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powayseller
Participantrankandfile is right. Sympathy. Also some knowledge from a credit card study, the first ever, published in October 05, which I posted here last week. Summary: the majority of CC users are using their cards for basic living expenses and unexpected expenses such as medical bills and auto repairs. The image of CC debt as a result of a lavish lifestyle is not true. Wages have not kept up with the cost of health & home insurance, home ownership, tuition, gas, utilities. It’s the lower income people who use the CC to pay for rent, food, utilities, car repairs.
ParticipantWhen I asked my neighbor of 3 years ago if he had earthquake insurance, he laughed and said, “If you knew how this house was financed you wouldn’t need insurance either”.
I didn’t know what that meant. Now I know he had an Option ARM. He was renting the house from the bank.
ParticipantI don’t get A&E. Can you post a summary?
ParticipantContinuing the train of thought…
In 2007, 2.5 – 5 million people will have ARM resets, according to my estimates ($ 1 trillion of ARMs at $200K – $400K each). These are mortgages made in 2003 – 2005 (5/1 or 3/1 ARMs). Payments on the 2003 ARMs will go up 50 – 70%, since rates were very low in 2003. Payments on the 2004 and 2005 ARMs will go up 40-50%. Prices today are at 2004 levels and next year will be at 2002 levels. Let’s say 30% of the ARMs were made in CA, so that’s several 100K to 1.5 million.
So we’ll have several categories of foreclosures and short sales:
1) first mortgage ARM holders, who are protected by the bankruptcy laws. Several hundred thousand to 1.5 million people in CA who cannot afford their new mortgage and must sell their homes in 2008. The home values will be LESS than they paid. The bank cannot come after them.
2) ARM holders who refinanced after 2003 – 2005 when they purchased the home. No protection.
3) Long time homeowner who refinanced to take advantage of lower interest rates. This is your frugal Home Depot manager or County building inspector, who took out a 15 year mortgage when rates went down. Also includes the high end appliance salesman who refinanced to a 30 year mortgage when rates went from 8% to 5.5%. None of these people ever took out a HELOC or refied the equity out. They are sitting on a stash of equity. When they lose their real estate dependent job, they must sell. Will they have enough equity to avoid a loss at foreclosure? Most will.
4) Long time homeowner who refinanced to take out equity. People who bought their homes in the 1980’s and had tons of equity in the mid 90’s, when refinanced it all out. No longer protected by the first mortgage laws, and having spent all equity, they are upside down. They refied to the limit of their 2003 appraisal. Home value in 2007 is below their 2003 refinance appraisal.
5) HELOC Joe Six-Pack. They put in the pool, remodeled, bought the Hummer, got Cindy that brand new Mustang convertible as a graduation gift, sent their kids to Harvard, all gratitude to the Housing Credit Card. Now the HELOC rate has gone up, the equity was taken out, and they are upside down at foreclosure.
6) Any others I missed?
So, we’ve got a lot of folks who will have their assets seized by the bank, the IRS billing them. I expect a wave of bankruptcies and the 40K people leaving annually will pick up to 120K in the peak year.
Eventually, by 2015, it will all calm down. Sacramento will work hard to make this state business friendly, and with the lower cost of living, employers will return, knowing they can get good employees to move here. Vacancies will be high, rentals and homes will be cheap, and traffic will be low. We will start the next boom cycle. All of us piggington people will be out buying up properties.
ParticipantOk, time for Bugs the appraiser to settle this. Is there an education lot premium on homes in the “best” school districts?
I’ve been told over and over that Poway homes are priced higher and hold their value better, because of the schools. I thought it was a fact. Perhaps I am wrong.
Participantasianautica, my house was on 5.3 acres, on the outskirts of Poway, where land is so cheap because nobody really wants to drive that far or live in the boonies. That made the price much lower than any lot in Poway. In Poway, a 5000 sq fot lot costs more than my 5 acres. 1 acre in Poway costs probably $1 mil, but someone with MLS access could verify.
A lot of Poway is low income, and that drags down the median. But I wonder why people keep wanting to move here for the schools. Poway has the reputation of the good schools, deserved or not, and I thought it affects the prices. But it doesn’t?
So Poway homes are priced the same as Mira Mesa houses?
ParticipantHere’s a quote from the article, from a kindred spirit, advocating Sell now. My kind of guy…
QUOTE
Norm Bour, owner of Priority Plus Lending in Laguna Niguel, thinks there are some homeowners who should just cut their losses now.“There are a lot of people who are homeowners who shouldn’t be, living day to day just to support the house,” he says.
“My advice to them: Sell.”
ParticipantThe government has data on the wealth effect. For every dollar of increased stock market wealth, an investor will spend x% more, and for each dollar increase in home equity he will spend y% more.
People in general believe home prices can only go up. They live for today. They do not think prices will stop rising, so they behave as if they will keep going up. The plan is to keep spending the equity. Some day, they sell the house, pay off all the equity lines and the mortgage, and use the remaining equity to fund retirement. They will either downsize or leave the area. Whereas people used to fund their retirement by saving and paying off their homes, now they are funding it by riding the wave of appreciation. In their ignorance, people believe this can go on indefinitely. They don’t think they ever need to live in their income limits.
In fairness, many people are forced into spending their equity, because wages have not kept up with inflation. Inflation is not properly measured with the CPI, and the things that are measured have downward pressure on them. Think cheap goods from China and lower wages from illegals. About half the construction industry is illegals and that keeps construction wages down. When people have an unexpected expense, out comes the credit card. Homeowners with equity will take out a HELOC to pay off that credit card.
Some spend their equity because we are a consumption nation. They are dependent on rising home prices to fund their lavish lifestyle.
Reality: prices stop rising or fall. Even if prices just stop rising, the gig is up. The MEW gig works only as long as prices keep rising. The market has peaked, and prices are falling. Within a year, MEW will be a trickle because home values are falling and people won’t have the equity to withdraw. Within 9 months after that, the last MEW money will be spent. By end 2007, early 2008, the MEW money will be out of our economy, and we will be in recession.
ParticipantKeep us posted, because I am interested in how the higher end is doing. If they broke even with last year’s price, that is excellent.
Did you see the posts I made about the NOD in his neighborhood? I wonder what happened to that one.
ParticipantI know from talking with people that younger ones are leaving. In one store, two employees recently left, because of the high cost of living. One of them owned a home, one did not.
San Francisco, Boston, and New York have higher paying industries and law firms, mutual fund companies, etc. that pay much more than SD companies. That’s why their median income is higher there. I wouldn’t compare SD to them. Compare SD to Florida, Nevada, or Phoenix, in the mix of jobs and incomes.
ParticipantI calculated that 5 million number, because no one has ever said how many people were affected. It could be much less, or much more.
My number is based on $200K average loan amount. In CA, the loan amount would be higher, probably $500K (median price), so perhaps nationwide we would have only 2 or 3 million people affected. Does anyone want to improve my estimate?
ParticipantWhat foreign currency? Could you explain the reasons for each of your choices? Thanks. I ask because I am leaning in that same direction: euros, gold, T bills. Also thinking of how to invest in hard assets of water and food plays. As the dollar devalues what will go up: oil, water, food. Gold, maybe. Gold was historically a store of value and perhaps it will be again, but what people need more than gold is water, oil, and food. Any comments?
ParticipantInteresting point, Bugs. Perhaps Poway’s reputation as “best schools” is more marketing hype than reality. Somehow people think that Poway schools are the best, and are more anxious to move here. Scripps Ranch prices are higher, according to what you said (and hs mentioned before the rents are higher there too). RP and RB are part of the Poway school district, so again people are paying a premium for the schools.
My thesis is that houses in the Poway school district cost more for sq foot than other inland areas like Mira Mesa, due to the desirability of the schools. Families will pay the Poway prices, if they can. Whether that gives their kids a better education is questionable, based on the input I read here.
I would need to defer to you Bugs, in whether my thesis is correct. If not, the prices in Poway and Mira Mesa should be similar.
I am also interested in how this perception of Poway schools got started.
ocrenter, I understand your dilemna. I was at the receiving end of this many times. As an outsider to the misunderstanding, I can see why I got no sympathy: the attacks are not noticeable to others, but hit strongly to the person to whom they are addressed. Another interesting think I am learning about forums. In any case, I learned English at age 9, and I skipped 7th grade. There is an ethnic bias against education among Mexicans, because they don’t value education as much as whites or Asians. Mexicans value family and hard work. They tend to be really loving, hard working, and close as a family. Important qualities. Their culture doesn’t value education, so they have a low chance of ever being like Japan or China in the global economy. That is not racist, it is an observation.
There is a difference between being racist/sexist and making an observation. Remeber the feminists who screamed at data showing boys were better at math, that their brains are wired to process logic? They said this kind of study should not be done, because it is sexist. So we should deny the biology of our brains so as to not offend the feminists? Boys are better at math than girls, in general. Girls are better at nurturing and communication. People get defensive at these facts because they are insecure.
Likewise, areas with higher concentrations of Hispanics have more reduced-fee lunches, higher drop-out rates, lower APIs. sdrealtor is right that the API just follows the demographics. You could eliminate the API and just publish the demographics, and you will know the school’s test scores. But that would be politically incorrect.
ParticipantI agree with rankandfile. When we came here from Phoenix in 1999, we were almost priced out of the market, so we started looking in Ramona in the spring of 1999.
It was so hot there, I asked my husband why we should pay double for a house in a place that is just as hot as Phoenix. No way… so we stopped looking there and turned out sights to Poway. It’s still too hot, but bearable.
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