[quote=livinincali][quote=bearishgurl]
No, livinincali, homes are only a “highly leveraged asset” for those fools (mostly “worker bees” at the mercy of employers) who tend to borrow themselves into oblivion to get into one. Many, many regions of the country have a VERY LARGE percentage of homeowners (over half) who owe 0 to $20K on their primary residence.
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I said at the margin. Not all home owner are highly leveraged, but most new home owner are. Potential new home owners bidding for the available properties are the ones setting the prices. Move up buyers generally require somebody to buy the previous home unless they decide to rent it and lever up in a new purchase. If leverage was reduced and interest rates were raised then the amount one could bid on a house would be lower. Now there doesn’t necessarily have to be willing sellers at that price, but at the margin there would be some sales and prices would reflect the reality of lower leverage and higher interest rates.[/quote]
If the FHA stopped loaning entirely in CA coastal counties, it wouldn’t have an effect on prices. The FHA was only meant to be a “bit player” in the most desirable locales in the US. Historically, only the most prudent low and moderate-income buyers could obtain an FHA loan in San Diego County. The vast majority of the families in those income categories living in CA coastal counties were (and are) renters (some “permanent” renters).
*New* homeowners (FTB’s?) don’t have to be “highly leveraged,” not even the ones in SD County. The ones that are chose to be in that situation because they were able to secure a mortgage which stretched their budget. There are many alternatives in housing purchases … even in what the FHA dubs “high-cost areas.”
livincali, the amount of “leverage” available to a prospective homebuyer is only important to home values in SOME areas of CA coastal counties, not ALL.
If there are no prospective sellers in a given micro-market who are willing to sell at a price based upon what a buyer using, say, 90%+ leverage can pay, then they will either sell to buyers using typical “80/20” financing, buyers for whom they are willing to carry purchase money, buyers using all cash or a combination thereof. As you know, a “sold comp” is not created until a bona-fide arms-length transaction closes escrow.
The availability of leverage as well as interest rates have very little, if any, effect on the price of housing in CA coastal counties, unless that housing is situated in an area or tract where the overwhelming majority of parcels are currently heavily encumbered with mortgages.
Those “margin” sellers you discuss here are the few left with zero or little equity AND whose property they MUST sell is located within those heavily encumbered markets (discussed above).
In an average 50 yr old SD city block, it is more likely that more owners have 50% or more equity in their properties than do not.
In any case, the current FF conforming mortgage (which requires a 5-20% downpayment, depending on program) ceiling is $546,250 ($151,250 LESS than FHA’s current mortgage ceiling)!
