Last month I discussed the idea of government-sponsored mortgage principal reductions, which I described as the “nuclear option” in
the government’s housing bailout arsenal. As unjust and misguided
a policy as this might be, I suspected at the time, principal
reductions might well be on the way.
Well, the first volley of bailout nukes has been launched.
As I was listening in the
As I was listening in the morning KPBS radio, one of the interviewee claimed that this is finally the END of the housing crash.
What do you all think? So this is how it all ends?
Unknowable… it all depends
Unknowable… it all depends on how much of this they do.
rich
Well Rich… I can say two
Well Rich… I can say two things… how wrong we were initially underestimating the powers that be… and then I think about 2007 or so, how right some of us were to recant and identify the strength of the opposition. You cannot beat the house when the house makes the rules.
Silly rabbit…
SD R
Give yourself more
SD R
Give yourself more credit. We both went on record years ago predicting massive gov’t interventions were coming. Maybe you didnt believe it in your heart as much as I did but you did come out with me to predict all of this when others said the problem was too big for the govt to have any impact over.
sdr
Yeah I was actually on line
Yeah I was actually on line trying to find the post where I really started to whine hard about it…. I think it was in 07 sometime but what the heck. We kept getting told that 10% unemployment and 3k NODs a month were going to break the damn… I guess in retrospect we were pretty lucky to get down as far as we did right? I mean they pretty much let it slide for a good 1-2 years before the oh sh-t lights went on and they got their game on.
I gotta get me one of them govt jobs sdr…
Will this stop people from
Will this stop people from bailing? Not so sure. If I got a principal reduction that put me even, with the selling fees, etc., I’d get the heck out of dodge ASAP. The devil is also in the details, i.e., how much of a reduction, what type of loans, etc. I wouldn’t call the housing bust over yet. Markets can be more powerful than governments. Uncle Sam, contrary to popular belief, cannot keep spending money infinitely. Germany in the 1920’s is an example. All entities have limits in this world, governments are no exception.
“Under the FDIC program,
“Under the FDIC program, borrowers would be eligible for a reduction in their mortgage balances if they kept up their payments on the mortgage over a long period.”
This is an incentive to stay current on payments rather than walk.
Also, the delay of foreclosures on the unemployed for 3-6 months (in a period of nearly infinite foreclosure durations): Much ado about nothing.
Once again they are kicking the proverbial can a little further down the road. This kick seems particularly feeble in my opinion.
peter I just am not sure how
peter I just am not sure how relevant it is whether people walk or not. Furthermore with a certain reduction it may be cheaper to stay then to walk wouldn’t it? You gotta look big picture man. This credit, that incentive, this bailout, that loan mod… the ends DEFINITELY justify the means. That is, damage done now is acceptable, is justified, and clearly will be tolerated and even encouraged if it means that more time can be bought. If the tsunami that would be done in a year or two can be relegated to a 10 year mudslide then so be it! They are gonna do WHATEVER it takes and really, REALLY the only one that can stop them are our foreign creditors. Yes the house cannot print money forever but they can keep the game up a hell of alot longer then we can.
Foreclosures are only one
Foreclosures are only one determinant of how low housing prices fall but the other determinant is affordability – what buyers can pay and the government can’t change that.
Prices will have to adjust to affordability so they will fall regardless of this program, now when prices fall it will undermine the effectiveness of all these modifications and that will lead to people just walking away anyway… this whole exercise is fruitless and is a repeat of the failed HAMP program.
The only way you can stop home prices from falling is to tackle it from the buyers end, give free money to people so they are able to buy houses at the price level that the government wants to maintain.
kev374 wrote:…
The only way
[quote=kev374]…
The only way you can stop home prices from falling is to tackle it from the buyers end, give free money to people so they are able to buy houses at the price level that the government wants to maintain.[/quote]
Like tax credit for home buyers?
Sigh…this market is all out of whack.
kev374 wrote:Foreclosures are
[quote=kev374]Foreclosures are only one determinant of how low housing prices fall but the other determinant is affordability – what buyers can pay and the government can’t change that.
Prices will have to adjust to affordability so they will fall regardless of this program, now when prices fall it will undermine the effectiveness of all these modifications and that will lead to people just walking away anyway… this whole exercise is fruitless and is a repeat of the failed HAMP program.
The only way you can stop home prices from falling is to tackle it from the buyers end, give free money to people so they are able to buy houses at the price level that the government wants to maintain.[/quote]
Precisely right, kev374.
There will be tremendously negative consequences of their actions. From here on out, nobody will think of mortgages as something that has to be paid back as agreed. People will more readily overbid because they will feel confident that the govt will ride in to save them.
Just in case anyone thinks I
Just in case anyone thinks I believed the govt wouldn’t bail out the deadbeats:
——————-
Comment by CA renter
2007-03-17 12:28:23
The way I see it, there are two groups who stand to lose if there is no bailout: the lenders and the FBs.
If the market is allowed to do its thing, foreclosures will flood the market, making the losses swift and certain (as they should be, IMHO).
The way to stem the tide would be to force the lenders to re-write the loans (or sell at a steep discount to GSEs or other institution which could be set up by the govt). The loans would be re-written at fixed rates (lower than current FRM rates). Negative equity would not be a factor as the new loans would cover 100% of current mortgage, irrespective of collateralization.
These loan terms would be extended to 40 or 50 years, and the borrower could make I/O payments for the entire time they live in their homes. Only upon sale would the “lender” expect principal payment, and the lender could have an agreement whereby they share risk/reward — like they could be entitled to 50% of the appreciation/depreciation.
In the meantime, the Fed would be working overtime, trying to inflate our dollars, so in 15 years, the FBs might be able to break even and finally get out from under their “homes”.
—————————-
FB wins by not losing home & not having to pay what they originally agreed to pay.
Lender wins because they will lose much less than if the market were flooded with foreclosures. Collateral prices would drop, but not as significantly.
As lenders take losses, the big banks/financial firms move in and take over the mortgage companies. They (who, in many cases represent the final lenders) would be able to buy these mortgages for pennies on the dollar. They win the biggest piece of the pie.
http://www.thehousingbubbleblog.com/?p=2503#comment-509394
kev374 wrote:
The only way
[quote=kev374]
The only way you can stop home prices from falling is to tackle it from the buyers end, give free money to people so they are able to buy houses at the price level that the government wants to maintain.[/quote]
Or simply let home pries fall which they would do without all this intervention.
Oh, this is not going to do
Oh, this is not going to do anything. There is an end to this can kicking and some point. Ponzi-schemes all end the same way. Yahoo just reported incomes went down in 2009 and shadow is up to 10 million.
Also, the FBs are really going to live up their title when their non-recourse loans turn recourse. They would run for their lives if the had any sense.
I’m with Arraya on this one –
I’m with Arraya on this one – this is just more Keynesian foolishness that is delaying the inevitable and making the ultimate washout all the worse – there is still a Kondratieff Winter in our future
Just a thought. Say they
Just a thought. Say they reduce principle. That still doesn’t mean home prices are going to rise, does it? If it does, is there anyone that expects to see 2005/2006 levels any time soon?
1. This is for homeowners only. (yeah, people can lie)
2. Investors want to sell for profit.
And the other things I wonder about is what are the terms and conditions if principle is reduced? If the market does improve and homeowners are able to sell for profit, can they keep the profit or is there some obligation to bank? Would this turn into a recourse loan of sorts?
Let’s see just how effective
Let’s see just how effective this is when applied. HAMP didnt do squat. The details could make this just more happy talk from the govt.
Unless they can figure out how to lower long term rates and increase employment, I doubt will see too much growth in real estate prices. All these tactics are various fingers in the dike. But the water keeps rising.
jpinpb wrote:Just a thought.
[quote=jpinpb]Just a thought. Say they reduce principle. That still doesn’t mean home prices are going to rise, does it? If it does, is there anyone that expects to see 2005/2006 levels any time soon?
1. This is for homeowners only. (yeah, people can lie)
2. Investors want to sell for profit.
And the other things I wonder about is what are the terms and conditions if principle is reduced? If the market does improve and homeowners are able to sell for profit, can they keep the profit or is there some obligation to bank? Would this turn into a recourse loan of sorts?[/quote]
What’s your definition of soon? Based on the 90s bubble (which was much smaller than this last one), it took about ~4 years to get back to peak price. Since this last bubble is at least 3-4 times bigger than the 90s bubble, wouldn’t it be logical to say it’ll take at least 12-16 years before we’ll reach peak price again? Obviously, that strictly depend on inflation. If we experience the kind of inflation we saw in the 70s, then it would be much sooner. If we see another great recession or a depression, then it’ll be much later. It’s also very area specific as well.
Exactly AN. Nobody here said
Exactly AN. Nobody here said or even implied that what the govt was doing was going to fix anything. There is universal agreement it will only prolong things and in the end probably make things worse. For those who are thinking the “big crash” is going to happen in the next year or two… well… you just keep thinking that way….
Wondering if it couldn’t
Wondering if it couldn’t trigger sales. Many people may need to sell but can’t because they would have to bring money to the deal.
Can they get a loan reduction, then sell and pay off the smaller loan, possibly pocketing the new-found equity or at least break even?
sdduuuude wrote:Wondering if
[quote=sdduuuude]Wondering if it couldn’t trigger sales. Many people may need to sell but can’t because they would have to bring money to the deal.
Can they get a loan reduction, then sell and pay off the smaller loan, possibly pocketing the new-found equity or at least break even?[/quote]
Sounds very reasonable, sduuuude. If they want to get out of their homes, this would certainly make it easier for them to do so.
“Kicking the can down the
“Kicking the can down the road” is a vague term.
If it’s used to mean, “exchanging current problems for different, possibly bigger future problem,” I agree that this is what’s happening.
If it’s used to mean “housing will just plummet in the future” I completely disagree (or at least I disagree that this conclusion is a given).
If you “kick the can down the road” for long enough, and you devalue your currency enough as you are doing it, affordability can be achieved without a big drop in nominal prices.
So I completely disagree with the premise that principal reductions (along with the rest of the bailout dog and pony show) won’t make any difference. They may cause an entirely different set of problems in the future — but that’s not the same as making no difference.
I do agree that at some point, the government will not be able to continue printing and spending money they don’t have. Believe me, I am 100% on board with that forecast. But it hasn’t happened yet, and it could not be more clear that until it does, they will keep pulling out all the stops to prop up housing. If the US government funding crisis takes long enough to arrive that will give them time for a whole lot of propping.
Rich
(RANT) I’m really sickened &
(RANT) I’m really sickened & disgusted by the principle reductions. The personal responsibility for your own finances is gone in this country.
I also know a lot of people who ran up their credit cards and are now are negotiating to settle with the credit card company for pennies on the dollar. These people I know could easily get 2nd jobs, 3rd jobs, reduce other expenses and cowboy up to pay off this debt the old fashioned way. What happened to paying back what you owe?????
It’s like Americans are all now little children who can’t make rational, responsible financial decisions so the parent the Government pays it off for them.
I also know a lot of people who were conservative with their money and didn’t sign up for the $5,000/mo payments in 2005. They asked themselves, “can I afford this payment and still pay my bills and save money and not eat Top Ramen for the next 20 yrs?”. “Could I afford this if I as without income for a while?”
What pisses me off the most is this shift in American society towards the citizens having no repsonsibility for anything. It’s all blame others…blame the banks, blame the economy, it’s never my own fault…the Government will bail me out and take care of me. YOU signed those loan documents.
I understand there are people so underwater they will never get out, I think there should be 2 solutions for people who can’t make payments:
1. Foreclosure
2. Short sales (and this should be the banks decision w/out Gov intervention)
I mean for crying out loud, there is no friggen’ inventory in California right now for those with good credit and who were not dumb enough to buy at the peak in 2005. There is NOTHING WRONG with foreclosing on these people. There is NOTHING wrong with these people renting again! There are plenty of great rentals. I don’t buy this whiney crap about being kicked out of my home. JUST GO RENT THEN!!!
The Government using tax payer money and their power to force banks to do loan mods and principle reductions is some really scary anti-free market stuff.
I’m only half kidding (OK 3/4’s kidding:) ) when I say we should bring back debtors prisons and putting debtors in laughing stocks in the middle of the village square. Then maybe they would learn!
(end rant)
ctr70 wrote:(RANT) I’m really
[quote=ctr70](RANT) I’m really sickened & disgusted by the principle reductions. The personal responsibility for your own finances is gone in this country.
I also know a lot of people who ran up their credit cards and are now are negotiating to settle with the credit card company for pennies on the dollar. These people I know could easily get 2nd jobs, 3rd jobs, reduce other expenses and cowboy up to pay off this debt the old fashioned way. What happened to paying back what you owe?????
It’s like Americans are all now little children who can’t make rational, responsible financial decisions so the parent the Government pays it off for them.
I also know a lot of people who were conservative with their money and didn’t sign up for the $5,000/mo payments in 2005. They asked themselves, “can I afford this payment and still pay my bills and save money and not eat Top Ramen for the next 20 yrs?”. “Could I afford this if I as without income for a while?”
What pisses me off the most is this shift in American society towards the citizens having no repsonsibility for anything. It’s all blame others…blame the banks, blame the economy, it’s never my own fault…the Government will bail me out and take care of me. YOU signed those loan documents.
I understand there are people so underwater they will never get out, I think there should be 2 solutions for people who can’t make payments:
1. Foreclosure
2. Short sales (and this should be the banks decision w/out Gov intervention)
I mean for crying out loud, there is no friggen’ inventory in California right now for those with good credit and who were not dumb enough to buy at the peak in 2005. There is NOTHING WRONG with foreclosing on these people. There is NOTHING wrong with these people renting again! There are plenty of great rentals. I don’t buy this whiney crap about being kicked out of my home. JUST GO RENT THEN!!!
The Government using tax payer money and their power to force banks to do loan mods and principle reductions is some really scary anti-free market stuff.
I’m only half kidding (OK 3/4’s kidding:) ) when I say we should bring back debtors prisons and putting debtors in laughing stocks in the middle of the village square. Then maybe they would learn!
(end rant)[/quote]
Nice rant, ctr70! Agree 100% with all you’ve said.
Yup, I second that, ctr70.
Yup, I second that, ctr70. Being foreclosed on sucks, I’m sure, but there’s really nothing wrong with renting.
SD REALTOR:
What you don’t
SD REALTOR:
What you don’t seem to get is that even if you are right and housing has bottomed and only goes up, housing has become so expensive that IT’S NOT WORTH IT anymore to stick yourself into mountains of debt and worry anymore.
I’d rather rent a nice place thanks…and keep my 20% down and the rest of my hard earned money and enjoy life instead of pay for a stupid mortgage because it’s the general populous consensus that this is something that needs to be done.
Nozferat wrote:SD
[quote=Nozferat]SD REALTOR:
What you don’t seem to get is that even if you are right and housing has bottomed and only goes up, housing has become so expensive that IT’S NOT WORTH IT anymore to stick yourself into mountains of debt and worry anymore.
I’d rather rent a nice place thanks…and keep my 20% down and the rest of my hard earned money and enjoy life instead of pay for a stupid mortgage because it’s the general populous consensus that this is something that needs to be done.[/quote]
I don’t think SD R is saying we’re at the bottom at all. It just sound like he’s stating the current market condition right now with his experience on the street.
Do you mind clarifying your definition of expensive and not worth it? There are many place in San Diego that it’s cheaper to buy than rent today. Is paying less on PITI than comparable rent still too expensive and not worth it?
AN:
I never said if PITI is
AN:
I never said if PITI is less than rent it’s not worth it. I said that for the most part, prices are still to high for buying a home to be worth it.
I would like to know exactly what parts of SD you consider to be nice and livable and safe and affordable at the same time? For the average person, a $500K home is not affordable…just the down payment alone is a back breaker. Doesn’t that factor into the equation anymore?
Nozferat wrote:AN:
I never
[quote=Nozferat]AN:
I never said if PITI is less than rent it’s not worth it. I said that for the most part, prices are still to high for buying a home to be worth it.
I would like to know exactly what parts of SD you consider to be nice and livable and safe and affordable at the same time? For the average person, a $500K home is not affordable…just the down payment alone is a back breaker. Doesn’t that factor into the equation anymore?[/quote]
Mira Mesa, Chula Vista, Santee, Escondido, San Marcos, Vista, Oceanside. $500k is affordable for family who make $150k-$200k year. For the average person, they shouldn’t be buying a $500k house, they should be buying a $200k-$300k house.
Just my opinion, but people
Just my opinion, but people making $150-$200K per year deserve (or perhaps I should say, reasonably expect) better than Mira Mesa, Chula Vista, Santee, Escondido, San Marcos, Vista, Oceanside.
For $500k, you can live in
For $500k, you can live in PQ, RB, Carlsbad, Encinitas, Cardiff, Carmel Valley if you like. But you’re trading house/lot size for location.
I’ll even add in La Jolla, Del Mar, Coronado, Rancho Santa Fe. If you don’t mind living in a condo there.
Based on SANDAG’s estimate, 4% in 92126 (923 household), 15% in 92029 (1070 household), 10% in 91913 (1118 household), 3% in 92071 (566 household), 7% in 92078 (1077 household), 5% in 92084 (763 household), 4% in 92057 (741 household) makes $150k or more. So there are plenty of people who are perfectly satisfied with these areas and they make that much.
To put those numbers above into perspective:
17% in 92127 (2155 household), 9% in 92128 (1805 household), 10% in 92129 (1775 household), 30% in 92130 (5273 household) makes $150k or more.
AN wrote:For $500k, you can
[quote=AN]For $500k, you can live in PQ, RB, Carlsbad, Encinitas, Cardiff, Carmel Valley if you like. But you’re trading house/lot size for location.[/quote]Just my opinion, but people making $150-$200K per year deserve (or perhaps I should say, reasonably expect) better than a beater/small house or condo in PQ, RB, Carlsbad, Encinitas, Cardiff, Carmel Valley.
…and I’d say the SANDAG numbers actually support my point rather than refute it.
jpinpb, agree completely.
sdcellar wrote:AN wrote:For
[quote=sdcellar][quote=AN]For $500k, you can live in PQ, RB, Carlsbad, Encinitas, Cardiff, Carmel Valley if you like. But you’re trading house/lot size for location.[/quote]Just my opinion, but people making $150-$200K per year deserve (or perhaps I should say, reasonably expect) better than a beater/small house or condo in PQ, RB, Carlsbad, Encinitas, Cardiff, Carmel Valley.
…and I’d say the SANDAG numbers actually support my point rather than refute it.
jpinpb, agree completely.[/quote]
I might be missing your point, so lets see if I can get some clarification. You think that these “middle class” area are not good enough for those who make $150k or more, right? They deserve more? Which means that there shouldn’t be that many people in that income bracket living in these areas. But the SANDAG numbers shows that there quite a few people who are perfectly fine living in these areas and their actions (buying/living in these areas) show that they think they deserve (or perhaps I should say, reasonably expect) to live in these areas. I would love it if your view become reality where we can get a non-beater/non-small house in PQ, RB, Carlsbad, Encinitas, Cardiff, Carmel Valley for $500k. I just don’t see that happening at today’s interest rate. Especially since $150k-200k household income isn’t that much around here.
Maybe you can just come right out and say it. What do you think a household making $150-200k deserve (or perhaps I should say, reasonably expect)?
Well, you pretty much
Well, you pretty much answered your own question. Those are middle class areas (although marginally so for some of them) and that kind of income is at an upper middle class level. Perhaps at the lower end of upper, but decidedly not middle class.
The fact that any given zip has some number of high earners isn’t particularly meaningful as there are a number of reasons why that occurs.
The fact that historically low interest rates improve the affordability just further illustrates what a bad value current home prices (in most of San Diego) still are. If rates were higher, you’d get even less for your money and what you get today kinda sucks.
Earlier in this decade (well, the 00’s really), you could get nicer houses for $500K. Certainly in Encinitas, PQ, RB, Carlsbad, and just a little higher in Carmel Valley. And nothing has changed all that much to change it much from that. Maybe they should be fetching closer to $600K, but not much more, especially since they already kicked up significantly from ’98-’01.
sdcellar – totally true.
sdcellar – totally true.
sdcellar wrote:Well, you
[quote=sdcellar]Well, you pretty much answered your own question. Those are middle class areas (although marginally so for some of them) and that kind of income is at an upper middle class level. Perhaps at the lower end of upper, but decidedly not middle class.[/quote]
$150k-200k is hardly what I’d call upper class. I’d consider them barely breaking into the upper-middle class. $200k-$1M is solid to high end of upper middle class. I would say upper class is when you’re making at the very minimum $1M/yr.
[quote=sdcellar]The fact that any given zip has some number of high earners isn’t particularly meaningful as there are a number of reasons why that occurs.[/quote]
Did you say people who make $150k-200k deserve, should expect more? Well, there are plenty of people who makes that much and don’t agree that they deserve/need more. Me and a whole slew of people don’t share your entitlement mentality and we don’t paint a whole area with one broad stroke. Different stroke for different folks.
[quote=sdcellar]The fact that historically low interest rates improve the affordability just further illustrates what a bad value current home prices (in most of San Diego) still are. If rates were higher, you’d get even less for your money and what you get today kinda sucks.
Earlier in this decade (well, the 00’s really), you could get nicer houses for $500K. Certainly in Encinitas, PQ, RB, Carlsbad, and just a little higher in Carmel Valley. And nothing has changed all that much to change it much from that. Maybe they should be fetching closer to $600K, but not much more, especially since they already kicked up significantly from ’98-’01.[/quote]
I think you’re contradicting yourself w/in these 2 paragraph. First, you say “historically low interest improve affordability”, then the end of your second paragraph, you say “And nothing has changed all that much to change it much from that.”
Interest rate is what change it. I don’t see buying a $500k house as buying a $500k house. I add in the interest cost into the equation, since 99% of us won’t be paying for our house in cash. In ’00 average 30 years rate were around 7.75% and today, it’s around 5%. A $500k house @ 7.75% w/ 20% down yield monthly payment of $2865/month. At today’s interest rate, w/ 20% down, a $670k house would yield a monthly payment of $2877/month. The other variable you seem to forget is inflation as well. Even using a 2% inflation, $2865/month 10 years equals to about $3492/month today. At $800k and 5% interest, payment would be $3500/month. My point is, someone who can afford (get approved) to lock in a 30 year fixed 10 years ago for a $500k house should be comfortably (get approved to) locking in a 30 year fixed at $670-800k today (assuming 0-2% wage inflation over the last 10 years).
Based on your post, your definition of what people making $150k-$200k deserve are houses that would have sold in 2000 for $500k. Correct? And you’re expecting them to be at $600k today with the current interest rate. Correct?
FYI, different areas hold up differently. Here are two examples, one in CV and the other in Escondido. Both sold for around $500k in 2000.
http://www.sdlookup.com/MLS-100004525-11242_Corte_Belleza_San_Diego_CA_92130
http://www.sdlookup.com/MLS-090052669-10250_Highlands_Dr_Escondido_CA_92029
The CV one just sold for $938k and the Escondido one listed for over 190 days at $680k. Which is $5k more than its sold price in 2001. Both were sold in 2001 and the Escondido one was sold for $109k more than the CV one. I’m sure you know this but worth reiterating, if you want a deal, you have to buy where less people are looking. If you go with the herd, you have the pay the herd’s price.
AN wrote:sdcellar wrote:Well,
[quote=AN][quote=sdcellar]Well, you pretty much answered your own question. Those are middle class areas (although marginally so for some of them) and that kind of income is at an upper middle class level. Perhaps at the lower end of upper, but decidedly not middle class.[/quote]
$150k-200k is hardly what I’d call upper class. I’d consider them barely breaking into the upper-middle class. $200k-$1M is solid to high end of upper middle class. I would say upper class is when you’re making at the very minimum $1M/yr.
[quote=sdcellar]The fact that any given zip has some number of high earners isn’t particularly meaningful as there are a number of reasons why that occurs.[/quote]
Did you say people who make $150k-200k deserve, should expect more? Well, there are plenty of people who makes that much and don’t agree that they deserve/need more. Me and a whole slew of people don’t share your entitlement mentality and we don’t paint a whole area with one broad stroke. Different stroke for different folks.
[quote=sdcellar]The fact that historically low interest rates improve the affordability just further illustrates what a bad value current home prices (in most of San Diego) still are. If rates were higher, you’d get even less for your money and what you get today kinda sucks.
Earlier in this decade (well, the 00’s really), you could get nicer houses for $500K. Certainly in Encinitas, PQ, RB, Carlsbad, and just a little higher in Carmel Valley. And nothing has changed all that much to change it much from that. Maybe they should be fetching closer to $600K, but not much more, especially since they already kicked up significantly from ’98-’01.[/quote]
I think you’re contradicting yourself w/in these 2 paragraph. First, you say “historically low interest improve affordability”, then the end of your second paragraph, you say “And nothing has changed all that much to change it much from that.”
Interest rate is what change it. I don’t see buying a $500k house as buying a $500k house. I add in the interest cost into the equation, since 99% of us won’t be paying for our house in cash. In ’00 average 30 years rate were around 7.75% and today, it’s around 5%. A $500k house @ 7.75% w/ 20% down yield monthly payment of $2865/month. At today’s interest rate, w/ 20% down, a $670k house would yield a monthly payment of $2877/month. The other variable you seem to forget is inflation as well. Even using a 2% inflation, $2865/month 10 years equals to about $3492/month today. At $800k and 5% interest, payment would be $3500/month. My point is, someone who can afford (get approved) to lock in a 30 year fixed 10 years ago for a $500k house should be comfortably (get approved to) locking in a 30 year fixed at $670-800k today (assuming 0-2% wage inflation over the last 10 years).
Based on your post, your definition of what people making $150k-$200k deserve are houses that would have sold in 2000 for $500k. Correct? And you’re expecting them to be at $600k today with the current interest rate. Correct?
FYI, different areas hold up differently. Here are two examples, one in CV and the other in Escondido. Both sold for around $500k in 2000.
http://www.sdlookup.com/MLS-100004525-11242_Corte_Belleza_San_Diego_CA_92130
http://www.sdlookup.com/MLS-090052669-10250_Highlands_Dr_Escondido_CA_92029
The CV one just sold for $938k and the Escondido one listed for over 190 days at $680k. Which is $5k more than its sold price in 2001. Both were sold in 2001 and the Escondido one was sold for $109k more than the CV one. I’m sure you know this but worth reiterating, if you want a deal, you have to buy where less people are looking. If you go with the herd, you have the pay the herd’s price.[/quote]
AN,
I’m 100% with JP and sdcellar on this one. Not sure how you determined that $150K-$200K is “middle class.”
———————–
Sociologists Dennis Gilbert, Willam Thompson and Joseph Hickey estimate the upper middle class to constitute roughly 15% of the population. Using the 15% figure one may conclude that the American upper middle class consists, strictly in an income sense, of professionals with personal incomes in excess of $62,500, who commonly reside in households with six figure incomes.[1][7][16][19] The difference between personal and household income can be explained by considering that 76% of households with incomes exceeding $90,000 (the top 20%) had two or more income earners.[16]
Note that the above income thresholds may vary greatly based on region due to significant differences in average income based on region and urban, suburban, or rural development. In more expensive suburbs, the threshold for the top 15% of income earners may be much higher. For example, in 2006 the ten highest income counties had median household incomes of $85,000 compared to a national average of about $50,000. The top 15% of all US income earners nationally tend to be more concentrated in these richer suburban counties where the cost of living is also higher. If middle class households earning between the 50th percentile ($46,000) and the 85th percentile ($62,500) tend to live in lower cost of living areas, then their difference in real income may be smaller than what the differences in nominal income suggest.
http://en.wikipedia.org/wiki/Upper_middle_class
[see income table at link — CAR]
AN,
You’re also making the
AN,
You’re also making the assumption (that many others have made) that housing prices always go up over time. If you look at things over the long-term, you’ll see that housing prices have traded in pretty tight ranges for many decades.
It was mostly in the 70s, when Baby Boomers were first buying their homes and when inflation was rampant, that housing prices took off and didn’t really go back to those levels for a few decades. We also saw the expansion of the credit market (beginnings of the credit bubble) in the early 80s. If you look at various neighborhoods in Southern California (I study certain parts of San Diego and L.A. County), you’ll see that prices were about the same in 2000 as they were in 1989 (the peak of the last RE cycle). You can see this “flat” trend over many periods in history. **Housing prices DO NOT “always go up.”**
You cannot take prices at the peak of a natural (non-credit bubble) RE cycle (~2001 levels) and make the assumption that prices will go up from there, even at 2%. In California, prices rise, AND THEY FALL, sometimes for many, many years.
BTW, incomes have been stagnant or declining since ~2000, so not sure why you would extrapolate the increased monthly payment over that time. If anything, the price increases in **everything else** (medical insurance, energy, education, etc.) reduce the income available for housing costs. Also, we are supposedly in the “Greatest Recession Since the Great Depression,” which means that people have LESS income and cannot afford higher prices/monthly payments.
CAR, based your income
CAR, based your income article, you’re trying to say that 150-200k is upper middle class because 50k is middle class and 85k is the median income of the 10 highest county is 85k a year, right? Median income of MM is around 85k. So base on this article, MM is not your middle class area huh? FYI, this started with sdcellar saying those who make 150-200k deserve more than MM, Escondido, chula Vista, etc. I was just trying to say that there are plenty of people who disagree and they belong in that income bracket.
Reguarding income, I don’t buy the argument that it has been stagnant. Fresh grad engineer 10 years ago were making around 40 k a year. Today, they make around 55k a year. Miminum wage has also risen quite a bit as well.
I assume that RE price always goes up over a long term because I assume that we’ll always see inflation over a long tem. Since C-S have proven that RE traced inflation over the last 100 years, I don’t see that changing. You comparing 2000 vs 1990 would be like me comparing 2005 vs 1995. Why not compare a longer period, like 2000 vs 1970, or 1970 vs 1940?
Also, I’m of the mindset that people, on average, will get a loan that’s near or at the max that they’re qualified for. So as long as bank is willing to lend, people will continue to borrow. Was there FHA and 3.5% down 20 years ago? My point is that, interest rate plays a huge roll in price and affordability. As I’ve shown in my last post, even if income was flat over the last 10 years, because of interest rate decline, a 500k house ten years ago would yield the same monthly payment as a 670k house today.
CAR – While it is surely true
CAR – While it is surely true that home prices were steady for long periods of time in the past, I think you are leaving out the true culprit: inflation. It’s no coincidence that the time period you cite of consistently rising prices began at the same time the we adopted a pure fiat monetary system. It’s just that dollars have become worth less and less on a very consistent basis over that time.
As case in point, according to all data I’ve seen, nominal incomes have most definitely not been stagnant since 2000, they’ve grown quite a bit here in SD. But I can’t tell if you are addressing nominal or real incomes… it seems maybe it’s the latter bc you cite the cost of living and how much they have left for home purchases. Which is a good point, but even still, if the dollar is losing purchasing power fast enough, real wages can be declining even as wages — and even as the portion of wages available for home payments — are rising in nominal terms.
There is still post-bubble aftermath to shake out, and this could offset that inevitable rise for a while (or at least it did til last year, stay tuned), but under the current monetary system/prevailing economic thought, I think that unless there is a specific offset, the price of everything rising is the natural order of things.
Rich
An– Sorry for the confusion,
An– Sorry for the confusion, but I was trying to say that $150K-$200K represents upper middle class (lower end perhaps, but firmly upper middle). Upper class is, of course, a whole ‘nother echelon. But again, the point remains, I believe a good many upper middle classers are going to want something better.
Also, don’t confuse want and need. Many people can settle for something less. I’m not trying to dispute common sense, simply that it’s reasonable for people to want to live in areas that roughly correspond to their income levels. I paint with no broader brush than you, although I appreciate you referring to me as one of an entitlement mindset. Odd, because I stated that there are a good many reasons why people of higher incomes households exist in lower income zips. Maybe listing some of them will help.
And again, as far as broad brushing goes, I’m simply stating where I believe majorities lie, not everyone.
As far as value of real estate is concerned, you and I are talking about different things. I’m talking about the value of the property and you’re talking about the general value prosition of home ownership. Of course, lower interest interest rates help with the latter. They do not, however, increase the fundamental value of the underlying property. I’m not saying there’s not a causal relationship between the two, because there certainly seems to be, but in an ideal world (not the one we necessarily live in), lower interest rates simply allow you to get the same house for less money, or better still, a better house for the same money. Unfortunately, the effect appears to have been the opposite (hence debates about incomes versus zip demographics).
Finally, to suggest that I’m not acknowledging inflation simply means you’re not reading what I wrote. Didn’t I give you $500 going to $600K? That is inflation. Other than magic house value fairies (and granite countertops), I don’t really think there are any other fundamentals. Again, interest rates have an effect, but that’s a pendulum that will likely swing the other way at some point.
So, you’ve got it right, what I hope for, but you have to remove “factoring in interest rate” because I have no interest in falling into that trap for my own personal situation (reminds me of car dealer math). I know that interest rate is/was a big driver for you, but it’s not for me.
Finally, I appreciate the math, but find it’s easier with actual examples rather than theoreticals. Using actual examples, I’m hard pressed to find something that equates to good value even factoring in interest rate. The two listings you provided certainly don’t pencil out for me (thanks for supporting my case!) Maybe you have a real example that does?
Let’s keep it at 10 years and use 2001 as the starting point. At that point, interest rates were 6.97% and I’ll give you 2% annual inflation, but not a penny more–if for no other reason than I’m looking to buy well. You support that notion, don’t you? One can run with a different set of numbers if they’re trying to validate they didn’t screw themselves completely.
OK, now I see where you’re
OK, now I see where you’re coming from. You’re disregarding interest rate into your calculation of value. We’ll just have to agree to disagree on that point. However, I see where you get that $600k number from. $500k at 2% inflation will get you $609k. Based on historical data, it’s slightly above 2.5%. Which should bring the $500k inflation adjusted number to $640k.
I agree with you that, if interest rate goes back to 2000 level of ~7.75% tomorrow, prices probably would be fair at $640k and it probably would drop to around that level. Since you disregard interest rate in your valuation calculation, then you would only get your valuation when interest rate get back to 2000 or 2001 interest rate level. This is assuming you’re using this valuation to decide to buy a home.
Regarding majority, I’d say, majority will stretch to buy a home when given a chance. But again, comparing areas like MM/Escondido/Chula vs PQ/RB/Carlsbad, we’ve found that people making $150k-200k prefer the later 3:2-2:1 more than the later. That means, for every 5 household making $150k-200k, 2-2.5 of them will pick the former group. Like you said, their have different reasons for doing so. I was just disagreeing with your point that they “deserve (or perhaps I should say, reasonably expect)” more than MM/Escondido/Chula/etc. BTW, deserve and expect is two very different things. People expectation tend to be much higher than what they truly deserve.
We also have to agree to disagree on the whole upper middle class designation. If fresh grad s/w engineer can make $66k/yr, a couple of fresh grad s/w engineer would have a household income of around $132k. I hardly consider such house hold nearing upper middle class.
On the other one, my ten-year
On the other one, my ten-year calculation only got me to $597K, but if you go back another year (2000), I think it actually helps me because house prices were even lower, so I suppose we can start there too.
I see you’re tightening up the definitions (O’side, San Marcos, Carmel Valley out), but I frankly have no idea where you came up with the 3:2-2:1 figures. Maybe you ran a Pepsi Challenge or something?
Also my fault, but probably shouldn’t focus too much on deservedness. That was really just tounge-in-cheek (and the parentheses were supposed to make that clear). But yeah, a lot of people probably expect more than the deserve.
On the lower tier upper middle class quadrant second derivative thing, I guess we’re probably never going to resolve that one, but throwing yet another figure at what freshouts make (up from $55K), probably doesn’t help us get any closer. I would suggest that that particular couple opts for a kick ass condo in, dunh dunh duh, Carmel Valley!
sdcellar wrote:On the other
[quote=sdcellar]On the other one, my ten-year calculation only got me to $597K, but if you go back another year (2000), I think it actually helps me because house prices were even lower, so I suppose we can start there too.
I see you’re tightening up the definitions (O’side, San Marcos, Carmel Valley out), but I frankly have no idea where you came up with the 3:2-2:1 figures. Maybe you ran a Pepsi Challenge or something?
Also my fault, but probably shouldn’t focus too much on deservedness. That was really just tounge-in-cheek (and the parentheses were supposed to make that clear). But yeah, a lot of people probably expect more than the deserve.
On the lower tier upper middle class quadrant second derivative thing, I guess we’re probably never going to resolve that one, but throwing yet another figure at what freshouts make (up from $55K), probably doesn’t help us get any closer. I would suggest that that particular couple opts for a kick ass condo in, dunh dunh duh, Carmel Valley![/quote]
Sorry, I wasn’t tightening up anything. Just got lazy typing out all of those areas (Except for Carmel valley, which was wrong for me to put in, since there are quite a few multi-million $ homes there).
3:2-2:1 comes from total # of household making $150k+ in those areas. I’ve posted the data.
I take my noob salary # from Salary.com. It ranges from $53-66k. Like I said, different stroke for different folks. You might want a condo in Carmel Valley, I rather get a big house w/ a big yard and a nice view in Mira Mesa. For $500k, you can have http://www.sdlookup.com/MLS-100009202-92130 or http://www.sdlookup.com/MLS-100011172-8025_Hagans_Cir_San_Diego_CA_92126 or http://www.sdlookup.com/MLS-090049911-1437_Country_Club_Dr_Escondido_CA_92029 or http://www.sdlookup.com/MLS-090019138-2275_Montia_Pl_Escondido_CA_92029 or http://www.sdlookup.com/MLS-100004771-1512_Windmill_Pl_Chula_Vista_CA_91913 or http://www.sdlookup.com/MLS-100017062-892_Orion_Way_San_Marcos_CA_92078 or http://www.sdlookup.com/MLS-100010605-1131_Vista_Pointe_Blvd_Oceanside_CA_92057. Again, different stroke for different folks.
sdcellar wrote:Finally, I
[quote=sdcellar]Finally, I appreciate the math, but find it’s easier with actual examples rather than theoreticals. Using actual examples, I’m hard pressed to find something that equates to good value even factoring in interest rate. The two listings you provided certainly don’t pencil out for me (thanks for supporting my case!) Maybe you have a real example that does?[/quote]
What do you mean pencil out? The second example is asking for $5k above it’s 2001 price. So, adjusted for inflation, it’s $162k cheaper to buy that today than in 2001. What more do you want?
Yeah, sorry on the Escondido
Yeah, sorry on the Escondido one as the issue there (for me) is it’s hard to effectively tell what that is at all. To me, it seemed overpriced in 2001 and today, it would appear that the market still agrees that it’s overpriced. I’m guessing there are some factors that neither of us can see via the MLS. I’d put it out of my mind pretty quickly (but you’re welcome to steal it).
sdcellar wrote:Yeah, sorry on
[quote=sdcellar]Yeah, sorry on the Escondido one as the issue there (for me) is it’s hard to effectively tell what that is at all. To me, it seemed overpriced in 2001 and today, it would appear that the market still agrees that it’s overpriced. I’m guessing there are some factors that neither of us can see via the MLS. I’d put it out of my mind pretty quickly (but you’re welcome to steal it).[/quote]
http://www.sdlookup.com/MLS-090055985-2151_Lundy_Lake_Escondido_CA_92029
Here’s another one for you. This is in Escondido and at this price, you’d need more than $200k/year to afford it comfortable. Here’s its sale history:
01/22/2010 $790,000 6y 10m -19% -3%
03/14/2003 $980,000 2y 8m 13% 4%
06/29/2000 $870,000 1y 1m -1% 0%
05/04/1999 $875,000 12y 7m 72% 4%
09/29/1986 $510,000 1y 10m 1,100% 272%
11/07/1984 $42,500 n/a – –
It’s sold below its 1999 nominal price. How’s that for value? There are many more just like it. But it’s not in the coveted NCC. Like I said, if you follow the herd, you have to pay the herd’s price. Think outside of the box and you’ll find great value. Simple supply vs demand, but I’m sure you know that.
Again, really can’t say from
Again, really can’t say from the listing. It’s just a lotter harder to determine exactly what you’ve got when your dealing with these estate type properties. First indication that something is funny about it is the relatively low appreciation from 1999-2000-2003, but again, really have no idea.
A condo in Carmel Valley isn’t for me either, just pointing out that there’s a demographic that it appeals to. That same couple might opt for a cool small apartment in University Heights (that they rent) and save money for their future together.
sdcellar wrote:As far as the
[quote=sdcellar]As far as the herd is concerned, you’ve mentioned it a few times, but haven’t you been arguing that there’s actually something of a herd with regard to Mira Mesa? Didn’t you follow your own advice? Why didn’t you pick up one of these sweet Escondido beauties? MM is hardly the coveted NCC.[/quote]
What are you talking about? Care to link to what I said in this reference? I looked long and hard at these Escondido beauties. But I can’t get passed the commute time. I’m really confused as to what your point is w/ this paragraph. When did I ever say MM is part of the coveted NCC?
I’m sorry I said anything,
I’m sorry I said anything, but you seemed to indicate that half of the people who might choose a more prime zip code would settle on the less prime. That seems herdlike numbers to me. You never said MM was part of NCC, I was just being sarcastic and suggesting that it’s not very out of the box. Just seemed like you were slinging things at me, so I slung back. I shouldn’t have done it.
sdcellar wrote:I’m sorry I
[quote=sdcellar]I’m sorry I said anything, but you seemed to indicate that half of the people who might choose a more prime zip code would settle on the less prime. That seems herdlike numbers to me. You never said MM was part of NCC, I was just being sarcastic and suggesting that it’s not very out of the box. Just seemed like you were slinging things at me, so I slung back. I shouldn’t have done it.[/quote]
Sorry if that was your interpretation. That wasn’t what I was trying to say. I was just trying to say that there are people who make $150-200k in MM/Escondido/Chula/Oside/San Marcos too. That was meant to refute your claim that people who make that much deserve (or perhaps I should say, reasonably expect) more than those area.
Regarding the herd term, I was just trying to say that if you’re trying to buy in the bread and butter price range of any area, you’ll run into a lot of competition. However, if you go for the high end of the less desirable area, you’ll have less competition. So you’ll get more value for your money. Sorry if that offends you.
AN wrote:Regarding the herd
[quote=AN]Regarding the herd term, I was just trying to say that if you’re trying to buy in the bread and butter price range of any area, you’ll run into a lot of competition. However, if you go for the high end of the less desirable area, you’ll have less competition. So you’ll get more value for your money. Sorry if that offends you.[/quote]You know, there’s a school of thought that says you’re supposed to get the worst house in the best area. I guess, as with most (all) things, there’s more than one way to approach it.
We’ve been trying both, but with regard to the latter approach, we’ve seen two properties in the last two days and let me tell you, there’s no competition for them. Unfortunately, they just suck more than one would even think *and* they’re still priced too high, even though they’re cheaper than anything else in their respective ‘hoods *and* they are certainly more “affordable”.
sdcellar wrote:
A condo in
[quote=sdcellar]
A condo in Carmel Valley isn’t for me either, just pointing out that there’s a demographic that it appeals to. That same couple might opt for a cool small apartment in University Heights (that they rent) and save money for their future together.[/quote]
But don’t they deserve (or perhaps I should say, reasonably expect) more than Mira Mesa, University Heights, etc? BTW, you just illustrate my point for me. I’ve been saying different stroke for different folks and how are are some places that have come down to affordable level. However, those places are not the coveted NCC. You then stated that they deserve (or perhaps I should say, reasonably expect) more than those areas.
AN wrote:But don’t they
[quote=AN]But don’t they deserve (or perhaps I should say, reasonably expect) more than Mira Mesa, University Heights, etc? BTW, you just illustrate my point for me. I’ve been saying different stroke for different folks and how are are some places that have come down to affordable level. However, those places are not the coveted NCC. You then stated that they deserve (or perhaps I should say, reasonably expect) more than those areas.[/quote]Again, I’m sticking with yes, people making $150K to $200K fancy themselves with better options. Are there other alternatives, of course. Some better than others (for most people).
That said, all this out of the box stuff just muddies up everything. It’s just another excuse for lack of true affordability (and more importantly, value). Affordable, but less desirable is simply a copout. Translated, it means the value has still gone down, but there’s a workaround. You can (almost) always get to affordability if you keep thinking further and further out of the box.
I encourage out-of-the-box thinking, but that’s something that can be done regardless of market values at any given point in time.
We’re obviously not getting
We’re obviously not getting anywhere. You asked for examples, I gave you examples and you either brush it off because you don’t know the area or you’re claiming it’s muddying the argument. So, we’ll just have to agree to disagree.
I’m sorry, was I suppose to
I’m sorry, was I suppose to comment on those? I couldn’t get past the first one. An Airoso condo? It’s neither a good deal nor generally attractive to higher income households (not wise ones at least). You can keep your $239 HOA too. Didn’t see much in the others either, but maybe I can take a closer look tomorrow and comment to the best of my ability. Can’t say I see anything too special in there based on a quick look at each.
You completely miss the
You completely miss the point, so no need to comment on them.
AN,
I think sdcellar is
AN,
I think sdcellar is trying to make the point that households with equivalent relative incomes/education cannot buy today what they could in 2000.
Yes, some deals are better in some areas, but in many areas (where the market seized up due to govt intervention…AFTER the lower end already got hit) we are nowhere near “reasonable” levels.
BTW, there are some really magnificent homes in O’side, Esc, etc. It’s very likely those with the higher incomes are living in those more estate-like houses.
CA renter wrote:AN,
I think
[quote=CA renter]AN,
I think sdcellar is trying to make the point that households with equivalent relative incomes/education cannot buy today what they could in 2000.
Yes, some deals are better in some areas, but in many areas (where the market seized up due to govt intervention…AFTER the lower end already got hit) we are nowhere near “reasonable” levels.
[/quote]
Nailed it.
CA renter wrote:AN,
I think
[quote=CA renter]AN,
I think sdcellar is trying to make the point that households with equivalent relative incomes/education cannot buy today what they could in 2000.
Yes, some deals are better in some areas, but in many areas (where the market seized up due to govt intervention…AFTER the lower end already got hit) we are nowhere near “reasonable” levels.
BTW, there are some really magnificent homes in O’side, Esc, etc. It’s very likely those with the higher incomes are living in those more estate-like houses.[/quote]
My numbers showed otherwise. But sure, if you believe so. sdcellar was referring to value disregarding interest rate. I’ve proven that given a 0-2% wage inflation over the last 10 years, a $500k house in 2000 would yield similar monthly payment to a $670-800k house today.
If you disagree, can you show some example and numbers to back up your point? I welcome some hard examples and numbers to back it up to be proven wrong.
CAR, can you also explain to me, based on your understanding, why govt. intervention doesn’t help hold up the estate houses in Oside/Escondido/etc. the same way it affected NCC/RB/PQ/etc? I’m talking about houses that were around $500k in 2000.
AN wrote:
My numbers showed
[quote=AN]
My numbers showed otherwise. But sure, if you believe so. sdcellar was referring to value disregarding interest rate. I’ve proven that given a 0-2% wage inflation over the last 10 years, a $500k house in 2000 would yield similar monthly payment to a $670-800k house today.
If you disagree, can you show some example and numbers to back up your point? I welcome some hard examples and numbers to back it up to be proven wrong.
CAR, can you also explain to me, based on your understanding, why govt. intervention doesn’t help hold up the estate houses in Oside/Escondido/etc. the same way it affected NCC/RB/PQ/etc? I’m talking about houses that were around $500k in 2000.[/quote]
In the following examples, I used a 20% down payment, with 80% financed at 7% interest rates for the 1998-2000 sales and 5% interest for the current prices. I used 1.25% for property taxes, and did not include insurance.
The monthly payment on 7333 Altiva is 53% higher than its 3/1998 sale.
http://www.sdlookup.com/MLS-100019997-7333_Altiva_Pl_Carlsbad_CA_92009
———————-
Using the lowest price in their range, the monthly payment on 2807 Sombrosa is ~39% higher than its 2000 sale.
http://www.sdlookup.com/MLS-100009385-2807_Sombrosa_St_Carlsbad_CA_92009
——————–
Using the lowest price in the range, the monthly payment for 3411 Camino Alegre is ~34% higher than an approximation of its 2000 payments (look at the brand new price in 1997 and see how much things changed!).
http://www.sdlookup.com/MLS-100019944-3411_Camino_Alegre_Carlsbad_CA_92009
———————
The monthly pmt. on 3111 Quebrada is 60% higher than its 1999 payment.
http://www.sdlookup.com/MLS-100011073-3111_Quebrada_Ct_Carlsbad_CA_92009
——————–
The monthly pmt. on 2784 Galicia Way is ~92% higher than its 1999 payment.
http://www.sdlookup.com/MLS-100019956-2784_Galicia_Way_Carlsbad_CA_92009
——————
The monthly payment on 7656 Cortina is 102% higher than its 1998 payment.
http://www.sdlookup.com/MLS-100016624-7656_Cortina_Ct_Carlsbad_CA_92009
———————–
According to this site, the change in incomes from 2000 to 2008 was 36%, which means that **if our economy is as healthy today as it was in 2000, and assuming 2000 prices were “normal”** then the houses where the payments are 30-40% higher than their 2000 levels are now “normal” and “affordable” if one wants to buy using a 80% LTV, FRM. I’ll admit that I’m a bit surprised by the numbers.
http://www.city-data.com/city/Carlsbad-California.html
Of course, some of us would argue that things are not as good today as they were in 2000 (and that real estate in 2000 was already very frothy), and we would also say that we’d prefer to buy when rates are high/prices low vs. when rates are low/prices high. Which way do you think interest rates will go over the next 10-30 years? (Mind you, I’ve been VERY wrong about my interest rate predictions for years now.)
Also, I tend to consider the cost of other necessities and how they’ve risen over time vs. incomes (medical insurance, energy, food, etc.). If these prices have risen faster than incomes, then the amount of money left over for housing payments is reduced.
AN wrote:
CAR, can you also
[quote=AN]
CAR, can you also explain to me, based on your understanding, why govt. intervention doesn’t help hold up the estate houses in Oside/Escondido/etc. the same way it affected NCC/RB/PQ/etc? I’m talking about houses that were around $500k in 2000.[/quote]
Actually, the high-end homes in the “less desirable” zips have also held up very well compared to the lower-end homes in those same zips. That being said, in general, the higher-end homes in Esc. or O’side seem to have fallen a bit more than similarly-priced homes in the “better” zips. I’d guess this is due to the “desirability” of the zip code, and the bad reputation (undeserved, in some cases) of the “less desirable” zips.
The house you linked to on Lundy (IIRC) might be affected by the close proximity to the fires in 2007. There might be an insurance issue there. Also, that area is a bit funky and feels isolated for some reason. The housing development to south of there (Rancho Verde) seems to be holding up fairly well (though things aren’t moving, they are still priced very high and do occasionally sell for those prices). BTW, this is our favorite area in Escondido, and one where we would **strongly** consider buying if prices came down; but as luck would have it, even the places in Escondido where we would like to buy haven’t come down yet!
Case in point:
http://www.sdlookup.com/MLS-090053311-1630_Ventana_Dr_Escondido_CA_92029
CAR, those are great
CAR, those are great examples. Based on those property, I agree that those are still quite expensive. Those probably would have sold for 350-400k in 2000, so at their current asking price of high 600k, they’re still expensive. They would be reasonable at high 500k.
One thing I noticed is, even as rates went up between 1998-2000, prices still went up. What’s your perspective on that? I personally think TPTB will keep rates low long enough that when they’ll raise rate, it won’t have a negative effect on housing (kind of like in the 1998-2000). Only time will tell where rates will go.
I rather buy in a low price high rate scenario as well. But I don’t want to wait that long for it either. I just don’t see high (8%+) rates coming anytime soon (w/in the next 3-5 years).
Based on your Ventana example, they did say it’s highly upgraded. I’m not sure who did the upgrades (they or the prior owner). However, assuming that it was already highly upgraded before the 2001 sold date, here’s how I see the numbers. (2001) $549k @20% down and 7.1% interest rate = $2951/month * 1.36 (wage inflation) = $4013/month. Today’s $799k @20% down and 5.25% interest rate = $3529/month. Which is less than $4013/month wage inflation adjusted to 2001 price. If you keep interest rate at 7.1%, then just counting for wage inflation of ~36%, a price of $750k would yield ~$4000/month in mortgage.
It’s not as great of a deal as the less desirable homes in Escondido, but it’s still more affordable today than in 2001 (based on monthly payment).
AN – The only thing w/your
AN – The only thing w/your math that I would take into consideration is the higher priced home will have the higher property tax and therefore higher monthly payments. Certainly if the value depreciates, you can try to reduce the rate. Nevertheless, getting the low property tax base is more desirable IMO.
AN wrote:CAR, those are great
[quote=AN]CAR, those are great examples. Based on those property, I agree that those are still quite expensive. Those probably would have sold for 350-400k in 2000, so at their current asking price of high 600k, they’re still expensive. They would be reasonable at high 500k.[/quote]
Yes, that’s exactly right. Mind you, we ARE making (lowball) offers right now, it’s just that none of them have been accepted yet. We are willing to pay a bit more, but not as much as the optimistic sellers are asking and what today’s optimistic buyers are willing to pay.
I can say for sure that the buyers of recent years are not nearly as wealthy as some might like to claim. Many of the houses that go up for sale in the better areas are the same ones that have sold in the past five years. These buyers (whose purchases are used as “comps” in sellers’ minds) have no staying power, which leads me to believe they are buying above their means…and those “comps” really aren’t very valid.
[quote=AN]One thing I noticed is, even as rates went up between 1998-2000, prices still went up. What’s your perspective on that? I personally think TPTB will keep rates low long enough that when they’ll raise rate, it won’t have a negative effect on housing (kind of like in the 1998-2000). Only time will tell where rates will go.
I rather buy in a low price high rate scenario as well. But I don’t want to wait that long for it either. I just don’t see high (8%+) rates coming anytime soon (w/in the next 3-5 years).[/quote]
I think the 1998-2000 period was very good, economically. That was during the dot.com craze, and I knew quite a few blue-collar workers who were making an extra $50K-$100K/year from trading. Like we saw during the housing boom, this “extra” money made people spend, and the economy benefitted from it in many ways…until the bubble burst.
Our total debt levels (public and private) were in MUCH better shape in 2000 than they are in 2010. We are currently in debt saturation mode in an extremely low-rate environment, which means there is very little room for upward movement, IMHO.
Additionally, while I didn’t give much credit to the theory before, many people seem to think the 1997 cap gains exclusion on housing started the ball rolling with the wild increases during that time. I’m beginning to side with these people regarding the effects of the exclusion. Prices started shooting up very quickly after it passed, and I distinctly remember the flippers beginning to swarm about that time (this was in L.A., too).
[quote=AN]Based on your Ventana example, they did say it’s highly upgraded. I’m not sure who did the upgrades (they or the prior owner). However, assuming that it was already highly upgraded before the 2001 sold date, here’s how I see the numbers. (2001) $549k @20% down and 7.1% interest rate = $2951/month * 1.36 (wage inflation) = $4013/month. Today’s $799k @20% down and 5.25% interest rate = $3529/month. Which is less than $4013/month wage inflation adjusted to 2001 price. If you keep interest rate at 7.1%, then just counting for wage inflation of ~36%, a price of $750k would yield ~$4000/month in mortgage.
It’s not as great of a deal as the less desirable homes in Escondido, but it’s still more affordable today than in 2001 (based on monthly payment).[/quote]
No matter what, it’s still too expensive. Like JP points out, I always take property taxes into consideration.
——————-
One more thing about my above examples, BTW: the downpayment. It’s much more difficult to come up with $100K in 2010 than it was to come up with $40K-$50K in 2000. It’s always been difficult for people to save up for a down payment, and (IMHO), it’s almost impossible at today’s prices in the “better” areas unless you are coming in with bubble money.
CA renter wrote:
One more
[quote=CA renter]
One more thing about my above examples, BTW: the downpayment. It’s much more difficult to come up with $100K in 2010 than it was to come up with $40K-$50K in 2000. It’s always been difficult for people to save up for a down payment, and (IMHO), it’s almost impossible at today’s prices in the “better” areas unless you are coming in with bubble money.[/quote]
That’s a very good point. Coming up w/the 20% when the price is lower is much easier, of course, than when the price is higher. That’s a given, but maybe taken for granted.
CAR, I know NCC have held up
CAR, I know NCC have held up well compare to the rest of the county. You won’t get any objection from me regarding that point.
Regarding that Escondido house, what’s your definition of too expensive? I just showed you the number and it’s ~$500/month cheaper compare to inflation adjusted 2001 monthly payment. That $500/month will more than cover the tax difference.
Regarding the down payment in your example, why are you comparing saving for $100k vs $40-50k? Shouldn’t you compare $160k vs $110k? That’s 45% larger down payment vs 100-150% larger. 45% larger is still bad, but if income increase by 36% over that same period, it’s not as bad as you’re trying to make it out to be. To afford a $800k house, you’d have to make at least $200k. I’d expect someone to make that much to be easily be able to save $3k-4k/month (besides 401k/IRA/kids college fund). So saving for a down payment shouldn’t be that big of an issue.
BTW, I’ll counter your Escondido example with these Escondido examples:
http://www.sdlookup.com/MLS-090065187-3163_Via_Solana_Escondido_CA_92029
Here’s its sale history:
02/25/2010 $585,000 9y 4m 38% 3%
10/05/2000 $425,000 n/a – –
http://www.sdlookup.com/MLS-090045540-2450_Monterey_Dr_Escondido_CA_92029
This one is near your Escondido example but it’s slightly bigger. Sold for $650k.
http://www.sdlookup.com/MLS-090038920-3510_Avenida_Sierra_Escondido_CA_92029
Here’s its sale history:
11/02/2009 $639,000 3y 8m -18% -5%
02/24/2006 $775,000 3y 6m 32% 8%
07/31/2002 $587,000 4y 10m 86% 14%
09/25/1997 $316,000 7y 7m -28% -4%
02/01/1990 $441,350 4y 8m 93% 15%
05/13/1985 $229,000 n/a – –
http://www.sdlookup.com/MLS-090044900-1906_Continental_Escondido_CA_92029
Here’s its sale history:
09/28/2009 $715,000 7y 2m 12% 2%
07/29/2002 $639,000 11y 9m 54% 4%
10/11/1990 $415,000 1y 3m 22% 17%
06/27/1989 $340,210 n/a – –
One thing to keep in mind is that, the listing I’ve just listed are sold listing, not active. I’m sure there are plenty of crazy priced listings, but looking at sold ones, it’s much more reasonable.
Here’s one last example. This one is in Chula Vista:
http://www.sdlookup.com/MLS-090057823-1829_Cabernet_Dr_Chula_Vista_CA_91913
It’s currently asking for $550k-600k. Here’s its sale history:
09/16/2004 $853,937 6y 5m 131% 14%
03/26/1998 $370,000 4y 0% 0%
03/24/1994 $370,000 4y 2m -4% -1%
12/29/1989 $385,000 n/a – –
AN,
I’ve long said that
AN,
I’ve long said that **some** houses in **some** locations are fairly reasonable at this point.
I’ve also said that if we were intending to finance the majority of the purchase price, we probably would have bought in 2009, as things were ideal for those who wanted or needed to buy in a low rate/high price environment. We do not intend to finance the majority of the price, so we are more price-sensitive, and not payment-sensitive.
Also, we intend to buy our final “toe tag” house. We are not looking at something we intend to sell in our lifetimes. Therefore, we are much, MUCH pickier about what we buy and where it’s located. For what we want, the prices have come down very little.
We are willing to wait because we are in a comfortable rental in one of our target neighborhoods, and we’ve lived here for almost six years, so we are friends with all the neighbors and have fantastic landlords. Obviously, being in a rental we like makes a big difference WRT urgency. It affords us the ability to take our time and find what we really want at the right price.
CAR – I relate to what you
CAR – I relate to what you say about being in a rental you like. I was in a rental I hated and couldn’t wait to get out. Now I’m in a place I really like and am much happier and the urgency to buy is lessened.
CAR, I understand your
CAR, I understand your position and circumstances. If I was in your shoe, I’d do the same thing and complained about the same thing as well.
Although you’ve said that **some** houses in **some** locations are fairly reasonable at this point before, sometimes, it doesn’t feel like you meant it. Maybe you’re just referring to those specific house that you’re looking for, in those specific streets, in those specific zip codes.
When I ready your statement, I feel like many areas are still not reasonable, while I think it’s more like many areas are reasonable, just not all.
AN,
Many areas are at fairly
AN,
Many areas are at fairly reasonable price levels. It’s just that *what we’re looking for* has not been allowed to fall as much because the government intervened right as these areas were getting hit.
Trends in RE roll from one area to the next. We are looking in areas that were last to be hit because of all the move-up money that buffered these areas in the earliest stages of the declines.
CA renter wrote:AN,
Many
[quote=CA renter]AN,
Many areas are at fairly reasonable price levels. It’s just that *what we’re looking for* has not been allowed to fall as much because the government intervened right as these areas were getting hit.
Trends in RE roll from one area to the next. We are looking in areas that were last to be hit because of all the move-up money that buffered these areas in the earliest stages of the declines.[/quote]
Totally agree with that and I feel for you.
Thanks, AN. 🙂
Thanks, AN. 🙂
Just found this thread. My
Just found this thread. My only input is the houses CAR posted are comparing previous sold prices with current wishing prices. Everyone I checked was listed way too high and has essentially 0 chance of selling at those asking prices. They arent real selling prices. Your case would be much better with actual sales.
sdr,
Yes, I agree. But what
sdr,
Yes, I agree. But what buyers are faced with **today** are these current wishing prices. As we’ve discussed, I think things are slowing down because sellers are getting way too optimistic and expecting far too much of the buyers.
Still, a number of the homes I posted were some of the more reasonable ones on the market today. I know of them because we’ve been considering some of them — and we wouldn’t consider them if they weren’t priced somewhat reasonably for what’s out there right now.
You’ve seen the craziness. There’s some goofy stuff going on right now.
AN wrote:My numbers showed
[quote=AN]My numbers showed otherwise. But sure, if you believe so. sdcellar was referring to value disregarding interest rate. I’ve proven that given a 0-2% wage inflation over the last 10 years, a $500k house in 2000 would yield similar monthly payment to a $670-800k house today.
If you disagree, can you show some example and numbers to back up your point? I welcome some hard examples and numbers to back it up to be proven wrong.[/quote]You say I miss the point, but I understand perfectly. Just because I don’t agree doesn’t mean I don’t understand your line of thinking. I hate repeating myself–but one more time–my position is that you’re confusing property value with purchasing power. It’s really that simple and I don’t care if your math is right or wrong (it’s incomplete as has been pointed out, but I don’t care about the subtleties).
Simply look at your stated figure in the zero inflation end of your range. Yes (again, not checking your math), you can purchase a house up to $170,000 higher than you could when interest rates were higher, but every dollar of that $170K you give to the seller in excess of it’s inflation adjusted value (in this case zero) for the same house is a dollar of purchasing power that you’re squandering.
I understand that market dynamics and economic factors (and bubbles) can make it hard to realize every penny of your purchasing power, but to have the starting point at $170K in a zero inflation scenario is completely backward.
So, to be clear, I’ve understood the impact of interest rates on the equation all along. We just don’t seem to agree as to who should realize the benefit. For some time now, I’ve been asking myself how these bubble things come to pass and this simply provides yet another striking example.
sdcellar, man, you’re
sdcellar, man, you’re cracking me up. Spin it however you like, but I’m done trying to explain it to you. Anyhow, everyone deserve to have a chance to buy an affordable home at a good value, so I hope you get yours someday too.
sdcellar wrote:Just my
[quote=sdcellar]Just my opinion, but people making $150-$200K per year deserve (or perhaps I should say, reasonably expect) better than Mira Mesa, Chula Vista, Santee, Escondido, San Marcos, Vista, Oceanside.[/quote]
X2. And the question was what area of San Diego is nice and livable and safe and affordable at the same time. I don’t necessarily consider them nice and safe, but everything is relative.
Could this be the thing that
Could this be the thing that finally turns “the masses” opinion on housing recovery? As a renter looking to buy, one thing I’ve learned is that whatever I’ve wanted to happen, has not happened.. however, of all the efforts.. I can’t currently see a downside for my selfish interests with principle reductions. If people get back down to a break even point with their mortgages, this makes a lot of people who were “stuck” now able to sell, which to me seems good.. market will finally have the ability to have “organic”(hah) sales at the new prices which may finally free up the logjam that has been low inventory.. while also serving to firm up a bottom.
So, given for the moment I’m “ok” with it(not happy of course).. who would get pissed? That seems like other homeowners who are not underwater but have seen their “paper” value skyrocket and fall down to earth, but not yet in the red or don’t qualify for whatever reason. Isn’t this the majority of homeowners? All the people at my office bought late 90’s, early 2000’s.. who basically have ignored the whole situation because they are still fine, they are older, understand the ups and downs of california, etc… but if you start giving other people mortgage principle reductions, and it gets covered well enough in the media (doubtfull).. The other things have been easier to brush off if you’re in a comfortable situation:
– Price Declines – “it’s just on paper, I bought in 1999 and still have made some money”
– Tax Incentives – “well I’m already getting a big tax incentive owning my house”
– Re-working Interest Rates, Length of Term – “I already refinanced and have a good rate, and I wouldn’t want to lengthen my term anyway”
– ShortSale/Foreclosure – “Glad I’m not in that situation”
Maybe the mortgage principle reductions are as easy to brush off as price declines though, but seems like it’s different. So, interesting to me how this plays out in my work crowd if it ever starts to happen at a level that becomes part of the public consciousness.
tom wrote:Could this be the
[quote=tom]Could this be the thing that finally turns “the masses” opinion on housing recovery? As a renter looking to buy, one thing I’ve learned is that whatever I’ve wanted to happen, has not happened.. however, of all the efforts.. I can’t currently see a downside for my selfish interests with principle reductions. If people get back down to a break even point with their mortgages, this makes a lot of people who were “stuck” now able to sell, which to me seems good.. market will finally have the ability to have “organic”(hah) sales at the new prices which may finally free up the logjam that has been low inventory.. while also serving to firm up a bottom.
So, given for the moment I’m “ok” with it(not happy of course).. who would get pissed? That seems like other homeowners who are not underwater but have seen their “paper” value skyrocket and fall down to earth, but not yet in the red or don’t qualify for whatever reason. Isn’t this the majority of homeowners? All the people at my office bought late 90’s, early 2000’s.. who basically have ignored the whole situation because they are still fine, they are older, understand the ups and downs of california, etc… but if you start giving other people mortgage principle reductions, and it gets covered well enough in the media (doubtfull).. The other things have been easier to brush off if you’re in a comfortable situation:
– Price Declines – “it’s just on paper, I bought in 1999 and still have made some money”
– Tax Incentives – “well I’m already getting a big tax incentive owning my house”
– Re-working Interest Rates, Length of Term – “I already refinanced and have a good rate, and I wouldn’t want to lengthen my term anyway”
– ShortSale/Foreclosure – “Glad I’m not in that situation”
Maybe the mortgage principle reductions are as easy to brush off as price declines though, but seems like it’s different. So, interesting to me how this plays out in my work crowd if it ever starts to happen at a level that becomes part of the public consciousness.[/quote]
Principle reductions won’t help you…they’ll help the freeloaders and irresponsible people out there.
tom wrote:Could this be the
[quote=tom]Could this be the thing that finally turns “the masses” opinion on housing recovery? As a renter looking to buy, one thing I’ve learned is that whatever I’ve wanted to happen, has not happened.. however, of all the efforts.. I can’t currently see a downside for my selfish interests with principle reductions. If people get back down to a break even point with their mortgages, this makes a lot of people who were “stuck” now able to sell, which to me seems good.. market will finally have the ability to have “organic”(hah) sales at the new prices which may finally free up the logjam that has been low inventory.. while also serving to firm up a bottom.
So, given for the moment I’m “ok” with it(not happy of course).. who would get pissed? That seems like other homeowners who are not underwater but have seen their “paper” value skyrocket and fall down to earth, but not yet in the red or don’t qualify for whatever reason. Isn’t this the majority of homeowners? All the people at my office bought late 90’s, early 2000’s.. who basically have ignored the whole situation because they are still fine, they are older, understand the ups and downs of california, etc… but if you start giving other people mortgage principle reductions, and it gets covered well enough in the media (doubtfull).. The other things have been easier to brush off if you’re in a comfortable situation:
– Price Declines – “it’s just on paper, I bought in 1999 and still have made some money”
– Tax Incentives – “well I’m already getting a big tax incentive owning my house”
– Re-working Interest Rates, Length of Term – “I already refinanced and have a good rate, and I wouldn’t want to lengthen my term anyway”
– ShortSale/Foreclosure – “Glad I’m not in that situation”
Maybe the mortgage principle reductions are as easy to brush off as price declines though, but seems like it’s different. So, interesting to me how this plays out in my work crowd if it ever starts to happen at a level that becomes part of the public consciousness.[/quote]
Seems to me that if the public were ever conscious this would bother people in many more situations than the limited group you mention.
I think I’m a pretty good
I think I’m a pretty good case study here. Bought my condo in 91913 (East Chula, near the 125) for $356k in 2005, with 0% down and interest only payments. Perfect credit, good income — I can still afford the mortgage payments comfortably. I never refi’d, so it’s still non-recourse.
Within the past few months, 3 identical units have sold (or short-sale) between $130k and $150k. So I’m now upside down about $200k on a $150k unit.
It makes no financial sense for me to keep this unit. The logical course is to dump my $356k unit, and buy my neighbor’s identical unit for $150k. As there are many people in similar situations in 91913 (probably not so extreme, but close), how do you stop a “foreclosure spiral” in 91913? It’s just so ridiculously upside down.
Personally, I prefer the “fast band-aid removal” approach to the “slow and painful” approach of gov’t intervention. I say: let the market reset as quickly as possible, even if it means people like me (people who bought in the 2003-2007 era) suffer a strategic foreclosure and get our credit trashed. I get bad credit, and the taxpayer doesn’t pick up the tab (aside from the ‘debt-forgiven’ not being taxed as my income). What’s wrong with this?