Quote of the Day

Wow, a thread on Brownstoner where people are actually agreeing that prices have been crazily overinflated over the past few years because of these insane lending practices. This has to be a first on this website. Usually someone suggests that fact, and yes it is a fact, and twenty others try to disprove it and talk about what a great buy that 900K fixer upper SRO in need of a complete tear-down is in (insert some historically bad neighborhood name here), and how just buy it now and in a couple years when prices "recover" you'll make a profit. Because we all know that at $4 a gallon all those middle states people are going to be rushing up here to buy those $900K+ houses. Folks, anything over $400K is much too high for any average working family in the good old USA even here in NYC - whether that's an apartment or fixer upper brownstone/or aluminum sided woodie. I truly found it interesting today when the new housing rescue plan was announced and they actually reinstated the old 36% debt to income level for sane decision making on these loan workups. If your house payment is anything over 36% of your monthly income, you are in over your head and somewhere between now and 30 years from now when the note is paid off, you will more than likely end up in foreclosure or in a position that will be almost impossible to recover from (ie paying your mortgage instead of food, clothing, or electricity for instance). Those are historical facts in the financial industry. Just wait awhile. There will be affordable houses in the city before long once sellers either come to reality, or the life event occurs that proves to them why that 36% level is the maximum rational amount sets in and the bank gets their house back.

Posted by: williamsburgguy at November 11, 2008 6:36 PM

Would it interest you to know that just 12 years ago the houses on both sides of me in Williamsburg sold for less than 100K? I helped both my neighbors sell theirs back then, and they both had to accept a lower offer than their asking price. I gave 69K for mine about 15 years ago. 6 years ago I thought about refinancing to do some improvements and my house appraised for $350K. Luckily I changed my mind. Houses on my street were appraising for 1.2-1.5 million in 2007 and still over 1 million this week. We are talking aluminum sided wood frame 3 stories. I could rebuild it if it burned tonight for less then 150K. So out of whack might be the understatement of the year. The "this is New York" idea is total bunk and total hype and usually used by people in denial that their house could return to normal price levels. And New York isn't really that much different of a place than its been all this time. Some areas better, some worse, but overall it averages out to be able the same place as it's always been in terms of crime and amenities. Maybe it's better than when the Five Points and Tammany Hall were around, but since I've been alive and been here (43 years) it's not been a lot different. Plus, it's been New York for 400 years and only in the past 6-8 have prices been this much out of line with the rest of the country. New York has always been expensive (maybe 1.5 to twice as expensive as other areas in my experience and I've been all over the country and still own properties down south), but working class families have always been able to afford a single family or two family house if they really wanted one. I don't know of a single person on my block who could afford to buy their house now if they didn't already own it, and I know everyone on my block and surrounding blocks and we all have decent jobs, but none of us make what it would take to pay that kind of mortgage for the next 30 years without serious problems as financial and job cycles happen, medical emergencies, periodic $600 fuel oil bills, kids needing braces, etc. I can't wait for my house and all in the city to drop in value to normal levels, albeit higher than other parts of the country, but cheap enough that people can actually live here without having to have 3 jobs or live 5 families to a house just to pay the bills. If you're not over 30 you probably don't even remember what New York used to be since it's only been changing up to this wacko price level for about 8-10 years now. 11217, how many months away from foreclosure would you be in you lost your job tomorrow? I pray to God that doesn't happen, but realistically in this upcoming/ongoing recession/depression we might all suddenly be out of work for a few months. You think the Lehman Brothers employees saw this coming back around July or August? So everyone reading this blog better have 3-4 months of mortgage payments in the bank just in case. That's hard to do when your monthly mortgage is in the thousands. Also hard to collect rent when all your tenants are unemployed - and even harder to get them out and new ones in place in this city before the bank takes your keys from you. Just saying. Not that I want to bring everyone down :-)

Posted by: williamsburgguy at November 12, 2008 1:33 AM

In the real estate and finance world its 36% of your GROSS monthly income with all debts (excluding utilities, food, normal spending, etc) included. The rule of thumb is 28% of your gross for mortgage, and 36% of gross total DTI (debt to income level) to get a conventional loan approval - the "old standard" which is not surprisingly the "new standard". So assuming you have zero other debt, banks will typically allow up to 36% for a mortgage. They will reduce that percentage amount if you have other debts (student loans, car loans, furniture loans, credit cards, etc) by however much that is so that your total long-term debt isn't over 36%.

Posted by: williamsburgguy at November 12, 2008 10:05 AM

Well you're doing a lot better than most homeowners 11217. Most working class homeowners with kids are generally 1-2 months away from foreclosure at any given time (ie if work stopped today they would only have enough in savings to last 1-2 months). I know some who I have worked with in the past (I used to be a realtor but now am not although I do stay involved and hold an active license) who had decent jobs, but were literally living paycheck to paycheck and if work stopped today, not only would they not have next months mortgage, but they wouldn't have enough money to pay their utilities or buy food by next week. Sad but true, especially here where incidentals are becoming so high - literally by the day now with all this talk of no rebates, high property taxes, higher income taxes, higher MTA charges, higher food costs, utilities through the roof, etc. If I were you 11217, I would make sure to hang onto that nest egg for the next year or two. Resist the urge for those new granite countertops and private school tuition. Even with a newly signed contract and raise, all jobs are expendable if a company is suddenly faced with their credit frozen or customer base evaporates overnight. God help us all! (and I'm not at all religious)!

Posted by: williamsburgguy at November 12, 2008 12:19 PM