Seattle Bubble Forum Archive

This explains why 33% of mortgages are IO or Option ARMS.

People I know are already starting to leave for higher pay in other parts of the country. Myself included. I'm outta here at the end of the month.

Tainer said she expects the middle tier of industries — those paying $31,000 to $48,500 a year — to lead statewide job growth for the foreseeable future.

These people better be saving religiously if they ever want to buy a home. Too bad religious saving doesn't do much to support other service jobs.

This article really is sweet justice for those of us that are sick and tired of listening to people yammer on about 'strong employment' being the reason a 1400 square foot dump sells for $600K. I was especially impressed it pointed out that Boeing still is only at about 3/4 of its high-water mark.

Hmm... lets see, with 'strong employment' no longer a valid talking point of the local REIC, what do they have left? Not so sure that 'quality of life' is going to be mentioned much this week when the I-5 paving project starts.

I would say that the strong speculation in RE was caused by a peculiar lack of strong paychecks at the daily grind.

Speculation is the symptom.

twistjusty,

Thanks for posting. This is a good question, one the media generally disregards.

This is just the people I know, but it seems like the majority of 'move-up' buyers are families in the 35-55 demographic. Some of them have gotten new jobs and thus feel like they deserve a bigger house, other just have a growing family and feel like they need more space, better schools, or a better neighborhood.

But your question was really how do these people do it. First, moving up is slightly less hard than buying straight into that bigger house. Let's crunch a few numbers.

Assume that the 1998 start home cost $200,000 and the upgrade home cost $300,000. Both doubled in 'value' so the buyers have an extra $200,000 in equity. They have only owned for 9 years, so they have built little equity from mortgage payments. Let's also assume these guys never pulled equity out of their home. So just the equity from the boom gives them a 20% down payment on the upgrade house.

But they are doubling their total mortgage ($200,000 to $400,000). How does that work? They have probably received some raises to compensate for inflation over the years. Let's assume they did better and actually got a 4% annual raise. Their income has risen by about 35%. This increased income means in real terms, their mortgage is just 1.4 times as expensive as their original house.

So what you would expect is these upgrade buyers will own a little less of their house. This graph shows what's really happening



At the same time, the number of owners who have 100% equity (they actually own their house instead of the bank) is around 1/3. My understanding is that number has not moved very much. So retired people (and the ultra rich) own their homes, they are not moving out very often, and everyone else is dragging down the percent of total equity. Look at the graph above and you'll notice that 2/3rds of all home owners owe 50% of the total value of real estate in America.

I hope this answers your question.

200K would get you much more than a starter home in 1998, and it would be worth more like 550-600K in Seattle now.

I have a friend who bought his first house for 185K in 1998, top of Queen Anne, put maybe 50-75K into it, and now it's Zillowing at close to 700K.

He refinanced into a 15 yr fixed, no cash out, he owes less than 100K, got married and his wife works, his salary nearly doubled and his houshold income tripled. So he has 600K in equity, and could qualify for a million dollar mortgage.

Of course he's frugal and is staying put, but he could easily double his house without much stress on his expenses.

That's what happens when housing values triple in 10 years. Get in at the right time, and you are set.

At the wrong time, and you are hunting Suzanne with a bowie knife.

No shit.

Except decisions are often more than economic. And I posit they should be.

Besides, what are going to do with the 600K? Buy Krugerrands and sit in some cave on top of the pile armed to the teeth, as they slowly depreciate in value?

Probably better to enjoy your sweet QA home.

consider the fact that it isn't money earned, I say he should just high-roll it.

I would sit on it. They bought the house to live in after all. We decry the specuvestors here, but selling and sitting on a pile of gold...just sharpening your knife is no better.

Now if he wants a reasonable bet, here it is. Refi, pull out some of the equity, and invest that in foreign companies with good dividends. If he can get 6% on dividends, it pays off the cost of borrowing the money against his house. If he can get 8%, he makes a profit. Meanwhile he has diversified his equity, which makes him safer during the down turn.

I don't think cash-out refi is sound if you think there's bubble.

SELL SELL SELL!