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DaCounselor
Participant“Why are you expecting any type of bail-out? Talk about magical thinking: Its okay to take risks, because the gvt will bail us out. Good luck on that.”
____________________________“Luck” and “magic” have nothing to do with it.
It’s probably not even going to get to the point of a govt bailout. Again, the threshold question is why in the world would the purchasers and servicers of a loan want to own a property that is upside down? It’s a loser for them. They lose at least 6 months of revenue stream, attorney fees, transaction costs and who knows what other hidden costs. It is a bad deal for them.
I suspect we will see quite of bit of modification to existing loans once ARMS reset and borrowers cannot afford the higher payments and cannot refi because they are upside down. The “bailout” will come from within the lending industry itself.
Participant“You bought in 2001 and you only have 15% equity? Sounds low to me.”
_____________________Refi’d & HELOC, paid off rentals.
ParticipantI have posted here numerous times regarding my position. I am long on SD coastal RE.
My first purchase was a coastal condo around market peak in 1991. My second purchase was a coastal townhome in ’96. I purchased my current home in ’01. The first 2 are now free and clear and obviously postive cash flow. Based upon the last sale in my current neighborhood, I have just over 15% equity in that property(used to be over 20%).
Call me liar, call me what you will. I’m not much into name-calling, so I’ll leave that up to you. I just post here from time to time to add my 2 cents from the perspective of someone who has owned SD RE for a number of years, has bought at the previous peak of the market, has ridden the up and downs and has come out in pretty good shape for a pretty regular guy.
ParticipantAs to both SDR’s posts, the numbers are what they are. You can put whatever spin you want on them, but it won’t change the numbers.
Regarding the tightening of lending standards, a fella in my neighborhood reports that he was just approved for a refi of his 1st mtg., subordinating a HELOC, with a total LTV of 98%. Fixed at 6.6%, 30 yr with 10 yr IO. No docs. As in zero, as in stated income. And this is through the back-alley outfit of….Wells Fargo. Standards may be tightening – may be – but they sure ain’t tight.
As for lenders going belly-up in an epidemic of defaults – what are the chances of this really happening? How many rescue possibilities are out there, from the govt. or from the lenders themselves? Does anyone really believe that the lenders want these homes on their books? And who are these lenders, anyway? Aren’t most loans just packaged and sold as investments, and the entity you are writing your check to only services the loan (and takes a slice of the pie each month before passing along the balance to the investors). Don’t the servicing co’s want to keep the cash flowing through? Do you think the investors want to own your home? Or do they just want to get paid? I suppose the bottom line question is why won’t there be some kind of bailout (if necessary)?
The folks who posted they just bought provide real-world examples of folks who are not using creative/exotic financing to purchase property. There are alot of those folks here in SD. There is another thread regarding Carlsbad sales that seems to indicate alot of folks who did not need/use exotic financing to make their purchases. What does this mean? Alot of folks have alot of existing equity and can easily trade up? Alot of folks making alot of money in SD? (I do think SD is underrated in terms of income – there is alot of money being made in this town)
Don’t get me wrong – I think we will see prices pull back a bit more before this correction is done – but I do not subscribe to the “sky is falling” mentality that some extremists embody.
Participant“I have cash and I have time…what do you have??”
______________________Uh, let’s see….how about 7 figures in aggregate equity and
positive cash flow on 2 properties.Any other questions?
ParticipantThe Sports Arena area seems like a pretty undesireable area to live. Surrounded by lots of industrial space and commercial space. Not to mention several adult entertainment clubs. A development there would make Liberty Station look like Utopia.
Participant“House was valued around 500k”
_____________________What does this mean? Valued by who?
When did they buy? And for how much? And what are the sales comps?
There is just way too much missing info to draw any conclusions from this scenario.
Participant“Yep, I think we may have run her off”
_________________________You would be laying low too if you spouted off this advice last August:
“One more reason to stay out of the stock market for another year at least. Sorry, no fall rally for the mid-election year cycle folks.”
And it probably doesn’t help that her guru Roubini is now backtracking off of his recession call. What a surprise.
But S&P 600, here we come!
Participant“When NODs (and foreclosures) drop to normal levels, downward pricing pressure on homes will be coming off, giving a signal that prices could soon start increasing.”
_____________________________What are “normal” levels of NODs and foreclosures? What historical data, if any, is out there regarding monthly and/or yearly NODs and foreclosures? How far back does the data go? Are we coming off an historically low rate of NODs and foreclosures, such that the recent increases are merely bringing us back up toward the historical average? And what is the historical average? And shouldn’t the raw NOD and foreclosure numbers over the years be expressed as a percentage of the raw number of loans so that one arrives at a ratio of NODs and foreclosures to total loans existing? Isn’t the creation of such a ratio the only way to accurately measure where the current level of NODs and foreclosures rank in terms of severity?
I think these are some of the key questions that have to be addressed if one wishes to truly get an accurate picture of what the NOD and foreclosure numbers mean today.
Participant“I do not understand why anyone would pay this much when it is possible to buy ocean front places in the Caribean or South America for half as much money.”
__________________________But where are you going to work? And what kind of $$ will you make? What about cost of living? (How about those $8 glasses of OJ in the islands?) Quality of healthcare? How often will you see friends and family if you move to South America? The list goes on and on. Simply not a great option for most folks.
Participant“I don’t quite get the attempted distinction between East and West Coasts.”
I lived both places for a long time each. They are very very different in that respect.
_____________________________________Uh, I lived on the East Coast for 25 years. All my family and old friends live back there. I travel to and do business on the East Coast 4-5 times a year.
In your original post you cited one family-owned business where the kids went to college for kicks and then were hired by the family business as stock-boys for $100K/year. The insinuation was that this arrangement is somehow commonplace on the East Coast. I couldn’t disagree more. I believe such an arrangement is highly uncommon.
Regardless, it really is pointless to debate which coast has a higher percentage of family-owned businesses with certain longevity figures. At the end of the day it’s about making coin, regardless of who your employer is. There has been and continues to be tremendous opportunity in SoCal to make money. Lots and lots of people making lots and lots of money.
This is kind of a “so what?” thread, isn’t it?
Participant“There is money in places you wouldnt even suspect back east that you just dont find here. Here’s an example, in Socal we have Frazee Paint stores, Dunn Edward Paint Stores, Vista Paint Stores, Home Depot, Lowes and Dixieline which I guess pay their employees $10 to $15 an hour.”
_________________________The East Coast is also loaded with similar corporate-owned franchises. For decades the mass-developed East Coast suburbs have seen strip mall after strip mall go up, all full of corporate-owned franchises. And Southern Cal has its fair share of family-owned businesses. I don’t quite get the attempted distinction between East and West Coasts.
There are plenty of people making plenty of money on both coasts, and there are plenty of people just scraping by on both coasts.ParticipantFrom its inception, the development of downtown condos appeared to me to be not much more than an investment tool for speculators and to some extent an urban second/third/fourth home retreat for the wealthy. I attempted to get in on the action during the early stages of construction, the days of waiting lists for units seen only in artists’ renditions, without any luck. I would have flipped quickly.
My gut tells me that downtown will feel more pain than most areas over the next 12-24 months as values drop. Purchasing downtown now may be one of the worst RE investments in SD at this time.
Participant“I don’t think as many of these people will spent a lifetime paying of their bad investment, instead, I believe most in that position will just eventually walk away from their homes.”
________________________________The only people who will be able to walk away relatively unscathed (if you call a 7 yr credit ding – uh, I mean credit crater – unscathed) are those who have not succumbed to the refi and/or HELOC market.
If a property owner finds themself in a situation where they cannot afford the mortgage payments and cannot refinance into an affordable payment, they will simply sell their property and take whatever profit the market allows. The idea of walking away from the property inherently assumes that the owner is upside down or will be upside down after transaction costs. In this situation, the owner can choose between selling the property and covering any shortage with an out-of-pocket contribution, or just walk away.
Unfortunately, walking away from a refi, HELOC and/or 2nd mtg. exposes the owner to a deficiency judgment for the loss suffered by the lienholder(s), including their costs. It also exposes the owner to being taxed for the difference in foreclosure sales price and the amount owed on the property – it’s viewed as income by the IRS. Walking away may have more devastating financial consequences than holding on and some way, some how making the mortgage payments. In fact, I think it’s generally found that most folks will forego just about all other expenses just to scrape together their mortgage payment.
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