California real estate creating financial madness
If there is a real estate bubble, many economists could agree that California is one of the leading bubble markets. With a median home price of $542,720, only about 15 percent of the state's population can afford to buy a home according to a new Reuter's article.
So, how have California home buyers managed to increase homeownership in the state to almost 60 percent, the highest level of homeownership ever?
Creative financing.
It would take an income of almost $125,870, based on an average mortgage interest rate of 5.71 percent and assuming a 20 percent down payment, to afford the median priced California home.
Thus, ARMs and other Interest-only loans have become the tool of choice for a significant percentage of buyers. For example, 59 percent of home buyers in San Francisco are using Interest-only loans, and in San Diego that number is a staggering 62 percent.
What happens if rates go up, or if it becomes harder to refinance? Ultimately, home buyers in California are taking on considerable risk in order to purchase homes. If there is one thing that could pop the real estate bubble, aside from massive job loss, it is definitely bad financing.
Still, it is good news that the Mortgage Broker's Association reported that refinancing activity has been rising, as many buyers with variable rates convert to fixed-rate mortgages.
So, how have California home buyers managed to increase homeownership in the state to almost 60 percent, the highest level of homeownership ever?
Creative financing.
It would take an income of almost $125,870, based on an average mortgage interest rate of 5.71 percent and assuming a 20 percent down payment, to afford the median priced California home.
Thus, ARMs and other Interest-only loans have become the tool of choice for a significant percentage of buyers. For example, 59 percent of home buyers in San Francisco are using Interest-only loans, and in San Diego that number is a staggering 62 percent.
What happens if rates go up, or if it becomes harder to refinance? Ultimately, home buyers in California are taking on considerable risk in order to purchase homes. If there is one thing that could pop the real estate bubble, aside from massive job loss, it is definitely bad financing.
Still, it is good news that the Mortgage Broker's Association reported that refinancing activity has been rising, as many buyers with variable rates convert to fixed-rate mortgages.
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