I was trying to show more of a correlation between the median buyer and the median home price. Generally these two metrics should be linked, as median home prices tend to show overall affordability… but with low median incomes, affordable to who?

As for the default rates, I’ve seen that. It seems to suggest buyers should have more skin in the game. Although the rising default rates in prime buyers that did put in 20% down is also a cause for concern, probably will place additional downward pressure.

Based on the above scenario, I don’t think the average Joe will be receiving a preapproval letter from a lender anytime soon. You would also have to factor in Insurance and PMI (private mortage insurance) into that as well, easily adding another $200 to his monthly payment. That scenario might have worked three years ago, but not today.

I just saw another article recently that studied the rates of pending foreclosure on FHA loans and the increasing default rates. Raising the minimum down payment from 3 to 3.5% really didn’t accomplish much.

Let’s take a look at average Pasadena Joe.
Median Household Income: $52,000
Average FICO: 672
Average CC Debt: $300/month
Average Car Payment: $550/month
Average Student Loan: $200/month

Average Joe buys a $400,000 house (not condo), we’ll assume he gets approved and he has all closing costs/loan origination fees covered.
Down Payment: $14,000 (3.5%)
Interest Rate: 4.75%
Mortgage Payment: $2,000
Property Tax Payment: $420

At this price with an FHA loan, average Joe is paying $2,420 per month for his house, not including maintenance. If average Joe doesn’t pay taxes, he would bring home about $4,300 per month. This house is already over half his pay. If you factor in average Joe’s debt load, he’s paying $3,470 per month in debt. This doesn’t leave much for average Joe to live with. Now, if he pays taxes, average Joe is in serious trouble.

It’s not really worth calculating the difference at the current median price of $475,000 as Joe is beyond his depth.

Even if we assume average Joe has no other debt and he’s an honest citizen that pays taxes, he’s bringing home about $3,500 per month. He has $1,080 left over to live and pay other necessary bills. He hardly has enough money to save and do any substantial good for the local economy, except his realtor. Maybe this is workable if every realtor turned around and pumped all that extra cash into the economy.

For average Joe to spend and support economic “recovery”, his house value will need to increase so he can tap equity, then sell the house to alleviate the debt because clearly his job doesn’t pay enough for that.

Chris Carter
eVolV equity

They are being archived and you must remember I don’t make the statistiics, I just report the numbers. I do try to analyze it just like you do. If I go back to your previous comment which I think you said that you expect we are only in year 2 of a 10 year downturn, that would be a housing market depression. What factor would inflation play?

There is a chart I need to find that graphs home values for the last 40 something years. I will see if I can find it.

And by the way, Thank you very much for your continuing readership and comments

To people who are trying to buy a home, this sounds like very bad news!

Fortunately, I don’t believe your snapshot of trends. We’ve already had the $ per square foot argument, so I won’t rehash that. I think your median home price example is misleading.

Also, you are mixing statistics from the larger area vs Pasadena. $200K would be affordable, but I have not found anything available for $200K that I think someone making $70K per year would find acceptable, especially considering the rental alternatives are so much better.

I hope you are archiving these posts – because I will go on record now as saying Doug, I think you’re mistaken. I believe two years from now, home prices in Pasadena will be significantly lower.

According to i-Tech (Pasadena MLS) there are currently 584 residential properties listed for sale. Probably 2-3% of those are duplicates due to the other area MLS’. I have questioned the data on Realty Trac before simply because it does not seem to be updated very often. I would suggest you use the “Search Foreclosures” header in our menu, I think the information is much more current. There have been rumors that a major bank was going to begin unloading their inventory, but so far it is still just a rumor. If that did happen then it very well might depress prices since it comes down to supply and demand.

I have been following some properties in the foreclosure process and from what I am seeing the banks are still not in any hurry to begin throwing people out of their homes. We have seen the Obama administration’s policy on foreclosures as well as moratorium that was placed on California foreclosures over the holidays, so I suppose the faucet could be turned on at any time, however I think we will still see gradual rollouts as opposed to a free for all. I have recently seen some bank owned properties sold for less than the asking price.