[Eugene]

Current mortgage rates are near historic lows, there’s little room for them to go any lower, but plenty of room and good reasons to go higher. IMHO, 12 months from now, rates will probably be in 6-8% range. Rates below 5.5% are highly unlikely, rates above 8% and possibly as high as 10-12% could happen if things go too wrong.

Mortgage rates are basically 10-year treasury rates plus premium that represents increased risk of default by homeowner (vs. risk of default by the federal government, which is zero).

Both components have to go up in the long run. 10-year treasury rates are irrationally low. The only thing that keeps them down is continued intervention by China and Japan. When these two players decide to stop their game, dollar will crash and treasuries will go through the roof. However, they’ve been at it for 10+ years and I wouldn’t exclude the possibility that the game will continue for another 10. I certainly wouldn’t bet on it happening within 6-12 months. In the mean time treasury rates may climb gradually in response to the fed’s easing.

Prime and especially jumbo mortgage premiums will go up as the house bubble is unraveling, when prices start falling in earnest and foreclosures move beyond subprime.

[Eugene]

Current mortgage rates are near historic lows, there’s little room for them to go any lower, but plenty of room and good reasons to go higher. IMHO, 12 months from now, rates will probably be in 6-8% range. Rates below 5.5% are highly unlikely, rates above 8% and possibly as high as 10-12% could happen if things go too wrong.

Mortgage rates are basically 10-year treasury rates plus premium that represents increased risk of default by homeowner (vs. risk of default by the federal government, which is zero).

Both components have to go up in the long run. 10-year treasury rates are irrationally low. The only thing that keeps them down is continued intervention by China and Japan. When these two players decide to stop their game, dollar will crash and treasuries will go through the roof. However, they’ve been at it for 10+ years and I wouldn’t exclude the possibility that the game will continue for another 10. I certainly wouldn’t bet on it happening within 6-12 months. In the mean time treasury rates may climb gradually in response to the fed’s easing.

Prime and especially jumbo mortgage premiums will go up as the house bubble is unraveling, when prices start falling in earnest and foreclosures move beyond subprime.

[Eugene]

Two points.

1. Banks will be reluctant to lend money to people who are upside down on their mortgages. The “I’m trying to sell” trick isn’t going to work when your house is worth 250k and you owe 500k in the first mortgage.

2. If I’m not mistaken, zero down loans are usually constructed out of a 20% down first mortgage and a second mortgage/HELOC to cover the down payment. It’s done this way because 20% down waives the PMI requirement, interest on the second mortgage is tax deductible, and PMI is not.

In this situation, first mortgage is non-recourse, but second mortgage isn’t. Who lent you 100k to cover your down payment will try to sue you and collect his money.

[Eugene]

Two points.

1. Banks will be reluctant to lend money to people who are upside down on their mortgages. The “I’m trying to sell” trick isn’t going to work when your house is worth 250k and you owe 500k in the first mortgage.

2. If I’m not mistaken, zero down loans are usually constructed out of a 20% down first mortgage and a second mortgage/HELOC to cover the down payment. It’s done this way because 20% down waives the PMI requirement, interest on the second mortgage is tax deductible, and PMI is not.

In this situation, first mortgage is non-recourse, but second mortgage isn’t. Who lent you 100k to cover your down payment will try to sue you and collect his money.

[Eugene]

You can also short entire indices (DOG) or industry sectors (SKF) via bear market ETFs. Upside isn’t that great, but (unlike put options) you don’t lose much if you’re wrong, and (unlike short stocks) your losses are capped.

Before shorting anything – keep in mind that the Fed will likely keep cutting rates. You have two effects working against you. First, lower rates -> more irrational exuberance -> higher stock prices. Second, lower rates -> more money being printed -> inflation and weaker dollar -> higher prices and higher profits -> higher stock prices. Especially stocks that would otherwise go down (e.g. CAT) may end up doing the opposite, thanks to the Fed.

[Eugene]

You can also short entire indices (DOG) or industry sectors (SKF) via bear market ETFs. Upside isn’t that great, but (unlike put options) you don’t lose much if you’re wrong, and (unlike short stocks) your losses are capped.

Before shorting anything – keep in mind that the Fed will likely keep cutting rates. You have two effects working against you. First, lower rates -> more irrational exuberance -> higher stock prices. Second, lower rates -> more money being printed -> inflation and weaker dollar -> higher prices and higher profits -> higher stock prices. Especially stocks that would otherwise go down (e.g. CAT) may end up doing the opposite, thanks to the Fed.

[Eugene]

Housing will not magically fall off a cliff all at once, it will be more like a wave that travels inwards from peripheral regions.
Heavily overbuilt exurbs are first to feel the hurt. It’s already very bad in Hemet. Temecula and Murrieta are getting there. When Temecula gets to $100/sq ft, people will start thinking “hmm why should I pay $300/sq ft in Escondido or San Marcos when I can have 2x bigger house for less money in Riverside County?”, Temecula will start stabilizing, Escondido and San Marcos will start experiencing slow sales and falling prices, etc.

[Eugene]

Housing will not magically fall off a cliff all at once, it will be more like a wave that travels inwards from peripheral regions.
Heavily overbuilt exurbs are first to feel the hurt. It’s already very bad in Hemet. Temecula and Murrieta are getting there. When Temecula gets to $100/sq ft, people will start thinking “hmm why should I pay $300/sq ft in Escondido or San Marcos when I can have 2x bigger house for less money in Riverside County?”, Temecula will start stabilizing, Escondido and San Marcos will start experiencing slow sales and falling prices, etc.

[Eugene]

What does it say? It confirms my observation that it is a generally run down area with a few high end homes probably on the boundaries.

Most likely it says that the data is not very reliable. I work 5 miles from Clairemont, it’s not Rancho Santa Fe but it’s certainly not a run down area. There is a trailer park east of 805 that’s in Kearny Mesa but technically in 92117, that’s where all weird 5-digit prices must be coming from. Other than that it’s a middle-class neighborhood, mostly built in 50’s and 60’s, 1000-1500 sq ft single family houses, some apartments and condo complexes.

[Eugene]

What does it say? It confirms my observation that it is a generally run down area with a few high end homes probably on the boundaries.

Most likely it says that the data is not very reliable. I work 5 miles from Clairemont, it’s not Rancho Santa Fe but it’s certainly not a run down area. There is a trailer park east of 805 that’s in Kearny Mesa but technically in 92117, that’s where all weird 5-digit prices must be coming from. Other than that it’s a middle-class neighborhood, mostly built in 50’s and 60’s, 1000-1500 sq ft single family houses, some apartments and condo complexes.

[Eugene]

3000 houses/condos worth less than 200k in Clairemont in 2005?

I can see how a 1br 500 sq ft condo could be worth that much, but are there so many 1br condos in that area?

Right now realestate.yahoo.com is showing 164 houses/condos for sale in 92117, 83 above 500k, 24 above 700k.

[Eugene]

3000 houses/condos worth less than 200k in Clairemont in 2005?

I can see how a 1br 500 sq ft condo could be worth that much, but are there so many 1br condos in that area?

Right now realestate.yahoo.com is showing 164 houses/condos for sale in 92117, 83 above 500k, 24 above 700k.

[Eugene]

a friend of mine has a house in Clairemont. He says that his neighbor’s 3br 1800 sq ft house just sold for 610k after TWO DAYS on the market.

it’s going to be hard to convince him that we have a bursting bubble.

[Eugene]

a friend of mine has a house in Clairemont. He says that his neighbor’s 3br 1800 sq ft house just sold for 610k after TWO DAYS on the market.

it’s going to be hard to convince him that we have a bursting bubble.

[Eugene]

For the most part, 90% stated and 95% full doc is where we are at currently.

Presumably, you need FICO 700 to qualify for either?

[Author]

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