Map of Misery, Part Deux

[DirtyHarry]

In the end, we are left with the typical reaction - more regulation.

 

I get tired of hearing stories about people who were pressured into buying homes that they couldn't afford and how the government should have stepped in to educate them or bail them out.

 

Aren't people embarassed that they can't take care of themselves and make smart informed decisions? You probably need more than one consultation and an afternoon to review the situation before signing your name to a $250,000 loan.

 

Then again, maybe I'm just overly cautious about these things.

 

Easy enough for the white and educated to say. However, the reality is that the uneducated, elderly, and the immigrants are probably the ones fraudulently misled into signing loans they can't afford. You may be educated and savvy enought to be skeptical of the misleading and outright false claims lenders are making, many people are not. Would you be as disparaging if your grandmother had signed a loan that a lender had promised her would only cost her $500 / month to pay, while in fact the ten pages of legalese in her contract that she couldn't comprehend actually ended up requiring her to pay $1000 / month?

[JayB]

STFU Whitey.

 

When transportation changed from the horse to the automobile we had to update the rules of the road to reflect the changes.

 

Now that mortgage lending has moved from the "originate and hold" model to the "originate, repackage, and sell" model, different regulations may not necessarily equal more onerous and less effective regulations.

 

The regulations that govern the retail securities business seem to have worked reasonably well in terms of protecting the gullible and the inexperienced while still allowing those with the means, experience, and appetite for high-risk investments to play in the deep end.

 

Selling grandma an I/O Payment Option ARM with a 1 month teaser rate is roughly akin to letting grandma speculate on naked currency futures with her pill money. Not good for the market or grandma.

[minx]

Those jobs are at or near the top of the skill-set echelon in most biotech companies, and the average of those medians is way under $100K. Include all of the AA-degree-or-less-requiring "Jr Production QC Tech" and admin jobs and you end up even further south of $100K.

 

 

Jay B--hate to tell you but your wrong. Research Associate is about the bottom of the scale in biotech. The thing with biotech is that the average education level is much higher than many businesses. At my previous employer over 90% of the employees had at least a BS.

[JayB]

I agree, but the list I was referring to the "Senior Scientist" and other positions near the top of the scale that Carl posted, and even the median for those was under $100K.

 

From what I've seen at small start-ups you have almost exclusively PhD's, but once you move from discovery, validation, etc into a realm where part of what you do involves cranking out millions of doses of Flacitrel the skill set mix starts to include "Senior Production Tech" and "Jr. QA Associate," type jobs, as well as admin, shipping/recieving, etc - all of which will shift the median salary down rather than up.

 

I'm not sure what's supporting the $450K median in Seattle, but it certainly isn't the scores of highly compensated folks working in Biotech/Research.

[chucK]

Random comments after reading all three pages...

 

Where did you get a median of $450k? Seattle times says $364k for single-family homes.

 

Median is maybe a good measure when looking at percentage of population that can get into the market at what level, but mean is better for measuring how much money is in the market.

 

To add another reallife data point: I'm a biostatistician and there no way I'm gonna be affording a loan of $425k - 5%. I don't work in private industry though. And if you want your tax deduction to go toward your house payments each month all you have to do is fill out your W-4 carefully so you won't have too much deducted. $250 refund this year, hit it pretty close.

 

When we applied for a loan (at a big established bank, not even one of those shifty mortgage brokerages) they were offering us a loan for twice what we could afford. They looked only at our salaries. There was no computation of expenses (other than existing debt) like raising kids. It's definitely a racket and you have to look out for yourself. They do give you a little booklet that's titled something like "When your home is on the line." Of course they preface it with, "Don't worry, we HAVE to give you this by law. Just sign here, and here, and here, and here, .... , and here."

 

Seems like regulating the banks won't solve any problems right? Isn't the mortgage brokers that are giving out all these Subprimes? Then they just package them and resell them as bonds and a bunch of bond investors take the hit for defaults, while the mortgate brokers keep the commissions.

[JayB]

I can remember seeing a figure of $429K for detached SFH but can't remember where I saw the figure. Did the Seattle Times data include condos/townhomes? If so, that might explain the discrepancy - or maybe the figure that I saw was just plain wrong. From what I here there's nothing in Ballard south of $400K, and 2BR 1B stuff in Greenwood(!) is going for over $400K, the 425-450K figure doesn't seem too terribly out of line, but perhaps if you toss Ranier Valley, First Hill, White Center into the mix you get into the sub $400K Range.

 

Any effective regulation would have to apply to all originators, regardless of where they hang their shingle. I still think the rules and regs that govern retail investments in securities would be a good model here. Clear professional standards coupled with internal enforcement mechanism (losing license, etc) and backed up with criminal penalties where necessary. Doesn't totally eliminate the sharks, and the greedy/foolish can still lose their asses in a hurry, but they do a reasonably good job of keeping the most flagrant abuses in check. At the very minimum the origination process should require that qualifying for a loan includes the ability to repay the said loan at the fully indexed rate.

[KaskadskyjKozak]

 

this reminds me of the entitlement thread.

 

Just because the median is "high" doesn't mean the first-time home owner should be able to get in at that level.

 

You can buy something more modest first, build up some equity, then buy a more expensive home/town-home/whatever a few years later.

[archenemy]

Bingo!!

 

My house in Ballard is valued at around $700K. That sure as shit ain't what I paid for it. And it wasn't (isn't) my first home. I started out with a friggen trailer (just like my hero, Tonya Harding) and bought my first shitty house, then this house (which was shitty when I bought it).

 

Most of the folks we are talking about defaulting on their ARMs due to balloon payments must have also bought about 3-5 years ago, right?

[chucK]

Yes good point. I couldn't afford a $425k loan, but I could afford a $425k house (by selling my current one and putting the equity into the downpayment).

 

Thus it seems that JayB's implicit argument does not hold water in terms of not enough in salaries to increase housing prices. Just because most first-time buyers are not going to be investing in above-median homes, it does not mean that the median will not go up! That can be accomplished by current owners upgrading (and by homeowners from NY, SF, LA moving here).

[archenemy]

Exactly.

[JayB]

If there are fewer first-time buyers who can qualify for or afford the sub-median home in numbers equal to those who want to sell their sub-median homes for some increment over their initial purchase price then what happens to the equity that the move-up buyers are counting on to afford the more expensive home that they want to move into? Price too many first-time buyers out of the market via any mechanism of your choosing: increases in home price that exceed increases in real income growth for X-number of years, tightening lending standards, increasing interest rates, etc - and this will have a negative impact on appreciation. Do the reverse, and increase real incomes, reduce interest rates, and/or reduce lending standards and the opposite will happen.

 

 

 

 

[KaskadskyjKozak]

If there are fewer first-time buyers who can qualify for or afford the sub-median home in numbers equal to those who want to sell their sub-median homes for some increment over their initial purchase price then what happens to the equity that the move-up buyers are counting on to afford the more expensive home that they want to move into?

 

 

That's quite a mouthful.

 

Back to the initial number crunching. Somebody who makes $100K can definitely afford a sub-median home in this area. They should have bought a sub-median home in the past, and if so, could afford a super-median home today based on equity from their earlier purchase. A 350K mortgage is totally affordable for that income level. Add in 70-100K in equity and you are golden.

 

 

[JayB]

True, but this assumes that increasing prices will never have an effect on the number of people who are both willing and qualified to become equity donors for the move-up folks. I'm not so sure that this assumption always holds.

[archenemy]

There are many people (I am one of them) who are more than willing to downsize. Folks who have kids moving out also want to downsize. The market does not rely on first time buyers solely.

[archenemy]

And remember, when it isn't your first home you are already semi-smart about buying. You are more likely to do the thirty year loan thing (my assumption) and you need to have 20% down (thus making the loan a little bit smaller).

[KaskadskyjKozak]

True, but this assumes that increasing prices will never have an effect on the number of people who are both willing and qualified to become equity donors for the move-up folks. I'm not so sure that this assumption always holds.

 

The market is cyclical, and if you wait out a lull there will be supply at some point.