Is that the bottom is a long way off, more like early 2010.

February 2010 is my prediction…

If you pay a P/I of 5.5 and put 20% down, that leaves you with a mortgage of 4.4X your income. That means that almost 50% of your household income is going to PITI.

That means you are a house-slave. No savings. No vacations. No private school. Probably lots of mac’n cheeZe

Thanks. I was about to run those figures from US Housing Meltdown this morning but you beat me to it.

Check out the housing value to income ratio calculator here:
http://www.ushousingmeltdown.org/house-value-to-income-ratio.asp

It shows the ratio at 13.9 for the 91007 zipcode and 11.6 for 91006.

It strikes me as more relevant to calling a bottom than any rent equivalence test. The problem with rent equivalence is that renting will never be equivalent to buying. It’s apples and oranges. And comparing current rents to current costs of ownership as a way to determine when to flip from renter to buyer just doesn’t work.

If you really want to compare renting to buying, you’d need to project rents over the same period as your mortgage, gross up rents to compensate for the ownership rights and upside option you don’t get as a renter, bring that all back to present value and then go from there. Even if rents are currently substantially lower than carrying costs for a comparable home (and ignoring the important psychic and practical differences between being an owner and a renter), you may be better off buying because rents will always rise in nominal terms, while your 30-year mortgage gets less and less expensive every year.

Of course, there isn’t a buyer in the world who actually does this kind of calculation in their heads. Instead, they make a decision to buy, and then figure out what they can afford.

As somebody actively looking to buy, but with a 9-12 month time period before life circumstances really force me to pull the trigger, the most frustrating thing is that the levee on prices in SGV just doesn’t seem to want to break.

Perfect example is 1031 Foothill. You guys profiled this property a while back. I actually pursued buying it. The seller was asking about $2.1M after buying it for $1.7M in 2005 and putting some money into it (but no way did they put $300K into it). I figured I could live with paying $1.6M or $1.7M, which struck me as overpaying a bit, but not so much that I’d regret it.

It sold on July 14 for $1.95M. All I can do is shake my head.

This may be the exception that proves the rule, but it just encourages other folks to list their homes for as much or more than their initial purchase price from back in the bubble. I see this everywhere– nice homes, good lots, that if priced right I’d jump on. But instead of offering a discount from their 2006 or 2007 purchase price, they’re asking for hundreds of thousands more.

So, nothing sells except for the rare property– like 1031 Foothill– that attracts a foolish buyer. Meanwhile, more rational buyers like me are forced to sit on the sidelines.

By the way, any chance you have access to data that could replicate the price / income chart just for Arcadia?