Nevertheless, I'm not surprised. I took issue with another, ignorant remark the author made: "In some spots, super-low down payments are to blame." (I voiced my concern via a comment on another post, "Contradictions.....or a Different Way of Interpreting Data?") I'm not rejecting the notion that there might be a correlation between the amount of one's down-payment and the loan default rate; rather, I'm saying his feeble attempt to connect those dots flew like a solid, lead balloon--not very far.
On the other hand, I do agree with the second part of Drew's quote (from that author), "34.5% [of buyers who bought this year] owe more on their property than it's worth, . . ." because I've seen similar numbers confirmed via other reports. (I also don't pay a lot of credence to Zillow's numbers; yet, sometimes their numbers aren't far off--if at all.) Anyway, that stat shouldn't be all that surprising, because many of the Q1 buyers purchased their homes for more than they are worth NOW. We're in Q4, so only 3 quarters have passed, so it should make sense intuitively--and mathematically--that roughly 1/3 of the buyers paid a price that is higher than the current market value of the property.
Dan, I like the way you think; I suspect you might also know a thing or two about real-estate investing--based on some of your comments. Yet, I think you're kind of misapplying that "3 times the median income" sales price (aka the equilibrium median sales price). Your analysis of that market is correct; it's overpriced. Your determination to use the value, 3 times your household income, as a ceiling is also correct. However, your point, "there truly was an economically sound reason prices shot up that fast, . . ." and your point about being unable to get the kind of house you want in your price range, are irrelevant for what you want to do.
The main reason, why prices shot up so high and fast there, is that most buyers in that market were willing to pay those escalating prices--but knowing this doesn't help you. So what they paid those prices; that doesn't mean YOU have to pay that price too. Go find several properties that fit your criteria, and make an offer that makes sense to you on one (or more) of them. So what if your initial offer gets rejected; if the seller counters, then you two might end of negotiating a price that you could live with.
I suspect you wouldn't feel taken if you ended up paying 3 times your household income + $100; of course, that value - $200 would be even better. ;)
You really need to go back and read what I said. "I have seen homes in the $200k range."?? What does that mean? What exactly are you looking for in home where every house you've seen at $360k is a total joke? Again, it's taste sensitive. I know of homes right now in Va. Beach, in that price range with nearly 3000 sf, in-ground pool, and large lot. It's all a matter of perspective I guess. Hope you find what you're looking for.
I totally agree with your observations as I am a potential buyer in the VA Beach area. I too think that for our market and job base, prices are still significantly too high and need further correction.
In our market people have been maxing out the front (28%) and back ratios (36%) for lending requirements in order to stay out of the over-priced cracker jack box. With that and past creative financing making this ratio even worse, it's no wonder we now see the huge financial distress this can cause, people have hugely over bought IMO. To me these ratios seem way too high. They should be based on net income or more like 15% front & 25% back ratio. There is no way anyone should be house poor with years more of a recessionary economy looming.
The only other market I am familiar with, West Tennessee, is part of what has spoiled me. That is certainly not a comparable market, but seeing friends and family in ~$100 sq/ft new high quality construction homes just makes it feel like it's a rip-off paying our markets sq/ft price.
This comes back to your 3x income scenario. My wife and I have about $120K combined gross income that we would use for a mortgage. That means a $360,000 house at 3X. The Jeff in the post below says he has seen houses in the $200K range. We have been looking and EVERY house I saw in that range was a TOTAL joke. Currently, every house I have seen listed (not the sold price) in the $360K range is a joke too.
Im waiting it out to the absolute bottom just so I don't have buyers remorse and feel like I was ripped off in this market.
I'm totally with you and probably just as frustrated with how the market has evolved over the last 5 years. One of my biggest frustrations was concerning the many clients that I had several years ago who made a good living, had good credit, and yet couldn't find a decent home that they fell in love with. They had to settle for something else. I'm not sure what you mean by finding a home for 3X your family income though. If you make $60k, can you find a decent home for $180k? I guess that's opinion sensitive. What you think is decent may be different than someone else. I do know that you can find great detached homes in Va. Beach, Chesapeake, and Norfolk for $200k or even less. By the way, these same homes sold a few years ago in the mid $200's. I'm all about realism and don't like the whole hype thing. I do have a very busy real estate life and in my experience sellers have gone down as far as they can go in most cases. You may find yourself a sweet heart deal every once in a while but not often. Last week I did close on a home where the asking price was $699k and we offered $630k. The sellers accepted! The home appraised at $785k......This was out of the ordinary. Today I wrote an offer that is in competition with another buyer. Imagine that, a bidding war?? It is what it is and every seller is different. Today, in our area, a buyer can purchase a home that they didn't qualify for just last year!! I do wish you well though. I know this experience is frustrating. I'm actually considering building another home and rest assure, I will work the builder down to the lowest I can get him.
My concern to your question would also be if the Virginian-Pilot did an article saying that, bigger issue since they are here and have a better picture of what's going on. Overal data doesn't always show the right picture as the Forbes article illustrates.
California real estate is dropping because really, who can make 75k a year and afford a 750k house? You can't, so prices drop back to more affordable prices. And if no creative loan products ever exist again, prices will continue to decrease in my opinion. If you can't find new buyers at higher prices you'll never sell your house and move to anything else.
So Virgina beach is fine to ride out a recession in, but Hampton Roads is horrible as far as a place to buy rental property that cash flows without putting a ton of money down. There are better cities where your return on investment is substantially higher than Hampton Roads, and it's not anywhere close.
I have a link to that forbes article on my website if anyone is interested, it's under Local news.