Monday, January 23, 2006

"I'll be eating Top Ramen for awhile...."

Looks like ramen eating is becoming a way of life for new home buyers in Manteca. This article from the Manteca Bulletin examines the implications of the Bay Area middle class exodus to the Central Valley. Banking on continuing price appreciation, many of these buyers are relying on interest only loans. The piece follows one Bay Area mid-management professional who is not fazed by a $4000 monthly mortgage payment but admits that he will be eating ramen for awhile. Thanks to a reader for this gem.

...First-time buyers now in Manteca are almost exclusively Bay Area middle class who are feeling the squeeze in the Bay Area housing market. The days of 10 percent down financing went the way of the AMC Pacer. Today, more and more first-time buyers are 100 percent financing their homes and take loans that give them four different monthly payment options including interest only. And the mortgage payments - including taxes and insurance - typically push $4,000 a month for a median-price home costing $450,000. The difference between renting and buying is staggering. Such homes - three bedrooms and two baths with just under 1,900 square feet - can be rented in Manteca for under $1,400 a month.

William Sharp, 33, is part of the new trend of first-time buyers in Manteca. A mid-management professional, Sharp didn't like the idea of renting any longer since he wanted a home to call his own that he could improve as he wished without worrying about being given notice to move. "I don't like to move," said Sharp who has lived in only two different homes in the past 11 plus years. He's been renting a 1920's home for around $2,000 a month overlooking the bay. Sharp now has a home in Manteca's Mission Ridge neighborhood in escrow. Friends put him in contact with Re/Max Executive Realtor Heather Pereza. After looking at homes in his price range in Tracy, he started looking in Manteca. "I didn't like the homes I could afford there," Sharp said of Tracy. "I had wanted a swimming pool but the floor plan of this home is what I want and it's a nice neighborhood."

The $4,000 monthly mortgage payment - which includes taxes - doesn't faze Sharp who has a strong employment history with good pay. But even he admits "I'll be eating Top Ramen for awhile but having (my own) home is worth it."

Realtors have indicated the debt ratio qualifications "seem to have gone out the window" as many lenders are qualifying first-time buyers on the strength of their income and credit history. And, as Pereza and other Manteca-based Realtors point out, more and more first-time buyers are going 100 percent financing often with interest only loans. “It scares the heck pout of me," Pereza said. "There are a lot of people who are doing firsts and seconds that way."

And the loan option that's gaining favor as housing prices escalate has four monthly payment options - ranging from interest only, partial deferred interest, to full payment. Buyers can chose among the four options each month. The loans have early prepayment penalties, usually three years or less. And it is quite possible in 10 years that they will have paid nothing but interest.

Pereza said buyers are banking on the historic Northern California trend of rising market prices. When they go to sell, they will have equity built-up that will put them ahead of the game. But if for some unforeseen reason such as a job loss they are forced to sell early, they could be upside down in the home.

Still, buyers like Sharp gauge the risks and consider them minor compared to the positive lifestyle advantage of owning a home. He already has been making plans to put his own imprint on his hew home's interior as well as the yard. Sharp intends to become involved in the Manteca community and hopes to help coach competitive cheerleading teams. He was a cheerleader in both high school and college. "I don't look at buying a home right now as an investment," Sharp said. "Maybe I will in a few years." Even so, if he goes with interest only options, it will have a positive impact on his income taxes. "Single (taxpayers) get hit hard," he said.

Sharp had nothing but praise for Pereza, noting he'd never buy a home without a Realtor. "It's easier to leave it to the professionals," Sharp said.


Anonymous said...

He better get used to the lovely morning smell of cow dung in the air!

Happy Renter said...

Great job I'll stop by regularly.

drwende said...

Wait until he faces CA-120 on a busy Monday morning... or evening.

Further along in Modesto, the large houses favored by Bay Area People are called "divorce houses" because the stress of the massive mortgage and the grueling commute often gets them back on the market surprisingly quickly.

SCProfessor said...

Also at:

$299700 - Desperate Sellers!!!
3 Bed 2 Bath on almost 1/4 acre right off fruitridge on a quiet street just 3 miles from downtown Sacramento. All new Kitchen cabinets, 2 brand new bathrooms, New carpet and paint through whole house. 1 car attached garage. Is zoned for multi-family so can be built on. See our picture at Sac Bee home. section. Must sell. This is a second property for us and has been vacant for a while, we can no longer afford to make payments.

Happy Renter said...

$299700 for a home in South Sac off of Fruitridge? I'm surprised they aren't advertising a brand new 6ft tall chain link fence:)

Anonymous said...

Hi. It's Will. The guy this article is about.

I did just want to say I never did end up buy and top ramen. I received promotion shortly after buying the house and now it's all good. So I moved in on Feb 11th and have been doing all kinds of great things upgrading the home. Got the home reappraised and it's bumped up to $480,000.00 now. My neighbors are great, and it doesn't smell here and I don;lt have to be in the office until about 10:00 am so I miss the morning commute and I telecommute a few days a week which makes it even better. I have been telling all the boys in the Bay to come out here and have a lot of them looking to buy homes in the area. With the new Malls and hotels, etc, etc, Manteca is building, this is turning out to be a great investment and will be a great lifestyle for us single menssss!!!! ; )

Anyway, thanks for all your support and I am happy to say I am still doing on my own!