[powayseller]

The I bond interest rate could easily go down. Maximum I-bond investment is $30K/year. What will you do with the other $570K?

How does your plan stack up assuming 4.75% CD, taxable? If the bank goes under while holding your loan, what happens? Won’t they call it?

The way I see it, you can pay 6% interest on a morgage and earn 4.75% interest on a CD, so you’re worse off getting the mortgage. Assume the tax writeoff for the mortgage interest negates the tax due on the interest earned. I don’t see any way the banking system lets you borrow at a lower rate than you can earn, unless you take on significantly higher risk. It works the opposite way – at a low risk, your earnings on a risk-free investment are less than the payments. That’s how banks make their money.

I look forward to a reply. I may have missed something.

[powayseller]

NOT Investment Advice! The price decline has just started. Go look, keep looking to keep your pulse on the market, but buying now you would be buying at just past the top of the biggest housing bubble in history. Read the Bubble Primer, look at the graphs. Past corrections took 4 – 8 years, or something like that. Make sure you get only a 15 yr or 30 yr fixed, because ARM payments can double after the introductory period ends. I just sold my house, and am renting until the correction ends. Keeping my cash ready to buy when the time is right. Again, not investment advice, just common sense based on history.

[powayseller]

We looked at houses in Rancho Penasquitos around early 2000, before Hwy56 went through, thinking that the home prices would jump after Hwy56 was completed. I don’t think it really made a difference, though. RP is in the Poway School District, yet is much nearer the coast than Poway, making the climate much more temperate. However, RP housing is so old, and the neighborhoods looked so much like run-down rental areas (w/ lots of old cars parked along every street), that we passed on that and ended up buying a house in the inland area.

I think you’ll find a lot more options in your price range in a few years. Heck, you might even be able to afford a condo in Del Mar or Oceanside in 2010.

Interesting, about the lenders. I think they’re getting worried about their exposure. The CEO of Countrywide stated that from summer 2006 and going over the following 14 months, there’ll be lots of ARMs resetting, and people won’t be able to afford the payments and will foreclose. They’re trying to help their customers get into fixed mortgages. For some reason, the rates on the adjustables aren’t that much lower now. I suppose the investors want a risk premium. Everyone is realizing those loans are too risky.

[powayseller]

My husband’s boss and his daughter bought a condo downtown last year, that his not yet built. I don’t have any details. Their plan was to hold onto it for many years, and profit from the revival of downtown. I haven’t heard that they’ve backed out.

[powayseller]

Actually, they are moving forward. See today’s Voice article about Vantage Pointe and its developer:
Voice of San Diego

[powayseller]

I remember reading in my loan docs that the lender could call the loan at will. It made me weary at signing, but we just took a deep breath and signed anyway. I didn’t realize lenders actually did this. That would make the decline even worse, because we have so many overleveraged homeowners. Even if you are timely on your mortgage payment, your loss of equity coupled with your lender’s demise, two factors outside your control, can bring you down. That’s not fair at all. Now I’m a renter, but it’s unfair to the homeowners.

[powayseller]

What do you mean about borrowers having their loans called because their loan amounts exceeded the equity? Was this really done?

[powayseller]

sandiegobanker – do you see the lax lending standards of residential lending extended to commercial lending? Are the banks going to follow the recent tightened lending guidelines, or will the banks just shrug them off? Are the banks at all concerned about the housing bubble, or are they careless since they don’t hold the loans inhouse (unless your bank does). Do you see a slowdown in lending for commercial, such as highrises or retail buildings, both as a result of tighter credit and anticipated real estate slowdown? Any other observations about the market?

[powayseller]

Are you still in the RE field? Thanks for your informative response.

[powayseller]

Sandiegobanker – Fascinating post! Can you explain further? Did you see the effect on the MBS market? How many banks were taken down by this? Was there any discussion of the gov’t stepping in to make the banks solvent? Why have people forgotten what happened just a decade ago, and repeated the same mistakes?

Although the internet can compact the price decline, the number of RE investors and newly minted foreclosure investors (from seminars and books) has increased the number of people who come to RE auctions. Perhaps that will keep up the REO auction price, as more bidders show up. For example, the SDCty Tax Collector had their annual auction and rented a larger hall (although the number of auction properties increased only by 10 houses from 70 last year to 80 this year), just to accomodate a larger group. Do you think there could be more bidders, thus preventing the REO auction price from falling as low as last time?

[powayseller]

How do you explain that the median housing price is staying high?

How do you explain that sellers are not reducing their prices enough to lure buyers?

Do you have any listings? Are you seeing any offers made on those listings?

What do you mean with interest rate fears? Did the buyers worry about getting an ARM, thinking the rate would go up on them? Why not get a fixed rate mortgage?

Last month, we had so many sales. Although they were half of January 2005, there were thousands of buyers. Is February a slowdown from January?

I have a friend who’s a realtor, but don’t like to ask her questions which would make her have to face the fact of a declining market. She is a single mom, and needs the income.

[powayseller]

When, and by how much, are you going to lower your price? Also, did your realtor tell you to lower the price? Just curious…your situation reflects the seller’s dilemna – “should I hold tight for my ideal sales price, or lower it now to sell it?” I’m wondering how you’re going to play this market. And good luck to you.

[powayseller]

Where will all these defaulting homeowners live? They’ll need cash to move and make a downpayment on an apartment or house. The moving and downpayment can easily come to $4K. That’s a lot of spare cash, that most don’t have at foreclosure. Is the rental vacancy rate high enough to absorb thousands of new families? Will this push up the rental rates? What happened during the last housing bust to the rental market? Were any one you around to see?

[powayseller]

In my personal experience, resale homeowners don’t make concessions, only builders do. When my offer came in 5% below listing price, my realtor did not suggest that we raise the price and offer a concession. The buyers wanted the lowest price. My realtor told me of 2 sales in Poway, one where they represented the seller, another where she represented a seller adjacent to the “low” sale, and both those sales came in much below list and were accepted as such. No concessions on those.

Also, realtors only earn about 1% – 2% of the 6% commission, so an extra $20K added to the sale price is only $200 – $400 more for the realtor- not a big deal. I don’t think the realtor cares for how MUCH the house sells, only that it sells and closes escrow.

I think buyers can’t qualify for the high loans anymore, and are looking for a good deal, so they make lower offers. I think only the builders are throwing in concessions.

[powayseller]

I know of 2 buyers who sold at 10% below listing in Poway, but the asking prices in their neighborhoods have not been lowered to keep up with that reduction. Inventory is just sitting, more and more sellers are reducing their list price by tiny amounts, but the big reductions are nowhere in sight, and I don’t see a domino effect either. I sold my house for 5% below list in January, and the 2 houses near me, who were my competition between Oct – Dec as we competed for showings, have not reduced their price at all, despite being on the market several months before I was. I just checked yesterday, and they are listing at the same price as October 2005, no reduction at all.

Again, what is the lag between rising inventory and falling prices? I just see inventory rising, and small reductions, such as $5K – $20K. I just wonder how long it will take for sellers as a group to accept that they must lower prices significantly to make a sale.

[Author]

Posts