Monday's headlines screamed about new housing sales going up by the greatest month-over-month percentage in 11 years. Hurrah! The housing collapse is over! We'll all be rich again!
What was lost in there was the fact that the median price for a new home also fell by 13% during the same month. At any other time, a collapse of 13% in a YEAR would be considered horrific. But 13% in a MONTH is almost too atrocious for words.
In terms of existing home sales, foreclosures now make up nearly 50% of the entire resale market, a trend which will likely increase. Currently, the number of foreclosures continues to significantly outpace last year's average, with over 300,000 houses going into foreclosure each month. This downward pressure on prices is not going to change anytime soon, either, as we are about to enter a great wave of Alt-A and Option-ARM mortgage resets this fall.
But who cares, the stock market is up 10% in two weeks!
And so, our national delusion about the housing bubble and its aftermath marches on. Nowhere is this more true than in California, and especially here in San Francisco, where people still feel that housing won't ever go down. Can't ever go down.
Last week I stopped by an open house in the Mission District. For sale were a pair handsome flats constructed about 1910, with nice period details and thoughtful updates in the kitchen and bath. The 3-bedroom, 1 bath unit on the top floor was priced at $499,000, while the 2 bedroom downstairs unit was $439,000. The flats were located adjacent to a large public housing project, and there was no parking.
Now, it should tell you something about the horror of the last few years that when I saw these prices I actually thought, "hey, things are almost getting affordable!"
But then I took a closer look at the fine print. Both of these units were for sale as TICs, or "Tenancy in Common" units. This is a form of fractional ownership (used to get around condo conversion laws) where you purchase "shares" in a building that give you the right to use your unit. Thus, unlike a condo--where you actually hold title to the four walls that surround you, a TIC is not recorded on a deed, or map, or any other county record, but rather is a contract between you and the other owners. The thing is, with a TIC you may not get to meet the other "shareholders" of your building until it comes time to write the check. And if one of the other owners defaults, you may be left holding the bag, particularly if the building was purchased with a group loan.
To get around this inherent risk, local mortgage firms (God bless 'em) have devised something called a "fractional loan" specifically to finance TIC units. Of course, this special service comes at a cost, usually a much higher interest rate than you would have for a conventional home or condominium. There are also usually various fees added in, which, for the units I was looking at, included a mandatory 1% "buy down" of the interest rate to 6.75%, as well as a mandatory 3% financing fee.
So let's look at these numbers in terms of the 3-bedroom unit:
- 20% down payment (required because it's a TIC) = $99,800 - 1% "buy down" (4,990) plus the 3% financing fee (14,970) = 19,960.
Thus, you are looking at an absolute minimum of $119,760 just to walk in the door.
As for the remainder of the $399,200 loan, you will be paying approximately $3,400 per month including taxes and insurance. To meet the current debt-to-income ratio, that means you have to make a minimum of $9,714/month, or about $117,000 a year. If you have any student loan debt/ car financing/ etc. you'd have to make more. Given that the median household income in San Francisco is $77,000 (and only 18% of households make $150,000 or more), there seems to be a disconnect.
You want to know the real horror in all this?!
It went under contract in 3 days.
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