Yes that is a good point that Josh brings up- why is is it so necessary to allocate half of ones paycheck toward a mortgage payment? The economy would be a lot better off if more people had money to invest in things besides their mortgages, maybe even enjoy life more, not to mention make some donations toward organizations that truly help those in need or better our society. Living paycheck to paycheck is not ideal ... It keeps anxiety levels high, that's for sure!

Jamie - unfortunately the post you refer to was not by me ( "the real" Darwin Rules). I had posted that day, and someone followed up with this stuff using my screenname. Sorry

DR

Oh dear! Sorry about that, real Darwin Rules. This is a good opportunity to remind everyone that entering your email address when you comment helps you as well as me. There's little chance that I'll realize someone is posing as you if you always leave that line blank.

No one sees your email address but me, by the way. I promise I won't send any spam your way.

Whether you buy or rent the same 3:1 ratio applies to monthly payment budgeting. The need to bank a responsible down payment and upkeep reserve ON TOP OF paying rent while that accumulation happens is the insult on top of injury of our current market.

Mr. D Rules from above and his $50,000 income translates into a $150,000 mortgage; the $150 (at 80%) translates into a $187,500 purchase price for a home that does NOT require renovation or repair or any substantive expense in order to live in it.

What is required for Mr Rules to save up that $37,500 down payment plus the closing and upkeep reserve... lets say $50,000 altogether? Over what period of time is it reasonable to do this saving? What other payments for what other debts and desires must Mr Rules allow for?

The median household income in MD is about $70k. So the median house price ought to be about $210k, assuming the 1/3 rule. Make it $250k to account for the occasional 20% down. Trulia's heat map indicated an average sale price in December in Baltimore County--where the median income is lower than the state average--of above $308k.

http://www.trulia.com/home_prices/Maryland/Baltimore_County-heat_map/

This suggests one of two things. Either median income is substantially higher than the census bureau reports, due to unreported income; or homes are still unaffordable.

A third possibility is that mortgage fraud is so prevalent that it is skewing the sales price averages upward.

No matter what the reason, the housing market is not yet in balance.

Doh! Those Trulia figures are the listing price, not the sales price. Should've had my coffee before commenting. Looks like the actual sales prices are a lot closer to 3x the median income than the listing prices are. Maybe not right-on, but much closer to affordable.

I think housing prices have been and still are fairly high, but I think that is part of being a homeowner that has been lost over the years of anyone can get a mortgage with a pulse. Home ownership is not for everyone. Most people who have purchased a home had no business buying a home with the salary they were making. People were making $50k a year and buying $250K homes. That is absurd.

"People were making $50k a year and buying $250K homes."

You meant to write "taking out a $250,000 mortgage" I assume.

"Looks like the actual sales prices are a lot closer to 3x the median income than the listing prices are. Maybe not right-on, but much closer to affordable."

All this talk about house prices/median income I think is only partially relevant.

Median income as a rule is misleading because of grannies making $30,000 a year in pension, druggies making nothing, or even prisoners.

There are several data that we need before making a judgment about what constitutes affordable for the average Joe buyer.

1. Standard deviations for both median and average income

2. A sampling a what people are putting down. MRIS data with 45% FHA loans might suggest 3.5-5% (or perhaps it is 7--who knows) for much of the population; if an equal percentage is conforming, an average of 25% DP would suggest a 15% DP on average (I have zero idea of what the real numbers are)... which already scews that data significantly. Pull 20 random loan docs for FHA and conventional and find the exact DP and that might give us a better idea.

Jamie: Do you have an insight about whether we can get relevant housing data to see if the market is overpriced by looking at standard deviations of income and amount financed? We still don't have that.

Sorry, "Little Debbie," I have yet to see any local data on standard deviations of income. Amount financed is probably an easier find -- unless you mean standard deviations of amount financed ...

I recently looked at a house in Oakenshawe. The owner purchased it for $385K during the boom, and then it turned out could not move into the home. Not wanting to take a hit by selling it, the home was put on the market for rent at $1800 a month.

Typically rents are priced at income levels, whereas mortgages, not so much.

So the rental price of a property can be a baseline for a properties worth in relation to income. The rule of thumb is that a buyer should pay no more that 15x the annual rent of a property.

In this case, 15 x (1800 x 12) equalled a sale price of $324K.

The listing agent told me I could have the house for $400K. Needless to say, I passed.

It would actually be much cheaper for me to just rent the home -- no real estate taxes to pay, no maintenance costs -- and I could probably get the rent down by finding someone to split the costs with.