[photopress:futurama_bender.jpg,thumb,alignright]Recently, the Center for Realtor Technology and Jim Duncan’s Real Central VA had blog posts on the desire to have MLSs’ add another column to their schema that indicated the broadband access status of a property. I think this is an idea whose time has been a long time coming. When I moved from my old home in Carnation to my new home in Issaquah, the new owner of my old house wanted to know everything I could tell him about the home’s local ISP (I believe he was a network engineer). Similarly, one of the major reasons I moved into my current home, was that it had bandwidth to spare (my ISP’s top of the line plan is currently 8 M download / 2 M upload speeds). In the Emerald City or the Bay Area, this information is probably second in importance only to the list price of a home or its location. Simply put, a home’s high speed internet capabilities is an increasingly important factor in your purchasing decision.
However, as long as the MLS DBA is mucking around with database schema and typing in ALTER TABLE Residential ADD Internet varchar(50) and other SQL DDL commands, why should we stop there? Here’s what I’d like to see when the MLS gets around to enhancing it’s database schema.
Use Links. Why not enhance school, local government, builder & utility information in the MLS to have both names and urls? When I move to a new home, usually the first thing I need to do is contact all the local utilities and let them know I’m in a new place. Having links to Puget Sound Energy, Issaquah School District, Specialized Homes, and King County Government in the MLS would save me time. Finding contact information and phone numbers is a much bigger pain than it should be at times.
Cell phone reception information. If you don’t have good cable or DSL internet access, knowing how strong Sprint’s or Clearwire’s signal is would be nice to know. I suspect real estate agents and other professionals that increasingly depend on wireless internet access would find this information very helpful.
More accurate and fewer errors. OK, I’ve complained about this before. Still, is it really too much to ask? If a property doesn’t geocode, somebody may not find it when they use a popular map based real estate search engine.
Embrace RETS. Enough said.
Richer media. OK, so the MLS allows you to upload 10 or 20 small photos (or whatever the number is). Why not allow larger photos, MP3 files, video files or PDF flyers? As broadband takes over the world, the stuff is a lot more practical. Although, the idea sounds nice in theory, I’m not sure agents are ready to hire professional audio engineers or videographers when many haven’t learned the value of high quality photography yet. I also think the MLS IT infrastructure isn’t ready for this kind of load (frankly if you can’t handle the bandwidth demands of digital photography, you should probably outsource to Amazon S3 or Flickr Pro before it’s too late), and it’s going to make life more a lot more interesting for us IDX vendors.
So, if you could change the MLS database, what would you like to add or change? What information do you wish was there, but isn’t? Is built green home information and information on low flow toilets something today’s home buyer wants to be able to search for? Do you think more information would pose an undue burden on agents or brokers (those MLS listing forms are one step removed from a tax return), or do you want more, more, more? What would you like IDX vendors to do differently, regardless if the MLS changes or not?
Interesting. I’d read that the reason the 20’s were on the way out was that the secondary market for them has dried up – I guess that as a secondary lien the chances of recovering anything in a default are slim to none.
I saw another broker mention that he lost 2 subprime loan programs this afternoon because Merril Lynch announced today that they were no longer purchasing any more subprime loans – period (that seems a little drastic)
What i’m wondering about is for the past few weeks most mortgage brokers I’ve spoken to or that blog about their business have said there was some urgency to get people qualified this month before the programs dried up.
Have you been seeing any of this?
Yes I have. However, even if people rush to get qualified, they’ll have to rush to close before the program is stopped. It’s a real feeling of panic for buyers.
Would that have pushed up the pending sales #’s for Feb?
Countrywide just announced today was the last day for 100% LTV products.
Hi Bill,
Regarding #3, I don’t think so. Realtors may have a different view on this. Flagstar is stopping their 100% subprime (they still have their LPMI products, as do many lenders). More and more lenders and investors are following suit.
FHA and VA will be back in the mix. These products have been around and stood the test of time. Unlike the recent subprime loans.
are you a realtor mam / sir ? how do i become a realtor ? im in cebu and im planning to make a cebu real estate company or realty , but what are the things i need to learn first ?
Cebu, I am not a realtor, I’m a Mortgage Planner/Loan Consultant. Are you wanting to become licensed in Washington State? By the way, I’m a Mam and NOT a sir. 🙂
Bill and Rhonda,
I don’t think agents buyers were aware that this was going to happen, so I don’t think that beefed up the February numbers. Just more new inventory in February, as usual.
I think we will see more sales falling apart on financing before this is done with. I think agents will keep writing the 80/20 contracts until the market truly dries up.
Will be interesting. A bigger issue, I think is that people will want to refi their current mortgages that were 100% financing. Will they just be stuck with what they’ve got?
Ardell,
I’m worried sick for the people who will need to refi out of their short term fixed rate mortgages when they adjust. I’m afraid if they have not taken steps to improve their credit that they will be forced to sell or be foreclosed on. With the adjustments on the subprime arm/balloons, these home owners will not be able to afford their new payments. I’m a worrier by nature…but I don’t think I’m under-estimating this.
I’ve been talking this situation up to the agents I work with. I want them to understand why the same client they brought me last week no longer is can buy. They seem pretty surprised overall.
Last night, I had to contact a borrower (and agent) to tell them the good faith estimate I had provided to them that afternoon was no longer valid. I have NEVER had to do that before. This borrower had a mid score of 750, however it was an 80/20 that only Greenpoint Mortgage could do. And now, they’re out of the 80/20 biz.
I’m not worried for the market, but I can tell you that agents like me who did FHA and VA before 80/20s became popular will have a much easier time adjusting than newer agents who never did FHA and VA or 5% down with MI. For us it will just be back to the way we used to do it. But newer agents will have a huge learning curve.
“A bigger issue, I think is that people will want to refi their current mortgages that were 100% financing. Will they just be stuck with what they’ve got?” – Ardell
Yes, many will be in one heck of a pickle. A lot of those with 100% loans that were originated in 2005 and adjusting this year will need to do some decision making very soon and hopefully a can qualify with the new guidelines whether purchase or refi’s. As Rhonda states, the worry is that a lot of those marginal 100%’ ers are going to be forced to sell.
We just had an interesting loan package come across us today: Sub-prime lender at 2/28 program @ 6 mos. LIBOR, amortized over 50 yrs, due in 30. 2 yr pre-payment, of course.
Rhonda, I had another large refi payoff with pre-payment penalty today: about nine thousand and change. That’s a lot of equity wiped out. I wonder how many people are waiting on the sidelines for their pre-payment penalty to expire.
This stuff is reality folks. I’m not painting an untrue picture or being alarmist. This is what we are seeing on a daily basis. We may see quite a surge of refi activity, again.
The borrowers who have been responsible with home ownership and credit will be fine. It’s the one’s who habitually do not pay debts on time that will have to sell. Which could have been the case regardless of the current subprime market…however, there will be not options now.
What effect, if any, do you think this will have on prices? If less people are able to get loans, wouldn’t it follow that there will be less competition for houses, and more inventory when people are forced to sell?
Countrywide is ending no down-payment loans and pulling back to 95% LTV loans as have several others.
“Countrywide joins other large lenders that will require homeowners to have at least a 5 percent stake in their homes, including Washington Mutual Inc. and General Electric Co.’s WMC Mortgage. Fremont General Corp. last month stopped making “piggyback” loans that are often used to make up 100 percent LTV loans, and last week stopped lending altogether amid pressure from regulators.”
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-03-09T231719Z_01_N09266435_RTRIDST_0_USA-SUBPRIME-COUNTRYWIDE-UPDATE-2.XML
Paul, FHA (min. down roughly 3%) and VA (zero down) are still be available.
Adrianna, I’m going to defer to the real estate agents on your question.
Rhonda –
What are the restrictions around FHA 3%-down loans? Aren’t there limits on the max amount they will lend, and aren’t there income limits on who they will lend to?
Also, 0-down VA loans are only available to Veterans, correct? If I recall correctly, they are only available to veterans one time (ie, once a vet gets a VA loan, they are no longer eligible). Is this true?
Thanks,
Willy
Willy,
I will chime in here as I have had VA clients years ago. Since 100% financing has been available in the conventional market, we haven’t seen them as much for awhile.
As I recall, you can reuse your eligibility certificate over and over, but you can’t keep buying and holding properties using VA unless the loan is paid. If you sell your current home which was financed VA and buy a new one, you can use VA again and again.
I think the limit is the maximum amount…not positive how this works. But say you have a home you bought with $50,000 left on the VA loan, and you want to keep it as a rental. I think you can use the remaining amount of the total eligibility amount against a new property, but the loan amounts of the two combined can’t exceed the limit.
But I’m 99% sure it is not a one time only eligibility.
Adrianna,
In my experience, something always springs to up to compensate. I’m 99% sure that given what is happening in the rest of the Country, there will be a replacement product or other means. For instance, conventional lenders at one time were doing 97% first mortgages. We may see that again. Clearly 5% down is doable now. So people may simply take their closing cost monies and use it for 5% down and finance the closing costs instead. Just a little switch there.
What is disappearing is the second mortgage market. More and higher first mortgages with MI will happen, and that is not a bad thing. Just back to the way things used to be. People may need 5% down or 3% down, but that is not going to dramatically impact all markets. I think it’s a good thing.
People will not need 20% down to get financing, if that is what you are thinking. 5% down and a 95% first with MI is available now. You may see that changing to 97% financing with MI.
If that happens, we will most likely see the MI deductibility extended past 2007. The world is not coming to an end, just getting a little more conservative. For us “older” agents, the clock is just going backward a few years to better times 🙂
People not needing a dime of their own to buy a property should never have happened. In the past, only Veterans were given special dispensation on that and no one else. Going back to that basis is not going to impact the markets in which I operate.
I can’t answer for other markets, but both sides of 520 Bridge and around the lake, I don’t see an impact. People really should have at least 3% to 5% of the purchase price in hand before purchasing. Many, many do. And I have seen dramatic appreciation in complexes that couldn’t do zero down for the last three years. So I don’t see a problem Seattle North of Downtown or Eastside.
I could see a lot more FHA loans in places like Juanita and Kenmore on condos priced at $250,000 or less. That I can see happening. That will put more pressure on condo converstions to get FHA approved. Some haven’t bothered, but I could see them needing to take that extra step as they used to do.
Willy, explaining VA and FHA is worthy of a post on its own! 😉
There are no income limitations with VA or FHA. However, there are loan limits. FHA varies by county. Here’s a link to HUD’s site that provides you by county the loan limits (I’m not sure where you’re from): https://entp.hud.gov/idapp/html/hicostlook.cfm
For King County the limit currently is $362,790 for a single family dwelling. FHA has upfront MIP of 1.5% of the loan amount (unless it’s a condo) and monthly MIP of 0.5%/12 of the base loan amount.
For VA, the maximum loan limit is $417,000 for zero down. There is no private mortgage insurance with a VA loan.
Both VA and FHA are more credit history driven than credit score.
Ardell, Rhonda –
Thanks for your replies.
Rhonda, the King County median price was recently reported as $429,925, so I’m not clear as to how much influence the FHA loan program is going to have in King County. Perhaps that influence will be downward pressure on prices to accomadate buyers that can only qualify with an FHA loan?
Ardell – I’m really skeptical that there will be comparable replacement products for the disapearing loans. If anything, I suspect that the secondary market for mortgage-backed securities will want higher risk premiums and higher credit scores. This can only result in higher interest rates for mortgages, and fewer people being qualified. A Bear-Stearns analyst recently said that he expects tightening credit standards to reduce borrowers by 1.1 million this year (30% of 2006 sub-primes + 25% of 2006 alt-a).
Comments?
Willy, there will also be 5% down options, such as LPMI (lender paid mortgage insurance), traditional PMI products and 80/15/5 is still available as well.
I wonder if you’ll see an increase in the number of people joining the Army & Marines to qualify for the 0-down VA loan program.
We are going to be in a credit crunch plain and simple. Even though plenty of money is available make no doubt it will be a crunch. Overall Less money is now available . FHA will be ok for the lower end propertes. This is going to impact the $ 400,000 and above. The whole market will contract until it gets sorted out. Not to mention that foreign bond holders are slowly moving away from U.S. debt and I would expect rates to be pressured upward. Rates are more apt to go up over time rather than stay at these artificial levels.Fiscal imbalances also need to be addressed. Perfect storm as risk gets a violent adjustment.
Willy,
“Ardell – I’m really skeptical that there will be comparable replacement products for the disapearing loans.”
What did people use before? Private investor B and C paper. Rates for those will be higher, but there will always be loans not sold in the secondary markets. People just haven’t tapped into that market as much lately.
If you are in a market that climbed based on zero down sub-prime, it will be affected. As I said earlier, I ran the stats on high appreciation areas and found very few zero down loans in many market segments.
But yes. If an area went up BECAUSE of zero down and subprime, that that area will be affected. Where is that area, and how many could have bought 5% down?
I’m still not buying that the zero down market is totally dead though. Not enough to tell someone it is impossible to get one right now. We’ll see what happens. I have emails out to several sources. Should have more info coming in early next week.
” I’m still not buying that the zero down market is totally dead though. Not enough to tell someone it is impossible to get one right now. ”
Will be dead soon enough if it is not already. Nobody will buy them and if you have no buyers they wont be issued. We will see – looks like back to the way it was several years ago. I am more intrigued by the possible impact on prices. Less buyers equal lower price regardless of blue sky talk.
On a good note the industry has been through this before even though many of the young pups have not.
The mortgage industry will react and tighten guidelines, limit and remove products that are not being bought…and eventually variations of these products may very well resurface in time. Look at neg. am. arms that were so “hot” in the late 80’s/early 90’s with Home Savings of America and World Savings…then they feel off the radar and have been back again (hopefully soon to disappear). Nothing is forever in this industry.
Don, you think many real estate agents are aware of what’s happening in the subprime market and how it will impact their clients?
Yesterday lending, yesterday prices. Makes sense to me!
No I talked to a couple of agents yesterday and they had no clue. These are good agents but like many agents, they are oblivious to financial markets. I have other pursuits that make it neccessary to follow the market daily. I can only say that I think it will profoundly impact the market. How can it not? A huge percentage of the buyers I have dealt with over the last few years have little or no money. Since down payments will be standard at least for a while it will reduce the buying pool. Will be interesting that is for sure….. The market will adjust it always does.
I’m trying to get the word out to the agents I work with and I’m afraid I’m sounding a little like “Chicken Little”! 🙂 I think it’s crucial for agents to be aware of the current climate in the mortgage industry as it will obviously impact the clients they sold homes to and future transactions. A real estate agent read one of my posts on RCG and commented she just thought her lender wasn’t able to get buyers approved, the lender didn’t tell her 100% ltv subprime under 620 is gone.
Hi Ardell –
I’m not an expert, but I don’t see how privately held loan portfolios and those sold on the secondary market are that different (modulo the fannie/freddie government players). The secondary market’s appetite for MBSs will determine the yield and necessary credit standards for that yield. I can’t imagine that any player holding the loans themselves would have that different a perspective of these variables; the interest rate and necessary credit standards would be roughly the same to a consumer, irrespective of what happens to the loan after origination.
Maybe I’m wrong. If someone could explain why, that would be great.
And I’m not sure what you mean by “area”. Are you referring to city/county size areas? Or neighborhoods? If you mean city/county size areas, I completely agree. If you are referring to neighborhoods, then I completely disagree, as the relative price differences between the neighborhoods should revert to historical norms. For example, I would be really surprised to see the Central District take a 30% drop in buyers, while Capitol Hill saw the # of buyers stay the same. At some point, the relative price differences between the neighborhoods should revert to historical norms.
I agree though that the zero-down market may not be totally dead. With the news of the past few weeks though, it sure seems risky, but where there’s risk, there’s reward.
Thank goodness the funny money is drying up. I look forward to a market based on fundamentals again. I am amazed that real estate agents are so blissfully unaware of this pending credit crunch. Thanks for that insight.
Honestly, I’m shocked to see a big player like CFC jump out of the 100% LTV market with no warning on a Friday afternoon.
It seems like they anticipate the secondary market demand is already gone and didn’t want to give warning that might cause a jump in applications. Instead, they just say “it’s done”.
I’ve assumed that for people with good credit, 100% LTV’s would be easily available even after subprime evaporated. The only thing I can make of it now is that they REALLY want buyers to have some stake in the home. Just a few months ago, I saw Countrywide doing 103% of asking price financing in this area, so requiring 5% down looks more like 8% down compared to the loans they were funding previously.
I’m still
From what I’m reading in the press, it’s Countrywide’s subprime division that is no longer doing 100% ltv. I have not received any notification regarding Countrywide not doing 80/20 for A paper loans. I just checked their website that we use for locking loans, etc. and I can still lock a loan for an 80/20 with a 720 score purchase. Their notices on the site are regarding changes to subprime and alt-a programs. Nothing about “a paper”… now… I’m not saying it won’t happen tomorrow. On Friday morning around 7am, I actually received an email promoting 100% subprime financing from a lender. At 3pm that day, I received a second email from that very same lender stating they were no longer doing 100% ltv for subprime.
Rhonda,
This is the statement from a Countrywide email sent to their brokers:
“Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12.”
So yes, you may still be able to lock that loan today, but check it on Monday and see what it says.
“Ardell – I’m not an expert, but I don’t see how privately held loan portfolios and those sold on the secondary market are that different”
If the reason Countrywide and others will drop their programs is because they can’t sell them in the secondary market, then the market for more than 80% financing will become those who do not sell to the secondary market. Portfolio lenders, private lenders and possibly more seller carries for example.
I think the chaos will be agents assuming their sources of funding are the same, and writing things up that will fall apart.
In a bidding war in the past, with a zero down borrower and a borrower with a downpayment, the zero down buyer usually didn’t get the property anyway. So markets with 10% zero down buyers should not be affected. Areas with 40% to 50% zero down loans may find their buyer pool cut in half, unless everyone starts finding replacement sources pretty quickly.
Which areas have higher zero down loans? Low priced condos. Areas where most homes are $350,000 give or take. Name an area and I’ll spot check it. I did Redmond $400,000 to $600,000 and saw very few zero down loans and virtually no difference between July of 06 with 83% of total sale price financed and Jan of 07 with 81% of total sale price financed..
I can’t check too small or too large of an area or all property sold, as I have to check each and every sale price and mortgage amount. Very tedious. But give me a zip code and a price range and a short time frame, and I’ll give you the number of zero down loans and total amount financed.
Those areas that are closer to 100% financed overall, will be the ones most at risk. However I am greatly in favor of buyers needing to have some money into the property at time of purchase. Otherwise it could be a case of “easy come; easy go”.
Those areas that are closer to 100% financed overall, will be the ones most at risk – true, but:
In redmond and kirkland where they made down payments of close to 20 % , I would venture that some of these funds were obtained through sales of less expensive houses. Any event that impacts the market in this way will trickle up to some degree.
Speculation of the fall out will take weeks and months to figure out. Still think headline risk will freeze the herd to some degree. The fear of an event is sometimes has more of an impact than the actual event.
Ardell “In a bidding war in the past, with a zero down borrower and a borrower with a downpayment, the zero down buyer usually didn’t get the property anyway. So markets with 10% zero down buyers should not be affected. Areas with 40% to 50% zero down loans may find their buyer pool cut in half, unless everyone starts finding replacement sources pretty quickly.”
True, but where do the buyers come from in the areas with 10% + downpayments? Were most first time buyers? Doubtful. It works in rising markets when people A sells a condo to a 0% down buyer, then buy a house in Wedgewood from people B who are moving to Green Lake and buying from people C who are moving into Laurelhurst. When there are no buyers for for people A’s condo, the chain falls apart.
I went to an open house in Poulsbo today. It was a spec home that has sat on the market for 8 months. The REA wouldn’t tell me how long (I have been following it). He just used a bunch of misdirection and thought it worked. It is priced at 14x median income for the area, and backs up onto the local highway. It is also one of the worst designs I have ever seen.
I asked the agent what he thought of the new lending standards and how it might impact sales. He gave me the best “deer in the headlights” look I have seen since I gave my XO an engine fire on his first takeoff of the day on his aircraft commander checkout.
He (the REA) was just stammering all over himself about “rates.” Never mind that when you have homes selling for $500K+ in a market where median household income is $40K, you can have rates anywhere you want, but without some moron behind the loan desk armed with a kinky mortgage, nothing will work.
A few weeks ago, I posed the question about how the implosion of subprime will impact sales and the overall housing market.
So, does anyone smell a banking crisis? How about a lending crisis?
I will say that I would never have expected, even if I lived to be 300 years old, that the FEDs would be my best friends in this matter. The smacking down of the subprime lending (you know alt-A is on deck) was the biggest financial gift I have ever had land in my lap. It’s like walking around with Paul Allen’s ATM card – only better.
Ardell,
You said you don’t give a RA about this issue. Has your opinion changed?
“People will not need 20% down to get financing,”
-For now. Once this thing starts to unravel in a big way, 20% will be as essential as a pulse.
It’s the day before “OPENING DAY.” Do you know where 1/3 of your buyers are?
Bill Waters,
“Honestly, I’m shocked to see a big player like CFC jump out of the 100% LTV market with no warning on a Friday afternoon.”
Friday afternoon is when all the slimy businesses release bad news. I’ve been following the tech sector for almost 9 years, and they ALWAYS do this. Recently, the mortgage sector has been running the same playbook.
It is bankable. Very, very bankable.
Adrianna,
“What effect, if any, do you think this will have on prices? If less people are able to get loans, wouldn’t it follow that there will be less competition for houses, and more inventory when people are forced to sell? ”
Please take a seat at the head of the class. You get a gold star. The amazing part is that almost nobody saw this coming, and now that it is here, most still don’t get it.
Rhonda,
“The borrowers who have been responsible with home ownership and credit will be fine. It’s the one’s who habitually do not pay debts on time that will have to sell. ”
True, as long as their neighbors didn’t have to puke their homes on the market at fire-sale prices. This will crush the comps.
The sad thing…this will hure EVERYONE. This is why we don’t blow bubbles in the first place.
The thesis about how the market is one gigantic ponzi type bubble is being ratified. Up until a few months ago, everything was priced for perfection. As long as everything stayed that way, we could march on.
Now, the easy money part is drying up. This is a bigger deal than anyone thinks.
The scary part? It is happening faster than I even thought possible.
Hi Eleua and all,
Just got back from a trip to the mall with a car full of thirteen year old girls and now I’m hungry for some conversation that doesn’t involve intense giggling.
One of the things that’s been hold Seattle’s market is our job sector. I like to go over to SeattleBubble to read what’s going on over there. Eleua, if you end up posting something over there on how our job market is doing relative to all other factors, I’ll be over there ASAP to read it.
I have been writing, presenting keynotes, and teaching in the classroom about the ethical problems in the mortgage lending industry for over 8 years now. There are many people who saw this coming a LONG time ago. In fact, one of my favorite real estate agents thoughtfully called it the “Enronizing of the housing industry” and that comment came a couple of years ago. From my vantage point, the subprime meltdown has been percolating for a very long time. I believe it WILL affect the market here in Seattle, and I also predict it will take a lot longer to have its effect; depending on what happens with our job market.
Lenders now need to be on the lookout for a homebuyer who wanted a 100% loan, and who now magically seems to have found 5% to put down. Where’d it come from?
Source of funds to close USE to be a big red flag to watch for back when I was underwriting mortgage loans.
Jillayne,
SB has many articles debunking the link between the job market and the housing market. They are listed on the right hand side of the home page. The Tim has devoted quite a bit of space to this.
It is interesting that many in the industry have seen this coming for some time. I really never heard anyone in the REIC say anything until the past few weeks. Those that were forcasting a financial disaster have been almost exclusively confined to “bubble blogs.”
Admit it. Most in the REIC view “bubble blogs” as the insane asylums of the housing market debate.
Who wouldda thunk that a business model of loaning money to borderline deadbeats and liars would have ended in a financial barf-o-rama?
Ardell has repeatedly asked why “bubble bloggers” can’t look at the price action of the past 3 years and admit they were wrong. Fair question. The problem is the answer is all about the risk, not the price action. She was looking at the price action, and we were looking at the risk. Both have been right, but only one will be right in the not-too-distant future.
The financial godfather of many on SB (including yours truly) stated that if the REIC/FED can’t pull off a financial miracle, and soon, this subprime contagion may cause the housing market to sieze up by the end of the summer.
That’s a bold statement. I’m inclined to second that.
E.
I clearly am not seeing in all this what you are seeing. I still say prices are going to be up come September 07. If someone needs to have $9,000 instead of nothing, to buy a $300,000 condo, I think that’s great news. But clearly not earth shattering news.
Kim,
I agree, but I think most could have done 3% FHA and financed the closing costs. Just because they used an 80/20 doesn’t mean they couldn’t have purchased at all if 80/20s were not available. So I don’t think we can use hindsight on that one. But clearly we will all be watching. I showed the mega amount of bottom rung properties sold since 1/1/07 in my chart at the beginning of this week.
I’m going to keep a list of bottom rung sales that fall out, not only at STI, but at Pending. I think agents will still write them. Let’s see what happens. Like I said. I’m not convinced the market has dried up as to 100% financing.
San Diego has lower unemployment than Seattle and their market is imploding right now. The run-up in prices in SD has been more extreme than Seattle, but it goes to show you that the job market has less of an effect than one might think on affordability.
The market is linked. The second time home buyer needs the first time home buyer to buy his home so that he can buy his second. If the first time buyer now needs money to put down that he doesn’t have, the second time buyers isn’t going to be able to sell. This is just the first domino to fall in a LONG line of dominoes.
Don,
I absolutely think your area will take a big hit. But I don’t think that will affect mine. I did have an offer accepted today in your neck of the woods,but it’s 20% down.
How are you going to react to the next buyer who comes to you with a zero down stacked costs scenario and wants to purchase? How are you going to react when you get an offer like that on a listing?
Ardell,
I seriously doubt that what you are now seeing represents the new lending standards. This is just the first step to traditional lending standards.
If lenders repo property that has declined in value by 25%, they will start demanding much more than 3%.
Sell ’em while you can. Once alt-A gets torpedoed, it will be a death-spiral down to 20 cents on the dollar.
Enjoy opening day.
One more thing…
I said that alt-A is on deck for a whacking. Last night, I checked out the short interest in much of the alt-A world, and the shorts/bears smell something. If they are right (and they are), this could get ugly in a big way.
The mainstream banks still look pretty good, but that will change when alt-A gets colo-rectal up to the thrid bend.
Our country sold the seed corn to Asia so we could finance the tremendous overproduction of a non-productive, debt-laden, maintenance intensive consumer good. Our entire economy has been distorted to this end. This will end in tears.
Eleua
This has been going on for months I have been short several stocks that were heavy into garbage loans. We have been here before does anyone remember the savings and loan crisis? The market will correct and things will be tougher. So, what its not the end of the world. The need for housing will not go away and you wont be getting 20% on the dollar,lol. If you have not noticed prices across the U.S. have been correcting for over a year so this story is not new. Even though many around here are just now seeing it up close and personal. Will this impact our area – my opinion is yes. Will it be the end of the world – no. Its a market, period…
I never said it was the end of the world – just the end of the go-go days of the RE bubble. 20 cents? Yes. There is no way around it.
The money is bad. The economy is sick. Expectations are too high. Leverage is unprecedented.
The bust is always worse than the bubble. This bubble has been breathtaking, and the bust will be even more so.
Insane, speculative bubbles do not end with ‘goldilocks.’ There is a bubble in just about every aspect of the US economy.
See ya on the courthouse steps.
Eleua –
20 cents on the dollar is extreme. No-one would willingly sell for that low a price, and this would limit supply. There will be people forced to sell, and buyers will be limited by the credit crunch, which should produce downward pressure on prices. 80 cents on the dollar perhaps, with flat appreciation for the next 5-10 years.
This, of course, assumes that most people will be able to afford their mortgages. If the area employment blows up, then perhaps 20 cents on the dollar, but that is unlikely. Microsoft & Boeing are in strong positions right now. Microsoft in particular is sitting on a massive hoard of cash, has an amazing free cash-flow, and is known to invest big in things for the future (xbox for example).
Once again I’m reading stuff here that makes my stomach hurt as a hopefully soon-to-be first time buyer in Seattle, definitely bottom rung but not zero down. It’s not our loan I’m worried about – it’s that all the naysayers and doombringers are going to be right about prices falling and that means we’re about to overpay. I’m crossing my fingers that buying a fixer upper will help insulate us a bit from any drop in prices, as we can make improvements. We’re stretching to buy a big enough place to stay in for awhile, so perhaps that will help in the long run too. But jeez – I’m going to need the economy jug of Mylanta in the meantime.
For those who believe the end is near, how long would you advise someone to wait before buying? Are we talking months or years?
Adrianna,
At least you are thinking about the right things. Go to
http://seattlebubble.blogspot.com/
and check out what others are saying.
The myth about Boeing and Microsoft has been thoroughly debunked. You will find people that are analyzing the underlying fundamentals of real estate, rather than the price action and age-old REIC platitudes.
Buy if you need to, but if you are only buying because you fear “being priced out forever,” you probably need to do some more homework. The REIC was saying that in the mid-80s. Here we are 20 years later, and people still are not priced out.
Fixing up a home in a declining market still has you selling into weakness, and forces you to outlay additional cash and time for the priviledge. It’s risky.
Nobody on Seattle Bubble is going to profit or suffer from your decision to buy or not to buy. We have no dog in that fight.
Spend a few hours browsing the site. It may save you thousands or tens of thousands. Not bad pay for a few hours of education.
MaBell,
80 cents on the dollar and then several years of no appreciation? What makes that prediction any better than my 20 cents forcast?
I know that it hurts to think of anything below a 20% drop, but that is irrelevant.
I’m curious about where you get your numbers from. Other than just a W.A.G, how can you so confidently predict this?
Over 40% of new jobs in the PNW created since the last tech downturn are either in, or directly related to the REIC.
Adrianna –
The seattlebubble sight has some good info. The guy who runs the blog does some thorough and thoughtful analsysis of data, and it is worth your while looking into it. Be warned though that a lot of the posters there are pretty cynical and bearish. Some are downright crazy. Eleua definitely falls into the former category, time will tell on the latter. 😉
That said, your best bet is to get a rent-to-own calculator, and figure out if it is worth your while to buy a place, or to continue renting (my favorite is at dinkytown.net). There are a lot of assumptions you have to make, inflation rate and appreciation rate being the primary ones. But it is good info you can use to understand the financial impact of purchasing vs. renting.
There’s also an emotional and personal decision to purchasing that only you and your family can make. But sometimes it helps to have some hard numbers to compare. Good luck.
Eleua – My 20% drop is most certainly a WAG. I really don’t have the time to run scenarios on real data, but if someone does, that would be interesting to see. You’re 80% drop I assume is a WAG as well.
I’ll bet money though that my WAG will be more accurate than your WAG. An 80% drop would be so out of line with other economic indicators (rent, inflation, the amount of recent appreciation, and demand). The “jobs” talk isn’t at all a myth. The “jobs” talk is really just a synonym for “demand”; there are a lot of highly-skilled, highly-paid jobs in the seattle area, and the people filling these jobs need places to live. An inflow of people into the area results in a demand for housing.
Just to be clear, I didn’t say that “jobs” in seattle will prop up the market at today’s prices, or that the “jobs” justify recent rates of appreciation as some claim. But I am saying that the area’s “jobs” should provide downside support in the area’s real-estate values.
I’m lucky. I have one of these jobs that everyone talks about (high-skill, six-figure). However, I don’t feel comfortable buying real estate at today’s prices. But at 20-cents on the dollar, I could easily afford (and probably would) buy and hold a property a year. And I’m pretty confident that my job is secure. And there are tens of thousands more people like me in the area. This is something that you can’t just ignore.
A 20% drop this year, and 5 years of flat appreciation with 3% inflation would result in an inflation-adjusted loss of about 30% of today’s value. To me, this feels like a healthy, albeit painful, correction.
So i browsed a bit on the Bubble website, and see that they’ve been saying things are going to go downhill for awhile now. A post from last April mentions waiting til spring and summer 2006 were over before deciding to buy. So my question is, when exactly is this bursting supposed to happen? Didn’t see that anywhere, but all the data is a bit greek to me. I could have missed it to be sure.
Adrianna,
Just a quick perspective on fix-it-uppers in a declining market…
If I’m a buyer in a strong buyer’s market, I’m looking at one big thing, and one small thing.
The big thing is price. I’m out for blood and looking for someone that needs to get out of their financial coffin in a big way. I’m going to make the seller eat all the risk premium I can. After all, there are more sellers than buyers in this climate. Someone will play ball.
The small thing is everything else. Sure, a nice house is preferable to a dump, but in a buyer’s market, I’m not going to pay much of a premium for a dolled-up house. Fixing up a dump in a declining market will likely not return all the money you put into it. Flipping is dead. Gone. Buried. Over. Fin.
This is why Home Depot/Lowes is an investment grade, widow-and-orphan short sell going into the down market.
Food for thought…
I ‘m not in it for flipping. We want our own house, plain and simple. Is it not remotely possible that the bubble people have it wrong?
Interesting article from the new york times this weekend:
http://www.nytimes.com/2007/03/11/business/11mortgage.html?pagewanted=1&_r=1&hp
When dealing with bubbles, you can not call the top with any precision. All you know is that when it turns, the drop will be more violent than predicted.
Many thought last spring was the top. It was in most of the country, but the PNW held up. It is not that the PNW is special, just an abboration of the rest of the country. We are still highly dependant on the California Equity Refugee, and since California leads the nation in neg-ams, ARMs, and all other forms of kinky financing, you can expect the Equity Refugee to have very few days left.
If you don’t know what the ARM reset window is, or how BA/MSFT jobs do not justify housing prices, or what percentage of new jobs are in the REIC, or how to calculate how principle fluxuates with a rising interest rate, etc, you need more instruction.
Buy if you must (I don’t care), but there is plenty of counter arguments out there for that course of action. Ultimately, you will find the information that justfies your actions.
E
The article that MaBell found is highly instructive as to where this thing is headded.
Adrianna,
I didn’t say you were flipping. I just pointed out that fixing up to sell works in a rising market, not the opposite. You may not be as insulated against a decline as you might think. If you are going out of your new home wearing a dropcloth and toe tag, who cares what you pay? If you have to sell within a few years, you would be well advised to proceed with caution.
Remember this:
The difference between a good house and a good investment is the price you pay for it.
Just found out we’re in escrow, so if we make it to pending, I’ll be crossing my fingers that you’re wrong, or hoping for a modest correction at the most. We’re in it for the long haul, so hope that helps.
I wish you the best.
Adriana, i would highly recomend that if you are planning on doing some research of your own and deciding for yourself. Making such an important decision based on what you are told in a blog is not really a good idea. You should look at both sides of the story and make up your own mind. I personally think it would be wise to hold off for a while due to the fact that with fewer people now having access to financing prices are not going to go up. It wiont hurt to take some time and watch and learn so that you dont just throw yourself at the mercy of whatever yahoo claiming to know what they are talking about. Having said that, who am i. Am i an idiot? Am i some jackass sitting at my desk wasting my employers time and money? You DO NOT know. So, educate yourself taking into account the different ( rational ) sides of every argument and make up your own mind. Otherwise, might i recomend you get in touch with a brilliant woman named Ardell. :0
oops, guess you already purchased. well good luck, i hope you do well. honestly.
Turns out I misunderstood – a verbal acceptance but nothing signed yet. And Ardell is already on the job. But thanks for the good wishes, both of you!
Adrianna, I’ve purchased and I’ve sold 5 homes of my own. It has always been about owning a home for my family, not paying rent and having the tax deduction benefit. I’ve never paid attention to buyer or seller markets. I’m sure I’ve managed to hit them all since 1989 when I bought my first home. I don’t regret one purchase–wish I could have kept them all! 😉 I used the equity from each home to purchase my next home. It’s completely natural to need Malox just going through a real estate transaction during a time when there’s no press. Like you said, you’re not zero down and you’re not subprime–you should be fine. Good luck!
that is still good advice, for any situation. experts are just people who claim to be experts. they ARE NOT smarter than you. and they ARE NOT your friend, even thouagh they are constantly smiling. they always have nice teeth, ive noticed. read this part twice, REAL ESTATE IS NOT COMPLICATED-ANYONE CAN BE A REAL ESTATE AGENT. Doctors ARE smarter than you. Lawyers ARE smarter than you, although probably not as ethical ( scratch that if you are a rocket scientist or like a physicist or something ). Why are they smarter than you? Because they learned how to be doctors and lawyers IN COLLEGE. I have met some very stupid and foolish, yet succesful, real estate agents. Succesful agents are so because they SELL A LOT OF HOMES, not because they’ve made dreams come true or helped some orphans or built a hospital in africa, or whatever those stupid commercials say. Ardell may very well know what she is doing, but there are MANY people who disagree. Im not saying that you should dump her, or that she is stupid ( being able to laugh at yourself is a sign of great wisdom and faith ), just dont dump your future in her hands. wow that was long.
Whew – nice to hear not everyone thinks we’re crazy! 😉
Like fuhtard said, I would never make any decision soley on what is said in a blog. Anyone with access to a computer can write one or comment on one. I’m sure you’re not basing your decisions about buying a home just on blogs. Your CPA and financial planner may also be good resources to talk to.
Ah, now I get it, fuhtard, #63 was not a recommendation for ardell? Or are you dissing agents in general in #68? You see the difficulty I’m having in figuring out who knows what they’re talking about and who doesn’t, especially when all you have to go by are a few words in a blog.
yes i was dissing real estate agents. feel free to dis me. i pasteurize milk. btw someone on the enemy blog is saying that adrianna is not a real person. conspiracy is the last refuge of ignorance. dont get me wrong. i think everyone is an idiot. i know i am. like i said, im a dairy worker. a higly trained one, yes, but still a dairy worker. by the way, i think the golden gate bridge just went on the market. SCRAMBLE!
So I’m a plant? What, pray tell, is the enemy blog?
https://www2.blogger.com/comment.g?blogID=15223784&postID=505059511917896565
if i were a plant, i would be a fern
Enemy blogs? This is too much!
To all the kind folks on the Bubble (specifically Econe – I post this here since I don’t feel like making a blogger account, and I have a feeling this will get back to you regardless): I assure you I am a real person. I am glad to hear I am bringing a litte light into your life with my entertaining comments here. No doubt it will warm your heart to hear that we actually got outbid at the last minute.
Is this shut down?
well, I had a long post on how 20 cents on the dollar is in the math. That didn’t make it.
exec summary.
If rent is 40% of PITI, that leaves 60% of the house payment as speculative premium. This premium comes out in a prolonged down market.
Job market suffers in this environment, so take another 10% off the payment to compensate.
Interest rates rise to 9%.
When you run that, you come out between 20-25% of where we started at the top.
That’s my WAG.
This is where Seattle is headed like or not
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahwzaBwuNaII&refer=home
Seattle is just the slow redheaded stepchild to the other “world class cities”
Rent’s not 40% of PITI in most neighborhoods. 50% maybe. Plus there’s some financial premium on homeownership benefits – mortgage interest deduction, the value of a fixed (usually!, in a sane market) housing cost over time – which is somewhat offset by added risks of capital replacement and illiquidity…but lets call it some financial premium above PITI. say 60%. Then there’s “pride of ownership” – most people own cars for no good economic reason – or own one too many. That gets to say, 70% of capitalized income of the asset. The wildcard is the % of homes that could ever go on the market, even if the worst would occur. Stocks adjuct 30% in an “event” but homes are illiquid. 20% correction over a 1-2 year period would be a worst case in my line of thinking.If job creation is strong as expected for another 1-2 years. But then, all those people selling homes would a) leave the area or b) rent, so that would boost PITI. If we were down 10%-15% from today by Q3 08, that would represent a worst case (not catastrophic, recession after we invade Iran-type case) pull back in Seattle
Zag,
Let’s assume that the economy loses all the job created after 2001 that are related to real estate. New agents, lenders, construction, etc. The nation loses all GDP created from the bubble. The country as a whole, is headed for depression. The FED tries to cut rates, which makes the dollar even more worthless. Deflation is running rampant.
Should this be the case, all bets are off. In 1929 during the Great Depression, many of the most expensive houses lost 90 percent of their value. In Tokyo Japan, housing prices fell for nearly 15 years, and even today people are apprehensive on buying real estate.
I’m going to borrow a couple lines from the wikipedia article on the Great Depression:
“In the 1920s, in the U.S. the widespread use of purchases of businesses and factories on credit and the use of home mortgages and credit purchases of automobiles, furniture and even some stocks boosted spending but created consumer and commercial debt. People and businesses who were deeply in debt when a price deflation occurred or demand for their product decreased were often in serious trouble—even if they kept their jobs, they risked default. Many drastically cut current spending to keep up time payments thus, lowering demand for new products. Businesses began to fail as construction work and factory orders plunged. Massive layoffs occurred, resulting in unemployment rates of over 25%. ”
Does that sound familiar? The consumer savings rate nationally is negative. You can try to spin how a bubble collapses in a rational matter, but the run-up was not rational, and the collapse will but just as insane. If you read a lot of the government reports coming out of the late 20’s early 30’s you realize that farmers defaulting on their mortgages caused the banks to go under. The mortgage industry is worth trillions of dollars. Soft landing? I doubt it.
BTW, like many have been saying, its not a housing bubble, it’s a CREDIT bubble!
Zag,
You have to be making some pretty good dough to significantly pass what the standard deduction offers. So, yes the tax benies are there, they are not as significant as you might think.
Pride of ownership? Not so proud in a down market. Have you ever driven through a place where home prices are depressed? Once nice neighborhoods turn pretty ugly once the “pride” disappears. “Pride” is not an economic phenomenon.
Rent as a percentage of PITI? 60-40% Either way, that’s still enough to put you well under 80% of what it sold for at the top.
You still have to consider that the speculative premium that you had on the way up is now a “dread discount” on the way down. Who puts $40K of their own cash into an asset that will likely lose another 15%, when they are leveraged 4:1 or better? People will aviod loser investments when this occurs.
How much money would you put into buying a subprime mortgage dealer this week? Probably not much. Those that have ownership in that field have already discounted their position 20% this morning alone.
In a down market, people don’t fix up their homes like they did in the go-go years. Maintenance costs still build, and the older the house gets, the more money you dish out.
Builders can still undercut existing home owners long into the bust. They will even build at a loss, just to pay some bills. They are levered up too.
Bottom line. The price action and premiums you are now seeing in places like the PNW are just classic bubble phenomena. In many cities that never experienced this, you have cities with higher incomes, nicer homes, easier commutes, lower taxes, lower crime, etc., yet they have much lower home prices.
Don’t kid yourself. Seattle is not special. I’ve lived in every region of the country except the upper Mid-West, and you can believe that Seattle is not special.
Rhonda,
Any feedback on the Countrywide situation now that it is Monday? Are you still able to lock in that loan?
I can still lock “a paper” 80/20’s at Countrywide. (As well as at other lenders).
Subprime (which is Countywide BC) I cannot.
don’t discount the “pride” factor or the desire to “control” a property rather than dealing with a landlord. Yes, it is emotional, but yes it also has value in the market. You can get angry about how stupid people are for doing this and that no rational actor would do something not in his/her economic best interest but it happens at the time. People’s home values might be underwater, but they’re not walking away for mortgages unless its absolutely impossible to avoid a default – if that means borrowing money from relatives or cutting all fat out of their household budget than so be it. I see a recession as an outcome of this credit bubble but I’m less inclinded to see a doomsday 80% drop scenario.
Second, these comparisons to the 1920s are absurd. the globalized economy and financial instruments designed to mitigate risk to lenders and investors and to major differences. Yeah, the little guys taking out the loans will get screwed, and some trickle up to upper ends of the housing market will occur, but the wealthy in the country have never done better and have no reason to panic in light of some marginal drop in home prices. Certainly not enough to precipitate a selloff needed for home prices to plummet.
This is a good article from the Wall Street Journal debunking many housing-as-an-investment myths. Sorry, you’ll need a subscription to access:
http://online.wsj.com/article/SB117329581356629863.html?mod=hps_us_at_glance_most_pop
Zag,
Do you have any idea how much leverage there is in the mortgage finance space?
Why do you think that with just a teensy-weensy hiccup, the subprime lenders are cratering and defauling?
I love how Wall Street and the REIC are saying that subprime is contained. They never saw it coming, but they can see the end.
Fabulous.
If pride is worth 60% to you, good for you.
Prov 16:18
Same article, no membership needed.
http://www.moneyweb.co.za/mw/view/mw/en/page94?oid=79089&sn=Detail
Zag11,
Do you think the federal government is going to be able to bail out trillions in mortgages? That would bankrupt the G. I’m sorry but the FDIC coverage is not enough to bail out a doomsday type scenario. Certain banks may fold, and in the end the consumer will be the one to take it in the shorts.
Last I heard the mortgage industry alone was at around 7 trillion dollars.
Its not worth anything to me. I’m sitting it out and renting right now.
That said, I work in development, and I see what I see. Maybe not worth 60%, but 5-10% no doubt. Besides, without a forced savings program like a mortgage, its hard to save and an equivalent amount. For better or worse, people pay a lot of a slice of the “american dream”
Rhonda,
what are the rates on the 80/20 from Countrywide? Still the same?
Matthew,
I’ll check in the morning when the markets are back open. I have not received any notices for anything other than Countrywide BC (subprime division).
What is your source telling you?
My sources say that the rate is much higher as of today. But I’m wondering if they are correct…
Rhonda,
My source is in California, so that may be the reason. Not sure, it may be for California loans only.
ARGGHH!!! I’ll run it now…and report back in a moment.
Matthew…no change. I’m looking at a 60 day lock. 80/20–Countrywide. Not Countrywide BC (subprime). I cannot tell you if it’s the California connection.
Zag,
Perhaps I am not understanding you. Did you refer to a mortgage as a forced savings program? Did I get that right?
Eleua,
A mortgage is more of a forced savings program than paying the same amount in rent. How can you argue that?
Yes, as you pay of the mortgage, you build equity, obviously more so later in the term of the loan. I’m sure you’ve heard this phrase used before. The savings rate in the nation is currently negative. Were it not for building equity through mortgage payments most people would have little or no nest egg. Yes, there are a lot of people building no equity (or losing) with alt. mortgages, but most others are building equity with each payment. Could they make more money buying stock, bonds and building savings accounts. Maybe. does experience (& numbers) bear this out to be average behavior. Not really. the “Average” american has some home equity, a retirement account and little else.
forced savings only works when prices increase faster than your investment alternatives and when the homeowner doesn’t deplete their equity through additional mortgages.
how many people does this scenario apply to?
2 yrs ago, many in Seattle. 6 months from now, who knows.
it may feel more like a forced monthly mugging, paying a mortgage that exceeds the home value.
Am I blocked out? I’m trying to answer post #98, and it won’t let me post.
There is probably a length restriction. I’ll do two posts.
——————————–
OK Rhonda, you’re on…
First off, rents are 40-60% of PITI not 100%. In a balanced market, rents would be 105-110%.
$750K house. Current rates are 5.75%. Assume 20% down (my own cash)
PITI = 3505 + 750 + 75 = 4330/mo
taxes are vague. I have many children, and relatively low income (high 5 figure), so the standard deduction covers almost everything I would get on Schedule A. For the sake of discussion, I’ll trade the tax savings for the maintenance costs. That should skew things toward owning.
So far, I’m in for almost $4330/mo. When you make $7500, that’s pretty steep.
Assume absolutely nothing changes. I’m sending $52K/yr out the door to own my house.
10 years from now, I have nothing to show for my taxes or insurance. Interest was a waste. What I saved in filling out my Schedule A, I lost at Home Depot, and the local repair man, not to mention my own time and hassle.
I have paid down $100,758 of my balance. Add the $150K for the down payment, and I have been forced to save $251K. I have paid out $520,000.
Same house (actually, this is the example of my current living situation, so this is for real. I live in a $3/4M house for less than $20K/yr.)
Rent – $1600. I’m going to keep this constant to keep parity with the stagnant taxes and insurance in the “forced savings program.”
Remember the down payment? I get to keep and invest that in a CD that makes 6%. I’m assuming I don’t get to short the pea-green poop out of mortgage finance companies for the entire 10 years, or that 6% is more like 16000%.
CD pays $750/mo on the first month.
Maintenance = $0 (thankyou very much)
Difference between PITI and RENT = $2730/mo
That gets added into a CD paying the same 6%.
10 years later…CD#1 = $272,909. CD#2 = $447,390
Grand total = $720,300, on a risk free, hassle free completely liquid investment.
Owning has saved me $251K, on a cost basis of $520K
Renting has saved me $720K, on a cost basis of $192K
Your serve…
BTW, I know many are jumping out of their skins and tripping all over themselves to say “But, but, but, but real estate ALWAYS goes up by 9%!!!)
Don’t go there. In this environment, you stand just as great of a chance, if not more, of a meaningful decline by that, or much, much more.
If you get some fantasy appreciation in real estate (we are already 10-15x income in many areas, and that’s with kinky, jungle-ball financing), then I get to insert my ROI on my shorts and puts, which is considerably higher than anything you will ever get out of real estate.
Apples to apples…
Oops. I almost forgot. In order to withdraw from the “forced savings plan, you have to pay all the professionals in the REIC at least 7%.
$750K x .07 = $52,500, or almost half of what you were forced to save by paying down the $600K note.
E??
6 comments in a row? Is that like a comment stalker?
Rhonda,
I think you have a fan 🙂
I guess I do! It almost makes me wish I didn’t have an am and afternoon appt! I promise I will respond, E. It’s nice to have fans. 😉 If we’re comparing the past 10 years, there is no way I cannot factor is appreciation. It is a true benefit to home buyers. I won’t use double digit figures. I never have with potential home buyers when I’m discussing the benies of owning a home. Anything over single digit is gravy.
Ardell,
While I am a loyal follower of both of you, I am no stalker. This forum does not allow for long-winded bloviations – something I have a knack for.
Rhonda, if you get appreciation, then you should run the numbers both ways. Run what property did in S.Cal in the early 90s.
If you run numbers from buying at the trough, you also should run them for buying at the peak (today).
Can I use CD rates from 1980?
How about the returns on gold from 2000?
Certainly the returns on shorting mortgage finance companies might be eye popping…
E-
It’s pretty conveninet to select which area and which time frame you want to visit to prove your point. You’ve used the past 10 years for your returns renting, I’ll use my past 10 years as a home owner (for appreciation) and we’ll compare.
I will be the first to admit that if your timing was good, owning is the better program. That’s a big “if” and it goes both ways.
That’s why I didn’t use it.
OK, I’ll use my returns on my mining portfolio that I established in 1999. The numbers approximate what we are discussing, so they are germane.
I have a full day. I will post my numbers when I get more time.
All the best,
E
E.
Even my long winded bloviations get trapped in the spam filter once in a while. If you email me when it happens, I can release it from Askimet Hell. Or is that Askimet Purgatory?
I guess if I can release it from the spam filter…it’s purgatory.
E, how on earth do you rent a $3-$4 million house for less than $20k a year?!?! I definitely know people who rent a $750,000 house for that range, but multi-million dollar houses for $20k a year? I want in on the deal! Tell me the secret!
$3/4M = 3 quarters = $750K
Sorry for the confusion.
E
That makes a lot more sense. There was a fleeting moment when I thought I was missing out on a waterfront property.
E-Renting a $750k house for only $20k a year? Is that normal or do you have a super sweet deal?
When I rented out my last house, it was for $1800 per month and it’s a $515k home.
I think it is a sweet deal. Remember, this is mainland Kitsap – not the Lake Washington basin. Professional people are much, much harder to come by out in the hinterlands. Out here, you either work for the Navy, a Navy contractor, retail or the REIC. We don’t have that many high income people. The median household income for Poulsbo is $40K. Bainbridge is only $71K. I assume your $515K home is in the major metro King County. Incomes are higher and jobs are more plentiful in King County. Higher incomes = higher rents.
Nothing in Kitsap has cashflowed in almost a decade – nothing new here. The housing bubble has made it worse. There are a ton of rentals in Kitsap under $1400. There is a reason for this. Incomes are low and the commute sucks. Once you get above $1500, your options go up exponentially compared to what you pay out. You should see what you can get for $2K. The house is so-so, but I have a great location and amenities.
It does help my case that my family looks like your classic 1950s style family. I make good, but not great money. I’m a college grad. X-USN officer, and attempted to pay 6 months at a time. I pay my rent about 3 weeks early every month. After correcting for debt, I probably have a higher net worth than my LL.
Short story – I’m a LL’s wet dream, and I play on that.
Many renters have spotty employment, look like they deal in meth, poor credit, no money, and give off the vibe that they will sell everything on eBay and move out without notice.
Just about everyone that wants a home has a home. This includes people that have homes that should be renting.
When 99.9999999999999999999% of the people believe that RE always goes up, it is difficult to find someone in my demographic that does not already own a home. Most leases have a clause that require the renter’s gross income to be a certain multiple of the rent. (too bad for mortgage finance companies that abandoned this practice about 6 years ago). Just about everyone in this price range that would qualify is shelling out PITI into a “forced savings program.” I prefer the voluntary savings program.
If I need 3X rent to be my gross income, I need to make $5K/mo. That’s 50% higher than the median income. Almost anyone at that level is paying PITI. When you are 2.5X the median income, you most certainly are, unless you have some massive problem, or are a transient.
So, when someone like me comes along, a defacto bidding war starts with the LLs. They become very negotiable when you don’t look like you are on parole or fresh out of a Pioneer Square flophouse.
“So, when someone like me comes along, a defacto bidding war starts with the LLs. They become very negotiable when you don’t look like you are on parole or fresh out of a Pioneer Square flophouse”
Does that pertain to Kitsap or renters in general?
40-45% of the Seattle “households” (I used that terms loosely) rent
When it is late September, and I find 3 properties that would be suitable, it is easy to get the LL’s in the mood when you lay it all out and ask them what they can do.
20% off is usually pretty easy to do. 80% of a full lease is better than 100% of an empty house. LL’s are better at math in September than they are in June.
This is no different than during the seller’s market when an owner would tell the 3 interested parties to start their bidding.
Higher end properties do not lend themselves to renting from an investment point of view. You need smaller, cheaper, higher density houses for things to make economic sense.
The fact that we have had a huge property bubble makes renting nice houses for very few dollars a common reality.
I would NEVER rent this house out as an investment. A $30K+/yr negative cash flow would be a non-starter for me. Now that the HELOC machine is broken, I’m curious how much longer it will make sense for others.
In San diego I rented a $695K condo with sweeping water and city views for $1800/mo. It’s been over a year and the realtor/owner of that property still cannot sell even though he’s dropped down to a range of $495-515K. Ouch.
I believe there was much more speculation (especially in condos!) in San Diego, which lead to a large avaialability of condos to rent.
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you should not do marketing calls to cellular phones, it is very annoying and there is a charge for the incoming call.
Please stop doing it
Siul, I don’t know what or who you’re talking about.
Hi Guys –
I see there was a discussion regarding 80/20 loans going away about a month ago. My fiance and I are first-time home buyers with excellent credit scores but 0 downpayment. The loan officer from Chase is telling us that if we submit an application before sunday, 4/15 3pm, we can still get the 80/20 deal. I am trying to figure out wheter it’s a valid claim or we are being falsely rushed. Is there a deadline when 80/20 program stops? Will the 80/20 deal will still be available to people with good credit scores/ non subprime?
Thank you,
Lena
Hi Lena,
With excellent credit, you should not be rushed (obviously, I do not know all of your financial details).
You could also consider 100% financing with just one loan using LPMI (lender paid mortgage insurance). Often times, I have found that this product provides a lower payment than the 80/20 scenario.
Fannie Mae Flex 100 may also be an option (with or without LPMI).
Even if 80/20’s are going away (I have not received any word of 80/20’s stopping as of Sunday); there are other options for “prime” borrowers.
Rhonda, thank you for the quick reply and the useful input!
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