“Bobo” writes,
Why would the person who owns the 1.785mm home going to sell if the bottom falls? He or she will just hold on to it till the market recovers. Perhaps that person plans to live there for maybe 10-20 years and not 3 years and then sell? By then that home will probably be worth more.
Also, the person who purchase this house doesn’t have to make a killing elsewhere. That person could have sold their previous property (or properties) at the same price or slightly less.
I doubt home owners want to see their property value go down. The ones who wish the bottom to fall are the ones who don’t own a home.
I agree with most of what’s written here, the long view argument is hard to argue with on almost any traditional investment. The sad part is how far your dollar in real estate goes in this market, a “one million dollar house” used to be sacred but now $1.785mm gets you a 99 year old house on a busy street in an upper-middle-class neighborhood.
Just for perspective, at that price you need either a stellar income or a massive down payment. Some numbers (incl. property tax):
- $500k down, $9k/mo
- $1mm down, $6300/mo
- $1.5mm down, $3350/mo
- At the traditional 20% down: $357k and $10,200/mo
As you need roughly 3x your mortgage payment to qualify, you would need to make roughly $367k/yr to be capable of supporting that mortgage. Granted, there are lots of people in LA who can swing that, but not that many. It’s worth noting that a $100k writeoff will not do much good to a $367k income, you will still be in a 43% tax bracket … but of course, I can’t fully speculate on how rich people maneuver these types of things.
I don’t wish “the bottom to fall,” rather I would like to see prices adjust to relative incomes in the area. Peter Viles put it in perspective pretty well in his recent blog posts about a fixer in Lawndale and a stater home in a rough neighborhood — both at prices I would have had a hard time coming to grips with when I bought my first house.
My Realtor called today to mention that banks are no longer doing 5% down deals with jumbo loans, and that 15% is the new starting figure. If true that will make capital extremely hard to access without existing cash reserves and she further speculated that a number of homes would fall out of escrow in these price categories. So let’s sit back and watch.
Bobo, thanks for the comments.
