What ARE the fundamentals?

[I would rather be lucky then smart]

Is the proper value of a house reached when the monthly rental income would be equal to the mortgage payment?

In that case, is the assumed down payment 20%?

What are the variations, if any, for someone who purchases a home in a high price per sqaure foot area like La Jolla vs. someone like me who bought a home in Escondido.

Also, how are the fundamentals different for a person who, for example, bought an oceanfront residence in Solana Beach 30 years ago for $1M dollars vs. someone who would buy that same property today?

Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather?

TIA.

[Arraya]

“Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather”

No, In incomes should support prices. That being said people with higher incomes tend to gravitate toward areas with better weather thus creating higher property value as well as rental prices.

A premium would suggest to me that the cost for a mortgage payment is much higher than rent.

Basically better weather should not drive people to pay a larger portion of their salary.

[patb]

figure a base of rent >1.1*PITI as a sign equilibrium is being crossed
and that if you can get a cap rate of 4% or more, then
you have a real chance to avoid being overpriced.

[I would rather be lucky then smart]

What about the down payment question?

You can always make the rent greater then the mortgage if you put enough down.

[I would rather be lucky then smart]

What about the down payment question?

You can always make the rent greater then the mortgage if you put enough down.

[I would rather be lucky then smart]

What about the down payment question?

You can always make the rent greater then the mortgage if you put enough down.

[I would rather be lucky then smart]

What about the down payment question?

You can always make the rent greater then the mortgage if you put enough down.

[I would rather be lucky then smart]

What about the down payment question?

You can always make the rent greater then the mortgage if you put enough down.

[patb]

figure a base of rent >1.1*PITI as a sign equilibrium is being crossed
and that if you can get a cap rate of 4% or more, then
you have a real chance to avoid being overpriced.

[patb]

figure a base of rent >1.1*PITI as a sign equilibrium is being crossed
and that if you can get a cap rate of 4% or more, then
you have a real chance to avoid being overpriced.

[patb]

figure a base of rent >1.1*PITI as a sign equilibrium is being crossed
and that if you can get a cap rate of 4% or more, then
you have a real chance to avoid being overpriced.

[patb]

figure a base of rent >1.1*PITI as a sign equilibrium is being crossed
and that if you can get a cap rate of 4% or more, then
you have a real chance to avoid being overpriced.

[Arraya]

“Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather”

No, In incomes should support prices. That being said people with higher incomes tend to gravitate toward areas with better weather thus creating higher property value as well as rental prices.

A premium would suggest to me that the cost for a mortgage payment is much higher than rent.

Basically better weather should not drive people to pay a larger portion of their salary.

[Arraya]

“Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather”

No, In incomes should support prices. That being said people with higher incomes tend to gravitate toward areas with better weather thus creating higher property value as well as rental prices.

A premium would suggest to me that the cost for a mortgage payment is much higher than rent.

Basically better weather should not drive people to pay a larger portion of their salary.

[Arraya]

“Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather”

No, In incomes should support prices. That being said people with higher incomes tend to gravitate toward areas with better weather thus creating higher property value as well as rental prices.

A premium would suggest to me that the cost for a mortgage payment is much higher than rent.

Basically better weather should not drive people to pay a larger portion of their salary.

[Arraya]

“Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather”

No, In incomes should support prices. That being said people with higher incomes tend to gravitate toward areas with better weather thus creating higher property value as well as rental prices.

A premium would suggest to me that the cost for a mortgage payment is much higher than rent.

Basically better weather should not drive people to pay a larger portion of their salary.

[barnaby33]

I would rather, you are asking a complex and often asked question on this site. There are way too many moving parts to answer simply.

Pre inflationary monetary policy ala Nixon houses generally rented for more than the house payment. That was with a 10 or 20 percent down.

In the last 2 to 3 decades that has not been the case, especially in high growth area on the coasts.

I think a more interesting question to ask is the macro question on inflation, will it continue to spiral up, or will we have deflation. That would go much farther towards answering what the fundamentals are as the are ‘flation’ dependent.

Josh

[I would rather be lucky then smart]

“back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

[Eugene]

In equilibrium, rent ~ monthly carrying costs (mortgage, property tax, insurance, HOA fee, less typical mortgage interest deduction ) On the way down, house prices are likely to overshoot.

Assume 20% down payment for upscale/move-up houses and 5% down payment for low-end houses. During the boom new homebuyers used to put zero down, but today zero-down loans are less common. Very few potential new homebuyers have enough cash to put 20% down on a house in SoCal.

Richest people will occupy most attractive houses. In many areas there are fewer houses than households. In this situation poorest households have no choice but to rent.

Some parts of the country are more attractive than others. People living in attractive areas choose to spend larger fractions of their incomes on housing rather than to leave (the “sunshine tax”). In an attractive area, both house prices and rents will be higher in proportion to income than in an unattractive area. The list of attractive parts of the country includes Hawaii and most of coastal California (from Napa and Sonoma to Santa Barbara to San Diego). Inland areas are generally unattractive, with a few exceptions.

[kewp]

Fundamentals are what set the price floor of an asset in the absence of speculation.

For real-estate in most areas that would be income. As we are seeing in parts of Detroit, local unemployment can drive the retail value of many properties to effectively zero.

In San Diego, as we are a big tourism destination, there is also a market for second vacation homes here. This will prop up the median housing cost somewhat above what one would expect vs. the median income.

*However*, this will only drive up demand for homes that rich folk are going to want to vacation in. Properties in the ghetto and IE need not apply.

[kewp]

Fundamentals are what set the price floor of an asset in the absence of speculation.

For real-estate in most areas that would be income. As we are seeing in parts of Detroit, local unemployment can drive the retail value of many properties to effectively zero.

In San Diego, as we are a big tourism destination, there is also a market for second vacation homes here. This will prop up the median housing cost somewhat above what one would expect vs. the median income.

*However*, this will only drive up demand for homes that rich folk are going to want to vacation in. Properties in the ghetto and IE need not apply.

[kewp]

Fundamentals are what set the price floor of an asset in the absence of speculation.

For real-estate in most areas that would be income. As we are seeing in parts of Detroit, local unemployment can drive the retail value of many properties to effectively zero.

In San Diego, as we are a big tourism destination, there is also a market for second vacation homes here. This will prop up the median housing cost somewhat above what one would expect vs. the median income.

*However*, this will only drive up demand for homes that rich folk are going to want to vacation in. Properties in the ghetto and IE need not apply.

[kewp]

Fundamentals are what set the price floor of an asset in the absence of speculation.

For real-estate in most areas that would be income. As we are seeing in parts of Detroit, local unemployment can drive the retail value of many properties to effectively zero.

In San Diego, as we are a big tourism destination, there is also a market for second vacation homes here. This will prop up the median housing cost somewhat above what one would expect vs. the median income.

*However*, this will only drive up demand for homes that rich folk are going to want to vacation in. Properties in the ghetto and IE need not apply.

[kewp]

Fundamentals are what set the price floor of an asset in the absence of speculation.

For real-estate in most areas that would be income. As we are seeing in parts of Detroit, local unemployment can drive the retail value of many properties to effectively zero.

In San Diego, as we are a big tourism destination, there is also a market for second vacation homes here. This will prop up the median housing cost somewhat above what one would expect vs. the median income.

*However*, this will only drive up demand for homes that rich folk are going to want to vacation in. Properties in the ghetto and IE need not apply.

[Eugene]

In equilibrium, rent ~ monthly carrying costs (mortgage, property tax, insurance, HOA fee, less typical mortgage interest deduction ) On the way down, house prices are likely to overshoot.

Assume 20% down payment for upscale/move-up houses and 5% down payment for low-end houses. During the boom new homebuyers used to put zero down, but today zero-down loans are less common. Very few potential new homebuyers have enough cash to put 20% down on a house in SoCal.

Richest people will occupy most attractive houses. In many areas there are fewer houses than households. In this situation poorest households have no choice but to rent.

Some parts of the country are more attractive than others. People living in attractive areas choose to spend larger fractions of their incomes on housing rather than to leave (the “sunshine tax”). In an attractive area, both house prices and rents will be higher in proportion to income than in an unattractive area. The list of attractive parts of the country includes Hawaii and most of coastal California (from Napa and Sonoma to Santa Barbara to San Diego). Inland areas are generally unattractive, with a few exceptions.

[Eugene]

In equilibrium, rent ~ monthly carrying costs (mortgage, property tax, insurance, HOA fee, less typical mortgage interest deduction ) On the way down, house prices are likely to overshoot.

Assume 20% down payment for upscale/move-up houses and 5% down payment for low-end houses. During the boom new homebuyers used to put zero down, but today zero-down loans are less common. Very few potential new homebuyers have enough cash to put 20% down on a house in SoCal.

Richest people will occupy most attractive houses. In many areas there are fewer houses than households. In this situation poorest households have no choice but to rent.

Some parts of the country are more attractive than others. People living in attractive areas choose to spend larger fractions of their incomes on housing rather than to leave (the “sunshine tax”). In an attractive area, both house prices and rents will be higher in proportion to income than in an unattractive area. The list of attractive parts of the country includes Hawaii and most of coastal California (from Napa and Sonoma to Santa Barbara to San Diego). Inland areas are generally unattractive, with a few exceptions.

[Eugene]

In equilibrium, rent ~ monthly carrying costs (mortgage, property tax, insurance, HOA fee, less typical mortgage interest deduction ) On the way down, house prices are likely to overshoot.

Assume 20% down payment for upscale/move-up houses and 5% down payment for low-end houses. During the boom new homebuyers used to put zero down, but today zero-down loans are less common. Very few potential new homebuyers have enough cash to put 20% down on a house in SoCal.

Richest people will occupy most attractive houses. In many areas there are fewer houses than households. In this situation poorest households have no choice but to rent.

Some parts of the country are more attractive than others. People living in attractive areas choose to spend larger fractions of their incomes on housing rather than to leave (the “sunshine tax”). In an attractive area, both house prices and rents will be higher in proportion to income than in an unattractive area. The list of attractive parts of the country includes Hawaii and most of coastal California (from Napa and Sonoma to Santa Barbara to San Diego). Inland areas are generally unattractive, with a few exceptions.

[Eugene]

In equilibrium, rent ~ monthly carrying costs (mortgage, property tax, insurance, HOA fee, less typical mortgage interest deduction ) On the way down, house prices are likely to overshoot.

Assume 20% down payment for upscale/move-up houses and 5% down payment for low-end houses. During the boom new homebuyers used to put zero down, but today zero-down loans are less common. Very few potential new homebuyers have enough cash to put 20% down on a house in SoCal.

Richest people will occupy most attractive houses. In many areas there are fewer houses than households. In this situation poorest households have no choice but to rent.

Some parts of the country are more attractive than others. People living in attractive areas choose to spend larger fractions of their incomes on housing rather than to leave (the “sunshine tax”). In an attractive area, both house prices and rents will be higher in proportion to income than in an unattractive area. The list of attractive parts of the country includes Hawaii and most of coastal California (from Napa and Sonoma to Santa Barbara to San Diego). Inland areas are generally unattractive, with a few exceptions.

[(former)FormerSanDiegan]

back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

The simple answer is that home prices and payments have far outpaced income growth and rents from about 1999 to 2005 (for San Diego).

Have you read the primer on this web site ?
http://piggington.com/

In the top center there is a box that says “A Bubble Primer”.

Check out

Risks of a Serious Home Price Decline

Evidence of a Southern California Housing Bubble

http://piggington.com/historical_home_prices_payments_rents_rates

The San Diego Housing Bubble

As for precise quantitative measures of how far back the ratio of prices to incomes or prices to rents need to return to, that is the 400,000 dollar question.

[nostradamus]

Good graphs. They show that there was a clear period at the end of the last downturn when it was cheaper to own than to rent.

[nostradamus]

Good graphs. They show that there was a clear period at the end of the last downturn when it was cheaper to own than to rent.

[nostradamus]

Good graphs. They show that there was a clear period at the end of the last downturn when it was cheaper to own than to rent.

[nostradamus]

Good graphs. They show that there was a clear period at the end of the last downturn when it was cheaper to own than to rent.

[nostradamus]

Good graphs. They show that there was a clear period at the end of the last downturn when it was cheaper to own than to rent.

[I would rather be lucky then smart]

thank you all.

[I would rather be lucky then smart]

thank you all.

[I would rather be lucky then smart]

thank you all.

[I would rather be lucky then smart]

thank you all.

[I would rather be lucky then smart]

thank you all.

[(former)FormerSanDiegan]

back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

The simple answer is that home prices and payments have far outpaced income growth and rents from about 1999 to 2005 (for San Diego).

Have you read the primer on this web site ?
http://piggington.com/

In the top center there is a box that says “A Bubble Primer”.

Check out

Risks of a Serious Home Price Decline

Evidence of a Southern California Housing Bubble

http://piggington.com/historical_home_prices_payments_rents_rates

The San Diego Housing Bubble

As for precise quantitative measures of how far back the ratio of prices to incomes or prices to rents need to return to, that is the 400,000 dollar question.

[(former)FormerSanDiegan]

back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

The simple answer is that home prices and payments have far outpaced income growth and rents from about 1999 to 2005 (for San Diego).

Have you read the primer on this web site ?
http://piggington.com/

In the top center there is a box that says “A Bubble Primer”.

Check out

Risks of a Serious Home Price Decline

Evidence of a Southern California Housing Bubble

http://piggington.com/historical_home_prices_payments_rents_rates

The San Diego Housing Bubble

As for precise quantitative measures of how far back the ratio of prices to incomes or prices to rents need to return to, that is the 400,000 dollar question.

[(former)FormerSanDiegan]

back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

The simple answer is that home prices and payments have far outpaced income growth and rents from about 1999 to 2005 (for San Diego).

Have you read the primer on this web site ?
http://piggington.com/

In the top center there is a box that says “A Bubble Primer”.

Check out

Risks of a Serious Home Price Decline

Evidence of a Southern California Housing Bubble

http://piggington.com/historical_home_prices_payments_rents_rates

The San Diego Housing Bubble

As for precise quantitative measures of how far back the ratio of prices to incomes or prices to rents need to return to, that is the 400,000 dollar question.

[(former)FormerSanDiegan]

back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

The simple answer is that home prices and payments have far outpaced income growth and rents from about 1999 to 2005 (for San Diego).

Have you read the primer on this web site ?
http://piggington.com/

In the top center there is a box that says “A Bubble Primer”.

Check out

Risks of a Serious Home Price Decline

Evidence of a Southern California Housing Bubble

http://piggington.com/historical_home_prices_payments_rents_rates

The San Diego Housing Bubble

As for precise quantitative measures of how far back the ratio of prices to incomes or prices to rents need to return to, that is the 400,000 dollar question.

[I would rather be lucky then smart]

“back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

[I would rather be lucky then smart]

“back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

[I would rather be lucky then smart]

“back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

[I would rather be lucky then smart]

“back in line with the fundamentals”

barnaby33,

That was Rich Toscano’s statement in his commentary today.

If I was shopping for a new house, I would certainly want to have a clue as to what are these fundamentals that everyone is talking about.

[barnaby33]

I would rather, you are asking a complex and often asked question on this site. There are way too many moving parts to answer simply.

Pre inflationary monetary policy ala Nixon houses generally rented for more than the house payment. That was with a 10 or 20 percent down.

In the last 2 to 3 decades that has not been the case, especially in high growth area on the coasts.

I think a more interesting question to ask is the macro question on inflation, will it continue to spiral up, or will we have deflation. That would go much farther towards answering what the fundamentals are as the are ‘flation’ dependent.

Josh

[barnaby33]

I would rather, you are asking a complex and often asked question on this site. There are way too many moving parts to answer simply.

Pre inflationary monetary policy ala Nixon houses generally rented for more than the house payment. That was with a 10 or 20 percent down.

In the last 2 to 3 decades that has not been the case, especially in high growth area on the coasts.

I think a more interesting question to ask is the macro question on inflation, will it continue to spiral up, or will we have deflation. That would go much farther towards answering what the fundamentals are as the are ‘flation’ dependent.

Josh

[barnaby33]

I would rather, you are asking a complex and often asked question on this site. There are way too many moving parts to answer simply.

Pre inflationary monetary policy ala Nixon houses generally rented for more than the house payment. That was with a 10 or 20 percent down.

In the last 2 to 3 decades that has not been the case, especially in high growth area on the coasts.

I think a more interesting question to ask is the macro question on inflation, will it continue to spiral up, or will we have deflation. That would go much farther towards answering what the fundamentals are as the are ‘flation’ dependent.

Josh

[barnaby33]

I would rather, you are asking a complex and often asked question on this site. There are way too many moving parts to answer simply.

Pre inflationary monetary policy ala Nixon houses generally rented for more than the house payment. That was with a 10 or 20 percent down.

In the last 2 to 3 decades that has not been the case, especially in high growth area on the coasts.

I think a more interesting question to ask is the macro question on inflation, will it continue to spiral up, or will we have deflation. That would go much farther towards answering what the fundamentals are as the are ‘flation’ dependent.

Josh

[OwnerOfCalifornia]

Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather

Homes in SoCal have always been more expensive than most parts of the country, and I’m sure they always will be. As has been covered here on piggington, the weather didn’t suddenly grow to super-mega-awesome from 2000 to 2005.

Whenever this thing bottoms out, people will still pay a premium to live here compared to prices elsewhere.

[OwnerOfCalifornia]

Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather

Homes in SoCal have always been more expensive than most parts of the country, and I’m sure they always will be. As has been covered here on piggington, the weather didn’t suddenly grow to super-mega-awesome from 2000 to 2005.

Whenever this thing bottoms out, people will still pay a premium to live here compared to prices elsewhere.

[OwnerOfCalifornia]

Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather

Homes in SoCal have always been more expensive than most parts of the country, and I’m sure they always will be. As has been covered here on piggington, the weather didn’t suddenly grow to super-mega-awesome from 2000 to 2005.

Whenever this thing bottoms out, people will still pay a premium to live here compared to prices elsewhere.

[OwnerOfCalifornia]

Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather

Homes in SoCal have always been more expensive than most parts of the country, and I’m sure they always will be. As has been covered here on piggington, the weather didn’t suddenly grow to super-mega-awesome from 2000 to 2005.

Whenever this thing bottoms out, people will still pay a premium to live here compared to prices elsewhere.

[OwnerOfCalifornia]

Lastly, how does climate play into the fundamentals? Most places in the US have crummy waether compared to San Diego. That said, shouldn’t we pay a premium for year around good weather

Homes in SoCal have always been more expensive than most parts of the country, and I’m sure they always will be. As has been covered here on piggington, the weather didn’t suddenly grow to super-mega-awesome from 2000 to 2005.

Whenever this thing bottoms out, people will still pay a premium to live here compared to prices elsewhere.

[sdduuuude]

I think it’s a good question, and the basic answer, as others point out, are rent/price ratios, price/income ratios, and payment/income ratios. Look at all of them.

When looking at payment/income – don’t compare the payment on a 20% down fixed loan in 2001 to the payment on a zero-down adjustable loan in 2005. Compare apples-to-apples in different years to see how the fundamentals ceased to support the price.

We always have and always will pay a premium for weather here. It is an underlying fundamental to support higher prices in So Cal than in other parts of the country.

However, as Rich pointed out many, many times, the weather didn’t suddenly improve here between 2000 and 2004. Thus, the premium had no fundamental reason to increase as it did.

Weather was simply fuel to the speculative ferver.

[sdduuuude]

I think it’s a good question, and the basic answer, as others point out, are rent/price ratios, price/income ratios, and payment/income ratios. Look at all of them.

When looking at payment/income – don’t compare the payment on a 20% down fixed loan in 2001 to the payment on a zero-down adjustable loan in 2005. Compare apples-to-apples in different years to see how the fundamentals ceased to support the price.

We always have and always will pay a premium for weather here. It is an underlying fundamental to support higher prices in So Cal than in other parts of the country.

However, as Rich pointed out many, many times, the weather didn’t suddenly improve here between 2000 and 2004. Thus, the premium had no fundamental reason to increase as it did.

Weather was simply fuel to the speculative ferver.

[sdduuuude]

I think it’s a good question, and the basic answer, as others point out, are rent/price ratios, price/income ratios, and payment/income ratios. Look at all of them.

When looking at payment/income – don’t compare the payment on a 20% down fixed loan in 2001 to the payment on a zero-down adjustable loan in 2005. Compare apples-to-apples in different years to see how the fundamentals ceased to support the price.

We always have and always will pay a premium for weather here. It is an underlying fundamental to support higher prices in So Cal than in other parts of the country.

However, as Rich pointed out many, many times, the weather didn’t suddenly improve here between 2000 and 2004. Thus, the premium had no fundamental reason to increase as it did.

Weather was simply fuel to the speculative ferver.

[sdduuuude]

I think it’s a good question, and the basic answer, as others point out, are rent/price ratios, price/income ratios, and payment/income ratios. Look at all of them.

When looking at payment/income – don’t compare the payment on a 20% down fixed loan in 2001 to the payment on a zero-down adjustable loan in 2005. Compare apples-to-apples in different years to see how the fundamentals ceased to support the price.

We always have and always will pay a premium for weather here. It is an underlying fundamental to support higher prices in So Cal than in other parts of the country.

However, as Rich pointed out many, many times, the weather didn’t suddenly improve here between 2000 and 2004. Thus, the premium had no fundamental reason to increase as it did.

Weather was simply fuel to the speculative ferver.

[sdduuuude]

I think it’s a good question, and the basic answer, as others point out, are rent/price ratios, price/income ratios, and payment/income ratios. Look at all of them.

When looking at payment/income – don’t compare the payment on a 20% down fixed loan in 2001 to the payment on a zero-down adjustable loan in 2005. Compare apples-to-apples in different years to see how the fundamentals ceased to support the price.

We always have and always will pay a premium for weather here. It is an underlying fundamental to support higher prices in So Cal than in other parts of the country.

However, as Rich pointed out many, many times, the weather didn’t suddenly improve here between 2000 and 2004. Thus, the premium had no fundamental reason to increase as it did.

Weather was simply fuel to the speculative ferver.

[DWCAP]

“of all San Diego mortgages issued in 2004, 80% were adjustable-rate, 47% were interest-only, and 27% involved no down payment.”

This is a quote from rich’s posts linked a few posts up. I had read this before, but I dont think it had really sunk in yet. One of the questions buzzing around in my head every time I read SDR’s short sale monitor, or see that graph about the reset schedules, is “how many can their really be.” The general media does an absolutly horrible job conveying the enormity of the situtation, (duh), but I guess I just didnt/dont grasp how many people are in trouble.
80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
So what are fundamentals? They are something that apparently no one has been paying attention to for a very long time and we are gonna pay for it.

[Eugene]

So, about those fundamentals …

Case in point: Monarch at Scripps Ranch (east end of Mira Mesa Blvd)

Last November, some guy got himself a 2br/2ba 1300 sf condo in Monarch for 380K

http://www.zillow.com/HomeDetails.htm?zprop=71328118

And you can get a comparable condo across the street for 330-350K.

http://www.redfin.com/stingray/do/printable-listing?listing-id=1283984
http://www.redfin.com/stingray/do/printable-listing?listing-id=1390379

For simplicity let’s assume 5% down and 5.5% rate.
Down payment – $16.5K
Mortgage – $1777
Property tax – $275
HOA – $325
Tax deduction – $427 (assuming 25% bracket and maxed-out itemized deductions)
Monthly cost – $1950

What will a condo like that rent for?

http://www.forrent.com/apartment-community-profile/999903912.php

Starting at $2200/month, apparently.

In other words, you can buy a condo in Scripps Ranch TODAY and it will be cheaper than to rent an identical condo.

This does not address a more interesting question, why would anyone pay $2200/month to rent a 2-bedroom condo in Scripps Ranch when you can get a 3-bedroom house in Mira Mesa for $1800, because apparently there are enough suckers or else they wouldn’t be charging those rates…

[Eugene]

So, about those fundamentals …

Case in point: Monarch at Scripps Ranch (east end of Mira Mesa Blvd)

Last November, some guy got himself a 2br/2ba 1300 sf condo in Monarch for 380K

http://www.zillow.com/HomeDetails.htm?zprop=71328118

And you can get a comparable condo across the street for 330-350K.

http://www.redfin.com/stingray/do/printable-listing?listing-id=1283984
http://www.redfin.com/stingray/do/printable-listing?listing-id=1390379

For simplicity let’s assume 5% down and 5.5% rate.
Down payment – $16.5K
Mortgage – $1777
Property tax – $275
HOA – $325
Tax deduction – $427 (assuming 25% bracket and maxed-out itemized deductions)
Monthly cost – $1950

What will a condo like that rent for?

http://www.forrent.com/apartment-community-profile/999903912.php

Starting at $2200/month, apparently.

In other words, you can buy a condo in Scripps Ranch TODAY and it will be cheaper than to rent an identical condo.

This does not address a more interesting question, why would anyone pay $2200/month to rent a 2-bedroom condo in Scripps Ranch when you can get a 3-bedroom house in Mira Mesa for $1800, because apparently there are enough suckers or else they wouldn’t be charging those rates…

[Eugene]

So, about those fundamentals …

Case in point: Monarch at Scripps Ranch (east end of Mira Mesa Blvd)

Last November, some guy got himself a 2br/2ba 1300 sf condo in Monarch for 380K

http://www.zillow.com/HomeDetails.htm?zprop=71328118

And you can get a comparable condo across the street for 330-350K.

http://www.redfin.com/stingray/do/printable-listing?listing-id=1283984
http://www.redfin.com/stingray/do/printable-listing?listing-id=1390379

For simplicity let’s assume 5% down and 5.5% rate.
Down payment – $16.5K
Mortgage – $1777
Property tax – $275
HOA – $325
Tax deduction – $427 (assuming 25% bracket and maxed-out itemized deductions)
Monthly cost – $1950

What will a condo like that rent for?

http://www.forrent.com/apartment-community-profile/999903912.php

Starting at $2200/month, apparently.

In other words, you can buy a condo in Scripps Ranch TODAY and it will be cheaper than to rent an identical condo.

This does not address a more interesting question, why would anyone pay $2200/month to rent a 2-bedroom condo in Scripps Ranch when you can get a 3-bedroom house in Mira Mesa for $1800, because apparently there are enough suckers or else they wouldn’t be charging those rates…

[Eugene]

So, about those fundamentals …

Case in point: Monarch at Scripps Ranch (east end of Mira Mesa Blvd)

Last November, some guy got himself a 2br/2ba 1300 sf condo in Monarch for 380K

http://www.zillow.com/HomeDetails.htm?zprop=71328118

And you can get a comparable condo across the street for 330-350K.

http://www.redfin.com/stingray/do/printable-listing?listing-id=1283984
http://www.redfin.com/stingray/do/printable-listing?listing-id=1390379

For simplicity let’s assume 5% down and 5.5% rate.
Down payment – $16.5K
Mortgage – $1777
Property tax – $275
HOA – $325
Tax deduction – $427 (assuming 25% bracket and maxed-out itemized deductions)
Monthly cost – $1950

What will a condo like that rent for?

http://www.forrent.com/apartment-community-profile/999903912.php

Starting at $2200/month, apparently.

In other words, you can buy a condo in Scripps Ranch TODAY and it will be cheaper than to rent an identical condo.

This does not address a more interesting question, why would anyone pay $2200/month to rent a 2-bedroom condo in Scripps Ranch when you can get a 3-bedroom house in Mira Mesa for $1800, because apparently there are enough suckers or else they wouldn’t be charging those rates…

[Eugene]

So, about those fundamentals …

Case in point: Monarch at Scripps Ranch (east end of Mira Mesa Blvd)

Last November, some guy got himself a 2br/2ba 1300 sf condo in Monarch for 380K

http://www.zillow.com/HomeDetails.htm?zprop=71328118

And you can get a comparable condo across the street for 330-350K.

http://www.redfin.com/stingray/do/printable-listing?listing-id=1283984
http://www.redfin.com/stingray/do/printable-listing?listing-id=1390379

For simplicity let’s assume 5% down and 5.5% rate.
Down payment – $16.5K
Mortgage – $1777
Property tax – $275
HOA – $325
Tax deduction – $427 (assuming 25% bracket and maxed-out itemized deductions)
Monthly cost – $1950

What will a condo like that rent for?

http://www.forrent.com/apartment-community-profile/999903912.php

Starting at $2200/month, apparently.

In other words, you can buy a condo in Scripps Ranch TODAY and it will be cheaper than to rent an identical condo.

This does not address a more interesting question, why would anyone pay $2200/month to rent a 2-bedroom condo in Scripps Ranch when you can get a 3-bedroom house in Mira Mesa for $1800, because apparently there are enough suckers or else they wouldn’t be charging those rates…

[(former)FormerSanDiegan]

80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!

Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …

somewhere between 5.625% and 6.25%.

Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.

[(former)FormerSanDiegan]

80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!

Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …

somewhere between 5.625% and 6.25%.

Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.

[(former)FormerSanDiegan]

80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!

Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …

somewhere between 5.625% and 6.25%.

Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.

[(former)FormerSanDiegan]

80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!

Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …

somewhere between 5.625% and 6.25%.

Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.

[(former)FormerSanDiegan]

80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!

Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …

somewhere between 5.625% and 6.25%.

Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.

[DWCAP]

“of all San Diego mortgages issued in 2004, 80% were adjustable-rate, 47% were interest-only, and 27% involved no down payment.”

This is a quote from rich’s posts linked a few posts up. I had read this before, but I dont think it had really sunk in yet. One of the questions buzzing around in my head every time I read SDR’s short sale monitor, or see that graph about the reset schedules, is “how many can their really be.” The general media does an absolutly horrible job conveying the enormity of the situtation, (duh), but I guess I just didnt/dont grasp how many people are in trouble.
80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
So what are fundamentals? They are something that apparently no one has been paying attention to for a very long time and we are gonna pay for it.

[DWCAP]

“of all San Diego mortgages issued in 2004, 80% were adjustable-rate, 47% were interest-only, and 27% involved no down payment.”

This is a quote from rich’s posts linked a few posts up. I had read this before, but I dont think it had really sunk in yet. One of the questions buzzing around in my head every time I read SDR’s short sale monitor, or see that graph about the reset schedules, is “how many can their really be.” The general media does an absolutly horrible job conveying the enormity of the situtation, (duh), but I guess I just didnt/dont grasp how many people are in trouble.
80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
So what are fundamentals? They are something that apparently no one has been paying attention to for a very long time and we are gonna pay for it.

[DWCAP]

“of all San Diego mortgages issued in 2004, 80% were adjustable-rate, 47% were interest-only, and 27% involved no down payment.”

This is a quote from rich’s posts linked a few posts up. I had read this before, but I dont think it had really sunk in yet. One of the questions buzzing around in my head every time I read SDR’s short sale monitor, or see that graph about the reset schedules, is “how many can their really be.” The general media does an absolutly horrible job conveying the enormity of the situtation, (duh), but I guess I just didnt/dont grasp how many people are in trouble.
80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
So what are fundamentals? They are something that apparently no one has been paying attention to for a very long time and we are gonna pay for it.

[DWCAP]

“of all San Diego mortgages issued in 2004, 80% were adjustable-rate, 47% were interest-only, and 27% involved no down payment.”

This is a quote from rich’s posts linked a few posts up. I had read this before, but I dont think it had really sunk in yet. One of the questions buzzing around in my head every time I read SDR’s short sale monitor, or see that graph about the reset schedules, is “how many can their really be.” The general media does an absolutly horrible job conveying the enormity of the situtation, (duh), but I guess I just didnt/dont grasp how many people are in trouble.
80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
So what are fundamentals? They are something that apparently no one has been paying attention to for a very long time and we are gonna pay for it.

[DWCAP]

esmith,

I dont know what to say, if it is a screaming deal, jump on it.
The thing I kinda see is the last part of what you said. “why would they pay that?” I thought, well, maybe schools? The problem is that there are a number of rentals in the area that are 2/2 for 1500-1800. So any young family is sure to not want to over pay by 500-700/month. Add in the whole of MM, with its 2/2’s at 1300-1600 and it looks even worse.
If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium. Maybe he wasnt able to maximize his investment like you described and is trying to cover himself.
The whole scripps ranch rents seem kinda distorted to me. The few craigslist listings I saw were all over the place. 3/2 condos for less than your condo. Some “creative” financing rent to own kinda stuff where they rip you off in rent, but if you are willing to buy, they put part of it toward the cost. Even a house for the same cost as your condo (PostingID: 537346452). I am no expert, maybe someone smarter than I can figure it out. But I suspect this is a sign of real stress in the market when LL’s who overpayed are trying to inflate the market to a point that they can survive. Why would I rent a 2/2 condo right next to the freeway when I could rent a 3/2 house on some quiet land a mile away for the same price, in the same zip code and everything? But hey, a sucker is born every day and this guy just needs one.

[Eugene]

if it is a screaming deal, jump on it.

My family is too big for that place, I need at least 4 bedrooms. My point is that we’re not as out of whack with fundamendals as people think. With these ultra-low interest rates, unless there’s an economic depression in San Diego, by the summer we might see some sort of stabilization at the low end.

If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium.

It’s an apartment complex. Monarch took their second phase of condos and started leasing them. So they have a whole lot of those $2200/month condos.

[Eugene]

if it is a screaming deal, jump on it.

My family is too big for that place, I need at least 4 bedrooms. My point is that we’re not as out of whack with fundamendals as people think. With these ultra-low interest rates, unless there’s an economic depression in San Diego, by the summer we might see some sort of stabilization at the low end.

If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium.

It’s an apartment complex. Monarch took their second phase of condos and started leasing them. So they have a whole lot of those $2200/month condos.

[Eugene]

if it is a screaming deal, jump on it.

My family is too big for that place, I need at least 4 bedrooms. My point is that we’re not as out of whack with fundamendals as people think. With these ultra-low interest rates, unless there’s an economic depression in San Diego, by the summer we might see some sort of stabilization at the low end.

If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium.

It’s an apartment complex. Monarch took their second phase of condos and started leasing them. So they have a whole lot of those $2200/month condos.

[Eugene]

if it is a screaming deal, jump on it.

My family is too big for that place, I need at least 4 bedrooms. My point is that we’re not as out of whack with fundamendals as people think. With these ultra-low interest rates, unless there’s an economic depression in San Diego, by the summer we might see some sort of stabilization at the low end.

If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium.

It’s an apartment complex. Monarch took their second phase of condos and started leasing them. So they have a whole lot of those $2200/month condos.

[Eugene]

if it is a screaming deal, jump on it.

My family is too big for that place, I need at least 4 bedrooms. My point is that we’re not as out of whack with fundamendals as people think. With these ultra-low interest rates, unless there’s an economic depression in San Diego, by the summer we might see some sort of stabilization at the low end.

If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium.

It’s an apartment complex. Monarch took their second phase of condos and started leasing them. So they have a whole lot of those $2200/month condos.

[DWCAP]

esmith,

I dont know what to say, if it is a screaming deal, jump on it.
The thing I kinda see is the last part of what you said. “why would they pay that?” I thought, well, maybe schools? The problem is that there are a number of rentals in the area that are 2/2 for 1500-1800. So any young family is sure to not want to over pay by 500-700/month. Add in the whole of MM, with its 2/2’s at 1300-1600 and it looks even worse.
If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium. Maybe he wasnt able to maximize his investment like you described and is trying to cover himself.
The whole scripps ranch rents seem kinda distorted to me. The few craigslist listings I saw were all over the place. 3/2 condos for less than your condo. Some “creative” financing rent to own kinda stuff where they rip you off in rent, but if you are willing to buy, they put part of it toward the cost. Even a house for the same cost as your condo (PostingID: 537346452). I am no expert, maybe someone smarter than I can figure it out. But I suspect this is a sign of real stress in the market when LL’s who overpayed are trying to inflate the market to a point that they can survive. Why would I rent a 2/2 condo right next to the freeway when I could rent a 3/2 house on some quiet land a mile away for the same price, in the same zip code and everything? But hey, a sucker is born every day and this guy just needs one.

[DWCAP]

esmith,

I dont know what to say, if it is a screaming deal, jump on it.
The thing I kinda see is the last part of what you said. “why would they pay that?” I thought, well, maybe schools? The problem is that there are a number of rentals in the area that are 2/2 for 1500-1800. So any young family is sure to not want to over pay by 500-700/month. Add in the whole of MM, with its 2/2’s at 1300-1600 and it looks even worse.
If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium. Maybe he wasnt able to maximize his investment like you described and is trying to cover himself.
The whole scripps ranch rents seem kinda distorted to me. The few craigslist listings I saw were all over the place. 3/2 condos for less than your condo. Some “creative” financing rent to own kinda stuff where they rip you off in rent, but if you are willing to buy, they put part of it toward the cost. Even a house for the same cost as your condo (PostingID: 537346452). I am no expert, maybe someone smarter than I can figure it out. But I suspect this is a sign of real stress in the market when LL’s who overpayed are trying to inflate the market to a point that they can survive. Why would I rent a 2/2 condo right next to the freeway when I could rent a 3/2 house on some quiet land a mile away for the same price, in the same zip code and everything? But hey, a sucker is born every day and this guy just needs one.

[DWCAP]

esmith,

I dont know what to say, if it is a screaming deal, jump on it.
The thing I kinda see is the last part of what you said. “why would they pay that?” I thought, well, maybe schools? The problem is that there are a number of rentals in the area that are 2/2 for 1500-1800. So any young family is sure to not want to over pay by 500-700/month. Add in the whole of MM, with its 2/2’s at 1300-1600 and it looks even worse.
If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium. Maybe he wasnt able to maximize his investment like you described and is trying to cover himself.
The whole scripps ranch rents seem kinda distorted to me. The few craigslist listings I saw were all over the place. 3/2 condos for less than your condo. Some “creative” financing rent to own kinda stuff where they rip you off in rent, but if you are willing to buy, they put part of it toward the cost. Even a house for the same cost as your condo (PostingID: 537346452). I am no expert, maybe someone smarter than I can figure it out. But I suspect this is a sign of real stress in the market when LL’s who overpayed are trying to inflate the market to a point that they can survive. Why would I rent a 2/2 condo right next to the freeway when I could rent a 3/2 house on some quiet land a mile away for the same price, in the same zip code and everything? But hey, a sucker is born every day and this guy just needs one.

[DWCAP]

esmith,

I dont know what to say, if it is a screaming deal, jump on it.
The thing I kinda see is the last part of what you said. “why would they pay that?” I thought, well, maybe schools? The problem is that there are a number of rentals in the area that are 2/2 for 1500-1800. So any young family is sure to not want to over pay by 500-700/month. Add in the whole of MM, with its 2/2’s at 1300-1600 and it looks even worse.
If I had to guess, this guy is sucker fishing. Maybe he has SS appliances and berber carpet and is trying to get a luxery premium. Maybe he wasnt able to maximize his investment like you described and is trying to cover himself.
The whole scripps ranch rents seem kinda distorted to me. The few craigslist listings I saw were all over the place. 3/2 condos for less than your condo. Some “creative” financing rent to own kinda stuff where they rip you off in rent, but if you are willing to buy, they put part of it toward the cost. Even a house for the same cost as your condo (PostingID: 537346452). I am no expert, maybe someone smarter than I can figure it out. But I suspect this is a sign of real stress in the market when LL’s who overpayed are trying to inflate the market to a point that they can survive. Why would I rent a 2/2 condo right next to the freeway when I could rent a 3/2 house on some quiet land a mile away for the same price, in the same zip code and everything? But hey, a sucker is born every day and this guy just needs one.

[DWCAP]

I hadnt considered that FSD, thanks. So basically these morgages are going to reset but the reset, thanks to the FED dumping rates and pushing money like a coke dealer, arnt really that bad. Hadn’t considered that in my OH S%$t! moment.

I wasn’t totally off base though, the option arms in there are still waiting to have their day in the sun. And those have a built in significant jump no matter what the rate, its called principal. (i know i know, you found like 2 people in BFE that are paying like they should be, but most arent.) Plus all the subprime fun.

I guess the other question that needs to be asked then is rate changes in the future. Were the LIBOR to go up again like it was before the pushing began, we would have increasing defaults as it rises. Not saying that would happen, just that the REALLY low rates sitting around right now will go away eventually. Maybe 5-8 years, maybe more. Maybe incomes will go up enough to cover the increases and it is a moot point. Home lending has never really been done like this, so their is no historical president to copy.
I still remain suprised how many people exposed themselves in a period of historically low rates to this.

[DWCAP]

I hadnt considered that FSD, thanks. So basically these morgages are going to reset but the reset, thanks to the FED dumping rates and pushing money like a coke dealer, arnt really that bad. Hadn’t considered that in my OH S%$t! moment.

I wasn’t totally off base though, the option arms in there are still waiting to have their day in the sun. And those have a built in significant jump no matter what the rate, its called principal. (i know i know, you found like 2 people in BFE that are paying like they should be, but most arent.) Plus all the subprime fun.

I guess the other question that needs to be asked then is rate changes in the future. Were the LIBOR to go up again like it was before the pushing began, we would have increasing defaults as it rises. Not saying that would happen, just that the REALLY low rates sitting around right now will go away eventually. Maybe 5-8 years, maybe more. Maybe incomes will go up enough to cover the increases and it is a moot point. Home lending has never really been done like this, so their is no historical president to copy.
I still remain suprised how many people exposed themselves in a period of historically low rates to this.

[DWCAP]

I hadnt considered that FSD, thanks. So basically these morgages are going to reset but the reset, thanks to the FED dumping rates and pushing money like a coke dealer, arnt really that bad. Hadn’t considered that in my OH S%$t! moment.

I wasn’t totally off base though, the option arms in there are still waiting to have their day in the sun. And those have a built in significant jump no matter what the rate, its called principal. (i know i know, you found like 2 people in BFE that are paying like they should be, but most arent.) Plus all the subprime fun.

I guess the other question that needs to be asked then is rate changes in the future. Were the LIBOR to go up again like it was before the pushing began, we would have increasing defaults as it rises. Not saying that would happen, just that the REALLY low rates sitting around right now will go away eventually. Maybe 5-8 years, maybe more. Maybe incomes will go up enough to cover the increases and it is a moot point. Home lending has never really been done like this, so their is no historical president to copy.
I still remain suprised how many people exposed themselves in a period of historically low rates to this.

[DWCAP]

I hadnt considered that FSD, thanks. So basically these morgages are going to reset but the reset, thanks to the FED dumping rates and pushing money like a coke dealer, arnt really that bad. Hadn’t considered that in my OH S%$t! moment.

I wasn’t totally off base though, the option arms in there are still waiting to have their day in the sun. And those have a built in significant jump no matter what the rate, its called principal. (i know i know, you found like 2 people in BFE that are paying like they should be, but most arent.) Plus all the subprime fun.

I guess the other question that needs to be asked then is rate changes in the future. Were the LIBOR to go up again like it was before the pushing began, we would have increasing defaults as it rises. Not saying that would happen, just that the REALLY low rates sitting around right now will go away eventually. Maybe 5-8 years, maybe more. Maybe incomes will go up enough to cover the increases and it is a moot point. Home lending has never really been done like this, so their is no historical president to copy.
I still remain suprised how many people exposed themselves in a period of historically low rates to this.

[DWCAP]

I hadnt considered that FSD, thanks. So basically these morgages are going to reset but the reset, thanks to the FED dumping rates and pushing money like a coke dealer, arnt really that bad. Hadn’t considered that in my OH S%$t! moment.

I wasn’t totally off base though, the option arms in there are still waiting to have their day in the sun. And those have a built in significant jump no matter what the rate, its called principal. (i know i know, you found like 2 people in BFE that are paying like they should be, but most arent.) Plus all the subprime fun.

I guess the other question that needs to be asked then is rate changes in the future. Were the LIBOR to go up again like it was before the pushing began, we would have increasing defaults as it rises. Not saying that would happen, just that the REALLY low rates sitting around right now will go away eventually. Maybe 5-8 years, maybe more. Maybe incomes will go up enough to cover the increases and it is a moot point. Home lending has never really been done like this, so their is no historical president to copy.
I still remain suprised how many people exposed themselves in a period of historically low rates to this.

[DWCAP]

One more question FSD (or anyone in the know),

How many of those adjustable rate morgages had a low teaser rate? I know that was the first thing blamed when subprime hit. So I then ask, did this same low teaser rate also happen in Joe Alt-A’s loan? Did his interest rate go from 2% to 6%? Plugging that into a payment calculator, a 400’000 loan goes from 1190 to 1920. That is a big reset, even if the new rate is actually a good rate overall. To someone who is overextended and without any real savings at all (average american savings rate is negative) $700 a month can be a killer.

[barnaby33]

How many of those adjustable rate morgages had a low teaser rate? I

Without answering your question, let me one up you. Who would have taken out an adjustable without a teaser rate? Interest rates were at multi-generational lows. That screams fixed rate, so in order to steer people to adjustables the teaser was used.

Josh

[drunkle]

i suspect the only way people could afford to buy at 04-07 inflated levels was with the use of neg am type teaser type poke me in the brown eye with a sharp stick type loans. throw in the “guarantee” of increasing home prices, the promise of easy refinancing and you end up with “the highest rate of homeownership in history”.

these records, this data has got to be out there somewhere.

[drunkle]

i suspect the only way people could afford to buy at 04-07 inflated levels was with the use of neg am type teaser type poke me in the brown eye with a sharp stick type loans. throw in the “guarantee” of increasing home prices, the promise of easy refinancing and you end up with “the highest rate of homeownership in history”.

these records, this data has got to be out there somewhere.

[drunkle]

i suspect the only way people could afford to buy at 04-07 inflated levels was with the use of neg am type teaser type poke me in the brown eye with a sharp stick type loans. throw in the “guarantee” of increasing home prices, the promise of easy refinancing and you end up with “the highest rate of homeownership in history”.

these records, this data has got to be out there somewhere.

[drunkle]

i suspect the only way people could afford to buy at 04-07 inflated levels was with the use of neg am type teaser type poke me in the brown eye with a sharp stick type loans. throw in the “guarantee” of increasing home prices, the promise of easy refinancing and you end up with “the highest rate of homeownership in history”.

these records, this data has got to be out there somewhere.

[drunkle]

i suspect the only way people could afford to buy at 04-07 inflated levels was with the use of neg am type teaser type poke me in the brown eye with a sharp stick type loans. throw in the “guarantee” of increasing home prices, the promise of easy refinancing and you end up with “the highest rate of homeownership in history”.

these records, this data has got to be out there somewhere.

[barnaby33]

How many of those adjustable rate morgages had a low teaser rate? I

Without answering your question, let me one up you. Who would have taken out an adjustable without a teaser rate? Interest rates were at multi-generational lows. That screams fixed rate, so in order to steer people to adjustables the teaser was used.

Josh

[barnaby33]

How many of those adjustable rate morgages had a low teaser rate? I

Without answering your question, let me one up you. Who would have taken out an adjustable without a teaser rate? Interest rates were at multi-generational lows. That screams fixed rate, so in order to steer people to adjustables the teaser was used.

Josh

[barnaby33]

How many of those adjustable rate morgages had a low teaser rate? I

Without answering your question, let me one up you. Who would have taken out an adjustable without a teaser rate? Interest rates were at multi-generational lows. That screams fixed rate, so in order to steer people to adjustables the teaser was used.

Josh

[barnaby33]

How many of those adjustable rate morgages had a low teaser rate? I

Without answering your question, let me one up you. Who would have taken out an adjustable without a teaser rate? Interest rates were at multi-generational lows. That screams fixed rate, so in order to steer people to adjustables the teaser was used.

Josh

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[DWCAP]

One more question FSD (or anyone in the know),

How many of those adjustable rate morgages had a low teaser rate? I know that was the first thing blamed when subprime hit. So I then ask, did this same low teaser rate also happen in Joe Alt-A’s loan? Did his interest rate go from 2% to 6%? Plugging that into a payment calculator, a 400’000 loan goes from 1190 to 1920. That is a big reset, even if the new rate is actually a good rate overall. To someone who is overextended and without any real savings at all (average american savings rate is negative) $700 a month can be a killer.

[DWCAP]

One more question FSD (or anyone in the know),

How many of those adjustable rate morgages had a low teaser rate? I know that was the first thing blamed when subprime hit. So I then ask, did this same low teaser rate also happen in Joe Alt-A’s loan? Did his interest rate go from 2% to 6%? Plugging that into a payment calculator, a 400’000 loan goes from 1190 to 1920. That is a big reset, even if the new rate is actually a good rate overall. To someone who is overextended and without any real savings at all (average american savings rate is negative) $700 a month can be a killer.

[DWCAP]

One more question FSD (or anyone in the know),

How many of those adjustable rate morgages had a low teaser rate? I know that was the first thing blamed when subprime hit. So I then ask, did this same low teaser rate also happen in Joe Alt-A’s loan? Did his interest rate go from 2% to 6%? Plugging that into a payment calculator, a 400’000 loan goes from 1190 to 1920. That is a big reset, even if the new rate is actually a good rate overall. To someone who is overextended and without any real savings at all (average american savings rate is negative) $700 a month can be a killer.

[DWCAP]

One more question FSD (or anyone in the know),

How many of those adjustable rate morgages had a low teaser rate? I know that was the first thing blamed when subprime hit. So I then ask, did this same low teaser rate also happen in Joe Alt-A’s loan? Did his interest rate go from 2% to 6%? Plugging that into a payment calculator, a 400’000 loan goes from 1190 to 1920. That is a big reset, even if the new rate is actually a good rate overall. To someone who is overextended and without any real savings at all (average american savings rate is negative) $700 a month can be a killer.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DaCounselor]

“But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years?”
_____________________________

Because if he went conventional 30 yr fixed he would be paying principal as well, which on a median SD purchase probably would have bumped the monthly payment up by about $500/month. I think alot of the ARMS were interest only.

FSD has a good handle on the reset issue. As for how long LIBOR can remain at historically very low levels, we just had a 4 year run of very low rates earlier this decade. How far will LIBOR drop and how long will it stay low this time around? Who knows?

[Eugene]

In 2003, typical ARM interest rates were in 4 – 4.5% land. They didn’t get to 5.75% until 2006.

[(former)FormerSanDiegan]

I’d like to see the data for 5/1 ARM rates for example from 2003-2006 for loans below the conforming limit as well as above, assuming zero points.

I had a 5/1 IO ARM for a relatively small loan (less than 300K) on rental property re-financed in 2003, no points. I’m guessing owner-occupied for the same deal would have been maybe as low as 5%. Perhaps late in 2003 rates bottomed about 0.5% lower, but not for long.

[(former)FormerSanDiegan]

I’d like to see the data for 5/1 ARM rates for example from 2003-2006 for loans below the conforming limit as well as above, assuming zero points.

I had a 5/1 IO ARM for a relatively small loan (less than 300K) on rental property re-financed in 2003, no points. I’m guessing owner-occupied for the same deal would have been maybe as low as 5%. Perhaps late in 2003 rates bottomed about 0.5% lower, but not for long.

[(former)FormerSanDiegan]

I’d like to see the data for 5/1 ARM rates for example from 2003-2006 for loans below the conforming limit as well as above, assuming zero points.

I had a 5/1 IO ARM for a relatively small loan (less than 300K) on rental property re-financed in 2003, no points. I’m guessing owner-occupied for the same deal would have been maybe as low as 5%. Perhaps late in 2003 rates bottomed about 0.5% lower, but not for long.

[(former)FormerSanDiegan]

I’d like to see the data for 5/1 ARM rates for example from 2003-2006 for loans below the conforming limit as well as above, assuming zero points.

I had a 5/1 IO ARM for a relatively small loan (less than 300K) on rental property re-financed in 2003, no points. I’m guessing owner-occupied for the same deal would have been maybe as low as 5%. Perhaps late in 2003 rates bottomed about 0.5% lower, but not for long.

[(former)FormerSanDiegan]

I’d like to see the data for 5/1 ARM rates for example from 2003-2006 for loans below the conforming limit as well as above, assuming zero points.

I had a 5/1 IO ARM for a relatively small loan (less than 300K) on rental property re-financed in 2003, no points. I’m guessing owner-occupied for the same deal would have been maybe as low as 5%. Perhaps late in 2003 rates bottomed about 0.5% lower, but not for long.

[Eugene]

In 2003, typical ARM interest rates were in 4 – 4.5% land. They didn’t get to 5.75% until 2006.

[Eugene]

In 2003, typical ARM interest rates were in 4 – 4.5% land. They didn’t get to 5.75% until 2006.

[Eugene]

In 2003, typical ARM interest rates were in 4 – 4.5% land. They didn’t get to 5.75% until 2006.

[Eugene]

In 2003, typical ARM interest rates were in 4 – 4.5% land. They didn’t get to 5.75% until 2006.

[DaCounselor]

“But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years?”
_____________________________

Because if he went conventional 30 yr fixed he would be paying principal as well, which on a median SD purchase probably would have bumped the monthly payment up by about $500/month. I think alot of the ARMS were interest only.

FSD has a good handle on the reset issue. As for how long LIBOR can remain at historically very low levels, we just had a 4 year run of very low rates earlier this decade. How far will LIBOR drop and how long will it stay low this time around? Who knows?

[DaCounselor]

“But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years?”
_____________________________

Because if he went conventional 30 yr fixed he would be paying principal as well, which on a median SD purchase probably would have bumped the monthly payment up by about $500/month. I think alot of the ARMS were interest only.

FSD has a good handle on the reset issue. As for how long LIBOR can remain at historically very low levels, we just had a 4 year run of very low rates earlier this decade. How far will LIBOR drop and how long will it stay low this time around? Who knows?

[DaCounselor]

“But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years?”
_____________________________

Because if he went conventional 30 yr fixed he would be paying principal as well, which on a median SD purchase probably would have bumped the monthly payment up by about $500/month. I think alot of the ARMS were interest only.

FSD has a good handle on the reset issue. As for how long LIBOR can remain at historically very low levels, we just had a 4 year run of very low rates earlier this decade. How far will LIBOR drop and how long will it stay low this time around? Who knows?

[DaCounselor]

“But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years?”
_____________________________

Because if he went conventional 30 yr fixed he would be paying principal as well, which on a median SD purchase probably would have bumped the monthly payment up by about $500/month. I think alot of the ARMS were interest only.

FSD has a good handle on the reset issue. As for how long LIBOR can remain at historically very low levels, we just had a 4 year run of very low rates earlier this decade. How far will LIBOR drop and how long will it stay low this time around? Who knows?

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

[DWCAP]

esmith,
I dont mean to seem like I am disagreing with you all the time. You just seem to have a more bullish sentement on rents than I do. I agree that rents will create a floor underhousing. I just think that using the highest rent in the area to justify pricing isnt gonna pan out. Using your same numbers, but tying to the lower range of the rent scale I get a purchase price of $245000. Requiring a reduction of 25% on current 330000 listings.

Downpayment: 12500
Morgage: 1350
Prop Tax: 245
HOA: 325
Tax deduct: -427
dont forget 5% down brings morgage insurance:
morg. ins. 80

Total: 2000/month.
-427 tax deduction
Cost: 1575/month

This is right in the middle of the range of rents right now and doesnt include upkeep costs, homeowners insurance, any managment or advertising fees, or rent loss due to turnover. The cost of capital on 12000 isnt much, so forget that.

Plus the argument that rents rise, so long term it is a good investment is a hard sell on me. Sure over 30 years it will turn cash positive, but that still doesnt make it a good investment. Most any non retarded or high risk investment over 30 years will make a return. Plus in the time frame we are talking about, 1-5 years, who says rents go up?

http://www.baltimoresun.com/business/realestate/bal-renters0121,0,4619944.story?ref=patrick.net

http://money.cnn.com/2008/01/16/real_estate/rents_flat/index.htm?ref=patrick.net

[DWCAP]

esmith,
I dont mean to seem like I am disagreing with you all the time. You just seem to have a more bullish sentement on rents than I do. I agree that rents will create a floor underhousing. I just think that using the highest rent in the area to justify pricing isnt gonna pan out. Using your same numbers, but tying to the lower range of the rent scale I get a purchase price of $245000. Requiring a reduction of 25% on current 330000 listings.

Downpayment: 12500
Morgage: 1350
Prop Tax: 245
HOA: 325
Tax deduct: -427
dont forget 5% down brings morgage insurance:
morg. ins. 80

Total: 2000/month.
-427 tax deduction
Cost: 1575/month

This is right in the middle of the range of rents right now and doesnt include upkeep costs, homeowners insurance, any managment or advertising fees, or rent loss due to turnover. The cost of capital on 12000 isnt much, so forget that.

Plus the argument that rents rise, so long term it is a good investment is a hard sell on me. Sure over 30 years it will turn cash positive, but that still doesnt make it a good investment. Most any non retarded or high risk investment over 30 years will make a return. Plus in the time frame we are talking about, 1-5 years, who says rents go up?

http://www.baltimoresun.com/business/realestate/bal-renters0121,0,4619944.story?ref=patrick.net

http://money.cnn.com/2008/01/16/real_estate/rents_flat/index.htm?ref=patrick.net

[DWCAP]

esmith,
I dont mean to seem like I am disagreing with you all the time. You just seem to have a more bullish sentement on rents than I do. I agree that rents will create a floor underhousing. I just think that using the highest rent in the area to justify pricing isnt gonna pan out. Using your same numbers, but tying to the lower range of the rent scale I get a purchase price of $245000. Requiring a reduction of 25% on current 330000 listings.

Downpayment: 12500
Morgage: 1350
Prop Tax: 245
HOA: 325
Tax deduct: -427
dont forget 5% down brings morgage insurance:
morg. ins. 80

Total: 2000/month.
-427 tax deduction
Cost: 1575/month

This is right in the middle of the range of rents right now and doesnt include upkeep costs, homeowners insurance, any managment or advertising fees, or rent loss due to turnover. The cost of capital on 12000 isnt much, so forget that.

Plus the argument that rents rise, so long term it is a good investment is a hard sell on me. Sure over 30 years it will turn cash positive, but that still doesnt make it a good investment. Most any non retarded or high risk investment over 30 years will make a return. Plus in the time frame we are talking about, 1-5 years, who says rents go up?

http://www.baltimoresun.com/business/realestate/bal-renters0121,0,4619944.story?ref=patrick.net

http://money.cnn.com/2008/01/16/real_estate/rents_flat/index.htm?ref=patrick.net

[DWCAP]

esmith,
I dont mean to seem like I am disagreing with you all the time. You just seem to have a more bullish sentement on rents than I do. I agree that rents will create a floor underhousing. I just think that using the highest rent in the area to justify pricing isnt gonna pan out. Using your same numbers, but tying to the lower range of the rent scale I get a purchase price of $245000. Requiring a reduction of 25% on current 330000 listings.

Downpayment: 12500
Morgage: 1350
Prop Tax: 245
HOA: 325
Tax deduct: -427
dont forget 5% down brings morgage insurance:
morg. ins. 80

Total: 2000/month.
-427 tax deduction
Cost: 1575/month

This is right in the middle of the range of rents right now and doesnt include upkeep costs, homeowners insurance, any managment or advertising fees, or rent loss due to turnover. The cost of capital on 12000 isnt much, so forget that.

Plus the argument that rents rise, so long term it is a good investment is a hard sell on me. Sure over 30 years it will turn cash positive, but that still doesnt make it a good investment. Most any non retarded or high risk investment over 30 years will make a return. Plus in the time frame we are talking about, 1-5 years, who says rents go up?

http://www.baltimoresun.com/business/realestate/bal-renters0121,0,4619944.story?ref=patrick.net

http://money.cnn.com/2008/01/16/real_estate/rents_flat/index.htm?ref=patrick.net

[DWCAP]

esmith,
I dont mean to seem like I am disagreing with you all the time. You just seem to have a more bullish sentement on rents than I do. I agree that rents will create a floor underhousing. I just think that using the highest rent in the area to justify pricing isnt gonna pan out. Using your same numbers, but tying to the lower range of the rent scale I get a purchase price of $245000. Requiring a reduction of 25% on current 330000 listings.

Downpayment: 12500
Morgage: 1350
Prop Tax: 245
HOA: 325
Tax deduct: -427
dont forget 5% down brings morgage insurance:
morg. ins. 80

Total: 2000/month.
-427 tax deduction
Cost: 1575/month

This is right in the middle of the range of rents right now and doesnt include upkeep costs, homeowners insurance, any managment or advertising fees, or rent loss due to turnover. The cost of capital on 12000 isnt much, so forget that.

Plus the argument that rents rise, so long term it is a good investment is a hard sell on me. Sure over 30 years it will turn cash positive, but that still doesnt make it a good investment. Most any non retarded or high risk investment over 30 years will make a return. Plus in the time frame we are talking about, 1-5 years, who says rents go up?

http://www.baltimoresun.com/business/realestate/bal-renters0121,0,4619944.story?ref=patrick.net

http://money.cnn.com/2008/01/16/real_estate/rents_flat/index.htm?ref=patrick.net

[Author]

Posts