16 years to save up down payment ?!

Based on this logic its a miracle ANYONE was able to buy a house pre 1998! when lending required 20% down.
Why doesnt anyone call them out on this BS!

"Based on this logic its a miracle ANYONE was able to buy a house pre 1998! when lending required 20% down."

Not really.

Back in the '60s and '70s people were able to easily put 20% down on homes that cost only around 2x their annual income. That was generally what houses cost back then, regardless of your price point.

Back in the '40s and '50s, in fact, mortgages were never longer than 20 years.

Only recently have we seen housing at virtually all price points skyrocket to 3x, 4x, and even 5x the annual income of their respective target demographics.

"Back in the '60s and '70s people were able to easily put 20% down on homes that cost only around 2x their annual income. That was generally what houses cost back then, regardless of your price point. "

I agree, which leads to two possible outcomes as far as I can see.

1) Average housing prices correct further relative to average wages to re-obtain something closer to that 1:2 ratio
OR
2) People at a given income level have to re-adjust expectations and settle for less house as a percentage of their income, for both rentals and purchases. Hard to see how this doesn't act as a drag on prices either as it is exactly the opposite of the leveraging up that created the bubble.

"People at a given income level have to re-adjust expectations and settle for less house as a percentage of their income, for both rentals and purchases."

Wow.

Kind of how we lived in the '70s and '80s.

Most Upper Middle Class families in 1978 (household incomes of $30-50K -- adjusted for inflation, that would be $83 - 165K in today's dollars) lived in three-bedroom homes with one-car garages. MAYBE a tiny fourth bedroom and if you were lucky, a TWO car garage.

"Executive" homes in 1978 (when an "executive" HHI was over $50K -- $165K in today's dollars) were four bedrooms with two-car garages and an inground swimming pool. And even these houses did not have the appointments that have become common in homes today, with professional-grade kitchen appliances and spa-style bathrooms.

And the idea of a THREE car garage and more than four bedrooms was pretty much relegated only to the realms of the wealthy.

Today, however, those three-bedroom family homes of yesteryear's Upper Middle Class are completely dismissed out of hand by even those solidly in today's middle class, and those executive homes are now considered "starter" homes.

When did this madness begin??

Just a little refresher ... this is how Hollywood portrayed the "affluent" executive lifestyle. A shot of the exterior of "Joel's" house in the 1983 film "Risky Business":

http://2.bp.blogspot.com/_drWzhPB-n1Y/S8vWupvu8tI/AAAAAAAABwA/0-bMvJacuVM/s1600/Chicago+2009+045.jpg

In Garden City, Bedford, Darien, etc that's still an executive's house. But your point is well taken.

mmmm.....Lana

Love these quotes:

The Mortgage Bankers Association, in written testimony, says the proposed QRM definition "is so restricted that 80% of loans sold to Fannie Mae or Freddie Mac over the past decade would not meet these requirements."

* Well, duh, that's the whole point of reform - they were crap loans

According to the National Association of Realtors, drawing upon national savings rate data, "it would take 9.5 years for the typical American family to save enough money for a 10% down payment and closing costs, and fully 16 years to save for a 20% down payment and closing costs."

* And the point here is that past savings rates were approaching zero! The idea is that savings behavior would need to change.

"Weak underwriting and toxic mortgages are the main cause of mortgage defaults, not well-underwritten mortgages that allow for low down payments," reads a letter circulated to government officials by opponents of the down payment hike.

* Isnt a 95% LTV loan by definition "weakly underwritten"?

If fully implemented, other Dodd-Frank related provisions could mean limiting the mortgage payment to 28% of gross income and limiting all debt to 36% as part of the mortgage qualification process.

* Oh the horror! Everyone will have to live by Matt's coop board rules! ;-)

"In Garden City, Bedford, Darien, etc that's still an executive's house. But your point is well taken."

Yes, in the New York metro area.

I was referring to America in general. Joel's house is in suburban Chicago. By today's standards, a couple with the means of Joel's parents wouldn't be in that "little" two-story Colonial with just a two-car garage, they'd be living in this:

http://thejournalofamericanrocketscience.com/wp-content/uploads/2009/08/jars_mcmansion.jpg

""Weak underwriting and toxic mortgages are the main cause of mortgage defaults, not well-underwritten mortgages that allow for low down payments," reads a letter circulated to government officials by opponents of the down payment hike."

Perhaps that was the *first wave* of the housing crisis.

Then came the massive job losses.

Then came defaults on the "well-underwritten mortgages" ... because even the best-underwritten mortgage will go into default when the homeowner loses his income.

It's taken me 16 years to save for a 2br Harlem condo. I'm putting down 25%. There are no shortcuts.

"According to the National Association of Realtors, drawing upon national savings rate data, "it would take 9.5 years for the typical American family to save enough money for a 10% down payment and closing costs, and fully 16 years to save for a 20% down payment and closing costs."

I think the NAR just accidentally admitted that their "prices will go up" claims in their TV commercials are absolute bunk...

Cant compare home purchasing pre 80s and post 80s. The tax structure(s) were so different on all accounts.

No, but we certainly can compare expectations.

"Affluent" buyers were more than happy with four bedroom homes, 2 1/2 standard-sized 8x6 baths, and 2-car garages.

Today, houses like that don't even interest mid-income families.

Why should some one 5 year out of school be able to afford a nice place unless parents are helping with the downpayment. They should pay off a chunk of their student loans first. It should take at least 10 years of work to save for a downpayment if you want a family sized home. For manhattan, it should be even longer. The same is true about any large city in the world.

when you say "it should", how do you reach your conclusion?

Let us say you want an average 2 bed room apt in Manhattan which will cost $1.2mm and you need to put down $250K and would like to have another $100K left for liquidity (without 401K) after downpayment. That is $350K in savings. Assume your income is $300k currently to reasonable want to live in such an apartment. If you have been working for 10 years, average 10 year income $200K per year (assuming starting salary of $150K). Post tax and 401K savings $115K per year. Annual:$30K average rent (first few years sharing, later on 1b/r), $40K average expense. 10K student loans. 5K vacation. Leaves $30K per year. 10 Years to save $350K assuming some investment returns.

To avoid any confusion - All expenses are average for 10 years.

Buying a property is not a right, it's a privilege. If a family wants to buy a house or an apt, save money! You don't need an Ipad, you don't need the latest 56inches flat screen TV, you don't need to go out for brunch every Saturday & Sunday etc...

What I am most fascinated by is effects that an overall lowering of the percentage that people spend on housing and the potential ramifications that might have on the housing market. The kinds of questions I do not see people asking are:

Even though prices are down, are the people who are buying spending less on housing or just buying more house for their money and maintaining the same ratio of house expense to income?

I think rent to own ratios are loosely based on the assumption that one spends roughly the same percentage of their income for an "equivalent" house/apartment but this may not be true. Do owners tend to spend a greater percentage of their income on housing or do renters? I think it is clear that during the bubble, owners were being forced or stretched to spend a higher percentage of their income to buy but is this still the case and will that be the case moving forward?

Couple of problems with this story:
1) The average american family does not equate to the average home buyer
2) The NAR appears to be laying the groundwork to argue for lower down payments(tax payer picks up the credit risk)
3) The real issue is that home prices are too high relative to incomes.

mercer,,,40k of expenses after paying rent sounds awfully high for someone without a family...and 5k for vacation for a single person might be high (flying places can be pretty cheap, even europe, and there are ranges of hotels to stay in). Or put differently, someone spending that much strikes me as imprudent. If you're making 350k a year you ought to save a lot more than 30k a year. I know tons of single people who bank the major portion of bonuses and live off their base salary.

What I find astounding is the perception that a salary of $350K in NYC is quite common when the average salary in NYC in 2011 is 95K.

Newbie -- well, I guess the average income of people buying prime hood coops and condos is way higher than that, Salaries of 200k plus are common in nyc. People I know that make less than that have bought nothing or bought a very small apartment.

"Salaries of 200k plus are common in nyc."

Define "common", when the median NYC income is still just $68K.

Yup they're common:

http://envisioningdevelopment.net/map

11,000 housholds with income over $200,000/yr on the UWS ALONE!

Savings? No just an x on the dotted line is enough. Flmaozzzzz

"Yup they're common: http://envisioningdevelopment.net/map 11,000 housholds with income over $200,000/yr on the UWS ALONE!"

First of all, there's an enormous difference between SALARIES of $200K and HOUSEHOLD INCOMES of $200K.

Second of all, given the fact that there are an estimated 100,000 *households* on the Upper West Side, one-tenth of anything is hardly "common."

Matt, here are few type of residents who skew the average income.
1. Public housing residents (drive up on FDR from south ferry and look left. Enormous spread of public housing).
2. Trust fund kids
3. People who bought when housing was cheaper in 80s and 90s or before retirement
4. Divorcees
5. Retirees
6. Young people out of school sharing

buyerbuyer, the expenses I mentioned are typical not saying people should spend that. Just think daily food cost of $40 ($5 breakfast, $10 Lunch, $5 coffee, $20 dinner) - $1200 per month. $300 phone, cable, electricity, internet. $150 per month two trips for the cleaning lady, $150 drycleaning, $100 per month insurance. $100 per month drug strore. We are already at $2k per month without going out and buying and clothes. That only leaves 16K per year $1300 per month for going out, drinking, haircut, dates, clothing, shoes, occasional furtniture etc. Any one who make $300K has these expenses.

West34, what a cool site that was! Thanks. Back to the topic, how much longer does it really take to save for a down payment if we use average numbers? Of course, those people can not afford to buy a $1.2 million dollar apartment, so if they want a two bedroom to raise a family they must move outside of NYC.

Who cares about the percentage Matt? There were 70,000!!!! households in 2006 below 96th street with annual income above $200,000. To put it in perspective for you:
That's about 100,000 people
Manhattan below 96th street is about 15 square miles or 3 million square yards
That means you're bumping into someone who can afford more house than you about every 30 yards. :-)

"Matt, here are few type of residents who skew the average income."

So your assertion is that 90% of people fall into one of your exception categories? That would make the math work, but it seems unlikely.

But at the end of the day, most people in Manhattan rent. Buying is mostly for rich people.

"Who cares about the percentage Matt?"

People who like to put things into their proper perspective.

Sorry, but that Risky Business house looks huge. 4 stories and probably 5 BR's.
That's easily a $1 million dollar house with $30k in taxes in a good suburb

Most people still can't afford the Risky Business house.
$1m and $30 taxes is still very much affluent (banker, doctor, etc)

"Sorry, but that Risky Business house looks huge. 4 stories and probably 5 BR's. "

Are you fucking KIDDING me??

Are we looking at the same house?? Where in the hell are you seeing FOUR STORIES??

http://2.bp.blogspot.com/_drWzhPB-n1Y/S8vWupvu8tI/AAAAAAAABwA/0-bMvJacuVM/s1600/Chicago 2009 045.jpg

3 floors + a basement = 4 stories.

I was counting a basement of some sort.
And get a load of the house next door.
It's a compound.

Is that an entire apt. above the garage?
This beast must be something like 4000 sq ft.

Not sure what planet you're living on,
but almost no one in the country can afford this house.

Zillow confirms this house is 4,600 sq. ft. and appraises at $1m. ($1.5 mill at the peak)
Very few people in the world can afford this house. Maybe 1%.

http://www.zillow.com/homedetails/1258-Linden-Ave-Highland-Park-IL-60035/4906212_zpid/#{scid=hdp-site-map-bubble-address}

OMG. "This beast"???

Oy.

If that little thing is a "beast" what is a big house like this:

http://www.cutulihomes.com/id6.html

NYC Matt, When did this madness begin??

In 1992, President George H.W. Bush signed the Housing and Community Development Act of 1992. The Act amended the charter of Fannie Mae and Freddie Mac to reflect Congress' view that the GSEs "have an affirmative obligation to facilitate the financing of affordable housing for low-income and moderate-income families."[15] For the first time, the GSEs were required to meet "affordable housing goals" set annually by the Department of Housing and Urban Development (HUD) and approved by Congress. The initial annual goal for low-income and moderate-income mortgage purchases for each GSE was 30% of the total number of dwelling units financed by mortgage purchases[16] and increased to 55% by 2007.

Bottom line-- It started in 1992 and came to a head in 06'. The creation of more "affordability products" such as interest only, Pay-option and sub-prime mortgages during the last 20 years have made homes more unaffordable today because they are no longer being made available to finance a home(for a good reason). It is still amazing to me that the government is surprised that the housing market is still going down. This housing Bubble was not created by Lehman Brothers, Goldman Sachs, Countrywide or Citi-bank. It was created by good ole' Uncle Sam.. Bottom line-- everyone can not afford a house so Uncle Sam should not encourage it!! dont get me started on credit cards, and student loans!!! PEOPLE ARE IN BIGGER HOMES BECAUSE THEY BOUGHT HOMES THEY COULD NOT AFFORD .. they bot cars they could not a afford, they sent their kids to colleges they could not afford, and probably wine they could not afford... i think you get the point.. with all the products that were mad available to them. US households as well as the UNCLE SAM are still way to levered. soon some will be retiring and UNCLE SAM can not afford to pay their retirement(ss) just like GREECE!