So goes Subprime, So goes Housing

[LA_Renter]

This is something most on this board predicted along time ago. I know it is being discussed in comments but this is gaining alot of momentum. Read this link

http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20070305%5cACQDJON200703051027DOWJONESDJONLINE000369.htm&

“THE RATINGS GAME: New Century Said To Be Facing Bankruptcy, Possible Liquidation

By Greg Morcroft

NEW YORK (Dow Jones) — Several analysts agreed Monday that New Century Financial Corp., one of the nation’s largest subprime mortgage lenders, likely faces liquidation or bankruptcy following revelations that it’s under criminal investigation and in violation of debt covenants with several lenders.

“New Century is more likely to enter the death spiral we had feared, as filing delays, financial difficulties, likely restricted liquidity and regulatory/ criminal investigations could conspire to limit its options outside of bankruptcy,” Merrill Lynch analysts wrote early Monday.

As troubles continue to roil the market for subprime mortgages, New Century ( NEW) disclosed late Friday that it’s technically in default with several lenders and that federal regulators have begun an investigation.

New Century’s shares fell 58% to $6.15 in morning trades Monday, after dropping in Friday’s session as well.

Subprime mortgages are offered to homebuyers who fail to meet the strictest lending standards. Lenders specializing in such loans, like New Century, rely in part on big banks to finance their operations. Known as warehouse lenders, these institutions require that subprime lenders meet certain minimum financial targets or they otherwise have the right to end the business relationship.

Analysts at Jefferies & Co. also said the company has moved into worst-case scenario territory with its Friday filing. They cut their rating on the shares to underperform from hold.

New Century said it had received waivers for being out of compliance with debt covenants from six of 11 lenders, but deals with others remain uncertain.

“New Century’s situation is not unlike the ‘Prisoners Dilemma.’ If the majority of lenders stand pat, they can mitigate losses. However, if they believe that other lenders will pull their lines, those first to act will be best served,” Jefferies analysts told clients.”

more in link

[JWM in SD]

This is what will kill housing prices in SoCal and specifically SD. NO CREDIT, NO SALE!! You can’t handle your reset, too bad, go into foreclosure because the easy money spigot has been shut off.

[mixxalot]

Yeehaw!! This is WHAT must happen to correct the inflated market.

When we have people going back to basics and saving up with 20 % downpayment then prices will come back to normal.

I cannot wait for the credit bubble to deflate so that I can afford a home with a normal fixed rate loan and at a decent price. To me, San Diego homes should cost no more than 300k in most areas and even ocean front property is not worth 2-5 million either.

[farbet]

What is happening to the REOS owned by these subprimers. Will we be able to buy them.Or will the sleazy realtors snap them up for themselves for flipping ??
The market is fixed.They are no deals in my opinion. You can dream

[farbet]

What is happening to the REOS owned by these subprimers. Will we be able to buy them.Or will the sleazy realtors snap them up for themselves for flipping ??
The market is fixed.They are no deals in my opinion. You can dream

[hipmatt]

Yeehaw!! This is WHAT must happen to correct the inflated market. When we have people going back to basics and saving up with 20 % downpayment then prices will come back to normal. I cannot wait for the credit bubble to deflate so that I can afford a home with a normal fixed rate loan and at a decent price. To me, San Diego homes should cost no more than 300k in most areas and even ocean front property is not worth 2-5 million either.

If every house sold required a 20% down in cash, homes would be about 60-70% off of their current prices.  This would be awesome!, however I don't think we are that smart, patient, or disciplined to behave so responsibly.  Personally though, I think we need to completely revamp home loan standards, but that of course would kill the economy, so who's gonna support it? 

[kev374]

nothing unusual is happening. It’s normal for excesses to self-correct and align to the true state of equilibrium in terms of home prices, mortgages, rents, incomes and affordability. This time around there are a lot of excesses and the correcting tidal wave is going to take many people right to financial ruin. These people were either greedy (speculators), dumb (first time buyers) or reckless (HELOC borrowers). When you are these things and start playing with fire it’s obvious that you will get seriously burned and we cannot feel any sympathy for these fools. They walked into their own graves due to their indifference, overindulgence and rose colored glasses! My $0.02.

[lendingbubblecontinues]

My name here for the last year plus has been “lendingbubblecontinues”. Finally, it looks to be coming back down to Earth.

I’ve often said that housing prices can “gap down” just like stocks, once their liquidity dries up. I truly believe that once it takes an actual down payment (even 3-5%) to buy a house in SoCal again, that the market will effectively seize up, and homeowners will wake up to find their homes are effectively “valued” at 30% less than they were before they went to sleep the night before.

Feel free to disagree, but remember that those who say it will never happen again (like sdrealtor this morning saying we will never see a 3/2 SFR for 250K in decent neighborhood in SD again) are speculating just like I am.

What I do know is that there are a lot of people thinking loans are going to be funded on houses that entered escrow in the last few days that are NOT going to make it.

The market is going straight down the tubes from here and there ain’t nothing David Lereah’s MOMMY can do about it!

[Anonymous]

I’ve grown tired of analyzing the miles and miles of stats that all point to a continued downhill drop in prices.

Here’s all that I need to know for now. 3 main points, just like college speech class:

1) 67% of loans made in the first 11 months of 2006 in San Diego were interest-only or negatively amortized.
2) Of that 67%, 30% were neg-amort. loans, a 3 x increase since January 2004 and 30 x jump since Jan ’03.
3) Median price in Jan 07′ was 5.6 % lower than Jan ’06!

We are such an optimistic society, preferring to believe that tomorrow will be better than today! The only real question is whether a market like housing can be continually manipulated over time to consistantly produce a positive output regardless of the fundamentals. I have to assume that the answer is no, and that there is no wizrad behind the curtain running this show.

[csr_sd]

“We are such an optimistic society, preferring to believe that tomorrow will be better than today!”

I am optimistic… tommorrow the market will be weaker than today!!!

Anybody have any info on the POS

5111 jamestown rd. MLS#: 076006968

It has been sold twice with a high last year of over 500K

and is now at 389K… probably not worth 200K

[PerryChase]

(like sdrealtor this morning saying we will never see a 3/2 SFR for 250K in decent neighborhood in SD again)

——–

I'm as much as bear as anyone but I agree with sdrealtor.  You could barely buy at that price even at the previous lows.    $350k to $400k is more like it.  Depending on where the economy goes, prices might stay low for years.  

But if we see 10% mortgage rates again combined with 20% down-payment requirements, then all bets are off.   

[4plexowner]

I’m expecting entry level housing in Clairemont to be around $275K at the bottom

[JWM in SD]

Don’t think it won’t go there Perry…this thing is a monster tsunami that is rapidly approaching the SD shore…do not underestimate the extent the credit default problem…

[PerryChase]

I agree with you 4plexowner.

Some would not consider Clairemont a nice area. I think that there are some nice streets and the location is as central as it gets.

It’s now called Clairemont and not Clairemont Mesa anymore.

[csr_sd]

The central location and the lack of HOA and MR are the major reasons to be interested in this area.

But the POS I mentioned brings clarity to the discussion. It is clear that people bought without looking, and this increased the comps in any area. The stickiness on the way down even for this POS reflects the real losses that a lot of people are likely to take in the upcoming crunch.

Given the fact that NODs are up again for january (see the other posts), I am wondering when to start to lowball offers in these less desirable neighborhoods (I actually like them more than the newer planned communities).

A 20% lowball now a 450K house is still 360K and it is hard to see that value lasting much past a year or so.

anyhow back to work

[Author]

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