patrick.net

Troy says

klarek says

I hate to break it to you, but TPTB cannot stop housing prices from correcting

mortgage interest rates are about twice here what they are in Japan. There’s still some more fuel to throw at the fire.

and that's been working great for the japanese for 20 years now right? prices dropping every year...

japan is our future.

Lots of interesting discussion here, very relevant to my situation. I'm looking at 3.5% down on a $350,00 loan. I'm in the bay area (north bay). My interest rate is 4.3% (not locked yet - pre-approved). Household income before taxes is ~$105,000/yr.

I've submitted an offer on a foreclosed property, a bit of a lowball offer, and will see what they say.

I've been a little uneasy about the whole thing due to the uncertainty of the market and the fact that I can only put 3.5% down, and I'm still considering pulling out (and I'm pretty sure the bank won't accept my offer anyway, and will probably counter). I would love to put 20% down and side-step FHA, but for my situation, I either use FHA or continue renting. We are a family of 4. The house is amazing for the price compared to other properties I've looked at; and the neighboring house is smaller, on less land, and sold for more money.

I'm sure this will generate a myriad of opinions, but to you real estate veterans, is this something you'd stay away from, or do you think this is a good time to buy considering my situation?

Jimbob says

Lots of interesting discussion here, very relevant to my situation. I’m looking at 3.5% down on a $350,00 loan. I’m in the bay area (north bay). My interest rate is 4.3% (not locked yet - pre-approved). Household income before taxes is ~$105,000/yr.

Bay area with household income of $105,000 and without the 20% amount for downpayment.
Hedging on prices falling further(they should,bay area is soo overpriced) and saving up for downpayment would be the ideal choice.But the fear of being priced out of the market is always lurking.
With that household income and a loan of $350K,you are pushing yourself.

Jimbob says

and I’m still considering pulling out

Jimbob says

o you think this is a good time to buy considering my situation?

Jimbob says

I’ve been a little uneasy about the whole thing due to the uncertainty of the market

You just answered your own question. Stay away or jump in as your risk is only loosing 3.5% in case of walkout or default situation.

Rethug says

With that household income and a loan of $350K,you are pushing yourself.

At 8% rates this is true, the housing cost runs around ~$2500/mo.

But at 4.3%, the housing cost is ~$2000/mo.

ChrisLA says

you have a better option?

Why ? because they will throw you in the same bucket for the need for some new govt sponsered affordable housing programs including some 3% down payment assistance program. And we are back where we started.

Both wrongly believe the problem is strickly limited to bad lending and high foreclosure. Their only solution, is fix the lending and stop the foreclosure process at what ever cost.

Both didnt ever acknowledge that home prices are well above incomes and inflation, well into unsustainable bubble. Both still kling to the idea that past high home prices were somehow legitimate and will recover.

Options left ? vote the bubble enablers out of office.

Jimbob says

I’ve been a little uneasy about the whole thing due to the uncertainty of the market and the fact that I can only put 3.5% down, and I’m still considering pulling out

Look at what prices were before the bubble and factor in inflation from 1997 to today which comes to 35% over 1997 prices. The further you get to that price the safer you will be.
Over the long run prices only go up at rate of inflation.

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

So far Santa Rosa prices have corrected nicely so LOWBALL hard its your money and the seller ego.

http://www.dqnews.com/Charts/Monthly-Charts/SF-Chronicle-Charts/ZIPSFC.aspx

sybrib says

Do you think some folks are reluctant to purchase a home because they are not confident about their income (/job?).

Yes, some may postpone but that is part of the planning.

"Stay away or jump in as your risk is only loosing 3.5% in case of walkout or default situation."

No matter what he does he lost his 3.5% since it costs nearly double that to sell a house.

The real demand uptick has not even started. Wait until all the soldiers return from Iraq and Afghansitan and start buying houses with their ZERO down VA loans.

"and that’s been working great for the japanese for 20 years now right? prices dropping every year…

japan is our future."

No, not really. First, Japan had a much larger run up in prices. Second, their population is DECLINING. Ours is increasing.

Actually, US home prices also went up from 100 to 250, 1997-2006:

http://research.stlouisfed.org/fred2/graph/?g=zd

that graph has interest rates in red to show the price support rates are giving to the market.

Second, their population is DECLINING. Ours is increasing.

Increasing population is neither here nor there if there are no more jobs for anyone.

We are not necessarily Japan since there are many different factors -- our immense trade deficit with China, and the over $200B/yr of oil imports we have.

HousingWatcher says

“Stay away or jump in as your risk is only loosing 3.5% in case of walkout or default situation.”
No matter what he does he lost his 3.5% since it costs nearly double that to sell a house.

Loose 3.5% down and walk out. No selling no commission to loose.

Hey there:
I do not know the US tax rules, etc. well, but I presume that with very broke federal, state,and local governments, the tax credits that Troy needs to make buying at the given price/rent ratio marginally OK are at great risk. And that is before considering that the release of foreclosed inventory will put more downward pressure on prices AND rents. Finally, at some point bondholders will lose faith in the US, rates go up, etc... I know and like Bellingham, I used to ride my bike to there as a kid, Lake Whatcom, Fairhaven, Base Camp, and The Sandwich that Ate Cleveland. BUT $330k?? for an apartment of 800-1000 feet or so? meaning $300-$400 per square foot?? I just can't see it. I bought my house in a midsize town, nice view, for $100/foot in 2004. Not on the coast but not far. On the BC side of the border you can rent a full 3bd house for 1200-1400 in lots of places. My own house rents for 1500 for 2400 square feet in a town very much like Bellingham (university, full hospital, etc...). So, sorry Troy, but I would be extremely leery of paying that much per foot for any apartment...

Low house prices is not good for everyone.

Why should house price gets lower because you want to buy. There is always the other side of the trade, the current asset owners, they want the price higher.

People often talk about the old stats of Price-To-Income ratio. That ratio is looking backward, before the days of Internet. Why not look back even farther, the days when people had to pay all-cash to buy house?

So it goes like this:
1.Pony express, train, wired telegraph, telephone, Internet.
2.Royal family own land, rich peasant own real estate & pay all-cash, common middle-class buy with 50% down and mortgage, buy with 20% down, buy with 3% down.

barrister says

and that’s been working great for the japanese for 20 years now right? prices dropping every year…
japan is our future.

I hope you're being facetious -- things *have* been working out great for the Japanese for the past 20 years; particularly for the past 10 years, in which housing has either been flat or has declined at rates small enough that the money saved in not having to rent has more than made up for the small losses. Housing has returned to being the non-speculative, safe investment that it should have been all along.

Troy says

Rethug says

With that household income and a loan of $350K,you are pushing yourself.

At 8% rates this is true, the housing cost runs around ~$2500/mo.
But at 4.3%, the housing cost is ~$2000/mo.
“Nessuna soluzione . . . nessun problema!„

This is close -- we have to tag on an additional ~$300/month for private mortgage insurance because of the 3.5% down (FHA) until we get 20% equity in the house - then that payment goes away. If I buy, I'm not planning on going anywhere for at least 5 years...but most likely more than that.

The value may still drop, but do you think the drop will be significant? Or will it be a negligible amount? Do you believe it will it bounce back within 10 years or so?

I pay $1900 a month for rent now.

APOCALYPSEFUCK says

eat a Realtor!

Thanks for the delicious morning breakfast. :)

MoneySheep says

Why should house price gets lower

Why should it be expensive as hell? Why should the buyer work all his/her life for the RE cartel? Screw it. Cash only!

I have no idea what the market is going to do.

2-3% interest rates is another card the PTB can possibly play to support home prices and the existing stack of $10T of housing debt.

http://research.stlouisfed.org/fred2/series/HHMSDODNS

A 1970s-style wage-price spiral doesn't seem too likely to me . . .

The 1970s saw the participation rate from from 60% to 64%:

http://research.stlouisfed.org/fred2/series/USALFPRNA

which tells us the 1970s was actually a tightening labor market.

I do think we're in something of a Big Government Bubble now. All this money-pumping but unemployment is still higher now more than the worse of the 1970s:

http://research.stlouisfed.org/fred2/series/UNRATE

We're spending $5.3T on government now, that's $40,000 per household, plus another ~$6000 per household on social security payments.

Federal spending to GDP is very high now:

http://research.stlouisfed.org/fred2/graph/?g=zm

Raising taxes is deflationary to housing, and cutting state spending is deflationary to housing. Printing money is inflationary to commodities and thus deflationary to housing (since the Bay Area is a consumer not a producer of commodities).

Massively borrowing to pay for government might prove to be deflationary to housing too since it possibly puts upward pressure on interest rates, though with our $10T national debt we can no longer afford 5% treasury rates -- that would be a $500B/yr interest cost, $300B more than now.

Housing inflation can only come from rising real wages and/or lower monthly borrowing costs.

I kinda don't think even rising nominal wages will increase housing -- rising nominal but flat real wages just means people are getting wage increases to handle the rising cost of living -- energy, food, health care . . . if those costs keep going up I just don't see how the price of housing is going to get bid up too.

But the wildcard is the regional advantage of job distribution . . . if the Bay Area is the only regional job center, then people will pay proportionally more of their incomes to live here, since the alternative is starvation w/o a job.

If you can find a place you'd be happy to stay in for the next 10 years, I think buying now might work out fine. This is just going on a gut feeling rather than any understanding of present price dynamics.

The whole point about this thread is that with anything less than 20% down, the taxpayers become responsible for low down payment loans. FHA, Fannie and Freddie need to be disbanded and the federal government out of the mortgage guarantee business. If getting a mortgage is truly a business decision, then the borrower and the lender need to agree on terms and not have the ability to play with numbers and let the taxpayer eat any losses.
These programs are being abused daily by borrowers, builders, realtors and bankers and need to be reined in. Government (taxpayer) guarantees are total BS. These programs are designed to benefit the realestate companies, title companies, wallstreet and the bankers.
By offering people 3.5% down, they are offering a welfare program to buy homes. Most of these people should be renting.
After closing costs, they are completely underwater. With non-recourse loans, the taxpayers will be at substantially higher risks and this is not warranted. The new PMI programs are now government funded and backed by taxpayers. Non-recourse loans with less than 20% should not exist if the taxpayers are at risk. If a bank wants the risk, then let them have it.
As a taxpayer, I don't think I should back anyone's mortgage or any banks losses.
I know that the stock market will fall and the banks will suffer, but this is not our problem. Those that made the mistakes ought to pay for them..............

Disgusted Realtor says

By offering people 3.5% down, they are offering a welfare program to buy homes. Most of these people should be renting.

Landlords generally say that. This goes back a very long way, like back to "It's a Wonderful Life", where, if you remember, Mr Potter was trying to get George to stop making mortgage loans with easier terms to poor people so they would be forced into his Pottervilles.

Like I said, if we ran the landlords out of the SFH market out on a rail, I'd be willing to see the private market take over.

Until then, we need the government intervention to keep some semblance of a housing market for families and not all the specu-vestors buying up properties to wring easy money from people who actually have to work for a living.

The whole point about this thread is that with anything less than 20% down, the taxpayers become responsible for low down payment loans.

Only to the extent home prices decline from here. Plus low-down home buyers are required to pay 1.15% a year in PMI premiums, and also pay another 1.6% or more to principal, so as long as prices fall less than 3%/yr there is no systemic risk to "the taxpayers".

Prices aren't going to fall 20% immediately, so this insistence on 20% is just an artificial barrier to keep families from buying the homes that the parasitical real estate investors are scooping up now.

It is really quite disgusting, actually.

Troy says

Housing inflation can only come from rising real wages and/or lower monthly borrowing costs.

Very straight forward point that most bulls on this site don't get it and always confuse that inflation scenario will influence housing equally as all other goods and services. Without healthy rise in income of average Americans nothing can stop the slow bleeding(thanks to RE freaks pushing this on taxpayers).

MoneySheep says

Why should house price gets lower because you want to buy. There is always the other side of the trade, the current asset owners, they want the price higher.

Their concerns will be heard when the market is not overinflated. Right now, it's just echoes of the same delusional whining we've heard for years.

You're arguing against a cheaper cost of living for future homeowners. To you and all the bubble bait out there, your ability to profit from your bad purchase does not supersede the need for all others to have a quality standard of living.

klarek says

MoneySheep says

Why should house price gets lower because you want to buy. There is always the other side of the trade, the current asset owners, they want the price higher.

Their concerns will be heard when the market is not overinflated. Right now, it’s just echoes of the same delusional whining we’ve heard for years.

You’re arguing against a cheaper cost of living for future homeowners. To you and all the bubble bait out there, your ability to profit from your bad purchase does not supersede the need for all others to have a quality standard of living.

In agreement, ownership should not be rewarded.

Troy says

3.5% down is not a big deal. Every year the mortgage is paid, LTV goes down 1.6% or more — thus after only 3 years the buyer has another 5+% of “skin in the game” and has also paid 3.45% in monthly PMI, for an effective LTV of under 90% already, halfway to the magical 80% LTV of perfect safety.

How is that an "effective LTV" of under 90%? I get 8.19% equity after 3 years with 3.5% down, assuming value stays the same.

klarek says

You’re arguing against a cheaper cost of living for future homeowners. To you and all the bubble bait out there, your ability to profit from your bad purchase does not supersede the need for all others to have a quality standard of living.

Exactly, everyone would be better off with lower real estate prices. The only people who would be hurt would be those people who expected boom-time appreciation in order for their purchase to pencil out, all of whom are speculators who deserve to lose money.

Prudent people who didn't take out massive home equity loans would still make profits, albeit more modest ones, and anyone looking to buy a home would save money. It's win-win for responsible people.

"To you and all the bubble bait out there, your ability to profit from your bad purchase does not supersede the need for all others to have a quality standard of living."

There is no Constitutional right to a house or a "quality standard of living."

But if you do think everyone should have a house as a Constitutional right, there is always the Soviet Constitution:

Everyone shall have the right to a home. No one may be arbitrarily deprived of a home.

Low-income citizens and other citizens, defined by the law, who are in need of housing shall be housed free of charge or for affordable pay from government, municipal and other housing funds in conformity with the norms stipulated by the law.

APOCALYPSEFUCK says

That’s a good name.

Hehehehehehehehe!

Feel free to use it ad nauseum!

HousingWatcher says

There is no Constitutional right to a house or a “quality standard of living.”

Did I say "right"? No, I said "need". As in "I need not pay $4000 in mortgage payments per month for this piece of shit house that would have cost me $2000 a month less than a decade ago whilst household incomes have only gone up 30% during that same period of time".

So to those that are unhappy about the reality of falling housing prices, that's too bad. This was written in stone from the beginning. A reversion to the mean is unavoidable and it decreases the cost of living for a lot of people.

In my opinion 20% down would be a good thing- but would probably create a nasty side effect for a lot of current homeowners since requiring such payments means a significant lowering of prices- especially in overpriced areas like here in the Bay Area. But if allowed to be enacted this would mean that...

A: People would have more financial ties to their home. That means they're less likely to jump ship and move every few years. That leads to better residents and more stable neighborhoods.

B: Slower but steady home appreciation.

C: Home prices that are more in lock-step with wages.

That said- I am almost positive that this will never happen. I pay close attention to this type of thing and have saved up a large amount of cash because I can totally see some sort of legislation passing that would basically put the US back on track with the likes of Canada, New Zealand, and Australia where home prices would once again become inexplicably unaffordable. If I get a wiff of another inflating bubble we're packing bags, moving to Austin, and buy a house for cash.

E-man says

Rememer that your local government, schools, hospitals, fire department, police department and city hall, just to name a few, need your tax dollar. Lower home prices would mean lower property taxes and less revenue for them.

This is a bogus concern. Those same city departments did just fine when home prices were much lower. When property tax revenues went up, they increased their spending to match, instead of saving money for a rainy day. I don't have that much sympathy for that, especially when you consider the insane pensions and benefits that public sector employees receive.

Public sector employees usually get raises even during recessions. Cry me a river.

"Public sector employees usually get raises even during recessions."

Have you not paid attention to the hundreds of thousands of public employees who got laid off or furloughed over the past few years? Since Obama became president, we have lost over 400,000 government jobs.

"This is a bogus concern. Those same city departments did just fine when home prices were much lower."

They did fine because at the time people had JOBS and were paying income tax. Today they don't have jobs. So there goes the income tax revenue. And that revenue msut be made up, so cities are raising property taxes.

"When property tax revenues went up, they increased their spending to match, instead of saving money for a rainy day."

That's because they had no choice but to increase spending. First, there is Medicaid, which costs states billions of dollars and its costs only go up every year. Plus, we have a growing population so services must be increased to accomodate it. More cops. More teachers, etc. Plus there was a little thing called 9/11 that forced cities like NYC to spend billions in anti terrorism expenses.

"A reversion to the mean is unavoidable and it decreases the cost of living for a lot of people."

Not really. Whatever money you save in your mortage payment you will jsut pay in higher property taxes. Municipal budgets are horrible and are only going to get worse. It's gotten so bad in some areas that now states are having to take over towns and entire counties (see: Nassau County, NY and the new emergency financial manager law in Michigan). Sooner or later, the governor of your state could take over your town and raise property taxes 25% or more.

You're full of it Housing Watcher. I work for a large city government. Even after numerous audits, the waste is sinful.

My division used to have 255 employees. We currently do the exact same amount of work with only 185 employees and less overtime. Most other government entities are exactly the same.

If tax income falls, services will only decline a little bit...most def not in proportion.

E-man says

Rememer that your local government, schools, hospitals, fire department, police department and city hall, just to name a few, need your tax dollar. Lower home prices would mean lower property taxes and less revenue for them.

This is extremely deflationary for the local, state and overall economy. The best bet/hope is for home prices to stay stagnant for a long period of time.

Some of you don’t know what you’re asking for. Be careful what you wish for :)

Stop being so naive. Home prices have always tracked with household income. Property taxes track with home values. Had there never been a housing bubble, local govts would in fact have collected LESS TAX REVENUE.

God damn, get a clue.

corntrollio says

This is a bogus concern. Those same city departments did just fine when home prices were much lower. When property tax revenues went up, they increased their spending to match, instead of saving money for a rainy day. I don’t have that much sympathy for that, especially when you consider the insane pensions and benefits that public sector employees receive.

Public sector employees usually get raises even during recessions. Cry me a river.

This. Like homeowners during the bubble, tax collectors enjoyed substantially higher returns than they ought to have had. If they saved the money, which most didn't, then they'll actually have scored from the event and are entitled to all the revenue they collected. If they pissed the money away and are now raising the taxed $/value multiples to cover their "losses", then their local constituents need to hold them accountable for their bad budget management (much like somebody extracting all their equity, spending it, and not having a plan for paying off their mortgage or heloc).

So these concerns about property tax revenues can be filed in the "don't give a fuck" folder.

HousingWatcher says

They did fine because at the time people had JOBS and were paying income tax. Today they don’t have jobs. So there goes the income tax revenue. And that revenue msut be made up, so cities are raising property taxes.

I think you need to take an econ or public finance course. Local municipalities for the most part make their money from RE and sales taxes, NOT from income tax.

HousingWatcher says

That’s because they had no choice but to increase spending.

That's b.s. When a city or county increases spending by 50% over just six years due to nothing more than a flood of revenue from overvalued housing, with no plan for cutting it's budget to match a reversion of home values (and revenue), that's utterly irresponsible.

HousingWatcher says

That’s because they had no choice but to increase spending. First, there is Medicaid, which costs states billions of dollars and its costs only go up every year. Plus, we have a growing population so services must be increased to accomodate it. More cops. More teachers, etc. Plus there was a little thing called 9/11 that forced cities like NYC to spend billions in anti terrorism expenses.

Not true. Municipal budgets went up more in the last several years than warranted due to either GDP per head or inflation. 9/11 had nothing to do with it and is just a red herring you're throwing out there.

E-man says

Rememer that your local government, schools, hospitals, fire department, police department and city hall, just to name a few, need your tax dollar. Be careful what you wish for.

Yeah I am wishing for pension != salary and free health care for life for them while my SS is on the line. They are most inefficient bunch on the planet.

"Local municipalities for the most part make their money from RE and sales taxes, NOT from income tax."

Wanna bet? Come to NYC. The city has their own income tax that you pay IN ADDITION to the state and federal income tax.

Plus, when fewer people have jobs and cut back on their spending, what do you think happens to the amout of revenue that the sales tax brings in?

HousingWatcher says

Wanna bet? Come to NYC. The city has their own income tax that you pay IN ADDITION to the state and federal income tax.

Yeah, and banksters are making record profits, so city coffers should be doing quite well.

Municipal revenue is also slightly different in California because of Prop 13. Property tax revenue is quite low, so municipalities are much more dependent on sales taxes and grants from the state (which is broke).

But none of that negates the fact that state and local governments have increased budgets by amounts not warranted by GDP per head or inflation in recent years instead of making rainy day funds. The bubble made them flush with cash, and they spent it. They are exactly like overleveraged homeowners, as someone said. Now it's time to short-sell them.