Hardest hit, IMO, are outlying areas, condos, and builder tract subdivisions. Forget Temecula, Valley Center, San Marcos, El Cajon, Lakeside, and rural Poway where I sold my home (too remote).
Demand will stay high in coastal areas and near the cities. But who can buy these homes? So what if demand is high if the bank doesn’t want to give you a loan? What happens if the bank doesn’t have the liquidity to give the loans? Fannie Mae’s underwriting guidelines may seriously shift, and MBS investors might shun those products, instead preferring the high returns and safety of Treasury bills.
When credit dries up and buyers need 10% down, the demand for $1mil+ properties will shrivel up. How low will those houses go? The lot premium can really shrivel up; how about today’s $1.6 mil home for $800K? I can really see that happening, mainly due to the low wages here.
My musings are an extension of bugs’ comment above. We really don’t know how much lending will tighten up, but we need to remember that housing prices skyrocketed because subprime lenders, who are slowly going bankrupt, gave liar’s loans at 0% down to borrowers with FICO scores under 600.
PS, I couldn’t agree more with your analysis of the impact of drying up credit/liquidity/FNMA retreat on ability to buy and, ultimately, prices.
It may be overboard (but I think we may be in for it), but I’m reading up on the Great Depression, from books that I saw on Beartopia: Anatomy of Crash (very good), Just Yesterday (life in the 20s) (excellent), and, next, Since Yesterday (life in the 30s).
Right carlisle. I was making more of a comment on the fact that many homes were purchased by people with no money down. As the no-money-down loans decrease, the middle tier buyer can’t sell his house, since the $600K buyer was going on 0% down, so the guy can’t move up to the $1 mil + house. I should have been more clear.
I was making more of a comment on the fact that many homes were purchased by people with no money down. As the no-money-down loans decrease, the middle tier buyer can’t sell his house, since the $600K buyer was going on 0% down, so the guy can’t move up to the $1 mil + house.
OK, I’m with you now. 🙂
I wonder how and when the no-money-down loans will decrease or go away. Perhaps you’ll still be able to get that piggy-back HELOC for the 20%, just at some insane interest rate… i.e. the insurance premium of possible loss is built into the rate, in the same way as intended with sub-prime interest rates.
I predict piggybacks will fade away, and mortgage insurance will be required. Maybe piggybacks will be offered to the +750 FICO score borrower. But I’m guessing; I know little about the mortgage business.
I am anxious to see how the lending standards will be tightened as foreclosures rise, both on the government side, and by the investors who’ve been snapping up MBS. This H&R Block scandal was a wake-up call. By next year, we will have many many more.
