in the office, not including at home where he works also). Also frequently works part or all of the weekend as well.
The extra money Obama’s so eager to tax away doesn’t come without effort …
I think you all need to get a grip and stop whining about your “poor” situations. My sister is a supervisor at a medical billing company and makes 15.00 an hour. She also cleans houses on the weekends. She never went to college but has worked her entire life taking nothing from any of you smarter harder working people. . And Anonymous, why did you have four kids? Why do you think your husband works harder? The only time my sister has never worked was the 10 months she was at the hospital while her daughter was under going chemo. Kiss your kids and thank god for all your fortunes.
I am happy for my fortunes. Have been very fortunate. The ground beef cheapness is out of chronic cheapness and need to save in invest, not necessity.
Just pointing out that not everyone in Obama’s tax hike is the jet setting billionaire he likes to mention everytime he mentions tax hikes.
Also, everyone consumes tax money, even if they’ve never directly taken any. Roads, police, military, schools, social security, medicaid all cost money and pretty much everyone will use them in their lifetime.
Obama Tax Hike. LOL The truth is this was a temporary tax deduction for all Americans as a gift from Bush to help the economy grow. They were scheduled to rise automatically and would have had the Repbulicans not held the unemployed hostage. Now, these tax breaks were given under the assumption that they would help job creators create jobs. We can see how that worked out.
the point is the Obama is a cynical demagogue. Just because he repeats at nauseum that households earning more than $200k per year are ‘rich fat cats not paying their fair share’ does not make it true. If he really wants to make millionaires and billionaires pay more then he his going to have to enact a real wealth tax. How about having all millionaires and billionaires write a cheque for 10% of their fortunes to the US Treasury? That would be the only way to really accomplish what he is suggesting with his rhetoric.
I have always been responsible with my money and life choices, I got a degree and make a good income running my own business. I have a healthy investment portfolio which i manage myself.
Now that I’ve hopefully shut down all the smug rectums on this thread who are lecturing about your sister (someone they’ve never met but sure seem to know a lot about) and are dying to recite the same old ‘get a job you bleeding heart hippie’ rhetoric to me, I also have to say that I know damned well thatI started out on second base in life, at the very least rounding first on my way to second. I was born white, middle class, in a semi-stable family during an era when it was sufficient for one parent to work at a white-collar job and higher education was affordable.
Just because someone hasn’t lived up to your Galtian ideals, Darth, it doesn’t mean Shan’s sister is a loser. Life is hard, shit happens even when people make good choices, and sometimes perfectly decent and hard-working people don’t get to achieve the position in life that leads too many people to become smug, pontificating assholes.
I don’t believe in a god but I do think there’s something to this karma thing. The next time you people get the urge to start this kind of shit up, you might want to check it because maybe karma will decide to show you how little separates you from the trailer park.
Used to work full time. Had the kids in daycare and helped create jobs for the daycare, etc when I worked. But given tax law, only made a few thousand extra that way per year. Quit, now home with the kids so I can do that stuff (childcare, cook, tutor, do repairs etc) myself and have a minor hobby business that makes that few grand because it’s the same post tax. So instead of me probably making better use of my skills in an area of high demand (yes, even now despite
the recession – not because I’m particularly awesome but because I see news articles talking about pay raises, recruiting bonuses and so on in that profession) and likely helping American business grow and add value and job,) I just putter around, surf IHB, and try and keep on top if the financial news in financially self-defensive totally nonproductive game which adds little to the economy.
That is the result of the taxes. Atlas Shrugged has
some flaws (like the dumb belief that capitalists always do the right thing without regulation) but it’s
main theme is right – too much socialism and taxes kills incentive. Why bother to work hard and build anything if someone else is going to take all the profits? Better to sit back and exploit the system like everyone else.
Astute Observation by R€nato
Thank You.
For the rest of you it seems like this republican is on your side: Rep. Paul Broun (R-Ga.) said Wednesday on MSNBC.conservative member of the House warned that one consequence of the a weak economy is declining membership at country clubs.
boo hoo
You ask to stop being demonized and for some actual truth to be spoken, and apparently that offends some here.
The decisions Anonymous describes are repeated by all dual high-earning couples. When you add one six-figure income on top of another, the effective tax rate on the second income is very high. Every couple has their limit. Is it 40%? 50%?
At some point, it’s simply not worth it for both to work. That point usually comes when the second child is born. Is this the desired result?
Keep in mind that healthcare reform adds additional taxes on these couples (Medicare taxes). Obama wants to raise their income tax 3+ points on income exceeding $209K too. And many other democrats want the SSI cap removed adding a 12.4% tax on each earner’s income exceeding $106K.
If all these desired changes become law, there will be quite a few spouses quitting work. It just isn’t worth the trouble.
Their children will most likely be better off. 🙂
Re Children better off
That is certainly true for now.
Fifty years from now as trends continue and Americas is no longer #1 or 2 or 3 and fades away like Britain due
too much debt, too many social benefits and and lack of competitiveness? Or worse
comes out of the losing side of some war due
ti lack of production points? That may be another story.
The trend of two working parents began in America 30 years ago which coincides with the slow decline of the middle class. Also, most countries with far more social commitments to its’ citizens fair better in over all happiness, life expectancy, education availability, and health care than the U.S.
The British and then American hegemony is ending.
It’s going to be Chinese masters from now on – and they may not feel as benevolent.
IMF bombshell: China’s economy will surpass the U.S. in 2016
http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25
if the average (or is it median) household revenue in Irvine is 100k$, I believe there are still a lot of people here who have been able to save 100-150k for a down payment and who can afford a 450k$ 30y mortgage.
I also still think that many people in Irvine have much bigger savings that today’s IR article tends to present.
Totally agree. There are a lot of good paying jobs in the area and the location and weather attracts top talent. The US savings rate is increasing so I am not really concerned about people being able to save $50k to $100k over the 10-15 years after they graduate from college.
Considering Irvine’s average down payments are higher than 20%, there is a significant amount of people who have no problem with saving (or by AZDave’s theory, equity flipping).
FCBs don’t need to save money… they import it. ;-P
Yes, very true, but of this group of people, most already own Irvine homes.
e.g. We have enough to put-down on another Irvine home, BUT, we don’t have enough to make a 20% down payment AND payoff our underwater home. So we keep saving…
For those who bought prior to the bubble and did not ATM, I doubt their home is underwater (especially if they put more than 20% down when they bought back then).
You needed to add one word to your sentence – “today”: “… their home is not underwater today…”
Just a couple of months ago, we were seriously considering using our savings to refinance. We decided against it for a variety of reasons; but today that option isn’t even available as asking prices for comps in our neighborhood are dropping dramatically. Asking prices for comps are below rental parity right now. We’ll see how far below they go…
“Asking prices for comps are below rental parity right now. We’ll see how far below they go…”
Realistically, they won’t go much below rental parity unless supply becomes a problem and prices are pushed below.
Supply is already constrained. “Rental parity” is just a way of sustaining prices. As the owner of rental properties, what criteria do you look for in DTI? Most property owners I’ve come in contact with, either private or large corporations like Wm. Lyon want 3x monthly income as rent. Not that much different from lender’s requirements, except for down payment.
“Asking prices for comps are below rental parity right now. We’ll see how far below they go…”
In Irvine? Maybe some ‘hoods, but I am reminded daily how prices on the most part are above rental parity and have not hit fundamental pricing yet.
Today or in the next few years… if you bought in Irvine pre-1999 and were prudent, you should have enough equity to put down 20% at today’s (or even 2006’s prices).
So, why would you want to move?
“So, why would you want to move?”
Why does anyone want to move?
1. Bigger house.
2. Smaller house.
3. Newer house.
4. Bigger lot.
5. Different/better location.
… and on and on.
Newer house at increased cost monthly?
Smaller house at same or increased cost monthly?
Bigger lot – NA in Irvine
Different/better location – at what monthly cost?
You left off your list:
1. Buy in first phase so you have built in appreciation. # 1 reason folks buy in Irvine. # 2 is perception of ‘superior schools’.
Document that. My children were raised outside of Irvine schools. One declined to go to college at all. The other graduated from Stanford U, Syracuse graduate school, and is a professor at George Washington University. Irvine schools is a myth.
@CasObs:
Some people can afford higher monthly costs than 10+ years ago.
Or with 10+ years in mortgage payments, depending on what you bought, the equity is enough to make monthly costs the same at today’s interest rates.
Bigger lots can be had… you just have to be willing to live in an older home… and considering today’s “modern” floorplans, that actually is a plus.
People move for a variety of reasons… even outside of Irvine… this is not some mysteriously new phenomenon.
“Irvine schools is a myth.”
While I do not like the academic pressure that exists at IUSD.. test scores, GreatSchools.org, OC Register articles, other publications and many parents will disagree with you.
While an Irvine school is not a guarantee to become a professor at a prestigious university… the safety and level of education is proven.
Perception does not exist without a reason.
And I would never put “Buy in first phase…” on any list… that is closer to a myth than the quality of the IUSD.
prices are at “rental parity” with 20% down…
alas, few have 100k kicking around these days.
Rental parity is a bulshit term in my book.
Change it to 20% down rental parity.
In the honors classes at Uni High, nobody coasts. Usually you’d expect the top student in a class to be able to coast and get 99%, but at Uni, they have to work their ass off for a 96%. They learn a lot.
Great and Good for them! Uni is not terribly unique, however. That will get those students a decent chance at a great univeristy which will cost them (in student loans) or their folks a lot of money. So what’s your point. There are a lot of high schools in Orange County that can put that on their resume. Uni is NOT the only one! And is that THE reason to make your home in Irvine?
The #8 ranking in newsweek for uni high just increased the property values in turtle rock by 5%….true story.
actually i just made that up.
“Pent up desire.” Catchy!
…and with the pressures to *look* prosperous here in Orange County…
Irvine Renter’s single statement pretty much sums up the entire problem.
From what I can tell, many Irvine households do in fact make pretty good incomes (see US census income distributions for any Irvine zip code).
A $100K+ income is still considered upper quadrille, but realistic for many households.
I think saving a 20% DP is very feasible by such households *if* life priorities are set correctly.
Such households will have to chuck the leased
BMW, expensive cable, eating out, long vacations and all the other junk that the Orange County lifestyle demands.
Will that happen? Who knows, but I wouldn’t bet my first born on it.
The people you describe are likely many of the same people whining about how they will be in the poorhouse if taxes on income above $250k are raised 3%…
It’s funny that you consider these people “rich” and “whining”. In OC making over 250,000 isn’t necessarily rich, and that money going to additional taxes could mean a lot of things (kids college fund, etc). In addition, all the poor people living off the government aren’t as hard working and deserved as Shannon’s sister is. Do they smoke, do they have cell phones and cable tv, etc when they are living off foods stamps? We don’t get to judge their habits, even though we are paying for their lifestyle. So why should you get to judge someone else’s just because you “believe them to be rich” and are so ready to give up their earnings. As ignorant as you thought Perspective sounded earlier (as evidenced by your rant)….you sound worse.
if you are so neighborly, you can feel free to give that 3% of taxes you are saving by not being in that bracket, to shannon’s sister….. not so easy when it’s your money right…
Having lived in OC, amongst many other places I can tell you 250K for an individual or small family is RICH!
You consider maid service, private clubs, a BMW (oh, must be an Audi if you’re in the OC), plus private schools for the kids as ‘the basics’.
Since there exist few middle class jobs anymore, I’m not sure what you expect the poor to aspire to. Most of the wealthy or well off get their leg up from well placed connections (schools and family). Hard work or even intelligence are far down the list.
I’ll guess in many OC cases, Grandma and Grandpa cough up most of the down payment so adult kids aren’t tempted to relocate to places with a better job market, lower cost of living (Texas, Arizona, etc.); they want keep the kids and grandkids close by.
Call it “helicopter” funding.
Grandma and Grandpa Heloc might not have any money to give: ronsider Betty and Bob Boomer, who leased that BMW X5 and bought those Harleys with real estate debt.
Betty and Bob, having counted on continued appreciation to make everything right as 65 approached, are not in a good mood, having seen their inadequate 401Ks sputter and expire. Since the social security checks won’t cover the payments on the McMansion, it’s time to walk away and rent in Phoenix, where rents are a better fit for a Social Security income plus additional government assistance offered to their substantial age cohort in return for votes.
Betty and Bob Boomer were at Woodstock, never trusted anyone over 30, and changed the world, but that was then. Now, having consumed leased vehicles and European vacations since the Reagan years, it’s time to flip the bird to the children and grandchildren and enjoy the good life in Arizona, paid for by the younger generations they screwed. And those other generations will pay: this self-indulgent demographic has a proven record of non-sacrifice and self-congratulation which will continue to serve them well, worthless sacks of tissue and bone that most of them are.
If you or I were in their place, we’d do the same…we are all human after all…not jesus christ.
Oddly enough,I just rented an apartment in Scottsdale to a guy who is the process of selling his house, retiring to AZ…go figure…
Back in the day (as they say) before PMI there was a 20% down payment requirement, but people routinely borrowed money from extended family to come up with the dough. Sure, you had to say on your mortgage app. that no part of the down payment was borrowed (wink wink) but everyone knew what was going on.
I was wondering when it would happen… but it looks like the gubment is trying to interfere again:
So, lets get this straight.
The US is on the verge of debt default, and we
want to get into [extend] even more debt?
Has the world gone nuts?
Your question can be answered simply.
Buyers will be able to come up with 20% down
because Housing prices will continue to
decline until; demand = supply
Which for housing is often restated as;
ability to qualify = supply
Need to consider why a condo is selling for $261/sqft in the first place.
That is $261 for a foot of airspace.
Years of Zero down, cash back at closing, and no need to show ability to pay were a substantial influence on the getting prices where they are.
Those terms may be changing.
Calif is such an anomaly.
It is easy to find single family homes for Less than $200/sqft in most of the country.
Calif is no more an anomaly than Las Vegas, Phoenix, Florida. I started in RE sales in 1975. Then RE agents were taught to “qualify” potential buyers before we showed them homes for sale. Financing was simple. There was not much VA or FHA in Orange County as prices in Orange County generally exceeded VA/FHA loan limits and there were extra costs to builders to be approved prior to construction to secure VA/FHA approval. So, everyone had to have 20% down. That was NORMAL. But, then prices were much lower. But the important relationship was that loans for residential housing (unlike investment properties) was based on the idea that the buyer would: 1. live in the property, and 2. His verified income would cover the mortgage payment, taxes, insurance, etc. Even then there were lenders that would make deals on the odd circumstance; World Savings, Home Savings, Lincoln Savings, Great Western. They came up with adjustable rate loans, low down payment/higher interest rate loans….BUT the big difference is that they could not sell those loans on the secondary market but had to keep them in their portfolio. Some of those loans were assumable. VA/FHA were assumable, still are as far as I know. The BIG change began in the 1990’s when mortgages began to be securitized and sold the same as stocks. That was not limited to California or any other specific area. It became worldwide, despite some very astute folks advising against it. It was the greed of Wall Street that caused all of this.
I am greatly concerned that securitization will create ongoing volatility in home prices. Exotic loan programs are successful in appreciating markets because the default losses are minimal. The success of these programs actually creates the appreciation that ensures their ongoing success — until it doesn’t. It’s all a Ponzi scheme, but with the long cycles of real estate, many greater fools will come along. When the market runs out of fools, prices will crash, and the cycle will repeat. Securitization is the mechanism by which future housing bubbles will be inflated.
IrvineRenter, et. al – Paul McCulley of PIMCO was a huge proponent of Minsky Journeys – http://www.pimco.com/EN/Insights/Pages/Global Central Bank Focus May 2009 Shadow Banking and Minsky McCulley.aspx
Stability creates instability
A few years ago I might have felt guilty for saying the following; but no longer. I desperately hope that our leaders fail to learn the lessons of the housing bubble and that we repeat this folly every decade or two. Now that I know I have the ability to recognize an obvious housing bubble when most others don’t, I stand to profit greatly from future Ponzi schemes.
Ah, that ‘financial innovation’ Sen. Gramm and his wife Wendy foisted upon this country.
Con men are also financial innovators, just sayin’…
Note how the listing price has dropped from $683K to $560K in only six months. That’s a “bleep” of a listing drop for Irvine. Talk about chasing the market down.
Isn’t that what this bubble cycle lesson is? The Greater Fool theory can only work in the short term. But when it was expanded to the international market, it is causing the problems in the EU, Greece, Ireland, Spain, Portugal. The core of the problem is the need for Wall Street to make unconciousanable amounts of money. We are now faced with a few in the Democratic party in this country who support Dodd-Frank. They correctly identified the problems that led to the financial situation we are now overcome by. But the Wall Street lobby is using any and every tool at their disposal to take the teeth out of Dodd-Frank.
Missing a lot here. Cannot underestimate the critical role played by the Ratings Agencies, the US long term zero interest rate policy (caused global investors to pour into mortgage bonds), the GSE’s, the CRA, wild middle class Consumerism, and while we’re at throw in massive gov’t borrowing and inabilty to exploit our own resources effectively. Dodd Frank won’t help these issues…which is why many people who understand the bubble are not enthusiatic about enacting all of the permanent bureaucratic overhead. Personally I love the Voelker rule…I just wish private investors would already demand this of financial institutions.
“Where will the down payment money come from?
Realistically, there are only two sources: savings and borrowing.”
A third possibility is that home prices decline to affordable levels as determined by a privatized mortgage market.
The private sector’s wages are determined by the free market (i.e., no government intervention), so their home prices (“the most important purchase of their life”) should likewise be subjected to the same free market mechanism.
Wow! What a concept!
20% is still a lot of cash.
I’m still wondering about credit card debt in OC. Unemployment benefits are not enough. I suspect a growing number of households are charging their way to “survival” though for how long is anybody’s guess. For some, affording a 20% mortgage down has probably never appeared so far away.
Mark – I wonder about the same thing. Economy is hurting, but the malls are packed. Que pasa? I hear the luxury car dealerships advertising on the radio now…are happy days here again?
I’m wondering too.
I was at the Irvine Spectrum this weekend and it was like Christmas time!*
(*IHB joke)
Even the restaurants are busy (maybe because so many others have closed).
And visit Diamond Jamboree on a weeknight… ridiculous.
What is it with Javiers at the Spectrum? If you don’t get there before 6 pm on a Friday, the wait is one-&-a-half hours minimum.
Try Alberto’s off of Edinger in Santa Ana… no wait… heh.
I actually think Javier’s food has gone down in quality… at least they went back to their thin tortilla chips… the thick ones were a disaster.
@Woodbury Renter:
Someone chided me for lack of tax knowledge on here but I don’t remember there being a HALF tax bracket.
Just sayin’.
P.S. I hate taxes too.
Federal + State + FICA gets to 50%, (33% + 10% + 7.65%) if you add Sales Tax, Gas taxes, portion of my rent going to Property Taxes etc the number is much higher. Also smacked right between the eyes by the AMT every year…so after paying 50% over the course of the year I get to pay a few thousand more in April.
I still don’t think your income taxes will add up to 50%, you’re not paying 33% on the entire 209k.
And considering you don’t have mortgage/property tax deductions, I’m not sure how the AMT is affecting you since you’re probably paying more than the AMT.
Do you have a tax guy helping you out? He might be able to reduce your burden.
AMT wipes out my ability to write off State Taxes, which are far higher than the Standard Deduction. Example of how AMT has crept into so many people’s lives.
$492 a month for HOA, Mello-Roos and other
that’s funny 🙂