Not many anymore, now that the real estate bubble has burst. Housing Bubble Blog details the current wipe out in multiple areas of the country where once-pricey condos are selling at drastically reduced prices, or would be selling, except there aren’t any buyers.
Their point is, for the market to revive, prices will need to drop much further because in the current non-bubble world, $500,000 is an insane price to pay for a condo. Moreover, with rapid price appreciations now a thing of the past, most people simply can’t afford those prices.
Do the math. A $500,000 condo with 20% down means a 5.75% mortgage will cost $2300 a month. Add in another $700 a month for taxes, insurance, utilities, etc and that’s $3,000 a month. To be prudent, housing shouldn’t be more than 1/3 of your gross income, so that means you’d need to make $9,000 a month or $108,000 a year to buy what would probably be a smallish condo in areas like Miami, southern California, and Queens.
Yes, I admit to using formerly quaint notions in my calculations, like 20% down and no more than 1/3 of gross income for housing. Now that a Home Equity Line of Credit can no longer be used as an endless ATM, those notions may return – after prices drop down to levels the middle class can actually afford.
The effects of the bubble(s) on our economy can still be seen, even in your calculations. It used to be that to be prudent, no more than 25% of one’s income should go for housing, but that became entirely unrealistic in SoCal, and now in much of the country.
This isn’t the first housing bubble to burst, nor is it likely to be the last. I got badly burned in the 1990 housing bubble, and learned some valuable lessons. Everyone then predicted the market would take years to recover. Many people sold low, even when they didn’t have to. In a couple of years, prices were surging again, the beginnings of a new bubble. Those who sold low were kicking themselves. My $140K condo first became an $80K condo, but two years later I sure wished I’d found a way to hang on to it! The lesson I learned was simple, but one most people don’t ever seem to get: buy low, sell high, and keep credit to a minimum.
BTW, in those days, just 17 years ago, $140K was considered absurdly expensive for a condo in LA. The conensus was that it was a temporary fluke in the market, and that once prices declined, they would never rise to that level again. Sound familiar?
The boom/bust cycle of capitalism grinds on.
Indeed… but it is predictable, and therefore manageable. The travesty is that our educational system turns out new members of society so completely unprepared for the realities of economic life.