According to Bill Fleckenstein’s “The housing bubble has popped” article, the U.S. real estate bubble has finally popped. He gives many funny, I mean sad, stories about people stuck with homes they paid too much for, like one man in Stuary, Florida:
Concerned about his real-estate investment apparently going sour, he can’t afford to reduce the price to what homes now sell for in his neighborhood — which is about $100,000 less than he’s asking. Says the salesman: “If I got in a jam, I would have to drop the price, but I am not at that point.” His game plan: Rent the house, so as not to “lose my shirt.”
That’s the mentality often seen in manic markets — the belief that you can’t possibly lose, and, when the price goes against you, you don’t have to deal with it, because it will come back. This fellow (and millions more like him) is going to find out that his belief is a mistaken one, in the same way that folks did when the stock bubble burst.
Fleckenstein says the market is no longer leveling off, but is sliding downward:
We’re seeing signs of sales slowing and inventory accumulating, which are all quite classic, even though the timing of when this would begin was not possible to predict in advance.
Closer to home, Vancouver Housing Blog has an article going over some of the Mortgage Math for the new development in the old Woodward’s building (the “W”). First he calculates how much it would cost per month to mortgage a 2 bedroom:
The price range for 2BRs is supposedly 489-795K. Let’s just take the midpoint of these two prices to get a number to work with: $642K. Say you had a downpayment of 10%. You’d be financing $577.8. Take out a 5.25% 5-yr mortgage at ING direct, amortized over 25 years. Monthly nut? $3462.47. Using the 32% of gross monthly income rule, this means you would need an annual income of $129,842.63 to afford the mortgage.
Then comes the shocker, or not-so-shocker if you are like me and have been scanning MLS and noticing that you are completely priced out of everything:
Around half of today’s West Side inhabitants could not afford to buy at the W if they were first-time buyers and had to qualify based on their current incomes.
This can’t go on forever. Gotta love the working on the W‘s website: “The smart money gets in early.”