That quote just says it all, doesn't it? It so well defines the term "house poor" which characterizes today's California.Anyway, I was doing a little research regarding what percentage of people's incomes are now being spent on the mortgage and I came across this article from way back in August, 2005. It's still fresh.
Is this an accident waiting to happen? Or does it even matter; is living in the Bay Area just so wonderful that it is worth giving up living?
Some choice quotes:
The housing market is red-hot in the Bay Area. So, who's buying those pricey homes -- and how are they able to do it? The answers: Young professionals. Riskier loans. Longer commutes. Smaller houses. And, in some cases, a lot of peanut butter and jelly..Be sure to look at the tables of data.
With Hayes Valley condos selling for $750,000 and Livermore tract homes fetching $1.3 million, the question is on everyone's lips: Who's paying these stratospheric prices?
The answer, increasingly, is young professionals who are devoting exorbitant portions of their incomes to housing, according to a new study.
"It's painful, more painful than I thought it was going to be," said Kris Crichton, who bought a $640,000 condo in San Francisco's SoMa neighborhood using $50,000 in equity from a home she owned with her former husband and an interest-only loan for part of the mortgage. "I'm eating ramen and PB&J every day, but at least I have a house."
Recent California homebuyers are finding novel ways to stretch into the nation's most expensive real estate market, including taking out riskier adjustable loans, leveraging existing equity, and choosing smaller homes and longer commutes, says a study released today by the Public Policy Institute of California in San Francisco.
...1 out of every 5 recent California homebuyers is spending 50 percent or more of his or her income on housing costs -- twice the national average (the study defines recent home buyers as those who purchased homes in 2002 and 2003). Though 2004 and 2005 data were not available to include in the study, Johnson said the percentage is likely even higher today.
Increasing numbers of both trade-up and first-time buyers in the state are allotting a fat chunk of their incomes to their house payments. Although the U.S. Department of Housing and Urban Development recommends that households pay no more than 30 percent of their incomes on housing costs, 40 percent of all households in California with mortgages and 52 percent of the newest home buyers exceed that threshold. In the Bay Area, 44 percent of recent home buyers dedicated 30 percent or more of their household incomes to homeowner costs, which include mortgage, real estate taxes, insurance, utilities and condo fees, the study said.
Almost 50 percent of home purchases in Californians last year were financed using interest-only loans, up from about 2 percent in 2001. As such, financially stretched buyers could quickly find themselves at the breaking point if home values were to stagnate or interest rates to jump.
In the Bay Area, the percentage of mortgage-paying households that exceeded the recommended housing/income threshold in 2003 was more than 40 percent, an increase from the year 2000.
I think that in a few years we will look back at the situation described in this article and just shake our heads in wonder.
5 comments:
Matt -
That, of course, is how many, many people are doing it.
So the real question is: "what else can the industry do to further inflate the bubble?"
I know that 40-year loans are now being offered to squeeze a little more air into the housing bubble (go see the Ben Jones blog as he covered that recently). Maybe these loans will be enough to see us through the Spring selling season which we enter into today. But after that?
a major way people are affording this is by not having babies. People are postponing parenthood for years-and-years to buy a house or condo. Then they will try to have kids desperately when they are 40 and they will be barren. I live in a similarly expensive area and my kid is in classes with a lot of onlies - and that's the ones who did manage to have kids.
For long links use www.tinyurl.com
fredtobik-
One acronym for you: LMAO
:-)
The money to buy these homes is coming from Asia.
Look, we as a Nation are borrowing something like $1 billion a day from China. That's Mainland China, not Taiwan China.
The same Mainland China that is still technically communist and just 10 years ago was... well... nothing.
Well, they (and other Asian nations) have had a lot of money pent up - and they're spending it all here in the Bay Area.
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