patrick.net

Too good to be true (not to mention that it's been discussed forever). Theoretically, price normalization in Santa Clara and western Contra Costa counties (think Orinda/Lafayette for example or any sufficiently white zip in Silicon Valley) would be tremendously good news but the government will probably intervene again.

Let's just hope that Patrick's dream of a 500K house in SV will materialize one day although I am very hesitant to expect a return to market economy any time soon.

"Let’s just hope that Patrick’s dream of a 500K house in SV will materialize one day although I am very hesitant to expect a return to market economy any time soon.?

500K would be 25-30% overpriced in todays market. I expect home prices to be flat for a very long time.
Expect 300-350K to be more realistic. And that would be 3x incomes in best of areas.

Yes, even the "bargain" price of $500K is overpriced compared to current rents for the same thing.

Fast forward another 5 to 7 years and prices will be in back to reality. Is it worth waiting that long or buy now with 100K more loan and wait that long and take a 100K discount on the loan then. This math is always sensitive issue.

This is really interesting:

“Earlier this week, Ben S. Bernanke, the Federal Reserve chairman, proclaimed that the country was emerging from its protracted recession, and doubtlessly, California is showing its own signs of recovery. In Southern California, the center of the housing bust, home sales rose 11 percent in August from a year earlier, and prices have begun to tick up as well. In addition, the state’s exports are once again growing as international economics, particularly in Asia, have begun to recover and create demand for goods, and layoffs have slowed statewide.

“‘Any economist would tell you we’re in a recovery,’ Mr. Levy said. ‘Job losses are lessening, the G.D.P. is rising, the housing market is stabilizing, and have you looked at the stock market lately? But the unemployment rate is the thing families care about. They don’t care about G.D.P. or China coming back; they care about jobs.’”

5 year arms today are at 3.5 % and most people i know have switched to the new rates ..else if homeowner cannot refi,it will reset to current 1 year ARM rate which is even lower than 3.5%

I am not sure how the ARM reset is negative ( atleast for now)

hfesj, It's not the reset (at this point) that kills you, it's the RECAST to a fully amortizing loan. This will happen if you are paying less than the interest on the loan and negative amortization eventually causes the loan to hit a cap (for some loans, 110% of the initial loan amount).
Fitch said that new payments average 63 percent higher than the minimum payments, but could be more than double in some cases.

Unfortunately we do not have meaningful statistics (by zip at least; preferably by occupant profession, age and family income), do we? hfesj could be right in that in the kind of places we would like to live there will be very few foreclosures, ARMs or not.

As everyone living here knows both Santa Clara and Contra Costa counties have DRASTICALLY different towns and so RE is very local. Averaging by county probably makes some macroeconomic sense (and nice article titles ;) ) but I see no way to use such statistics by mere mortals.

In a sense, the artificial interest rate and FHA-style wealth redistribution (and, arguably, the entire concept of mortgages with less than 50% down-payment) are the root of all evil and none of them is likely to be eliminated in the foreseeable future. So who knows what is waiting for us "5 to 7 years" ahead and personally I am extremely uncomfortable with the idea of trying to save my down-payment from inflation for so long.

Shy?

EBGuy says

hfesj, It’s not the reset (at this point) that kills you, it’s the RECAST to a fully amortizing loan. This will happen if you are paying less than the interest on the loan and negative amortization eventually causes the loan to hit a cap (for some loans, 110% of the initial loan amount).
Fitch said that new payments average 63 percent higher than the minimum payments, but could be more than double in some cases.

At this point i can only see the negative effect on -ve amortized loans. i am not sure how much does the -ve amortized loans constituet as % of total loans.My guess is that its a small number localized to some bad nieghbourhoods or highly speculative areas. I would see a broad correction if the ARM's reset to higher interest rate which Govt is hell bent on not allowing.
Govt is on a mission to inflate the housing prices by low very long (30 years fixed) rates.