Comment to SDR on the short sale monitor

[PerryChase]

I'm not sure why buying is necessary to provide your kids with a "nice environment". In this market, you can afford to rent a much nicer home than you can afford to buy.

John, you make a very good point.  Say a solidly middle class family could stretch to buy in Mira Mesa, or Clairemont.  They could easily rent in Carmel Valley, La Costa or Rancho Bernardo to provide better schools for their children — if good schools are the consideration.  

[PerryChase]

Josh, I would agree that the lenders are beginning to tighten credit. It’s a slow process and the easy financing market hasn’t seized up yet.

As the related postings on the woes of HSBC and NEW show, buyers aren’t very aware of the loans they take on so long as they can “afford” the houses. If a buyer today want to “afford” a house, the broker still has an array of lenders with initial teaser rates or incentives to shop his loan to.

All the loans are the same, but it’s all about marketing with the right “teaser rates” to get buyers to sign up.

I would say that Real Estate industry is all about finding ways to “reel” buyers in. So far, there are still buyers willing to be “reeled in.”

———-
Jordan Ash, the director of community activist group ACORN’s Financial Justice Center in Minneapolis, blames the mortgage industry for aggressively marketing expensive loans that only the savviest consumers can understand to people with little money and flawed credit. “In the mortgage world, it’s not a competition of who can give you the best rate — they’re all offering basically the same loans,” Ash says. “It’s who gets to you first and reels you in first. It’s who has the best sales pitch.”

http://articles.moneycentral.msn.com/Banking/HomeFinancing/OuchYourHousePaymentJustDoubled.aspx

[barnaby33]

Perry Upon that we agree. Though its getting harder and harder much more quickly than last year. There are far fewer people to reel in, and the costs to do so are spiraling. Hence so many sub prime mortgage shops are going out of business.

What often seems to get lost in our debates is why historical norms are so important. I expect a reversion to the mean of prices, and flight to credit quality not because thats the way things were in the past, but because ultimately people don’t change. Lenders want to be paid even MBS lenders (and thats what they are.) Alot of the money that has been loaned out won’t be repaid, can’t be repaid under the terms it was loaned. Those lenders who are on the hook most likely will go under or be bailed out by our govt. Those that don’t will be forced, by their desire to be paid back, to tighten standards. Maybe we don’t go back to 30 year fixed mortgages altogether, but somehow it will all even out, even in the near term.

SDR here is where hope comes in. I hope you are wrong about pendings and closings. At this point if you are buying a house you are placing yourself in a very precarious spot. Our economy is contracting, especially in jobs that pay enough to support home ownership. Unless a person is wealthly enough to not care, getting anywhere near a solidly depreciating asset with leverage is a recipe for disaster. I was here last time, I saw it first hand. This time is going to be worse, much worse.

Josh

[DaCounselor]

As to both SDR’s posts, the numbers are what they are. You can put whatever spin you want on them, but it won’t change the numbers.

Regarding the tightening of lending standards, a fella in my neighborhood reports that he was just approved for a refi of his 1st mtg., subordinating a HELOC, with a total LTV of 98%. Fixed at 6.6%, 30 yr with 10 yr IO. No docs. As in zero, as in stated income. And this is through the back-alley outfit of….Wells Fargo. Standards may be tightening – may be – but they sure ain’t tight.

As for lenders going belly-up in an epidemic of defaults – what are the chances of this really happening? How many rescue possibilities are out there, from the govt. or from the lenders themselves? Does anyone really believe that the lenders want these homes on their books? And who are these lenders, anyway? Aren’t most loans just packaged and sold as investments, and the entity you are writing your check to only services the loan (and takes a slice of the pie each month before passing along the balance to the investors). Don’t the servicing co’s want to keep the cash flowing through? Do you think the investors want to own your home? Or do they just want to get paid? I suppose the bottom line question is why won’t there be some kind of bailout (if necessary)?

The folks who posted they just bought provide real-world examples of folks who are not using creative/exotic financing to purchase property. There are alot of those folks here in SD. There is another thread regarding Carlsbad sales that seems to indicate alot of folks who did not need/use exotic financing to make their purchases. What does this mean? Alot of folks have alot of existing equity and can easily trade up? Alot of folks making alot of money in SD? (I do think SD is underrated in terms of income – there is alot of money being made in this town)

Don’t get me wrong – I think we will see prices pull back a bit more before this correction is done – but I do not subscribe to the “sky is falling” mentality that some extremists embody.

[PerryChase]

Wells Fargo has both prime and subprime units. They place the loans accordingly.

To me, if $1 million property buyers don’t have at least 15% downpayments, it means that they can’t afford those homes. A 10% correction will hurt a whole lot of owners.

If upper middle class buyers are doing no-docs loans, there’s something amiss. If they are so “upstanding” why don’t they do full doc loans to save on interest? Actually, why wouldn’t anyone want to do full-doc to get the best possible deal?

Only time will tell.

It’s not extremist to say that rent vs. buy should be in equilibrium. That’s rational to me.

In my view, it’s extremist to say that the market will reach bottom in 2007.

[bigtrouble]

Why are you expecting any type of bail-out? Talk about magical thinking: Its okay to take risks, because the gvt will bail us out. Good luck on that.

Sub-prime mortgage companies are going out of business RIGHT now.

As to all the companies who sell off MBS products? Who buys those? Institutional investors= your pension fund.

So what, your house is worth much less. So what, your pension is worthless. So what your company downsizes and your out of a job. How ’bout them chargers?

Read the COLLATERAL DAMAGE thread here.

Now one can tell the future. But I think, if you’re not scared, you are not paying attention.

[bigtrouble]

delete

[SD Realtor]

Counselor I agree with your points.

I do see alot of buyers out there who are buying with a wary eye and a sound strategy. I also do not believe there will be a catastrophe with regards to defaults. I have posted before that I believe there will be some form of bailout if that is even needed. I think the lending industry will cope by coming up with refinance mechanisms that will be in line with the “more stringent guidelines” and that will enable distressed buyers to postpone the inevitable. Again, the lending industry doesn’t need to stop foreclosures altogether, they really just need to smooth them out over a longer period of time to avoid crashing the market. Personally I think they will be able to do this. Finally I have not heard any commentary about who will supposedly enforce these guidelines. Until they are law I don’t see any change at all.

Perry/Josh – I think that the quality of life is or can be just as good renting as if you own the home HOWEVER you are more subject to the luck of the draw. My first landlord said no way would he sell…he changed his mind. Bad luck I guess. Owning lots of pets doesn’t help, it certainly dimishes the rental stock you get to choose from. So it is pretty much to each his own. For me, it has gotten old, for many or most others on the forum it is great and no problems at all…

[little lady]

"SDR here is where hope comes in. I hope you are wrong about pendings and closings."

Did you read Rich's latest post? Even he is saying the same thing.

[PerryChase]

I don’t believe that there’ll be a catastrophe either. As I said before the general economy will be OK.

If there major shocks to the economy, we’ll have bailouts because our “way of life” depends on a growing economy. Most importantly, homeowners tend to vote.

Economically, I believe that bailouts/government intervention do work in smoothing out the bumps. For example, Argentina and Malaysia intervened in their crisis and were able to engineer good recoveries. Thailand and Russia, on the other followed IMF prescriptions causing more hardship for their populations. In the long term however, it’s better to let the markets self-correct. If you’re going to intervene, the key is knowing when to remove the government support.

Personally, I would hate to see a bailout because that amounts to welfare for the middle class and the rich. And I think that some tough economic love is sorely needed.

Real estate, however will be in the slumps for a long time and won’t return to the peak for another 15 years.

[barnaby33]

You want to talk about tired of renting? Send me your email and I’ll send you pics of my one bedroom shack in Northpark. Of course I would rather own. I am however not limited by pets, wives, children or any other encumberance.

Govt bailouts are a way of life in America, just not for individuals.

As to luck of the draw, I have had mostly good luck, but then again, I have low expectations for renting, which is why I live in Northpark to begin with.

do see alot of buyers out there who are buying with a wary eye and a sound strategy. How so? If rent to own equations are still so out of whack, with affordability at all time lows, what strategy could these people be using? I realize that some on this board use emotional metrics instead of the financial ones I prefer, but the problem with those is that they are not objective. You can’t really discuss what pride of ownership is worth, at least not at an individual level. If you are going to talk strategy, then be objective about it. If there are people buying on a strategy, what is it?

Josh

[sdrealtor]

The strategy is to enjoy one’s life whatever that means to them.

[bob2007]

Well said.

[recordsclerk]

That is true, but when you landlord sells the home on you, and you have to relocate, your children will have to make new friends and go to a new school. They will never feel at home.
There are other good reasons to buying a house. Now may not be the right time to do that, considering the market may tank at any time. I too am waiting for the big crash. Since I can’t afford the home that I want, it’s easy to be patient.

[recordsclerk]

That is true, but when you landlord sells the home on you, and you have to relocate, your children will have to make new friends and go to a new school. They will never feel at home.
There are other good reasons to buying a house. Now may not be the right time to do that, considering the market may tank at any time. I too am waiting for the big crash. Since I can’t afford the home that I want, it’s easy to be patient.

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