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no_such_reality
ParticipantChanging that graph to be 1982 to 2006, I’d say under 200 is a bull market, over 300 is a rough market and over 400 is a ugly bear market.
Looks like we’re in the 300-350 range now and going up like a rocket.
ParticipantForeclosures are rocketing faster than NODs.
Last year, NODs where 15000 at this time, with 900 foreclosures, this year, it’s 37000 NODs and just over 6000 foreclosures.
That’s 1 in 6 NODs going foreclosure before the market softens in OC/LA.
ParticipantAgain, 1/16th of a point difference in the rate wipes out any “savings” in their example.
ParticipantWhen it came time for the annual salary/raise negotiation with my employers, I do not ever recall them putting my % wage increase in inflation-adjusted terms!
For good reason, the vast majority of the work force got a raise that was on par with inflation or maybe 1% over inflation.
ParticipantI find this whole mention of inflation adjusted dollars a little odd.
Okay, let’s put it in perspective.
In 1990, if you told you’re neighbors you owed $400,000 on your house, they understood how big that was.
Today, if you told you’re neighbors you owed $400,000 on your house, they think you’re damn lucky.
ParticipantIf it’s mewing, it’s not dead…
ParticipantDoom & Gloom. I see everybody is trying to manage their expectations for when the “right” time to buy will be. But frankly, I think you’re all overly pessimistic on it.
I think buying opportunities that are competitive against renting will materialize in as little as 18-24 months. I expect the January/February months to be ball-busters for sellers. Owning is about living expense, not only gross capital purchase.
The deals are made at the margins. The “right” buying time for just the people in this thread will be spread over 36 months or more. The short sales and REO properties are already showing up in MLS and done deals which are quickly blowing holes in the comps.
Many will be trapped in their homes because they can afford the payment but can’t forward the capital loss. Still, in SD, OC & LA, even more have been comfortably in their homes for years and while refinancing has tapped cash out for many, in 2005, only 1 in 9 refinances withdrew money. I’d wager many are serial refi-ers which account for the bulk of earlier cash-outs. Evidence of this are articles like the LA-Times piece on guy in the IE with a exotic and no job finally getting forced to move.
The relative lack of refi-ers compared to owners means there will be plenty of willing sellers. Those sellers will be able to afford selling, still make a profit and move up when a better home for them becomes available at an acceptable price.
I’m seeing more and more REO’s like in this thread. Not only is it taking a 15-20+% hit on the peak buy, but that’s at MLS list price which is looking like a pipe dream. As these types of property transactions accelerate and grow, REOs will go lower and lower. That will drive comps lower and lower.
Will pricing go lower after that? Maybe, probably, but time is money. Money is money. What you need to know is few key things:
What are purchase prices where you want to live (or accept living)?
What are comparable rents for where you want to live (or accept living)?
What expense for housing are you comfortable with having?
What is your tolerance for keeping a property as a rental?
I say (or accept living) because I find it rather odd that people will tolerate renting in hell but only buying in prime RE and vice versa. Similarly, this may be that you want to live down on Coronado but will accept North Coast.
Where they intersect is your buying point. Sure, maybe you could wait 5 years and get it 10% less nominal and 15% less real over two years from now, but maybe you’ll also be three years into having it paid off with essentially the same payment and already moving out into a better place with renters taking over this one covering the payment for you. Maybe not.
If you wait for absolute bottom only, you’ll wait a long time.
ParticipantBubbletracking Blog has another one in San Marcos.
Bought 6/2005: $750,000
NOD 3/2006:
Listed 4/2006: $779,000
REO 10/2006:
Listed(REO) 1/2007: $599,999last comp in the neighborhood was $601,000 couple weeks back… looks like $599,999 will be a pipe dream for the bank.
ParticipantI’ve been thinking about what rabbit will save the market, or at least delay the market long enough to make everybody doubt the overvaluation of the market.
We’ve made a fairly big stink about the borrowers that are going to get pinched on their exotics, and while the MBS market is starting to get rocked, exotics and refinancing hasn’t slowed.
At the same time, the banks are in denial about the softening of the marketing in terms of pricing and are readily approval appraisals at still or near peak pricing.
Combining the two, is it possible that we will have seen a large spike in refi’s of people that originally bought in 2003, 2004, 2005 in in Q1 ’07 since rates are soft?
The buyers in ’03,’04,& ’05 can probably all claim paper equity if they haven’t already refi’d it out. If with neg equity due to an option loan, a broker that wants the deal could probably make the appraisal and loan for the ’03 & ’04 buyers and maybe the ’05. In 2005, only 1 in 9 people refi’ing did it to get cash.
SD is in worse shape than LA/OC, I’d suspect most in La/OC could still refi even if they’ve gone neg-equity since their loan due to the market “holding up”.
Could the readily available refiance ability combined with the deluded market perception, be the rabbit that allows the genie to stay in the bottle for another 3 years?
Does anybody have relible stats for 2006 mortgage and refi activity either nationally or SoCal local?
ParticipantUnforuntately no. Housing is extremely leveraged in SoCal.
If you buy a target home at $900K any depreciation accelerates your loss over renting at $2700/month.
If over the next 3 years, housing loses 10% total ( a slow 3.5% loss per year), rent appreciates at 5%, you’ll save $105,000 by renting. That’s if you put 20% down and are in the 40% tax bracket.
If you put nothing down, you save $85,000 by renting.
Neither are shabby over three years.
If housing is completely flat, at 20% down, you save $10,000 by renting. At nothing down, it appears to cost $9,600 more to rent. That’s total over three years.
I’d post my little spreadsheet, but I’m not sure where to put it on the board.
ParticipantCashman, few thoughts.
$2700 hopefully has you in a REALLY nice place in Diamond Bar. I know what $3000/month rents by the beach in HB and it’s pretty sweet, 3/4 BD 3BA, pool, spa, 3 car gar, good size yard…
$2700 is a lot of expense, after tax, it’s even more assuming your income won’t walk you into AMT. Assuming you’re in the 31% Fed rate zone, $2700 in rent is equivalent of $4500 in interest and taxes which puts you about in a $900K home with 20% down or a $750K home with nothing down. Again, assuming $50,000 of deductions doesn’t walk you into AMT.
In the end, spent is spent. Your choices:
1. Live in a $2700/month rental. Downside, rents might go up, slight non-premenant feel.
2. Live in a $750K-$900K house, downsides: live in a house not as nice as your rental, watch it depreciate and lose the downpayment or equity. $100K, $200K or $300K plus worth of equity. Of course, there is an upside, houses could go up. (unlikely but possible)
Probably the best thing for you to do is go out to the open houses today and look at homes in the $800K range to see how you like them compared to your rental.
ParticipantIt’s real simple, if you don’t prepay your loan, you merely do debt arbitrage.
If the HELOC rate runs 1/4 of percent higher, you need an excess cash flow above your loan. If you currently have a $400K loan at 6% with a $2400/mnth payment, you would need $9600 excess cash per month in expenses to breakeven on the HELOC if the HELOC rate is 6.25%.
If the HELOC rate is 6.5% you need $21000 excess cash flow above your mortgage payment each month. Yeah, that’s right, you live in a house with a $400K loan and have a take home of than $250K /year.
If the HELOC rate is 7%, you need $42,000 of excess cash flow a month to break even.
The only reason it appears to pay off the loan faster is because you prepay the loan with extra cash you already have each month.
ParticipantMove up buyers. The same reason why median rises even though sales are soft and discounts major.
ParticipantIt’s careful marketing spin. And IMHO, slight of hand and I see spin similar to that of an payment option ARM.
It appears that they’re taking your whole loan and rolling it into an HELOC set to LIBOR.
Your spending stays the same. repeat that. repeat that. repeat that.
Spending stays the same. (Note savings isn’t spending)
$400,000 HELOC, $10,000 monthly pay direct deposit, $9000 monthly spending.
I crunched a spreadsheet and almost thought they had something then realized I wasn’t “spending” my savings into my savings (brokerage). Adding savings as a expense and wallah, balance goes up up up… if the HELOC rate is mere 1% more than your fixed. Even at 6.5% Heloc vrs 6% fixed, it pushes your paid off date to 33 years. If and Helox rate is fixed at the same rate, the floating might save you two years in my scenario. ( I don’t that’s too likely though)
IMHO, these look worse than an option payment ARM. I wonder if people really realize they are paying more interest to prepay their loan as an HELOC.
As you said, you could more easily open a HELOC, not use it and pre-pay a $100 or so a month more and easily beat this program with lower risk.
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