patrick.net

I'm not sure, but I dare any of you to go visit this house:

http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=717200&type=property&name=

652 STANFORD AV
Redwood City, CA 94063

I tried going to the open house yesterday - but the people I went with were too scared to get out of the car. Not that there was any parking left after all the pickup trucks and panel vans.

Middle East Bay, East San Jose, Menlo Park east of 101, East Palo, most of Redwood City.

Ones that will be coming into that status : Campbell, Sunnyvale

eburbed,

Oh man, you're talking about a pretty damn sketchy part of RWC. Nice signature flipper kitchen cabinets, though.

As an aside, did you smell the toxic fumes from that scrap yard fire from the house?

I actually like the part of Milpitas east of Park Victoria around Piedmont.

How about some 'old school' BA subprime?

There's a difference between subprime real estate and subprime loans which seems to be lost in your question.

Subprime loans are made to borrowers with crappy credit.

Subprime real estate is real estate that is, for a variety of reasons, undesirable.

Subprime loans have happened all over the area, though they're especially prevalent in the east bay - Oakland has over 12% of it's 2006 loans rated subprime.

And don't even mention the central valley areas like Merced, where 40% of the loans were subprime in 2006.

Whether real estate is subprime or not is much more in the eye of the beholder, however.

Subprime is not by location. It is generally accepted that it is a low credit score. Who has a low credit score, people who can't pay there bills on time, or people who are too maxed out on there CC debt. Then you got people who recently had a BK on there record. Where do these people usually live???? sure E-PA, RWC, Menlo, but also atherton los altos. Think of all those rich people to maxed out and those who have BK, generally they are prime canidates for a subprime loan

Subprime real estates are what subprime people buy with subprime loans at prime price.

So they are all inter-related.

"signature flipper kitchen cabinets"

That's about $1,000 per s/f and your "lawn" is mostly concrete. Another sure sign that it was either a rental w/multiple parties or treated like a rental.

Perhaps we could have a Flipper Brand (TM) line of home products designed to last through close of escrow and then disintegrate into unidentifiable biodegradable pulp before your very leveraged eyes?

Perhaps we could have a Flipper Brand â„¢ line of home products designed to last through close of escrow and then disintegrate into unidentifiable biodegradable pulp before your very leveraged eyes?

With a dolphin logo.

I think we'll all be surprised by which neighborhoods are hit w/subprime loans. Overall I'd have to say that anywhere people had to "stretch" financially to get into a home there's a subprime lender in there somewhere.

Generally people w/lower fico's (b/c they don't pay on time or at all) make up the biggest part of subs business but a large percentage are self employed people. Prior to the explosive growth in sub prime lending many S/E people had to go "owner carry" or on some kind of a contract. Usually at rates higher than people with steady paychecks and spotty payment history.

Flipper Brand â„¢ line of home products

This reminds me of a great idea WW2 (aka "Nomadtoons2") came up with nearly a year ago:

SoCal Blog Party
willywhopper2 Says:

Anyone else want in on my ingenious scheme?

Oh man, you’re talking about a pretty damn sketchy part of RWC. Nice signature flipper kitchen cabinets, though.

As an aside, did you smell the toxic fumes from that scrap yard fire from the house?

No... my car has a pretty good automatic filtering system - maybe that helped. But, uh, yeah... my car really didn't fit into that neighborhood either.

I saw on Zillow that that place sold in 2004 for $515k.

I don't get it - how do people on that street afford to live there? It looks like most of the people are employed in... um... landscaping.

And I don't mean to be a whiny Gen-X/Y'er, but why is the only house I can afford as a professional is that one?

So far, it hasn’t affected prices in the more up-scale areas…

Reflexivity is like chess. Credit makes a both, and then price makes a move.

We will just wait for a few more moves.

HARM,

Great memory! I sure wish Willy was still around. Of all the people here he's the last guy I'd worry about "taking the plunge". The man did have a point though, most flips look like thay were done by the same "crew" anyway so why not make the system turn key?

Can you imagine the stories that will surface from people that bought these meth fueled all-nighters?

Do Santa Rosa, Petaluma, Cotati (or anything in Sonoma County) count as Bay Area for the purpose of this question?

Here in Windsor, there are a lot of high dollar homes that seem to be occupied by... well, "landscaper" types. Lots of pimped out SUV's in the driveways, with trailerd mowers and white construction trucks on the curbs. Not the typical indicators of higher incomes/salaries required to service large mortgages. More like the Manuel-labor types. Maybe they are all "move-ups" bought with the proceeds from a profitable sale.

Even so, For Sale signs are growing like the spring flowers.

Is this what a "Subprime" area looks like?

SoldAtThePeak,

I'm not intimate with the areas you describe, then again... I don't have to be. Regardless of original fico, dti, employment status etc. a stretch is a stretch. This is the core personal financial backdrop that makes for a "motivated seller".

Peter, I wonder how long those “moves” will take. The housing market is not like the stock market where shares are sold almost instantly. Short of a massive loss of Bay Area jobs, most people will be able to ride out the drop in housing prices.

A few years. Some "moves" will involve employment "pieces." First hit would be subprime mortgage jobs.

When the housing market is hit nationally, consumer confidence will fall and companies will spend less on technology. Eventually, the valley will be affected. We live in a highly connected world. We live in a loosely connected house of cards.

I think it's already been stated, but subprime is technically a classification of a borrower, based on FICO. Not a house or a geographic area.

Some lenders say below 620 but the regulatory benchmark is 660. FICO is based on the following: (1) Bill Payment History – 35%; (2) Debt Ratio (i.e. outstanding debt versus borrowing capacity) – 30%; (3) Length of Credit History – 15%; (4) Propensity to Apply for New Credit – 10%; and (5) Credit Mix (i.e. the amount of revolving debt versus installment debt) – 10%.

Exposure to subprime borrowers is limited in the Bay Area. Much higher in Contra Costa, as well as some of the areas identified above. Not surprisingly, it is typically the poor who qualify as subprime.

The focus in the Bay Area (for those of you not wishing to buy in the skankier parts of town) should be on the exposure to "Alt A" financing. Alt A is the rest of all mortgages that are not subprime and not prime. We are extremely exposed. Between 75-80% of all originations over the last 2-3 years are either subprime or Alt A. The borrowers in Alt A may have a great FICO but only a 5% down payment, or an interest-only loan, or a neg-am loan, etc.

The secondary mortgage market is dead for subprime and drying up quickly for Alt A. The talking heads all said problems would be contained in subprime. No spillover/contagion... But M&T Bank and American Home in the last week have destroyed that hope. Citigroup just scaled back Alt-A too. This will have a major impact on credit availability, and not just in the "bad" neighborhoods.

I think it’s already been stated, but subprime is technically a classification of a borrower, based on FICO. Not a house or a geographic area.

But some areas are more prone to the subprime sunset than the others.

I doubt the bond market thinks in term of FICO score. It thinks in term of risks. There may be a flight to quality in the future. The stock market is holding up for now though.

It may spread like this:

1. Subprime credit tightens
2. Market demands higher interest rate from subprime borrowers
3. Subprime mortgage properties fall in prices
4. More subprime foreclosure
5. goto (1)

I agree that Alt-A is the one to watch now.

"Middle East Bay, East San Jose, Menlo Park east of 101, East Palo, most of Redwood City"

I would add --

Daly City, Pacifica, Santa Cruz, Mountain View, (Parts of Cupertino) Campbell, Sunnyvale (freaking working class 'hood, with working class type homes), Willow Glen ( I meet way too many residence of WG that think in their words "exotic loans are great!". Not to be outdone we will see FC in the City ( we may find many that overdid it on the subprime front to get into city limits.)...way too many financially uneducated were getting into real estate in the San Francisco.

Skip Los Altos Hills and Los Gatos-- they will be untouched.

Aside from the SubPrime meltdown, the next Tech recession will be brutal on all fronts. If it does happen during the ARM resetting period.... well you get the picture!

Daly City, Pacifica, Santa Cruz, Mountain View, (Parts of Cupertino) Campbell, Sunnyvale (freaking working class ‘hood, with working class type homes), Willow Glen ( I meet way too many residence of WG that think in their words “exotic loans are great!”.

I'm not so sure about Fortress Mountain View. Maybe some of the condos, but less so about the SFH.

Aside from the SubPrime meltdown, the next Tech recession will be brutal on all fronts.

Traffic relief. :)

" Is a brand-new, 750K townhouse susceptible to this first wave of credit contraction? How about a 700K, circa 1950 spec house ?"

In the Bay Area --- Both

HARM / DinOR :

Isn't the "idea" mentioned in your post - about townships created solely for investors - already implemented ? I cannot dare say the name, but our pal Randy H. went through some hardship for pointing out the obvious in that scheme.

The borrowers in Alt A may have a great FICO but only a 5% down payment, or an interest-only loan, or a neg-am loan, etc.

PAR,

Just a minor point, btu my understanding is that Alt-A is a bit of a catch-all category (anything not Prime or Subprime). It not only includes the groups you mention, but ALSO somewhat lower FICO scores:

http://www.citytowninfo.com/mortgage-articles/specialty-mortgages/alt-a-mortgages

I do agree that Alt-A is the next area of interest to watch, both nationally and particularly in the BA. How many otherwise credit-worthy friends/acquaintances do you know who "stretched" to get into a house in a better school district, that's slightly nicer, etc? For me, it's most people I know, and these are mostly professionals. They see traditional FRMs with 20% down as an outdated relic.

Traffic relief.

Anyone remember the "Day without an (illegal) Immigrant" protest boycotts from last May? I recall being able to get from A to B in nothing flat, and not having to stand in line for anything at even typically crowded malls. I think they definitely made their point (though not necessarily the point they intended to make).

How about a "Day without a FB"?

How about a “Day without a FB”?

Will it become something like The Day After Tomorrow? :)

I went to work the day after my previous employer annouced a significant layoff. I complained to my then-boss that parking was not any better. He said I was mean.

HARM / DinOR :

Isn’t the “idea” mentioned in your post - about townships created solely for investors - already implemented ? I cannot dare say the name, but our pal Randy H. went through some hardship for pointing out the obvious in that scheme.

I guess any recently built 'Flippertown' with very low occupancy, usually built in the distant exurbs, would qualify as a real-life example of this. The only real difference is that WW2's implementation would be designed for this from the outset, and could not really be occupied, even if the flipper wanted to live in the place (no working plumbing or real appliances). The houses --'plumbing', 'appliances', 'furniture' & all-- would be cheap, non-functional props. Basically, like movie studio back lots.

SpaceAce and others,

I'd classify the areas you list as a mix of subprime and Alt-A (using the same slightly-off geographic representation of credit worthiness). To me, here's the Bay Area breakdown (not inclusive):

Subprime:
EPA, East Menlo Park, RWC excluding Emerald Hills, parts of Daly City, Southern SF, East San Jose, Gilroy, East Bay from north of Fremont to Richmond, minus Rockridge and Berkeley/Oakland Hills, Vallejo, pockets of Sonoma, and pretty much all of the Delta (if that's even the Bay Area).

Alt-A:
Western SF, parts of San Mateo/San Bruno/Millbrae/Belmont, San Carlos, part of Menlo Park, South Palo Alto (yes, here too), much of MV, Sunnyvale, Santa Clara, most of San Jose, parts of Cupertino and Los Altos (again, where families stretched to "get in"), Milpitas, nicer parts of Berkeley and Oakland, most of the stuff along the 680 corridor minus Danville, Blackhawk, Orinda, Moraga; crappier parts of Marin.

Prime:
The rest of it, including "prime" SF, Hillsborough, Burlingame, "prime" Menlo Park and Palo Alto, anything along the Peninsula west of 280 and east of Skyline, and "prime" Marin.

Flippertown (TM) already exists: it's just called either Las Vegas, Phoenix, or Miami.

I cannot dare say the name, but our pal Randy H. went through some hardship for pointing out the obvious in that scheme.

Here's a hint. If your life sucked, you know, your life just really blew... Then perhaps you'd want a Second chance where you could pretend your Life was that of FAB's, only with custom designed women and cars, all exhibiting cartoonish proportions.

Then perhaps you’d want a Second chance where you could pretend your Life was that of FAB’s, only with custom designed women and cars, all exhibiting cartoonish proportions.

Not obvious enough. I am dumb. Can you be more direct?

Ah, I see... my bad. So Second Life is the "other" implementation of Flippertownâ„¢ Mr. H was referring to.

Ok, I suspect VR might be enough for most younger tech-saavy Flippers, but what about older (Boomer & Silent Gen) flippers? My guess is they need something "real" that they can actually visit and touch to be satisfied.

In short, I believe there's a market for both types of Flippertownsâ„¢.

Peter P,

You would make a splendid cruel oriental despot.

Hey, why not make a virtual game of it, where you can use real cash to buy properties that don't really exist.

Uh oh, it looks like somebody already thought of it...

http://www.usatoday.com/tech/webguide/internetlife/2004-06-03-virtual-realty_x.htm