[jimklinge]

Funny, I would only live north of the 78, outside of the cookie-cutter tracts of Shadowridge. Their HOA is run by a Nazi regime, where you literally need them to sign off a physical inspection of your house before you can sell it.

Get out past Barsby or off Buena Creek and you’re in a rural countryside that is away from it all. Many quality estates, some a million-dollars-plus.

But yes, you have to drive through downtown to get there. Vastly improved the last couple of years, but still plenty of barrio immediately adjacent.

It’s a great town if you don’t have to travel too far, and appreciate a diverse community. Lots of upside potential, and the best climate on earth, bar none. Ocean breezes without the fog, that’s nice!

Jim the Realtor

[jimklinge]

I confirmed it, Washington Mutual is now running 110% resets.

Probably getting ready to sell company to some unsuspecting Wachovia-type corporation.

Jim the Realtor

[jimklinge]

Since you asked so nicely, I’d be happy to answer that.

Here are the fully-amortized payments on a $500,000 mortgage:

$3,296.35 per month, at 6.91%

$3,990.78 per month, at 8.91%

A hefty $694.43 increase per month, but not double.

And you still have the MINIMUM payment as an option too.

The only thing that would cause an Option-ARM mortgage payment to double is a reset.

Jim the Realtor

[jimklinge]

Very nice post powayseller – easy to read and inviting, it makes me want to participate! Here’s my two cents on:

Option-ARMs or Neg-Ams

You’ll see Option-ARM terms described like this:

$500,000 loan, 1.5% start rate, 2.80% margin over cost of funds, 11.95% lifetime cap, 125%/10-year reset cap

The initial MINIMUM payment is based on the 1.5% start rate, and changes +/- 7.5% per year. That is a mathematical formula that has nothing to do with interest rates.

When you first hear that it’s hard to fathom how a mortgage payment can adjust with no regard to interest rates, because in every other case, it’s the interest rate that determines the payment. The minimum payment is initially based on an artificially-low interest rate, but that’s the only time it has anything to do with interest.

In this example, that MINIMUM payment is:

1st year – $1,725.60
2nd year – $1,855.02
3rd year – $1,994.15
4th year – $2,143.71
and so on.

(take the last payment X 1.075 to find new pmt.)

The FULLY-AMORTIZED payment IS figured by an interest rate, and it’s determined by adding the margin to the index. Today’s index is 4.11% + 2.80 = 6.91%.

The fully-amortized payment on the $500,000 is $3,296.35.

If you only pay the minimum payment, you ADD THE DIFFERENCE onto the loan balance. – In this case, add $1,570.75/mo.

Once you’ve added/deferred enough to reach 125% of the original loan balance, the loan resets and you then pay principal and interest monthly, amortized over the remainder of the loan.

In this example, the simple math shows that the reset kicks in around month 80, or between years six and seven. But remember that the minimum payment is going up every year, so if rates stay the same or go down, the gap is narrowed and the reset could be extended further out. In any case, the loan will reset after the tenth year – heck, you have to start paying it down sooner or later.

Obviously if rates go up, the deferred-interest gap widens, and the reset could kick in sooner.

This is your standard World Savings Neg-Am mortgage, also used by Downey Savings and Washington Mutual.

Countrywide and others tweaked the 125%/10-year reset cap to 115% or five years, and those borrowers who didn’t catch it are looking at a reset as soon as 30 months, if they aren’t careful.

The example in Business Week was a reset after 30 months, and the payment went from $1,600 to $4,000 per month. Ouch.

The mortgage industry better be working on a way to re-negotiate those terms (like raising from 115% to 125%), or they will be owning A LOT of houses in the near future. Not sure how they can re-negotiate on loans sold to MBS buyers, but somebody better do something.

If John Dugan said the payments will double when rates go from 6% to 8%, he is wrong. Payments could double (or higher) IF RESET EARLY – is the accurate fact.

Sorry for the long post, but you have the intimate details of how the Option-ARMs work.

Jim the Realtor

[jimklinge]

Thanks sdrealtor, for taking the time.

Jim the Realtor

[jimklinge]

Great powayseller – now you’re bashing me over here too.

I’m sure you dig looking like the bubble hero who got erased by some bitter realtor, doesn’t that sound sexy!

I’ve never had a problem with you, or your opinions, and I’ve said that a few times now.

But you try to pass off your opinions as facts. I’m sure you believe them to be facts, but they’re not.

You can’t say “the inventory will be 150,000, all in foreclosure” as if that’s a fact – it’s not, that’s an opinion.

Let’s consider what a third-party said about your posts:

“quit submitting bad posts, and they won’t get erased”

I’ve been friendly about it, and I wish you would at least consider what I have to say.

But you don’t, instead you CAN’T WAIT to fry me over here.

I even reached out twice to try and explain how the option-ARMs work, to help your understanding of them, and what do I get?

“I should have known better than to make bearish comments about Option ARMs on the blog of a guy with an Option ARM.”

I don’t think I deserved that.

I have no ill will towards you, or anyone who wants to help others about the problem we’re faced with.

We are among the few who are willing to not only investigate the ‘bubble’ but also put it out there for others to learn about it. But now you go after me, as if I’m now the enemy, or some bitter realtor.

That’s everyone’s loss.

Jim the Realtor

[jimklinge]

There are currently 22,766 active listings of detached and attached homes in SD County. Of those, 7,693 are vacant (33.8%). There is a 13% spread between average prices ($781,873 and $679,568). But with the huge sample, different types of properties, different sizes, etc., would a closer look reveal a different result?

Here’s the breakdown between detached/attached:

AVERAGE PRICE

SF detached:

owner/ten occ – $916,893 of 10,341 for sale (71%)
vacant – $856,412 of 4,258 for sale (29%)

SF attached:

owner/ten occ – $486,434 of 4,758 for sale (58%)
vacant – $460,328 of 3,434 for sale (42%)

When separated into detached and attached, there is a 6% spread between the average asking price of occupied and vacant properties here.

I triped-checked these numbers, and they kept coming out the same.

Can we say there is a 6% to 13% difference between the list prices of occupied and vacant homes?

Jim the Realtor

bubbleinfo.com

[jimklinge]

I’ve made an effort, though I don’t push it. You’ll see me quoted occasionally, but it’s usually the toned-down version.

Earlier this year a reporter for the North County Times told me he wouldn’t print the obvious trend of a changing market because “he was tired of being wrong all the time”.

The U-T could blow the top off this story, yet you don’t hear a peep out of them. I’m not sure it’s due to them wanting to protect their real estate advertisers. I think this whole world is more concerned with CYA than risking being bold and telling it the way it is.

Jim the Realtor

[jimklinge]

Only one question of the experts.

When’s the last time you sold a house?

If they haven’t sold one in the last 12 months, their opinion should be questioned.

Unless they are on the street participating in what’s actually going on, they’re just guessing.

Jim the Realtor

[jimklinge]

Wait until you find the right house.

This part of the equation is easily overlooked. Begin looking today, and keep looking until you find it. The right house has more going for it besides great price – it has all the features you require.

If you waited until prices dropped 50%, whether it’s 2, 5, or 10 years from now, you still need to find the right house too. I don’t think you’d buy just any house because the price was cheap.

Here’s a few reasons why waiting could backfire:

1.The high-quality properties are going to do better at retaining value – the supply and demand are more balanced, and finding a cheap one isn’t easy.

2. As prices drop lower, the competition between buyers will increase.

3. The uninformed will jump back in a little sooner than the informed.

4. If you wait until it bottoms, and then start looking, you may not find the right house and end up following prices up the other side.

Yes, be careful and cautious, and buy only if you find the perfect house at the perfect price. But you have to keep looking – you can’t win if you don’t play.

Want insurance? Buy a one-story house. Low supply coupled with high demand ensures investment value, plus we’re all getting older. Demand will increase, and you don’t see many being built.

This market has been incredibly resilient, and logically it should have crashed years ago, but it hasn’t. I still think we’ll hear about plenty of foreclosures, but will any of those properties be worth buying, even at 50% off? They will be the stinking newer tract houses with no appeal that I wouuldn’t buy at any price.

I’m convinced we’ll see homes selling for 20-40% off in the next six months, but only those buyers that are looking will get them. And if Helicopter Ben is forced to lower rates, it could be enough to inspire the uniformed buyers – they are your worst enemy, and they’ll cushion the crash.

My first post here, hope it’s in line.

Jim the Realtor http://www.bubbleinfo.com

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