Saturday, May 5, 2007

SCARY CHART OF THE MONTH

People of Orange County... be afraid, be very afraid!


This is a chart showing historic debt-to-income ratios for median priced homes in Orange County, California, since 1981. The chart shows the percentage of the median household income it has taken to service mortgage debt on a median priced home with a 20% down payment.


In 1982, with rising prices and interest rates nearing 18%, debt-to-income ratios crossed the 60% (!!!) threshhold and the market abruptly went in the tank.


In the next cycle of appreciation, which took place in the late 1980s, debt-to-income ratios topped th 50% mark in 1989, followed by a sharp roll back in values that extended into 1996. That market bottomed out with DTI ratios back down to 30%, in line with traditional 28/36 underwriting guidelines.


Today, our chart shows that the cost of servicing a 30-year mortgage on a median priced home with an average Orange County household income will consume over 62% of that family's monthly income... before taxes, groceries, insurance, utilities, car payments, IRAs, gasoline or the monthly trip to Benihana's.


Now most folks who already own a home have some (or lots) of equity to burn, provided they bought before 2005 and they haven't already burned it all on boats, Hummers and trips to Maui. But for those who were late to get in the game, who is left to bail THEM out?


Is this model sustainable????


THAT is the $64,000 question.