A return to old school standards for lending
January 18, 2008
BY SALLY DUROS Real Estate Editor, Sun-Times
James D. Shilling is a professor in the Department of Finance in DePaul College of Commerce and the Michael J. Horne Chair in Real Estate Studies at DePaul University.
The lenders today are going back to the old school and old standards. The old standards say that you cannot buy more than four times your income. So I believe the current lending standards are going to force prices down.
Four times income is too high. Talk to your parents. Real Old School is THREE times income. But ofcourse that will drive prices even further down. And NOBODY wants that do they??
Why are housing prices in Chicago so high?
They are so high in part because of zoning and in part because of tougher permit laws; the increased regulation causes prices to be higher. That is coupled with a substantial increase in income over time that has caused the run-up in housing prices.
All of these fees in lieu of property taxes have caused prices in general in Chicago to increase.
No, prices are high because people are crazy. Some people, many people really thought that a 900 sq ft shoebox ranch was worth $450,000. Or that a Northside 1 bedroom condo is worth $250,000. People were bidding against each other driving prices up to get stuck in a loan thay cannot afford in a house they cannot fit in.
Mabye they learned something by now.
3 comments:
4X your income is really a relatively NEW standard, much looser than the real Old School, which was 2.5 times your income.
The old, tight standard was discarded in the late 70s, and help produce a housing boom that caused homes to ratchet upwards wildly in price at that time. Along with a much more permissive standard of 4X your income, ARMs were introduced, even though the Option ARM and No Interest had a few years to wait. These innovations in mortgages were made possible by the securitization of mortgages, which was not possible before the invention of the CMO by financier Louis Ranieri of Solomon Brothers.
3X your income is a reasonable standard, if you are not unduly burdened with other debt like car loans and CC debt.
But 4X your income really puts you behind it, especially if you encounter surprise expenses, such as costly home repairs, when you become a homeowner. I can see 4X your income for an extremely qualified buyer with low debt and a good savings account, but this is too big a ration for a first-time buyer with a small, or no, down payment and other debt.
Well said.
I am waiting to find something decent for 3x. We are getting closer!
i think we are all about to be schooled.
i am on the rent/no debt/cash side of this thing but wounder just where my investment cash will be safe.....let alone multiply.
due to my allocations i know i will survive......i want to win.
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