Comments on: West Linn Real Estate Market, November 10-16, 2008 http://www.move2westlinn.com/2008/11/17/west-linn-real-estate-market-november-10-16-2008/ News, Statistics, and Commentary about West Linn Oregon Real Estate Wed, 23 Jun 2010 15:10:28 +0000 hourly 1 http://wordpress.org/?v=3.0 By: dj http://www.move2westlinn.com/2008/11/17/west-linn-real-estate-market-november-10-16-2008/comment-page-1/#comment-481 dj Fri, 21 Nov 2008 01:54:05 +0000 http://www.move2westlinn.com/?p=247#comment-481 Stuart, you offer a very profound analysis and I must admit, I have not even considered the income level requirements in order to afford a $500K+ home. I've always used a back-of-the-napkin approach of 2.5 - 3x gross income and comparable rental rates for an equivalent property in order to come up with my own number, but I can totally see how your analysis would be even more relevant than my own. Given your analysis, I can't believe that people were able to "afford" homes during the boom times. The fallout from all of this will be very hard indeed. My only disagreement with your analysis though is the bottom. I think we're heading towards $120 sqft before things turn around, unless the bailout-orgy continues and we're forced to prop up overinflated property values with tax increases for everyone. It will be interesting to see what programs the new administration will institute to deal with this crisis. Interesting days ahead indeed ! Stuart, you offer a very profound analysis and I must admit, I have not even considered the income level requirements in order to afford a $500K+ home. I’ve always used a back-of-the-napkin approach of 2.5 – 3x gross income and comparable rental rates for an equivalent property in order to come up with my own number, but I can totally see how your analysis would be even more relevant than my own. Given your analysis, I can’t believe that people were able to “afford” homes during the boom times. The fallout from all of this will be very hard indeed. My only disagreement with your analysis though is the bottom. I think we’re heading towards $120 sqft before things turn around, unless the bailout-orgy continues and we’re forced to prop up overinflated property values with tax increases for everyone. It will be interesting to see what programs the new administration will institute to deal with this crisis. Interesting days ahead indeed !

]]> By: Stuart http://www.move2westlinn.com/2008/11/17/west-linn-real-estate-market-november-10-16-2008/comment-page-1/#comment-480 Stuart Thu, 20 Nov 2008 04:12:50 +0000 http://www.move2westlinn.com/?p=247#comment-480 dj! Thanks for the welcome. I find this site very useful in firming up the financial reality of what is really taking place in the WL market today. I was surprised that you think there are plenty of buyers in the $500K+ market. If we assume that buyers can put 10% down, then they need a $450K mortgage. That's over the $417K conforming limit, and such loans have already become much more expensive. BankRate today shows 30 year fixed at 6% for conforming loans, but Jumbo notes are now running 7.55%. I don’t see these kinds of mortgage getting any cheaper, and wouldn't be surprised if we see interest rates rise from here within a year or so. A $450K note at 7.55% is a payment of around $3200 a month, but that $500K house in WL is going to come with a $5K to $6K property tax bill, and will need insurance ($800?) too. All told (ignoring PMI for the >80% LTV) that's a monthly payment of around $3750 a month. Using the "old" 28%/36% rule, you need a gross income over $160K a year to "afford" it, and if you do, your "other" debt better not be more than about $1000 a month. Unfortunately for many Americans in that income bracket, the inevitable leased German automobiles, credit card payments, furniture loans and all the other detritus from the years of credit-excess may well be rather large, pushing the required gross income further upwards. It is not that hard to end up with two $500 car payments, but it is hard to find honest $160K+ household incomes. Yet it is this $160K a year that just gets us into your $500K band! At $800K and even with 20% down, you are looking at household incomes closer to $250K. To answer your questions: (1) Anything over $400K is going to be seen as "pricey". My $140 per square feet prediction stands for average properties. Unsold new builds will hold out for more, but unless they are very cash rich, they'll be declaring bankruptcy soon enough and their overpuffed houses on small lots will descend in price as well. Maybe $150 a sqft. (2) I honestly thought that bottom would come around mid-2009, but now with the bailout fiasco, Obama co-opting half of the past Clinton Administration, and even more left-leaning politics in Oregon, I fear we are in for higher taxes and economic pain. That may be fine for those at the lower end of the economic scale who voted themselves an income, but it will not help the property values of higher income areas of the State like West Linn. Barrington Heights notwithstanding. :-) dj! Thanks for the welcome. I find this site very useful in firming up the financial reality of what is really taking place in the WL market today.

I was surprised that you think there are plenty of buyers in the $500K+ market. If we assume that buyers can put 10% down, then they need a $450K mortgage. That’s over the $417K conforming limit, and such loans have already become much more expensive. BankRate today shows 30 year fixed at 6% for conforming loans, but Jumbo notes are now running 7.55%. I don’t see these kinds of mortgage getting any cheaper, and wouldn’t be surprised if we see interest rates rise from here within a year or so.

A $450K note at 7.55% is a payment of around $3200 a month, but that $500K house in WL is going to come with a $5K to $6K property tax bill, and will need insurance ($800?) too. All told (ignoring PMI for the >80% LTV) that’s a monthly payment of around $3750 a month. Using the “old” 28%/36% rule, you need a gross income over $160K a year to “afford” it, and if you do, your “other” debt better not be more than about $1000 a month. Unfortunately for many Americans in that income bracket, the inevitable leased German automobiles, credit card payments, furniture loans and all the other detritus from the years of credit-excess may well be rather large, pushing the required gross income further upwards. It is not that hard to end up with two $500 car payments, but it is hard to find honest $160K+ household incomes. Yet it is this $160K a year that just gets us into your $500K band! At $800K and even with 20% down, you are looking at household incomes closer to $250K.

To answer your questions:

(1) Anything over $400K is going to be seen as “pricey”. My $140 per square feet prediction stands for average properties. Unsold new builds will hold out for more, but unless they are very cash rich, they’ll be declaring bankruptcy soon enough and their overpuffed houses on small lots will descend in price as well. Maybe $150 a sqft.

(2) I honestly thought that bottom would come around mid-2009, but now with the bailout fiasco, Obama co-opting half of the past Clinton Administration, and even more left-leaning politics in Oregon, I fear we are in for higher taxes and economic pain. That may be fine for those at the lower end of the economic scale who voted themselves an income, but it will not help the property values of higher income areas of the State like West Linn. Barrington Heights notwithstanding. :-)

]]> By: dj http://www.move2westlinn.com/2008/11/17/west-linn-real-estate-market-november-10-16-2008/comment-page-1/#comment-473 dj Tue, 18 Nov 2008 22:44:17 +0000 http://www.move2westlinn.com/?p=247#comment-473 First off, I wanted to welcome stuart to this discussion board. And, again, I wanted to thank Ron and Jody for hosting this site and for providing those who are interested in the West Linn real estate market with a forum to express our views. stuart, thank you for the in-depth analysis you posted last week. it gave me another perspective to view the current market trends. A friend of mine pointed out that the homes that sold last week are $400K and below, and the pending sales are also in the same price range. Homes in the $500K+ price range are not moving. I don't think there is a lack of buyers who are not able to afford $500K homes, but perhaps these buyers are sitting on the sidelines until home prices decline further? So, for readers of this forum, two questions for you: (1) What would prices in the WL area look like at the "bottom" and (2) when will we hit this elusive "bottom" ? First off, I wanted to welcome stuart to this discussion board. And, again, I wanted to thank Ron and Jody for hosting this site and for providing those who are interested in the West Linn real estate market with a forum to express our views. stuart, thank you for the in-depth analysis you posted last week. it gave me another perspective to view the current market trends. A friend of mine pointed out that the homes that sold last week are $400K and below, and the pending sales are also in the same price range. Homes in the $500K+ price range are not moving. I don’t think there is a lack of buyers who are not able to afford $500K homes, but perhaps these buyers are sitting on the sidelines until home prices decline further? So, for readers of this forum, two questions for you: (1) What would prices in the WL area look like at the “bottom” and (2) when will we hit this elusive “bottom” ?

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