Tuesday, November 08, 2005
Real Estate Totters In Many Areas
With a 10 percent down payment and a mortgage rate of 5.83 percent (the average in the quarter), the monthly cost of owning the average starter home would be $999 a month.And it's worse in high price areas such as California:
A new homebuyer would need income of $47,952 to qualify for such a mortgage, but the median income of first-time buyers was just $32,781 nationwide last quarter, yielding an affordability index value of 68.4 -- down from 74.8 a year ago and 80.9 for all of 2003.
The CAR report, which covered all houses, not just starter homes, revealed that a homebuyer in the state would need annual income of $133,800 -- factoring in a 20 percent down payment and interest rate of 5.87 percent -- to afford a median home ($568,890 through August 31). Only about 14 percent of Californians had that much income.Mortgage rates are rising quickly too. Thirty-year fixed-rates averaged 6.21% for October while 1-year adjustables averaged 5.11%. The 1-year adjustable never got above 4.25% for all of 2004, and never got above 4.26% for all of 2003.
Unless interest rates drop, you are going to see the air come out of most of these higher-priced metro areas with a hiss. The feds are trying to shut down the interest-only option, the huge number of people who financed or refinanced with ARM's are starting to get hit with their readjustments,, and ARM rates are getting high enough to be unaffordable for the median buyer in a lot of markets. Over the next two years an ever-increasing number of people will get hit with their first readjustments on their ARMs or interest-only hybrids. What's going to happen is that a lot of them will sell, pushing down home prices. The FED is being stupid. It needs to stop raising rates quickly.
Normally, a market adapts to reach an equilibrium between buyers and sellers with relatively small adjustments. Rising mortgage rates disrupt that process and force buyers to drop their asking prices much more sharply. Now suppose you signed a 3-year interest only hybrid last year, and in 2008 your monthly mortgage payment doubles while your house is worth no more or less than when you purchased it? That's going to happen to some buyers, and it's going to cause walk-aways.
If you are sitting on a pile of debt and you can't handle your next adjustment in a high-priced area you need to get out in 2006. If you have to walk away you are still liable for the additional money you owe. Don't do that. Sell early and escape with your financial future intact.
I wonder how much of the realities you mention drive the mortgages made available to the 'illegals'?
Some have been here a while, have cash and are honest, hardworking folks.
Oh, the webs we weave.
But then again, we do have good kinish.
Dingo, I hope you do get a chance to get in a house. It's just that I don't want other people to lose their shirts.
Links to this post: