Who are the buyers in this market and economy?

[lifeisgood]

My wife and I closed in March and understand that our property will lose value. The question is how much? None of us know and can only speculate. We bought a new home in 4s and know that a lot of people on this board believe that this area is on the way to losing a lot more value. It seems like its getting to the point where builders, in this area and others like it, are close to being as low as they can go to be able to still build and survive. After reading many posts on this board, it seems like most of you would like to see this happen so that property values will fall more. Bottom line, recently there are many buyers in this market like us that bought property for the long term and not to flip. We put about 10% down and used my VA benefit no PMI. We also locked a 5% fixed 30. We prepared unlike a lot of people from the past by paying off all debt and now only have a mortgage and utilities. Believe it or not, many people today have done the same given todays in depth lending standards. As far as employment, I have been in the military for 11 years and my wife is a dental hygienist. A lot of current buyers, I’m assuming, are in the same position as far as employment security. Good luck to all in your decisions.

[jimmyle]

Is the rate of buying now close to historical standard? I have been observing real estate (mainly in Mira Mesa) only in the last two years and I have never seen houses getting picked off the market this fast.

[jimmyle]

Is the rate of buying now close to historical standard? I have been observing real estate (mainly in Mira Mesa) only in the last two years and I have never seen houses getting picked off the market this fast.

[jimmyle]

Is the rate of buying now close to historical standard? I have been observing real estate (mainly in Mira Mesa) only in the last two years and I have never seen houses getting picked off the market this fast.

[jimmyle]

Is the rate of buying now close to historical standard? I have been observing real estate (mainly in Mira Mesa) only in the last two years and I have never seen houses getting picked off the market this fast.

[jimmyle]

Is the rate of buying now close to historical standard? I have been observing real estate (mainly in Mira Mesa) only in the last two years and I have never seen houses getting picked off the market this fast.

[SDEngineer]

[quote=patientrenter]

SDEngineer, in the old days, lenders kept loans on their own books, and took 100% of the loss from a failure to repay, or a failure to pay the full agreed original monthly payment. Today, nonrepayment of most mortgages is covered by guarantees from a govt agency, e.g. the FHA (directly) or the FDIC (indirectly). So the mortgage and housing markets will look nothing like they used to.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

[SDEngineer]

[quote=patientrenter]

SDEngineer, in the old days, lenders kept loans on their own books, and took 100% of the loss from a failure to repay, or a failure to pay the full agreed original monthly payment. Today, nonrepayment of most mortgages is covered by guarantees from a govt agency, e.g. the FHA (directly) or the FDIC (indirectly). So the mortgage and housing markets will look nothing like they used to.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

[SDEngineer]

[quote=patientrenter]

SDEngineer, in the old days, lenders kept loans on their own books, and took 100% of the loss from a failure to repay, or a failure to pay the full agreed original monthly payment. Today, nonrepayment of most mortgages is covered by guarantees from a govt agency, e.g. the FHA (directly) or the FDIC (indirectly). So the mortgage and housing markets will look nothing like they used to.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

[SDEngineer]

[quote=patientrenter]

SDEngineer, in the old days, lenders kept loans on their own books, and took 100% of the loss from a failure to repay, or a failure to pay the full agreed original monthly payment. Today, nonrepayment of most mortgages is covered by guarantees from a govt agency, e.g. the FHA (directly) or the FDIC (indirectly). So the mortgage and housing markets will look nothing like they used to.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

[SDEngineer]

[quote=patientrenter]

SDEngineer, in the old days, lenders kept loans on their own books, and took 100% of the loss from a failure to repay, or a failure to pay the full agreed original monthly payment. Today, nonrepayment of most mortgages is covered by guarantees from a govt agency, e.g. the FHA (directly) or the FDIC (indirectly). So the mortgage and housing markets will look nothing like they used to.[/quote]

What does this have to do with a property grading out as a cash flow investment however? My entire point was that both historically and currently, you can’t get a 0 down (or even low down) loan for an investment property, therefore the floor for investors is set at 20% or somewhere nearby down where all the expected expenses are lower than the rent it can bring in.

The fact that 5 years of catastrophic homeownership decisions by the fed, the banks, the realtors, the mortgage brokers, and the buyers is currently being unwound will eventually wind up hitting a wall set by investors based on what they can buy the place and rent it out for. That is simple market economics.

As a side note, once prices do fall to that level (and, as has been pointed out by Rich in some of his recent charts, in San Diego as an aggregate, we may be either near there or already there – though higher priced submarkets like the coast and the high end areas are pretty clearly not there yet), the risk to a bank then becomes fairly minimal in a default scenario, no matter who pays – since only in a deflating market do banks take large losses from a defaulted mortgage loan. After prices become normalized relative to rent and income levels, the value of the foreclosed property is high enough that in general it covers the value of the foreclosed loan.

Only in the case where the asset is extremely overvalued relative to the mortgage (i.e. a bubble priced house) do banks take a really big bath in a foreclosure scenario. Similarly, a buyer who winds up in danger of default can generally sell that house, avoid the ding on his/her credit, and pay off the mortgage if need be.

[lifeisgood]

It’s interesting to see a post like this from a few years back. Many believed that it was stupid to buy a home in the middle of 2009. I’m sure glad that we did. I once posted on what the housing market in 4s ranch would do after we bought in March of 2009. Many posters responded that it would go down in value. We bought at 205sqft and now homes are selling for 260sqft +. I hope we keep the tough lending standards up so that we don’t have another unqualified buying frenzy.

[skerzz]

Agreed… glad I purchased back in mid 2009 as well. Although not our preferred location, we purchased in San Marcos @ $160/sq ft and the house recently appraised for $208/ sq ft. With the FHA loan and $8K tax credit available back then, my wife and I were able to purchase our first home only a year out of college(and with 1 year job history) with approximately 1% down (net of the tax credit). Looking back it seems like a very risky loan for the bank to make, but it all worked out in the end. After a recent refinance out of mortgage insurance, we now have a property that can yield $500-700/month free cash should we choose to rent it out and find a “move-up” property.

Makes me want to quit my day job to become a full time speculator :). But commonsense prevails — timing is everything, the previous owner/speculator had purchased the home new from the builder back in 2005 at $257/ sq ft before being foreclosed on in 2009.

[Author]

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