That’s the opinion of Bob Simpson, who runs an Irvine company called IMARC that investigates mortgages for mortgage insurers. In an interview with the Orange County Register, he says that home prices need to come more in line with O.C. household incomes.
[W]hat’s the median income in Orange County? I’d say multiply that by three or four and that’s the median home price. That’s about $300,000. Right now, anyone who bought their home since 2003 has lost money. … I’ve been on record that the median is going to return to 1999 or 2000 or worse. That’s about $300,000….Who exactly can pay $700,000 for a home? You should make $250,000 or $275,000 to carry that debt load.
He also confirms that mortgage fraud contributed to the runup in prices.
I think that the majority of stated-income loans are fraud. There’s a report by the Mortgage Asset Research Institute on fraud, which said 60 percent of stated-income borrowers inflated their income by more than 50 percent. So that means someone who makes $5,000 says they make $7,500 a month. That means there are people with $5,000-a-month incomes with $2,500-a-month payments. There’s no way they can pay that much.
Meanwhile, UCLA issued a dim economic forecast for Southern California, saying that the housing slump was largely responsible.
Edward Leamer, also an author of the report, said the housing turmoil did so much damage in large part because the economy is too dependent on consumer spending.
“The low rates of interest, the innovations in the financial markets and the tax cuts have turned us into a consumption-loving, debt-ridden, foreign-depending society,” he wrote in the forecast.
As homeowners lost equity in their homes — or lost them altogether — they were no longer able to borrow against the properties to pay for remodeling jobs, vacations, college tuition or other expenses.
I’m sure there are plenty of people who would love to believe Mr. Simpson, because there are plenty of people with decent jobs who still can’t afford an Orange County house. It’s not such good news for homeowners, however, unless they’re the buy-and-hold types who bought 10 or more years ago and are paying down their mortgages.