Who Are These People Anyways?

[mmwmd]

Who are all these people buying houses in the 900K-1 Plus Million dollar range? More to the point, why are all these other people and POSTING their houses in the 900K-1 Plus Million dollar range. Who do they think they’re selling their houses to? There just CAN’T be that many Charger Football players looking for a home in San Diego. It’s even more incredulous that they think they can sell their homes when lenders are tightening their purses. Unless you have a couple of 100K sitting in your wallet, lenders won’t lend you money AND if you don’t have pristine credit or if you’re not willing to bite on a 7.8+% interest rate, you can just forget it. I hear case after case of people falling through escrow because lenders on a week to week basis have newer and stricter guidelines that make house loans impossible to fund. Don’t the sellers know that? Are they confused by their own delusions of grandeur or (more or less likely) are their real estate agents not being real enough with them?

There must still be people floating in the stratosphere with bubbles that haven’t burst. It’s going to be a long hard crash.

[mixxalot]

Its called the river of Denial

That these greedy sellers will not lower the prices on the overpriced shacks.

[Peace]

We’ve been asking ourselves this question for years and watched the prices go up and up.

But the real question for us is how do people figure for retirement? We are maybe 15 years out on retirement and have been planning since our mid-20’s. Seeing our parents living into their 80’s and 90’s we can’t imagine going into retirement with huge property taxes and maintenance.

Maybe they have more retirement money than we can imagine or maybe they plan to trade down. There should be a Sh** load of used McMansions on the market in about 25 years.

[HLS]

MMW,
Loans are NOT impossible to find/fund. Your source is flawed. What IS impossible, is getting the truth about what is really going on.

Lending standards are just returning to the good old days. They are NOT getting stricter every week, and you don’t need “pristine” credit to get a loan.

There is still TONS of money available to borrow IF YOU QUALIFY.

I’m as big a bear as anybody, but the media reports flippant comments like you are stating.
There was an idiotic article the other day that states that prices are holding because the MEDIAN is about the same. Repeated by people who don’t understand what they are saying.

MOST people do not have a mortgage problem. My guess is that at least 90%-95% of San Diego county bought their homes prior to 2005. IF they didn’t use their home like an ATM machine, many have a tiny to huge amount of equity and a fixed rate loan, or no loan at all.

Many older solid neighborhoods may not fall very much.

For every person that bought at/near the top, there was a seller, many of whom made a pile of cash and timed the market perfectly, and are sitting on the sidelines. Ex-SD (On this borad) for one, was a genius, and moved to South Carolina with his stash of cash.

There are plenty of people that have a huge net worth. Many truly wealthy “old money” people live modestly
and there are a fair amount of younger professionals who make 6 figure incomes, with H&W making well over $200K a year. They may well have $200k for a down payment on a $1M house, and can afford an $800K mortgage.

Only an intelligent CHARGER player would be looking at a $1M home today. Others want McMansions. There are plenty of $3M+ homes around too.

The highest end of the market isn’t as soft as many people think. Many with $3M+ homes aren’t hurting or desperate and large estates or spectacular views are what’s most attractive to wealthy foreigners. The weak dollar represents a bargain to some. A $3M home was 3 million Euros, and today is now only 2.2 million Euros.

I’m in the lending biz. Jumbo rates are closer to 7% or under.

[kewp]

HLS,

I think if that were true, SD would have a higher median income and the US savings rate wouldn’t be negative.

Additionally, where were all these people the last few times RE went bust in SD?

[HLS]

MEDIAN is a meaningless statistic.
Which part of my rant do you think is wrong ?

Many of these people have been living here for a very long time. LOTS of retired military, etc. Many bought $30K homes MANY years ago that are $700K today, they even bought a rental or two that they still have.

Homes that were $90K 20 years ago became about $500K at the peak. It wasn’t that long ago, but still sheer insanity.

Dealing with the median, $20K, $50K, $200K, $1M, $2M
The median is $200K… To the other 4 people the median means absolutely nothing to their personal situation.

I’m yet to figure out WHY the median is used, other than to mislead.

[kewp]

Which part of my rant do you think is wrong ?

I don’t think its wrong, I just doubt there is enough what you are talking about to enable a soft landing.

[HLS]

I don’t expect a soft landing.

Just a long drawn out process of builders continuing to lower prices until they can walk away from a completed project (with a sigh of relief)
coupled with…….
The denial of resellers as to what todays realistic price is and asking more for a used house than a new one.

Once that fight is over, the next wave will be flat prices with few buyers to step in due to affordability.

While this is playing out over the next few years, the “must sells” and REO’s and foreclosures will continue, establishing values in each area based on supply and demand.

It still wont affect the owner occupied property in an old established neighborhood who will be a few years closer to being fully paid off. It’s remains the majority of homeowners.

NAR spokespiece said that mid-late 2008 will be the bottom. Can you imagine ? I’m not sure that 2010 will be the bottom.

[kewp]

HLS,

Sorry, I interpreted your post incorrectly.

I think, however, you are missing the effect that shutting of the home equity tap will have on the local economy. I see lots of bankruptcies in the future for SD.

[HLS]

We’re on the same page, however I don’t think that a very high % have used their home like an ATM to that extent.
I do expect general prices to continue declining, although not every neighborhood/area.

What do you mean by “lots” of BK’s ?

There is no doubt that many did refi and take cash out, but those that refi’d to 100% in 2005 are few.

If someone paid $40K years ago and refi’d to $300K in 2002 they still have equity and (hopefully) an affordable payment. If they only took out $50k-$100K, it’s no big deal.

With the current subprime borrower crisis, about 85%-90% of borrowers ARE paying their mortgages on time, even with an increase. In excess of 95% of Prime borrowers are paying.

The defaults will be a tiny % of the overall market, but will still have impact.

Realize that the crazy exotic loans did allow many people to buy (who would not have otherwise qualified) after 2001 and they now have equity and an affordable payment, and they are not defaulting.

In San Diego county, I think that it would be a HUGE stretch to say that 10% of homes are leveraged over 90% even at todays price.
I don’t know how many homes there are in the county.

I’d say that 90% of homeowners in SD county today could not afford to buy the home that they own today. There is something wrong with that.

The real problem is about 24-30 months of purchase window AND those who refi’d with large cash out.

I really do understand your point. (Some people who took money out improved their properties)
I just think that the number of real problems is low as an overall %.
No doubt there were a few that took out $500K and just blew it, but how many ??
Sure there will be some BK’s, but not a high %.

Some people expect a complete collapse, rolling back prices to 2001 levels. I don’t think it will happen.
Too many people have equity and only need to afford the difference of moving up or they just aren’t going anywhere.

Back to the OP question, there are people that have old houses owned free and clear, that they can sell for $700K+ and they can move to a brand new $1M tract house with a mortgage of less than the conforming $417K amount.
Although the market is weak and will correct, it’s not going to collapse.

Riverside county is a different scenario. A higher % there will be losing their homes due to affordability.

[Eugene]

HLS

“In San Diego county, I think that it would be a HUGE stretch to say that 10% of homes are leveraged over 90% even at todays price.
I don’t know how many homes there are in the county.”

It is considerably more than 10%.

According to http://www.city-data.com there are around 550k owner-occupied houses and condos in the county.

According to bubbletracking.blogspot.com, 93k new and existing houses and condos were sold since 07/2005. Estimate 30k more houses sold during 1st half of 2005. Most likely, every one of these houses is worth less than they were paid for. 123k is 17% of all housing stock.

What mortgages did those buyers take?
* Around 80% were ARMs, more than 40% were interest-only or negative amortization
* Around 50% put 5% or less down out-of-pocket (CLTV >95%)
* Average nationwide CLTV was 91% in 2006, can’t find data for San Diego but it’s gotta be higher

So here you have 17% of houses that were leveraged to 90+% (average) back when they were bought. I’m not counting houses that were bought in 2004 and financed for 100% down; and I’m not counting houses that were refinanced in 2005-2006.

So, the correct statement would be “10% of homeowners are in negative equity land even at todays price.” Each one of these 10% is a foreclosure candidate. If prices were to fall further, this 10% can grow. It’s a vicious circle.

That’s the big problem we have today. When housing prices peaked in 2005, public did not yet accept the reality of the housing bubble, and lenders did not cut down on exotic mortgages. We were given 2+ years to build up a huge inventory of houses that were bought at sky-high prices for little or no money down, whose new owners won’t think twice about foreclosing if market corrects even by 20%.

[patientrenter]

HLS, your guess is as good as mine, but I think that as general prices go down over the next 2 years, buyers who bought at lower prices will start to face difficulties, triggering more price decline pressures. As esmith said, this thing feeds on itself, so it’s very hard to say that 2003 prices or 2001 or even 1998 form the bright line at which prices will stop declining.

For example, short of government intervention in the form of inflation or bail-outs, where will the rational lenders come from who give 90% of a home’s purchase price in an environment where prices are declining by 10% annually with no upturn in sight? You’d have to be desperate or stupid to be the ultimate investor making such a loan to anyone in a state with no-recourse purchase money loans.

Eventually, prices will go up. Why? Becuase they always do. But I think it’s too early to accurately predict the bottom for this downturn.

Patient renter in OC

[HLS]

OK,, Thank you for the update. I didn’t have those figures.
I was guessing.

On City-Data it also states that
Housing units in structures:
One, detached: 530,430
One, attached: 98,101
For a total of 628,531.

It is unclear as to the date that this is accurate, and how many new homes have been added since that time.
Your point is taken, however I still believe that plenty of people have plenty of equity.
I still don’t see that 17% were leveraged to 90%. You are assuming that every one of those 123,000 was ??
What month is that 123,000 through ? Recent sales haven’t dropped as much.

In any case, well over 80% probably don’t have any problem.
Over 95,000 homes have no mortgage at all.

I am as big a bear as anyone, but I think this is why the market hasn’t/won’t tank overnight and will probably bottom out at a level higher than what most of us are thinking it will or should.

Affordability will always be an issue and looking forward only well qualified buyers will be able to originate loans, but there will always be creative financing with AITD’s and owner carrying as necessary to maintain a free market AND there will be people buying that cannot afford them long term, but want to get in as they are afraid of missing out.

We don’t disagree, it’s just that it’s impossible to know exactly how bad things will get or really are.

[eyePod]

HLS and esmith – very good points

[kewp]

What do you mean by “lots” of BK’s ?

San Diego is a ‘boom or bust’ town. We tend to get over-dependent on a single industry (aerospace, tech, real estate) and then bust when the money leaves.

I’ve personally noticed, over the last few years especially, that most of the people I meet in SD are in one of the three R’s:

Retail

Restaurants

Real Estate

I see the first two as being largely dependent on the last one. I.e. real estate and related business tank, down goes the consumer base and HELOCs that financed the first two. I see lots of BK’s across all three sectors, especially ones that are tied directly to the former housing boom.

Anyways, kudos to esmith for bringing some fine data to the table. Indeed, the real problem are the people that are 100% dependent on the bubble in order to keep their properties. Paying mortgages on investment properties with home equity extractions, for example.

It’s this population that are doing the equivalent of going ‘all in’ on every poker hand. Which is a winning strategy until you bust, that is.

And when they do bust (and they will), there is no option other than foreclosure.

[Author]

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