FHA warning~

[bearishgurl]

[quote=CA renter][quote=bearishgurl]In order for the current FHA debt ceiling to make sense, the ~$80K home in 1984-1985 should cost over nine times ($697,500/77,000) of a similar one today ($720,000)!

As we can see from the above listings, they do not (and likely never will).

So the $64M question is, what is the FHA doing guaranteeing mortgages in markets which are NOT the prospective homebuyers they were put in place to serve?[/quote]

BG,

The FHA (and GSE’s) increased loan limits and lowered standards precisely when the private mortgage market began to have problems. These loan limits and other changes were designed to bolster the housing market in order to stem the losses in the financial industry. It had nothing to do with trying to help the poor, hapless new homebuyers; it was all about protecting the existing mortgage(and related derivatives) holders.

And livin’ is totally correct about prices being set by new buyers — the buyers who are willing to leverage the most and pay the highest price. The fact that local residents have low/no mortgage balances does NOT affect pricing…[/quote]

Yikes! I’m now looking at my own sentence structure and it doesn’t make sense! I MEANT TO SAY “In order for the current FHA debt ceiling to make sense, the ~$80K home in 1984-1985 would have to cost $720,000 today (over nine times that of a similar home in 1984-1985 or $697,500/77,000)! And … “what is the FHA doing guaranteeing mortgages in markets which are NOT typically bought into by the prospective homebuyers they were put in place to serve?”

But you get the drift.

[quote=CA renter]Even if no homes in a particular area are sold, the price is not whatever the current owners “want” it to be. If there are no nearby comps, other comparable areas/homes will set the prices for that area. Housing IS a highly-leveraged purchase in almost all cases. Interest rates, general credit expansion/contraction, etc. play a MAJOR role in the prices of leveraged assets.[/quote]

CA renter, I don’t agree with your (italicized) statements. In CA, the most desirable properties are most likely to lie in the “best hands.” (This is largely due to Prop 13.) If these “best hands” owners don’t get their price upon listing, they are free to remove their listing(s) from the market. The vast majority of these owners are NOT in the “must sell” category. The ability of a local buyer in their area to secure mortgage financing does not have anything to do with the price these owners can ultimately fetch. If prevailing fixed MIRs were at or over 11%, there MIGHT be less buyers available to make an acceptable offer to them but there could EASILY be a buyer out there with enough cash or a decent enough credit rating and assets to entice these sellers to carry part of the purchase price.

For every highly-leveraged micro-market and/or subdivision in SD County, there are MORE (very established) residential areas which have a low overall pattern and incidence of current encumbrance. WHY? Because CA’s most desirable coastal and urban areas were built up long ago and a large percentage of their pre-April 1978 owners or their heirs (whether first, second or subsequent owners of the property) are still the owners of record today. This is true of ALL CA counties, coastal and otherwise, although, except for agricultural acreage, the highest desirability and thus value generally lies in the properties in areas which lie within five miles of the coast, with the overall value fanning out from there, highest to lowest.

In CA coastal counties, highly-leveraged tracts and custom homes/heavily remodeled tracts within five miles of the coast are two completely different animals, and thus, attract completely different subsets of buyers. The former is heavily dependent upon prevailing interest rates and the latter is not.

[SK in CV]

[quote=bearishgurl]
For every highly-leveraged micro-market and/or subdivision in SD County, there are MORE (very established) residential areas which have a low overall pattern and incidence of current encumbrance. WHY? Because CA’s most desirable coastal and urban areas were built up long ago and a large percentage of their pre-April 1978 owners or their heirs (whether first, second or subsequent owners of the property) are still the owners of record today. This is true of ALL CA counties, coastal and otherwise, although, except for agricultural acreage, the highest desirability and thus value generally lies in the properties in areas which lie within five miles of the coast, with the overall value fanning out from there, highest to lowest.

[/quote]

The bolded part….kind depends on what you mean by a “large percentage”. Is 10 percent large? 20 percent? I can’t find any recent numbers, but 17 years ago, around 1/3 of LA homeowners still had property tax valuations dating back to 1978, and that percentage had been declining by about 2% a year. I doubt it’s 15% of homes that have valuations that originated in the 70’s. You’ve made this assertion a handful of times BG. I think it’s based on nothing more than anecdotal evidence, and isn’t close to accurate.

[CA renter]

[quote=bearishgurl]
CA renter, I don’t agree with your (italicized) statements. In CA, the most desirable properties are most likely to lie in the “best hands.” (This is largely due to Prop 13.) If these “best hands” owners don’t get their price upon listing, they are free to remove their listing(s) from the market. The vast majority of these owners are NOT in the “must sell” category. The ability of a local buyer in their area to secure mortgage financing does not have anything to do with the price these owners can ultimately fetch. If prevailing fixed MIRs were at or over 11%, there MIGHT be less buyers available to make an acceptable offer to them but there could EASILY be a buyer out there with enough cash or a decent enough credit rating and assets to entice these sellers to carry part of the purchase price.

For every highly-leveraged micro-market and/or subdivision in SD County, there are MORE (very established) residential areas which have a low overall pattern and incidence of current encumbrance. WHY? Because CA’s most desirable coastal and urban areas were built up long ago and a large percentage of their pre-April 1978 owners or their heirs (whether first, second or subsequent owners of the property) are still the owners of record today. This is true of ALL CA counties, coastal and otherwise, although, except for agricultural acreage, the highest desirability and thus value generally lies in the properties in areas which lie within five miles of the coast, with the overall value fanning out from there, highest to lowest.

In CA coastal counties, highly-leveraged tracts and custom homes/heavily remodeled tracts within five miles of the coast are two completely different animals, and thus, attract completely different subsets of buyers. The former is heavily dependent upon prevailing interest rates and the latter is not.[/quote]

BG,

Based on that logic, every owner of an asset that doesn’t sell should pretend that their asset is worth whatever they want. I think you underestimate the logic/intelligence of people with a lot of money…they do NOT want to overpay for an asset just because a seller wants to pretend that their asset is worth more than comparable assets in other areas.

Not only that, but you tend to overestimate the desire of heirs to hang onto their parents/grandparents run-down homes. Most of the heirs I know (including myself) want or need to sell off these assets in order to settle the estate and/or because they don’t want to deal with all of the headaches of maintaining these older homes and renting them out. Oftentimes, these heirs have settled in other areas and have no desire to uproot their families and move back to grandma’s house.

I’ve known a lot of people in the situation you’ve noted — long-time owners whose homes are owned outright. In the vast majority of cases I’ve seen, the adult children did not move into these homes after their parents passed away. Of course, there are some exceptions, like my MIL who lives in the same home her parents lived in, but that is most definitely a rarity.

There are always people who either want or need to move for a variety of reasons. The fact that the house is paid off means that they have more flexibility on price (can easily sell for less), not less.

[Author]

Posts