first rule: do not talk about Seattle Housing Bubble
According to
I'm guessing then that the average household income is $233,000 or that people bring home a monthly net income of $10208. The median income should be $143,000. But the AmLife.US Economic Distribution Table (scroll to view) shows 2004 incomes to be well in the five-figure set.
Yeah yeah it's gauche of me to bring this up, you're flinching as you read this, but it makes me frickin' weep -- all this time spent learning about how to evaluate stock fundamentals, what bonds are and how they work, how to live within my means, but never how to make sure my salary rises 15% every year to keep up with utilities and housing prices. I guess half of King County is pretty comfortable, financially, so they won't mind if the "impossible" happens and there's a 25-30% drop in real estate prices over the next six years. Some people are estimating steeper drops, like 50-70%.
Is anyone from these cities: Sacramento, Los Angeles, Irvine/Santa Ana/Anaheim, Miami, Phoenix, Las Vegas, Boston, San Diego, San Francisco reading this? Please share the state of your locality's housing market.
It could be my lousy math skills that confound me. Twelve - fifteen years ago I was reading personal finance primers that counsel against buying a house priced beyond 2.5 times one's household income. Mortgage interest rates then ranged from 6.65% to 7.49% (source). Rates so far this year are indeed lower, 6.30% to 6.77% (source). Maybe the personal finance primers nowadays are advising to go no further than six times one's household income owing to this INCREDIBLE DROP IN MORTGAGE INTEREST RATES.
Here's the deal: historically houses have appreciated at the rate of inflation plus 0.4%. Either we're in a big housing bubble, because house prices zoomed up from 2003 onward, like 15% year over year appreciation, which I once believed could only be done by high-flying tech stocks (but not sustainably over five years), or the silent and deadly hyperinflation era is here and no one is talking about it.
Somehow people are getting the $$ for these pricey houses. After all, price is determined by supply and demand. Many $$$ chasing few houses leads prices to escalate. But wait! Why are homebuilder stocks like Beazer, Toll Brothers, and Hovnanian trading at or below book value? They should be raking it in like ExxonMobil!
Let's see, inflation adjusted wages for the state of Washington dropped 8.1% from 2001-2005.
Seattle is sixth in the nation in Option adjustable rate mortgages, plus a recession is looming. Economists are predicting October 2006, although some, following retail industry data, say it's already here.
Yes, I'm sure that we will be spared. [b]
September 12th, 2006 at 08:29 pm 1158092976
September 12th, 2006 at 08:32 pm 1158093173
On the flip side, you know people are mortgage out to their eyeballs, and the market will most likely have a large correction eventually. When is the question... But the ARMs can not be supported over a long period of time. IT's a mess waiting to happen.
Anyway, I totally feel your pain growing up in San Francisco area. WE managed to buy a condo and then moved to sacramento while it was still dirt cheap. Didn't make a ton on the condo at the time, but it was actually cheaper than renting, and we came out ahead. We got in sacramento just in time - paid $250 for a house worth 500k now (3000 square feet). Was up to 700k for a while but market is sliding now.
Moving was the BEST thing we ever did. We have all of the above on 70k/year. BEfore kids we lived on 40k easily. Right now it is preschool and healthcare that takes the chunk of the budget. & mortgage/taxes, but I never complain as we were looking at 500k fixxer-upper crap before we moved here. Our relatives are now paying upwards of 700k for 2-bedrooms fixxer-uppers, it is so friggin ridiculous. I have no idea why they put up with it, why people are so scared to move. Right now there is a mass exodus for Oregon - people have had enough.
I would super-commute rather than put up with a 700k fixxer-upper, but that's me, and I am lucky to not rely on one area for jobs.
Well, Keep your chin up and good luck!!!
September 12th, 2006 at 10:28 pm 1158100094
Yes Yes Exactly, LuxLiving! Dart! Bullseye!
Money, Kiplinger's, Better Investing Magazine, Worth, Forbes -- NONE OF THESE MAGAZINES shows me how to, as you colourfully express it, tet the fraggalious boat to financial happyland!
Don't have the rich parents -- they died, and left most of their stuff to their spouses (not each other).
Don't have the stock options. Didn't start out with a concrete block of a house in gang-infested California megalopolis to trade into a McMansion here in the PNW.
I did "stupid things" like invest in 401(k)s and Roth IRAs, and refinanced the mortgage so we paid the same amount but had a shorter term, saving us $88K in interest. I don't wish a great depression, I just want some reassurance I'm doing the right thing, and am right to think that these balloonatic house prices will correct soon!
September 12th, 2006 at 10:37 pm 1158100625
As for how people are managing, I have similar conversations with friends and relatives all the time. Until my we had our daughter and my husband started his business, we earned far more than any we knew. Yet, there was no way we could do everything the way financial experts suggested (20% down on house, max out 401(k), etc.) Still, we did live frugally and saved what we could. We bought a house we could afford and didn't incur any long-term debt, not even on the business. Consequently, we feel like we'll be able to get through the correction without too much trouble. I suspect most of our neighbors can't say the same and I worry for them.
I'd like to say we're financial geniuses, but the truth is we simply learned from past experience. California had similar real estate correction about 15 years ago and we were wounded a bit by it. After we got through it, we were determined not to let it happen again.
September 13th, 2006 at 04:00 am 1158120049
I've also said, to anyone who would listen, that this is a credit bubble in disguise. If a 500K home loan is easy to get and a lot of people can get them, then a house will basically be sold at 500K, because buyers set prices.
And finally, there are a lot of people who really don't understand basic math. Devil be damned on what a 500K debt actually means in terms of what you'd be shelling out month after month, year after year.