If Bainbridge Isl has a median income of, let’s be generous, $75K, what would the median house price have to be to keep the median family in the game?

With BI, you have pretty steep taxes (it is where Kitsap Cty goes for assessment cash), and you also have $600/mo ferry tolls. In addition, you have to drive to Poulsbo/Silverdale/Bremerton to buy just about anything.

When the pie shrinks (and it will), don’t you think all the (insert racial identity here)-Americans will all be clamoring for “their fair share?”

My guess is that in a declining job market, the Central Americans will become persona-non-grata, the poor urbanites will look to the suburbian dwellers as a pigeon to be plucked, government will scramble for increased revenues to feed the gaping maw of social welfare, crime, and unemployment.

Who will be square in the sights of just about everyone? Upper-middle class, suburban, white home owners.

Their economic reality won’t be much better.

No. I think the EU problems are going to stem from frictions between their member states during a severe recession, mainly over the EURO. Some Euro countries will go way over the stability pact requirements (i.e. increasing public spending) which will upset the other members who are better at tightening their belts (i.e. because the profligate members will impact bond prices/borrowing costs for everyone). I would be very surprised if we don’t see some countries withdraw, or be jetisoned, from the Euro altogether.

This will create huge strains within the EU. The other big fracture point in the EU will be increased nationalism during a deep recession, where countries become hostile to other EU citizens coming to their country “stealing” jobs (i.e. I am NOT talking about immigrants from outside the EU). Moreover, we would see EU countries want to protect their own industries from other EU nations. We already see this in Europe now (e.g. with France giving illegal subsidies to state firms, etc), but this will become much more acute, leading to crisis, during a deep recession.

No, the EU is NOT going to be a fun place to be when a deep recession hits. A lot of those new-fangled surpa-national institutions are going to show their cracks, and we will discover that Irishmen and Frenchmen don’t REALLY consider Poles and Slovaks as being “equal” citizens.

Why wouldn’t we have the same problem?

I completely agree there would be very few people able to buy if the scenario I described came to pass. You would have to have lots of ready cash piled up. The example of how hard it was to get loans in texas because of job changes is exactly the kind of thing I expect purchasers to face. The lending requirements will be ABSURD. But, for those people who qualify (i.e. meet whatever bars the lenders put in place), I think they might get pretty good rates on the loans.

As far as the dollar goes, I think people might be surprised at how resilient it is when people become frightened of putting money in developing nations, and the EU goes into political chaos.

I respectfully disagree.

Your projection assumes a massive liquidity environment, a stable dollar, and everyone wanting US government debt (which they owe $46T and control the printing press).

While it could happen, I seriously don’t see how that is a possibility. Also, I fail to see how you can have massive chunks of down payments if you have massive defaults and a nation-wide destruction of equity. Anyone with that kind of money would be incredibly difficult to find, and they wouldn’t be able to float much of the market.

I think rates will be higher, as well as lending standards. The market will adjust at dramatically lower prices.

Back in ‘00, prior to the current madness, my own bank of 10 years wouldn’t loan me a dime to buy a house in suburban Dallas. I had enough cash IN THEIR BANK to buy the house outright, and offered any down payment they desired. I also had flawless credit.

I had to take my case to the senior underwriter, and he said “no dice.” The reason was my income ratio was outside of their comfort zone. They also said I had “changed careers.” Changing careers was going from Naval Aviator to Airline Pilot, and my ‘00 income on the union scale was $26K.

I doubt there will be any special cases for massive down payments, other than getting a loan. Down payments may be 25 to 30% or real cash (not a second loan).

It will be interesting to see what the interest rate environment will be in the next 3 years. My bet is on higher rates, as the FED can’t control the longer end of the yield curve.

As more and more loan defaults occur (not just real-estate, but 3rd world debt, new Chinese factories, etc) credit standards will tighten, and lending will dry up. Instead of buying junk-bonds, or tranches of sub-prime mortgages, investors will put their money in treasuries.

In fact, we could see treasury rates DROP, as demand for them increases (as capital flees to safety).

In the end, I think it’s quite concievable to have a housing bust, but still have very low priced loans for people with incredible credit and 50% to 70% down-payments. High rate loans just won’t be available at all since no lenders will take the risk on someone who isn’t putting down a massive chunk of cash.

Once the middle fell into economic hard times, the median would have to drop.

It’s not just one family stretching a $55K income – it’s thousands of families doing the very same.

Impossible.

It is interesting in the poll portion to see that there are so many on this blog with $100K+ household incomes, but who either can’t reasonabley afford to or can’t see the sense in buying in todays market.

$55K median is SOL.

As a side, how much do the college students, interns, youngin’s and bike messengers who are just living cheap or on credit and hanging in here for a good time while they are young affect the median. $55k seems pretty low for a household income of say two people in their thirtys with jobs.

I have to think that there is a large gap between the haves and have nots here in Seattle.

Not to be unsympathetic, but are there really couples/families making $55K who are realistically looking to buy in Seattle? Seems like financial suicide (as eleua mathed out).

1) prices will have to fall or..
2) lenders will have to offer entirely new products with eye-popping terms that makes it affordable (payment wise) to purchase and keep the housing market afloat. My guess is that this new lending would have to have blessings from the likes of Fan or Fred who will buy these mortgages.

I don’t think 5.75% mortgages will be available at the bottom of this market. One of the big parts of the “nuclear winter” thesis is rising interest rates, as the dollar crumbles.

Let’s look at what that $55K median has to spend every month.

$55K/12 = $4583/mo. That has to pay for the following:

food: 400 (if you kill most of what you eat)
electricity: 150 (assume no gas heat)
cable: 60 (assume this is your amusement/internet)
auto insurance: 100
auto gas: 240 (@3/gal)
auto pay: 300
medical: 140 (absolutely no health problems)
water/sewer/trash: 50
phone: 60
fed tax: 370 (0% fed, SS, disability)
retail: 500

back out $300 for tax, and $75 for insurance, and you have $2233 for P&I.

At 10% (that will be a gift in 3 years), you can take out a mortgage of $211,664, which grabs a $264,581 house (assuming you have $53K for a down payment – HUGE, MEGA ASSUMPTION!!!!)

You would essentially be a hunter/gatherer, complete tightwad, and have absolutely no savings, life insurance, or any life whatsoever. No travelling, no splurges, and you could not afford anything to go wrong with with your house. That was a pretty spartan budget.

If you have a more realistic budget:

food: 500
cable: 100
auto pay: 500
medical: 300
phone: 100
retail: 1000

If you only have a $200/mo property tax bill, and the same $75 for insurance, you would have $898/mo for P&I, which at 10% is a $102,320 mortgage, and a $127,900 house.

Inflation in a stagnating job market sucks, huh?

How amusing and almost sage-like that a mere hours after S-Crow made this post, the following should appear on the Seattle Real Estate Professionals blog:

And more importantly, buying a house (unless you are specifically buying investment property) is about where and how you want to live, not whether you’ll be able to sell in six months and make a profit.

“Normal” is when sellers and buyers both take time to do their due-diligence before a sale, whether it is looking at tax records of other homes for pricing purposes or doing a home inspection before buying.

Only if you purchased over 10 years ago can you consider yourself in affordable position with todays housing price reality.

Your talking 55,000. for a 250,000. mortgage.. What You Smoking?????
… 55,000 and your renting Baby.. Theres no place you should be signing on any mortgage line in my opinion with 55,000. dollar income except on the low income rental agreement.

This puts the downside to about 30%. You and Eluea can argue about 80% declines and nuclear winter, but it’s just not in the cards.

And what if it does not happen because Fed cuts rates in 07 every 1.5 months? In the long run we are all dead. How long is yours?

Won’t it be fun to make 30 lowball offers and take your pick of what comes back? — taking another 20-30% off the already depressed prices?

Sounds like fun no?

Prices will drop in line with the market and affordability.

I didn’t say a recession or job loss was a necessary indication, in fact I added it as a possible “bonus”.

Usually job loss and lower economic growth are factors in bringing a RE market lower.

This time the reverse will likely happen — the RE market may cause the economy to collapse.

I’d give it 2-3 years for a bottom based on past history. This time it’s been a nationwide runup, so who can say for sure?

It ain’t free lunch, big fella.

Peaks are much harder to time than bottoms. Also, many times more critical.

You can’t ever determine that exact bottom, but at least it’s a lot less riskier than trying to find the top.

Some clues when Real Estate will be an -actual- buyers market again:

1. Mortgage financing is hard to get because banks have a ton of bad loans.

2. All MSM media stories are 24/7 gloom and doom.

3. New home starts are at all-time lows or near lows of the last down cycle. Newer builders have gone bankrupt.

4. Just about everyone percieves RE to be a bad investment and thinks the market will continue to go even further south.

5. There are almost no buyers or sellers of existing homes.

Then, throw in a rececession or heavy job loss — and it could be a good time to buy.

Essentially, you just have some patience and keep your eyes peeled.

How can it happen? In the same manner – the market is driven by liquidity and greed. The only way the banks got the money to lend out in such a reckless manner is because there is too much liquidity. The banks securitize these mortgage as MBS and sell them to investors – FCB, pension funds, hedge funds,etc. As the liquidity being reduced via global tightening to combat inflation, there will be less money to buy these MBS. In addition to that, as the housing bubble being deflating, create massive amount of foreclosures, short sales, etc. These investors will be less willing to buy and hold these MBS, especially sub prime ones (IO, high LTV, stated income, etc.). As the banks are left to hold on to these risky loans, they have no other way but to raise lending standards, and thus wipe a whole class of subprime speculative buyers.

Greed/Fear is another factor – As housing price is going up, every one wants to jump on the band wagon for FEAR of being left out or “priced out”. As housing price stays flat or going down, no one wants to jump on it for FEAR of losing money or get upside down.

The housing cycle is a very long cycle. It takes years to run up and peak, it will take years to ramp down and bottom.

I would much prefer to wait on the sidelines with cash, for the right moment to buy. At least I have options. I can choose to buy, or not to buy, whichever is more favorable at the time. If interest rates are a little high, chances are the home purchase price is lower, or I have more cash to put down — or my other investments are earning enough to offset that.

Plus, I may be able to refinance.