How's your housing market? (1 Viewer)

[tommyGunZ]

OK. I don't agree with the blanket statement that desirable areas are immune to significant price drops, but I also don't subscribe to the idea that every neighborhood will necessarily see significant price contraction during this downturn. In premium areas where the underlying job economy is good, I predict you'll see relatively small (10% or less) contractions in price over the course of the correction, with a long period of stagnation.

Yea, this is what Gunz doesn't get.His "homerism" has spilled over into his real estate "analysis". He lives in an area where he can't afford a home, and it has corrupted his objectivity.

In Gunz's defense, Gunz's whole point was trying to be objective about the market conditions instead of relying on the "my neighborhood is different" spiel. And this is how it's played it out in previous market corrections as well.

Pay no attention to the troll, OC. Gambino's just angry that he overpaid for his home in Atlanta a couple years back, and now his city is one of the "10 Markets in Free Fall" according to Forbes. If he'd have studied the market and rented, he'd be looking at purchasing a much nicer home for far less than the home he's living in now. I'd be angry too if I had bought at the peak and was watching my equity evaporate every month.

 

[tommyGunZ]

OK. I don't agree with the blanket statement that desirable areas are immune to significant price drops, but I also don't subscribe to the idea that every neighborhood will necessarily see significant price contraction during this downturn. In premium areas where the underlying job economy is good, I predict you'll see relatively small (10% or less) contractions in price over the course of the correction, with a long period of stagnation.

Yea, this is what Gunz doesn't get.His "homerism" has spilled over into his real estate "analysis". He lives in an area where he can't afford a home, and it has corrupted his objectivity.

In Gunz's defense, Gunz's whole point was trying to be objective about the market conditions instead of relying on the "my neighborhood is different" spiel. And this is how it's played it out in previous market corrections as well.Link

But others call this wishful thinking, saying low prices eventually work their way to even the most affluent areas.

"Every place takes the hit in the long run," said Christopher Thornberg of Beacon Economics, a consulting firm in L.A.

If prices in high-end markets do not bend while prices fall in adjacent areas, many buyers will at some point choose the cheaper neighborhood, he said.

"If the gap between Riverside and Orange County becomes too great, a person will say, 'Forget it, I'm not going to live in Orange County,' " he said. "If prices get too high in Beverly Hills, it drives demand to Santa Monica." Such movement eventually drags top-end prices down, he said.

Data gathered by Edward E. Leamer of UCLA's Anderson Forecast back that up. Since 1989, Leamer has tracked housing prices in the 20 least expensive and 20 most expensive ZIP Codes in Los Angeles County.

He found that all areas fell by about the same percentage when they hit bottom in the 1990s downturn.

Leamer and Thornberg are among the most bearish of analysts, saying the recently ended housing boom pushed prices out of sync with incomes.

Los Angeles County median home prices are about 40% to 50% higher than the median income justifies, Thornberg said. He said the market would settle when prices and incomes became more closely aligned.

"Southern California prices will fall 25% from their peak and won't find their bottom until the end of 2009," Thornberg said.

Leamer also sees a drop-off at the high end of the range -- 20% to 25% -- and sees the downturn lasting into 2010.

Leamer said home prices were overheated by an "investment mentality." Buyers took out loans they could not afford, expecting price gains to allow them to refinance down the road, he said, and lenders issued risky sub-prime loans to people with shaky credit, then unloaded the loans on Wall Streeters who bought them to package as mortgage-backed securities.

Now, foreclosures are rising as homeowners find they can't keep up with excessive monthly payments, and as speculators stop making payments on properties that have lost value. Experts believe the problem is likely to worsen as more adjustable mortgages set to higher rates next year.

I guess Ed Leamer and Christopher Thornberg are just bitter renters who can't afford a home, like me.

 

[Gr00vus]

I guess Ed Leamer and Christopher Thornberg are just bitter renters who can't afford a home, like me.

Stay the course TGunZ, we're going to get ourselves some well deserved quality real estate at reasonable prices in a year or so.

 

[tommyGunZ]

I guess Ed Leamer and Christopher Thornberg are just bitter renters who can't afford a home, like me.

Stay the course TGunZ, we're going to get ourselves some well deserved quality real estate at reasonable prices in a year or so.

Even if I wanted to buy now, wifey wouldn't let me. She sees that prices are falling 4-5k per month, with no end in sight.

 

[tommyGunZ]

Gr00vus, you might enjoy this piece.

 

[The Z Machine]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.

The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.

The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

 

[[scooter]]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

 

[The Z Machine]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

Some of the demand was based on those things, however, the demand has remained strong, backed up by the continued strength of the economy in the South Bay. There are a number of people that are buying into (and renting) in SF and commuting down the peninsula to Sunnyvale, Mountain View, Palo Alto, San Mateo, etc. Salaries haven't fallen enough to make this demand go away. If salaries stagnate (especially in light of the recent inflation numbers) and job growth dies, then demand will fall.Right now that isn't happening. The mortgage/credit crisis isn't impacting technology companies all that much compared to other sectors. SF Bay Area is a technology driven community. As this sector goes, so goes the entire economy (and housing prices).It's possible that decreases in the surrounding area will put downward pressure on the city, and IMO that will cause the stagnation of prices (along with tighter lending practices) moreso than outright decreases in price. I'm no housing expert, but I truly believe that the city will experience the best of the housing crisis in CA.

 

[Gambino]

OK. I don't agree with the blanket statement that desirable areas are immune to significant price drops, but I also don't subscribe to the idea that every neighborhood will necessarily see significant price contraction during this downturn. In premium areas where the underlying job economy is good, I predict you'll see relatively small (10% or less) contractions in price over the course of the correction, with a long period of stagnation.

Yea, this is what Gunz doesn't get.His "homerism" has spilled over into his real estate "analysis". He lives in an area where he can't afford a home, and it has corrupted his objectivity.

In Gunz's defense, Gunz's whole point was trying to be objective about the market conditions instead of relying on the "my neighborhood is different" spiel. And this is how it's played it out in previous market corrections as well.

Pay no attention to the troll, OC. Gambino's just angry that he overpaid for his home in Atlanta a couple years back, and now his city is one of the "10 Markets in Free Fall" according to Forbes. If he'd have studied the market and rented, he'd be looking at purchasing a much nicer home for far less than the home he's living in now. I'd be angry too if I had bought at the peak and was watching my equity evaporate every month.

As with most everything, you have no idea what you are talking about. But if it makes you feel better, then knock yourself out.

 

[Chadstroma]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

SF is an odd animal. There is demand because it is a popular place to live and it has a local economy that has been strong for a long time. There is no real places to develop (it is very similiar to manhattan in that respect). When I was in Stockton about 5 or 6 years ago people were buying all the way out there (about an hour and a half drive to SF... about 45 min or so to the BART station in Dublin IIRC) for commutes to SF because they could not afford or did not want to afford closer to SF. Stockton, interestingly enough, was the city with the highest foreclosure rate in the country in a news article a few months ago.

 

[John Mamula]

I beg you to do some research on how local markets are interconnected. While there will undoubtedly be differing percentage drops among various neighborhoods, the "some areas are immune to significant price drops" theory doesn't stand up to real data analysis. So your post suggests to me that those who own in North Scottsdale may still have a small window to escape before their drop occurs, if it hasn't began already.

lol dudemy whole life is residential real estate.the buyer profile and economics of north scottsdale are completely different than the ones in the fringes.price drops are not static and equal throughout all cities.it's honest laughable that you tell me to do some research when that is what i do every day here locally.

 

[John Mamula]

Don't get me wrong, homes in N Scottsdale and La Jolla will always carry a premium over homes in neighboring, less desirable neighborhoods, but that premium isn't inelastic.

what is the #1 factor causing price declines in the phoenix metro area?what did the typical buyer look like in north scottsdale compared to fringe markets in phoenix?how have capital markets changed for these different buyer profiles?once you answer these questions you will understand what i am saying. until you do, you are just misinformed.

 

[Gr00vus]

I guess Ed Leamer and Christopher Thornberg are just bitter renters who can't afford a home, like me.

Stay the course TGunZ, we're going to get ourselves some well deserved quality real estate at reasonable prices in a year or so.

Even if I wanted to buy now, wifey wouldn't let me. She sees that prices are falling 4-5k per month, with no end in sight.

I'm trying to get my fiancee on board with waiting a year or so before purchasing our house. It'd be absolutely nuts to buy right now - you're a lucky man to be married to a woman who gets that.

 

[OC Zed]

I guess Ed Leamer and Christopher Thornberg are just bitter renters who can't afford a home, like me.

Stay the course TGunZ, we're going to get ourselves some well deserved quality real estate at reasonable prices in a year or so.

Even if I wanted to buy now, wifey wouldn't let me. She sees that prices are falling 4-5k per month, with no end in sight.

I'm trying to get my fiancee on board with waiting a year or so before purchasing our house. It'd be absolutely nuts to buy right now - you're a lucky man to be married to a woman who gets that.

Even if you do decide to buy this year, you will likely get a much better deal in late summer/fall after the homes sat through spring and summer without a sale.

 

[jonessed]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

In the Bay Area the demand is coming from jobs. Not just with money, but with opportunity to move up. It's difficult to climb the corporate ladder outside of the major bases of operation.Most everyone I know that bought a house in the Bay Area that had the salary to make the payments, but couldn't save enough for the down payment got the money from their parents.

 

[tommyGunZ]

I beg you to do some research on how local markets are interconnected. While there will undoubtedly be differing percentage drops among various neighborhoods, the "some areas are immune to significant price drops" theory doesn't stand up to real data analysis. So your post suggests to me that those who own in North Scottsdale may still have a small window to escape before their drop occurs, if it hasn't began already.

lol dudemy whole life is residential real estate.the buyer profile and economics of north scottsdale are completely different than the ones in the fringes.price drops are not static and equal throughout all cities.it's honest laughable that you tell me to do some research when that is what i do every day here locally.

Huh? I thought you worked for a large land development company, and that you were doing much of your work in SoCal these days? Did you get a new job?

 

[tommyGunZ]

Never thought I'd see 7-8% MONTHLY drops in San Diego's overall median prices.

Median Home Prices Pummeled in February

I'm traveling, so the editorializing will likely be kept mercifully brief for the next week and a half.

With that said let's have a quick look at the median-based price indicators for last month. They were, in a word, horrifying. (So far so good on the brevity).

Between January and February, the size-adjusted median price declined 5.7 percent for single family homes and 7.7 percent for condos.

I emphasize the first clause of the above sentence. The aforementioned shellacking took place in a single month. From the September 2005 peak of the series, the size-adjusted median price is down 25.1 percent for single family homes and 28.1 percent for condos. The downtrend has accelerated of late, however, and a hefty portion of that decline has taken place in the past several months.

The "plain vanilla" median, beloved by analysts everywhere despite being just about the least accurate of the price indicators, was hit even harder. It was down 7.4 percent for single family homes and 8.1 percent for condos. Again, in a month. From the aggregate peak in November 2005 the vanilla median is down 24.1 percent for detached homes and 26.4 percent for condos.

These numbers measure what the typical home buyer paid, not what was received in return. The size-adjusted median at least measures how much square footage was received in return, but home size is just one aspect of overall quality. These figures are thus subject to distortions based on shifts in the types of properties being purchased. (Please see my lengthy treatise on the topic of home price indicators if you'd like more detail). We can't know how much of the decline was "for real" until the Case-Shiller numbers for February come out in late April.

Nonetheless, there is in all likelihood some serious price damage going on. Many an embittered real estate speculator has accused me of being overly pessimistic, but the fact is that I never thought these indicators would drop as much in a single month as they just did.

-- RICH TOSCANO

I think the "plain vanilla" median was ~ 440k in January, so a 7-8% drop would be ~ $30-35k. OUCH.

 

[LHUCKS]

My zipcode was -1% in '07 according to recent data made available in the Arizona Republic.

Location, Location, Location

 

[snitwitch]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.

The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.

The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

In the Bay Area the demand is coming from jobs. Not just with money, but with opportunity to move up. It's difficult to climb the corporate ladder outside of the major bases of operation.Most everyone I know that bought a house in the Bay Area that had the salary to make the payments, but couldn't save enough for the down payment got the money from their parents.

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

 

[tommyGunZ]

My zipcode was -1% in '07 according to recent data made available in the Arizona Republic.Location, Location, Location

perhaps the dominoes haven't fallen in your zipcode yet. They're falling all around you:

1/08 	 Price 		 Vs. ‘07   Vs. peak   Sales   Vs. ‘07Phoenix 	$224,437 	-12.0% 	-15.0% 	5,184 	-44.8%

Sales are down ~ 45%, inventory is at an all time high, and foreclosures are flooding the market. Don't buy that 2nd home yet LHUCKS - keep waiting.

 

[LHUCKS]

Don't buy that 2nd home yet LHUCKS - keep waiting.

Agreed.

 

[BassNBrew]

My zipcode was -1% in '07 according to recent data made available in the Arizona Republic.Location, Location, Location

My entire metro region was up 5% last year. Of course I live here and you're in Arizona which would explain 4.5% of that differential.

 

[The Z Machine]

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

I would imagine that it's similar (or worse) in Manhattan. At least in SF there's some realistic opportunity to buy a place. My brother will likely be selling his half of a Victorian near the Octavia Ave. streetscape development is going on (also, where 101 dumps you off and where Haight runs into Market). I'll let you know what the market is like when he does. In all likelihood, he'll just be trying to jump to a slightly bigger place in SF proper.Me, I'm gonna rent in Oakland and save my coin (if I can).

 

[tommyGunZ]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.

The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.

The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

In the Bay Area the demand is coming from jobs. Not just with money, but with opportunity to move up. It's difficult to climb the corporate ladder outside of the major bases of operation.Most everyone I know that bought a house in the Bay Area that had the salary to make the payments, but couldn't save enough for the down payment got the money from their parents.

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

Looks like home prices are falling everywhere in CA, including SF proper.

Associated Press

Home Prices Plunge Across California

By ALEX VEIGA 03.13.08, 1:39 PM ET

Housing data show median home prices plunged in February across many of California's most populous counties, with Southern California leading the slide with an average drop of 17.9 percent.

DataQuick Information Systems says median home prices in February fell from a year ago in 15 major California counties.

That drove down the median price in Southern California to $408,000. In the San Francisco region, prices fell 11.6 percent to $548,000.

The numbers are just trickling out now. We should have more detailed numbers and analysis in the next few days. But based on the stuff that's leaking now, February was absolutely brutal.

 

[snitwitch]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.

The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.

The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

In the Bay Area the demand is coming from jobs. Not just with money, but with opportunity to move up. It's difficult to climb the corporate ladder outside of the major bases of operation.Most everyone I know that bought a house in the Bay Area that had the salary to make the payments, but couldn't save enough for the down payment got the money from their parents.

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

Looks like home prices are falling everywhere in CA, including SF proper.

Associated Press

Home Prices Plunge Across California

By ALEX VEIGA 03.13.08, 1:39 PM ET

Housing data show median home prices plunged in February across many of California's most populous counties, with Southern California leading the slide with an average drop of 17.9 percent.

DataQuick Information Systems says median home prices in February fell from a year ago in 15 major California counties.

That drove down the median price in Southern California to $408,000. In the San Francisco region, prices fell 11.6 percent to $548,000.

The numbers are just trickling out now. We should have more detailed numbers and analysis in the next few days. But based on the stuff that's leaking now, February was absolutely brutal.

SF "region" is not SF proper. I can see an 11.6% drop in the former, but don't think it's been nearly that bad in the latter. I could be wrong of course...

 

[OC Zed]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

 

[Sweat Hog]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I was a "prime" borrower with an ARM that was to reset 1/10. I saw the falling home prices and refi'd into a loan las month that is actually costing me significantly more per month now but I can sleep at night knowing I'll still be able to swing the payments 2 years from now. I thought long and hard about doing it thinking the market might find bottom and rebound a little in the next 2 years (which would save me about $7k per year)but I just don't see it coming back strong enough. I'm not in love with my house but I won't take a loss on it. I figure 3-5 years from now I should at least "break even" and walk with what I put down. I paid $740k 3 years ago and I think it's at about $720 right now and may fall to the low $600's. 5-7% gains after market hits bottom should put me back in the black in the 3-5 year time span and if not, well then I'll just stay put as long as need be. I'm hoping that there is some correlation between intelligence and prime/sub-prime borrowers and that many others like myself are having the foresight to get while the gettin is good to avoid the impending catastrophe.

 

[commisholio]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.

The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.

The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

In the Bay Area the demand is coming from jobs. Not just with money, but with opportunity to move up. It's difficult to climb the corporate ladder outside of the major bases of operation.Most everyone I know that bought a house in the Bay Area that had the salary to make the payments, but couldn't save enough for the down payment got the money from their parents.

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

Looks like home prices are falling everywhere in CA, including SF proper.

Associated Press

Home Prices Plunge Across California

By ALEX VEIGA 03.13.08, 1:39 PM ET

Housing data show median home prices plunged in February across many of California's most populous counties, with Southern California leading the slide with an average drop of 17.9 percent.

DataQuick Information Systems says median home prices in February fell from a year ago in 15 major California counties.

That drove down the median price in Southern California to $408,000. In the San Francisco region, prices fell 11.6 percent to $548,000.

The numbers are just trickling out now. We should have more detailed numbers and analysis in the next few days. But based on the stuff that's leaking now, February was absolutely brutal.

SF "region" is not SF proper. I can see an 11.6% drop in the former, but don't think it's been nearly that bad in the latter. I could be wrong of course...

You just can't conflate Contra Costa county with SF, San Mateo, and Marin counties. Those markets are way different from each other. It'd be like including San Bernadino county with LA or San Diego county.

 

[BassNBrew]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

Interesting take.Personally my ARM rates are down further pushing back the break even date. The only bad loan I have is a fixed I grabbed when I got neverous about rates. Problem is that it's only for $33K and probably not worth the upfront expenses of a re-fi.

 

[snitwitch]

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

I would imagine that it's similar (or worse) in Manhattan. At least in SF there's some realistic opportunity to buy a place. My brother will likely be selling his half of a Victorian near the Octavia Ave. streetscape development is going on (also, where 101 dumps you off and where Haight runs into Market). I'll let you know what the market is like when he does. In all likelihood, he'll just be trying to jump to a slightly bigger place in SF proper.Me, I'm gonna rent in Oakland and save my coin (if I can).

I'm curious about your brother's place. That's an interesting little area of the city ever since they tore the exit down, I'd imagine that people living there before the tear down saw their property values skyrocket. It's also nearby some housing projects, which hasn't hurt property values too much over these last few years, but I'm wondering if those areas are now seeing more of a downturn?And PM me if he needs an RE agent, i'll put him in touch with my wife

 

[OC Zed]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I was a "prime" borrower with an ARM that was to reset 1/10. I saw the falling home prices and refi'd into a loan las month that is actually costing me significantly more per month now but I can sleep at night knowing I'll still be able to swing the payments 2 years from now. I thought long and hard about doing it thinking the market might find bottom and rebound a little in the next 2 years (which would save me about $7k per year)but I just don't see it coming back strong enough. I'm not in love with my house but I won't take a loss on it. I figure 3-5 years from now I should at least "break even" and walk with what I put down. I paid $740k 3 years ago and I think it's at about $720 right now and may fall to the low $600's. 5-7% gains after market hits bottom should put me back in the black in the 3-5 year time span and if not, well then I'll just stay put as long as need be. I'm hoping that there is some correlation between intelligence and prime/sub-prime borrowers and that many others like myself are having the foresight to get while the gettin is good to avoid the impending catastrophe.

I think you were smart in being pro-active about refinancing now, but unfortunately I don't see many others in SoCal right now doing the same thing. I guess that will leave you in that much of a stronger position when the #### hits the fan.

 

[OC Zed]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.

The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.

The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

In the Bay Area the demand is coming from jobs. Not just with money, but with opportunity to move up. It's difficult to climb the corporate ladder outside of the major bases of operation.Most everyone I know that bought a house in the Bay Area that had the salary to make the payments, but couldn't save enough for the down payment got the money from their parents.

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

Looks like home prices are falling everywhere in CA, including SF proper.

Associated Press

Home Prices Plunge Across California

By ALEX VEIGA 03.13.08, 1:39 PM ET

Housing data show median home prices plunged in February across many of California's most populous counties, with Southern California leading the slide with an average drop of 17.9 percent.

DataQuick Information Systems says median home prices in February fell from a year ago in 15 major California counties.

That drove down the median price in Southern California to $408,000. In the San Francisco region, prices fell 11.6 percent to $548,000.

The numbers are just trickling out now. We should have more detailed numbers and analysis in the next few days. But based on the stuff that's leaking now, February was absolutely brutal.

SF "region" is not SF proper. I can see an 11.6% drop in the former, but don't think it's been nearly that bad in the latter. I could be wrong of course...

You just can't conflate Contra Costa county with SF, San Mateo, and Marin counties. Those markets are way different from each other. It'd be like including San Bernadino county with LA or San Diego county.

This is a fair point, but sales volume is still way off in San Francisco proper. That is a huge indicator of a troubled market and has been a leading indicator in other markets before the price drops.

 

[snitwitch]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.

The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.

The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

In the Bay Area the demand is coming from jobs. Not just with money, but with opportunity to move up. It's difficult to climb the corporate ladder outside of the major bases of operation.Most everyone I know that bought a house in the Bay Area that had the salary to make the payments, but couldn't save enough for the down payment got the money from their parents.

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

Looks like home prices are falling everywhere in CA, including SF proper.

Associated Press

Home Prices Plunge Across California

By ALEX VEIGA 03.13.08, 1:39 PM ET

Housing data show median home prices plunged in February across many of California's most populous counties, with Southern California leading the slide with an average drop of 17.9 percent.

DataQuick Information Systems says median home prices in February fell from a year ago in 15 major California counties.

That drove down the median price in Southern California to $408,000. In the San Francisco region, prices fell 11.6 percent to $548,000.

The numbers are just trickling out now. We should have more detailed numbers and analysis in the next few days. But based on the stuff that's leaking now, February was absolutely brutal.

SF "region" is not SF proper. I can see an 11.6% drop in the former, but don't think it's been nearly that bad in the latter. I could be wrong of course...

You just can't conflate Contra Costa county with SF, San Mateo, and Marin counties. Those markets are way different from each other. It'd be like including San Bernadino county with LA or San Diego county.

Map of the area from last month showing price declines/increases. Can't recall if I posted this here before but it's interesting nonetheless.linky

 

[snitwitch]

In some places in CA (namely SF city) housing prices haven't been affected much by the crashing in other areas. It had a runnup in the last few years, but nothing like other areas of the state. This is due primarily with geography and how that relates to supply/demand for housing.

The median price for a 1BR in SF is still around $500k, and while I don't see that escalating, I don't see it dropping more than 10-15% from its current levels.

The SF planning commission has estimated that there needs to be something like a few thousand units added each year and that developers are only building like 30% of the need. Also, there's a mandate that 25% of those units be "affordable" or below the market rate of $500k.

But what if the "demand" was based solely on liar loans, easy credit, ARMs, and the assumption that houses would appreciate in value? With all those factors gone (or significantly reduced), I can't see where this "demand" is coming from. Where are the thousands of people who can afford to put down $50-100K on a house?

In the Bay Area the demand is coming from jobs. Not just with money, but with opportunity to move up. It's difficult to climb the corporate ladder outside of the major bases of operation.Most everyone I know that bought a house in the Bay Area that had the salary to make the payments, but couldn't save enough for the down payment got the money from their parents.

My wife is a RE agent in the city and this totally fits the bill of her typical buyers: Young families or couples, both working, both earning well and able to make monthly payments, usually coming in w/ down payment money from parents, inheritance, etc...And after a slow December and January, things are picking back up in SF. Two houses in my neighborhood that had been on the market for months just sold at close to asking prices. There was a random place in the Sunset, nothing special mind you, that was listed well under market value that had 27 offers last week. Twenty-seven. I'm not sure what the situation is in outlying areas, but things are "holding on" just fine in the city.

Looks like home prices are falling everywhere in CA, including SF proper.

Associated Press

Home Prices Plunge Across California

By ALEX VEIGA 03.13.08, 1:39 PM ET

Housing data show median home prices plunged in February across many of California's most populous counties, with Southern California leading the slide with an average drop of 17.9 percent.

DataQuick Information Systems says median home prices in February fell from a year ago in 15 major California counties.

That drove down the median price in Southern California to $408,000. In the San Francisco region, prices fell 11.6 percent to $548,000.

The numbers are just trickling out now. We should have more detailed numbers and analysis in the next few days. But based on the stuff that's leaking now, February was absolutely brutal.

SF "region" is not SF proper. I can see an 11.6% drop in the former, but don't think it's been nearly that bad in the latter. I could be wrong of course...

You just can't conflate Contra Costa county with SF, San Mateo, and Marin counties. Those markets are way different from each other. It'd be like including San Bernadino county with LA or San Diego county.

This is a fair point, but sales volume is still way off in San Francisco proper. That is a huge indicator of a troubled market and has been a leading indicator in other markets before the price drops.

(03-13) 11:00 PDT SAN FRANCISCO -- Bay Area homes sales experienced another sluggish month in February and the median price dipped. Both were hammered by the credit crunch and an ongoing game of chicken between buyers and sellers, according to a real estate information report released Thursday.

The total number homes sold in the nine counties that border the bay dipped below 4,000 for the second month in a row, according to DataQuick Information Systems, a La Jolla research group. In February, 3,989 new and resale houses and condos changed hands, down 36.7 percent from 6,305 from February 2007.

The median price was $548,000, down 11.6 percent from $620,000 a year ago, an a 17.6 percent drop from the peak median of $665,000 last June and July.

"The lending system has been in lockdown mode the last half year, especially when it comes to so-called jumbo mortgages which have traditionally been the majority of Bay Area loans," said Marshall Prentice, DataQuick president, in a statement. "We can only conclude that a lot of activity is just on hold, hence the spectacularly low sales count."

Jumbo or nonconforming mortgages - those more than $417,000 - became expensive and hard to get this summer. However, as part of the stimulus package, the limit for conforming mortgages has been raised in high-cost regions, such as the Bay Area, to more than $700,000. That new limit took effect this month.

"With the Federal Reserve trying to pour Drano into the lending system, it will be interesting to see how things play out if jumbo financing does come back online," Prentice said. "Theoretically, there could be enough pent-up demand, enough catch-up activity at the high end, to result in a statistically bizarre record median home price."

The median declined in every single Bay Area county in February, with all counties except Marin, San Francisco and Santa Clara recording double-digit drops. The swoon ranged from 22.3 percent in Sonoma to 2.8 percent in both Santa Clara and San Francisco.

San Francisco was the only county where sales volume increased, rising 14.9 percent from 375 homes sold a year ago to 431 in February. All other counties saw declines ranging from 35 to 44.5 percent.

This jibes with what my wife was sensing about this last month and a half or so.

 

[OC Zed]

(03-13) 11:00 PDT SAN FRANCISCO -- Bay Area homes sales experienced another sluggish month in February and the median price dipped. Both were hammered by the credit crunch and an ongoing game of chicken between buyers and sellers, according to a real estate information report released Thursday.

The total number homes sold in the nine counties that border the bay dipped below 4,000 for the second month in a row, according to DataQuick Information Systems, a La Jolla research group. In February, 3,989 new and resale houses and condos changed hands, down 36.7 percent from 6,305 from February 2007.

The median price was $548,000, down 11.6 percent from $620,000 a year ago, an a 17.6 percent drop from the peak median of $665,000 last June and July.

"The lending system has been in lockdown mode the last half year, especially when it comes to so-called jumbo mortgages which have traditionally been the majority of Bay Area loans," said Marshall Prentice, DataQuick president, in a statement. "We can only conclude that a lot of activity is just on hold, hence the spectacularly low sales count."

Jumbo or nonconforming mortgages - those more than $417,000 - became expensive and hard to get this summer. However, as part of the stimulus package, the limit for conforming mortgages has been raised in high-cost regions, such as the Bay Area, to more than $700,000. That new limit took effect this month.

"With the Federal Reserve trying to pour Drano into the lending system, it will be interesting to see how things play out if jumbo financing does come back online," Prentice said. "Theoretically, there could be enough pent-up demand, enough catch-up activity at the high end, to result in a statistically bizarre record median home price."

The median declined in every single Bay Area county in February, with all counties except Marin, San Francisco and Santa Clara recording double-digit drops. The swoon ranged from 22.3 percent in Sonoma to 2.8 percent in both Santa Clara and San Francisco.

San Francisco was the only county where sales volume increased, rising 14.9 percent from 375 homes sold a year ago to 431 in February. All other counties saw declines ranging from 35 to 44.5 percent.

This jibes with what my wife was sensing about this last month and a half or so.

Wow, that really is surprising. Is that a recent turnaround?

 

[OC Zed]

McCain's take on the housing bubble.

I won't post the whole speech, but here is a quick summation:

--Provides a good history of how and why we came to be in the mess we are currently in;

--States that any proposed governmental reforms should be based around promoting transparency and accountability;

--There should be no governmental assistance/bail-outs to speculators and only temporary assistance to other troubled homeowners;

--GSEs (government sponsored entities -- i.e., FHA, Fannie Mae, Freddie Mac) should raise downpayment requirements in order to promote stability; and

--Lenders need to do more with their borrowers in terms of refinancing and forgiving debt.

Admittedly, the speech is short on details, although his focus on transparency and accountability in the banking system is on the mark. His specific point about raising the GSE's down payment requirements would also be very helpful in the longrun. Perhaps most importantly, I'm relieved to see that there was very little talk about any sweeping government bailouts.

 

[tommyGunZ]

McCain's take on the housing bubble.

I won't post the whole speech, but here is a quick summation:

--Provides a good history of how and why we came to be in the mess we are currently in;

--States that any proposed governmental reforms should be based around promoting transparency and accountability;

--There should be no governmental assistance/bail-outs to speculators and only temporary assistance to other troubled homeowners;

--GSEs (government sponsored entities -- i.e., FHA, Fannie Mae, Freddie Mac) should raise downpayment requirements in order to promote stability; and

--Lenders need to do more with their borrowers in terms of refinancing and forgiving debt.

Admittedly, the speech is short on details, although his focus on transparency and accountability in the banking system is on the mark. His specific point about raising the GSE's down payment requirements would also be very helpful in the longrun. Perhaps most importantly, I'm relieved to see that there was very little talk about any sweeping government bailouts.

to this plan.

 

[tommyGunZ]

January's YOY Case-Schiller Index is out for America's top 20 metro areas. Looks like BassNBrew is the only man on the boards in a decent market.

Miami -19.3%Vegas -19.3%PHX - 18.2%San Diego -16.7%LA - 16.5%Detroit -15.1%Tampa -15%SFran -13.2%Wash DC -10.9%Minneapolis -10%Clev -8.5%Chicago -6.6%NYC -5.8%Denver -5.1%Atlanta -4.8%Boston -3.4Seattle -1.3%Portland -.5%Charlotte + 1.5%

 

[prefontaine]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I think you are being a bit dramatic here. ARMs <> foreclosures. Many subprime consumers bought on expectation of higher future earnings and expectation that the property values would rise. If the first happens, you can afford the new higher monthly nut. If the second happens you refi and life is good. But neither was a particularly good bet. Frankly, one of the biggest "problems" sub-prime borrowers have - and many people don't like to hear this - is that they are unsophisticated borrowers. They don't know they have options. And they don't consider the implications to what they are given. They are gullible and place their faith in a salesman. If this was Best Buy, we'd label these people suckers.Prime borrowers are a little different. They are more likely to have bought before. They generally research options. They shop rates. The reason you see a spike up in Prime ARMs has more to do with interest rates than ability to pay. They select ARMs while planning to refinance - something many subprime borrowers can't do - when rates drop. They also selected ARMs as rates rose - again unlike the subprime counterparts that took them when rates were the lowest in our lifetimes. Many of the Prime ARMs have been and will be refi'd because the consumers were expecting to do this from the moment they locked in that 6.25% ARM. They knew rates would get better and they weren't going to overpay for something they would refi anyway. And if those ARMs reset today, many of them would actually be dropping in rates believe it or not.

I agree though that there will be prime borrowers hurt by this (outside the obvious loss in property values) because they won't consider that rates are about to rise. But most are using the early part of 08 to get out of these ARMs with a drop or at least flat on rate.

 

[tommyGunZ]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I think you are being a bit dramatic here. ARMs <> foreclosures. Many subprime consumers bought on expectation of higher future earnings and expectation that the property values would rise. If the first happens, you can afford the new higher monthly nut. If the second happens you refi and life is good. But neither was a particularly good bet. Frankly, one of the biggest "problems" sub-prime borrowers have - and many people don't like to hear this - is that they are unsophisticated borrowers. They don't know they have options. And they don't consider the implications to what they are given. They are gullible and place their faith in a salesman. If this was Best Buy, we'd label these people suckers.Prime borrowers are a little different. They are more likely to have bought before. They generally research options. They shop rates. The reason you see a spike up in Prime ARMs has more to do with interest rates than ability to pay. They select ARMs while planning to refinance - something many subprime borrowers can't do - when rates drop. They also selected ARMs as rates rose - again unlike the subprime counterparts that took them when rates were the lowest in our lifetimes. Many of the Prime ARMs have been and will be refi'd because the consumers were expecting to do this from the moment they locked in that 6.25% ARM. They knew rates would get better and they weren't going to overpay for something they would refi anyway. And if those ARMs reset today, many of them would actually be dropping in rates believe it or not.

I agree though that there will be prime borrowers hurt by this (outside the obvious loss in property values) because they won't consider that rates are about to rise. But most are using the early part of 08 to get out of these ARMs with a drop or at least flat on rate.

How are prime borrowers who are underwater refinancing out of ARMs early?

 

[The Z Machine]

Map of the area from last month showing price declines/increases. Can't recall if I posted this here before but it's interesting nonetheless.

linky

Which is exactly what the SF locals have been saying.It was the areas that saw crazy run-ups in housing prices that are being hit hard now in the area. Places that have strong fundamentals (location+price point) are seeing even some moderate gains (SF proper and Lake Merritt in Oakland). What the hell is going on in lower Santa Clara is anyone's guess. I think the tech industry is still going strong from those numbers.

The number of young people living in SF that grew up in Santa Clara and have had their parents put the $$ down on their places is only set to grow.

 

[prefontaine]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I think you are being a bit dramatic here. ARMs <> foreclosures. Many subprime consumers bought on expectation of higher future earnings and expectation that the property values would rise. If the first happens, you can afford the new higher monthly nut. If the second happens you refi and life is good. But neither was a particularly good bet. Frankly, one of the biggest "problems" sub-prime borrowers have - and many people don't like to hear this - is that they are unsophisticated borrowers. They don't know they have options. And they don't consider the implications to what they are given. They are gullible and place their faith in a salesman. If this was Best Buy, we'd label these people suckers.Prime borrowers are a little different. They are more likely to have bought before. They generally research options. They shop rates. The reason you see a spike up in Prime ARMs has more to do with interest rates than ability to pay. They select ARMs while planning to refinance - something many subprime borrowers can't do - when rates drop. They also selected ARMs as rates rose - again unlike the subprime counterparts that took them when rates were the lowest in our lifetimes. Many of the Prime ARMs have been and will be refi'd because the consumers were expecting to do this from the moment they locked in that 6.25% ARM. They knew rates would get better and they weren't going to overpay for something they would refi anyway. And if those ARMs reset today, many of them would actually be dropping in rates believe it or not.

I agree though that there will be prime borrowers hurt by this (outside the obvious loss in property values) because they won't consider that rates are about to rise. But most are using the early part of 08 to get out of these ARMs with a drop or at least flat on rate.

How are prime borrowers who are underwater refinancing out of ARMs early?

Outside of select markets (you happen to be sitting in one) not as many are underwater as you think. But those that are, most banks are willing to make contract amendments.

 

[OC Zed]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I think you are being a bit dramatic here. ARMs <> foreclosures. Many subprime consumers bought on expectation of higher future earnings and expectation that the property values would rise. If the first happens, you can afford the new higher monthly nut. If the second happens you refi and life is good. But neither was a particularly good bet. Frankly, one of the biggest "problems" sub-prime borrowers have - and many people don't like to hear this - is that they are unsophisticated borrowers. They don't know they have options. And they don't consider the implications to what they are given. They are gullible and place their faith in a salesman. If this was Best Buy, we'd label these people suckers.Prime borrowers are a little different. They are more likely to have bought before. They generally research options. They shop rates. The reason you see a spike up in Prime ARMs has more to do with interest rates than ability to pay. They select ARMs while planning to refinance - something many subprime borrowers can't do - when rates drop. They also selected ARMs as rates rose - again unlike the subprime counterparts that took them when rates were the lowest in our lifetimes. Many of the Prime ARMs have been and will be refi'd because the consumers were expecting to do this from the moment they locked in that 6.25% ARM. They knew rates would get better and they weren't going to overpay for something they would refi anyway. And if those ARMs reset today, many of them would actually be dropping in rates believe it or not.

I agree though that there will be prime borrowers hurt by this (outside the obvious loss in property values) because they won't consider that rates are about to rise. But most are using the early part of 08 to get out of these ARMs with a drop or at least flat on rate.

I never said that ARM = foreclosures, but even a 5 to 10% default rate can have major reverberations on the entire housing sector (as we are witnessing today). Moreover, I think you are underestimating as to how leveraged Alt-A and prime borrowers were with their ARMS. Will many have the ability to afford the higher adjustments or refi when the resets trigger? Yes, but there will also be plenty of borrowers that cannot and refinancing is out of the question because their homes are/will be underwater.

 

[OC Zed]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I think you are being a bit dramatic here. ARMs <> foreclosures. Many subprime consumers bought on expectation of higher future earnings and expectation that the property values would rise. If the first happens, you can afford the new higher monthly nut. If the second happens you refi and life is good. But neither was a particularly good bet. Frankly, one of the biggest "problems" sub-prime borrowers have - and many people don't like to hear this - is that they are unsophisticated borrowers. They don't know they have options. And they don't consider the implications to what they are given. They are gullible and place their faith in a salesman. If this was Best Buy, we'd label these people suckers.Prime borrowers are a little different. They are more likely to have bought before. They generally research options. They shop rates. The reason you see a spike up in Prime ARMs has more to do with interest rates than ability to pay. They select ARMs while planning to refinance - something many subprime borrowers can't do - when rates drop. They also selected ARMs as rates rose - again unlike the subprime counterparts that took them when rates were the lowest in our lifetimes. Many of the Prime ARMs have been and will be refi'd because the consumers were expecting to do this from the moment they locked in that 6.25% ARM. They knew rates would get better and they weren't going to overpay for something they would refi anyway. And if those ARMs reset today, many of them would actually be dropping in rates believe it or not.

I agree though that there will be prime borrowers hurt by this (outside the obvious loss in property values) because they won't consider that rates are about to rise. But most are using the early part of 08 to get out of these ARMs with a drop or at least flat on rate.

How are prime borrowers who are underwater refinancing out of ARMs early?

Outside of select markets (you happen to be sitting in one) not as many are underwater as you think. But those that are, most banks are willing to make contract amendments.

The "select markets" also happen to feature the highest concentration of ARM loans (i.e., California, Las Vegas, Phoenix and Florida).

 

[Chadstroma]

McCain's take on the housing bubble.

I won't post the whole speech, but here is a quick summation:

--Provides a good history of how and why we came to be in the mess we are currently in;

--States that any proposed governmental reforms should be based around promoting transparency and accountability;

--There should be no governmental assistance/bail-outs to speculators and only temporary assistance to other troubled homeowners;

--GSEs (government sponsored entities -- i.e., FHA, Fannie Mae, Freddie Mac) should raise downpayment requirements in order to promote stability; and

--Lenders need to do more with their borrowers in terms of refinancing and forgiving debt.

Admittedly, the speech is short on details, although his focus on transparency and accountability in the banking system is on the mark. His specific point about raising the GSE's down payment requirements would also be very helpful in the longrun. Perhaps most importantly, I'm relieved to see that there was very little talk about any sweeping government bailouts.

to this plan.

Agreed. Either Democrat has a real danger of causing more damage than good with their over reaching, government getting way over involved ideas. Some that are more cynical than I would call it buying votes.

 

[prefontaine]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I think you are being a bit dramatic here. ARMs <> foreclosures. Many subprime consumers bought on expectation of higher future earnings and expectation that the property values would rise. If the first happens, you can afford the new higher monthly nut. If the second happens you refi and life is good. But neither was a particularly good bet. Frankly, one of the biggest "problems" sub-prime borrowers have - and many people don't like to hear this - is that they are unsophisticated borrowers. They don't know they have options. And they don't consider the implications to what they are given. They are gullible and place their faith in a salesman. If this was Best Buy, we'd label these people suckers.Prime borrowers are a little different. They are more likely to have bought before. They generally research options. They shop rates. The reason you see a spike up in Prime ARMs has more to do with interest rates than ability to pay. They select ARMs while planning to refinance - something many subprime borrowers can't do - when rates drop. They also selected ARMs as rates rose - again unlike the subprime counterparts that took them when rates were the lowest in our lifetimes. Many of the Prime ARMs have been and will be refi'd because the consumers were expecting to do this from the moment they locked in that 6.25% ARM. They knew rates would get better and they weren't going to overpay for something they would refi anyway. And if those ARMs reset today, many of them would actually be dropping in rates believe it or not.

I agree though that there will be prime borrowers hurt by this (outside the obvious loss in property values) because they won't consider that rates are about to rise. But most are using the early part of 08 to get out of these ARMs with a drop or at least flat on rate.

I never said that ARM = foreclosures, but even a 5 to 10% default rate can have major reverberations on the entire housing sector (as we are witnessing today). Moreover, I think you are underestimating as to how leveraged Alt-A and prime borrowers were with their ARMS. Will many have the ability to afford the higher adjustments or refi when the resets trigger? Yes, but there will also be plenty of borrowers that cannot and refinancing is out of the question because their homes are/will be underwater.

You are basing your sky is falling on a graph made one year ago. Many of those loans don't even exist any more. Rates have fallen for two years and many, many prime borrowers have already refi'd or are in the process of doing so. We are in the middle of a wave but the aftershock will be pretty minor.

 

[tommyGunZ]

McCain's take on the housing bubble.

I won't post the whole speech, but here is a quick summation:

--Provides a good history of how and why we came to be in the mess we are currently in;

--States that any proposed governmental reforms should be based around promoting transparency and accountability;

--There should be no governmental assistance/bail-outs to speculators and only temporary assistance to other troubled homeowners;

--GSEs (government sponsored entities -- i.e., FHA, Fannie Mae, Freddie Mac) should raise downpayment requirements in order to promote stability; and

--Lenders need to do more with their borrowers in terms of refinancing and forgiving debt.

Admittedly, the speech is short on details, although his focus on transparency and accountability in the banking system is on the mark. His specific point about raising the GSE's down payment requirements would also be very helpful in the longrun. Perhaps most importantly, I'm relieved to see that there was very little talk about any sweeping government bailouts.

to this plan.

Agreed. Either Democrat has a real danger of causing more damage than good with their over reaching, government getting way over involved ideas. Some that are more cynical than I would call it buying votes.

As opposed to cutting taxes when we're up to our ears in debt and running historical deficits, right? That wouldn't be buying votes.

 

[tommyGunZ]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I think you are being a bit dramatic here. ARMs <> foreclosures. Many subprime consumers bought on expectation of higher future earnings and expectation that the property values would rise. If the first happens, you can afford the new higher monthly nut. If the second happens you refi and life is good. But neither was a particularly good bet. Frankly, one of the biggest "problems" sub-prime borrowers have - and many people don't like to hear this - is that they are unsophisticated borrowers. They don't know they have options. And they don't consider the implications to what they are given. They are gullible and place their faith in a salesman. If this was Best Buy, we'd label these people suckers.Prime borrowers are a little different. They are more likely to have bought before. They generally research options. They shop rates. The reason you see a spike up in Prime ARMs has more to do with interest rates than ability to pay. They select ARMs while planning to refinance - something many subprime borrowers can't do - when rates drop. They also selected ARMs as rates rose - again unlike the subprime counterparts that took them when rates were the lowest in our lifetimes. Many of the Prime ARMs have been and will be refi'd because the consumers were expecting to do this from the moment they locked in that 6.25% ARM. They knew rates would get better and they weren't going to overpay for something they would refi anyway. And if those ARMs reset today, many of them would actually be dropping in rates believe it or not.

I agree though that there will be prime borrowers hurt by this (outside the obvious loss in property values) because they won't consider that rates are about to rise. But most are using the early part of 08 to get out of these ARMs with a drop or at least flat on rate.

I never said that ARM = foreclosures, but even a 5 to 10% default rate can have major reverberations on the entire housing sector (as we are witnessing today). Moreover, I think you are underestimating as to how leveraged Alt-A and prime borrowers were with their ARMS. Will many have the ability to afford the higher adjustments or refi when the resets trigger? Yes, but there will also be plenty of borrowers that cannot and refinancing is out of the question because their homes are/will be underwater.

You are basing your sky is falling on a graph made one year ago. Many of those loans don't even exist any more. Rates have fallen for two years and many, many prime borrowers have already refi'd or are in the process of doing so. We are in the middle of a wave but the aftershock will be pretty minor.

You raise good points about loans that don't exist anymore, but there was a lot of over leveraging by prime borrowers, and a lot of fraud in the Alt-A's that are now beginning to default in droves.

 

[Chadstroma]

McCain's take on the housing bubble.

I won't post the whole speech, but here is a quick summation:

--Provides a good history of how and why we came to be in the mess we are currently in;

--States that any proposed governmental reforms should be based around promoting transparency and accountability;

--There should be no governmental assistance/bail-outs to speculators and only temporary assistance to other troubled homeowners;

--GSEs (government sponsored entities -- i.e., FHA, Fannie Mae, Freddie Mac) should raise downpayment requirements in order to promote stability; and

--Lenders need to do more with their borrowers in terms of refinancing and forgiving debt.

Admittedly, the speech is short on details, although his focus on transparency and accountability in the banking system is on the mark. His specific point about raising the GSE's down payment requirements would also be very helpful in the longrun. Perhaps most importantly, I'm relieved to see that there was very little talk about any sweeping government bailouts.

to this plan.

Agreed. Either Democrat has a real danger of causing more damage than good with their over reaching, government getting way over involved ideas. Some that are more cynical than I would call it buying votes.

As opposed to cutting taxes when we're up to our ears in debt and running historical deficits, right? That wouldn't be buying votes.

As a % of GNP it is not nearly as bad as your side likes to try to make it in 'historical' context. Here is one big difference on the buying of votes or not.... it is debatable that cutting taxes helps the economy. I do not know of anyone that is respectable that thinks the Democratic plans being floated for the real estate/credit 'crisis' would really benefit the economy or these industries long term. The only thing they will do is cause much bigger problems down the road.

It does not matter to me who represents this plan and if they have a R or D by their name. I just do not want the government to run in and made a bad situation into a horrible one.

 

[prefontaine]

Some of you may have already seen this chart, but I thought I would post it again. What makes this so scary is that it shows the subprime ARMs running their course by late 2008/early 2009. From 2009 through 2011, however, there is a nearly-equivalent explosion in non-subprime ARM resets. The non-subprime loans were largely made to borrowers in middle to upper-income neighborhoods.

Not only will the middle and upper-income neighborhoods continue to struggle for the next 2 years from the lack of a move-up market from the lower-income sellers, things will get significantly worse beginning in 2009 when borrowers are unable to refinance following their resets.

The only way to avoid this catastrophe is for the Fed to cut rates to nearly 0% in hopes of making financing affordable enough for the refis. Of course, there is no guarantee that the spreads lenders will be charging by then won't be prohibitively high. Not to mention that we would be forced to weather ridiculously awful inflation that would be brought about from such a cheap monetary policy. Given those consequences, I don't think tanking the entire economy is worth preventing foreclosures on over-leveraged borrowers.

I think you are being a bit dramatic here. ARMs <> foreclosures. Many subprime consumers bought on expectation of higher future earnings and expectation that the property values would rise. If the first happens, you can afford the new higher monthly nut. If the second happens you refi and life is good. But neither was a particularly good bet. Frankly, one of the biggest "problems" sub-prime borrowers have - and many people don't like to hear this - is that they are unsophisticated borrowers. They don't know they have options. And they don't consider the implications to what they are given. They are gullible and place their faith in a salesman. If this was Best Buy, we'd label these people suckers.Prime borrowers are a little different. They are more likely to have bought before. They generally research options. They shop rates. The reason you see a spike up in Prime ARMs has more to do with interest rates than ability to pay. They select ARMs while planning to refinance - something many subprime borrowers can't do - when rates drop. They also selected ARMs as rates rose - again unlike the subprime counterparts that took them when rates were the lowest in our lifetimes. Many of the Prime ARMs have been and will be refi'd because the consumers were expecting to do this from the moment they locked in that 6.25% ARM. They knew rates would get better and they weren't going to overpay for something they would refi anyway. And if those ARMs reset today, many of them would actually be dropping in rates believe it or not.

I agree though that there will be prime borrowers hurt by this (outside the obvious loss in property values) because they won't consider that rates are about to rise. But most are using the early part of 08 to get out of these ARMs with a drop or at least flat on rate.

I never said that ARM = foreclosures, but even a 5 to 10% default rate can have major reverberations on the entire housing sector (as we are witnessing today). Moreover, I think you are underestimating as to how leveraged Alt-A and prime borrowers were with their ARMS. Will many have the ability to afford the higher adjustments or refi when the resets trigger? Yes, but there will also be plenty of borrowers that cannot and refinancing is out of the question because their homes are/will be underwater.

You are basing your sky is falling on a graph made one year ago. Many of those loans don't even exist any more. Rates have fallen for two years and many, many prime borrowers have already refi'd or are in the process of doing so. We are in the middle of a wave but the aftershock will be pretty minor.

You raise good points about loans that don't exist anymore, but there was a lot of over leveraging by prime borrowers, and a lot of fraud in the Alt-A's that are now beginning to default in droves.

Fraudulant loans will cycle through. Certainly the industry has been hit hard by stated income fraud in particular. However, I'm really only addressing the idea that there is this huge wave of Prime borrowers around the corner who are going to default in high numbers only because they have ARMs.