I am an amateur housing analyst, like many of you, watching the data and applying it “logically” to the San Diego housing market for the past year. I would say I am data driven and research based in my rational.
Scary at the TOP.
Like many rollercoaster’s it is scary at the top and by top I refer to the peak of the market.
Case in point:
Friend #1
Bought a condo in Mission Valley (New) last year for about 400K. The current market in her development has the price at 550K. Not bad for a year’s investment, many might say “NICE JOB”.
Problem – In her “700 home” development (both condos and single family homes) there were 76 + homes for sale last weekend (yes that’s 10%). She has an interest only 3yr ARM and does not foresee the market closing in on her purchase price.
Friend #2
Just bought a condo in the Southbay for 450K in November. Again they purchased with an I/O 80% and 20% fixed.
Problem – They just purchased. Ouch.
My friends are great people but let’s just say they are easily influenced by the media and their home owning peers. I am the first to say that if you bought 4 years ago I/O and sold 2 years later…Nice Work! But for my easily influences friends the forecast isn’t so rosie.
If the market drops just 10% below purchase price they are screwed. Both plan on refinancing before their I/O ARMs adjust. The problem is who will finance them on a home that has no equity and is 10% below payoff. I think no one, unless mortgage brokers get even more creative and offer 70/10/10 loans I/O and pull the wool over everyone’s eyes especially my friends.
My concern is this. My friends are 2 of thousands in San Diego who will need to sell but can’t. Need to refinance but can’t. Need to pay the mortgage but can’t.
With all these homes that will go into default in the coming years (as I forecast) who will bail out the Freddie Mac’s of the country? With so many I/O loans in San Diego and a market downturn in our midst, there will be thousands of homes in foreclosure. Sure they will be sold at auction but still the Freddie Mac’s will have bought loans for 500K and will have sold them for 250K.
Will the government allow this to happen? If not, what can they do? If they do nothing the economy could take a nose dive that I dread to think about.
When I read the data with my own eyes and ignore the media, who gets their info from real estate press releases, I can see that the bubble is bursting, a slow burst yes but a burst still the same.
I believe we will see the line graphs of the past, with home prices increasing at 23%, replaced with forclosure graphs at the same increases. I just wonder when priceline.com will jump on board and start listing homes along with flights and hotels. Make your offer!
The quasi govt entities are difficult to read. They are publicly traded on the NYSE, so their shares are at risk – public exposure to any downturn.
They package and re-sell “some” of their loans (based on limits/regulation that may in the future further restrict their ultimate exposure) which are then re-packaged in MBS shuffling the securities around the globe and to other publicly traded financial institutions. More public exposure but much of it international? This may be a scary prospect as liquidity will be a concern as international interests elect to stay out or worse, pull out.
Somehow the USG may get involved to clear the deck as they did during the RTC debacle?
A lot of scrutiny right now in Fanny&Freddy. I intend to investigate to try and figure out this financial labyrinth, if it’s even possible…
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