And, everyone knows, owning is better than renting
/snark

But I’m posting because of this quote:

“Many do not understand that you cannot produce a sustainable economy by becoming perpetual paper pushers and house flippers without producing something of real substance.”

When I read the above line, I promise that I nearly flipped, almost like a Real Home of Genius would’ve been around 2005. Anytime the subject of the “thriving” economy has surfaced over the past several years, I’ve told friends, family, coworkers, and more the same, only to get puzzled looks as if I asked what’s the inverse cosine of a chimichanga. My words usually are, “Don’t trust an economy where nothing is made,” or “If I, an engineer, promised perpetual motion, I’d be laughed out of the room. Why not the same for an economist, banker, or broker?” Anytime things are booming beyond belief, it’s beyond time to ask yourself, “Where is the original wealth coming from? What’s powering this thing? And for how long can it sustain itself?” If you can’t explain that in a few paragraphs, then you may have serious problems.

In other news, I’m elated that I didn’t buy that house that was a “must-buy” in 2005 or 2006. I’m in the Midwest, and while affordability is less of a problem, many have still used the lax financing standards to overpay for their homes and gently nudge the prices above that which is merited, plus to upgrade to vinyl McMansions in the midst of former fields while leaving a glut of homes in the city and inner suburbs (i.e. anything within 20 minutes of the actual city). It’s now becoming more obvious as local home prices have dipped and inventory has risen to be 15% higher than it was this time last year and continues to rise. Never mind the fact that population growth here has been stagnant for decades. What new wave of buyers will clear this inventory as this turd hits the ceiling fan and spackles the crown moldings, granite countertops, and stainless steel appliances? Will the growing commute times still be worth it? Given that I still hope to change cities within a year or so, that anchor could’ve left me stuck here for quite some time.

Thanks again, and give ‘em hell.

DTI - yep, caps on the % of income going to mortgage and % of income for all fied debts are in fashion again.

So how many potential buyers of these ‘junbo’ houses can really qualify if they can only spend 28-31% of gross income on mortgage taxes and insurance; and only 41% of gross income on the house, credit cards, car loans and other fixed debts?

Answer: probably not any more than could qualify for a fixed rate mortgage for such loans during the past few years, and that is only around 26-30% of all buyers.

That $625,000 mortgage will need actual proof of an income of at least $180,000 if the interest rate is 6 % on a 30 year loan. At 8%, that same mortgage would have needed a $216,000 income to stay within a 31% cap on mortgage, taxes and insurance.

No matter how you cut it, that mortgage is only affordable for a buyer who has an income in the upper 3.9% of households. $180,000 is the upper 3.9% and $200,000 is the upper 2.67%. Even in CA, only 7.4% of households have an income of $180,000 and above, and 5.33% have an income of $200,000 and up.

LTV - no more 0 down kiddies. And Freddie and Fannie are increasing the required down payment in ‘distressed’ areas with falling markets. If the down would have been 5, F & F now want 10; if 10, they want 15; if 15, they want 20….. So how many prospective buyers will have $69000 (10%), $103,000 (15%), $138,000 (20%) etc sitting in their piggybanks?

Answer: no more than did before which was only that 26-30% of buyers.

Only thing it will do is IF interest rates drop some for the ‘jumbos’, is allow those who have the income, have the DTI, and have the LTV to refinance and save some interest on their payment.

Not going to bring in a lot of buyers. They simply do NOT have the income or moeny to put down.

“The stimulus package has had similarly destabilizing results. At best it will be harmless. More likely, late, adding stimulus after the need has passed. The new mortgage limits, $625,000 for Fannie and $750,000 for FHA, will be intercepted by a 125 percent-of-median-prices lid in each Metropolitan Statistical Area.”

From me-

Dear Sellers: Your listing is over the 125 percent-of-median-prices lid for Los Angeles so no one can get a conforming Freddie/Fannie loan to buy your house. But your rush to list has added massive inventory to the market and fueled panic this Spring. Much appreciated. -Buyers.