Are houses selling fast now?

[Daniel]

Powayseller,

With all due respect, I think you’re missing the point. I can only speak for myself (not the other D), but my offer to take one of those bets is not because I am a gambler, but precisely because of the opposite. I know a lopsided trade when I see one, and taking the other side of your bets makes perfect sense to me. Let me put it another way: if someone claimed that, by flipping a coin, I would get tails five times in a row, I would bet a very large sum of money against that outcome. This is not gambling, this is math.

That being said, I don’t actually believe that we’re going to enter a trade any time soon. My offer is just a way of saying that I believe your predictions have a very, very low probability of becoming true.

[Anonymous]

Mexico Resident, you have flawless written English. Are you an American expatriate or a well-schooled Mexican?

I haven’t set foot in Mexico in 20 years; I broke the habit after gettting shaken down, along with some of my Navy shipmates, by the TJ police for cash.

Is Mexico safe for an American? Or, do I place too much weight on the word of two families that we socialize with that moved from Mexico to the U.S. because of perceived kidnapping risk?

I ask because a family that we’re good friends with continue to take their camping vacations down in Baja. We decline to participate, because I value security over scenery. Am I overreacting?

[PerryChase]

jg, yes, you are over-reacting. Mexico is safe if you don’t draw attention to yourself. I traveled to Mexico City earlier this year by myself. The people were very nice and friendly. I got to see the pyramids at Teotihuacan. Even some Mexicans in USA say that Mexico City is not safe. I had no problems.

I also traveled to other parts of Mexico before and I don’t find it to be anymore dangerous than America. Like anywhere, you have to be a little careful. Remember you live in La Jolla, a nice suburb of San Dieogo. Foreign tourists who come to America would visit Manhattan, downtown LA, Chicago, Miami, etc… Those places are not necessary that safe for travelers either.

[PerryChase]

I agree with powayseller. I beleive that those ARMs will have very high default rates but that won’t necessarily be reflected in the stats. People will refinance several times before defaulting. But if you find a way to track buyers who “speculated” on their houses during the runup, you’ll see sky high default rates.

[Mexico Resident]

jg, I am an expatriate. I have quite a few years here. I would say let your conscience be your guide. Your friends might have had a kidnapping risk if they were say highly placed executives, or lived a lifestyle that shows wealth, etc. So, there is enough risk to consider it as a factor, especially in Mexico City. A much higher risk is petty theft. You learn to be pretty street smart. I could tell some stories. It’s an incredible country and people, though.

[an]

I agree with you PC and PS, the bet is pointless because there’s no way to prove who’s right and who’s wrong due to the fact that people will refi out of the original ARM before they default. Unless you can track every original ARM and only count ones that did not refi, then you have some solid case. I do believe that the probability of the original ARM default is pretty high if they don’t refi.

[(former)FormerSanDiegan]

So, if people are smart enough to change their financing to avoid default/foreclosure, that shouldn’t count ?
If they are able to refinance, that means that they presumably had the economics means to do so. This biases the result in favor of the person predicting high default rates.

Why not just bet that a high percentage of those that are more than 60-days late on their payments are more going to default ?

[sdcellar]

I don’t agree at all–if the borrower has a way out, they have a way out. Powayseller never said 90% of zero-down ARMS that can’t or don’t refinance will default, so let’s not go looking for ways to help fit the prediction.

[an]

Some are smart, some are just delaying the judgment day. If they refi w/ another I/O ARM to extend it another 5 years and do a cash out at the same time to pay for the refi, would that be smart? Even the stupid will refi if they can to delay the judgment day.

I don’t remember if she say this or not, but didn’t she mean that the high % of default are from the ARM resetting? If they refi, then those ARM never reset, so those ARM shouldn’t count.

[sdcellar]

Cashouts? I believe Powayseller’s point (and belief) is that there won’t be any equity to cash out and even worse, they’ll be underwater on the house so won’t be able to defer judgement day.

I personally believe a lot of things are possible and this is where PS and I depart ways…

[(former)FormerSanDiegan]

PS –
It sounds to me like you are assuming most of the ARMS that are resetting in 2007 are from people who purchased in 2004-2005 with 0% down.

I know for a fact that the most popular ARMS in the 2002 to 2–3 time frame were 5-year interest-only ARMS. So all those people who purchased in 2002 will have theirs re-set next year as part of that 25%. The 25% ARM resets does not include solely the 1-year and 3-year option-ARM purchasers in 2004-2006. Might it also include people who had traditional ARMS (not interest-only) ?

Without these details it would be difficult to asses the impact and predict 75 % or 90% default.

For the record, I have an interest-only ARM at 5.625% on a SFR rental property I purchased in 2002 (refied in 2003) for less than 350K in Central Coastal SD. This ARM has a balance of ~270K and it re-sets in 2008. If I paid points I could refi it to 30-year fixed today at less than 6% for costs of less than 10K.

[poorgradstudent]

anotherf@ckedborrower is a pretty interesting blog. Thanks for suggesting it, PS.

[(former)FormerSanDiegan]

I would have to agree that a large percentage (maybe even 75%-90%) of those who took out 100% LTV option ARM in 2005 with Debt ratios of 40%+ whose loans reset in 2007 and who can’t refinance will default.

I think the point is what percentage of the 25% of all ARMS that reset in 2007 fall into this category.

[PerryChase]

In another thread there was a house purchased for $1.17M going into default.

I think that 90% of the zero-down ARM buyers who gambled/speculated on being able to sell at a profit to default. My anecdotal evidence is this was very prevalent in 2003-2005.

People will refinance to try to delay the day of reckoning, until they can’t refinance anymore.

[powayseller]

FSD and PerryChase, I agree with you guys. Hmmm….wonder why Daniel and Davelj didn’t ask either of you guys to make a $10,000 bet on that prediction.

[Author]

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