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How far would prices in LA/SF drop if FHA 3.5% down loans were eliminated?
invite response
2012 Jan 13, 1:03pm 32,969 views 86 comments
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Doing the math, which I have done for this
Unfortunately, the world is more complex than your simple math...
If you are so certain that 1) FHA is going away and 2) as a result we will drop 80% then you should invest appropriately - short all real estate stock with all your money.
After all - its very clear math, you couldn't be wrong, right?
Always cracks me up how some people have the arrogance to think they can predict the future...
Any by the way, we don't need the 1% buying up the real estate...on the way down everybody and their gramma will buy a house until there is no house left to buy. Every single person I know will have bought a house - and by the way...I will have bought at least 3 houses if prices drop 80% - with cash. Such Nonsense!
dunnross
2012 Jan 17, 12:36pm
Any by the way, we don't need the 1% buying up the real estate...on the way down everybody and their gramma will buy a house until there is no house left to buy. Every single person I know will have bought a house - and by the way...I will have bought at least 3 houses if prices drop 80% - with cash. Such Nonsense!
But, reality is quite different from your "leap-of-faith formulation", my friend. The graph here is the reality, which completely eradicates your presumptuous deluge.
As you can clearly see, home ownership rate is going down, not going up, as you would like us to believe, and the bottom will not form, until everybody who bought their house during the boom years (1975-2006), would have either lost their house, or lost all their equity. From the graph, you can clearly see that we are a long way from there.
LAO
2012 Jan 17, 1:14pm
As you can clearly see, home ownership rate is going down, not going up, as you would like us to believe, and the bottom will not form, until everybody who bought their house during the boom years (1975-2006), would have either lost their house, or lost all their equity. From the graph, you can clearly see that we are a long way from there.
I love how your graph makes the homeownership rate gap look ENORMOUS... from peak to trough it's less than 6% difference in homeownership rates from bubble to lows.
dunnross
2012 Jan 17, 1:22pm
I love how your graph makes the homeownership rate gap look ENORMOUS... from peak to trough it's less than 6% difference in homeownership rates from bubble to lows.
Well "LA Owner". Another naysayer, ha! Well, what you don't understand, is that a 6% difference in the home-ownership rate is actually GYNORMOUS, because, any kind of a market like this operates at the margins. In fact, this 6% change which you see on this graph, is what caused the unprecedented milenium housing bubble, in the first place, and the 3% drop in the home-ownership rate is the cause of this open bust, which we are in the middle of, right now.
Think of this as a tsunami wave which is only about 2-3 feet off the ocean-level, but what an impact it makes when it strikes the shoreline.
KILLERJANE
2012 Jan 17, 2:44pm
That's why it's so hard for you to believe that somebody could sell their "HOME" and buy a worthless piece of a "barberous relic" back in '06.
I just don't believe *you* did that. You generally sound like a loon who will say anything to try to prove your ridiculous theory about housing crashing to 1975 nominal prices.
And, as usual, I challenge you to eat your hat, about 10 years from now, when house prices do fall to 1975 levels.
In 10 years I will have blissfully forgotten all about you.
In some areas, not CA, housing prices are around 1980 levels.
dunnross
2012 Jan 17, 2:48pm
In some areas, not CA, housing prices are around 1980 levels.
Yes, and soon we will learn to embrace the fact that these types of price declines are the norms, rather than the outliers. The outliers will be places like the BA Fortress and NYC, which will be the last ones to buckle, but, once they do, it will 1975 across the board.
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I ask because theres a few desireable areas, and a few up and coming portions of LA where investors are paying cash, fixing the places up, then flipping at huge profits. Almost all final user buyers are using 3.5% down loans(both annecdotally and via realtor info) in these areas because they do not have 20% down.
In my mind, this means that if the fed stepped away from low down payment mortgages, prices would have to fall to a point where people could afford 20% down. Since its clear people can't and won't save the amounts required now, prices would have to meet what people could afford.
Example:
http://www.redfin.com/CA/Burbank/1011-N-Brighton-St-91506/home/5335424
http://www.redfin.com/CA/Burbank/1845-N-Niagara-St-91505/home/5359870
http://www.redfin.com/CA/Los-Angeles/334-Kirby-St-90042/home/7087245
http://www.redfin.com/CA/Los-Angeles/442-N-Avenue-52-90042/home/7077727
As you can see from the links above, the homes sold likely cash for much much less than their resale a few months later. And while the homes were likely in poor condition, clearly the flipper is making bank. On the last one esp...over $200K in profit...a flipper laughing all the way to the bank. And theres also just about no way the flipper even put half that into the upgrades(LOL at the front yard).
And heres the rub....anyone that had the ability to scrape up 20%($100K), would have been able to buy at $290K, and put the rest into fixing up the place, at least part way. Thereby paying $330K, and doing other upgrades at a later point in time. With $40K, easily could have done the roof, plumbing, electric, painting, flooring, some windows, and landscape on the very cheap. Clearly I would think that saving $170K would be high on most peoples lists(not even factoring in the cost of interest).
But thats not whats happening because people don't really have that money. Instead, they are able to STILL purchase with almost entirely funny money. And they do really stupid things like overpay on a house by at least $100K.
So do I have this right? If 20% down became the new norm.....would prices fall as far as I seem to think?
#housing