churn in housing

[Coronita]

It’s crapshoot what really would happen. My guess as as useful as anyone else’s guess. That’s why I don’t believe in making financial decisions based on extreme viewpoints. As much as we’d like to think we can outsmart the markets, most people can’t or at least not for an extended period of time.

I don’t know what will really happen in the bay area. It moves in it’s own ways, and no longer living there, I wouldn’t be able to comment on it.

[bearishgurl]

[quote=spdrun][quote=bearishgurl][quote=spdrun]Or banks will quietly make existing loans assumable, as was done in the 1980s.[/quote]

spdrun, lenders cannot do anything other than what is already written in the original note, nor can their successors (other lenders down the line who purchased these notes). Virtually zero conventional loans made since about 2002 had any assumability provisions in them. [/quote]

Sure they can. It’s called a loan modification. Principal modifications are frowned upon. But any other term is fair game with the consent of the mortgagee.[/quote]

What’s in it for a lender to do this when their loan will be paid off upon sale? Why would a lender want to keep a 3-4% mortgage on their books when they can make a new 7% and up loan on the open market?

If you’re speaking of a “loan modification” to a new buyer in a “short sale,” these beleaguered tech workers would have to sacrifice their good credit in order to exit their property in the bay area. Most of them would ostensibly have way too many “assets” to qualify for a short sale. Lenders want and need to be “cashed out” in a short sale, however little that may turn out to be.

[Coronita]

I don’t even think a 1000 people layoff at qualcomm would impact north county home prices in a meaningful way. Nor would it impact mira mesa.

[spdrun]

bearishgurl — Because many buyers wouldn’t be able to afford the payments at 7-8%. They can make the 7% loans, but the principal amount will be lower.

Better to keep the loan on their books, paying something, than have to resort to the bureaucracy of a short sale or foreclosure.

[moneymaker]

VA loans are assumable last I heard, would that make a house more attractive to a VA buyer in the future after rates rise?

[bearishgurl]

IMO, there really is no fundamental reason why the residential RE in “close in” (=<45 miles from SF) bay area cities will "crash" for any reason.

Firstly, there are MANY industries up there besides the tech industry which are large employers. Secondly (and most importantly) is that that the close-in bay area cities never had the HUGE amount of new construction in the last 15 years that SD County and Southern OC did. It was never built because much of the open space situated close in was set aside for just that .... permanent use for public recreational enjoyment. Thus, there are very few (a handful) of CFD’s close-in and a couple of these CFD’s (the largest ones) are primarily commercial (situated within the old Naval Weapons Surface Center in Vallejo).

Because there was very little newer residential tract construction built close in, the close-in SF bay area cities never had entire subdivisions of homeowners who “paid too much” during the “lending spree” of 2004 – 2007 (as did SD Co and So OC).

And any homeowner in the close-in bay area who still owns their property today (after ATM’ing it to death from 2004-2007) has likely more than recovered by now thru appreciation. As we all know, scarcity of housing alone in a particular locale creates stabilization and appreciation in home values.

If any part of the bay area falls in value due to a “tech crash,” it will be the areas in which tech worker bees bought into which are a long commute from SV (Parts of Dublin and Livermore, Tracy, Morgan Hill down to Gilroy and Patterson, Modesto and Turlock, etc). These cities could only marginally be considered “close-in” bay area cities (Dublin, Livermore & Morgan Hill) or not at all (Tracy, Patterson, Modesto, Turlock and Gilroy) but some tech workers with jobs in SV may have been stupid enough to buy into them, even given the arduous daily commute to work to/from these locations.

Dublin and Livermore residents still have Lawrence Livermore Labs, a Federal prison (Pleasanton) and a few other big employers out there (incl Big Oil) who pay well. So these cities may not be as hard hit if the tech bubble bursts.

Contra Costa and Marin Counties are essentially immune from any downturns in RE values (as is SF, mentioned above) for a variety of reasons unrelated to the tech industry … mostly to do with entrenched land-use and zoning laws which will never be repealed. As it should be.

Essentially, what causes falling RE values in CA coastal counties is the proliferation of CFDs which ended up creating 50-250% more housing available in a particular county. Resdiential RE will continue to trend stable to increasing in value in those cities and counties which didn’t permit the rampant creation of CFDs.

I haven’t even touched upon the proliferation of those (millions?) residing in the close-in bay area cities and SF who “retired in place” in their long-owned home and aren’t going anywhere. Just like in SD County, the vast majority of these people bought their current residences in the 60’s, 70’s and 80’s and either have a very small mortgage or none at all. Many “inherited” their homes. So, I don’t see any potential “distress” in this demographic of homeowners even if the tech industry falls through the floor. If members of this group decide they want to “retire” in their vacation homes in the wine country or Tahoe, they’ll just rent out their current homes in the city for income. This group doesn’t need to sell and they would be fools to sell due to their ultra-low tax assessments pursuant to Prop 13.

[spdrun]

You speak as if high prices (and normal people being priced out of close-in markets) are a good thing, when in reality, they’re just welfare for boomers.

[bearishgurl]

I would have loved to buy a cosmetic-fixer ranch home in Saratoga (SC Co) for my last “forever” home. Alas, those fixers are, for the most part, all gone now, and, in any case, I have been forever priced out. It’s a jewel of a town where the “mid-century ranch” is well-represented.

If I lived anywhere near Saratoga, I would immediately join the Mountain Winery:

http://www.mountainwinery.com/concerts

…where hundreds of my “brethren” boomers can be found milling about on any summer or fall weekend 🙂

I absolutely love it up on the peninsula (western portion) … it takes my breath away!

[bearishgurl]

[quote=spdrun]You speak as if high prices (and normal people being priced out of close-in markets) are a good thing, when in reality, they’re just welfare for boomers.[/quote]

It’s not the prices, spdrun. It’s Props 13, 58 and 193 which are essentially “welfare” for boomers and beyond.

Sadly, I don’t have any of those benefits. I’m paying market-rate taxes on my home, as opposed to most of my neighbors. It really galls me.

The CA Legislature still won’t touch this body of law … even at this late date, what with the all the state budget shortfalls combined with CA’s unfunded mandates. Our state representatives are deathly afraid of losing the over-55 vote (the group with the highest percentage of voters within their overall numbers).

[spdrun]

It’s both. Property tax control is actually a good thing since it adds some predictability to the market.

[The-Shoveler]

[quote=spdrun]bearishgurl — Because many buyers wouldn’t be able to afford the payments at 7-8%. They can make the 7% loans, but the principal amount will be lower.

Better to keep the loan on their books, paying something, than have to resort to the bureaucracy of a short sale or foreclosure.[/quote]

So we are on average going to be making the same (pay) amount 10-15 years. good lord people there will be wage inflation.

[spdrun]

Unclear. We may end up like Japan in the 1990s, or Spain in the 2000s. 30% youth unemployment. The milennials just mean more/younger unemployed people.

On a more serious note, the recent historical trend doesn’t make per capita income doubling in 10-15 years too likely. It came close in 1980-1990, but that period was actually still marked by a downturn in housing. (Look at nominal pricing for some condos that sold in the early 80s, and again in the late 80s to early 90s.)

Anyone who thinks a market as volatile as California’s will go uniformly up-up-up is deluding themselves. Median price in San Diego has fluctuated between $350k and $650k since the crash. Guideline for affordability is 3x income. Median income isn’t even close to what’s required right now.

[bearishgurl]

[quote=The-Shoveler][quote=spdrun]bearishgurl — Because many buyers wouldn’t be able to afford the payments at 7-8%. They can make the 7% loans, but the principal amount will be lower.

Better to keep the loan on their books, paying something, than have to resort to the bureaucracy of a short sale or foreclosure.[/quote]

So we are on average going to be making the same (pay) amount 10-15 years. good lord people there will be wage inflation.[/quote]

Maybe, Shoveler. But if the mtg rates go up significantly, the biggest impact for buyers taking out mortgages is that they won’t be able to buy newer econoboxes and mcmansions in close-in areas for their first and second homes … as they are doing today and have been for a decade.

The FTB and STB will have to “settle” for older, smaller homes situated between (gasp!) a hairdresser-heir and an HVAC specialist in SD County’s more established areas . . . OR high-tail it out to the IE (Temecula, Murrieta and points beyond) and drive into SD County everyday.

This is what we boomers had to do when we were in the family-forming stage …. except there was NOTHING in the (southern) IE back then (except for ONE gas/fast food pit stop on the Rancho CA Rd exit of I-15, lol). We as young parents were stuck with what was present in SD County at the time, which didn’t have the square footage (inside the house) as today’s newer construction does. We had to buy it, move in and worry about how to update it later …. room by room.

A more likely scenario if mtg rates go up significantly in the coming years is that SD Gen Y/millenial would-be buyers will have to drastically lower their housing expectations….or take a job in KS City or OKC instead.

1st and 2nd time buyers in CA coastal counties have traditionally always bought their first home in the lower price rungs and that is as it should be. They’re only able to buy in the higher price rungs today because of the artificially low mortgage rates.

[an]

[quote=bearishgurl]IMO, there really is no fundamental reason why the residential RE in “close in” (=<45 miles from SF) bay area cities will "crash" for any reason.

Firstly, there are MANY industries up there besides the tech industry which are large employers.[/quote]It's not about the amount of industries and jobs but how well does the workers get paid. When you're talking about $1.6M for a crappy 1700 sq-ft tract house in an area with bad schools. I think it starts to get ridiculous. But my crystal ball is broken, so I can't say when it will crash. My gut feeling is that it will. Never say never.

[spdrun]

^^^

That’s actually higher than pricing in much of NYC (outside of “lower” Manhattan below 100th St and certain very specific parts of Brooklyn), and the Bay Area doesn’t have the excuse of density to support that.

[Author]

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