Who can buy and how much?
With the Median Family Income, Estimated in WA – 2007 at $63,500, what percent of King County's estimated population of 1,826,732 be able to buy? With slick financing gone we are back to stated income loans. Homes currently on the MLS are priced at the 2006/2007 standard with inventory rising.
How many can purchase;
a) over $1,000,000
b) over $ 500,000
c) over $ 250,000
d) over $ 100,000
I say a majority (75%) fall below qualifying for a $500,000 home. What does the median home price need to look like for families survive?
How many can purchase;
a) over $1,000,000
b) over $ 500,000
c) over $ 250,000
d) over $ 100,000
I say a majority (75%) fall below qualifying for a $500,000 home. What does the median home price need to look like for families survive?
Comments
I think most people cannnot afford the average house in king county. How may people make 200k a year to buy an entry level house. I don't think that many.
The comparison is only valid for 1st time buyers - who represent what % of market? I don't know, but I'd bet less than 20% and I suspect most of them are buying a house that is cheaper than the median.
Purchase price above that determines the amount of down payment one has.
Looking at the average income of $63,500 or lets round up;
Sea/Bell income of $100k with an average of 100K down is still a stretch for a $500K home. Of the 12000+ homes listed on the MLS, 50% are above 500K and those under, many are condos. Until sellers and RE agents see the writing on the wall, it will be a standoff between buyers and sellers.
Except, you're making two very basic (and I think flawed) assumptions. 1) A significant portion of existing homeowners are in the market to move. 2) The portion that is involved in the market has significant equity.
Here's some key questions. What percentage are 60 and above and have no intention of moving...ever? Of those with equity (local or emigrant) who are moving, how many have equity above $200k? What total percent of potential buyers have any significant equity?
My impressions are that most equity is in the hands of a small number of people who are unlikely to move. For the actual pool of buyers, I would guess the numbers break out something along the following lines - this is 100% a guestimate mind you.
10% previous owners with significant equity - $300k or more. These are mostly long time residents who are moving for a job, or downsizing because of kids going off to college.
30% previous owners with modest equity - about $100k. Younger GenX/Y or boomers who got hooked on HELOCs. They've got equity, only about as much as 20% down on a 'median' home.
20% previous owners with essentially no equity.
25% first time buyers with little down payment (15% or less).
5% first time buyers with at least 20% down payment.
10% Investors.
These are all guesses, but I bet if we did a poll, we could use the wisdom of the crowds to get a fair idea of how the market is really broken out.
I don't think we're so far apart on estimate of buyers with equity. The only number I'd quibble with is your 20% low/no equity figure. Pretty easy to triangulate based on some known facts.
~800k housing units in King county
60% home ownership - so 480k owned
http://quickfacts.census.gov/qfd/states/53/53033.html
Estimating here, but based on watching the lastyear or so, I'd say Condo/SFH sales average about 40-60k per year over the last decade, which means the average home turns every 8-12 years - lets call it 10 to make the math easy (same number I used above).
That means on average owners have 5 years of market-based equity in their homes. What's the market done in the last 5 years?
Just based on appreciation rates and average turn, I think it reasonable to assume that the only people with low/zero equity are those who put nothing down, and probably who bought in the last year to 18 months. You are saying that is 20% of buyers (10,000). I'd say that is high. If they have no equity, how and why are these 20% of buyers trading up? Seems like an odd assumption.
And having $100k in equity is a lot of leverage in home buying. In the space of owning 2 homes - I went from putting zero down on a $370k house to clearing $500k in equity on a $1mm plus house in the space of 9 years, and I wasn't doing anything crazy. I put maye $70k in upgrades into the first place, and I think I was out of pocket about $25k on the down payment for the second. I don't think I am that much of an outlier in terms of my experience - except that I was smart enough to get out pretty close to the top
Anyway, my big gripe was the assumption that everybody just pays for the cost of the home out of savings + salary and ignoring trade up buyers. Even in your numbers you have 45% who clear the 20% hurdle on a $500k home.
being "underwater".
What I would find interesting is a poll of titled "what is your real estate resume?".
A) new buyer
C) current homeowner waiting to buy up
D) happy renter for life
E) happy homeowner and tend to stay where I am
My status is B. My first home was a custom built that I took an active part in, (no labor). Next home was a top to bottom remodel with addition, (did much of my own labor). I have two rentals and a large land parcel in contract with a builder. I can relate well with all sides of home buying and selling. Economics is a HUGE factor.
Regardless of equity situation, it's not hard to figure out that first time buyers can't afford to buy, and current 1st tier owners can't sell and move up to 2nd tier homes, and so on. When 3x median + 10% down can afford a decent condo or starter house in the city, things will begin moving at a normal pace. We're still 50-100% above that.
I understand this, but I think most people treat their home equity the same way in a trade up situation today as they did in the past. Probably less so in places like SoCal and Arizona, but I have never seen any hard numbers that show a huge % of people HELOC'd themselves out of a large equity position. More anectodatal info than anything else. And the sum of anecdotes does not equal data. I'm not saying it hasn't happened. I just want to see some real data before I buy into it.
good suggestion. That would be a great main page post. I'm "B" as well .
might want to make B&C "up or down" to cover all bases.
DJO - I seem to recall CR estimating equity extraction at about half a trillion a year at during the final few years of the run-up. That's not insignificant, and I would doubt Seattle was immune to the phenomena.
This was in March. We're probably over 10 million with negative equity by now.
OK - quick thoughts:
1) 10mm homes is 12% of the US homeownership (125mm housing units x 65% home ownership)
2) given the low sales of the last year gave us a turnover rate of about 6-7% of homes, and a market that sits at the level it was less than 18 months ago - I'd be very surprised if Seattle was even close to that level of under water.
3) even if it was average or worse (which I don't think it is) - the assumption that these individuals are likely to be "trading up" in any numbers large enough to be a significant percentage of buyers seems to me to be absurd. You can't say that people have no down payment, yet they can bring cash at closing so they can trade up. More likely they're short selling and moving into rentals.
I'm not trying to pee in anyone's cheerios. I just don't think an objective assessment of the facts supports the case that 20% of local buyers could possibly be "previous owners with essentially no equity"
The data I provided shows, if it shows anything, that their will be fewer move-up buyers going forward.
Sure, not every mortgage holder, or even a majority, HELOC'ed themselves into hoc, but enough did that it will be a damper on the middle and upper tiers of the market for some time going forward.
I'd agree with this. Probably a major reason why sales have slowed so much
I don't think we are really in disagreement here. I think the only real disagreement is that I'm under the impression that perhaps a small majority of owners have been removing equity. Many of the homeowners I know owe more on their home today than they did when they first bought it. Anyone who has owned their home for 5 years should have at least $200k in equity (20% down on a $150k home that now goes for $325). But I think they may have pulled a chunk of that out.
About trade-up buyers, I think they are disproportionately skewed towards the lower end of owners. The 45 year old couple with teenagers is probably not looking to move up as much as the 32 year olds with toddlers. Again, this isn't something I have facts about, but rather seems to be the trend with people I know.
zactly my point above. these people are forced to sit tight. can't upgrade because they can't afford to. but man, that rising tide was great while we had it. as long as you got out of the water before the tsunami!
"RCC: The 45 year old couple with teenagers is probably not looking to move up as much as the 32 year olds with toddlers. Again, this isn't something I have facts about, but rather seems to be the trend with people I know..."
The 32 year olds with toddlers recently bought my triplex. Made their offer ONE day after it was listed, for the full asking price, which was way, way, too much for the ratio of realistic rent and taxes, the condition of the building, AND the mortgage. I attribute it to "dark money." No one really knows were it comes from, but you see and feel its effect.
It's also possible this couple got an ARM for 10 years via FHA. They still exist.
I don't know anything about my other guestimates, but this one looks like it might have been a pretty fair one. At least according to this article.
By the way, it's an interesting article about how builders are switching back to smaller actually affordable homes.
I recall their estimate of the equity of mortgage holders for Q4 07 was less than 30%.
They speculate that if we see the 30% declines that a number of economists are predicting could happen, no mortgage holder, on average, will have any equity at all.
Regardless, if the average mortgage ends up with just 15% equity (just making numbers up), that's a very big deal.
I had thought the 29 some-odd% equity estimate among mortgage holders was a late 2007 number, before we saw the serious home-price cliff-diving but I could be wrong.
Just a follow up on this guess.
I was a little bit bearish it looks like. According to the article I linked above, the latest numbers show 16% have no equity.
Of course, those numbers are from the end of march, and if someone had $2k in equity they might not be included in the list despite the fact that they'd be underwater if they tried to sell.