WatchI have been searching everyday waiting for an article on the October 4th changes to FHA mortgages which will collapse the housing market and I have yet to see one.
Here is what is happening…
FHA now makes up over half of the home purchase mortgages in the entire country right now.
The new rules effective for all new FHA loans (including Reverse Mortgages) October 4th, 2010 increase the annual MIP (MIP = Mortgage Insurance Premium) from .5% to 1.25%.
Here is how it breaks down:
Old Rules:
$200,000 FHA loan @ 4.5% (current 30 year fixed rate)
Payment = $1,298 ($1,013 PI, $202 TI, $83 MIP)
New Rules:
$200,000 FHA loan @ 4.5%
Payment = $1,423 ($1,013 PI, $202 TI, $208 MIP)
Same house, same mortgage, same rate, same everything and the payment goes up 9% on October 4th.
Housing prices will have to drop an equal amount for the same person to qualify after October 4th.
Add in some terrible housing data regarding foreclosures, inventory, etc., etc. and you have a recipe for another BIG decline… OUCH!
The worst part is, a big drop in October will signal a bigger drop through year end because downward momentum begets downward momentum.
Why isn’t anyone picking up on this huge new change in FHA loans… Where are the bloggers?
Matthew Copley
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bob2356 says
Thanks for your response. I'm surprised the property tax for your area is so low. I just checked again and it's about 3% for Dallas/Forthworth areas. My friend could consistently get me a return of 1% monthly rent ($1,200) to home price ($120k) ratio in DFW area, and these are relatively new homes (less than 10 years old). Ha, I was partially right about the insurance.
Just out of curiosity, was there a reason why you chose to invest in Rio Grande valley over the triangle Houston/San Antonio/Dallas?
Sounds like you got a pretty cool job. I have a cousin in-law who works for BP and he gets to travel around the world all the time. Great pay too.
@ Joshuatrio,
Yes, it's great that Bob has a plan. Yes, there are a lot more to life than real estates. Different strokes for different folks. I like your sailing adventure and believe you've hijacked the thread, kind of like me, which is cool :o)
However, we don't think on the same frequency when it comes to planning. I believe RE is one of the easiest way to achieve financial indepence. Before I buy anything (such as a sail boat), I would find some investment or someone to pay for it. It's kind of like someone is paying off the mortgages on my RE investments. Why don't you find some investment that would pay off your sail boat instead of taking the money from your savings account? Just a suggestion.
Have fun sailing. It should be a fantastic adventure :o)
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Monterey, CA
E-man says
Getting there. We don't have it all planned out yet. First things first and that's to see if we like sailing and the lifestyle - financially, we'll be fine.. I'm not totally against RE - I'm just tired of monitoring values for the past several years that a break from it would probably be good. Not looking to make the transition for at least 2 years which allows plenty of time to plan and get it all figured out. We may purchase a couple rentals on the East Coast (where family is) that could potentially pay for the whole trip, or we may not.
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E-man says
Because I lived there at the time. I only buy RE in places I've lived and know the area. I only bought property once without living in an area for at least a year. Like getting my dick caught in the zipper, it's something I'll never do again. I've sold my properties in other parts of the country (PA,NY,OR) to concentrate in the RGV because property management wasn't nearly as good in those area's as the RGV. A very big factor if you are going to live 12,000 miles away. At present the rental numbers run nicely and I can get a sub 4% 15 year fixed so I'm looking for a couple more houses in the next year or two. RE laws are also much, much more landlord friendly in Tx than many other places.
I work (sort of, I've scaled back a lot, free time matters more now) over the internet (as in send me specs, I'll send back code), so I could work from mars. Pre internet I used to work all over the country and overseas. My wife now has the job that requires a physical location so we continue to roam the planet. I like it. So few Americans live and work overseas it's shocking. Most of the rest of the world is amazingly mobile. It's really hard to imagine how insular the US is until you try do anything with US businesses or US government institutions using overseas information. Things I could do with no problem using a NZ drivers license in places like New Guinea or Tahiti or Costa Rica are a nightmare to do in New Jersey or Oregon.
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Pasadena, CA
chubbuni138016 says
As long as I don't buy in La Canada during the peak of the bubble, my math makes sense. A good private school will cost $20k-$25k per year...Let's take the higher # to partially account for future inflation... so $25k x 13 years = $325,000 to put 1 kid through private school. I have 1 daughter, and 1 on the way, so for 2 kids it'll be a minimum of $650,000 to put them in a good private school for 13 years...more than likely close to $1 million when you take future tuition increases into account, which are always higher than inflation.
Let's say I buy a home in La Canada instead right before they start Kinder for $1 million (very average home, nothing spectacular for this expensive area--I don't care...I'm buying the home for the school district, I know I can buy a mansion on a golf course for that price just 40 miles east in the Inland Empire).
When they start college, I can always sell it back for at least $1 million, more likely $2 million, since I won't be buying right now that prices are still inflated, and prices will at the very least rise with inflation from 2013 to 2026.
So, even if home prices don't appreciate one cent from 2013 to 2026, I will have saved $650,000 in private school tuition. If home prices appreciate from 2013 to 2026, then it's all just more icing on the cake. More than likely, someone in 2026 will do the math and figure out that they're better off buying my average home in La Canada for $2 million than paying $50k per year for private school tuition for the next 13 years for their 2 kids.
When my kids start college I just sell my house and move to a less expensive area with a bad school district priced in (maybe Pasadena's wonderful Linda Vista area just west of the Rose Bowl--great neighborhood, nicer than most of La Canada--but Pasadena has horrible schools) and my math will make a lot of sense.
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Charlotte, NC
Some good ones in this thread. Bad credit =?= Good renters? Gimme a break. Get out now if you still can if you don't know what i mean on this one.
BTW, FHA keeps poor people from owning homes. poor people == bad credit == NO FHA. maybe FHA works for some college students and some tax evaders who work under the table; but, not for the working poor by a long shot.
When we bought in march we were amazed to see a sneaky fees. Looks like mortgage companies are sneaking in just under 1% as a mortgage-company version of the PMI (Mortgage Company Insurance, MCI?) So, now are we seeing PMI, MIP, and MCI? You add a couple thou onto the closing costs and it starts to get out of reach (less sensible than continuing to rent).
BTW, I see lots of RE bulls on this thread. Surprising given the continued deterioration. But, hey, the next bailout may be just around the corner....
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maxweber1 says
Actually, FHA does not work at all for people who can't document their income. Your ability to qualify is entirely dependent on how much income can be shown. It's really good for people who currently make a lot but can't manage their money and are incapable of saving. And the minimum FICO score needed is pretty freaking low, isn't it?
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thunderlips11 says
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Charlotte, NC
gameisrigged says
Maybe. Maybe not. If the person doesn't pay a bill such as a $10K medical bill then they can't get it. Unfo. that is the norm for the working poor in the USA. Met lots of these folks in the neighborhood. Its sad. But I guess somebody has to live on minimum wage or thereabouts. I know I couldn't.
Looks like FL is not at all done with price adjustment. I think that's true nationwide actually. The USA has an enormous amount of open land. If land hoarding laws are ever enacted then prices will adjust much closer to 3x salaries.
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Housing market prices are down since October, but how much of this is becase of the change in FHA rules and how much is just because of the ongoing trend since late 2006.
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maxweber1 says
Your "maybe, maybe not" is in reference to what?
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Charlotte, NC
gameisrigged says
In reference to:
Its low if you have a good job and such but not low if you're poor. If you're poor, the FICO required is way too high and it was like spitting in their face when I mentioned the FHA programs to more than one potential poor buyer. But I think their was a FICO-holiday a few years ago where FHA let anyone get a loan. Not sure. none of the poor I talked to seemed to know about that one.
BTW, by "tax evaders" I was talking about the classic chinese restaurant or the offshore account worker. When I was in LA seemed like every other person had some tax avoidance/evasion scheme going. So, they really can buy the house but their paperwork says they can get FHA. Sorta like a bank with a trillion is assets getting money at 0.25%. :-)
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47 male
Lafayette, CA
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I'm glad this thread was bumped. It should be obvious by now that new FHA rules effective October 4th 2010 DID NOT in fact crash the housing market.
The housing market is almost exactly the same today as it was last March.
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Los Angeles, CA
iwog says
?????????????????
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iwog says
Hmm. I don't know WTF this quack is saying. In BA prices are down 14% since Oct, 2010, and he expects us to believe that this isn't a crash? Prices have been falling every month since Oct, 2010, and he still tries to get us to believe that this is just seasonal. Back in Sept, the quack said this on the very same thread:
"I think 12 months from now we’ll see a market either flat or slightly higher"
For this to happen, prices need to go back up 16% in the next 6 months, just to make his prediction of "flat market" to come true. For prices to be slightly higher, they need to go up more than 16% in the next 6 months. If this doesn't happen, I will personally write to Patrick to revoke the quack's login. I think we've all had enough of this BS on this blog.
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dunnross says
Case-Shiller reports prices for the greater San Francisco area peaked in July 2010 @ 143.23.
The last report available shows the index @ 135.85 (December 2010)
Total decline = 5.15% and I'd say that most of this is seasonal.
dunnross, do you even care about the truth or do you just make shit up when it suits you? I'll post my source. Obviously you aren't going to post yours.
http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----
dunnross says
Oh PLEASE write that letter now! I'm sure Patrick could use a good laugh.
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iwog says
Made the point without resorting to the L word. Kudos!
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iwog says
And we have another record of the duck trying to prove his point by cherry-picking data:
#1 The headline on this blog sais: "FHA rules affective Oct 4, 2010 will crash the market" not "FHA rules affective July, 2010 will crash the market". Iwog, cherry-picks July 2010 as the starting point, just simply because July numbers were lower, so he can show a smaller drop.
#2 Why would we be interested in Dec, 2011 as the end point, when the last time, I checked it was March, 2011, and the daisies were in bloom? Well, this is because prices were down 10% in the BA in Jan, 2011, so, naturally, the duck would not pick that data point, if his life depended on it.
#3 According to
http://dqnews.com/Articles/2011/News/California/Bay-Area/RRBay110217.aspx
(see current and archives for Oct, 2010), we have the following price points for BA:
Feb, 2011 - $338K
Oct, 2010 - $395K
And, that, ladies and gentlemen, is a 14.4% drop.
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#1 I picked July 2010 because it was the highest CS market reading. You're totally wrong that July numbers were lower. Of course I could have picked October and you would have been even more wrong.
#2 I picked December 2011 because that's the last month available.
#3 Median prices are not an accurate indicator of the real estate market. Median prices are too heavily influenced by market segment. Since investors are now driving most market activity, and since investors buy lower priced homes that can be justified by rents, it's VERY logical that the median price would decline even if the market was actually increasing.
So much for cherry picking data. What's your explanation for ignoring Case-Shiller and using median instead?
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iwog says
C-S numbers are not always accurate, so we need to use the median price data, here:
#1 - There are no C-S numbers for the entire Bay Area, only for San Francisco. This makes the C-S numbers more skewed towards San Francisco, which has a higher skewing factor than the skewing due to the median price mix distortion.
#2 - C-S numbers are 3 months late, and do not reflect the latest market. The market has been tanking at an alarming rate during the last 3 months, which the C-S data ignores.
#3 - Iwog himself said that C-S data was not to be trusted when using the 100 year C-S data. So not to upset the duck, I am no longer using it as a measure of the market direction. (Somebody should tell the quack, that he can't have his cake and eat it, too).
#4 - Iwog tends to manipulate C-S data to drive his point across. For example, he uses data which is already seasonally adjusted, and then, sais that the drop was due to seasonal factors. So, not to cause any unnecessary confrontation regarding this matter, I chose to use the median data.
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47 male
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First lets both agree you were wrong about everything. I did not cherry pick data, I used the best data available which was also the most favorable to YOUR argument. I did not run away from answering you, I went to bed and answered you first thing in the morning. You throw out this nonsense then pretend you never typed it. You were WRONG so please man up and admit it.
Now to answer your specific points. Again you're wrong on almost every point and it appears you're just making stuff up:
1. WRONG C-S San Francisco data is for the entire bay area. Besides San Francisco it also includes Alameda, Contra Costa, Marin, & San Mateo counties. I got this directly from Case-Shiller and you can find it here. http://www2.standardandpoors.com/spf/pdf/index/SPCS_MetroArea_HomePrices_Methodology.pdf What's your source for it only being San Francisco? (no way in hell you have a source)
2. WRONG The Case-Shiller index is 2 months late when published, however the numbers I posted for July and December ARE the numbers for July and December. Furthermore the market has not been tanking at an alarming rate for the last 3 months, in fact according to Redfin the inflection point was January 1st and asking prices have been increasing since then. Closed prices are also headed back up. http://www.redfin.com/county/340/CA/San-Francisco-County There is no actual data to show a down market in February, IN FACT YOUR OWN ARTICLE doesn't even cover February. Once again you just made shit up and posted it.
3. A index being wrong over decades is not the same as an index being wrong over several months. The problem with Case-Shiller is cumulative error. This means in short time spans, Case-Shiller can be perfectly accurate or at least more accurate than the margin of error. Even if it's not, it's a FAR better measure than median. In addition, I don't buy for one second that you rejected Case-Shiller based on something I said. I'm guessing that you're desperately searching for anything that makes you right regardless of source.
4. WRONG I used and linked non-seasonally adjusted data. Obviously you didn't even check and (again) simply made up something that wasn't true. Here's the data if anyone wants to confirm. http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----
This is a complete and utter failure on your part. It's obvious that you have no interest in being accurate and that you just pull stuff out of your ass that is easily disproven. Say goodbye to your last shred of credibility.
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I think the bigger problem is that FHA still exists pushing prices up and making housing unaffordable without a government hand out in the poor areas.
I strongly believe that if FHA were to be phased out, housing in these areas would calm down to a point an average person can purchase without needing FHA.
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ChrisLA says
The problem is that rents currently justify the price of lower cost housing regardless of FHA. In fact cash buyers are dominating this market right now. Prices cannot fall by a significant amount unless rents fall, and rents aren't falling.
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iwog says
This might be a local issue, but they did fall in our neighborhood significantly recently. You can rent for $900 what, about 5 month ago, was $1200. But this neighborhood is out of touch with reality. We have rents at 900, houses next door to each other can range from $250k to $600k
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ChrisLA says
As I've pointed out before, the Inland Empire is an anomaly that is a very poor representation of the California housing market. Thousands of homes were built in the desert hours away from jobs and sold to speculators who had no credit and no income. Most of California does not resemble the Inland Empire. For all I know, that market will be broken for a decade.
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iwog says
A lot of that is common in CA with land speculation and stupidity, there are a lot of places like that. Our area isn't inland empire though. 91335 is not that far from LA.
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ChrisLA says
Not really. Case-Shiller reports that the three major metropolitan areas have been stable since 2009. Even if we make a new low with the March report, it will still be within 1-2% of the previous bottom. The crash ended in 2009 and rents are stable.
There will always be pockets with deviant markets. I don't know if Encino is one of those, but I do know what broad market data is reporting.
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Chris, it probably is a local issue--probably micro-local, as it were: to the point it's a matter of close to work, quality of life, etc. We rent in Hancock Park and I can tell you it has gotten no cheaper. Mostly because there is lower turnover in this kind of area, and it is pretty central to everything as far as LA goes. We've been at $2100/mo for 3 years now, which seems to still be the going rate if you can find anything in our category, and the listing prices are still easily $850k+.
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Boo Hoo! My 2br 800 sqft shit hole should worth $1,000,000 why is the Government and FHA trying to screw me over?
Somebody call the Goddamn Wambulance geesh!
Where were the damn prudent measures from '97-'07?
Which btw, by most practical economist housing is headed 97-99 prices. There has been no REAL growth in the last decade.
And now Greenspan cleared his throat today and stated what anyone with a wallet should have figured out in '07. That the government should have let the whole meltdown play out on its own. In fact ALL of the stimulus measures, every single dime of it, was a hindrance to the recovery.
One should have a $1,700 mortgage for every 120,000 their house is worth. Like it's been OH lets see...
FOREVER!
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Los Angeles, CA
Yeah, I still don't understand the rents are rising thing.....
I was looking for a new place in downtown LA from August-October last year and rents were significantly below what they were 3-4 years ago. I wound up finding a place for $1575/mo that had been renting for $1900 a month in 2006.
That bore out where ever I looked, though not in such drastic fashion. I also found out that as a steadily employed person with good credit and a substantial checking and savings account, that asking rent prices where absolutely meaningless. Every single landlord was willing to come down on their asking price and several actually said "I wish there were more tennants like you".
I realize what the statistics show. I disagree with them and believe my real life experience contradicts what the stats show.
I'll also note that like others, renting is WAY cheaper than buying. An equivalent property sold about 8 months ago at $340K. Add in some of the freebies I get, and $660/mo HOA's, and it would cost $2800mo to buy that property plus the 20% downpayment amount.
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Rents are going up in San Francisco: http://rentbits.com/rb/t/rental-rates/san_francisco-california
Rents are going up in Los Angeles: http://rentbits.com/rb/t/rental-rates/los_angeles-california
Rents are going up in San Diego: http://rentbits.com/rb/t/rental-rates/san_diego-california
Rents are going WAY up in San Jose: http://rentbits.com/rb/t/rental-rates/san_jose-california
Rents are flat in Sacramento (but starting to move up): http://rentbits.com/rb/t/rental-rates/sacramento-california
I don't dispute anyone who says rents are falling for a specific small area, but rents in California are going UP and not down.
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iwog says
Encino is a bit strange. An average person here doesn't make much money, there are tons of apartments here too. Yet housing is completely ballooned still. And 2 blocks down you get a really "rough" neighborhood. It's really out of touch with the broad market data.
Perhaps thats the reason I don't really care much for "broad market data" (I have not seen it yet though). Since it does not relate to where I'm at. During the top of the bubble the broad market data was telling everyone that housing is as expensive as it should be with cheerleader media and rating agencies in the same bed with the bankers. Today we know better, because at the end it comes to common sense.
And I think in my town common sense has not arrived yet. There are still bubble crowds waiting on free money. But rents have been going down. You can get a nice 1bd for roughly $700, 2bd $900 which is a lot for some folks still.
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iwog says
You know the good old "just because on the internet does not mean it is true..."
I checked the rents on the site in our region. It's not accurate. Not by much, by only about 15% to 20% higher than what it is advertised here. Might be based on their finders commission fee of some sort.
I don't know about San Francisco, but it isn't accurate in VanNuys, Reseda, etc...
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ChrisLA says
Hell! he won't believe the county recorded home sale price data, if you present him, so this rent argument is out of question. :)
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bubblesitter says
Who said that?
ChrisLA says
The trend is more important than the absolute value. Whatever data source they are using, they probably used the same data source 12 months ago so the error is built into the entire graph.
Either way, some data is always better than no data. I'll gladly change my opinion if someone can show me a better source that says rents are going down. For me personally, rents are going up since I raised rents on most of my units last year.
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Iwog "Who said that?"
You said that.
I presented you the Lafeyette sales data which is clearly below your 2009 bottom. You said "it is too small data set to prove 2009 bottom is busted"
I presented you the Sanfrancisco sales data which is clearly below your 2009 bottom. You said "There is big disconnect between Multi million $ and the condo sales"
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bubblesitter says
I said market date based on 12 houses selling was an invalid measure of the market.
I also said that median price data is also an invalid measure of the market because it's skewed by market segment.
At NO TIME did I ever say I didn't believe county recorded home price data.
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iwog says
Iwog, look at the listing counts at the bottom. You know how I know you've never taken a statistics class your whole life?
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klarek says
So let me guess. Rents are going down?
.........silence...........
Oh that's right!!!!! Klarek doesn't make predictions. Klarek doesn't answer questions. Klarek just sits back and throws poop.
I like data. I'm not married to any single source of data. If you have better numbers showing rents are going down, post them. I guarantee you wont.
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klarek says
Exactly my point. You're afraid to take a position on anything.
Iwog: rents are going up.
Klarek: your data sucks.
Iwog: so rents are going down?
Klarek: I didn't say that you sack of shit!
klarek says
So it's not about a dislike of data, you just dislike the data? LOL....whatever dude. My major at U.C. Davis was biology. (genetics) Not only did I take several years of statistics courses, I also used them on a daily basis. Of course none of this really matters because you read the charts wrong.
I'll just use San Francisco as an example: http://rentbits.com/rb/t/rental-rates/san_francisco-california
For some reason, you thought that the numbers contained in the box labeled "CURRENT RENTAL RATES" correspond with the time axis on the graph. (you asked me to look at the listing counts at the bottom) Those "listing counts" are actually nothing more than the last point on the graph for each corresponding rental category.
Now do you understand how absurd you look calling me out?? 787 is simply the total current rental listings. It's not a baseline, it's not the total for the beginning of the series, it has nothing to do with time at all. 378 is the total of 1 bedroom apartments. 242 is 2 bedroom units and so on. Column two, three, and four are a subset of column one so obviously they are smaller. You completely blew the reading of the chart!
I'll accept your apology.
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iwog says
They legend wasn't labeled and I apologize for that rant. I would advise you though that the data is spotty and covers a very short interval of time. I wasn't arguing that rents were higher or lower, but just for comparison's sake:
http://www.zillow.com/local-info/CA-San-Francisco-home-value/r_20330/#%7Bscid=mor-site-topnavlocalsub%7D&metric=mt%3D48%26dt%3D1%26tp%3D4%26rt%3D8%26r%3D20330%252C268384%252C268150%252C268396%26el%3D0
Either way it's a whole lot of nothing without more reliable data.