San Diego Housing Bubble News and Analysis

When the bond market and / or Foreign Creditors say no more. Or until the housing market and the resulting bad debt is nationalized by the Treasury and treasuries rates skyrocket in response. Oh wait, we will all get commensurate cost of living adjustments to make up for it right? Yeah right...if you still have a job that is.

Doc,,
You've sold yourself short..
4.8% was a crappy rate 2 years ago and 2.30% is crappy today, as well as 2,71% for a 1 YR CD..

Liquid rates are in the high 3's today, maybe 4%, and I am pretty sure that you can get well over 4% for a 1 or 2 year CD.
It's FDIC insured. The govt is bailing out homeowners, they will bail out bank depositors too.

Assuming that you want to have US$ account, I think it's foolish to not go to the highest paying, riskiest FDIC insured joint.

Just know the FDIC limits of coverage per account, etc.

I was living overseas when I opened it 2 years ago. These are Navy Fed's rates as of April. I completely agree that the 2.3 is crappy, that's why I posted. It really pisses me off. When the money becomes liquid in June I may be open to suggestions on what to do with it.

Please understand, I have NEVER stated I was a financial genius. I'll leave that to the traders in here. Most of my efforts, this blog notwithstanding, go to making myself a better physician. As I've stated before, I think it is extremely difficult to be a good physician AND a good businessman. They seem to require different types of minds.

Indymac is paying 4+ percent right now. At Indymac I would definitely keep it under FDIC limits with some room saved for the interest.

If you are willing to take a "little bit of risk", you can open an account with Vanguard and keep your money in VANGUARD CA LONG-TERM TAX-EXEMPT mutual fund (VCITX). You will recive 4.35% yield that is largely exempt from federal and CA taxes ( so it could be something like 6.9% pretax if you are in 28% tax bracket). You can withdraw money any time.

There is some market risk here (For example in Feb and March the fund had some losses which it since then has recovered) but the risk is much less than stocks (or RE)

I felt the same pain recently with a few navy fed CD's that just matured, going from 6% APY down to 2.7% APY definitely hurts. So I took all the matured CD's from Navy Fed and went around the corner to countrywide in mission valley and got 4.15% APY on a 12 month CD. Highest rate I could find and the banker there was very nice and friendly and honest about the current finacial crisis when we chit chatted with him while starting the CD. I wanted to stay with navy fed as i have everything with them but I couldnt justify the loss of interest and I asked and they would not match countrywide. Just stick to the FDIC limits and everything will be fine regardless who goes BK or merges with whomever.

might want to look into AARP, money market is above 4% (around 4.25%). just get an associate AARP membership (not age restricted) prior to sign up.

AARP does look pretty good with a savings APY of 4.5% and an over 50K money market APY of 4.75%. Makes it easily worth the $12.50 for the yearly membership. You never know what way those rates are going to go when they change every week or month, but it is hard to imagine them going down from this point. www.aarpsavings.com/rates.aspx

There is desperation in the air...

There are people who are buying T-BILLS at less than 2% return who are well aware of what FDIC institutions are offering.

The Discount Rate is what ELIGIBLE institutions can borrow from the FED at, which is 2.25% this week.

The Fed Funds Rate is what banks lend to each other at, which is currently 2.00%

The 11th District Cost Of Funds Index (COFI) is
the weighted average interest rate paid by 11th Federal Home Loan Bank District (CA,NV,NV) savings institutions for savings and checking accounts. It is currently 3.28%

So, this means that the public is loaning to the higher paying banks who appear to be in some sort of trouble,
because the other banks may not trust them.

If they were ELIGIBLE to borrow from the Federal Reserve or other banks, they sure wouldn't be offering to pay double that rate because they are generous.

They can never borrow their entire assets from the FED, nor other banks, but if they were solid, they wouldn't be offering such high rates. They do need a base of consumer deposits, but understand why some are offering MUCH higher rates than others.

When looking at 4.50% instead of 2.50%, it's not just "2 points" it is 80% more....
Don't assume that FDIC ins. means ZERO risk...

Although we all expect FDIC to step up to the plate the next business day to offer coverage to a failed bank, this just may not be possible if it is a large bank.

I don't know what the worst case scenario is,, I suppose that it is paying back the principal over time, without paying any interest on the funds ?

My 15-mo 6% NFCU CD matures at the end of July so this is a very interesting topic to me. I also have a 5.5% CD at Countrywide. I plan to move those funds back to NFCU upon maturity next month. Currently NFCU's jumbo 12-mo CD rate is 3.05%. It kills me when I think about how much less interest I'll be earning. I will be reinvesting over $500K. I have a great deal of confidence in NFCU so I'm not worried about exceeding the FDIC limits. That being said, if there is an equally safe alternative out there that will return a higher yield I'd love to hear about it. Thanks!

I cannot believe that anyone has a great deal of confidence in an institution...
You are free to do what you want, it's your money.

Credit Unions are NOT covered by FDIC, they have their own oversight. http://webapps.ncua.gov/ins/

You can probably get closer to 5% for CD's today fron FDIC insured joints.... just don't believe that there is NO risk, regardless of what the $10 an hour customer service rep tells you.

The best rates consistently seem to be online, never at a brick & mortar bank.

I wouldn't even risk the interest above $100K in any one account.

When you realize what is behind the numbers on your statements, just understand that it ISN'T your cash that you deposited.

It's the "Full Faith AND Credit of the US Govt"

Comforting ?? Good Luck eagle.

Thanks for the insight HLS. Let me clarify what I mean by complete confidence in NFCU:

"Navy Federal—Strong, Safe and Secure

With 3 million members and $3 billion in reserves, Navy Federal is in sound financial condition, even as we expand our branch and ATM network to serve our growing membership.

Our soundness is based on our exemplary business practices:

We have never engaged in sub-prime mortgage lending
We adhere to sound financial underwriting practices
We provide members with professional guidance, which matches them with the right loan product option
We are regularly audited by PricewaterhouseCoopers LLP, an independent auditing firm

And members can enjoy added peace of mind knowing that their savings are federally insured through the National Credit Union Administration, a U.S. Government Agency. For more about savings insurance, see details at “Your Insured Funds.” (388kb)

Founded in 1933 during the Great Depression to provide its members with an economic safety net, Navy Federal remains a resource members can count on. Surplus funds resulting from our sound lending practices are returned to member-owners through higher dividends, reduced loan rates and service enhancements."

Maybe I'm naive but that's good enough for me.

I have absolutely no expectation that NCFU or any other credit union is going to fold.

FDIC did estimate that 100 to 200 BANKS could fail in the next 24 months. The are looking to rehire emloyess that were involved in the S&L meltdown.
Doesn't mean it will happen.

Having account insurance coverage costs the borrower nothing, not a penny.

The entire economy is built on debt and the expectation that people will pay their debts.
People who deal with NCFU or any other CU aren't immune from not being able to pay their loans/debts.

According to your statement, they should just say
"Hey, we're strong, don't worry, you don't need any insurance coverage"

At one time, Enron and Bear Stearns had flashy mission statements too, and Artur Anderson and KPMG were respected firms that were independant auditors.

Several rogue employees of ANY institution, esp financial, can bring them to their knees, it's happened before and will happen again.
Do a search for Nick Leeson & Barings Bank. One guy brought down a 200+ year old investment bank.

In the S&L crunch, more than 1,000 S&Ls failed, and the govt bailout was an estimated $150 billion.

11 days ago, the most recent US bank failed, with $1.8 billion in deposited funds. ANB Financial had about $39.2 million in 647 deposit accounts that EXCEEDED the federal deposit insurance limit.

These customers will have immediate access to their insured deposits, and will become creditors of the receivership for the amount of their uninsured funds.

These are just facts. If you want to have uninsured deposits, that is your choice.

Real Estate is always a good investment.
Just kidding everyone. Settle down.

I agree with you, I would just say most of the time, (not always)and in the right markets.
(Or at least it has been in the past, which isn't a guarantee of future returns)

When the property pencils out from day one, there is still risk, but it's a safer bet than when you need some crazy appreciation to have the "investment" make sense.

There are about 40 states today that have properties that can be bought that will pencil out TODAY as a reasonable investment, based on ROI.

Absentee ownership isn't for everyone, having property managers and being charged for little things that you cannot drive over and do drives some people nuts.

There are plenty of markets that had no bubble and even areas that have $100,000 +/- houses ALWAYS have renters looking to rent.

With mortgage rates historically low, and 25% down if you qualify, Buying a house for $135,000 that rents for $900-$1000 a month isn't difficult at all. And the P&I payment on $100K is $616. Even with T&I, and a management fee, (you start off by paying $100 a month in principal) it's not so crazy.

Don't forget the lost opportunity value of your down payment (which isn't much today)

You get a much larger (% of purchase price) tax deduction for depreciation in most other states where land is cheaper.

There is super opportunity and many OUT OF STATE areas probably have hit bottom, and will just be flat for awhile. Rentals in So Cal make no sense to me any more.

When I was kid, it was a simple theory. If you can at least break even PITI from day one, and get the depreciation, just take any appreciation as a bonus and let the tenants pay off your mortgage. Never EXPECT appreciation.

Slow and steady. Turtle & the hare etc..

I talked to a guy today who is out of pocket $5,000 a month on his rentals, and he has negative equity.
He foolishly took 15 YR mortgages on rental properties so has huge payments. Not something that I recommend.

His RE "expert" told him TODAY that the local market is only going down another 5%. I said UH-HUH.

Plenty of opportunity out there for those with the stomach.
YEP, It's a great time to buy,,,, just not around here.

HLS: "Although we all expect FDIC to step up to the plate the next business day to offer coverage to a failed bank, this just may not be possible if it is a large bank."

In my opinion, there is negligible risk in relying on FDIC insurance coverage (up to the insured limits). Even if all the banks went belly-up, Congress would direct enough money to be printed to cover all the FDIC insured liabilities to depositors. I am sure of it. If you're not sure, just look at what Chris Dodd and Barney Frank and Chuck Schumer are doing for politically powerful homeowners that had no insurance.

Patient renter in OC

Not to stir any paranoia but I noticed that NFCU made the top ten nationwide in 2nds mortgages. Last quarter's top ten lost a few banks that disappeared, but still, 2nds? I'm a member and they've got a good base, but 2nds?

Anyone investing in China? I would not even know where to start?

Patient,
I AGREE with you.. My comment was pretty clear.

My point was that depositors will be made whole, it just may not be possible THE NEXT BUSINESS DAY.
It could be weeks, it could be years. I DON'T KNOW.

From memory, I think that the recent FDIC bank failures (3 in 2007 and 3 in 2008 so far) The largest had 175,000 accounts...

If a HUGE bank were to fail, you are talking millions of accounts. Potential $100,000 x 1 million = $100 BILLION ++
(per million accounts)

Of course many people don't have $100K, but retirement accounts are insured up to $250K..
The POTENTIAL exposure is beyond belief, and everybody seems comfortable that it just won't happen.

They can transfer statement balances around all they want, the withdrawl of CASH the NEXT BUSINESS DAY will not be possible. They couldn't print the bills that fast.

I'm not saying that it will happen, but if you expect the 500 year flood and be prepared, and you'll never be surprised.

I talked to a life insurance exec about 9/11, he said that payouts weren't a problem for most, just a blip.
The UNKNOWN is a WW2 type event, losing million+ lives in a short time period.

Disasters happen, 32,000++ DEAD from one little earthquake in China last week. Myanmar, Katrina, etc..$!*& HAPPENS!

If someone is comfortable having UNinsured funds because of what the charter states who I am to argue ?

I don't think I have UNinsured funds. To the best of my knowledge my account is insured up to $600K as a joint trust account with 3 beneficiaries.

This was not the point of my original comments. My point was that I have far more confidence in NFCU than I do, for example, in Countrywide.

The AARP jumbo money market rate is 4.75% Wow, this seems too good to be true. I spoke with an AARP rep who told me that rate has been in place since last August. I don't understand how they've been able to keep it so high. Thanks for posting the info.

Typically rates are APY so unless your money is there for the full year it is not an actual 4.75 Rate. Good to know how the interest is compunded on the accounts. Daily monthly, quarterly etc.

The 4.75% is APY. The APR is 4.65%. The interest accrues daily and is compounded monthly.

Not sure when the rates changed but they went down quite a bit since I found the website. I guess they held them as high as they could for as long as they could.
http://www.aarpsavings.com/rates.aspx
That is the problem with savings and MM accounts, they can change at anytime and I doubt they are changing for the better anytime soon.
4.75% down to 4.05% in a few short weeks!