How's your housing market? (1 Viewer)

[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.

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.

Time will tell...

 

[beer 30]

Fort Mill, SC rocks!

 

[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.

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.

I hear you, but that's what many said about the ARM resets amongst the non-prime borrowers a year or two ago. While I agree that on the surface it seems that prime borrowers wouldn't be nearly as likely to default as subprime borrowers, I'm read a couple of pieces that suggest differently, that prime borrowers were just as irresponsible as subprime borrowers, only with better credit scores.It will certainly be interesting to watch unfold.

 

[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.

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.

You can't be serious. You have to do some serious mental gymnastics to argue that a couple of the democratic plans to aid troubled borrowers is more shady than promising lower taxes at a time in which spending and deficits are through the roof.Sorry Chad, but that doesn't pass the sniff test.

 

[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.

You can't be serious. You have to do some serious mental gymnastics to argue that a couple of the democratic plans to aid troubled borrowers is more shady than promising lower taxes at a time in which spending and deficits are through the roof.Sorry Chad, but that doesn't pass the sniff test.

Lower taxes is and has been a long time big part of the Republican party platform. Some disagree but many do not that lower taxes equals economic benefit. Who in their right mind thinks that the proposals that have been offered by either Obama or Clinton to get governments hands right in the middle of the real estate and credit markets is going to benefit the economy? Being that when I am not looking for a job I am usually on here and have news channels on- I have heard a lot of people talk about these and I have yet to hear anyone other than campaign connected individuals try to claim this will benefit the economy or the markets themselves. It is fairly well accepted among the industry professionals that these types of involvement from government may be of some short term 'relief' but will be devastating in the long term.

Now, is it shady vote buying or is it ignorance? Obama... I tend to think it is his inexperience. Clinton... well.... I think she is smarter than that and it is vote buying. I also think that she would make a show of trying to get it done but when it is blocked she would give up easily knowing that it is economically horrible but at the same time wanting to show she lived up to her campaigning.

Now really, was that so much mental gymnastics involved in that?

 

[Gr00vus]

I'm read a couple of pieces that suggest differently, that prime borrowers were just as irresponsible as subprime borrowers, only with better credit scores.

Everybody got greedy, just as it happened in SoCal real estate back in the early 90's, without taking enough notice of the obvious risks. And now those whose eyes were too big for their stomachs are going to get scrubbed out, prime borrower or not, if they bit off more than they could chew. Being a prime borrower doesn't make you proof from making bad decisions and signing up for more than you could realistically afford when the music stopped.

 

[prefontaine]

I'm read a couple of pieces that suggest differently, that prime borrowers were just as irresponsible as subprime borrowers, only with better credit scores.

Everybody got greedy, just as it happened in SoCal real estate back in the early 90's, without taking enough notice of the obvious risks. And now those whose eyes were too big for their stomachs are going to get scrubbed out, prime borrower or not, if they bit off more than they could chew. Being a prime borrower doesn't make you proof from making bad decisions and signing up for more than you could realistically afford when the music stopped.

No it doesn't. But I think I'm not getting my point across well here. In 2004, if you did a 5 year ARM, you did so at a 4% rate. In 2006 you did so at a 6+% rate. The large percentage of resets for non-prime borrowers are causing defaults not because "they are ARMs" but because their bumps are large and they are maxed out with what they can pay at 4%. Given they had teaser rates with large expected increases when they reset, it's not at all surprising many can't afford to stay. The ARMs in 2006 were not only Prime, they were at higher interest rates. If they reset today, the rates would not go up but DOWN. When rates drop, people don't default. And since rates are still lower than 2006 (actually pretty much 05-07) prime borrowers do not have the same risk associated because they can refi/amend into a better payment situation. And the entire reason that ARMs were so heavily used by Prime borrowers in the years 05-07 was because rates were higher. It's a normal market phenomena. Will people get hurt? Sure. Happens all the time. But this is not at all a comparable situation to the subprime debacle. The sky is in fact not falling. I want to address TGz point about "that's what many said about the ARM resets a year or two ago." The subprime wave was well documented starting in 2005. I think I may have mentioned whether in this thread or some other that I attended a conference in August 2005 and this was a central point of discussion. It was the coming tsunami. Once one hits we start seeing potential for others all over the place. But the reality is that the data you are pointing to is, in context, not particularly abnormal in the industry.

 

[Gr00vus]

But I think I'm not getting my point across well here.

Sorry, I wasn't saying ARMs necessitate foreclosures - I was just saying that regardless of loan instrument of choice, those that bit off more than they could chew will get shaken out here, and there's more to come. The pain may be worsened in the case of those who have ARMs and are going the wrong way with the value of their property than it would be with another type of loan.

 

[tommyGunZ]

Not to mention the option ARMs. Those are probably the worst product out there - no way of knowing how many of the ARM resets are those of the option variety.

 

[tommyGunZ]

I'm read a couple of pieces that suggest differently, that prime borrowers were just as irresponsible as subprime borrowers, only with better credit scores.

Everybody got greedy, just as it happened in SoCal real estate back in the early 90's, without taking enough notice of the obvious risks. And now those whose eyes were too big for their stomachs are going to get scrubbed out, prime borrower or not, if they bit off more than they could chew. Being a prime borrower doesn't make you proof from making bad decisions and signing up for more than you could realistically afford when the music stopped.

No it doesn't. But I think I'm not getting my point across well here. In 2004, if you did a 5 year ARM, you did so at a 4% rate. In 2006 you did so at a 6+% rate. The large percentage of resets for non-prime borrowers are causing defaults not because "they are ARMs" but because their bumps are large and they are maxed out with what they can pay at 4%. Given they had teaser rates with large expected increases when they reset, it's not at all surprising many can't afford to stay. The ARMs in 2006 were not only Prime, they were at higher interest rates. If they reset today, the rates would not go up but DOWN. When rates drop, people don't default. And since rates are still lower than 2006 (actually pretty much 05-07) prime borrowers do not have the same risk associated because they can refi/amend into a better payment situation. And the entire reason that ARMs were so heavily used by Prime borrowers in the years 05-07 was because rates were higher. It's a normal market phenomena. Will people get hurt? Sure. Happens all the time. But this is not at all a comparable situation to the subprime debacle. The sky is in fact not falling. I want to address TGz point about "that's what many said about the ARM resets a year or two ago." The subprime wave was well documented starting in 2005. I think I may have mentioned whether in this thread or some other that I attended a conference in August 2005 and this was a central point of discussion. It was the coming tsunami. Once one hits we start seeing potential for others all over the place. But the reality is that the data you are pointing to is, in context, not particularly abnormal in the industry.

Thanks for you insights prefontaine. It helps to get opinions that aren't necessarily in line with what I'm expecting.

 

[the rover]

Not to mention the option ARMs. Those are probably the worst product out there - no way of knowing how many of the ARM resets are those of the option variety.

still going with sweeping generalizations, huh? they're just another product. if it's a bad fit for the borrower, that doesn't mean it's a bad product; it means it was a bad decision. some people actually understand the loans they're getting into and use them as tools to manage their money.

 

[[scooter]]

Not to mention the option ARMs. Those are probably the worst product out there - no way of knowing how many of the ARM resets are those of the option variety.

still going with sweeping generalizations, huh? they're just another product.

 

[BigSteelThrill]

they're just another product.

I have heard them called much worse by company heads who's companies sold them. In particular they used the word "scam" and "devious" to describe ARMs.

 

[The Commish]

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.

Definitely location, location, location. That's not exactly a booming number under normal circumstances, but in this day and age, I am happy with it. Houses around us keep getting built and sold. They might be a little slower to sell, but they are selling.

 

[TommyGilmore]

Subprime myths and facts

The table on page 2 had some interesting factoids:

% of subprime mortgages bundled into securities: 31.6% in 1994, 92.8% in 2007

% of mortgage originations that were subprime: 4.5% in 1994, 20.1.8% in 2006

Share of mortgage originations by federally regulated savings institutions: 29.8% in 1987, 8% in 2006

Share of mortgage originations by less-regulated mortgage brokers: 20% in 1987, 58% in 2006

Average annual rise in home-price value: 3% 1990-1999, 8.6% 2000-2006

U.S. home-ownership rate: 63.5% in 1985, 68.2% in 2007

(kind of surprised that one isn't higher)

Ratio of median home price to median household income: 3.2 in 1985, 4.6% in 2006

Household debt as a percentage of disposable income: 74.9% in 1985, 137% in 2007

Foreclosure rate on mortgages issued between January 1999 and July 2007: 2% on prime loans, 13.7% on subprime loans

 

[stbugs]

Subprime myths and facts

The table on page 2 had some interesting factoids:

% of subprime mortgages bundled into securities: 31.6% in 1994, 92.8% in 2007

% of mortgage originations that were subprime: 4.5% in 1994, 20.1.8% in 2006

Share of mortgage originations by federally regulated savings institutions: 29.8% in 1987, 8% in 2006

Share of mortgage originations by less-regulated mortgage brokers: 20% in 1987, 58% in 2006

Average annual rise in home-price value: 3% 1990-1999, 8.6% 2000-2006

U.S. home-ownership rate: 63.5% in 1985, 68.2% in 2007

(kind of surprised that one isn't higher)

Ratio of median home price to median household income: 3.2 in 1985, 4.6% in 2006

Household debt as a percentage of disposable income: 74.9% in 1985, 137% in 2007

Foreclosure rate on mortgages issued between January 1999 and July 2007: 2% on prime loans, 13.7% on subprime loans

Kind of surprise that home ownership isn't higher?

Based on census #s and your %s:

1985 Homeowners = 151.1M

2007 Homeowners = 205.7M

That is a jump of almost 55M or 36%. That to me is a huge jump. 68.2 and 63.5 may seem close, but when the populations jumps up 25% in that time as well, that ends up being a big jump IMHO.

While the housing market has fallen apart after a big run up, the rate of home ownership has gone way up recently.

 

[Chadstroma]

America's Riskiest Real Estate Markets Matt Woolsey, Forbes.com Apr 10th, 2008 There's roulette and there's skydiving. Then there's investing in Detroit and Cleveland real estate.That's especially risky because those markets are in freefall. Lenders have fled, foreclosures are on the rise, homes aren't selling and local economies have stalledThe riskiest were those that had the highest foreclosure rates, slow job growth (or job loss) and a rash of listed homes. By these measures, Orlando has everything working against it. Other spots, Denver, for example, exhibit negative characteristics like foreclosures, lending problems and vacancies, but are adding jobs, a sign that the local economy can better handle these difficulties.Risky BusinessBefore "write-down" entered the national lexicon, the biggest risk facing real estate markets was the prevalence of subprime loans and adjustable rate mortgages. Last year, before the shoe-drop of the credit crunch and the dropping value of banks' loans and debt, we identified ARM-heavy Miami, Fla., Orlando, Fla., and Sacramento, Calif., as the markets most at risk of further fall.Subprime still matters, as do the concentration of adjustable rate mortgages. Transaction volume, however, especially over the next 12 months is becoming an increasingly important gauge of a market's health. This month the National Association of Realtors reported that sales volume of existing homes was up 2.9%, the first such month-to-month rise since July.In cities like San Diego, one of five major metros where transactions rose, that's good news, assuming it's sustained. What makes transaction volume a good indicator is that it shows how easy it is for people to get loans and how much confidence there is in the market. If mortgages are available and buyers have some faith in the value of the home, they're more likely to buy.San Diego's present conditions suggest that over the next half-year, prices may start to rise. That's because "there's usually a three- to six-month lag between when transactions go up and prices go up," says Jonathan Miller, president of Miller Samuel, a Manhattan real estate appraisal firm.Another good sign for the coming year? Increased credit availability.We took into account increased Fannie Mae and Freddie Mac (GSE) loan limits. The new legislation will open up credit in markets such as Sacramento and San Diego by boosting the GSE loan limit by 125% of the median price. That's a huge deal for San Diego, where 18% of the market will see improved lending conditions, based on projections by Radar Logic, a New York-based real estate research firm.Not as fortunate are hard-hit foreclosure markets such as Denver, which saw 50,000 foreclosure filings last year, according to RealtyTrac, which comes out to a 2.6% foreclosure rate, ninth in the nation behind the likes of Las Vegas and Detroit. Here, GSE loan limits won't change to boost liquidity, though at the beginning of this year the local economy had added jobs at a rate of 2%, which is triple the national average, according to the Bureau of Labor Statistics.The availability of jobs gets at the critical question of how much money is available within a market. A market with money on the sidelines has better recovery prospects because it means potential buyers are out there. A market without economic activity to generate buyers is simply sinking."People aren't pulling the trigger right now," says Steve Cesinger, vice-chairman at Dewberry Holdings, an Atlanta-based real estate investment group. "But it's a big difference if they're not pulling the trigger because the prices haven't declined enough or because they're waiting to catch the bottom."

 

[[scooter]]

"But it's a big difference if they're not pulling the trigger because the prices haven't declined enough or because they're waiting to catch the bottom."

Or because they have no money?

 

[tommyGunZ]

San Diego County median home price drops below $400,000

By Roger Showley UNION-TRIBUNE STAFF WRITER

11:14 a.m. April 15, 2008

San Diego County's median home price dropped below the $400,000 mark last month for the first time since late 2003, driven largely by discounted foreclosure sales, DataQuick Information Systems reported Tuesday.



The overall median price for homes sold in March was $395,000, the lowest since November 2003. That marked a 4.8 percent drop from February and a 19.4 percent decline from March 2007.



The median, representing the midpoint of all prices reported, has now sunk $122,500, or 23.7 percent, from the peak of $517,500 in November 2005, DataQuick figures show. But the median price is still twice what it was in March 1999.

The sales counts also remained low, reflecting none of the optimism expressed by some real estate agents in recent weeks that an increasing number of buyers have come back to the market and are snapping up bargains.



There were 2,108 sales in March, down 34.5 percent from March 2007 and the lowest March total since DataQuick began tracking the San Diego market in 1988.

Activity was up from February, as is usually the case, but not as big a recovery as is typical after the seasonal winter slowdown. The month-over-month increase was 7.9 percent compared with 12.4 percent in February-March 2007 and 43.9 percent in February-March 2006.

Resale houses and condos both saw year-over-year price drops, while the new housing category, including newly built houses and condos and new condo conversions, was up 7.1 percent.

DataQuick President Marshall Prentice said in a statement that nearly 38 percent of all sales in Southern California involved properties that had been foreclosed on at some point in the prior year. A year ago, the proportion was only 8 percent.

“We continue to believe a lot of people who could be buying or selling right now are opting to sit tight until they sense we've hit bottom,” Prentice said. “Often what we're left with, especially in inland areas, are sales driven by foreclosure or the threat of it.”

Sales in the six-county Southern California region were down 41.4 percent to 12,808 from a year earlier and prices were off 23.8 percent to $385,000.

Los Angeles prices dropped the least, off 18.5 percent, followed by San Diego and Orange County, down 19.6 percent.

Riverside had the least drop in sales, off 26.9 percent, followed by San Diego and San Bernardino, down 38 percent.

Median price down almost 5%, in one month. Prices down almost 20% since last March. And still a long, LONG way to go, with foreclosures setting records, inventory near record highs, and no one buying. I'm guessing that $395k median will be close to $300k by this time next year.

 

[tommyGunZ]

Intersting stuff here: Slate Link

Here Comes the Next Mortgage Crisis

Subprime was just the beginning. Wait until California's prime borrowers start handing their keys to the bank.

By Mark Gimein

Posted Tuesday, April 15, 2008, at 8:12 AM ET

California is to mortgage lending what Chicago is to pork bellies. For years, that meant it was a place with soaring house values; today, the foreclosure rate across the state is twice the national average and going up fast. Riverside County, outside Los Angeles, may be the foreclosure capital of the country, with a rate close to six times the national average. And housing prices are in freefall.

California should be the poster child for a mortgage-loan bailout. In few other places have so many taken on such onerous debts with so little equity. Unfortunately, the crisis in California is going to get much worse, and there is no bailout that will solve it. Why? Because if the first stage of the foreclosure crisis was about people who could not afford their mortgages, the next stage will be about people who have every reason not even to try to pay their mortgages.

Over the next several months, we're going to be subjected to a chorus of hand-wringing about the moral turpitude of people who walk away from their mortgages and pronouncements like last month's warning from Treasury Secretary Henry Paulson that people should honor their mortgage obligations. The problem with finger-wagging on what you "should" or "ought" to do is that, when it comes to money, you're usually given the lecture only when it's in your interest to do the opposite. Certainly, that's the case for all the California homeowners who in the next year or two are going to find themselves with the choice of whether, faced with a huge new wave of interest resets and a historic decline in the value of their homes, they will simply walk away.

First, those home prices: For a weird few months of the mortgage crisis, statisticians came up with peculiar numbers about home values, rolling out comforting stats showing single-digit declines. Well, that's over.

Last month, the California Realtors' association (folks who in October managed to "project" that prices would fall 4 percent in 2008) reported that, actually, California house prices in February fell 26 percent from a year ago. In the places where the foreclosure boom has hit hardest, it's worse.

A quick, almost random survey of some foreclosure prices in Southern and Central California:

* In San Bernardino, a house bought for $310,000 in 2005 is now being offered by the bank for $199,900.

* A 2,000-square-foot ranch house in Rancho Santa Margarita is down from $775,000 to $565,000.

* A starter home in Sacramento, sold for $215,000 in 2004, is now down to $129,900.

These are not sale prices. They are asking prices. Don't doubt that they are negotiable.

Unfortunately, when it comes to the California crash, these striking numbers are not the end. They are the beginning. (To give Paulson his due, he said that, too.) Which brings us to the other scary part of the California story: a coming wave of interest-rate resets in prime loans given to people with good credit that are just as bad, or worse, than we've seen in subprime.

The most common subprime loans were known as "2/28" in the industry: 30 years, including a two-year teaser rate before the interest rate rose. Now these loans have reset, and we're seeing the fallout.

But prime borrowers, too, got loans that started out with low payments; if you bought or refinanced your house in the last few years, it's not unlikely that you have one. With an "option ARM" loan you have the "option" (which most borrowers happily take) of paying less than the interest; the magic of "negative amortization." The loan grows until you hit a specified point—the exact point varies with the lender; with Countrywide, it'll come after about four and a half years—when the payment resets to close to twice where it was on Day 1.

Just two banks, Washington Mutual and Countrywide, wrote more than $300 billion worth of option ARMs in the three years from 2005 to 2007, concentrated in California. Others—IndyMac, Golden West (the creator of the option ARM, and now a part of Wachovia)—wrote many billions more. The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset.

Option ARM loans were heavily marketed to upper-tier home buyers in California. It's hard to know how bad the option ARM crisis will be before it actually happens, but Moe Bedard, an advocate in Southern California who advises homeowners on foreclosure and blogs about the crisis at Loansafe.org says that the difference in the time until the rate rises is the main reason that upper-middle-class Orange County (now facing foreclosures at a rate merely twice the national average) hasn't yet been hit as badly as places like Riverside.

When those dominoes start falling next year, we may or may not have a subprime bailout plan, and the discussion will start about how to bail out this next tranche of borrowers. The bailout plans on the table now, such as the one put forward by Barney Frank (one of Congress' genuinely cogent financial minds), are reasonably based on the principle of bringing payments down to a point that homeowners can afford.

But where prices fall 40 percent to 60 percent, all that goes out the window. Why? Because in expensive locales like San Diego, tens of thousands of people with 100 percent loan-to-value mortgages and option ARMs are living in homes in which they have no equity and on which they owe a lot more than the house is worth.

In these places, accepting a government "bailout" that pays them, say, 90 percent of the value of the house to keep from foreclosing will be very tough for lenders, who (if the appraisers don't fudge the numbers) could be forced to take 36 cents or 45 cents on the dollar for their loans. On the other hand, any plan that makes them pay more if they can afford it is hugely disadvantageous for the borrowers, who have option ARMs about to reset and are much better off handing the keys to bank—and maybe even scooping up the foreclosed house down the street.

If you're one of the "homedebtors" (a fantastic neologism coined by the anonymous blogger IrvineRenter on the Irvine Housing Blog) in this position, you might start thinking very seriously about just how attached you are to the wisteria vine snaking over the basketball hoop on your garage. That's what a lot of other California borrowers will be doing.

The luckiest of those are the ones who used option ARMs to buy a house. For them, walking away is easy: Their loans are "nonrecourse," and the lenders can't go after them for more than the value of the house. The choice is harder for those who used the loans to refinance. The quirks of real-estate law regarding refi loans make it possible (though not necessarily easy) for lenders to try to get back more money even after taking the house.

If you think, however, that should make lenders a lot happier, forget it. LoanSafe's Bedard says that even in this group, most of the option ARM borrowers he talks to—some of them living in $800,000 houses—are already considering walking away from their deeply depreciated homes as soon as the rates reset.

Bet on this: Whatever moral qualms are being urged on borrowers to keep them from walking away from their mortgages, they'll count for a lot less than the economic reality facing borrowers whose homes have fallen in value by half. Lenders had no reservations about selling borrowers loans with rising payments that would be poisonous in a rising market. Now it seems borrowers have no reservations about leaving those lenders with the risks they begged to take.

Consider, too, that, yes, going through a foreclosure kills your credit rating and makes it a lot harder to buy a new house—but as more and more prime borrowers go into foreclosure, it's perfectly possible that buying a new home a year later will in the near future be as routine and unsurprising as the once inconceivable idea that you can get a whole batch of new credit cards two years after a bankruptcy.

Of course, all those people stuck between rising mortgages and falling prices are free to follow Paulson's advice: Keep making payments on an outsized mortgage, and take a bullet for the greater economic good. Fortunately for them, and perhaps unfortunately for the economy, a lot of them will come to the realization that they just don't have to.

Mark Gimein is a New York-based writer.

 

[Otis]

Things looking mighty crappy in Brooklyn. I wish I could move out but I'm stuck there --- given the drop in values, no way I can afford to sell right now.

The only solution is to bust my butt, scrimp and save, and make sure to pay down as much of my mortgage as possible.

 

[The Z Machine]

I'm guessing that $395k median will be close to $300k by this time next year.

I would imagine that people looking to invest in rental property would be gobbling up houses at those prices, though no?What's the ratio of rent:mortgage payments at the current market value?I know that the current market downturn has been pushing up rental prices locally. I can see that continuing until they're more in line with typical rent:mortgage payment ratios.

 

[tommyGunZ]

I'm guessing that $395k median will be close to $300k by this time next year.

I would imagine that people looking to invest in rental property would be gobbling up houses at those prices, though no?What's the ratio of rent:mortgage payments at the current market value?

In most areas, it's still far cheaper to rent the same house that it is to own it in San Diego, even counting the tax break.

I know that the current market downturn has been pushing up rental prices locally. I can see that continuing until they're more in line with typical rent:mortgage payment ratios.

Rents are also rising in San Diego, but it would take years of rising rents to get in line with mortgages. Additionally, there is a ton of rental inventory as lots of investors are trying to mitigate their monthly mortgage payments on properties they can't sell.We still have a long way to go before fundamentals are back in order, especially income/home price ratios.

 

[tommyGunZ]

"fair market value" changes monthly. I know that the median home price in San Diego in Nov was 518k, and now it's 488. I believe that median will be far below 400k within the next few years.

I think you're nuts. Median home price in King County (where I live) is $405k and most are predicting that's going up over the next four years. You think San Diego's going to be cheaper real estate than Seattle here before too long?

Median officially down to $395k here in SD. Just under two years.

 

[tommyGunZ]

phoenix hit the bottom last month and there have already been positive signs in various indexes.

ouch....

 

[OC Zed]

Intersting stuff here: Slate Link

Here Comes the Next Mortgage Crisis

Subprime was just the beginning. Wait until California's prime borrowers start handing their keys to the bank.

By Mark Gimein

Posted Tuesday, April 15, 2008, at 8:12 AM ET

California is to mortgage lending what Chicago is to pork bellies. For years, that meant it was a place with soaring house values; today, the foreclosure rate across the state is twice the national average and going up fast. Riverside County, outside Los Angeles, may be the foreclosure capital of the country, with a rate close to six times the national average. And housing prices are in freefall.

California should be the poster child for a mortgage-loan bailout. In few other places have so many taken on such onerous debts with so little equity. Unfortunately, the crisis in California is going to get much worse, and there is no bailout that will solve it. Why? Because if the first stage of the foreclosure crisis was about people who could not afford their mortgages, the next stage will be about people who have every reason not even to try to pay their mortgages.

Over the next several months, we're going to be subjected to a chorus of hand-wringing about the moral turpitude of people who walk away from their mortgages and pronouncements like last month's warning from Treasury Secretary Henry Paulson that people should honor their mortgage obligations. The problem with finger-wagging on what you "should" or "ought" to do is that, when it comes to money, you're usually given the lecture only when it's in your interest to do the opposite. Certainly, that's the case for all the California homeowners who in the next year or two are going to find themselves with the choice of whether, faced with a huge new wave of interest resets and a historic decline in the value of their homes, they will simply walk away.

First, those home prices: For a weird few months of the mortgage crisis, statisticians came up with peculiar numbers about home values, rolling out comforting stats showing single-digit declines. Well, that's over.

Last month, the California Realtors' association (folks who in October managed to "project" that prices would fall 4 percent in 2008) reported that, actually, California house prices in February fell 26 percent from a year ago. In the places where the foreclosure boom has hit hardest, it's worse.

A quick, almost random survey of some foreclosure prices in Southern and Central California:

* In San Bernardino, a house bought for $310,000 in 2005 is now being offered by the bank for $199,900.

* A 2,000-square-foot ranch house in Rancho Santa Margarita is down from $775,000 to $565,000.

* A starter home in Sacramento, sold for $215,000 in 2004, is now down to $129,900.

These are not sale prices. They are asking prices. Don't doubt that they are negotiable.

Unfortunately, when it comes to the California crash, these striking numbers are not the end. They are the beginning. (To give Paulson his due, he said that, too.) Which brings us to the other scary part of the California story: a coming wave of interest-rate resets in prime loans given to people with good credit that are just as bad, or worse, than we've seen in subprime.

The most common subprime loans were known as "2/28" in the industry: 30 years, including a two-year teaser rate before the interest rate rose. Now these loans have reset, and we're seeing the fallout.

But prime borrowers, too, got loans that started out with low payments; if you bought or refinanced your house in the last few years, it's not unlikely that you have one. With an "option ARM" loan you have the "option" (which most borrowers happily take) of paying less than the interest; the magic of "negative amortization." The loan grows until you hit a specified point—the exact point varies with the lender; with Countrywide, it'll come after about four and a half years—when the payment resets to close to twice where it was on Day 1.

Just two banks, Washington Mutual and Countrywide, wrote more than $300 billion worth of option ARMs in the three years from 2005 to 2007, concentrated in California. Others—IndyMac, Golden West (the creator of the option ARM, and now a part of Wachovia)—wrote many billions more. The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset.

Option ARM loans were heavily marketed to upper-tier home buyers in California. It's hard to know how bad the option ARM crisis will be before it actually happens, but Moe Bedard, an advocate in Southern California who advises homeowners on foreclosure and blogs about the crisis at Loansafe.org says that the difference in the time until the rate rises is the main reason that upper-middle-class Orange County (now facing foreclosures at a rate merely twice the national average) hasn't yet been hit as badly as places like Riverside.

When those dominoes start falling next year, we may or may not have a subprime bailout plan, and the discussion will start about how to bail out this next tranche of borrowers. The bailout plans on the table now, such as the one put forward by Barney Frank (one of Congress' genuinely cogent financial minds), are reasonably based on the principle of bringing payments down to a point that homeowners can afford.

But where prices fall 40 percent to 60 percent, all that goes out the window. Why? Because in expensive locales like San Diego, tens of thousands of people with 100 percent loan-to-value mortgages and option ARMs are living in homes in which they have no equity and on which they owe a lot more than the house is worth.

In these places, accepting a government "bailout" that pays them, say, 90 percent of the value of the house to keep from foreclosing will be very tough for lenders, who (if the appraisers don't fudge the numbers) could be forced to take 36 cents or 45 cents on the dollar for their loans. On the other hand, any plan that makes them pay more if they can afford it is hugely disadvantageous for the borrowers, who have option ARMs about to reset and are much better off handing the keys to bank—and maybe even scooping up the foreclosed house down the street.

If you're one of the "homedebtors" (a fantastic neologism coined by the anonymous blogger IrvineRenter on the Irvine Housing Blog) in this position, you might start thinking very seriously about just how attached you are to the wisteria vine snaking over the basketball hoop on your garage. That's what a lot of other California borrowers will be doing.

The luckiest of those are the ones who used option ARMs to buy a house. For them, walking away is easy: Their loans are "nonrecourse," and the lenders can't go after them for more than the value of the house. The choice is harder for those who used the loans to refinance. The quirks of real-estate law regarding refi loans make it possible (though not necessarily easy) for lenders to try to get back more money even after taking the house.

If you think, however, that should make lenders a lot happier, forget it. LoanSafe's Bedard says that even in this group, most of the option ARM borrowers he talks to—some of them living in $800,000 houses—are already considering walking away from their deeply depreciated homes as soon as the rates reset.

Bet on this: Whatever moral qualms are being urged on borrowers to keep them from walking away from their mortgages, they'll count for a lot less than the economic reality facing borrowers whose homes have fallen in value by half. Lenders had no reservations about selling borrowers loans with rising payments that would be poisonous in a rising market. Now it seems borrowers have no reservations about leaving those lenders with the risks they begged to take.

Consider, too, that, yes, going through a foreclosure kills your credit rating and makes it a lot harder to buy a new house—but as more and more prime borrowers go into foreclosure, it's perfectly possible that buying a new home a year later will in the near future be as routine and unsurprising as the once inconceivable idea that you can get a whole batch of new credit cards two years after a bankruptcy.

Of course, all those people stuck between rising mortgages and falling prices are free to follow Paulson's advice: Keep making payments on an outsized mortgage, and take a bullet for the greater economic good. Fortunately for them, and perhaps unfortunately for the economy, a lot of them will come to the realization that they just don't have to.

Mark Gimein is a New York-based writer.

This pretty much hits the head on Orange County right now. The "subprime" cities of Anaheim and Santa Ana have been devastated with interest rate resets and the subsequent foreclosures. While prices in Newport Beach and the other posh coastal towns haven't dropped much yet as asking prices still remain stubbornly high, year-over-year sales volume has also been declining for 30 straight months indicating almost no demand at these prices. Given that Orange County was the nation's biggest loser in jobs according to the latest federal govt. numbers (mostly well-paying finance and construction jobs), things are looking very, very bearish here.

 

[OC Zed]

"fair market value" changes monthly. I know that the median home price in San Diego in Nov was 518k, and now it's 488. I believe that median will be far below 400k within the next few years.

I think you're nuts. Median home price in King County (where I live) is $405k and most are predicting that's going up over the next four years. You think San Diego's going to be cheaper real estate than Seattle here before too long?

Median officially down to $395k here in SD. Just under two years.

While I know some of that median figure does indicate falling prices across the board, I think the extent that drop is more of a reflection of what types of homes that are selling. I'm betting that the lower-end housing in SD has been selling at a greater pace than the higher end due to the foreclosures and short sales while obtaining financing for upper-end homes remains difficult.

I wouldn't be surprised to see median home prices across Southern California increase a little bit in late summer/early fall when we have more "discretionary" sales added to the overall mix. This, of course, won't mean that home prices aren't declining as well in upper-income towns.

 

[tommyGunZ]

The GDP numbers out today do concern me though.

The economy is what will send housing prices crashing...not mortgage arms.

Really the big thing to worry about is the umemployment rate. It is at a very low % right now, but the GDP numbers that came out a couple of days ago might indicate that % going up. This is what concerns me. All the media alarmist ventures over ARM's is over hyped. Specially now when all these ARM's that are expiring can be re-fi'ed into a 30 year for a slight increase in rate from what they originally locked in for. As long as people have jobs they will pay their mortgage. They will stop paying credit cards, cars, etc before they stop paying for the place they sleep at night.

Chad, want a mulligan on this one?

 

[tommyGunZ]

Drop in MLS listings could mark housing turnaround

The Business Journal of Phoenix - 11:11 AM MST Wednesdayby Christia GibbonsThe Business Journal

Nov. 1 may mark the date the Phoenix area housing market heaved a sigh of relief.

The Multiple Listing Service reported a drop in resale listings from the end of September to the end of October -- from 46,390 down to 46,228. That includes 4,600 new homes.

"It only went down a little, but it went down," said Mike Chasse, senior home builder adviser with Scottsdale-based Land Advisors Organization. "I've been antsy for two weeks (for the MLS monthly update) because I was seeing signs the market was balancing out," he said.

The listings dipped for the first time since March, and hadn't dipped prior to then since March 2005.

Sales topped out at 5,468, an increase of 40 from last September.

According RL Brown Housing Reports, in metro Phoenix, 2,281 permits were issued in September, a decrease of 733 permits from August.

Calling it a "milestone," Chasse said, "I hope it stays and keeps coming down ... we may be looking back as this moment as this being the floor of the market."

A balanced home-sale market, he said, would be in the 33,000 listing range.

The drop might not be just sales, but people taking homes off the market, Chasse said. Still, "we're on track with the trend I thought was coming. We didn't hit 50,000, which we feared we might get to."

Chasse predicted "we could experience a little bounce by mid-year."

bagger's 3rd "bottom" call of '06.

 

[Michael Fox Fan]

San Diego County median home price drops below $400,000

By Roger Showley UNION-TRIBUNE STAFF WRITER

11:14 a.m. April 15, 2008

San Diego County's median home price dropped below the $400,000 mark last month for the first time since late 2003, driven largely by discounted foreclosure sales, DataQuick Information Systems reported Tuesday.



The overall median price for homes sold in March was $395,000, the lowest since November 2003. That marked a 4.8 percent drop from February and a 19.4 percent decline from March 2007.



The median, representing the midpoint of all prices reported, has now sunk $122,500, or 23.7 percent, from the peak of $517,500 in November 2005, DataQuick figures show. But the median price is still twice what it was in March 1999.

The sales counts also remained low, reflecting none of the optimism expressed by some real estate agents in recent weeks that an increasing number of buyers have come back to the market and are snapping up bargains.



There were 2,108 sales in March, down 34.5 percent from March 2007 and the lowest March total since DataQuick began tracking the San Diego market in 1988.

Activity was up from February, as is usually the case, but not as big a recovery as is typical after the seasonal winter slowdown. The month-over-month increase was 7.9 percent compared with 12.4 percent in February-March 2007 and 43.9 percent in February-March 2006.

Resale houses and condos both saw year-over-year price drops, while the new housing category, including newly built houses and condos and new condo conversions, was up 7.1 percent.

DataQuick President Marshall Prentice said in a statement that nearly 38 percent of all sales in Southern California involved properties that had been foreclosed on at some point in the prior year. A year ago, the proportion was only 8 percent.

“We continue to believe a lot of people who could be buying or selling right now are opting to sit tight until they sense we've hit bottom,” Prentice said. “Often what we're left with, especially in inland areas, are sales driven by foreclosure or the threat of it.”

Sales in the six-county Southern California region were down 41.4 percent to 12,808 from a year earlier and prices were off 23.8 percent to $385,000.

Los Angeles prices dropped the least, off 18.5 percent, followed by San Diego and Orange County, down 19.6 percent.

Riverside had the least drop in sales, off 26.9 percent, followed by San Diego and San Bernardino, down 38 percent.

Median price down almost 5%, in one month. Prices down almost 20% since last March. And still a long, LONG way to go, with foreclosures setting records, inventory near record highs, and no one buying. I'm guessing that $395k median will be close to $300k by this time next year.

Looking solely at medians can be misleading....there could be a mix shift.....but those numbers are still shocking. Not sure that SD be at $300K by next year, but it seems almost certain that the number dips to the $325-350K range. Who would have thought?

It's amazing to me that "nobody saw this coming".

 

[Michael Fox Fan]

there are only 2 times that the value of your house matters. when you buy it & when you sell it. that's why the 15K in rent is a shame. you will never see that $ again. if you had bought in 1988 and suffered thru the worst decline in recent memory. where your house could have fallen considerably below what you bought it for. & you still had said house. would it have been worth it?

Not if you could have rented the same house for 4-5 years and bought it for 1/2 price in 1992.

you're missing the boat on this one. sure good market timing helps, but the point is that even if you buy at the top, over the long run you will do very well having your house as an investment, especially when you consider the $$ you get to write off.

Even at the top of the top, after a market boom has sent an asset to values never seen before or supported by fundamentals?Buying an affordable home in a stable market is one thing. Buying a home in a market like San Diego, Miami, Boston, etc. at this time is a gamble, IMO.

And if you look at the example I just typed for you, based on ACTUAL loans and rates, you'd see that by gambling, you've lost in 3 ways (so far)1. You'll pay more each month, and over the long term2. You've pissed $15,000 down the drain on rent, plus lost the $350+X15 months in principle. That's 20k.3. You still don't have a house.

1. Obviously I don't intend on living in a 2bd/2bt townhouse for 30yrs, so your example above figuring out 30 yrs in payments isn't applicable. 2. $15k pissed away on rent = 15k pissed away on mortgage interest after the deduction. 3. You don't have a house either if you owe 350k on a home worth 315k.

1. The argument gets worse for you, unless rates go back to historic lows again (hint: they probably won't)2. Like I said, nearly 15% of each payment is principal. Unlike rent, it's possible to get that back, even in just a flat market.3. I didn't say "OWN" a house. How many home improvements have you done to your rental unit? oVVning >>>>>>>> renting

1. How? Higher interest rates mean more of a mortgage deduction in the short term. 2. The market is not flat right now.3. Home improvements/maintenance = $$$. Not sure how that's financially advantageous.

1. More of a mortgage dedection means you're paying that much more each month. Having the deduction is nice, but it may price you out of the market if they keep going up.2. DID YOU NOT READ THAT YOU'RE IN WORSE FINANCIAL SHAPE GIVEN THE ACTUALS HERE?!?!?!3. True, if you HAVE to work on the house, that's not good. But living in a rental means you live with what they choose.

Tommy - why didn't you follow this advice?

 

[tommyGunZ]

we hit the bottom of the market about a couple months back, its just that most don't know it yet.

in terms of price?

inventory.price is lagging so we probably have another month or so befoe that bottoms.

 

[tommyGunZ]

there are only 2 times that the value of your house matters. when you buy it & when you sell it. that's why the 15K in rent is a shame. you will never see that $ again. if you had bought in 1988 and suffered thru the worst decline in recent memory. where your house could have fallen considerably below what you bought it for. & you still had said house. would it have been worth it?

Not if you could have rented the same house for 4-5 years and bought it for 1/2 price in 1992.

you're missing the boat on this one. sure good market timing helps, but the point is that even if you buy at the top, over the long run you will do very well having your house as an investment, especially when you consider the $$ you get to write off.

Even at the top of the top, after a market boom has sent an asset to values never seen before or supported by fundamentals?Buying an affordable home in a stable market is one thing. Buying a home in a market like San Diego, Miami, Boston, etc. at this time is a gamble, IMO.

And if you look at the example I just typed for you, based on ACTUAL loans and rates, you'd see that by gambling, you've lost in 3 ways (so far)1. You'll pay more each month, and over the long term2. You've pissed $15,000 down the drain on rent, plus lost the $350+X15 months in principle. That's 20k.3. You still don't have a house.

1. Obviously I don't intend on living in a 2bd/2bt townhouse for 30yrs, so your example above figuring out 30 yrs in payments isn't applicable. 2. $15k pissed away on rent = 15k pissed away on mortgage interest after the deduction. 3. You don't have a house either if you owe 350k on a home worth 315k.

1. The argument gets worse for you, unless rates go back to historic lows again (hint: they probably won't)2. Like I said, nearly 15% of each payment is principal. Unlike rent, it's possible to get that back, even in just a flat market.3. I didn't say "OWN" a house. How many home improvements have you done to your rental unit? oVVning >>>>>>>> renting

1. How? Higher interest rates mean more of a mortgage deduction in the short term. 2. The market is not flat right now.3. Home improvements/maintenance = $$$. Not sure how that's financially advantageous.

1. More of a mortgage dedection means you're paying that much more each month. Having the deduction is nice, but it may price you out of the market if they keep going up.2. DID YOU NOT READ THAT YOU'RE IN WORSE FINANCIAL SHAPE GIVEN THE ACTUALS HERE?!?!?!3. True, if you HAVE to work on the house, that's not good. But living in a rental means you live with what they choose.

Tommy - why didn't you follow this advice?

believe me, I'm kicking myself.

 

[tommyGunZ]

The San Diego market is holding values very well. I live in a newer community and just had my home appraised last week. To the dismay of the housing market crashers my house only lost $13,000 in 2 years. That is during the adjustment, recast or crash that was forecasted. I don't know where the 30% fall gunz predicted is? I just don't see it, my neighbor around the corners just sold his house for $15,000 over appraised value. I am putting my house on the market in a month or so!

It's here now good buddy. And we're just getting started...

 

[tommyGunZ]

BTW - these bumps aren't a "HEY LOOK AT ME", they're a "HEY, LOOK AT (insert bagger, proninja, rover, scupper, etc)" for their contributions to this great thread.

All are GBs, so this is just in good fun.

 

[tommyGunZ]

still at it, eh tommy?how long have you been talking about buying house? add up how much rent you have paid in that time frame. see if it's more than the price difference you're seeing in the houses you want. now add in the interest & other tax savings the house would have given you. how's it add up?

I'm still throwing money away on rent, DA RAIDERS.

 

[tommyGunZ]

TGunz and I are in similar situations. I live in LA county, TG is in SD county but both of us rent apartments...the difference is this. I back TG that homes here are way overpriced but I decided to go and buy some real estate in other parts of the country. I ended up going in on an 8 unit property in Buffalo, NY...and I live in Santa Monica so go figure. But we got the property way under value at around $200,000. We have poured in somewhere in the vicinity of $60,000 which is more than double what we anticipated...however we are getting the property appraised in a few weeks and we expect it to come in around $350,000...this has now been a 6 month project. The note with taxes and prop mgmt will be about $3,000 a month and we are taking in about $4,500-$5,000 in rents...so we are going to do alright.

My point here is that if the homes around you cost too much, then maybe it's time to get proactive in other markets where housing has fallen back to affordable prices and you can make money. The bottom line is making money. I might not own a SFR home but I plan on adding 1-2 buildings a year with multi units like the one I bought in Buffalo and 8-10 years down the road I can cash out and buy whatever home I want (within reason), for me and the Mrs and I won't care much what the rates are, what the inventory of hosues are where I want to live...it simply will not matter.

Good post MOP. My father has been in real estate for 30+ years in SW Virginia and feels the exact same way. While he's advised me to continue to wait until prices fall back in line with historical averages in the overheated San Diego market, he's continued to purchase properties in VA that he feels are wise investments.

i'm all for historical averages....however, in southern california there is no more land. there will never be any more land. it's very similar to an island, when you have no more land & people still want to go to the island the price goes thru the ####### roof. this will hold true in socal forever

Hey Raiders, are they making more land in SoCal now? Is that why prices are going down?

 

[tommyGunZ]

As for real estate in general, I think this will be a 'average' year. Not average over the last 5 years but average for the last 30 years.

 

[tommyGunZ]

However, the economy needs to take a downturn and unemployment rise before there will be significant impact on most 'real' lenders or the real estate market in general.

I've been trying to explain this to Tommy for years.

And I still don't get it. Can you explain it to me one more time?

 

[drpill]

at the crow eating in this thread. Nice work TGunz.

 

[tommyGunZ]

Want to know what a "bubble market" is?

But even as the market has slowed, the popularity of risky loans has spread. New data for San Diego County reveals that 67 percent of loans made in the first 11 months of 2006 were interest-only or negatively amortized. Of that 67 percent, 30 percent were negative-amortization loans, a threefold increase since January 2004 and 30-fold jump since January 2003, according to FirstAmerican Loan Performance.

You don't.

Obviously not. I should be going neg-am for half a mill right now, regardless of the fact that whatever I buy will be worth 30% less in 2 years.

Like I said before, waiting hasn't worked in your favor so far. However, some people are stupid enough to get a mortgage with the lowest payment, or buy a home way over their financial capabilities.I'm not advocating that, but a "bubble" has nothing to do with the fact that some people are ####ing stupid, and bought these con-artist mortagage offerings.

It has everything to do with a "bubble". Investors and idiots taking out neg-am loans are two reasons housing prices are far, far above any rational value level in SoCal. As investors have pretty much left this "musical chairs" game in San Diego, only idiots taking out IO and neg-am loans are keeping the sinking boat afloat. Once they are shaken out of the game as their mortgages reset (happening now) and subprime lending dries up (happening now), prices will decline more dramatically.There is absolutely no way a county where the median family income is 62k can support median home prices at 500k for long without voodoo financing.

Again, you're taking a fact (point 2 regarding the family with 62k) and pretending it implies a bubble. The fact that rates are CLIMBING while values are FALLING indicates it's merely correcting itself slightly. The fact that your spending power today is exactly what it was 18 months ago proves it's no bubble.

Scupper still denying the bubble well into '07. Great call MTS.

 

[tommyGunZ]

at the crow eating in this thread. Nice work TGunz.

i hooked some big fish in this one. bagger, ninja, rover, MTS, etc. - lots of first ballot FFA HOFers.

 

[tommyGunZ]

not if the biggest decline is yet to come - especially when the market believes rates will fall before they climb in the future (yeild curves).

please don't waste my time pretending to predict the future.

isn't that what we all do everyday, practically all day?do you make 300-500k decisions without an eye on what you think the future holds?

I really am done with you. I've already shown you that your financial decision that you claim "saved you $50,000" really didn't save you anything, in fact, cost you money. Now you're saying you're going to wait for a 30% correction, while rates fall. You've been wrong for a long time here.Good luck to you.

sorry, can't come up with anything witty here - scupper's brilliance is enough.

 

[[scooter]]

Whatever happened to Scupper? I don't think I've ever seen someone more thoroughly and repeatedly wned:

 

[tommyGunZ]

you act like people who bought 2 years ago will never make any money. if they stay in their place for 10 years they'll be very happy with their purchase.

I bough 9 months ago in AZ when the market bottomed and have made 9% on my place based on sales over the last two months. Prices have been stable after the initial drop.Prices don't collapse until the job market collapses...I don't know how many times I have to state this in this thread.

A few more times, apparently.

 

[tommyGunZ]

TGunz, can you afford a house yet? Since you started this I sold another house and moved again. Made another $80K.

gunz, I wish you the best, I really do, but I don't think you're ever going to see the drop you want. If you buy something now, in 10 years you'll be up. If you wait for prices to drop and they instead go up, are you just going to rent forever, and stubbornly wait for homes to drop to what you think they should be valued at?

B/c rover made 80k in a market 1200 miles away? My market is down significantly since I started this thread - I'd be sick and unable to sleep if I'd purchased a 400k-500k home in San Diego in late '05. Has Seattle not slowed down at all? I thought I read that sales were down and inventory was up in your area?

Less reading and more action. My in-laws bought in '04 and sold in '06, and made a 30% profit in San Diego. They downsized and bought a condo, also in San Diego, about a year ago. It's appreciated about 10% based on sales in the same condominium, which is a pretty reliable indicator. 'Ninja and I are both in industries that are fairly dialed in to the Seattle real estate market for different reasons. I'm not as concerned with prices as I am demand. As long as the demand is there, the appreciation will be fine. And there's plenty of demand.There's money to be made in this market, right now, whether you're in San Diego or Seattle. Where you aren't going to make anything is sitting on your hands waiting for houses to become more affordable. Interest rates are still incredibly low. By the time your prices come down (if ever), you'll be looking at higher interest rates, and you'll still be priced out of the same house.

"priced out" is one of my favorite bubble terms.

 

[Chadstroma]

The GDP numbers out today do concern me though.

The economy is what will send housing prices crashing...not mortgage arms.

Really the big thing to worry about is the umemployment rate. It is at a very low % right now, but the GDP numbers that came out a couple of days ago might indicate that % going up. This is what concerns me. All the media alarmist ventures over ARM's is over hyped. Specially now when all these ARM's that are expiring can be re-fi'ed into a 30 year for a slight increase in rate from what they originally locked in for. As long as people have jobs they will pay their mortgage. They will stop paying credit cards, cars, etc before they stop paying for the place they sleep at night.

Chad, want a mulligan on this one?

Well... as for the real estate market... I was wrong. I did not expect things to be as bad as they have been over the last year. As for ARM's, I stand by what I wrote previously. The media over hyped the ARM's as the ultimate evil. As a tool, they are not bad or good by themselves, but they can be bad fits for some consumers as a mortgage option. This downward cycle has been driven by two main things (of course there are many other contributors that do not help or fuel the fire): (1) The insane appreciation levels in many markets over the last 5-7 years. (2) Fear. The markets that are hardest hit are the one's that have had the greatest appreciation in equity and had attracted investors who were quick to walk away from their investments.

 

[tommyGunZ]

Prices holding in AZ, and inventory is shrinking.What happened to that crash TGunz?

LHUCKS wearing the blinders well into '07.

 

[Chadstroma]

As for real estate in general, I think this will be a 'average' year. Not average over the last 5 years but average for the last 30 years.

Not so much of an average year.

 

[Chadstroma]

However, the economy needs to take a downturn and unemployment rise before there will be significant impact on most 'real' lenders or the real estate market in general.

I've been trying to explain this to Tommy for years.

And I still don't get it. Can you explain it to me one more time?

Normally this holds true. As Kerry Killinger said at the recent WaMu shareholder's meeting (of which also the company announced the resignation of one of the board members as she was the chair of the finance commitee and was presured out by shareholder activists) "Nothing of this scale has happened since the Great Depression," he went on to add. "This is the toughest credit cycle I have seen in my years in the industry." This is a very extraordinary down turn in the real estate cycle.