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kev374
ParticipantAustin has a good IT industry, the pay is equal to or in some cases more than in LA but the cost of living is much less. Factor in housing and you’re looking at 50% less in costs. That is HUGE!
Living in LA/OC is not feasible anymore for people starting out since you cannot get ahead unless you either make over $200,000/yr or bought a home before 1999.
If home prices crash and rents go down then things may look promising but until then it’s not a good place to get ahead financially.
ParticipantEven 5% of a $500,000 loan is $25,000. Someone would have to save $1000 a month for over TWO YEARS to reach that. Now people will realize the true worth of money!!
ParticipantEven responsible people with good credit scores can be convinced by aggressive loan officers 😉 Responsible people tend to “follow the herd” and don’t want to stand out. If all of their friends and relatives are in a buying frenzy they don’t want to be doing something else. After all if everyone else is doing it then it must be the right thing correct?
Homeownership has been lauded as the cornerstone of stability for so long that people are convinced that they can never go wrong by owning a home in the long run. No matter what kind of toxic mortgage they get, they believe their home will appreciate and things will be okay. Most of these new homebuyers have not done any due diligence or independent research to find out that Real Estate is cyclical and tends to have steep increases and decreases. Rather they operate on implicit trust of their “friends” who never stop to remind them how homeownership is going to slip out of their hands forever if they do not act immediately. The pressure to conform is tremendous.
They have been brainwashed into believing that the most important thing is that they don’t miss the boat to homeownership. So these normally responsible people with good credit do anything and everything possible to “not miss the boat”.
This is why even prime borrowers will lose their homes in this downcycle.
ParticipantDuck, it’s not only Subprime but also Alt-A that is in trouble because it’s the same type of financing that was extended to them as well. Also, it is an estimate that 20% of subprime loans WILL default, this does not mean that the rest 80% WILL NOT default at all, many of those subprime borrowers will face the same fate as well so don’t think the percentage is just 20%, it will be much higher than that.
Participantnoticed that the page has 2001-2003 data as well, starting out at Jan 2001 with the median price of $276,000.
Participantnothing unusual is happening. It’s normal for excesses to self-correct and align to the true state of equilibrium in terms of home prices, mortgages, rents, incomes and affordability. This time around there are a lot of excesses and the correcting tidal wave is going to take many people right to financial ruin. These people were either greedy (speculators), dumb (first time buyers) or reckless (HELOC borrowers). When you are these things and start playing with fire it’s obvious that you will get seriously burned and we cannot feel any sympathy for these fools. They walked into their own graves due to their indifference, overindulgence and rose colored glasses! My $0.02.
Participantthe thing is that we cannot say for sure if it will be drawn out because the factors that caused the runup of this magnitude are first time in history on a scale like this. Remember that a bulk of buyers between 2003 and 2006 have been some type of exotic mortgage with little or no downpayment, this applies to both prime and subprime. Just because of costs hardly anyone after 2003 could afford a traditional mortgage. When these 2yr, 3yr and 5yr terms reset it’s just like a plug being pulled off and the seller has no other choice but to foreclose – no refinancing since it will be impossible for him to qualify against traditional guidelines, no selling because he cannot carry costs for 6 months on the market.
My hunch is that in 3 years there will be dramatic market changes and I wouldn’t consider that drawn out 🙂
Of course I could be wrong and we could also have another “15% in the bag” 😛
One thing that amazes me is the shortsightedness of the Realt Estate industry. They should be wishing for the correction more than anyone because if the correction doesn’t happen we are going to be in a flat market and that doesn’t benefit ANYONE, buyers cannot become homeowners, sellers can’t move on and RE professionals don’t make any money. Only if prices correct sharply will they start going back up again…it’s all cyclic.
ParticipantThe sales have definitely caught up again but this is expected. This is the last phase of idiot buyers who think the correction has happened and it’s now time to get back into the market. These are the people who have succumbed to the Realtors pitch. However, the tsunami of foreclosures are on the horizon so this minor uptick in activity is soon going to be washed away.
I mean how incredibly stupid do you have to be to believe that a 5 year 120% price runup is corrected with a 1 year 5% depreciation? It has not been clearer in the news that this frenzy has been fueled by exotic lending, subprime lending and speculative madness, anyone who knowingly buys in this market is downright foolish and will pay dearly.
ParticipantNew Century is now rated junk? Well, just like the “junk” mortgage products they were selling.
Participantwell, I think buying in this market is very obviously stupid. There is absolutely no rationale at all since as JohnAlt91941 said you can rent for 50% of the cost without any exposure to the risks associated with owning in an uncertain market. Given the immense media exposure about this downturn you have to be living under a rock to not know that the market is seriously on the downtrend, so what then motivates buyers in this market since there are still sales going on.
Surely there aren’t people this stupid. It’s just like the the idiot who pays $10k over sticker for a hot new car instead of waiting 2 months and buying it at MSRP or lower.
ParticipantI’m predicting a 45-50% drop too but I can’t say how exactly it will play out, whether it will happen in 3yrs or 10yrs, that is the tricky part. My personal feeling is that the exotic/subprime reset in 2007 and 2008 will depress prices in one huge go and revert them back to 2002 levels. 2008 4Q we should see at least a 30% drop since I don’t see any sufficient demand with the absence of speculation or exotic lending.
Interest rates are going up, the fed is already concerned that CPI is trending in the wrong direction (i.e. up!!), I suspect that late 2007 they may have to jack up rates again, this is additional fuel to the fire for all the resetting ARMs.
I feel we cannot use history as a guage because we have had a rise in values that has never occured on this scale in history. I predict the downfall is also going to be one of a kind.
We may also enter a deflationary spiral aka Japan, why not?
Participantvery good point patb, the OP is deluded. This is classical “it is different this time” thinking that always precedes all bubbles. The fact is that income growth is stagnant, most of the recent job growth is Real Estate related and that is rapidly shrinking, a big chunk of existing homeowners are overleveraged – just look at the rapidly rising property tax delinquency rate and the mounting number of foreclosures and you should get an idea, population growth is the slowest it’s ever been in San Diego and OC.. infact population growth was stronger during the DOWNCYCLE in the early 90s.
The recession is still on the horizon, it hasn’t happened because almost ALL homeowners think that the market is going to rebound by springtime so have not cut their spending by much. Late 2007 when RE prices contract sharply due to mounting foreclosures and lack of new demand it will cause a RUDE awakening! Homeowners will start their belt-tightening as the values of their homes plummet.
I have friends who work as mortgage brokers and they say the refi market in SoCal is all but DEAD as a duck! Subprime is just about over.
Also, there is a growing trend of offshoring high paying professions like Engineering and Finance. This causes downward pressure on wages which causes an exodus from high cost areas. I forecast SoCal losing the population that can actually support higher home values because of this. This is already happening in Boston where the city is actually paying new grads $10,000 to commit to stay 5 yrs in the local area, imagine that!
Hope you have money saved up in your emergency fund for the rough times ahead!
February 16, 2007 at 4:32 PM in reply to: How will the IT community handle the coming housing crash/recession? #45650ParticipantRegarding outsourcing, yeah its an issue, but lots of stuff is going to have to stay domestic. IT Security, for example. You really think companies are going to send that overseas?
umm…yes. I work in IT for a Fortune 200. Our entire security framework was developed in India. We layed off a bunch of US developers last year and hiring more in India.
Cisco has a HUGE movement of critical roles including management functions to Bangalore, India. Initially Cisco will move American management personnel to live in Bangalore but ultimately these will be phased out as local management is seasoned enough to take control:
There are other mission critical projects that have been developed in India such as the design of the wing for the new Airbus A380 which was done by Infosys in Bangalore.
Although a bit dated but still a good relevant read:
US Programmers – Endangered Species
Software development has become easier these days with the advent of automated tools. Yes, there will still be demand for the absolute cream of the crop, the ones that have unique problem solving talents and stand apart, but for most the future is not promising in this area.
February 16, 2007 at 2:29 PM in reply to: How will the IT community handle the coming housing crash/recession? #45630ParticipantIT functions are increasingly being moved offshore, particularly to India, and this is not a good field to get into right now. Even network ops and sysadmins are now being offshored since remote monitoring software has improved tremendously and servers don’t need as much maintainence as they used to. In the next 5-7 yrs most IT jobs will be overseas except very few client facing roles and network techs that need to work onsite.
Tom Friedman did a piece recently on this. You can click on the link below to view it. It’s an interesting watch:
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