Housing won’t hit bottom ’til 2012

[jpinpb]

I share much of CAR’s sentiments. It has been very frustrating to see people buy homes they could not afford to now live for free. It is disturbing to watch taxpayers bail out banks, more troubling that many people are okay w/taxpayers paying as long as price of homes stay high. Those prices were unsustainable. PERIOD! Unless people have the income to support it, it was all “Fake, fake, fake, fake.”

I also resent the artificially constrained inventory while simulatenously stimulating sales w/tax credits, and low interest government loans. It is rigged and I don’t know how a real recovery can come from it. They succeeded in borrowing buyers from the future. The banks still have a lot of inventory to contend with. Maybe they’ll continue to trickle it in. People seem to like that. But IMO if they just trickle it in, it could be 10 years before all this gets resolved. In the meanwhile, that means those waiting for prices to go up again, may not be able to hold on. I think we’re starting to see that in the high end and I think there’s more to come.

To add to what CAR said about heirs selling. Some of these heirs have their McMansion in great school districts who are now upside-down and struggling. I’m sure they would rather sell their parents’ home and split the proceeds among the siblings so they can continue their lifestyle. They may start out trying to sell high, but eventually, their own needs may force them to reduce.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[Anonymous]

[quote=CA renter][quote=deadzone][quote=sdrealtor]Not coppin out. Just struggling with disclosing a private information to someone I dont know. If I had met deadzone at a meetup or one of the longtime piggs could vouch for him, I’ll be all over it. I’m mulling it over and perhaps we could do it offline once the transaction closes.[/quote]

Regardless I don’ think there is any point to betting on a single property anyway. Cherry picking one particular property doesn’t change the fact that generally speaking prices are much more likely to go down in the next two years than up.

How about this for a bet: I say December 2012 Case Shiller for San Diego will be at least 10% lower than December 2010. Dinner at Donovans.[/quote]

deadzone,

You’ll have to join our table at Donovans.

Sdr and I have had this bet going for a couple of years now, IIRC. I bet him that we’d see 30-40% drops in our neighborhood/area by December 2012 (have it written down somewhere, but forgot the exact details at the moment). Sdr can buy us both dinner at the same time. You and I can gloat all night. 🙂

Of course, if he wins, we’ll have to let him gloat, too. 😉

BTW, I’ll be happy to confirm the property info and will report back if sdr’s buyer got 1999/2000 pricing. I don’t doubt it, to be honest; there have been a few deals to be had here and there. Also, I honestly don’t think his buyer will see losses IF he/she really got a 1999/2000 price on their purchase, and if it’s a custom home on a nice lot in a desirable area. I’m a bear, but can still acknowledge that some properties won’t drop much below 2000/20001 levels unless something **really bad** happens.[/quote]

CAR, my bet that Case Shiller drops 10% is still on the table but I don’t think anybody here is willing to take that. I’m not going to bet on a single property becuase who knows what type of extenuating circumstances are involved. If it is being sold at 2000/2001 prices I would have to think something shady is going on.

My original point remains the same, a point that the RE hacks can’t get their brains around. If the general baseline pricing across the board is going down, then common sense dictates that there will be better deals all around.

[Anonymous]

[quote=CA renter][quote=deadzone][quote=sdrealtor]Not coppin out. Just struggling with disclosing a private information to someone I dont know. If I had met deadzone at a meetup or one of the longtime piggs could vouch for him, I’ll be all over it. I’m mulling it over and perhaps we could do it offline once the transaction closes.[/quote]

Regardless I don’ think there is any point to betting on a single property anyway. Cherry picking one particular property doesn’t change the fact that generally speaking prices are much more likely to go down in the next two years than up.

How about this for a bet: I say December 2012 Case Shiller for San Diego will be at least 10% lower than December 2010. Dinner at Donovans.[/quote]

deadzone,

You’ll have to join our table at Donovans.

Sdr and I have had this bet going for a couple of years now, IIRC. I bet him that we’d see 30-40% drops in our neighborhood/area by December 2012 (have it written down somewhere, but forgot the exact details at the moment). Sdr can buy us both dinner at the same time. You and I can gloat all night. 🙂

Of course, if he wins, we’ll have to let him gloat, too. 😉

BTW, I’ll be happy to confirm the property info and will report back if sdr’s buyer got 1999/2000 pricing. I don’t doubt it, to be honest; there have been a few deals to be had here and there. Also, I honestly don’t think his buyer will see losses IF he/she really got a 1999/2000 price on their purchase, and if it’s a custom home on a nice lot in a desirable area. I’m a bear, but can still acknowledge that some properties won’t drop much below 2000/20001 levels unless something **really bad** happens.[/quote]

CAR, my bet that Case Shiller drops 10% is still on the table but I don’t think anybody here is willing to take that. I’m not going to bet on a single property becuase who knows what type of extenuating circumstances are involved. If it is being sold at 2000/2001 prices I would have to think something shady is going on.

My original point remains the same, a point that the RE hacks can’t get their brains around. If the general baseline pricing across the board is going down, then common sense dictates that there will be better deals all around.

[Anonymous]

[quote=CA renter][quote=deadzone][quote=sdrealtor]Not coppin out. Just struggling with disclosing a private information to someone I dont know. If I had met deadzone at a meetup or one of the longtime piggs could vouch for him, I’ll be all over it. I’m mulling it over and perhaps we could do it offline once the transaction closes.[/quote]

Regardless I don’ think there is any point to betting on a single property anyway. Cherry picking one particular property doesn’t change the fact that generally speaking prices are much more likely to go down in the next two years than up.

How about this for a bet: I say December 2012 Case Shiller for San Diego will be at least 10% lower than December 2010. Dinner at Donovans.[/quote]

deadzone,

You’ll have to join our table at Donovans.

Sdr and I have had this bet going for a couple of years now, IIRC. I bet him that we’d see 30-40% drops in our neighborhood/area by December 2012 (have it written down somewhere, but forgot the exact details at the moment). Sdr can buy us both dinner at the same time. You and I can gloat all night. 🙂

Of course, if he wins, we’ll have to let him gloat, too. 😉

BTW, I’ll be happy to confirm the property info and will report back if sdr’s buyer got 1999/2000 pricing. I don’t doubt it, to be honest; there have been a few deals to be had here and there. Also, I honestly don’t think his buyer will see losses IF he/she really got a 1999/2000 price on their purchase, and if it’s a custom home on a nice lot in a desirable area. I’m a bear, but can still acknowledge that some properties won’t drop much below 2000/20001 levels unless something **really bad** happens.[/quote]

CAR, my bet that Case Shiller drops 10% is still on the table but I don’t think anybody here is willing to take that. I’m not going to bet on a single property becuase who knows what type of extenuating circumstances are involved. If it is being sold at 2000/2001 prices I would have to think something shady is going on.

My original point remains the same, a point that the RE hacks can’t get their brains around. If the general baseline pricing across the board is going down, then common sense dictates that there will be better deals all around.

[Anonymous]

[quote=CA renter][quote=deadzone][quote=sdrealtor]Not coppin out. Just struggling with disclosing a private information to someone I dont know. If I had met deadzone at a meetup or one of the longtime piggs could vouch for him, I’ll be all over it. I’m mulling it over and perhaps we could do it offline once the transaction closes.[/quote]

Regardless I don’ think there is any point to betting on a single property anyway. Cherry picking one particular property doesn’t change the fact that generally speaking prices are much more likely to go down in the next two years than up.

How about this for a bet: I say December 2012 Case Shiller for San Diego will be at least 10% lower than December 2010. Dinner at Donovans.[/quote]

deadzone,

You’ll have to join our table at Donovans.

Sdr and I have had this bet going for a couple of years now, IIRC. I bet him that we’d see 30-40% drops in our neighborhood/area by December 2012 (have it written down somewhere, but forgot the exact details at the moment). Sdr can buy us both dinner at the same time. You and I can gloat all night. 🙂

Of course, if he wins, we’ll have to let him gloat, too. 😉

BTW, I’ll be happy to confirm the property info and will report back if sdr’s buyer got 1999/2000 pricing. I don’t doubt it, to be honest; there have been a few deals to be had here and there. Also, I honestly don’t think his buyer will see losses IF he/she really got a 1999/2000 price on their purchase, and if it’s a custom home on a nice lot in a desirable area. I’m a bear, but can still acknowledge that some properties won’t drop much below 2000/20001 levels unless something **really bad** happens.[/quote]

CAR, my bet that Case Shiller drops 10% is still on the table but I don’t think anybody here is willing to take that. I’m not going to bet on a single property becuase who knows what type of extenuating circumstances are involved. If it is being sold at 2000/2001 prices I would have to think something shady is going on.

My original point remains the same, a point that the RE hacks can’t get their brains around. If the general baseline pricing across the board is going down, then common sense dictates that there will be better deals all around.

[Anonymous]

[quote=CA renter][quote=deadzone][quote=sdrealtor]Not coppin out. Just struggling with disclosing a private information to someone I dont know. If I had met deadzone at a meetup or one of the longtime piggs could vouch for him, I’ll be all over it. I’m mulling it over and perhaps we could do it offline once the transaction closes.[/quote]

Regardless I don’ think there is any point to betting on a single property anyway. Cherry picking one particular property doesn’t change the fact that generally speaking prices are much more likely to go down in the next two years than up.

How about this for a bet: I say December 2012 Case Shiller for San Diego will be at least 10% lower than December 2010. Dinner at Donovans.[/quote]

deadzone,

You’ll have to join our table at Donovans.

Sdr and I have had this bet going for a couple of years now, IIRC. I bet him that we’d see 30-40% drops in our neighborhood/area by December 2012 (have it written down somewhere, but forgot the exact details at the moment). Sdr can buy us both dinner at the same time. You and I can gloat all night. 🙂

Of course, if he wins, we’ll have to let him gloat, too. 😉

BTW, I’ll be happy to confirm the property info and will report back if sdr’s buyer got 1999/2000 pricing. I don’t doubt it, to be honest; there have been a few deals to be had here and there. Also, I honestly don’t think his buyer will see losses IF he/she really got a 1999/2000 price on their purchase, and if it’s a custom home on a nice lot in a desirable area. I’m a bear, but can still acknowledge that some properties won’t drop much below 2000/20001 levels unless something **really bad** happens.[/quote]

CAR, my bet that Case Shiller drops 10% is still on the table but I don’t think anybody here is willing to take that. I’m not going to bet on a single property becuase who knows what type of extenuating circumstances are involved. If it is being sold at 2000/2001 prices I would have to think something shady is going on.

My original point remains the same, a point that the RE hacks can’t get their brains around. If the general baseline pricing across the board is going down, then common sense dictates that there will be better deals all around.

[Anonymous]

FSD, in your case things might have worked out okay (up to now) but that is only because LIBOR is at a historic low. This just demonstrates how fragile the housing market is.

It also proves that the real reason behind the FED QE has been to minimize the foreclosure crisis due to the ARM loans resetting in 2010-2012 (as identified in the reset chart).

But we can debate all day long about the severity of the reset chart but one thing is certain, these resets are not going to help the housing recovery. Furthermore, if interest rates creep up in the next two years (at this point they are so low the only way they could move is up)it is going to exacerbate the problems and induce more foreclosures out of those resets.

So again, best case scenario (fed is successful in keeping rates at historic lows for the next two years, economy recovers, jobs recover, etc) RE prices will remain flat to slightly up. But worst case scenario things could get very, very ugly. Again, the prudent thing to do is wait until all of the ARMs resets are flushed out of the system because the potential down side is much greater than the upside.

[Anonymous]

FSD, in your case things might have worked out okay (up to now) but that is only because LIBOR is at a historic low. This just demonstrates how fragile the housing market is.

It also proves that the real reason behind the FED QE has been to minimize the foreclosure crisis due to the ARM loans resetting in 2010-2012 (as identified in the reset chart).

But we can debate all day long about the severity of the reset chart but one thing is certain, these resets are not going to help the housing recovery. Furthermore, if interest rates creep up in the next two years (at this point they are so low the only way they could move is up)it is going to exacerbate the problems and induce more foreclosures out of those resets.

So again, best case scenario (fed is successful in keeping rates at historic lows for the next two years, economy recovers, jobs recover, etc) RE prices will remain flat to slightly up. But worst case scenario things could get very, very ugly. Again, the prudent thing to do is wait until all of the ARMs resets are flushed out of the system because the potential down side is much greater than the upside.

[Anonymous]

FSD, in your case things might have worked out okay (up to now) but that is only because LIBOR is at a historic low. This just demonstrates how fragile the housing market is.

It also proves that the real reason behind the FED QE has been to minimize the foreclosure crisis due to the ARM loans resetting in 2010-2012 (as identified in the reset chart).

But we can debate all day long about the severity of the reset chart but one thing is certain, these resets are not going to help the housing recovery. Furthermore, if interest rates creep up in the next two years (at this point they are so low the only way they could move is up)it is going to exacerbate the problems and induce more foreclosures out of those resets.

So again, best case scenario (fed is successful in keeping rates at historic lows for the next two years, economy recovers, jobs recover, etc) RE prices will remain flat to slightly up. But worst case scenario things could get very, very ugly. Again, the prudent thing to do is wait until all of the ARMs resets are flushed out of the system because the potential down side is much greater than the upside.

[Anonymous]

FSD, in your case things might have worked out okay (up to now) but that is only because LIBOR is at a historic low. This just demonstrates how fragile the housing market is.

It also proves that the real reason behind the FED QE has been to minimize the foreclosure crisis due to the ARM loans resetting in 2010-2012 (as identified in the reset chart).

But we can debate all day long about the severity of the reset chart but one thing is certain, these resets are not going to help the housing recovery. Furthermore, if interest rates creep up in the next two years (at this point they are so low the only way they could move is up)it is going to exacerbate the problems and induce more foreclosures out of those resets.

So again, best case scenario (fed is successful in keeping rates at historic lows for the next two years, economy recovers, jobs recover, etc) RE prices will remain flat to slightly up. But worst case scenario things could get very, very ugly. Again, the prudent thing to do is wait until all of the ARMs resets are flushed out of the system because the potential down side is much greater than the upside.

[Author]

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