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the housing bubble, in a nutshell

February 23rd, 2008 at 03:30 am

Took a look at the flyer on this house:



I admit, it is not the best picture of the place, but I was shocked at the price -
$499,950. Here's why...

Classic rule of thumb #1: Mortgages should be in the range of 2 - 2.5X yearly income with a 20% down payment. Even with a 100K down payment, leaving 400K to mortgage, would you know of anyone who has 100K in a savings account and a salary of 150K who would want this place? Especially since even a decent lick of paint on the fence would cost about 50$...putting you at exactly 500K.

Okay, okay, you say...the flyer said that it would be a decent rental property. 3 bedrooms, 1.5 baths, on a very busy arterial. It leads me to --

Classic rule of thumb #2: Price shouldn't exceed 100x the monthly rent. To make money on this property if you paid 500K, it would mean you would have to charge 5K/month to break even. You could rent out all the bedrooms each for $1.67K/month. Know of three people stable enough, dumb enough, and willing enough to each rent a room for 1.67K/month?

I'll be the first to admit that I've taken a none-too-flattering picture and know nothing about the inside of the place. Any bets that the inside would be the Taj Mahal? But applying some misty dusty rules nothing pencils in.

9 Responses to “the housing bubble, in a nutshell”

  1. Joan.of.the.Arch Says:
    1203739671

    Wow. And every other utterance of disbelief.

  2. PauletteGoddard Says:
    1203745968

    Desirable coastal areas and Seattle tend to have higher price to income ratios. I'd think 2.5x - 3.0x when the interest rates are low, and 2 - 2.5x when they're not. Southern California has a ratio of 11x: dizzying.

    More frequently I've seen the rule that the house price shouldn't be more than 120x rent, maybe 150x tops.

    You want to see a list of people dumb enough to buy overpriced real estate? Check the Notice of Trustee Sales on the County Website. This past week, 2/15 - 2/22, saw over 150 Notices posted. For the same period last year there were closer to 67.

    I like how the board with the agent's name and number dangles.

  3. monkeymama Says:
    1203780231

    I wish purchase price were only 100 times rents here.

    Then again, even in the most expensive region of the U.S. the most I ever paid was $450/month for a ROOM! I don't know people in San Francisco who would pay the 1.67k for a ROOM! LOL. So you sure got a point there. Yeesh.

    As far as the $150k salary who would want that place? YEah I know a lot. They must be marketing to California. LOL. Obviously makes no sense for the region though. You'll have to tell us what it eventually sells for...

  4. scfr Says:
    1203783556

    Oh - but they threw in the electrical wires crisscrossing in the background for FREE! Big Grin
    But seriously, when I see that price I think "teardown with fantastic view." Is it possibly a dump on a lot with a view of the sound in Magnolia. If I had the money, I'd pay that much for a view lot on Magnolia!

  5. Slowlygettingthere Says:
    1203785538

    Ok- I'm curious! Where is this house located?

  6. Aleta Says:
    1203791228

    Even as a rental, you can only get so much per month. There are people that I personally know that are renting out their house below what their mortgage is in order not to lose it. One house I know is a spits throw away from the Beach. Problem is that houses are worth less than what is owed on them and that's being upside down.

  7. baselle Says:
    1203809140

    House is located on 5th NW & 85th. Not on a corner, skinny postage stamp lot, partway up a hill with no view whatsoever.

  8. scfr Says:
    1203819027

    Hahaha ... There's a story in there somewhere.

    Paul Allen's trying to buy up the entire block for his latest pet project and the owners figured they'd shoot for the moon?

    Someone was required to list the property as part of a divorce settlement, but price was not specified, and current resident is thinking "They'll sell this over my dead body"?

    Loony bird who lives there believes it sits atop a diamond mine?

  9. baselle Says:
    1203821184

    Who knows - its a new listing. I pass by it on my nightly walk, it'll be fun and instructive to follow the price down.

    I do know that fresh paint and a non-falling down RE sign and fence is the least I can expect for anything at 500K. Unless I get a couple of busted cars in the back. That is a 1/2 a million, you know! Show some pride! Big Grin

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