Here’s something to give Greenwich sellers pause

I linked below to Mark Hanson’s article on the coming collapse of the mid-to-high-en housing market and here it is again. But if you don’t want to read a full page of down news, consider this tidbit:

A $1 Million House is now the House of a Millionaire

A $1 million house is now the home of a millionaire…someone who can put down $270k and show proof of over $200k per year income for the past few years. Oh, and a 740 credit score is paramount. Unlike the bubble years when a $1 million house could be purchased by a moderate income household — one working as a checker at Safeway and one a mailman (both great jobs with a combined gross income of over $100k) — now the buyers must be rich.

There are far more MTH houses on the MLS — and coming at the market in the foreclosure pipeline — than there are rich buyers who a) do not already own b) who are liquid enough to be able to buy a new house and rent their present house c) or that are in the enviable equity position to be able to sell, pay a Realtor and put a large down payment on their new house.

How many millionaires want to live in Greenwich?

11 Comments

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11 responses to “Here’s something to give Greenwich sellers pause

  1. Cos Cobber

    I would not recommend buying a $1mm house on just $200k gross income (hello, taxes?) unless you can put down a bunch more than 20%.

    • christopherfountain

      I agree, CC, but that just frosts my kiester even more when I consider Congress’s effort to continue and even expand their housing with no money down program. There are taxes, there are broken furnaces, cars that give up the ghost and even, until ObamaKare saves us all, sudden medical expenses. I’m guessing, based on the past decade’s experience, that when the cash flow gets scarce, a government-guaranteed mortgage loan is the first payment to be forgotten.

  2. Anonymous

    Look at the bright side: newly minted GS partners looking to flee Manhattan for cheaper suburban housing will less likely consider ShortHills NJ or Scarsdale NY, unlike 5-10-20yrs ago, given the material income and property tax arbs vs Greenwich

    But any clever financier may opt to rent not buy, even in a relative tax haven like CT

  3. Retired IB'er

    Gee, I thought everyone in Greenwich was a millionaire… at least on paper anyway!

  4. Buyer

    I always thought that your house budget should be around 2-2.5x your gross income. Maybe 3x if you bought in a prime market and had decent savings. Apparently, this math was largely ignored in recent years. Some friends stretched their house budgets to 5-7x their income. It became almost the norm and housing prices grew in bizarre leaps. My friends reasoned that they could always sell (and at a profit) if things went wrong. That thinking is dead. Buyers are back to practical, salary based house budgets. (I hope) It only makes sense that house prices will have to follow suit.

    An article in the WSJ last spring about the collapse of the Florida market summed up this trend perfectly — a home owner who earned 250k a year was lamenting the devaluation and pending foreclosure of his 2 million dollar beach house. Huh? Someone explain that math.

  5. Anon b/c of numbers

    So, how does one calculate their budget when the salary is relatively small compared to total (average) compensation including big bonuses? We’re planning to take the middle road, I guess. We’ll have about 700k to put down, 125K salary and average bonus of about 400k. My credit is good, as far as I know, but my husband will have very little credit history beyond our Amex that we’ve been paying for the past few years to accumulate a history for him. He doesn’t want to pay any extra interest for a “jumbo loan” so, we’re budgeting around $1.3. Would love any input on how realistic this is.

  6. HG

    Numbers, my personal opinion is that if your job is very secure, your budget seems reasonable. In fact, your situation where you can afford well over $1 million today and perhaps $2 million for a move-up house in a few years might mean people on this blog are a little too pessimistic on home prices.

  7. Buyer

    HG, I agree that Buyer’s number work, but largely bc she has a smart budget — she is planning on putting 50% down and having a conforming loan. A big impact on her monthly mortgage payments. Five years ago, this type of buyer might have stretched for a 2-2.5 million dollar house. Not today. This buyer will rightly expect that house prices will trend down like her budget & that 1.3 will get her a lot more house today than in 2006. This can’t bode well for any overpriced houses in Greenwich.

  8. Retired IB'er

    Anon numbers,

    I can only tell you my personal experience, which included bonuses of many, many multiples of base pay.

    I was always in a position to own my real estate outright. That is not to say no mortgage when first starting out, but I could pay it off if I chose.

    I am assuming you are on Wall Street (if not than my advice may not apply), but I never looked past the bonus in the year I was in. To assume job security on the Street and buy assets with that in mind is a “potential” recipe for diaster IMHO.

  9. HG

    I basically agree with IB, which is why I stressed job security. One very nice thing about your budget is that with a 5% interest only mortgage, your annual debt service might be only around $30,000 and maybe even in some kind of bad situation this is a number that could be covered by your emergency cash reserves. My numbers for my first home in the area were very similar to yours.

    Buyer…I think I am a little more positive than some of the people on the site. No doubt your example of the stretched buyer of a couple years ago is the distressed seller today. I just wonder whether in a world where plenty of two income middle class households are generating $300,000 of annual income before taxes we are thinking about the $1.3 million house as an extravagance whereas in fact it is middle-of-the-road. I wonder whether in thinking about prices we are sometimes stuck in the past. Annual debt service on a $1 million mortgage (an old fashioned 30 year amortizing) is only $66,000.

  10. Anon b/c of numbers

    Thanks, guys! Yes, The Job is on Wall Street, and it is pretty secure–but like IB’er said, you just cannot count on it. That’s what makes us so nervous about getting in over our heads. The numbers now are double from our current house, but we’ve managed to pay it off in full in 4 years. Hence our ability to put 50% (or more) down on our next purchase.