1) as someone who has been on the ground as well, I’ve lost a few offers because I was worried about over paying. On multiple occasions, after seeing what it sold for we thought “damn, we woulda paid another $25K on top to get it had we known.”
2) Canadian banks has a very conservative “stress test” for securing mortgages. This includes qualifying at much higher rates then is being offered. Therefore it isn’t possible to “stretch yourself beyond any reasonable limits”
In a normal Dutch auction style situation you’ll pay $1 more than the second highest bidder, which is a bit more fair.
In a Dutch auction (regular dutch auction. Not reverse.) there is no second bidder. The price starts too high and drops until the first bidder to decide the price is low enough (as it drops) buys.
Canadian banks has a very conservative “stress test” for securing mortgages.
Please stop gambling on housing as an asset class.
The middle class doesn't do it in France, Germany, or Japan. In those places, housing prices are kept _fair_ through clear, transparent planning and a blend of free market and regulation. What the hell is wrong with US/UK/AUS/NZ that allows insane leverage to middle class house buyers that drives up the price of houses? It's all silly to me. (I'm less familiar with how much CAN allows middle class people to gamble on housing.)
“stretch yourself beyond any reasonable limits” means that you may not be able to pay your mortgage, it doesn't mean the bank won't offer it to you.
The bank will look at how much you earn and how much you owe and say "We can pre-approve you for $X at Y%". They consider that you can pay that rate and they are most likely right.
Now if you do take $X, you have effectively leveraged your entire earnings, which for most people is a pretty bad idea because stuff happens and you can end up with a mortgage you can't pay because turns out you also want a car.
That being said (at least in Canada), your broker won't really let you take the full bank offers, or at least they don't expect you to do it.
For a $5,000 mortgage, that's a $5,000 a month buffer
Federal actual rate 16.5% (24% marginal)
CA State actual rate 6.4% (9.3% marginal)
Medicare rate 1.45%
OSDI rate 6.2 %
CA SDI rate 1.0%
Total:31.55% total before tax deductions and tax shelters
If your mortgage is ~40%, you have ~30% left over.
Per month, this is 4,000 for a mortgage, 3,000 taxes, and 3,000 remainder.
A 4,000/month mortgage covers a 800k loan on $1 million dollar home.
You don't get a lot of house in the bay area for 1 million, So if you are single earning this much, you are looking at condos.
If have two similar earners, you just double everything. E.g. 2 million dollar house with $6,000 per month remaining income.
You haven't factored in property taxes, home insurance, or anything. Putting these numbers into a calculator, your monthly loan payment is going to be closer to $5,400 a month.
You're taking home $6,800 a month.
You're not living on $1,400 a month in the Bay Area.
No bank is giving you this loan.
If you are putting less than 20% then the stress test is even higher.
I doubt we will see 5-6% interest rates in the next 5 years.
Above asking is a meaningless number because asking isn’t a reflection of what anyone expects a house to go for. It’s a game price designed to attract as many of the right people as possible to the property.
And I don't see that ghost bids propping it up would be much of a problem, they'd risk winning? You could require registering names, putting a deposit down perhaps, no real need for it to be anonymous even?
When you are making a blind bid, the only information you have is the home itself. The ceiling for your bid is on what you think the house is "worth". You are very conscious about "overpaying" because you have no perspective on what other people are offering.
In open bidding, you are competing against other offers and the ceiling is basically what you can afford to pay.
Can't tell you how many times we lost offers because we didn't want to overpay - when the sold price was revealed we realized we would've paid another $25K on that had we known.
> In open bidding, you are competing against other offers and the ceiling is basically what you can afford to pay.
Well, what someone else can afford (and is willing) to pay. i.e. you never overpay, pretty much by definition.
(I think there probably exist 'open' auction system where the highest bid (not second) is paid, but the main ones don't work like that, and nobody's suggesting that as far as I've seen.)
When I sold my house, I had three bids, and the highest bidder payed over $30k higher than the second place. It was still over $100k over asking, with no conditions. That's just the reality of things right now, and it's not the sign of a healthy market for something as critical as housing. People are desperate, and it's getting worse.