[powayseller]

The mortgage fraud news are now making the rounds. Countrywide is suing for a $80 mil loan fraud perpetrated by one group of investors, and the FBI is investigating many others. If you check the website of the attorney in that LA Times article, she has a lot of stories from all over the U.S. Some of the fraud seemed hard to prevent. They are stories like Casey Serin’s, where the borrower closed on more than one home at once, so the lender did not know about the other home.

Other times, the lender is completely to blame for not verifiying bank statements or income.

As others have said before, when the euphoria ends, we will see all the fraud. Even 5 years after the dot com bubble, we are just now getting wind of all the options backdating and the pension fund shortfalls. The fraud that has been going on will be spread wider and deeper than we can even imagine.

[powayseller]

FSD, I don’t know what the rental multiplier should be. I am going by other posts on piggington. I believe it was 4plexowner who suggested a 10x multiplier, but I’ve seen it as low as 8 or as high as 13.

In any case, I think rents will have downward pressure, as more people leave San Diego, condo conversions are reverted to apartments, and the new glut of condos and unsold homes will be rented out. Thus, I believe rents will stay flat starting next year, for several years. (Decline in real terms).

[powayseller]

I ran these ideas by the gym guy, and he said we “neglected to mention San Diego county’s low vacancy rate of 2-3% compared to Austins 10-15%. Higher competition for less resources drive up prices especially when the demand has money.”

[powayseller]

I’ve been reading tidbits of the government wanting to help the banks and homeowners in preventing foreclosures, but what can they do? Raising taxes to bail out banks or consumers is bad for the economy and would slow consumer spending. Restructuring debt could lower returns for bank shareholders and MBS investors who own the debt. The only way to prevent payment shock is to put interest rates back to 1% or 2%, in my opinion. What can the government do? What percentage of people will face payment shock?

Let’s also remember the tax liens. I checked foreclosure.com today, and was surprised how many tax liens are out there in Poway alone. Whereas most NODs are in the lower-income areas of Poway, the tax liens are in the upper-middle income areas. Again, people I know are on the list.

If any of you got a subscription to foreclosure.com, you would probably see people that you know in pre-foreclosure, bankruptcy, or with a tax lien. The thing is, you would never know it unless you checked out the website. They don’t walk around with a sign on their forehead. It’s just another reminder that we can’t judge a book by its cover. People act like their life is so together, while in reality they are crumbling inside, their finances are a wreck.

[powayseller]

sdrealtor, I just spoke with a lady I met recently, who is a life coach, and asked her how to handle unprovoked criticism.

She told me that less intelligent people attack a person, because they lack the intelligence to debate. She suggested that I just act pleasant, so that’s what I did. It seems like good sound advice.

The Excel file comment is just ludicrous, so I didn’t even respond. Well, I do like to hear different points of view, so I would love to read your analysis. What do YOU think of the UCLA Anderson Forecast? Wasn’t your colleague there? What did HE think of it?

sduuude and sdrealtor, what do YOU guys think of Cagan’s paper in which he analyzed the impact of resetting ARMs?

[powayseller]

Put the religion and the opium and anything else related to housing on this thread, please. jg showed an interesting correlation. (What’s up with being politically correct – that reminds me of Glorian Steinem staying in the 80’s that research into differences between boys and girls brain should not be done.)

[powayseller]

Oh my gosh, that is so funny!

[powayseller]

sduuude, peace to you!

[powayseller]

That only makes sense if social security and medicare were solvent and perceived as such by the population. However, few people believe social security will be around for them in any meaningful way, so I don’t buy reason #1. An older population wants to save less? Since when? They are the most frugal bunch around, from the retired people I’ve seen. I don’t buy #2 either.

The last point has merit: people spend and don’t save because we haven’t had a real recession in 3 decades. So the reason we consume more is not because savings is obsolete in this “new era”, but because we forgot what it’s like to be in a recession. Believe me, by next year, more people will wish they had saved for that rainy day, and we’ll have an entire population once again in awe of frugal living.

[powayseller]

jg, I don’t know what we would do without you! So you’ve disproved the sweaty guy’s theory, for once and for all.

On a related note, why did SD housing prices rise higher than Austin’s?

[powayseller]

oops, sorry I messed up the link.

[powayseller]

FormerSanDiegan, that all makes sense, and it leads me to question the whole rent/home price ratio. If the condo drops 50% from the peak price of $350K to $175K, then reasonable rent would be $1458/mo ($1458 x 12 = $17,500; $17,500 x 10 = condo price). Is it hard to imagine his condo will rent for $1458/mo in 5 years? What is the rent now in that building?

I’d like to again give my opinion on who should NOT sell. Do not sell if you meet these 3 conditions:

1. Your mortgage payment is less than rent (i.e. your place is so cheap or you bought so long ago, that your mortgage is under $2K/mo). Renting would increase your monthly expenses.

2. You won’t be forced to sell in the downturn, because
a) you can afford your mortgage (it’s fixed rate or you can manage the payment shock)
b) your job is recession proof

3. You don’t mind that your house could possibly maybe lose 30% – 50% of its value.

[powayseller]

Thanks, Daniel, that was very generous and sweet of you.

[powayseller]

I’m so sick of the poor conclusions put out by the Anderson Forecast. For example, they say, “Without severe job losses forcing home owners to sell houses, home prices in California in five years will be about the same as today”. To this I say, “with *severe payment shocks* forcing home owners to sell houses, home prices in CA in 5 years will be 30% – 50% less than today”. Because they exclude exotic lending from their vocabulary and analysis, they think that housing prices can only drop in a recession.

The big BS about them is they do not consider exotic lending at all! To them, home prices can drop ONLY if people lose jobs in a recession, and according to them we will NOT have a recession because: 1) a recession involves big job cuts in 2 sectors, manufacturing and one other, and 2) we don’t have a lot of manufacturing jobs anyway so we can’t have enough job cuts in manufacturing to cause a recession.

Well, Anderson Forecast, take some notes from me: Home prices fall when supply exceeds demand, regardless of the reason! It doesn’t matter whether a job loss or a resetting ARM is the cause of being forced to sell a home: both result in distressed sellers and a lot of inventory. ANY situation causing distressed sellers and high inventory will cause price drops. Job losses are only ONE reason this could happen!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Geez, I am so annoyed with these people. They are supposed to be damn economists, but they don’t mention at all the one big reason for this housing bubble: exotic lending. They just ignore it completely. Let’s move along, nothing to see here….

Second, we will have severe job cuts, because construction and MEW-related job will be eliminated and cause a recession. Even Leamer’s housing market/recession charts show that every single housing market bust has caused a recession (except when we had the Vietname or Korean War). Even the IMF is predicting a global recession due to US housing market bust.

Now get this: their forecast brochure contains a chart which misleadingly shows San Diego home prices in the 90’s did NOT DROP, but stayed level!!!!!! That is the only chart in the entire forecast brochure that did not have a source, and it is obviously wrong!!!!!!

Last, the San Diego conference was opened by Wachovia CEO Ernest Rady, who announced the next week that he bought out Golden West, the biggest subprime lender in So. CA. I suspect their banking industry ties keep them from saying what needs to be said about the exotic loans.

I asked Thornburg about loan resets and payment shock at the conference, and he got so made, he started waving his arms around and people were just aghast. The San Diego Labor Department spokesperson told me a month later, in a phone call, “Was that you who asked the question about the loans? I couldn’t believe how badly he handled your question!” He was very defensive. Now he left the UCLA Anderson group, to start his own company.

So the data they use, and the analysis they have, is very good and impressive. They talk about MEW and construction and retail jobs driving the economy, our dependence on China to fund our deficit, the problem with our federal and trade deficit, the lack of savings, the problem with flat wages, and so on. But then they leave out exotic lending and say housing prices will NOT go down, they will merely stop rising.

I’m with Roubini. His analysis is much better than Anderson Forecast! Any economist who considers exotic lending and payment shock is worried about a recession. Here’s my spoof: “Hey, let’s just pretend there are NO exotic loans, and then we can bury out head in the sand and tell everyone including our banking sponsors that banks will be fine and safe and there is no recession. Then we can get more money from Wachovia and our other buddies, and when things get really bad we’ll just say we changed our mind in light of incoming data. Signed, UCLA Anderson Forecast”

[powayseller]

Your mortgage is probably the same as it costs to rent, so I don’t see any benefit to selling. I sold my house to cash out equity, and also had the advantage of paying less in rent than my mortgage.

Do you have a fixed rate loan? A job that is recession proof? If either answer is no, you might be trying to sell and move at the worst possible time.

In any case, you’ve got to be mentally prepared for that condo being worth $125K in a few years. It sounds like you’re going to be underwater on your mortgage by next spring. Condos are hit the worst in any housing downturn, and the downtown condo construction is adding to more supply. You could end up with $275K mortgage on a $125K condo. It could take 15 years or 25 years for that condo to get back to $275K.

[Author]

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