One hundred percent of those who lost homes in foreclosure suffered from excessive debt — 100%. The total amount of debt is important, but the terms of repayment are far more critical. The monthly payment (plus taxes, insurance and other costs) must be a manageable percentage of the borrower’s income, otherwise the borrower is likely to default. Historically, this value was 28% or less, then it was expanded to 30%, and now the GSEs underwrite to 31%. Debt-to-income ratios higher than this are proven to have accelerating default rates absent Ponzi borrowing.
Thirty-one percent doesn’t sound like an onerous percentage of income. But most people forget this is gross income, not net. A 31% debt-to-income ratio is 50% or more of a borrowers take-home pay. How long do you think you could afford to pay half your take-home pay for housing? It’s a stretch, but it can be done. But what about 50% of gross pay. That’s 70% or more of a borrower’s take-home pay. How can anyone sustain that very long?
They can’t.
High housing payments the new ‘American nightmare’
Millions of Californians are paying close to half their income for housing – a level once considered foolish. Even as home prices have tumbled, the cost of homeownership has continued to rise.
By RONALD CAMPBELL / THE ORANGE COUNTY REGISTER — July 26, 2012 Updated: July 31, 2012 10:57 a.m.
In 2006, Ernie and Edith Garcia began building their dream home on a Fountain Valley lot his grandparents had purchased decades earlier.
Six years, one recession and one layoff later, the mortgage on their home has become an anvil around their necks.
“The American dream?” Ernie Garcia asks. “This has turned out to be the American nightmare.”
The writer makes it sound like these were circumstances beyond their control, but were they? When these people built their “dream home,” do you think they were concerned about the cost and their ability to pay for it, or did they get the largest Option ARM an irresponsible lender would give them? They had choices to make, and they made the wrong ones.
The Garcias have a lot of company. Unnoticed amid the housing boom and bust, millions of California families entered risky territory, paying once unthinkable shares of their income for housing.
Today, some 2.7 million California households – homeowners and renters – pay at least half their income for housing. That includes the Garcias and about 200,000 other Orange County households. The numbers have nearly doubled in the past decade, according to the Census Bureau. A much bigger group – 4.6 million California households – is paying 35 percent or more, above the traditional 30 percent norm, up by 1.7 million in a decade.
Of the 200,000 OC Households paying more than 50% of their income toward housing, how many of them are loanowners who will ultimately succumb to the financial pressures? Will lenders get prices to go back up and resupply the housing ATM in time to enable these loanowners to continue their Ponzi borrowing?
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Proprietary Irvine Housing News home purchase analysis
$524,900 …….. Asking Price
$755,000 ………. Purchase Price
9/11/2006 ………. Purchase Date
($230,100) ………. Gross Gain (Loss)
($60,400) ………… Commissions and Costs at 8%
============================================
($290,500) ………. Net Gain (Loss)
============================================
-30.5% ………. Gross Percent Change
-38.5% ………. Net Percent Change
-6.0% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$524,900 …….. Asking Price
$104,980 ………… 20% Down Conventional
3.64% …………. Mortgage Interest Rate
30 ……………… Number of Years
$419,920 …….. Mortgage
$117,667 ………. Income Requirement
$1,919 ………… Monthly Mortgage Payment
$455 ………… Property Tax at 1.04%
$250 ………… Mello Roos & Special Taxes
$131 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$285 ………… Homeowners Association Fees
============================================
$3,040 ………. Monthly Cash Outlays
($303) ………. Tax Savings
($645) ………. Equity Hidden in Payment
$125 ………….. Lost Income to Down Payment
$86 ………….. Maintenance and Replacement Reserves
============================================
$2,303 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,749 ………… Furnishing and Move In at 1% + $1,500
$6,749 ………… Closing Costs at 1% + $1,500
$4,199 ………… Interest Points
$104,980 ………… Down Payment
============================================
$122,677 ………. Total Cash Costs
$35,200 ………. Emergency Cash Reserves
============================================
$157,877 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Cost of Ownership Analysis
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Nearby Foreclosures
Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."Comparative Market Analysis
Are you ready to make an offer, but you are worried you will either (1) underbid and miss the property or (2) overbid and pay too much? Don't make a mistake and miss your dream home, or worse yet, overpay for it! Get the advice of a seasoned professional. Contact us at info@ochousingnews.com today!
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$729,000 29 WONDERLAND |
0.41 miles 4 bd / 4 ba 2,492 Sq. Ft. |
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$725,000 35 SECRET Gdn |
0.44 miles 3 bd / 2.5 ba 2,300 Sq. Ft. |
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$570,000 31 ICEBERG ROSE |
0.51 miles 3 bd / 2.5 ba 1,750 Sq. Ft. |
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$478,990 42 NATURE |
0.54 miles 2 bd / 2 ba 1,530 Sq. Ft. |
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$649,900 43 HALLMARK |
0.61 miles 3 bd / 3.5 ba 2,100 Sq. Ft. |
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$628,888 33 HALLMARK |
0.61 miles 3 bd / 3.5 ba 2,090 Sq. Ft. |
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$189,000 5200 IRVINE Blvd #115 |
0.78 miles 2 bd / 1.75 ba 2,040 Sq. Ft. |
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$265,000 5200 IRVINE Blvd #181 |
0.78 miles 2 bd / 1.75 ba 1,766 Sq. Ft. |
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$249,900 5200 IRVINE Blvd #260 |
0.78 miles 2 bd / 1.75 ba 1,760 Sq. Ft. |
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$214,000 5200 IRVINE Blvd #468 |
0.78 miles 3 bd / 1.75 ba 1,728 Sq. Ft. |
The lack of resale supply is making the builders happy.
Builder Confidence Improves to Highest Reading Since 2007
Builder confidence improved two points in August to 37, its highest level since February 2007, the National Association of Home Builders (NAHB) reported Wednesday. Economists had expected the index to remain flat at 35.
The improvement in the index in August marked the fourth straight month-month gain. The overall index has gained 22 points in the last year, the largest one-year gain since February 1992. The August reading also marked the third straight month the index was more than double what it had been one year earlier.
The Housing Market Index (HMI), considered a measure of builder confidence, could be reflected in permits and starts data reported for August. That report from the Census Bureau will be issued in September. Meanwhile, Census will report on July permits Thursday.
All three components of the index – the assessment of current sales, of sales six months out, and traffic at showrooms and model homes – improved.
The current sales measure rose three points to 39, its highest level since February 2007. The August gain followed a jump of five points in July. The current sales gauge is up 24 points in the last year, the last year, the strongest year-year surge since February 1992.
Buyer traffic also rose three points to 31, its highest reading since May 2006. Year-year the buyer traffic index is up 20 points, the largest 12-month improvement since March 1996.
The index of the outlook for sales in sales months rose one point to 44, the highest level since April 2007. The six month sales outlook index has increased 25 points in the last year, the largest annual gain since January 1992.
“This fourth consecutive increase in builder confidence provides further evidence of the gradual strengthening that’s occurring in many housing markets and providing a needed boost to local economies,” said NAHB Chief Economist David Crowe. “However, we are still at a very fragile stage of this process and builders continue to express frustration regarding the inventory of distressed properties, inaccurate appraisal values, and the difficulty of accessing credit for both building and buying homes.”
Gains in the index – or its components – do not always translate into new home sales. New home sales, for example, fell 32,000 in June to 350,000 although the HMI rose that month. The current sales measure rose in June as well but the buyer traffic index was flat. Six months earlier in December, the outlook for sales six months ahead had improved.
The index, built based on surveys conducted jointly by the NAHB and Wells Fargo, gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”
Regionally, the index improved in two of the four census regions: up nine points to 42 in the Midwest and two points to 35 in the South but down nine points to 25 in the Northeast and down three points to 40 in the West. The regional confidence measures are consistent with the most recent report (for June) on new home sales, which showed new home sales plunged in the Northeast.
The HMI survey followed a surprisingly strong payroll report for July which showed the nation added 163,000 jobs, far more that what the market had been expecting but the unemployment rate rose to 8.3 percent in the same month. However recent housing specific survey such as the Case Shiller Home Price Index show improvements in home prices.