I’m trying to find out how I’m trying to find out how bearish our community is for the next 12 months with respect to Detached homes prices(SD County).
I didn’t vote because San I didn’t vote because San Diego county is so diverse as is the housing stock.
IMO what happens in the lower end market is COMPLETELY disconnected from what happens in the upper end.
Pulling definitions out of my butt here – but here’s my predictions.
Lower end detached – defined as below $350k:
– flat to slight increase. 2-5% increase.
Mid Range detached – defined as $350k-800k. Flat to slight decline. 0 to -2$ decrease.
Upper Range – above 800k: slight to moderate decline – 2-5% decrease.
60 year old 1200 sf homes in Linda Vista have already taken a hit. 10 year old 2500sf houses in Carmel Valley are still hurting but doing better than the 3000sf 5 year old houses – built at the peak – in 4S.
Some older neighborhoods will hold their value regardless (Mission Hills, Kensington, Hillcrest) because of location, architecture, neighborhood appeal. West of the 5 (coastal) will hold it’s value better than east county areas like Santee and Lakeside. But Santee and Lakeside have already taken some hits. So I’m not sure how much further the older (10 years or more) houses will decline. Newer tracts – built 2005 or later are still coming down.
Your poll doesn’t address geography or price tiers.
permabear
November 10, 2010 @
8:53 AM
I think the single most I think the single most important graph to understand is this one:
This shows the employment ratio vs population. It is a much better gauge of employment than weekly jobless claims.
What it says is we’re headed back towards the days of single-earner households. When viewed this way, the fact that we’re hitting early 2000 prices – at the peak of being a dual-earner society – is not that impressive. It means homes are still too expensive for the average household.
This is a major secular change, and my opinion is that families will slowly come to grips that they only have one income to rely on, make adjustments, and find out it’s not that bad for the family and stress having one parent at home. I think 2011 will be the year that people remember that $1M is actually a lot of money.
sdcellar
November 10, 2010 @
10:44 AM
My vote has already become My vote has already become clouded by the fact that I’m in escrow. Now, I can’t say for sure if I’m choosing what I believe will happen or simply what I’m hoping for.
I chose down 2-5%, mostly because I can live with that. I *think* I also believe things have stabilized and any further decline to the downside is limited, so would have voted similarly were I not entering the land of home-debtorship. How, exactly, do I know that I’m not just deluding myself?
waiting hawk
November 10, 2010 @
1:50 PM
[quote=sdcellar]My vote has [quote=sdcellar]My vote has already become clouded by the fact that I’m in escrow. quote]
The bear doesnt leave you lol. I told Sheldon, “I hope i’m at least 80% ltv (i needed apprais to come in at 354k). I had my doubts but then it came in at 517k. They even had to send it to review cause it looked funny that I bought it 9 months prior. Really I think its worth 450 though. Im still really bearish.
CA renter
November 11, 2010 @
12:33 AM
permabear wrote:I think the [quote=permabear]I think the single most important graph to understand is this one:
This shows the employment ratio vs population. It is a much better gauge of employment than weekly jobless claims.
What it says is we’re headed back towards the days of single-earner households. When viewed this way, the fact that we’re hitting early 2000 prices – at the peak of being a dual-earner society – is not that impressive. It means homes are still too expensive for the average household.
This is a major secular change, and my opinion is that families will slowly come to grips that they only have one income to rely on, make adjustments, and find out it’s not that bad for the family and stress having one parent at home. I think 2011 will be the year that people remember that $1M is actually a lot of money.[/quote]
Agree with you, permabear, and don’t think it’s a bad thing at all.
jameswenn
November 11, 2010 @
10:12 AM
We’re going down until prices We’re going down until prices align closer with income.
SD Transplant
November 11, 2010 @
11:43 AM
From CNNMoney shows that the From CNNMoney shows that the Home Sales Numbers plunged 25%
UCGal wrote:I didn’t vote [quote=UCGal]I didn’t vote because San Diego county is so diverse as is the housing stock.
-snip-
Your poll doesn’t address geography or price tiers.[/quote]
Great work, UCGal! I voted stagnant and the WHOLE of your post (assuming there’s as much high-end value as low-end value in the county, which I think there is) indicates stagant (a wash).
Taking out the mid-range, there are many more low-end detached homes in SD County than high-end detached homes, but their aggregate values probably equal the same.
That’s my “unscientific” view.
Coronita
November 10, 2010 @
1:21 PM
Where’s the i don’t know Where’s the i don’t know selection… Mark me down for that one.
Anonymous
November 12, 2010 @
7:17 AM
The next 12 months will be The next 12 months will be down slightly. However, as a renter considering buying, I’m more concerned with the next 10 years.
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
Payments will increase without the property appreciating. You have to factor in the cost of money into the properties ability to appreciate.
I’m starting to become concerned we may follow the lost decade in Japan.
SD Transplant
November 12, 2010 @
7:56 AM
Finally, I see the UT jumping Finally, I see the UT jumping on the reality band wagon vis-a-vis RE.
Home prices facing a ‘double dip’
They’re up from last year, but heading downward, Zillow and Realtors report
San Diego County, as well as the rest of California, may be experiencing a double dip in home prices, in spite of homebuyer tax credits and low interest rates intended to boost the housing market out of its five-year slide, new reports showed Thursday.
The National Association of Realtors ranked San Diego as 50th best market out of 155 in terms of home-price appreciation in the third quarter, compared with the same period last year. No. 1 was Burlington, Vt., up 17.6 percent to $286,300.
But the group also reported a downturn for San Diego from the second to the third quarter in terms of median prices.
Zillow.com picked up the same trend, based on estimated home values after excluding foreclosures. The Seattle-based company said San Diego as well as four other California markets, were the only ones nationally that posted price declines in the third quarter after five quarters of an increase.
Zillow chief economist Stan Humphries said the turnaround may reflect the fact that the state had offered homebuyer credits on top of those at the federal level and thus pulled in more buyers who sped up their purchasing decisions. Now demand is down, even as inventories rise.
“It certainly is worrisome, but I don’t know how worrisome because we have not had a look at the true demand, post-tax credit,” Humphries said. “ We won’t see that until we enter the new year. But it has affected our forecast. We had been on a nice trend to get to the bottom nationally by the end of the year. The earliest we can foresee it nationally would be the first half of next year.”
He said no further government stimulation programs should be tried for housing.
“They were incredibly expensive and ill targeted,” he said. “Most people who took advantage were going to buy anyway. It gets tack to the core fundamentals of the economy. We’ve got to grow jobs faster.”
Keeping interest rates low — they hit a modern historic low of 4.17 percent Thursday in Freddie Mac’s weekly survey — will help, he acknowledged, but “exotic” boosts would resemble building sand castles when the tide is rolling in.
“You can hold it back a little bit, but it will take a large force to find equilibrium,” he said.
A double-dip locally would occur if the San Diego home values reverse course from their 6 percent increase off the bottom and fall below the previous trough. Zillow figures San Diego values are now 31.1 percent off their peak.
Humphries, as well as other economists, have been forecasting a 5 percent decline through the end of this year and perhaps into next year.
“You could quite possibly retest the trough levels – that’s not entirely clear,” Humphries said. “We have such an unclear picture of demand and a very clear picture of supply.”
He said 2011 is likely to outperform 2010 in sales and prices. But he said the patient isn’t leaving his hospital bed anytime soon:
“The patient is in a weakened condition. He had been stabilizing quite nicely. But stabilization is on pause, and we’re going to have to see where that goes from here – whether it means further deterioration or just a blip and we start to stabilize more.”
Zillow’s figures for San Diego in the third quarter showed an overall home value of $370,600, up 4.2 percent year-over-year but a .7 percent decline from the second to the third quarter and 0.3 percent decline from August to September.
Nationally, home values declined 4.3 percent year-over-year and 1.2 percent quarter-over-quarter. They have declined 17 consecutive quarters and are now down 25 percent from their 2006 peak.
That’s nearly as much as the 25.9 percent decline between 1929 and 1933 that housing economist Robert J. Shiller, coauthor of the Standard & Poor’s/Case-Shiller Home Price Index, worked out.
Humphries said the two housing trends are roughly comparable in methodology.
Zillow also said 23.2 percent of single-family homeowners nationally owe more than their homes are worth; Las Vegas has the worst “underwater” market, where 80.2 percent of owners are stuck with negative equity, followed by Phoenix at 68.4 percent.
In San Diego, the negative equity was estimated at 19.6 percent, lowest among the 25 markets surveyed by Zillow. The lowest was 6.3 percent in Pittsburgh, followed by Boston, 9.5 percent; Philadelphia, 14.2 percent; and Los Angeles, 17.4 percent.
(former)FormerSanDiegan
November 12, 2010 @
8:01 AM
whiteout wrote:
How does real [quote=whiteout]
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%.
I couldn’t quickly find a source for existing homes, but here are the numbers for new home median prices.
Median new home price in 1966: $21,700
Median new home price in 1981: $82,800
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?
Anonymous
November 12, 2010 @
8:35 AM
There’s been too much There’s been too much emphasis on a speedy recovery, which may be shortsighted. Just when we think there’s been a sustainable recovery, and everyone forgets about home prices, inflation will arrive and interest rates will rise, leading to a more serious second dip further down the line.
bearishgurl
November 12, 2010 @
9:03 AM
FormerSanDiegan [quote=FormerSanDiegan][quote=whiteout]How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%. . . [/quote]
FSD, if I can remember correctly, the FHA rate was about 15.5% until sometime in 1983.
CA renter
November 12, 2010 @
1:51 PM
FormerSanDiegan [quote=FormerSanDiegan][quote=whiteout]
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%.
I couldn’t quickly find a source for existing homes, but here are the numbers for new home median prices.
Median new home price in 1966: $21,700
Median new home price in 1981: $82,800
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?[/quote]
Firstly, the Case-Shiller chart doesn’t agree with those numbers, so I’m not sure which numbers are closest to reality. OTOH, even if they are correct, there are some other factors that come into play:
1. Baby Boomers (the wealthiest and largest cohort in U.S. history) were beginning to make their purchases during the late 60s through the early part of this decade.
2. People in the decades following WWII generally had more stable jobs (“jobs for life”), and employer-paid healthcare, along with defined-benefit pension plans, making a 30-year commitment much more reasonable. Workers have allowed those benefits to be decimated over the past few decades, and people now have to move every few years in order to maintain their wages and benfits (IF they’re lucky enough to do that). We need to allocate more money toward savings, rather than housing, because of the volatility of today’s labor market.
3. Wages were going up in the post-war period, and the purchasing power of the dollar was stable or gaining strength. That is no longer the case.
4. Household debt was at much lower levels during that time, and even if prices were rising, the debt-to-income levels were much lower than they are now.
5. In the post-war period, we had already experienced our cleansing (during the Great Depresssion), and were working our way up from a bottom.
Conversely, we are now at very, very lofty levels, and haven’t had a good cleansing since the Depression. We are, IMHO, at the pinnacle, and on our way down from here, possibly for an extended period of time.
We are now near the peak of a decades-long period of tremendous credit expansion at every level. It’s difficult to fathom much upward pressure from here. People are tapped out, and their wages cannot support the bloated prices and debt that is currently overwhelming them.
temeculaguy
November 12, 2010 @
2:51 PM
I’ll take UCgal’s point a I’ll take UCgal’s point a little further. At some point in time, houses will rise in value. Maybe next year, maybe 10 years from now, that isn’t entirely relevent. Inflation will return, it’s been kept in a dark room for a few years but it’s being fed well, when it is let of that room, it’s gonna be big and angry. Inflationary future pressures aside, here is why there is no way to answer the poll question as presented.
The decline has not been equal in terms of percentage in the different price tiers or areas. But the rise wasn’t entirely equal during the boom. If you went back to the beginning of the last cycle, let’s say the late 1990’s, you can find where the inequities are. This is the only way to find the undervalued and overvalued tiers and areas.
So the answer is more of a question when you look at a particular house, some houses will go up, some will go down and some will stay flat, all at the same time. If something held it’s value during the downturn, then it has less room to increase during the next uptick, but then again how much did it inflate during the boom compared to other houses. If you took two houses in different tiers and different areas and compared their value in relationship to each other for the last 20 years, then it’s easier to predict the future and their current potential value. A hypothetical would be a condo in el cajon vs a sfr in la jolla. I do not know their current or past values, this is hypothetical for the purpose of my argument.
If the lajolla house has historically been 400% more than the el cajon condo and now it is 600% more, one of two things will happen, the La Jolla house will fall in price while the El Cajon will remain stable, or the La Jolla house will stay flat, while the El Cajon condo rises. If the current values vs historical value is the opposite, then the opposite will occur.
There has been a great deal of radical price movement in the last 5 years, almost unprecedented in a commodity that traditionally moves very slowly. It will take a little time to even out, but it will even out.
So my answer to the poll…… all of the above
sobmaz
November 13, 2010 @
3:21 PM
FormerSanDiegan [quote=FormerSanDiegan][quote=whiteout]
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%.
I couldn’t quickly find a source for existing homes, but here are the numbers for new home median prices.
Median new home price in 1966: $21,700
Median new home price in 1981: $82,800
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?[/quote]
Oh come on……What about the inflation during that period?
In REAL TERMS it did not increase that much. Also, if you do a little research during that period the average home size skyrocketed, so, what did they get for that price?
permabear
November 14, 2010 @
1:34 PM
sobmaz wrote:
Oh come [quote=sobmaz]
Oh come on……What about the inflation during that period?
In REAL TERMS it did not increase that much. Also, if you do a little research during that period the average home size skyrocketed, so, what did they get for that price?[/quote]
What cost $21700 in 1966 would cost $60901.79 in 1981.
$82,800 / $60901.79 = 35.9% premium
SD Realtor
November 14, 2010 @
7:13 PM
I think we stay flat to down I think we stay flat to down a bit towards the end of the year. I think a little spring bounce will come but it will not be as pronounced as the 2009 bounce. All this is based on an assumption of no funny business by the govt. Also agreed with UCGAL about the points made for the diversity of the county. Employment in San Diego actually seems much better then many other places around the nation and that will support many of the areas I focus on.
fun4vnay2
November 14, 2010 @
8:41 PM
With the current state of With the current state of economy and the unemployment rate, I don’t see the prices to be going up.
It has got nowhere to go but down.
Sanity would gradually take over insanity.
Also, QCOM is probably shutting down one business division which is a public news
SD Transplant
November 16, 2010 @
7:21 AM
From the UT
San Diego housing From the UT
San Diego housing faces 8.5% price reduction
Fiserv sees double-dip from 2nd quarter data; upturn not likely until 2012
San Diego County single-family-home prices are facing an 8.5 percent fall over the next year now that buyers no longer have access to state and federal tax credits, Fiserv economists predicted Monday.
Fiserv, which provides the data for the widely watched Standard & Poor’s/Case-Shiller Home Price Index, said San Diego prices rose 11.6 percent from the second quarter of 2009 to the second quarter this year. But a double-dip is now in the works for various reasons.
That decline would place San Diego as the 40th worst housing market out of 384 studied. No. 1 biggest depreciation market is the Punta Gorda area of Florida, forecasted to drop 28.1 percent from its second quarter price of $135,000. The highest appreciating market is the Kennewick-Pasco-Richland area of Washington state, up 1.8 percent from $177,000 over the same period.
“Factors weighing on the housing market include chronic high unemployment, the expiration of the homebuyer tax credit that expired in June and the large number of distressed properties that remain in markets, such as Florida, Arizona and Nevada,” the company said.
Increased sales in high-priced areas, such as San Francisco and Washington, as well as San Diego, helped push national prices up 3.6 percent in the 12 months ended June 30.
“Some of the largest declines in prices will occur in markets that had strong spring and summer 2010 price increases,” said David Stiff, Fiserv chief economist. “This is because the homebuyer tax credit delayed the correction in home prices that is necessary to return housing affordability to pre-bubble levels.”
He said San Diego and the other markets that had upturns will “experience double-dip price declines.”
“If there are no downside surprises for the economy or the housing and mortgage markets, home prices should start to stabilize at the end of 2011,” he said.
Nationally, Fiserv expects prices to fall another 7.1 percent, from $177,000 in the second quarter of this year to $164,400 by the second quarter of next year. San Diego’s prices are projected to fall from $390,000 to $356,850 over the same period.
By the second quarter of 2012, Fiserv predicts San Diego prices will be up .8 percent year-over-year to about $359,700.
Fiserv bases its prices on paired sales of same single-family-resale homes over time on a three-month rolling average.
S&P predicts more home price declines through 2011
Standard & Poor’s analysts believe home prices will drop between 7% and 10% through 2011, erasing any improvements prices have recently made.
Home sales, which plummeted after the homebuyer tax credit expired in April have continued to lag. Pending home sales, which preclude existing home sale data, dipped 1.8% in September before the market goes into a winter many expect to be bleaker than usual. With this lack of demand, inventories should grow, according to S&P, while prices drop.
“Low mortgage rates will likely continue to encourage refinancing, but their influence on home buying activities has been limited due to the weak housing market and a lack of demand,” S&P credit analyst Erkan Erturk said.
According to the S&P/Case-Shiller Home Price Index, prices did increase 1.7% from a year ago in the 20-city index and 2.6% in the 10-city index. But in August alone, those indices fell 0.2% and 0.1% respectively. Home prices declined in 15 of the 20 metro areas.
Fiserv, a financial services technology provider, said Monday in its analysis that home prices would drop another 7% before stabilizing at the end of 2011.
Prices will continue to be pressed down as long as the market works through a backlog of distressed properties that remains elevated. Recent foreclosure moratoriums from major lenders because of documentation problems have only delayed this work, Erturk said
(former)FormerSanDiegan
November 16, 2010 @
7:37 AM
sobmaz wrote:FormerSanDiegan [quote=sobmaz][quote=FormerSanDiegan][quote=whiteout]
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%.
I couldn’t quickly find a source for existing homes, but here are the numbers for new home median prices.
Median new home price in 1966: $21,700
Median new home price in 1981: $82,800
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?[/quote]
Oh come on……What about the inflation during that period?
In REAL TERMS it did not increase that much. Also, if you do a little research during that period the average home size skyrocketed, so, what did they get for that price?[/quote]
EXACTLY my point. whiteout stated that when interest rates rise house prices will fall. This appears logical on the surface from the perspective of increase in monhtly payments and affordability. What is obviously missing in that perspective is an understanding of other elements of the economy that are correlated with higher interest rates, namely inflation.
Interst rates have declined precipitously since 2006, wjhile home prices also fell. In periods of increasing rates (late 1960’s to early 1980’s) prices increased. The fallacy of an inverse relationship between home prices and interest rates persists, despite the dearth of historical evidence.
jstoesz
November 16, 2010 @
10:38 AM
The question is will wages The question is will wages and employment go up to match inflation? Or will there just be a compression on margins with higher input costs but deflating output prices. In other words, will this just make more companies go bankrupt.
The economy, as we all know, does not operate in a vacuum. So higher interest rates could be in response to high employment, or just a fear of an expanding money supply/higher velocity of money…
In the past, higher interest has come with higher wages, but I tend to think this is correlated, not causative.
CA renter
November 16, 2010 @
5:10 PM
jstoesz wrote:The question is [quote=jstoesz]The question is will wages and employment go up to match inflation? Or will there just be a compression on margins with higher input costs but deflating output prices. In other words, will this just make more companies go bankrupt.
The economy, as we all know, does not operate in a vacuum. So higher interest rates could be in response to high employment, or just a fear of an expanding money supply/higher velocity of money…
In the past, higher interest has come with higher wages, but I tend to think this is correlated, not causative.[/quote]
Agree. If high interest rates weren’t going to affect housing prices (as well as other asset prices), then the Fed wouldn’t be throwing trillions of dollars at the bond market in an attempt to keep interest rates low.
It’s pretty obvious that higher interest rates will force prices down, since we are maxed out on DTI ratios.
(former)FormerSanDiegan
November 17, 2010 @
7:30 AM
CA renter wrote:
It’s pretty [quote=CA renter]
It’s pretty obvious that higher interest rates will force prices down, since we are maxed out on DTI ratios.[/quote]
We are not maxed out on DTI ratios.
In San Diego we are near generational lows in DTI ratios, per Rich’s graph.
It doesn’t matter if it is affordable when everyone is so in debt they can’t take on another red dollar.
jstoesz
November 17, 2010 @
8:01 AM
Does anyone know what exactly Does anyone know what exactly comprises that curve?
I am assuming it is the 30yr fixed payment on the median home price divided by the median wage amount. Or is it the median payment SD families are currently paying divided by their median income?
(former)FormerSanDiegan
November 17, 2010 @
9:46 AM
jstoesz wrote:DTI (DEBT to [quote=jstoesz]DTI (DEBT to INCOME) has nothing to do with affordability and everything to do with DEBT to INCOME.
I don’t understand, are you I don’t understand, are you disagreeing with me or nitpicking that I left off the word payment?
How is the “affordability” curve created?
How is the monthly mortgage/tax payment calculated?
(former)FormerSanDiegan
November 17, 2010 @
10:43 AM
jstoesz wrote:I don’t [quote=jstoesz]I don’t understand, are you disagreeing with me or nitpicking that I left off the word payment?
[/quote]
1. Neither, just providing the deifinition for clarity.
[quote=jstoesz]
How is the “affordability” curve created?
[/quote]
2. I think Rich uses Excel.
[quote=jstoesz]
How is the monthly mortgage/tax payment calculated
[/quote]
3. Ask Rich
jstoesz
November 17, 2010 @
10:58 AM
So if you do not know how the So if you do not know how the monthly mortgage/tax payment is calculated, why are you using it to support your point that we are not maxed out on DTI levels.
It seems to me that it is likely a completely unrelated trend to the current SDer’s median DTI.
(former)FormerSanDiegan
November 17, 2010 @
1:15 PM
jstoesz wrote:So if you do [quote=jstoesz]So if you do not know how the monthly mortgage/tax payment is calculated, why are you using it to support your point that we are not maxed out on DTI levels.
It seems to me that it is likely a completely unrelated trend to the current SDer’s median DTI.[/quote]
Rich explained it here 3 or more years ago. I was satisfied with it then. I’m too lazy to look it up now.
Based on the labels on the chart and my memory he is computing the payment according to an 80% LTV mortgage at prevailing rates for a median priced single-family home (in SD) and dividing it by annual per capita income (in SD).
(former)FormerSanDiegan
November 17, 2010 @
1:25 PM
SD detached housing is currently getting MORE affordable to buy due to a lower debt-to-income ratio of the “household” to PITI. But this *new* lowered ratio is based upon the aggregate of the per-capita income within a household, not only W-2 income, but investment income, pensions, SS, teenage/college-age jobs. It’s also based upon mortgage rates currently being the lowest in history.
It’s not uncommon at all for EVERYONE in a household with income to contribute to the operation and living expenses of a 4-6 bdrm home where perhaps 1-2 family members furnished the downpayment for and another 1-2 family members qualified for the mortgage. Rich’s chart is based upon the aggregate of total household income.
Yes, only 1-2 individuals in the household signed the mortgage note and are legally responsible for it. But that doesn’t stop them from collecting “rent,” utilities or food money from the other individuals in the household (aged 16-100) who have income.
If you are trying to “prove” the DTI ratios are typically higher in CA than other states, this may be true if you just use the income of the “wage-earner” borrowers alone. Many long-time “Californians” are savvy with their money and visit 99-cent stores, day old bread stores, etc and barter home and auto repair services with friends and family members.
A “grandma” left at home all day can clip coupons, check the sales and then visit 7 local stores/farmers markets in 3 hours and come home with $500 of groceries (Von’s or Ralph’s price) for $180. Believe me, they ALL know how to do this! This “family-pooling arrangement,” has all been going on LONG before the recent RE bubble and loose lending allowed owners to HELOC the h@ll out of their properties. Even though a lot of families fell prey to consumerism and HELOCs, a LOT DIDN’T and are still “standing,” currently owing $75K to $200K on large family homes!
How REAL people LIVE day-to-day is not really a newsworthy item. All the salacious articles and stories are about unemployed manicured “youngish” matrons driving $60K SUV’s and complaining that that it’s “not fair” that they can’t get a mortgage modification and are losing their homes.
I still maintain that homeowners in CA, for the most part, consume LESS than homeowners in other states, because they don’t have the discretionary income at their disposal to do so (as do other states with less expensive residential RE). At least this was true PRIOR to the “HELOC years.”
And btw, the act of taking out excessive “HELOCs” and “cash-out refis” was prevalent ALL OVER THE NATION in the “loose-lending era,” not just in CA.
jstoesz
November 17, 2010 @
2:36 PM
What I am getting at, What I am getting at, Bearishgurl, is something rather straight forward. The affordability of homes has little to do with the San Diego populace’s ability to take on more debt. The curve only looks at median income, median home price, taxes, and interest. It does not look at the overall health of the SD populace’s overall balance sheet (debt to income). There is no mention of debt payments people are currently making…only debt payments new suckers could/will be paying if they buy a home. In addition it leaves off all of the other consumer debt that has been growing steadily until its recent deleveraging point. I am not trying to get into anecdote wars about how some people scrape by here. I am sure many do, and I don’t really care. I was just trying to put the affordability curve in its proper place. It is the hypothetical cost of taking on new home debt in relation to years past. It says nothing about people’s current debt level and their ability to take on more.
FSD used this curve to refute what CAR was saying regarding the full up nature of our DTI levels. The curve was improperly applied to the argument.
bearishgurl
November 17, 2010 @
5:00 PM
jstoesz wrote:What I am [quote=jstoesz]What I am getting at, Bearishgurl, is something rather straight forward. The affordability of homes has little to do with the San Diego populace’s ability to take on more debt. The curve only looks at median income, median home price, taxes, and interest. It does not look at the overall health of the SD populace’s overall balance sheet (debt to income). There is no mention of debt payments people are currently making…only debt payments new suckers could/will be paying if they buy a home. In addition it leaves off all of the other consumer debt that has been growing steadily until its recent deleveraging point. . . FSD used this curve to refute what CAR was saying regarding the full up nature of our DTI levels. The curve was improperly applied to the argument.[/quote]
jstoesz, the “curve” you speak of “is as it is” because under Fannie/Freddie “guidelines,” which have been in place since the eighties, the ONLY consumer debts that are taken into account in a mortgage loan application are those which will be outstanding 10+ months AFTER closing. For instance, if you owe $10K in CC debt and can show your loan officer that you have been making $500 per month towards it in the last year in attempt to retire it and have NOT used the card during that time, then the $500 will be used in your back-end ratio (maybe more). If your vehicle payments are $500 per month, this will be used in your back end ratio (if you still owe at least 10 months of payments on it).
So your front end ratio is comprised of PITI and HOA (if appllc) and your back-end ratio is comprised of PITI, HOA + all consumer/student loan monthly debt payment which has more than 10 payments left.
The VA loan underwriters, I believe, ALSO use in their back-end ratios prospective gas and electric bills and a portion of child care cost while the parent(s) work.
Hence FF (front and back end) ratios are about 28/36 or 30/38 (for exc credit) and VA ratios are about 33/41. “Portfolio” lenders (who do NOT sell the mortgages in the secondary market) may use ratios of 42/50 depending on credit but I can’t imagine that any of these loans are made anymore except to borrowers with =>800 FICO
scores.
The FF and VA rules apply in every state. In other words, the DTI ratios are uniformly the same everywhere. The “curve” you speak of here is “about” San Diego (because that’s what we study here at Pigg) but it could apply anywhere, just by changing the median house prices and incomes.
For that matter, the “curve” has little to do with whether a family in Plano, TX (where everything is “super-sized” … lol) can take on any more debt! A mortgage lender can’t babysit what a borrower does with his $$ before application or after the loan closes. All they can do is deny the loan or foreclose the property for non-payment.
Any Piggs in the lending biz please correct me if I’m wrong on any of this.
CA renter
November 19, 2010 @
12:35 AM
bearishgurl wrote:jstoesz [quote=bearishgurl][quote=jstoesz]What I am getting at, Bearishgurl, is something rather straight forward. The affordability of homes has little to do with the San Diego populace’s ability to take on more debt. The curve only looks at median income, median home price, taxes, and interest. It does not look at the overall health of the SD populace’s overall balance sheet (debt to income). There is no mention of debt payments people are currently making…only debt payments new suckers could/will be paying if they buy a home. In addition it leaves off all of the other consumer debt that has been growing steadily until its recent deleveraging point. . . FSD used this curve to refute what CAR was saying regarding the full up nature of our DTI levels. The curve was improperly applied to the argument.[/quote]
jstoesz, the “curve” you speak of “is as it is” because under Fannie/Freddie “guidelines,” which have been in place since the eighties, the ONLY consumer debts that are taken into account in a mortgage loan application are those which will be outstanding 10+ months AFTER closing. For instance, if you owe $10K in CC debt and can show your loan officer that you have been making $500 per month towards it in the last year in attempt to retire it and have NOT used the card during that time, then the $500 will be used in your back-end ratio (maybe more). If your vehicle payments are $500 per month, this will be used in your back end ratio (if you still owe at least 10 months of payments on it).
So your front end ratio is comprised of PITI and HOA (if appllc) and your back-end ratio is comprised of PITI, HOA + all consumer/student loan monthly debt payment which has more than 10 payments left.
The VA loan underwriters, I believe, ALSO use in their back-end ratios prospective gas and electric bills and a portion of child care cost while the parent(s) work.
Hence FF (front and back end) ratios are about 28/36 or 30/38 (for exc credit) and VA ratios are about 33/41. “Portfolio” lenders (who do NOT sell the mortgages in the secondary market) may use ratios of 42/50 depending on credit but I can’t imagine that any of these loans are made anymore except to borrowers with =>800 FICO
scores.
The FF and VA rules apply in every state. In other words, the DTI ratios are uniformly the same everywhere. The “curve” you speak of here is “about” San Diego (because that’s what we study here at Pigg) but it could apply anywhere, just by changing the median house prices and incomes.
For that matter, the “curve” has little to do with whether a family in Plano, TX (where everything is “super-sized” … lol) can take on any more debt! A mortgage lender can’t babysit what a borrower does with his $$ before application or after the loan closes. All they can do is deny the loan or foreclose the property for non-payment.
Any Piggs in the lending biz please correct me if I’m wrong on any of this.[/quote]
One of the biggest problems (IMHO) is that the GSEs were totally in on the game.
Here’s the scary part…and this was published *after* the “credit crisis.” Will try to find something more recent.
————-
“In a continuing effort to promote sustainable homeownership, Fannie Mae will institute a
maximum 45 percent debt-to-income ratio for all manually underwritten conventional
loans. Fannie Mae continues to support the benchmark debt-to-income ratio of 36
percent, but will allow the benchmark to be exceeded up to a maximum of 45 percent
with strong compensating factors. For information about compensating factors, refer to
Announcement 08-26, Comprehensive Risk Assessment Approach to Manual
Underwriting.
This maximum 45 percent debt-to-income ratio does not apply to government loans and
loan casefiles underwritten through Desktop Underwriter. Desktop Underwriter will
continue to determine the maximum allowable debt-to-income ratio based on the overall
risk assessment of the loan casefile.”
(former)FormerSanDiegan
November 17, 2010 @
2:38 PM
jstoesz wrote:That is kind of [quote=jstoesz]That is kind of what I figured…
So naturally the next question is, how does this curve relate to aggregate SD Debt payments to income levels?
In other words, how is this relevant to the aggregate’s ability to take on more debt?[/quote]
It is directly related to the ability of the income of the population in aggregate to afford house payments on the average.
It looks like we are headed down the road where we parse the parsing of eachother’s response until we are arguing over why household median income relates to the 37% of the population that live in owner-occupied single family residences.
Back to my original point. Higher interest rates do not necessarily result in higher home prices. Period. Plenty of historical evidence that in fact the opposite has been the case. Of course, this time it might be different.
jstoesz
November 17, 2010 @
2:53 PM
Hahaha, I actually thought I Hahaha, I actually thought I might get a retraction…oh well, I guess my hope was ill founded.
Move along, nothing to see here.
(former)FormerSanDiegan
November 17, 2010 @
4:01 PM
jstoesz wrote:Hahaha, I [quote=jstoesz]Hahaha, I actually thought I might get a retraction…oh well, I guess my hope was ill founded.
Move along, nothing to see here.[/quote]
OK. Just for kicks I just retracted my vote in the poll.
Happy now ?
Or did you want me to retract 45 years of historical fact ?
jstoesz
November 17, 2010 @
4:28 PM
I revert back to previous I revert back to previous comments…
[quote=jstoesz]Looking at this curve…I see little to no correlation.
Then again that is fairly recent history. But from what I have seen in the past…home prices do not tend to move lockstep with inflation. Up or down. So again…all things are not equal.
Or for a bit more commentary…granted it is a bit more seattle centric
[quote=jstoesz]definitely not simple. Anyone who argues the certainty of future prices based on inflation is not looking at the historic non-relationship.
It is dangerous to take a family budget and project it on to the entire economy saying “all things being equal.” But it is also rather dense to assume that raising interest does not have a negative effect on prices. That is the swan song of a home owner.
[quote=FormerSanDiegan]
I already covered the long history of price and interest rate movements on a large scale, so what’s wrong with an anecdote ?[/quote]
Because there is not a strong correlation, or any correlation as I showed in the seattlebubble link. He looked at the data for his area and found the exact opposite to be true. It kind of depends where you choose to put the yellow bars.[/quote]
Or when I said this…
[quote=jstoesz]so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices)
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.[/quote]
I think you brought up the affordability graph because affordability and interest rates tend to move in lockstep…unlike real home prices and interest rates which do not. So you are trying to red herring this argument by switching home prices to affordability.
So I am not trying to get you to deny 45 years of historical fact…I am trying to get you to deny your unfounded view that higher interest rates with *always* result in higher home prices, becuase that is far from historical fact.
(former)FormerSanDiegan
November 17, 2010 @
10:17 PM
jstoesz wrote:
So I am not [quote=jstoesz]
So I am not trying to get you to deny 45 years of historical fact…I am trying to get you to deny your unfounded view that higher interest rates with *always* result in higher home prices, becuase that is far from historical fact.[/quote]
First, I would like you to point out where I wrote that higher interest rates *always* result in higher home prices.
I never wrote this and I don’t have this view.
Therefore I cannot retract it.
I pointed out the fallacy of the belief of an inverse relationship between home prices and interest rates. They do not move inversely (e.g. higher rate result in lower prices). It’s more complicated than that. In fact many times in the past 40 years prices have moved higher when rates moved higher. Period.
Rich Toscano
November 17, 2010 @
4:41 PM
FormerSanDiegan [quote=FormerSanDiegan]
[quote=jstoesz]
How is the “affordability” curve created?
[/quote]
2. I think Rich uses Excel.
[/quote]
Rim shot! 😉
Sorry, just punching in here. Was out of town.
FSD pretty much has it; the curve is created by taking SD home prices per the CS index and assuming an 80% LTV loan at the average rate per the Freddie Mac site, and also adding in property taxes, to calculate a monthly payment. Then taking that monthly payment and dividing by per capita (average) SD income.
As FSD said, monthly payment ratios are at all time lows. This graph says nothing about how much debt people can afford to pay, it just says how expensive houses are (in monthly payment terms) compared to incomes.
Rich
CA renter
November 19, 2010 @
12:40 AM
jstoesz wrote:DTI (DEBT to [quote=jstoesz]DTI (DEBT to INCOME) has nothing to do with affordability and everything to do with DEBT to INCOME.
It doesn’t matter if it is affordable when everyone is so in debt they can’t take on another red dollar.[/quote]
Yes, thanks for pointing that out, jstoesz.
I was referring to total debt (back-end DTI ratio). We are still mired in tremendous amounts of debt, and our economy is currently being propped up by our govt. This does not exactly seem like a good time to go out and pay near-bubble prices for houses.
Also, those “low payments” are low only because of the low interest rates.
We can debate this until the cows come home, but it seems to me that when rates have been driven to such lows over the past few decades, at some point, they will have nowhere to go but up. I don’t see housing prices increasing when they do (barring a dollar crisis, in which case, all bets are off), but that’s just me.
CA renter
November 19, 2010 @
1:20 AM
Yep, Fannie Mae’s guidelines Yep, Fannie Mae’s guidelines still allow for a 45% DTI ratio. IMHO, that is far, far too high for most families, and it makes foreclosure a significant possibility in the future.
In today’s economy, the back-end ratio should be no more than 30%, MAX, for a family earning $100K or less.
—————
“Debt-to-income (DTI) ratio tolerance: Additional debts and/or reduced income that cause the DTI ratio to exceed 45%, or that cause the DTI ratio to increase by 3 percentage points or more.”
CA renter wrote:Yep, Fannie [quote=CA renter]Yep, Fannie Mae’s guidelines still allow for a 45% DTI ratio. IMHO, that is far, far too high for most families, and it makes foreclosure a significant possibility in the future.
In today’s economy, the back-end ratio should be no more than 30%, MAX, for a family earning $100K or less. . . [/quote]
CAR, I agree with the 30% back end ratio for buyers with families whose household income is <$100K, simply because many will be too strapped otherwise should the inevitable emergency come up.
In practice though, I don't see a 30% back end ratio as "doable" in CA coastal counties. In other words, if lenders were that strict around here, very, very little would get sold in typical "family neighborhoods."
jstoesz
November 19, 2010 @
10:00 AM
Precisely! Therein lies the Precisely! Therein lies the rub as to my previous thread.
I do like the idea of a lower DTI percentage requirement for lower income…or at least more of a sliding scale. This would seem wise of lenders, not that they actually care about the quality of their investments.
CA renter
November 19, 2010 @
4:47 PM
bearishgurl wrote:CA renter [quote=bearishgurl][quote=CA renter]Yep, Fannie Mae’s guidelines still allow for a 45% DTI ratio. IMHO, that is far, far too high for most families, and it makes foreclosure a significant possibility in the future.
In today’s economy, the back-end ratio should be no more than 30%, MAX, for a family earning $100K or less. . . [/quote]
CAR, I agree with the 30% back end ratio for buyers with families whose household income is <$100K, simply because many will be too strapped otherwise should the inevitable emergency come up.
In practice though, I don't see a 30% back end ratio as "doable" in CA coastal counties. In other words, if lenders were that strict around here, very, very little would get sold in typical "family neighborhoods."[/quote]
It's entirely doable...the prices would have to come down to reflect reality -- as they should.
That's my whole point, here. Prices are **still too high!** For as long as these high DTI ratios are around, financial distress and foreclosures will be a problem.
scaredyclassic
November 19, 2010 @
10:49 PM
maybe foreclosures will be maybe foreclosures will be permanent…or longterm. maybe people will keep buying houses with marginal resources, with lemmings foreclosing in little groups regualrly…
NEW YORK (CNNMoney.com) — Following a couple of months of gains, sales of existing homes retreated again in October, an industry report said Tuesday.
The National Association of Realtors reported that the number of homes sold fell 2.2% from September to an annual rate of 4.43 million. The rate was down 25.9% from 12 months earlier.
The report came in just about at expectations. A consensus of experts surveyed by Briefing.com had forecast an annualized sales rate of 4.42 million.
“The housing market is experiencing an uneven recovery,” said Lawrence Yun, NAR’s chief economist. “Still, sales activity is clearly off the bottom and is attempting to settle into normal sustainable levels.”
Most (and least) affordable cities to buy a home
Home sales have been slow despite some of the best buying conditions in many years: interest rates near 4% for 30-year fixed-rate loans, the most affordable home prices in many years and a wide choice of homes available for house hunters.
The median price of all existing homes sold during the month was $170,500, down 0.9% compared with 12 months earlier. About a third of the market was in distressed properties, repossessed homes and short sales.
The median price of all existing homes sold during the month was $170,500, down 0.9% compared with 12 months earlier. About a third of the market was in distressed properties, repossessed homes and short sales.
Mike Larson, a housing market analyst for Weiss Research, said that positive and negative forces have been offsetting each other, leaving a market in limbo.
“You have low home prices and interest rates on the one hand, but trouble getting financing on the other,” he said. “And unemployment remains stubbornly high.”
sdrealtor
November 23, 2010 @
9:20 AM
Did anyone else see the Did anyone else see the article on unemplyment in the Untion Trib yesterday. While it was well over 10 in the South Bay it was around 6% in the prime North County comunnities both inland and on the coast.
permabear
November 23, 2010 @
2:34 PM
No, but I’d believe it. No, but I’d believe it. Stuff continues flying if it’s nice and well-priced. I did see a distribution graph somewhere that unemployment and underemployment are both very concentrated in the sub-$100k salary range. Over that and the rates drop dramatically, in fact they’re almost unchanged from normal. Though, it is worth remembering unemployment as a stat neglects to include business owners like GC’s, realtors, brokers, etc. who are $100k+ and have been hit hard.
SD Transplant
November 29, 2010 @
8:13 AM
Americans Less Certain Americans Less Certain Housing Market Has Bottomed
Americans are still waiting for the housing market to hit bottom according to survey data released this week from the Third Quarter Fannie Mae National Housing Survey. It found that a declining number of both homebuyers and renters think this is a good time to buy and an overwhelming and growing majority are quite sure it’s a bad time to sell.
The survey was conducted among 3,417 homeowners and renters during July, August and September. A random sample of 3,015 of members of the general population which included 834 outright homeowners, 894 renters, and 1,156 mortgaged homeowners of whom 305 were self-identified as being underwater on their mortgages were interviewed by phone. The survey also included an oversample of 402 randomly selected borrowers who had not paid on their mortgages in at least 60 days. Survey results were compared to similar surveys conducted in January and June of this year and in December 2003.
The percentage of Americans who think it is a good time to buy a home declined by two percentage points from the June survey to 68 percent while 29 percent feel it is a bad time, an increase of 3 points. In June 83 percent of respondents viewed it as a bad time to sell, a figure that rose to 85 percent in the recent survey.
The margin separating those who expect home prices to rise during the next year from those who expect them to fall has narrowed significantly. In June 31 percent were looking for an increase while 18 percent expected further declines. The current numbers are 25 percent and 22 percent respectively. The survey found that delinquent borrowers and persons who owned their homes mortgage-free were more pessimistic about housing prices while borrowers who were underwater on their current mortgage and renters were looking for a modest (1 percent or less) price increase.
At the same time, an overwhelming majority – 80 percent to 20 percent – are looking for rents to go up although in June the average expectation was for a 3.6 percent increase and today it is 2.8 percent.
“Consumer attitudes toward buying a home are more negative since last quarter,” said Doug Duncan, Vice President and Chief Economist, Fannie Mae. “Our survey shows that Americans’ declining optimism about housing and their personal finances is reinforcing increasingly realistic attitudes toward owning and renting.”
66 percent of American view homeownership as a safe investment, down 1 percent from June but 17 points since the 2003 survey. The percentage was significantly higher among homeowners, even if their mortgage is underwater (71 and 72 percent) than it is among delinquent borrowers (54 percent) or renters (56 percent.) Delinquent borrowers, in fact, are 10 percent more likely to rent their next home than they reported in January. 50 percent said they would prefer to rent compared to 45 percent who would buy. Half of all respondents ranked homeownership as less safe than putting money into a bank account.
That their situation has taken a toll is evident in other responses from the delinquent borrower group. More than half (54 percent) say they are very stressed and 82 percent say they are stressed. Both numbers are up 1 point since June. Owning their home entailed a financial sacrifice for 88 percent of these borrowers with 69 percent saying they are making a great deal of a sacrifice. These borrowers are also falling further into debt with 29 percent saying they have significantly increased their mortgage debt during the past year compared to 23 percent of other borrowers who have reduced their debt. Seven out of 10 believe that their income is insufficient to cover their expenses while the 71 percent of the general population perceive their incomes as adequate.
When asked about other aspects of their personal finance, 58 percent of Americans say that their household income has remained flat for the past year while 48 percent of delinquent homeowners report a significant decrease. In June the figure was 46 percent. The percentage of Americans who feel their personal finances will improve, at 41 percent, is for the first time, equal to the percentage who foresees no improvement.
Forty-two percent of Americans know someone who has defaulted on a mortgage, an increase of 3 percent since June, a figure that is much higher among delinquent and underwater borrowers at 63 percent and 58 percent respectively (compared to 56 percent and 48 percent in June.) Respondents who know someone who has defaulted are more likely to have considered doing so themselves although the numbers among most subgroups are small. However, in the case of delinquent borrowers who know a defaulter, 45 percent had considered defaulting compared to 16 percent who did not know a defaulter. But default is not viewed as a free pass. Fifty-five percent of underwater borrowers, 51 percent of all mortgage borrowers, and 43 percent of delinquent borrowers (up 11, 6, and 6 percentage points since January, respectively) think their lender would pursue other assets in addition to their home if they defaulted on their mortgage.
Here is Fannie Mae’s Presentation of the Housing Survey Data. It contains many useful graphs and tables
Fascinating graphs in the Fascinating graphs in the full report. This, though:
[quote=SD Transplant]Owning their home entailed a financial sacrifice for 88 percent of [delinquent] borrowers with 69 percent saying they are making a great deal of a sacrifice. These borrowers are also falling further into debt with 29 percent saying they have significantly increased their mortgage debt during the past year… Seven out of 10 believe that their income is insufficient to cover their expenses [/quote]
And this:
[quote=Fannie Mae]For the first time, Delinquent borrowers are more likely to say that they would rent their next home instead of buying. 50% would rent (a 10 percentage point increase since January) and 45% say they would buy (an 11 percentage point decline since January). 54% report to be very stressed about their debt, 46% are also underwater, and 34% have considered stopping their mortgage payments[/quote]
Wow. Talk about stretched to the breaking point.
SD Transplant
November 29, 2010 @
11:19 AM
yes, the graphs in the main yes, the graphs in the main report are great. I should have included it in the previous post.
82% of all Delinquent borrowers say they are stressed about their ability to make payments on
their debt, with 54% saying they are very stressed
– However, stress among GP continues to moderate
Slide # 15
7 in 10 delinquent borrowers do not think their household income is sufficient for the expenses
– Overall, most Americans perceive their income to be sufficient enough to cover their expenses
– 24% of Delinquent borrowers say their income is sufficient, yet they still remain delinquent on their home mortgage
Slide # 29
Additional findings
– 6 in 10 Americans think that the U.S. economy is off on the wrong track, especially Underwater
borrowers, of whom 66% think the economy is going in the wrong direction
– 57% of Americans think it would be difficult for them to get a home loan today, citing their income, their credit history, and not having enough savings for the down payment as the top obstacles
– A growing share of Americans think that it will be harder for the next generation to buy a home – there has been a 6 percentage point increase since January
– An overwhelming majority of Mortgage borrowers remain satisfied with their loans and 3 in 4 Americans
are confident they would receive the necessary information to choose the right loan
– More Delinquent borrowers are becoming not satisfied with their mortgage features (up by 6 percentage points) and fewer are confident they would receive the necessary information to choose the right loan (down by 8 percentage points since June)
– Majority of Americans continue preferring having a wide selection of loan products and most continue blaming the borrowers, not the loan companies, for taking out mortgages that they can not afford
– 51% of all Mortgage borrowers think that their lender would pursue other assets in addition to their
home if they were to default on their mortgage – it marks a 6 percentage point increase since January and an 11 percentage point increase among Underwater borrowers, of whom 55% think that their lender would pursue other assets
permabear
November 29, 2010 @
11:44 AM
This one has got to be the This one has got to be the best:
[quote]57% of Americans think it would be difficult for them to get a home loan today, citing their income, their credit history, and not having enough savings for the down payment as the top obstacles[/quote]
UCGal
November 29, 2010 @
12:26 PM
permabear wrote:This one has [quote=permabear]This one has got to be the best:
[quote]57% of Americans think it would be difficult for them to get a home loan today, citing their income, their credit history, and not having enough savings for the down payment as the top obstacles[/quote][/quote]
Perhaps that should be changed to “home loan for a house they can’t afford”. Smallish downpayment and smallish income should put you in a smallish loan. If people were only able to purchase the homes they could afford – then that would cause some downward pressure on prices. Until things got crazy with financing, people looked for homes that priced where they could afford them. Crazy financing drove prices up. Prices still haven’t come back to where people can afford to buy with 20% down, DTI of 30%, etc… People still want to buy houses that are 6x their annual income… when it should be 2-3 x the income.
bearishgurl
November 29, 2010 @
12:50 PM
UCGal wrote:Perhaps that [quote=UCGal]Perhaps that should be changed to “home loan for a house they can’t afford”. Smallish downpayment and smallish income should put you in a smallish loan. If people were only able to purchase the homes they could afford – then that would cause some downward pressure on prices. Until things got crazy with financing, people looked for homes that priced where they could afford them. Crazy financing drove prices up. Prices still haven’t come back to where people can afford to buy with 20% down, DTI of 30%, etc… People still want to buy houses that are 6x their annual income… when it should be 2-3 x the income.[/quote]
UCGal, I don’t recall SD SFR prices being 2-3x their “target buyers'” income since the early nineties (and only in SOME areas). Do you feel that SFR prices will return to this level here?
I don’t feel the “2-3x annual income rule of thumb” is realistic in CA coastal counties.
I guess your statement (above) is based upon who the “target buyer” SHOULD BE, NOT who the “target buyer” ACTUALLY IS.
When I purchased my current home almost 10 yrs. ago, it cost 6x my annual income. I would RENT before I’d plunk down a large downpayment on anything less and would not purchase a condo. But this is just me and I am comfortable with mortgage debt and am VERY experienced at “money mgmt.”
faterikcartman
November 29, 2010 @
4:19 PM
We need some old codgers on We need some old codgers on this board to chime in with this old bit of wisdom: “If you can’t afford to pay cash, don’t buy it.”
I once chuckled when I read posts like this (you’ll find them in RV forums, for example). These days I’m rubbing my chin thinking that while not particularly sophisticated, this would have saved a lot of people a lot of pain.
CA renter
November 29, 2010 @
4:28 PM
faterikcartman wrote:We need [quote=faterikcartman]We need some old codgers on this board to chime in with this old bit of wisdom: “If you can’t afford to pay cash, don’t buy it.”
I once chuckled when I read posts like this (you’ll find them in RV forums, for example). These days I’m rubbing my chin thinking that while not particularly sophisticated, this would have saved a lot of people a lot of pain.[/quote]
Indeed. Personally, I think all this debt has simply exaggerated the wealth disparity in this country without any real benefit to the average American. IMHO, it would be fantastic to see everyone become less dependent on debt and more dependent on their own savings that are earned via wages.
Enough with the leverage, gambling, and speculation. Time to tell the financial industry (and all the executives and tag-alongs with their overly-bloated incomes) to go to hell. We need real JOBS for the average citizen (with decent wages and benefits) that produce useful and beneficial things for our citizens and others around the world. “Trickle-down, supply-side economics” DOES NOT WORK! It’s a scheme used to separate productive, working people from their wages, while benefitting only those at the very top (who’ve managed to convince the idiot sheeple that “supply-side” economics will magically benefit them).
SD Transplant
December 8, 2010 @
9:05 AM
Insightful report on the RE Insightful report on the RE market by Amhers Mortgage Insight
“The Housing Crisis—Sizing the Problem,
Proposing Solutions
Summary
This article summarizes the size and scope of the housing crisis, making the point that if
governmental policy does not change, one borrower out of every 5 is in danger of losing
his/her home. A crisis of this order of magnitude requires both supply and demand side
measures. On the supply side, a successful medication is critical. This will require principal
reductions to re-equify the borrower. The moral hazard (strategic default) issues must be
addressed by first recognizing that this is an economic issue, not a moral one. Second
liens must also be addressed. As supply side measures alone are likely to prove insufficient
to address a crisis of this size, we discuss demand side measures to increase the buyer
base.”
Another good one Foreclosure mess: Much bigger than you thought
Goodman’s breakdown goes roughly like this. Twenty of every 100 loans are “impaired.” Of these, nine are seriously behind on their payments. Another six are now “Dirty Current” – in various government modification programs whose graduates have been defaulting at a rate of 50 percent a year. The final five are underwater on their mortgages by more than 20 percent – a group that has been defaulting at a rate of 20 percent a year.
It is a crisis that is more staggering that most of us realize – and is likely to have a much more dramatic impact on both federal policy and the banking industry than many are bargaining for right now.
Goodman predicts Uncle Sam will eventually have to embrace mortgage write-downs – letting 11 million-plus homes slide into foreclosure will prove politically untenable to policymakers and politicians in Washington.
“You have 11.6 million units in jeopardy,” Goodman said. “That is one borrower out of every five. You can’t foreclose on one borrower in five.”
“Politically this cannot happen. Successive mortgage modification programs will be attempted until something works,” she notes in a recent report.
Meanwhile, the banking industry could take a huge hit as well.
Nouriel Roubini, the economist who predicted the financial crisis and who has been dubbed “Dr. Doom” by the press, has looked at Goodman’s numbers and is warning of serious problems ahead for banks.
He pegs the potential damage at a cool trillion.
And another At least 3 more years of housing troubles seen
“We don’t see a full market recovery until 2014,” said Rick Sharga of RealtyTrac, a foreclosure marketplace and tracking service. He said that he expected more than 3 million homeowners to receive foreclosure notices in 2010, with more than 1 million homes being seized by banks before the end of the year.
Both of those numbers are records and expected to go even higher, as $300 billion in adjustable rate loans reset and foreclosures that had been held up by the robo-signing scandal work through the process. That should make the first quarter of 2011 even uglier than the fourth quarter of 2010, he said.
There have been allegations banks used so-called robo-signers to sign hundreds of foreclosure documents a day without proper legal review.
Mortgage rates will start to rise in 2011, further dampening demand and limiting affordability, said Pete Flint, chief executive of Trulia.com, a real estate search and research website. “Nationally, prices will decline between 5 percent and 7 percent, with most of the decline occurring in the first half of next year,” he said.
Interest rates on 30-year fixed rate loans will creep up to 5 percent, and that alone will add $120 per month to the typical mortgage payment on a $400,000 loan, Flint said in a joint news conference.
The two firms released a survey showing a marked deterioration in consumers’ views of the housing market, too. Almost half — 48 percent — said they’d consider walking away from their homes and their mortgages if they were underwater on their loans. That’s up almost 20 percent from when the same question was asked in May. “If that continues it would be an epidemic of strategic defaults,” said Flint.
Roughly 1 in 5 consumers said they expect it to be 2015 before there is a recovery in housing, according to the survey, conducted in November by Harris Interactive. Most respondents said they think recovery will come in 2012 or 2013. Would-be buyers suggested they wouldn’t really get serious about purchasing a home for another two years.
Sharga sees a big glut in distressed properties hitting the market. There are about 5 million loans that are at least 60 days overdue, he said. In the next 12 to 15 months, another $300 billion in adjustable rate loans will reset, and “they will default at pretty high levels.”
“Even with today’s low interest rates, you’re looking at an average of $1,000 or more in mortgage payments on loans that are overvalued by about 30 percent. That is where you will see a high level of walkaways,” Sharga predicted.
Not all markets will share equally in the troubles. Flint said he expects to see improvements in several markets, including Raleigh-Durham, North Carolina; Austin, Texas; Oklahoma City, Oklahoma; Salt Lake City, Utah and Omaha, Nebraska.
Homebuyers who are willing to take risks and buy distressed properties are likely to see discounts of around 30 percent from prices on comparable homes that are not in distress.”
ucodegen
November 16, 2010 @
11:52 AM
FormerSanDiegan wrote:Interst [quote FormerSanDiegan]Interst rates have declined precipitously since 2006, wjhile home prices also fell. In periods of increasing rates (late 1960’s to early 1980’s) prices increased. The fallacy of an inverse relationship between home prices and interest rates persists, despite the dearth of historical evidence.[/quote]
Actually it is not a fallacy. There is a lagging relationship and interest rates are not the sole cause of price movement. The price movement also lags interest rate changes. When going down, people wait because they may get a better rate next month/year. As interest rates go up, you get a slight panic as people rush in to buy before the are ‘priced out of the market’. You can’t ignore psychology.
In the period from 1960 to 1980, a few interesting things happened, which changed the mortgage markets.
Freddie (FHLMC) was founded in 1970 to expand the secondary market. This reduced the spread between actual mortgage rates and fed treasury rates. Most of the mortgage interest rate increases occurred after 1970 and it was a response to trying to keep inflation in check (Volcker 1979 – 1987). Fed funds rate in 1979 was 11.2%, in 1981 was 20%. The period from 1966 to 1979 was largely flat on the interest rate front with some small perturbations. The Fed also ‘tinkers’ with the definition of inflation and what is used to ‘measure CPI’. Don’t forget the stock crash of 1973 too..
By the way, the price I have for median house price in 1980 is $65,000. The problem I see is that it is not even PpSF. http://www.census.gov/const/uspricemon.pdf
What is the source of your data? link?
(former)FormerSanDiegan
November 16, 2010 @
12:31 PM
ucodegen [quote=ucodegen][quote FormerSanDiegan]Interst rates have declined precipitously since 2006, wjhile home prices also fell. In periods of increasing rates (late 1960’s to early 1980’s) prices increased. The fallacy of an inverse relationship between home prices and interest rates persists, despite the dearth of historical evidence.[/quote]
Actually it is not a fallacy. There is a lagging relationship and interest rates are not the sole cause of price movement. The price movement also lags interest rate changes. When going down, people wait because they may get a better rate next month/year. As interest rates go up, you get a slight panic as people rush in to buy before the are ‘priced out of the market’. You can’t ignore psychology.
In the period from 1960 to 1980, a few interesting things happened, which changed the mortgage markets.
Freddie (FHLMC) was founded in 1970 to expand the secondary market. This reduced the spread between actual mortgage rates and fed treasury rates. Most of the mortgage interest rate increases occurred after 1970 and it was a response to trying to keep inflation in check (Volcker 1979 – 1987). Fed funds rate in 1979 was 11.2%, in 1981 was 20%. The period from 1966 to 1979 was largely flat on the interest rate front with some small perturbations. The Fed also ‘tinkers’ with the definition of inflation and what is used to ‘measure CPI’. Don’t forget the stock crash of 1973 too..
By the way, the price I have for median house price in 1980 is $65,000. The problem I see is that it is not even PpSF. http://www.census.gov/const/uspricemon.pdf
What is the source of your data? link?[/quote]
As I mentioned in my post above it was what I could find quickly (~ 3 minmutes).
Sure we can argue median existing per square foot or whatever metric you want to define. But, by any metric prices rose substantially during that period. And they rose because of inflation.
jstoesz
November 16, 2010 @
12:46 PM
Did wages and dual income Did wages and dual income percentages go up as well, right alongside inflation?
Do you believe the trends you are looking at are correlative, or Causitive? Is it possible that there were other mitigating factors that allowed home prices to rise in the headwind of rising inflation?
Because logically, if all things being equal, higher interest will result in lower home prices (its simple math). Now everyone knows that all things are never equal…So the question is, what is different or changing and how will that effect home prices. I think the real fallacy is that you think everyone else is fallacious 🙂
(former)FormerSanDiegan
November 16, 2010 @
1:04 PM
jstoesz wrote:Did wages and [quote=jstoesz]Did wages and dual income percentages go up as well, right alongside inflation?
Do you believe the trends you are looking at are correlative, or Causitive? Is it possible that there were other mitigating factors that allowed home prices to rise in the headwind of rising inflation?
Because logically, if all things being equal, higher interest will result in lower home prices (its simple math). Now everyone knows that all things are never equal…So the question is, what is different or changing and how will that effect home prices. I think the real fallacy is that you think everyone else is fallacious :)[/quote]
Can you point to any historical evidence of rising interest rates and falling prices ?
jstoesz
November 16, 2010 @
1:29 PM
Looking at this curve…I see Looking at this curve…I see little to no correlation.
Then again that is fairly recent history. But from what I have seen in the past…home prices do not tend to move lockstep with inflation. Up or down. So again…all things are not equal.
Or for a bit more commentary…granted it is a bit more seattle centric
I agree that it is not simple…that higher interest does not automatically cue home prices higher or lower. I think that in today environment, higher interest would be a dirge for home prices. Will the compression of margins and less available principle (because of the simple math of higher interest rates) overwhelm other influences of inflation…that I am not sure of, because nothing stays equal.
(former)FormerSanDiegan
November 16, 2010 @
1:51 PM
jstoesz wrote:
I agree that [quote=jstoesz]
I agree that it is not simple…that higher interest does not automatically cue home prices higher or lower. I think that in today environment, higher interest would be a dirge for home prices. Will they overwhelm other influences of inflation…that I am not sure of, because nothing stays equal.[/quote]
Definitely not simple. That we can agree.
jstoesz
November 16, 2010 @
1:44 PM
Not all things inflate in Not all things inflate in price in the same way or with the same velocity. Certain things deflate while others inflate more quickly. I would contend that if we get into an inflationary cycle. Home prices will go down, because everyone will be worse off. Many products are sold globally, like oil and wheat, but homes are sold locally. If the dollar weakens, will people automatically get paid more, I doubt it. But the prices of commodities will go up making americans poorer globally, and draining their budgets locally. Therefore, the average American will have less to put towards a house.
This is completely sidestepping the whole monthly interest payment issue, which I still find valid, all things being equal.
(former)FormerSanDiegan
November 16, 2010 @
1:47 PM
jstoesz wrote:Not all things [quote=jstoesz]Not all things inflate in price in the same way or with the same velocity. Certain things deflate while others inflate more quickly. I would contend that if we get into an inflationary cycle. Home prices will go down, because everyone will be worse off. Many products are sold globally, like oil and wheat. If the dollar weakens, Will people automatically get paid more, I doubt it. But the prices of commodities will go up making everyone worse off. Therefore, the average American will have less to put towards a house.
This is completely sidestepping the whole monthly interest payment issue, which I still find valid, all things being equal.[/quote]
I agree that inflation is not uniform.
I grew up in the 1970’s. We replaced milkman-delivered milk with powdered milk. We also ate a lot more chicken instead of getting a side of beef butchered and delivered. We stopped buying coffe and sugar on occasion because of shortages and price spikes. Our vehicles evolved from a gas-guzzling new buick to used toyotas.
Despite all this, home prices did not decline.
jstoesz
November 16, 2010 @
1:49 PM
haha
do you know what an haha
do you know what an anecdote is?
(former)FormerSanDiegan
November 16, 2010 @
1:55 PM
jstoesz wrote:haha
do you [quote=jstoesz]haha
do you know what an anecdote is?[/quote]
I already covered the long history of price and interest rate movements on a large scale, so what’s wrong with an anecdote ?
jstoesz
November 16, 2010 @
2:02 PM
definitely not simple. definitely not simple. Anyone who argues the certainty of future prices based on inflation is not looking at the historic non-relationship.
It is dangerous to take a family budget and project it on to the entire economy saying “all things being equal.” But it is also rather dense to assume that raising interest does not have a negative effect on prices. That is the swan song of a home owner.
[quote=FormerSanDiegan]
I already covered the long history of price and interest rate movements on a large scale, so what’s wrong with an anecdote ?[/quote]
Because there is not a strong correlation, or any correlation as I showed in the seattlebubble link. He looked at the data for his area and found the exact opposite to be true. It kind of depends where you choose to put the yellow bars.
(former)FormerSanDiegan
November 16, 2010 @
2:50 PM
jstoesz wrote: But it is also [quote=jstoesz] But it is also rather dense to assume that raising interest does not have a negative effect on prices. That is the swan song of a home owner.
[/quote]
I would also say that it is equally dense to assume that raising interest rates will have a negative effect on prices
jstoesz
November 16, 2010 @
3:11 PM
so you are saying that higher so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices)
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.
(former)FormerSanDiegan
November 16, 2010 @
3:16 PM
jstoesz wrote:so you are [quote=jstoesz]so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices…
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.[/quote]
OK, it is dense to believe that higher interest rates will lead to lower home prices.
Here’s my nit: Where did I write that “higher interest rates enable a majority of people to afford *a more expensive home*” ?
I never said or implied that. Affordability can decline when prices rise (in fact, it nearly always does).
Rising interest rates, and the expectation of further future rate increases CAN stoke demand.
CA renter
November 16, 2010 @
5:21 PM
FormerSanDiegan wrote:jstoesz [quote=FormerSanDiegan][quote=jstoesz]so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices…
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.[/quote]
OK, it is dense to believe that higher interest rates will lead to lower home prices.
Here’s my nit: Where did I write that “higher interest rates enable a majority of people to afford *a more expensive home*” ?
I never said or implied that. Affordability can decline when prices rise (in fact, it nearly always does).
Rising interest rates, and the expectation of further future rate increases CAN stoke demand.[/quote]
FSD,
Can we agree that there was a very strong correlation between lower interest rates and higher home/asset prices since 2001? This is when many of us think the normal housing cycle transformed from a “normal” peak to a *credit induced* peak from 2001-2006.
When interest rates are artificially suppressed, it makes money cheap and easy as lenders/investors have to move further out on the risk curve in order to get a better yield. That’s why we saw all the “innovations” during this period, it was indicative of cheap money flowing to all manner of investments in the quest for higher returns.
If those low rates are behind the rising asset prices (which I strongly believe), isn’t is possible that a reversal of that trend would lead to lower prices?
(former)FormerSanDiegan
November 17, 2010 @
7:33 AM
CA renter [quote=CA renter][quote=FormerSanDiegan][quote=jstoesz]so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices…
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.[/quote]
OK, it is dense to believe that higher interest rates will lead to lower home prices.
Here’s my nit: Where did I write that “higher interest rates enable a majority of people to afford *a more expensive home*” ?
I never said or implied that. Affordability can decline when prices rise (in fact, it nearly always does).
Rising interest rates, and the expectation of further future rate increases CAN stoke demand.[/quote]
FSD,
Can we agree that there was a very strong correlation between lower interest rates and higher home/asset prices since 2001? This is when many of us think the normal housing cycle transformed from a “normal” peak to a *credit induced* peak from 2001-2006.
When interest rates are artificially suppressed, it makes money cheap and easy as lenders/investors have to move further out on the risk curve in order to get a better yield. That’s why we saw all the “innovations” during this period, it was indicative of cheap money flowing to all manner of investments in the quest for higher returns.
If those low rates are behind the rising asset prices (which I strongly believe), isn’t is possible that a reversal of that trend would lead to lower prices?[/quote]
Those low rates from 2001 -2006 were coupled with lower lending standards, no-doc loans, easy-qual, interest-only and neg-am loans.
Since 2006 interest rates have continued to fall, but prices did not increase.
The difference: lending standards and sausage-making loan securitization.
DTI’s were maxed out in 2006, but they aren’t now (see below)
(former)FormerSanDiegan
November 16, 2010 @
1:21 PM
jstoesz wrote:
Is it [quote=jstoesz]
Is it possible that there were other mitigating factors that allowed home prices to rise in the headwind of rising inflation?
[/quote]
Obviously there were other factors. But the increase in home price increases were a manifestation of inflation, as opposed to occuring in spite of inflation.
Did rent increase in the 1970’s despite the headwind of inflation or because they were a manifestation of inflation ?
(former)FormerSanDiegan
November 16, 2010 @
1:34 PM
jstoesz wrote:
Because [quote=jstoesz]
Because logically, if all things being equal, higher interest will result in lower home prices (its simple math). [/quote]
The simple truth is that the simple math fails to explain home prices over at least the past 50 years.
(former)FormerSanDiegan
November 16, 2010 @
12:55 PM
ucodegen wrote:
The period [quote=ucodegen]
The period from 1966 to 1979 was largely flat on the interest rate front with some small perturbations. [/quote]
Is this what you mean by “largely flat on the interest rate front” ? ???????
Chart of 30-yr fixed rates from January 1966 to December 1979 below. Rates went from 5.62% in January 1966 to 12.9% at the end of 1979.
ucodegen wrote:Actually it is [quote=ucodegen]Actually it is not a fallacy. There is a lagging relationship and interest rates are not the sole cause of price movement. The price movement also lags interest rate changes. When going down, people wait because they may get a better rate next month/year. As interest rates go up, you get a slight panic as people rush in to buy before the are ‘priced out of the market’. You can’t ignore psychology.[/quote]
Yeah – what he said.
Look, interest rates are a TRAILING adjustment. They do not lead. Never. Ever. In history.
Interest rates are increased to KEEP PACE with inflation. Volcker only jacked them up to “break the back of inflation” YEARS after inflation was outstripping rates.
So:
In our current still-over-indebted-society, it seems very likely that a few % increase in rates could throw the whole “recovery” (LOL) off. Say what you want about Bernanke, but he’s not a complete moron. He knows this. So, like Greenspan, he will err on the side of keeping rates too low for too long. Housing will (eventually) start increasing again, but rates will remain low, enabling speculation once again.
But then Bernanke will start raising rates and it will – just like happened a couple years ago – accelerate the panic into “hurry up and buy before it’s too late rates are going up!” that we just experienced.
End The Fed.
SD Transplant
November 17, 2010 @
7:00 AM
Thanks to another outstanding Thanks to another outstanding write up by Jim and MDA DataQuick October sales info, here is a little more info:
SD Sales Volume Down : -25.1% (Oct 09 vs Oct 10)
SD Median Prices Slightly Up: 2.9 (Oct 09 vs Oct 10)
Here is a great analysis by Jim:
“Hopefully some day it will occur to these ivory-tower types that the main problem today is that the current home sellers are asking too much – that’s why sales are lagging. As long as you qualify, banks are happy to give you a mortgage, although, yes, they may put you through a bit of a “grind”. But what do you expect? Mortgage underwriters are running scared, and they are double-checking every file.
The banks have money – if the list prices were closer to recent comps, there would be more sales.
The data backs me up, but it’s the numerous stories heard here and elsewhere about how ridiculous elective-sellers are being about their pricing. They insist on tacking on the extra 10% to 20% to their list prices with no justification or comps to back them up – and the listing agents go along.
Today’s data tidbit:
Active SD detached and attached listings: 12,157, with list prices averaging $332/sf.
October SD detached and attached solds: 2,412, averaging $238/sf.
A pricing difference of 39% between actives and solds! ”
jpinpb
November 17, 2010 @
9:19 AM
FormerSanDiegan wrote:
SO, in [quote=FormerSanDiegan]
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?[/quote]
Incomes went up.
jpinpb
November 17, 2010 @
9:20 AM
I agree w/UCGal and TG. I agree w/UCGal and TG. Really depends on the ZIP.
evolusd
November 12, 2010 @
10:51 AM
My wife is pressuring me to My wife is pressuring me to pull the trigger and buy something right now, but I have concerns about values as do most of you based on the poll results. I’m fine renting, but she’s home with the kids and wants to put down some roots, not bounce around every year from rental to rental.
I completely understand the stability of owning a home, being able to put your things away for good, painting the walls, working in the yard, building relationships with the neighborhood, etc; however, I’m too hung up with leveraging up to buy a depreciating asset.
If we do, I’ll probably go FHA and put as little down as possible, which also stinks b/c the payments will be higher and we’ll have to pay PMI. But at least then I can minimize my losses if things go the way I think they’ll go – down.
Heck, if things go bad, maybe I can be so lucky as so many I know – stop paying the mortgage and live rent free for a while! Totally against my conservative, responsible nature, but that’s what the government seems to be supporting.
Waiting to feel the magic
November 12, 2010 @
11:19 AM
There’s still a lot of There’s still a lot of distressed homes out there to flush through the system, and jobs still seem stagnant, so I don’t see prices going up. OTOH, as long as the economy doesn’t tank I don’t think there will be a huge drop either. Small declines for the next year or so seem like what’s going to happen.
moneymaker
November 12, 2010 @
5:57 PM
I guess I’ll have to say I guess I’ll have to say downward we go. I don’t want to but this month is the first month that Zillow said our recently purchased house did not increase in value. If I time it right I will refi into a 15 year at an incredibly low rate right before the appraisal plunges, allowing me to stop paying PMI after only occupying less than 2 years and only putting down 3.5%. Cool !
poorgradstudent
November 14, 2010 @
1:21 PM
I went with stagnant.
If the I went with stagnant.
If the timeframe was 3-6 months I’d have said -2 to -5% drop. But I actually think we’ll hit a trough and start recovering by late 2011. Early 2009 was the true bottom in the San Diego housing market.
Relative to inflation I expect true home values to drop in the next 12 months. Interest rates probably are lower than they will be 12 months from now. For someone with steady income and a down payment, it’s probably time to buy in the next 3-6 months.
peterb
November 16, 2010 @
11:25 AM
Average recessionary periods Average recessionary periods are in the 6 year range. Eventhough this one is a much bigger than usual, playing it by the numbers suggests that 2013 should be about the end of the down cycle. 3%/year decline from here, seems about right.
But the bigger question is how long before it would start to rise?? Historical charts suggest CA needs unemployment to get closer to 7% before housing prices will rise. That, to me, is a much tougher call.
SD Transplant
November 10, 2010 @ 7:24 AM
I’m trying to find out how
I’m trying to find out how bearish our community is for the next 12 months with respect to Detached homes prices(SD County).
I found an interesting take on it by Zillow.
http://www.zillow.com/blog/research/2010/11/09/it%E2%80%99s-going-to-be-another-long-hard-winter-in-housing/
UCGal
November 10, 2010 @ 7:32 AM
I didn’t vote because San
I didn’t vote because San Diego county is so diverse as is the housing stock.
IMO what happens in the lower end market is COMPLETELY disconnected from what happens in the upper end.
Pulling definitions out of my butt here – but here’s my predictions.
Lower end detached – defined as below $350k:
– flat to slight increase. 2-5% increase.
Mid Range detached – defined as $350k-800k. Flat to slight decline. 0 to -2$ decrease.
Upper Range – above 800k: slight to moderate decline – 2-5% decrease.
60 year old 1200 sf homes in Linda Vista have already taken a hit. 10 year old 2500sf houses in Carmel Valley are still hurting but doing better than the 3000sf 5 year old houses – built at the peak – in 4S.
Some older neighborhoods will hold their value regardless (Mission Hills, Kensington, Hillcrest) because of location, architecture, neighborhood appeal. West of the 5 (coastal) will hold it’s value better than east county areas like Santee and Lakeside. But Santee and Lakeside have already taken some hits. So I’m not sure how much further the older (10 years or more) houses will decline. Newer tracts – built 2005 or later are still coming down.
Your poll doesn’t address geography or price tiers.
permabear
November 10, 2010 @ 8:53 AM
I think the single most
I think the single most important graph to understand is this one:
Civilian Employment Ratio
This shows the employment ratio vs population. It is a much better gauge of employment than weekly jobless claims.
What it says is we’re headed back towards the days of single-earner households. When viewed this way, the fact that we’re hitting early 2000 prices – at the peak of being a dual-earner society – is not that impressive. It means homes are still too expensive for the average household.
This is a major secular change, and my opinion is that families will slowly come to grips that they only have one income to rely on, make adjustments, and find out it’s not that bad for the family and stress having one parent at home. I think 2011 will be the year that people remember that $1M is actually a lot of money.
sdcellar
November 10, 2010 @ 10:44 AM
My vote has already become
My vote has already become clouded by the fact that I’m in escrow. Now, I can’t say for sure if I’m choosing what I believe will happen or simply what I’m hoping for.
I chose down 2-5%, mostly because I can live with that. I *think* I also believe things have stabilized and any further decline to the downside is limited, so would have voted similarly were I not entering the land of home-debtorship. How, exactly, do I know that I’m not just deluding myself?
waiting hawk
November 10, 2010 @ 1:50 PM
[quote=sdcellar]My vote has
[quote=sdcellar]My vote has already become clouded by the fact that I’m in escrow. quote]
The bear doesnt leave you lol. I told Sheldon, “I hope i’m at least 80% ltv (i needed apprais to come in at 354k). I had my doubts but then it came in at 517k. They even had to send it to review cause it looked funny that I bought it 9 months prior. Really I think its worth 450 though. Im still really bearish.
CA renter
November 11, 2010 @ 12:33 AM
permabear wrote:I think the
[quote=permabear]I think the single most important graph to understand is this one:
Civilian Employment Ratio
This shows the employment ratio vs population. It is a much better gauge of employment than weekly jobless claims.
What it says is we’re headed back towards the days of single-earner households. When viewed this way, the fact that we’re hitting early 2000 prices – at the peak of being a dual-earner society – is not that impressive. It means homes are still too expensive for the average household.
This is a major secular change, and my opinion is that families will slowly come to grips that they only have one income to rely on, make adjustments, and find out it’s not that bad for the family and stress having one parent at home. I think 2011 will be the year that people remember that $1M is actually a lot of money.[/quote]
Agree with you, permabear, and don’t think it’s a bad thing at all.
jameswenn
November 11, 2010 @ 10:12 AM
We’re going down until prices
We’re going down until prices align closer with income.
SD Transplant
November 11, 2010 @ 11:43 AM
From CNNMoney shows that the
From CNNMoney shows that the Home Sales Numbers plunged 25%
http://money.cnn.com/2010/11/11/real_estate/metro_area_prices/index.htm
bearishgurl
November 10, 2010 @ 11:17 AM
UCGal wrote:I didn’t vote
[quote=UCGal]I didn’t vote because San Diego county is so diverse as is the housing stock.
-snip-
Your poll doesn’t address geography or price tiers.[/quote]
Great work, UCGal! I voted stagnant and the WHOLE of your post (assuming there’s as much high-end value as low-end value in the county, which I think there is) indicates stagant (a wash).
Taking out the mid-range, there are many more low-end detached homes in SD County than high-end detached homes, but their aggregate values probably equal the same.
That’s my “unscientific” view.
Coronita
November 10, 2010 @ 1:21 PM
Where’s the i don’t know
Where’s the i don’t know selection… Mark me down for that one.
Anonymous
November 12, 2010 @ 7:17 AM
The next 12 months will be
The next 12 months will be down slightly. However, as a renter considering buying, I’m more concerned with the next 10 years.
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
Payments will increase without the property appreciating. You have to factor in the cost of money into the properties ability to appreciate.
I’m starting to become concerned we may follow the lost decade in Japan.
SD Transplant
November 12, 2010 @ 7:56 AM
Finally, I see the UT jumping
Finally, I see the UT jumping on the reality band wagon vis-a-vis RE.
http://www.signonsandiego.com/news/2010/nov/11/san-diego-housing-may-be-headed-double-dip-prices/
Home prices facing a ‘double dip’
They’re up from last year, but heading downward, Zillow and Realtors report
San Diego County, as well as the rest of California, may be experiencing a double dip in home prices, in spite of homebuyer tax credits and low interest rates intended to boost the housing market out of its five-year slide, new reports showed Thursday.
The National Association of Realtors ranked San Diego as 50th best market out of 155 in terms of home-price appreciation in the third quarter, compared with the same period last year. No. 1 was Burlington, Vt., up 17.6 percent to $286,300.
But the group also reported a downturn for San Diego from the second to the third quarter in terms of median prices.
Zillow.com picked up the same trend, based on estimated home values after excluding foreclosures. The Seattle-based company said San Diego as well as four other California markets, were the only ones nationally that posted price declines in the third quarter after five quarters of an increase.
Zillow chief economist Stan Humphries said the turnaround may reflect the fact that the state had offered homebuyer credits on top of those at the federal level and thus pulled in more buyers who sped up their purchasing decisions. Now demand is down, even as inventories rise.
“It certainly is worrisome, but I don’t know how worrisome because we have not had a look at the true demand, post-tax credit,” Humphries said. “ We won’t see that until we enter the new year. But it has affected our forecast. We had been on a nice trend to get to the bottom nationally by the end of the year. The earliest we can foresee it nationally would be the first half of next year.”
He said no further government stimulation programs should be tried for housing.
“They were incredibly expensive and ill targeted,” he said. “Most people who took advantage were going to buy anyway. It gets tack to the core fundamentals of the economy. We’ve got to grow jobs faster.”
Keeping interest rates low — they hit a modern historic low of 4.17 percent Thursday in Freddie Mac’s weekly survey — will help, he acknowledged, but “exotic” boosts would resemble building sand castles when the tide is rolling in.
“You can hold it back a little bit, but it will take a large force to find equilibrium,” he said.
A double-dip locally would occur if the San Diego home values reverse course from their 6 percent increase off the bottom and fall below the previous trough. Zillow figures San Diego values are now 31.1 percent off their peak.
Humphries, as well as other economists, have been forecasting a 5 percent decline through the end of this year and perhaps into next year.
“You could quite possibly retest the trough levels – that’s not entirely clear,” Humphries said. “We have such an unclear picture of demand and a very clear picture of supply.”
He said 2011 is likely to outperform 2010 in sales and prices. But he said the patient isn’t leaving his hospital bed anytime soon:
“The patient is in a weakened condition. He had been stabilizing quite nicely. But stabilization is on pause, and we’re going to have to see where that goes from here – whether it means further deterioration or just a blip and we start to stabilize more.”
Zillow’s figures for San Diego in the third quarter showed an overall home value of $370,600, up 4.2 percent year-over-year but a .7 percent decline from the second to the third quarter and 0.3 percent decline from August to September.
Nationally, home values declined 4.3 percent year-over-year and 1.2 percent quarter-over-quarter. They have declined 17 consecutive quarters and are now down 25 percent from their 2006 peak.
That’s nearly as much as the 25.9 percent decline between 1929 and 1933 that housing economist Robert J. Shiller, coauthor of the Standard & Poor’s/Case-Shiller Home Price Index, worked out.
Humphries said the two housing trends are roughly comparable in methodology.
Zillow also said 23.2 percent of single-family homeowners nationally owe more than their homes are worth; Las Vegas has the worst “underwater” market, where 80.2 percent of owners are stuck with negative equity, followed by Phoenix at 68.4 percent.
In San Diego, the negative equity was estimated at 19.6 percent, lowest among the 25 markets surveyed by Zillow. The lowest was 6.3 percent in Pittsburgh, followed by Boston, 9.5 percent; Philadelphia, 14.2 percent; and Los Angeles, 17.4 percent.
(former)FormerSanDiegan
November 12, 2010 @ 8:01 AM
whiteout wrote:
How does real
[quote=whiteout]
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%.
I couldn’t quickly find a source for existing homes, but here are the numbers for new home median prices.
Median new home price in 1966: $21,700
Median new home price in 1981: $82,800
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?
Anonymous
November 12, 2010 @ 8:35 AM
There’s been too much
There’s been too much emphasis on a speedy recovery, which may be shortsighted. Just when we think there’s been a sustainable recovery, and everyone forgets about home prices, inflation will arrive and interest rates will rise, leading to a more serious second dip further down the line.
bearishgurl
November 12, 2010 @ 9:03 AM
FormerSanDiegan
[quote=FormerSanDiegan][quote=whiteout]How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%. . . [/quote]
FSD, if I can remember correctly, the FHA rate was about 15.5% until sometime in 1983.
CA renter
November 12, 2010 @ 1:51 PM
FormerSanDiegan
[quote=FormerSanDiegan][quote=whiteout]
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%.
I couldn’t quickly find a source for existing homes, but here are the numbers for new home median prices.
Median new home price in 1966: $21,700
Median new home price in 1981: $82,800
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?[/quote]
Firstly, the Case-Shiller chart doesn’t agree with those numbers, so I’m not sure which numbers are closest to reality. OTOH, even if they are correct, there are some other factors that come into play:
http://www.ritholtz.com/blog/2010/07/updating-the-case-shiller-100-chart-forecast/
1. Baby Boomers (the wealthiest and largest cohort in U.S. history) were beginning to make their purchases during the late 60s through the early part of this decade.
2. People in the decades following WWII generally had more stable jobs (“jobs for life”), and employer-paid healthcare, along with defined-benefit pension plans, making a 30-year commitment much more reasonable. Workers have allowed those benefits to be decimated over the past few decades, and people now have to move every few years in order to maintain their wages and benfits (IF they’re lucky enough to do that). We need to allocate more money toward savings, rather than housing, because of the volatility of today’s labor market.
3. Wages were going up in the post-war period, and the purchasing power of the dollar was stable or gaining strength. That is no longer the case.
4. Household debt was at much lower levels during that time, and even if prices were rising, the debt-to-income levels were much lower than they are now.
5. In the post-war period, we had already experienced our cleansing (during the Great Depresssion), and were working our way up from a bottom.
Conversely, we are now at very, very lofty levels, and haven’t had a good cleansing since the Depression. We are, IMHO, at the pinnacle, and on our way down from here, possibly for an extended period of time.
We are now near the peak of a decades-long period of tremendous credit expansion at every level. It’s difficult to fathom much upward pressure from here. People are tapped out, and their wages cannot support the bloated prices and debt that is currently overwhelming them.
temeculaguy
November 12, 2010 @ 2:51 PM
I’ll take UCgal’s point a
I’ll take UCgal’s point a little further. At some point in time, houses will rise in value. Maybe next year, maybe 10 years from now, that isn’t entirely relevent. Inflation will return, it’s been kept in a dark room for a few years but it’s being fed well, when it is let of that room, it’s gonna be big and angry. Inflationary future pressures aside, here is why there is no way to answer the poll question as presented.
The decline has not been equal in terms of percentage in the different price tiers or areas. But the rise wasn’t entirely equal during the boom. If you went back to the beginning of the last cycle, let’s say the late 1990’s, you can find where the inequities are. This is the only way to find the undervalued and overvalued tiers and areas.
So the answer is more of a question when you look at a particular house, some houses will go up, some will go down and some will stay flat, all at the same time. If something held it’s value during the downturn, then it has less room to increase during the next uptick, but then again how much did it inflate during the boom compared to other houses. If you took two houses in different tiers and different areas and compared their value in relationship to each other for the last 20 years, then it’s easier to predict the future and their current potential value. A hypothetical would be a condo in el cajon vs a sfr in la jolla. I do not know their current or past values, this is hypothetical for the purpose of my argument.
If the lajolla house has historically been 400% more than the el cajon condo and now it is 600% more, one of two things will happen, the La Jolla house will fall in price while the El Cajon will remain stable, or the La Jolla house will stay flat, while the El Cajon condo rises. If the current values vs historical value is the opposite, then the opposite will occur.
There has been a great deal of radical price movement in the last 5 years, almost unprecedented in a commodity that traditionally moves very slowly. It will take a little time to even out, but it will even out.
So my answer to the poll…… all of the above
sobmaz
November 13, 2010 @ 3:21 PM
FormerSanDiegan
[quote=FormerSanDiegan][quote=whiteout]
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%.
I couldn’t quickly find a source for existing homes, but here are the numbers for new home median prices.
Median new home price in 1966: $21,700
Median new home price in 1981: $82,800
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?[/quote]
Oh come on……What about the inflation during that period?
In REAL TERMS it did not increase that much. Also, if you do a little research during that period the average home size skyrocketed, so, what did they get for that price?
permabear
November 14, 2010 @ 1:34 PM
sobmaz wrote:
Oh come
[quote=sobmaz]
Oh come on……What about the inflation during that period?
In REAL TERMS it did not increase that much. Also, if you do a little research during that period the average home size skyrocketed, so, what did they get for that price?[/quote]
From http://www.westegg.com/inflation/
What cost $21700 in 1966 would cost $60901.79 in 1981.
$82,800 / $60901.79 = 35.9% premium
SD Realtor
November 14, 2010 @ 7:13 PM
I think we stay flat to down
I think we stay flat to down a bit towards the end of the year. I think a little spring bounce will come but it will not be as pronounced as the 2009 bounce. All this is based on an assumption of no funny business by the govt. Also agreed with UCGAL about the points made for the diversity of the county. Employment in San Diego actually seems much better then many other places around the nation and that will support many of the areas I focus on.
fun4vnay2
November 14, 2010 @ 8:41 PM
With the current state of
With the current state of economy and the unemployment rate, I don’t see the prices to be going up.
It has got nowhere to go but down.
Sanity would gradually take over insanity.
Also, QCOM is probably shutting down one business division which is a public news
SD Transplant
November 16, 2010 @ 7:21 AM
From the UT
San Diego housing
From the UT
San Diego housing faces 8.5% price reduction
Fiserv sees double-dip from 2nd quarter data; upturn not likely until 2012
San Diego County single-family-home prices are facing an 8.5 percent fall over the next year now that buyers no longer have access to state and federal tax credits, Fiserv economists predicted Monday.
Fiserv, which provides the data for the widely watched Standard & Poor’s/Case-Shiller Home Price Index, said San Diego prices rose 11.6 percent from the second quarter of 2009 to the second quarter this year. But a double-dip is now in the works for various reasons.
That decline would place San Diego as the 40th worst housing market out of 384 studied. No. 1 biggest depreciation market is the Punta Gorda area of Florida, forecasted to drop 28.1 percent from its second quarter price of $135,000. The highest appreciating market is the Kennewick-Pasco-Richland area of Washington state, up 1.8 percent from $177,000 over the same period.
“Factors weighing on the housing market include chronic high unemployment, the expiration of the homebuyer tax credit that expired in June and the large number of distressed properties that remain in markets, such as Florida, Arizona and Nevada,” the company said.
Increased sales in high-priced areas, such as San Francisco and Washington, as well as San Diego, helped push national prices up 3.6 percent in the 12 months ended June 30.
“Some of the largest declines in prices will occur in markets that had strong spring and summer 2010 price increases,” said David Stiff, Fiserv chief economist. “This is because the homebuyer tax credit delayed the correction in home prices that is necessary to return housing affordability to pre-bubble levels.”
He said San Diego and the other markets that had upturns will “experience double-dip price declines.”
“If there are no downside surprises for the economy or the housing and mortgage markets, home prices should start to stabilize at the end of 2011,” he said.
Nationally, Fiserv expects prices to fall another 7.1 percent, from $177,000 in the second quarter of this year to $164,400 by the second quarter of next year. San Diego’s prices are projected to fall from $390,000 to $356,850 over the same period.
By the second quarter of 2012, Fiserv predicts San Diego prices will be up .8 percent year-over-year to about $359,700.
Fiserv bases its prices on paired sales of same single-family-resale homes over time on a three-month rolling average.
http://www.signonsandiego.com/news/2010/nov/15/san-diego-housing-faces-85-price-reduction/
and from Housing Wire
S&P predicts more home price declines through 2011
Standard & Poor’s analysts believe home prices will drop between 7% and 10% through 2011, erasing any improvements prices have recently made.
Home sales, which plummeted after the homebuyer tax credit expired in April have continued to lag. Pending home sales, which preclude existing home sale data, dipped 1.8% in September before the market goes into a winter many expect to be bleaker than usual. With this lack of demand, inventories should grow, according to S&P, while prices drop.
“Low mortgage rates will likely continue to encourage refinancing, but their influence on home buying activities has been limited due to the weak housing market and a lack of demand,” S&P credit analyst Erkan Erturk said.
According to the S&P/Case-Shiller Home Price Index, prices did increase 1.7% from a year ago in the 20-city index and 2.6% in the 10-city index. But in August alone, those indices fell 0.2% and 0.1% respectively. Home prices declined in 15 of the 20 metro areas.
Fiserv, a financial services technology provider, said Monday in its analysis that home prices would drop another 7% before stabilizing at the end of 2011.
Prices will continue to be pressed down as long as the market works through a backlog of distressed properties that remains elevated. Recent foreclosure moratoriums from major lenders because of documentation problems have only delayed this work, Erturk said
http://www.housingwire.com/2010/11/15/sp-predicts-more-home-price-declines-through-2011
(former)FormerSanDiegan
November 16, 2010 @ 7:37 AM
sobmaz wrote:FormerSanDiegan
[quote=sobmaz][quote=FormerSanDiegan][quote=whiteout]
How does real estate appreciate as interest rates go from 4% to more historic levels of 7%-9%?
[/quote]
Ask your parents (or someone in their generation) what happened to home prices from 1966 to 1981.
During that period interest rates went from about 6% to over 12%.
I couldn’t quickly find a source for existing homes, but here are the numbers for new home median prices.
Median new home price in 1966: $21,700
Median new home price in 1981: $82,800
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?[/quote]
Oh come on……What about the inflation during that period?
In REAL TERMS it did not increase that much. Also, if you do a little research during that period the average home size skyrocketed, so, what did they get for that price?[/quote]
EXACTLY my point. whiteout stated that when interest rates rise house prices will fall. This appears logical on the surface from the perspective of increase in monhtly payments and affordability. What is obviously missing in that perspective is an understanding of other elements of the economy that are correlated with higher interest rates, namely inflation.
Interst rates have declined precipitously since 2006, wjhile home prices also fell. In periods of increasing rates (late 1960’s to early 1980’s) prices increased. The fallacy of an inverse relationship between home prices and interest rates persists, despite the dearth of historical evidence.
jstoesz
November 16, 2010 @ 10:38 AM
The question is will wages
The question is will wages and employment go up to match inflation? Or will there just be a compression on margins with higher input costs but deflating output prices. In other words, will this just make more companies go bankrupt.
The economy, as we all know, does not operate in a vacuum. So higher interest rates could be in response to high employment, or just a fear of an expanding money supply/higher velocity of money…
In the past, higher interest has come with higher wages, but I tend to think this is correlated, not causative.
CA renter
November 16, 2010 @ 5:10 PM
jstoesz wrote:The question is
[quote=jstoesz]The question is will wages and employment go up to match inflation? Or will there just be a compression on margins with higher input costs but deflating output prices. In other words, will this just make more companies go bankrupt.
The economy, as we all know, does not operate in a vacuum. So higher interest rates could be in response to high employment, or just a fear of an expanding money supply/higher velocity of money…
In the past, higher interest has come with higher wages, but I tend to think this is correlated, not causative.[/quote]
Agree. If high interest rates weren’t going to affect housing prices (as well as other asset prices), then the Fed wouldn’t be throwing trillions of dollars at the bond market in an attempt to keep interest rates low.
It’s pretty obvious that higher interest rates will force prices down, since we are maxed out on DTI ratios.
(former)FormerSanDiegan
November 17, 2010 @ 7:30 AM
CA renter wrote:
It’s pretty
[quote=CA renter]
It’s pretty obvious that higher interest rates will force prices down, since we are maxed out on DTI ratios.[/quote]
We are not maxed out on DTI ratios.
In San Diego we are near generational lows in DTI ratios, per Rich’s graph.
[img_assist|nid=14212|title=SD payment-to-income ratio|desc=|link=node|align=left|width=436|height=335]
jstoesz
November 17, 2010 @ 7:56 AM
DTI (DEBT to INCOME) has
DTI (DEBT to INCOME) has nothing to do with affordability and everything to do with DEBT to INCOME.
Yup Looks like we are maxed out.
http://pragcap.com/deleveraging-in-real-time
It doesn’t matter if it is affordable when everyone is so in debt they can’t take on another red dollar.
jstoesz
November 17, 2010 @ 8:01 AM
Does anyone know what exactly
Does anyone know what exactly comprises that curve?
I am assuming it is the 30yr fixed payment on the median home price divided by the median wage amount. Or is it the median payment SD families are currently paying divided by their median income?
(former)FormerSanDiegan
November 17, 2010 @ 9:46 AM
jstoesz wrote:DTI (DEBT to
[quote=jstoesz]DTI (DEBT to INCOME) has nothing to do with affordability and everything to do with DEBT to INCOME.
Yup Looks like we are maxed out.
http://pragcap.com/deleveraging-in-real-time
It doesn’t matter if it is affordable when everyone is so in debt they can’t take on another red dollar.[/quote]
DTI refers to monthly debt payment to income ratio.
http://en.wikipedia.org/wiki/Debt-to-income_ratio
jstoesz
November 17, 2010 @ 10:02 AM
I don’t understand, are you
I don’t understand, are you disagreeing with me or nitpicking that I left off the word payment?
How is the “affordability” curve created?
How is the monthly mortgage/tax payment calculated?
(former)FormerSanDiegan
November 17, 2010 @ 10:43 AM
jstoesz wrote:I don’t
[quote=jstoesz]I don’t understand, are you disagreeing with me or nitpicking that I left off the word payment?
[/quote]
1. Neither, just providing the deifinition for clarity.
[quote=jstoesz]
How is the “affordability” curve created?
[/quote]
2. I think Rich uses Excel.
[quote=jstoesz]
How is the monthly mortgage/tax payment calculated
[/quote]
3. Ask Rich
jstoesz
November 17, 2010 @ 10:58 AM
So if you do not know how the
So if you do not know how the monthly mortgage/tax payment is calculated, why are you using it to support your point that we are not maxed out on DTI levels.
It seems to me that it is likely a completely unrelated trend to the current SDer’s median DTI.
(former)FormerSanDiegan
November 17, 2010 @ 1:15 PM
jstoesz wrote:So if you do
[quote=jstoesz]So if you do not know how the monthly mortgage/tax payment is calculated, why are you using it to support your point that we are not maxed out on DTI levels.
It seems to me that it is likely a completely unrelated trend to the current SDer’s median DTI.[/quote]
Rich explained it here 3 or more years ago. I was satisfied with it then. I’m too lazy to look it up now.
Based on the labels on the chart and my memory he is computing the payment according to an 80% LTV mortgage at prevailing rates for a median priced single-family home (in SD) and dividing it by annual per capita income (in SD).
(former)FormerSanDiegan
November 17, 2010 @ 1:25 PM
I went back and read the
I went back and read the primer …
http://piggington.com/shambling_further_from_affordability
Looks like Rich uses the C-S index for the home price upon which to compute the monthly payment.
jstoesz
November 17, 2010 @ 1:30 PM
That is kind of what I
That is kind of what I figured…
So naturally the next question is, how does this curve relate to aggregate SD Debt payments to income levels?
In other words, how is this relevant to the aggregate’s ability to take on more debt?
bearishgurl
November 17, 2010 @ 2:28 PM
jstoesz wrote:That is kind of
[quote=jstoesz]That is kind of what I figured…
So naturally the next question is, how does this curve relate to aggregate SD Debt payments to income levels?
In other words, how is this relevant to the aggregate’s ability to take on more debt?[/quote]
jstoesz, a couple of observations here. If I’m reading Rich’s “shambling graph” here correctly,
http://piggington.com/shambling_further_…
SD detached housing is currently getting MORE affordable to buy due to a lower debt-to-income ratio of the “household” to PITI. But this *new* lowered ratio is based upon the aggregate of the per-capita income within a household, not only W-2 income, but investment income, pensions, SS, teenage/college-age jobs. It’s also based upon mortgage rates currently being the lowest in history.
It’s not uncommon at all for EVERYONE in a household with income to contribute to the operation and living expenses of a 4-6 bdrm home where perhaps 1-2 family members furnished the downpayment for and another 1-2 family members qualified for the mortgage. Rich’s chart is based upon the aggregate of total household income.
Yes, only 1-2 individuals in the household signed the mortgage note and are legally responsible for it. But that doesn’t stop them from collecting “rent,” utilities or food money from the other individuals in the household (aged 16-100) who have income.
If you are trying to “prove” the DTI ratios are typically higher in CA than other states, this may be true if you just use the income of the “wage-earner” borrowers alone. Many long-time “Californians” are savvy with their money and visit 99-cent stores, day old bread stores, etc and barter home and auto repair services with friends and family members.
A “grandma” left at home all day can clip coupons, check the sales and then visit 7 local stores/farmers markets in 3 hours and come home with $500 of groceries (Von’s or Ralph’s price) for $180. Believe me, they ALL know how to do this! This “family-pooling arrangement,” has all been going on LONG before the recent RE bubble and loose lending allowed owners to HELOC the h@ll out of their properties. Even though a lot of families fell prey to consumerism and HELOCs, a LOT DIDN’T and are still “standing,” currently owing $75K to $200K on large family homes!
How REAL people LIVE day-to-day is not really a newsworthy item. All the salacious articles and stories are about unemployed manicured “youngish” matrons driving $60K SUV’s and complaining that that it’s “not fair” that they can’t get a mortgage modification and are losing their homes.
I still maintain that homeowners in CA, for the most part, consume LESS than homeowners in other states, because they don’t have the discretionary income at their disposal to do so (as do other states with less expensive residential RE). At least this was true PRIOR to the “HELOC years.”
And btw, the act of taking out excessive “HELOCs” and “cash-out refis” was prevalent ALL OVER THE NATION in the “loose-lending era,” not just in CA.
jstoesz
November 17, 2010 @ 2:36 PM
What I am getting at,
What I am getting at, Bearishgurl, is something rather straight forward. The affordability of homes has little to do with the San Diego populace’s ability to take on more debt. The curve only looks at median income, median home price, taxes, and interest. It does not look at the overall health of the SD populace’s overall balance sheet (debt to income). There is no mention of debt payments people are currently making…only debt payments new suckers could/will be paying if they buy a home. In addition it leaves off all of the other consumer debt that has been growing steadily until its recent deleveraging point. I am not trying to get into anecdote wars about how some people scrape by here. I am sure many do, and I don’t really care. I was just trying to put the affordability curve in its proper place. It is the hypothetical cost of taking on new home debt in relation to years past. It says nothing about people’s current debt level and their ability to take on more.
FSD used this curve to refute what CAR was saying regarding the full up nature of our DTI levels. The curve was improperly applied to the argument.
bearishgurl
November 17, 2010 @ 5:00 PM
jstoesz wrote:What I am
[quote=jstoesz]What I am getting at, Bearishgurl, is something rather straight forward. The affordability of homes has little to do with the San Diego populace’s ability to take on more debt. The curve only looks at median income, median home price, taxes, and interest. It does not look at the overall health of the SD populace’s overall balance sheet (debt to income). There is no mention of debt payments people are currently making…only debt payments new suckers could/will be paying if they buy a home. In addition it leaves off all of the other consumer debt that has been growing steadily until its recent deleveraging point. . . FSD used this curve to refute what CAR was saying regarding the full up nature of our DTI levels. The curve was improperly applied to the argument.[/quote]
jstoesz, the “curve” you speak of “is as it is” because under Fannie/Freddie “guidelines,” which have been in place since the eighties, the ONLY consumer debts that are taken into account in a mortgage loan application are those which will be outstanding 10+ months AFTER closing. For instance, if you owe $10K in CC debt and can show your loan officer that you have been making $500 per month towards it in the last year in attempt to retire it and have NOT used the card during that time, then the $500 will be used in your back-end ratio (maybe more). If your vehicle payments are $500 per month, this will be used in your back end ratio (if you still owe at least 10 months of payments on it).
So your front end ratio is comprised of PITI and HOA (if appllc) and your back-end ratio is comprised of PITI, HOA + all consumer/student loan monthly debt payment which has more than 10 payments left.
The VA loan underwriters, I believe, ALSO use in their back-end ratios prospective gas and electric bills and a portion of child care cost while the parent(s) work.
Hence FF (front and back end) ratios are about 28/36 or 30/38 (for exc credit) and VA ratios are about 33/41. “Portfolio” lenders (who do NOT sell the mortgages in the secondary market) may use ratios of 42/50 depending on credit but I can’t imagine that any of these loans are made anymore except to borrowers with =>800 FICO
scores.
The FF and VA rules apply in every state. In other words, the DTI ratios are uniformly the same everywhere. The “curve” you speak of here is “about” San Diego (because that’s what we study here at Pigg) but it could apply anywhere, just by changing the median house prices and incomes.
For that matter, the “curve” has little to do with whether a family in Plano, TX (where everything is “super-sized” … lol) can take on any more debt! A mortgage lender can’t babysit what a borrower does with his $$ before application or after the loan closes. All they can do is deny the loan or foreclose the property for non-payment.
Any Piggs in the lending biz please correct me if I’m wrong on any of this.
CA renter
November 19, 2010 @ 12:35 AM
bearishgurl wrote:jstoesz
[quote=bearishgurl][quote=jstoesz]What I am getting at, Bearishgurl, is something rather straight forward. The affordability of homes has little to do with the San Diego populace’s ability to take on more debt. The curve only looks at median income, median home price, taxes, and interest. It does not look at the overall health of the SD populace’s overall balance sheet (debt to income). There is no mention of debt payments people are currently making…only debt payments new suckers could/will be paying if they buy a home. In addition it leaves off all of the other consumer debt that has been growing steadily until its recent deleveraging point. . . FSD used this curve to refute what CAR was saying regarding the full up nature of our DTI levels. The curve was improperly applied to the argument.[/quote]
jstoesz, the “curve” you speak of “is as it is” because under Fannie/Freddie “guidelines,” which have been in place since the eighties, the ONLY consumer debts that are taken into account in a mortgage loan application are those which will be outstanding 10+ months AFTER closing. For instance, if you owe $10K in CC debt and can show your loan officer that you have been making $500 per month towards it in the last year in attempt to retire it and have NOT used the card during that time, then the $500 will be used in your back-end ratio (maybe more). If your vehicle payments are $500 per month, this will be used in your back end ratio (if you still owe at least 10 months of payments on it).
So your front end ratio is comprised of PITI and HOA (if appllc) and your back-end ratio is comprised of PITI, HOA + all consumer/student loan monthly debt payment which has more than 10 payments left.
The VA loan underwriters, I believe, ALSO use in their back-end ratios prospective gas and electric bills and a portion of child care cost while the parent(s) work.
Hence FF (front and back end) ratios are about 28/36 or 30/38 (for exc credit) and VA ratios are about 33/41. “Portfolio” lenders (who do NOT sell the mortgages in the secondary market) may use ratios of 42/50 depending on credit but I can’t imagine that any of these loans are made anymore except to borrowers with =>800 FICO
scores.
The FF and VA rules apply in every state. In other words, the DTI ratios are uniformly the same everywhere. The “curve” you speak of here is “about” San Diego (because that’s what we study here at Pigg) but it could apply anywhere, just by changing the median house prices and incomes.
For that matter, the “curve” has little to do with whether a family in Plano, TX (where everything is “super-sized” … lol) can take on any more debt! A mortgage lender can’t babysit what a borrower does with his $$ before application or after the loan closes. All they can do is deny the loan or foreclose the property for non-payment.
Any Piggs in the lending biz please correct me if I’m wrong on any of this.[/quote]
One of the biggest problems (IMHO) is that the GSEs were totally in on the game.
Here’s the scary part…and this was published *after* the “credit crisis.” Will try to find something more recent.
————-
“In a continuing effort to promote sustainable homeownership, Fannie Mae will institute a
maximum 45 percent debt-to-income ratio for all manually underwritten conventional
loans. Fannie Mae continues to support the benchmark debt-to-income ratio of 36
percent, but will allow the benchmark to be exceeded up to a maximum of 45 percent
with strong compensating factors. For information about compensating factors, refer to
Announcement 08-26, Comprehensive Risk Assessment Approach to Manual
Underwriting.
This maximum 45 percent debt-to-income ratio does not apply to government loans and
loan casefiles underwritten through Desktop Underwriter. Desktop Underwriter will
continue to determine the maximum allowable debt-to-income ratio based on the overall
risk assessment of the loan casefile.”
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0835.pdf
(former)FormerSanDiegan
November 17, 2010 @ 2:38 PM
jstoesz wrote:That is kind of
[quote=jstoesz]That is kind of what I figured…
So naturally the next question is, how does this curve relate to aggregate SD Debt payments to income levels?
In other words, how is this relevant to the aggregate’s ability to take on more debt?[/quote]
It is directly related to the ability of the income of the population in aggregate to afford house payments on the average.
It looks like we are headed down the road where we parse the parsing of eachother’s response until we are arguing over why household median income relates to the 37% of the population that live in owner-occupied single family residences.
Back to my original point. Higher interest rates do not necessarily result in higher home prices. Period. Plenty of historical evidence that in fact the opposite has been the case. Of course, this time it might be different.
jstoesz
November 17, 2010 @ 2:53 PM
Hahaha, I actually thought I
Hahaha, I actually thought I might get a retraction…oh well, I guess my hope was ill founded.
Move along, nothing to see here.
(former)FormerSanDiegan
November 17, 2010 @ 4:01 PM
jstoesz wrote:Hahaha, I
[quote=jstoesz]Hahaha, I actually thought I might get a retraction…oh well, I guess my hope was ill founded.
Move along, nothing to see here.[/quote]
OK. Just for kicks I just retracted my vote in the poll.
Happy now ?
Or did you want me to retract 45 years of historical fact ?
jstoesz
November 17, 2010 @ 4:28 PM
I revert back to previous
I revert back to previous comments…
[quote=jstoesz]Looking at this curve…I see little to no correlation.
http://static.seekingalpha.com/uploads/2009/1/22/saupload_09_01_21c_price_income_ratio_and_mtg_rates.png
Then again that is fairly recent history. But from what I have seen in the past…home prices do not tend to move lockstep with inflation. Up or down. So again…all things are not equal.
Or for a bit more commentary…granted it is a bit more seattle centric
http://seattlebubble.com/blog/2010/02/09/do-rising-interest-rates-lead-to-falling-home-prices/%5B/quote%5D
and when I said this…
[quote=jstoesz]definitely not simple. Anyone who argues the certainty of future prices based on inflation is not looking at the historic non-relationship.
It is dangerous to take a family budget and project it on to the entire economy saying “all things being equal.” But it is also rather dense to assume that raising interest does not have a negative effect on prices. That is the swan song of a home owner.
[quote=FormerSanDiegan]
I already covered the long history of price and interest rate movements on a large scale, so what’s wrong with an anecdote ?[/quote]
Because there is not a strong correlation, or any correlation as I showed in the seattlebubble link. He looked at the data for his area and found the exact opposite to be true. It kind of depends where you choose to put the yellow bars.[/quote]
Or when I said this…
[quote=jstoesz]so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices)
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.[/quote]
I think you brought up the affordability graph because affordability and interest rates tend to move in lockstep…unlike real home prices and interest rates which do not. So you are trying to red herring this argument by switching home prices to affordability.
So I am not trying to get you to deny 45 years of historical fact…I am trying to get you to deny your unfounded view that higher interest rates with *always* result in higher home prices, becuase that is far from historical fact.
(former)FormerSanDiegan
November 17, 2010 @ 10:17 PM
jstoesz wrote:
So I am not
[quote=jstoesz]
So I am not trying to get you to deny 45 years of historical fact…I am trying to get you to deny your unfounded view that higher interest rates with *always* result in higher home prices, becuase that is far from historical fact.[/quote]
First, I would like you to point out where I wrote that higher interest rates *always* result in higher home prices.
I never wrote this and I don’t have this view.
Therefore I cannot retract it.
I pointed out the fallacy of the belief of an inverse relationship between home prices and interest rates. They do not move inversely (e.g. higher rate result in lower prices). It’s more complicated than that. In fact many times in the past 40 years prices have moved higher when rates moved higher. Period.
Rich Toscano
November 17, 2010 @ 4:41 PM
FormerSanDiegan
[quote=FormerSanDiegan]
[quote=jstoesz]
How is the “affordability” curve created?
[/quote]
2. I think Rich uses Excel.
[/quote]
Rim shot! 😉
Sorry, just punching in here. Was out of town.
FSD pretty much has it; the curve is created by taking SD home prices per the CS index and assuming an 80% LTV loan at the average rate per the Freddie Mac site, and also adding in property taxes, to calculate a monthly payment. Then taking that monthly payment and dividing by per capita (average) SD income.
As FSD said, monthly payment ratios are at all time lows. This graph says nothing about how much debt people can afford to pay, it just says how expensive houses are (in monthly payment terms) compared to incomes.
Rich
CA renter
November 19, 2010 @ 12:40 AM
jstoesz wrote:DTI (DEBT to
[quote=jstoesz]DTI (DEBT to INCOME) has nothing to do with affordability and everything to do with DEBT to INCOME.
Yup Looks like we are maxed out.
http://pragcap.com/deleveraging-in-real-time
It doesn’t matter if it is affordable when everyone is so in debt they can’t take on another red dollar.[/quote]
Yes, thanks for pointing that out, jstoesz.
I was referring to total debt (back-end DTI ratio). We are still mired in tremendous amounts of debt, and our economy is currently being propped up by our govt. This does not exactly seem like a good time to go out and pay near-bubble prices for houses.
Also, those “low payments” are low only because of the low interest rates.
We can debate this until the cows come home, but it seems to me that when rates have been driven to such lows over the past few decades, at some point, they will have nowhere to go but up. I don’t see housing prices increasing when they do (barring a dollar crisis, in which case, all bets are off), but that’s just me.
CA renter
November 19, 2010 @ 1:20 AM
Yep, Fannie Mae’s guidelines
Yep, Fannie Mae’s guidelines still allow for a 45% DTI ratio. IMHO, that is far, far too high for most families, and it makes foreclosure a significant possibility in the future.
In today’s economy, the back-end ratio should be no more than 30%, MAX, for a family earning $100K or less.
—————
“Debt-to-income (DTI) ratio tolerance: Additional debts and/or reduced income that cause the DTI ratio to exceed 45%, or that cause the DTI ratio to increase by 3 percentage points or more.”
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1011.pdf
bearishgurl
November 19, 2010 @ 9:45 AM
CA renter wrote:Yep, Fannie
[quote=CA renter]Yep, Fannie Mae’s guidelines still allow for a 45% DTI ratio. IMHO, that is far, far too high for most families, and it makes foreclosure a significant possibility in the future.
In today’s economy, the back-end ratio should be no more than 30%, MAX, for a family earning $100K or less. . . [/quote]
CAR, I agree with the 30% back end ratio for buyers with families whose household income is <$100K, simply because many will be too strapped otherwise should the inevitable emergency come up. In practice though, I don't see a 30% back end ratio as "doable" in CA coastal counties. In other words, if lenders were that strict around here, very, very little would get sold in typical "family neighborhoods."
jstoesz
November 19, 2010 @ 10:00 AM
Precisely! Therein lies the
Precisely! Therein lies the rub as to my previous thread.
I do like the idea of a lower DTI percentage requirement for lower income…or at least more of a sliding scale. This would seem wise of lenders, not that they actually care about the quality of their investments.
CA renter
November 19, 2010 @ 4:47 PM
bearishgurl wrote:CA renter
[quote=bearishgurl][quote=CA renter]Yep, Fannie Mae’s guidelines still allow for a 45% DTI ratio. IMHO, that is far, far too high for most families, and it makes foreclosure a significant possibility in the future.
In today’s economy, the back-end ratio should be no more than 30%, MAX, for a family earning $100K or less. . . [/quote]
CAR, I agree with the 30% back end ratio for buyers with families whose household income is <$100K, simply because many will be too strapped otherwise should the inevitable emergency come up. In practice though, I don't see a 30% back end ratio as "doable" in CA coastal counties. In other words, if lenders were that strict around here, very, very little would get sold in typical "family neighborhoods."[/quote] It's entirely doable...the prices would have to come down to reflect reality -- as they should. That's my whole point, here. Prices are **still too high!** For as long as these high DTI ratios are around, financial distress and foreclosures will be a problem.
scaredyclassic
November 19, 2010 @ 10:49 PM
maybe foreclosures will be
maybe foreclosures will be permanent…or longterm. maybe people will keep buying houses with marginal resources, with lemmings foreclosing in little groups regualrly…
SD Transplant
November 23, 2010 @ 7:48 AM
http://money.cnn.com/2010/11/
http://money.cnn.com/2010/11/23/real_estate/home_sales_slow/index.htm
Existing home sales slow down
NEW YORK (CNNMoney.com) — Following a couple of months of gains, sales of existing homes retreated again in October, an industry report said Tuesday.
The National Association of Realtors reported that the number of homes sold fell 2.2% from September to an annual rate of 4.43 million. The rate was down 25.9% from 12 months earlier.
The report came in just about at expectations. A consensus of experts surveyed by Briefing.com had forecast an annualized sales rate of 4.42 million.
“The housing market is experiencing an uneven recovery,” said Lawrence Yun, NAR’s chief economist. “Still, sales activity is clearly off the bottom and is attempting to settle into normal sustainable levels.”
Most (and least) affordable cities to buy a home
Home sales have been slow despite some of the best buying conditions in many years: interest rates near 4% for 30-year fixed-rate loans, the most affordable home prices in many years and a wide choice of homes available for house hunters.
The median price of all existing homes sold during the month was $170,500, down 0.9% compared with 12 months earlier. About a third of the market was in distressed properties, repossessed homes and short sales.
The median price of all existing homes sold during the month was $170,500, down 0.9% compared with 12 months earlier. About a third of the market was in distressed properties, repossessed homes and short sales.
Mike Larson, a housing market analyst for Weiss Research, said that positive and negative forces have been offsetting each other, leaving a market in limbo.
“You have low home prices and interest rates on the one hand, but trouble getting financing on the other,” he said. “And unemployment remains stubbornly high.”
sdrealtor
November 23, 2010 @ 9:20 AM
Did anyone else see the
Did anyone else see the article on unemplyment in the Untion Trib yesterday. While it was well over 10 in the South Bay it was around 6% in the prime North County comunnities both inland and on the coast.
permabear
November 23, 2010 @ 2:34 PM
No, but I’d believe it.
No, but I’d believe it. Stuff continues flying if it’s nice and well-priced. I did see a distribution graph somewhere that unemployment and underemployment are both very concentrated in the sub-$100k salary range. Over that and the rates drop dramatically, in fact they’re almost unchanged from normal. Though, it is worth remembering unemployment as a stat neglects to include business owners like GC’s, realtors, brokers, etc. who are $100k+ and have been hit hard.
SD Transplant
November 29, 2010 @ 8:13 AM
Americans Less Certain
Americans Less Certain Housing Market Has Bottomed
Americans are still waiting for the housing market to hit bottom according to survey data released this week from the Third Quarter Fannie Mae National Housing Survey. It found that a declining number of both homebuyers and renters think this is a good time to buy and an overwhelming and growing majority are quite sure it’s a bad time to sell.
The survey was conducted among 3,417 homeowners and renters during July, August and September. A random sample of 3,015 of members of the general population which included 834 outright homeowners, 894 renters, and 1,156 mortgaged homeowners of whom 305 were self-identified as being underwater on their mortgages were interviewed by phone. The survey also included an oversample of 402 randomly selected borrowers who had not paid on their mortgages in at least 60 days. Survey results were compared to similar surveys conducted in January and June of this year and in December 2003.
The percentage of Americans who think it is a good time to buy a home declined by two percentage points from the June survey to 68 percent while 29 percent feel it is a bad time, an increase of 3 points. In June 83 percent of respondents viewed it as a bad time to sell, a figure that rose to 85 percent in the recent survey.
The margin separating those who expect home prices to rise during the next year from those who expect them to fall has narrowed significantly. In June 31 percent were looking for an increase while 18 percent expected further declines. The current numbers are 25 percent and 22 percent respectively. The survey found that delinquent borrowers and persons who owned their homes mortgage-free were more pessimistic about housing prices while borrowers who were underwater on their current mortgage and renters were looking for a modest (1 percent or less) price increase.
At the same time, an overwhelming majority – 80 percent to 20 percent – are looking for rents to go up although in June the average expectation was for a 3.6 percent increase and today it is 2.8 percent.
“Consumer attitudes toward buying a home are more negative since last quarter,” said Doug Duncan, Vice President and Chief Economist, Fannie Mae. “Our survey shows that Americans’ declining optimism about housing and their personal finances is reinforcing increasingly realistic attitudes toward owning and renting.”
66 percent of American view homeownership as a safe investment, down 1 percent from June but 17 points since the 2003 survey. The percentage was significantly higher among homeowners, even if their mortgage is underwater (71 and 72 percent) than it is among delinquent borrowers (54 percent) or renters (56 percent.) Delinquent borrowers, in fact, are 10 percent more likely to rent their next home than they reported in January. 50 percent said they would prefer to rent compared to 45 percent who would buy. Half of all respondents ranked homeownership as less safe than putting money into a bank account.
That their situation has taken a toll is evident in other responses from the delinquent borrower group. More than half (54 percent) say they are very stressed and 82 percent say they are stressed. Both numbers are up 1 point since June. Owning their home entailed a financial sacrifice for 88 percent of these borrowers with 69 percent saying they are making a great deal of a sacrifice. These borrowers are also falling further into debt with 29 percent saying they have significantly increased their mortgage debt during the past year compared to 23 percent of other borrowers who have reduced their debt. Seven out of 10 believe that their income is insufficient to cover their expenses while the 71 percent of the general population perceive their incomes as adequate.
When asked about other aspects of their personal finance, 58 percent of Americans say that their household income has remained flat for the past year while 48 percent of delinquent homeowners report a significant decrease. In June the figure was 46 percent. The percentage of Americans who feel their personal finances will improve, at 41 percent, is for the first time, equal to the percentage who foresees no improvement.
Forty-two percent of Americans know someone who has defaulted on a mortgage, an increase of 3 percent since June, a figure that is much higher among delinquent and underwater borrowers at 63 percent and 58 percent respectively (compared to 56 percent and 48 percent in June.) Respondents who know someone who has defaulted are more likely to have considered doing so themselves although the numbers among most subgroups are small. However, in the case of delinquent borrowers who know a defaulter, 45 percent had considered defaulting compared to 16 percent who did not know a defaulter. But default is not viewed as a free pass. Fifty-five percent of underwater borrowers, 51 percent of all mortgage borrowers, and 43 percent of delinquent borrowers (up 11, 6, and 6 percentage points since January, respectively) think their lender would pursue other assets in addition to their home if they defaulted on their mortgage.
Here is Fannie Mae’s Presentation of the Housing Survey Data. It contains many useful graphs and tables
Source:
http://www.mortgagenewsdaily.com/11242010_housing_fannie_mae.asp
permabear
November 29, 2010 @ 10:29 AM
Fascinating graphs in the
Fascinating graphs in the full report. This, though:
[quote=SD Transplant]Owning their home entailed a financial sacrifice for 88 percent of [delinquent] borrowers with 69 percent saying they are making a great deal of a sacrifice. These borrowers are also falling further into debt with 29 percent saying they have significantly increased their mortgage debt during the past year… Seven out of 10 believe that their income is insufficient to cover their expenses [/quote]
And this:
[quote=Fannie Mae]For the first time, Delinquent borrowers are more likely to say that they would rent their next home instead of buying. 50% would rent (a 10 percentage point increase since January) and 45% say they would buy (an 11 percentage point decline since January). 54% report to be very stressed about their debt, 46% are also underwater, and 34% have considered stopping their mortgage payments[/quote]
Wow. Talk about stretched to the breaking point.
SD Transplant
November 29, 2010 @ 11:19 AM
yes, the graphs in the main
yes, the graphs in the main report are great. I should have included it in the previous post.
http://www.fanniemae.com/media/pdf/2010/National-Housing-Survey-112310.pdf
SD Transplant
November 29, 2010 @ 11:29 AM
Slide # 14
82% of all
Slide # 14
82% of all Delinquent borrowers say they are stressed about their ability to make payments on
their debt, with 54% saying they are very stressed
– However, stress among GP continues to moderate
Slide # 15
7 in 10 delinquent borrowers do not think their household income is sufficient for the expenses
– Overall, most Americans perceive their income to be sufficient enough to cover their expenses
– 24% of Delinquent borrowers say their income is sufficient, yet they still remain delinquent on their home mortgage
Slide # 29
Additional findings
– 6 in 10 Americans think that the U.S. economy is off on the wrong track, especially Underwater
borrowers, of whom 66% think the economy is going in the wrong direction
– 57% of Americans think it would be difficult for them to get a home loan today, citing their income, their credit history, and not having enough savings for the down payment as the top obstacles
– A growing share of Americans think that it will be harder for the next generation to buy a home – there has been a 6 percentage point increase since January
– An overwhelming majority of Mortgage borrowers remain satisfied with their loans and 3 in 4 Americans
are confident they would receive the necessary information to choose the right loan
– More Delinquent borrowers are becoming not satisfied with their mortgage features (up by 6 percentage points) and fewer are confident they would receive the necessary information to choose the right loan (down by 8 percentage points since June)
– Majority of Americans continue preferring having a wide selection of loan products and most continue blaming the borrowers, not the loan companies, for taking out mortgages that they can not afford
– 51% of all Mortgage borrowers think that their lender would pursue other assets in addition to their
home if they were to default on their mortgage – it marks a 6 percentage point increase since January and an 11 percentage point increase among Underwater borrowers, of whom 55% think that their lender would pursue other assets
permabear
November 29, 2010 @ 11:44 AM
This one has got to be the
This one has got to be the best:
[quote]57% of Americans think it would be difficult for them to get a home loan today, citing their income, their credit history, and not having enough savings for the down payment as the top obstacles[/quote]
UCGal
November 29, 2010 @ 12:26 PM
permabear wrote:This one has
[quote=permabear]This one has got to be the best:
[quote]57% of Americans think it would be difficult for them to get a home loan today, citing their income, their credit history, and not having enough savings for the down payment as the top obstacles[/quote][/quote]
Perhaps that should be changed to “home loan for a house they can’t afford”. Smallish downpayment and smallish income should put you in a smallish loan. If people were only able to purchase the homes they could afford – then that would cause some downward pressure on prices. Until things got crazy with financing, people looked for homes that priced where they could afford them. Crazy financing drove prices up. Prices still haven’t come back to where people can afford to buy with 20% down, DTI of 30%, etc… People still want to buy houses that are 6x their annual income… when it should be 2-3 x the income.
bearishgurl
November 29, 2010 @ 12:50 PM
UCGal wrote:Perhaps that
[quote=UCGal]Perhaps that should be changed to “home loan for a house they can’t afford”. Smallish downpayment and smallish income should put you in a smallish loan. If people were only able to purchase the homes they could afford – then that would cause some downward pressure on prices. Until things got crazy with financing, people looked for homes that priced where they could afford them. Crazy financing drove prices up. Prices still haven’t come back to where people can afford to buy with 20% down, DTI of 30%, etc… People still want to buy houses that are 6x their annual income… when it should be 2-3 x the income.[/quote]
UCGal, I don’t recall SD SFR prices being 2-3x their “target buyers'” income since the early nineties (and only in SOME areas). Do you feel that SFR prices will return to this level here?
I don’t feel the “2-3x annual income rule of thumb” is realistic in CA coastal counties.
I guess your statement (above) is based upon who the “target buyer” SHOULD BE, NOT who the “target buyer” ACTUALLY IS.
When I purchased my current home almost 10 yrs. ago, it cost 6x my annual income. I would RENT before I’d plunk down a large downpayment on anything less and would not purchase a condo. But this is just me and I am comfortable with mortgage debt and am VERY experienced at “money mgmt.”
faterikcartman
November 29, 2010 @ 4:19 PM
We need some old codgers on
We need some old codgers on this board to chime in with this old bit of wisdom: “If you can’t afford to pay cash, don’t buy it.”
I once chuckled when I read posts like this (you’ll find them in RV forums, for example). These days I’m rubbing my chin thinking that while not particularly sophisticated, this would have saved a lot of people a lot of pain.
CA renter
November 29, 2010 @ 4:28 PM
faterikcartman wrote:We need
[quote=faterikcartman]We need some old codgers on this board to chime in with this old bit of wisdom: “If you can’t afford to pay cash, don’t buy it.”
I once chuckled when I read posts like this (you’ll find them in RV forums, for example). These days I’m rubbing my chin thinking that while not particularly sophisticated, this would have saved a lot of people a lot of pain.[/quote]
Indeed. Personally, I think all this debt has simply exaggerated the wealth disparity in this country without any real benefit to the average American. IMHO, it would be fantastic to see everyone become less dependent on debt and more dependent on their own savings that are earned via wages.
Enough with the leverage, gambling, and speculation. Time to tell the financial industry (and all the executives and tag-alongs with their overly-bloated incomes) to go to hell. We need real JOBS for the average citizen (with decent wages and benefits) that produce useful and beneficial things for our citizens and others around the world. “Trickle-down, supply-side economics” DOES NOT WORK! It’s a scheme used to separate productive, working people from their wages, while benefitting only those at the very top (who’ve managed to convince the idiot sheeple that “supply-side” economics will magically benefit them).
SD Transplant
December 8, 2010 @ 9:05 AM
Insightful report on the RE
Insightful report on the RE market by Amhers Mortgage Insight
http://www.politico.com/static/PPM170_101006_amherst.html
“The Housing Crisis—Sizing the Problem,
Proposing Solutions
Summary
This article summarizes the size and scope of the housing crisis, making the point that if
governmental policy does not change, one borrower out of every 5 is in danger of losing
his/her home. A crisis of this order of magnitude requires both supply and demand side
measures. On the supply side, a successful medication is critical. This will require principal
reductions to re-equify the borrower. The moral hazard (strategic default) issues must be
addressed by first recognizing that this is an economic issue, not a moral one. Second
liens must also be addressed. As supply side measures alone are likely to prove insufficient
to address a crisis of this size, we discuss demand side measures to increase the buyer
base.”
Another good one Foreclosure mess: Much bigger than you thought
http://www.boston.com/realestate/news/blogs/renow/2010/12/foreclosure_mes.html?source=patrick.net#catHeader
Goodman’s breakdown goes roughly like this. Twenty of every 100 loans are “impaired.” Of these, nine are seriously behind on their payments. Another six are now “Dirty Current” – in various government modification programs whose graduates have been defaulting at a rate of 50 percent a year. The final five are underwater on their mortgages by more than 20 percent – a group that has been defaulting at a rate of 20 percent a year.
It is a crisis that is more staggering that most of us realize – and is likely to have a much more dramatic impact on both federal policy and the banking industry than many are bargaining for right now.
Goodman predicts Uncle Sam will eventually have to embrace mortgage write-downs – letting 11 million-plus homes slide into foreclosure will prove politically untenable to policymakers and politicians in Washington.
“You have 11.6 million units in jeopardy,” Goodman said. “That is one borrower out of every five. You can’t foreclose on one borrower in five.”
“Politically this cannot happen. Successive mortgage modification programs will be attempted until something works,” she notes in a recent report.
Meanwhile, the banking industry could take a huge hit as well.
Nouriel Roubini, the economist who predicted the financial crisis and who has been dubbed “Dr. Doom” by the press, has looked at Goodman’s numbers and is warning of serious problems ahead for banks.
He pegs the potential damage at a cool trillion.
And another At least 3 more years of housing troubles seen
http://www.reuters.com/article/idUSTRE6B656N20101207?source=patrick.net#fixedpanelContainer
“We don’t see a full market recovery until 2014,” said Rick Sharga of RealtyTrac, a foreclosure marketplace and tracking service. He said that he expected more than 3 million homeowners to receive foreclosure notices in 2010, with more than 1 million homes being seized by banks before the end of the year.
Both of those numbers are records and expected to go even higher, as $300 billion in adjustable rate loans reset and foreclosures that had been held up by the robo-signing scandal work through the process. That should make the first quarter of 2011 even uglier than the fourth quarter of 2010, he said.
There have been allegations banks used so-called robo-signers to sign hundreds of foreclosure documents a day without proper legal review.
Mortgage rates will start to rise in 2011, further dampening demand and limiting affordability, said Pete Flint, chief executive of Trulia.com, a real estate search and research website. “Nationally, prices will decline between 5 percent and 7 percent, with most of the decline occurring in the first half of next year,” he said.
Interest rates on 30-year fixed rate loans will creep up to 5 percent, and that alone will add $120 per month to the typical mortgage payment on a $400,000 loan, Flint said in a joint news conference.
The two firms released a survey showing a marked deterioration in consumers’ views of the housing market, too. Almost half — 48 percent — said they’d consider walking away from their homes and their mortgages if they were underwater on their loans. That’s up almost 20 percent from when the same question was asked in May. “If that continues it would be an epidemic of strategic defaults,” said Flint.
Roughly 1 in 5 consumers said they expect it to be 2015 before there is a recovery in housing, according to the survey, conducted in November by Harris Interactive. Most respondents said they think recovery will come in 2012 or 2013. Would-be buyers suggested they wouldn’t really get serious about purchasing a home for another two years.
Sharga sees a big glut in distressed properties hitting the market. There are about 5 million loans that are at least 60 days overdue, he said. In the next 12 to 15 months, another $300 billion in adjustable rate loans will reset, and “they will default at pretty high levels.”
“Even with today’s low interest rates, you’re looking at an average of $1,000 or more in mortgage payments on loans that are overvalued by about 30 percent. That is where you will see a high level of walkaways,” Sharga predicted.
Not all markets will share equally in the troubles. Flint said he expects to see improvements in several markets, including Raleigh-Durham, North Carolina; Austin, Texas; Oklahoma City, Oklahoma; Salt Lake City, Utah and Omaha, Nebraska.
Homebuyers who are willing to take risks and buy distressed properties are likely to see discounts of around 30 percent from prices on comparable homes that are not in distress.”
ucodegen
November 16, 2010 @ 11:52 AM
FormerSanDiegan wrote:Interst
[quote FormerSanDiegan]Interst rates have declined precipitously since 2006, wjhile home prices also fell. In periods of increasing rates (late 1960’s to early 1980’s) prices increased. The fallacy of an inverse relationship between home prices and interest rates persists, despite the dearth of historical evidence.[/quote]
Actually it is not a fallacy. There is a lagging relationship and interest rates are not the sole cause of price movement. The price movement also lags interest rate changes. When going down, people wait because they may get a better rate next month/year. As interest rates go up, you get a slight panic as people rush in to buy before the are ‘priced out of the market’. You can’t ignore psychology.
In the period from 1960 to 1980, a few interesting things happened, which changed the mortgage markets.
Freddie (FHLMC) was founded in 1970 to expand the secondary market. This reduced the spread between actual mortgage rates and fed treasury rates. Most of the mortgage interest rate increases occurred after 1970 and it was a response to trying to keep inflation in check (Volcker 1979 – 1987). Fed funds rate in 1979 was 11.2%, in 1981 was 20%. The period from 1966 to 1979 was largely flat on the interest rate front with some small perturbations. The Fed also ‘tinkers’ with the definition of inflation and what is used to ‘measure CPI’. Don’t forget the stock crash of 1973 too..
By the way, the price I have for median house price in 1980 is $65,000. The problem I see is that it is not even PpSF.
http://www.census.gov/const/uspricemon.pdf
What is the source of your data? link?
(former)FormerSanDiegan
November 16, 2010 @ 12:31 PM
ucodegen
[quote=ucodegen][quote FormerSanDiegan]Interst rates have declined precipitously since 2006, wjhile home prices also fell. In periods of increasing rates (late 1960’s to early 1980’s) prices increased. The fallacy of an inverse relationship between home prices and interest rates persists, despite the dearth of historical evidence.[/quote]
Actually it is not a fallacy. There is a lagging relationship and interest rates are not the sole cause of price movement. The price movement also lags interest rate changes. When going down, people wait because they may get a better rate next month/year. As interest rates go up, you get a slight panic as people rush in to buy before the are ‘priced out of the market’. You can’t ignore psychology.
In the period from 1960 to 1980, a few interesting things happened, which changed the mortgage markets.
Freddie (FHLMC) was founded in 1970 to expand the secondary market. This reduced the spread between actual mortgage rates and fed treasury rates. Most of the mortgage interest rate increases occurred after 1970 and it was a response to trying to keep inflation in check (Volcker 1979 – 1987). Fed funds rate in 1979 was 11.2%, in 1981 was 20%. The period from 1966 to 1979 was largely flat on the interest rate front with some small perturbations. The Fed also ‘tinkers’ with the definition of inflation and what is used to ‘measure CPI’. Don’t forget the stock crash of 1973 too..
By the way, the price I have for median house price in 1980 is $65,000. The problem I see is that it is not even PpSF.
http://www.census.gov/const/uspricemon.pdf
What is the source of your data? link?[/quote]
Here …
http://www.census.gov/const/uspricemon.pdf
As I mentioned in my post above it was what I could find quickly (~ 3 minmutes).
Sure we can argue median existing per square foot or whatever metric you want to define. But, by any metric prices rose substantially during that period. And they rose because of inflation.
jstoesz
November 16, 2010 @ 12:46 PM
Did wages and dual income
Did wages and dual income percentages go up as well, right alongside inflation?
Do you believe the trends you are looking at are correlative, or Causitive? Is it possible that there were other mitigating factors that allowed home prices to rise in the headwind of rising inflation?
Because logically, if all things being equal, higher interest will result in lower home prices (its simple math). Now everyone knows that all things are never equal…So the question is, what is different or changing and how will that effect home prices. I think the real fallacy is that you think everyone else is fallacious 🙂
(former)FormerSanDiegan
November 16, 2010 @ 1:04 PM
jstoesz wrote:Did wages and
[quote=jstoesz]Did wages and dual income percentages go up as well, right alongside inflation?
Do you believe the trends you are looking at are correlative, or Causitive? Is it possible that there were other mitigating factors that allowed home prices to rise in the headwind of rising inflation?
Because logically, if all things being equal, higher interest will result in lower home prices (its simple math). Now everyone knows that all things are never equal…So the question is, what is different or changing and how will that effect home prices. I think the real fallacy is that you think everyone else is fallacious :)[/quote]
Can you point to any historical evidence of rising interest rates and falling prices ?
jstoesz
November 16, 2010 @ 1:29 PM
Looking at this curve…I see
Looking at this curve…I see little to no correlation.
http://static.seekingalpha.com/uploads/2009/1/22/saupload_09_01_21c_price_income_ratio_and_mtg_rates.png
Then again that is fairly recent history. But from what I have seen in the past…home prices do not tend to move lockstep with inflation. Up or down. So again…all things are not equal.
Or for a bit more commentary…granted it is a bit more seattle centric
http://seattlebubble.com/blog/2010/02/09/do-rising-interest-rates-lead-to-falling-home-prices/
(former)FormerSanDiegan
November 16, 2010 @ 1:36 PM
jstoesz wrote:Looking at this
[quote=jstoesz]Looking at this curve…I see little to no correlation.
[/quote]
So we agree on my point, which is that home prices do not move inversely with interest rates.
… similar conclusion from Rich’s charts here …
http://piggington.com/shambling_further_from_affordability
jstoesz
November 16, 2010 @ 1:48 PM
FormerSanDiegan wrote:jstoesz
[quote=FormerSanDiegan][quote=jstoesz]Looking at this curve…I see little to no correlation.
[/quote]
So we agree on my point, which is that home prices do not move inversely with interest rates.
… similar conclusion from Rich’s charts here …
http://piggington.com/shambling_further_from_affordability%5B/quote%5D
I agree that it is not simple…that higher interest does not automatically cue home prices higher or lower. I think that in today environment, higher interest would be a dirge for home prices. Will the compression of margins and less available principle (because of the simple math of higher interest rates) overwhelm other influences of inflation…that I am not sure of, because nothing stays equal.
(former)FormerSanDiegan
November 16, 2010 @ 1:51 PM
jstoesz wrote:
I agree that
[quote=jstoesz]
I agree that it is not simple…that higher interest does not automatically cue home prices higher or lower. I think that in today environment, higher interest would be a dirge for home prices. Will they overwhelm other influences of inflation…that I am not sure of, because nothing stays equal.[/quote]
Definitely not simple. That we can agree.
jstoesz
November 16, 2010 @ 1:44 PM
Not all things inflate in
Not all things inflate in price in the same way or with the same velocity. Certain things deflate while others inflate more quickly. I would contend that if we get into an inflationary cycle. Home prices will go down, because everyone will be worse off. Many products are sold globally, like oil and wheat, but homes are sold locally. If the dollar weakens, will people automatically get paid more, I doubt it. But the prices of commodities will go up making americans poorer globally, and draining their budgets locally. Therefore, the average American will have less to put towards a house.
This is completely sidestepping the whole monthly interest payment issue, which I still find valid, all things being equal.
(former)FormerSanDiegan
November 16, 2010 @ 1:47 PM
jstoesz wrote:Not all things
[quote=jstoesz]Not all things inflate in price in the same way or with the same velocity. Certain things deflate while others inflate more quickly. I would contend that if we get into an inflationary cycle. Home prices will go down, because everyone will be worse off. Many products are sold globally, like oil and wheat. If the dollar weakens, Will people automatically get paid more, I doubt it. But the prices of commodities will go up making everyone worse off. Therefore, the average American will have less to put towards a house.
This is completely sidestepping the whole monthly interest payment issue, which I still find valid, all things being equal.[/quote]
I agree that inflation is not uniform.
I grew up in the 1970’s. We replaced milkman-delivered milk with powdered milk. We also ate a lot more chicken instead of getting a side of beef butchered and delivered. We stopped buying coffe and sugar on occasion because of shortages and price spikes. Our vehicles evolved from a gas-guzzling new buick to used toyotas.
Despite all this, home prices did not decline.
jstoesz
November 16, 2010 @ 1:49 PM
haha
do you know what an
haha
do you know what an anecdote is?
(former)FormerSanDiegan
November 16, 2010 @ 1:55 PM
jstoesz wrote:haha
do you
[quote=jstoesz]haha
do you know what an anecdote is?[/quote]
I already covered the long history of price and interest rate movements on a large scale, so what’s wrong with an anecdote ?
jstoesz
November 16, 2010 @ 2:02 PM
definitely not simple.
definitely not simple. Anyone who argues the certainty of future prices based on inflation is not looking at the historic non-relationship.
It is dangerous to take a family budget and project it on to the entire economy saying “all things being equal.” But it is also rather dense to assume that raising interest does not have a negative effect on prices. That is the swan song of a home owner.
[quote=FormerSanDiegan]
I already covered the long history of price and interest rate movements on a large scale, so what’s wrong with an anecdote ?[/quote]
Because there is not a strong correlation, or any correlation as I showed in the seattlebubble link. He looked at the data for his area and found the exact opposite to be true. It kind of depends where you choose to put the yellow bars.
(former)FormerSanDiegan
November 16, 2010 @ 2:50 PM
jstoesz wrote: But it is also
[quote=jstoesz] But it is also rather dense to assume that raising interest does not have a negative effect on prices. That is the swan song of a home owner.
[/quote]
I would also say that it is equally dense to assume that raising interest rates will have a negative effect on prices
jstoesz
November 16, 2010 @ 3:11 PM
so you are saying that higher
so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices)
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.
(former)FormerSanDiegan
November 16, 2010 @ 3:16 PM
jstoesz wrote:so you are
[quote=jstoesz]so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices…
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.[/quote]
OK, it is dense to believe that higher interest rates will lead to lower home prices.
Here’s my nit: Where did I write that “higher interest rates enable a majority of people to afford *a more expensive home*” ?
I never said or implied that. Affordability can decline when prices rise (in fact, it nearly always does).
Rising interest rates, and the expectation of further future rate increases CAN stoke demand.
CA renter
November 16, 2010 @ 5:21 PM
FormerSanDiegan wrote:jstoesz
[quote=FormerSanDiegan][quote=jstoesz]so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices…
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.[/quote]
OK, it is dense to believe that higher interest rates will lead to lower home prices.
Here’s my nit: Where did I write that “higher interest rates enable a majority of people to afford *a more expensive home*” ?
I never said or implied that. Affordability can decline when prices rise (in fact, it nearly always does).
Rising interest rates, and the expectation of further future rate increases CAN stoke demand.[/quote]
FSD,
Can we agree that there was a very strong correlation between lower interest rates and higher home/asset prices since 2001? This is when many of us think the normal housing cycle transformed from a “normal” peak to a *credit induced* peak from 2001-2006.
When interest rates are artificially suppressed, it makes money cheap and easy as lenders/investors have to move further out on the risk curve in order to get a better yield. That’s why we saw all the “innovations” during this period, it was indicative of cheap money flowing to all manner of investments in the quest for higher returns.
If those low rates are behind the rising asset prices (which I strongly believe), isn’t is possible that a reversal of that trend would lead to lower prices?
(former)FormerSanDiegan
November 17, 2010 @ 7:33 AM
CA renter
[quote=CA renter][quote=FormerSanDiegan][quote=jstoesz]so you are saying that higher interest rates enable the majority of people to afford a *more expensive* home? Lets see the logic (not a poor correlation, but A leads to B, and B leads to voila, higher home prices…
Also note, I am nit picking your usage of the word “effect.” If you said it is “dense to believe that higher interest rates will lead to lower home prices”…then we would be in agreement. Because the interest rate’s effect on the family budget are not the only cook in this kitchen.[/quote]
OK, it is dense to believe that higher interest rates will lead to lower home prices.
Here’s my nit: Where did I write that “higher interest rates enable a majority of people to afford *a more expensive home*” ?
I never said or implied that. Affordability can decline when prices rise (in fact, it nearly always does).
Rising interest rates, and the expectation of further future rate increases CAN stoke demand.[/quote]
FSD,
Can we agree that there was a very strong correlation between lower interest rates and higher home/asset prices since 2001? This is when many of us think the normal housing cycle transformed from a “normal” peak to a *credit induced* peak from 2001-2006.
When interest rates are artificially suppressed, it makes money cheap and easy as lenders/investors have to move further out on the risk curve in order to get a better yield. That’s why we saw all the “innovations” during this period, it was indicative of cheap money flowing to all manner of investments in the quest for higher returns.
If those low rates are behind the rising asset prices (which I strongly believe), isn’t is possible that a reversal of that trend would lead to lower prices?[/quote]
Those low rates from 2001 -2006 were coupled with lower lending standards, no-doc loans, easy-qual, interest-only and neg-am loans.
Since 2006 interest rates have continued to fall, but prices did not increase.
The difference: lending standards and sausage-making loan securitization.
DTI’s were maxed out in 2006, but they aren’t now (see below)
(former)FormerSanDiegan
November 16, 2010 @ 1:21 PM
jstoesz wrote:
Is it
[quote=jstoesz]
Is it possible that there were other mitigating factors that allowed home prices to rise in the headwind of rising inflation?
[/quote]
Obviously there were other factors. But the increase in home price increases were a manifestation of inflation, as opposed to occuring in spite of inflation.
Did rent increase in the 1970’s despite the headwind of inflation or because they were a manifestation of inflation ?
(former)FormerSanDiegan
November 16, 2010 @ 1:34 PM
jstoesz wrote:
Because
[quote=jstoesz]
Because logically, if all things being equal, higher interest will result in lower home prices (its simple math). [/quote]
The simple truth is that the simple math fails to explain home prices over at least the past 50 years.
(former)FormerSanDiegan
November 16, 2010 @ 12:55 PM
ucodegen wrote:
The period
[quote=ucodegen]
The period from 1966 to 1979 was largely flat on the interest rate front with some small perturbations. [/quote]
Is this what you mean by “largely flat on the interest rate front” ? ???????
Chart of 30-yr fixed rates from January 1966 to December 1979 below. Rates went from 5.62% in January 1966 to 12.9% at the end of 1979.
(went up to 18.45% in 1981)
[img_assist|nid=14232|title=30-yr FRM|desc=|link=node|align=left|width=300|height=225]
(click to enlarge)
permabear
November 16, 2010 @ 5:31 PM
ucodegen wrote:Actually it is
[quote=ucodegen]Actually it is not a fallacy. There is a lagging relationship and interest rates are not the sole cause of price movement. The price movement also lags interest rate changes. When going down, people wait because they may get a better rate next month/year. As interest rates go up, you get a slight panic as people rush in to buy before the are ‘priced out of the market’. You can’t ignore psychology.[/quote]
Yeah – what he said.
Look, interest rates are a TRAILING adjustment. They do not lead. Never. Ever. In history.
Interest rates are increased to KEEP PACE with inflation. Volcker only jacked them up to “break the back of inflation” YEARS after inflation was outstripping rates.
So:
In our current still-over-indebted-society, it seems very likely that a few % increase in rates could throw the whole “recovery” (LOL) off. Say what you want about Bernanke, but he’s not a complete moron. He knows this. So, like Greenspan, he will err on the side of keeping rates too low for too long. Housing will (eventually) start increasing again, but rates will remain low, enabling speculation once again.
But then Bernanke will start raising rates and it will – just like happened a couple years ago – accelerate the panic into “hurry up and buy before it’s too late rates are going up!” that we just experienced.
End The Fed.
SD Transplant
November 17, 2010 @ 7:00 AM
Thanks to another outstanding
Thanks to another outstanding write up by Jim and MDA DataQuick October sales info, here is a little more info:
http://www.bubbleinfo.com/2010/11/16/october-sales-2/
SD Sales Volume Down : -25.1% (Oct 09 vs Oct 10)
SD Median Prices Slightly Up: 2.9 (Oct 09 vs Oct 10)
Here is a great analysis by Jim:
“Hopefully some day it will occur to these ivory-tower types that the main problem today is that the current home sellers are asking too much – that’s why sales are lagging. As long as you qualify, banks are happy to give you a mortgage, although, yes, they may put you through a bit of a “grind”. But what do you expect? Mortgage underwriters are running scared, and they are double-checking every file.
The banks have money – if the list prices were closer to recent comps, there would be more sales.
The data backs me up, but it’s the numerous stories heard here and elsewhere about how ridiculous elective-sellers are being about their pricing. They insist on tacking on the extra 10% to 20% to their list prices with no justification or comps to back them up – and the listing agents go along.
Today’s data tidbit:
Active SD detached and attached listings: 12,157, with list prices averaging $332/sf.
October SD detached and attached solds: 2,412, averaging $238/sf.
A pricing difference of 39% between actives and solds! ”
jpinpb
November 17, 2010 @ 9:19 AM
FormerSanDiegan wrote:
SO, in
[quote=FormerSanDiegan]
SO, in that period interest rates doubled and new home prices quadrupled. How does that jive with the theory that home prices and interest rates are inversely related ?[/quote]
Incomes went up.
jpinpb
November 17, 2010 @ 9:20 AM
I agree w/UCGal and TG.
I agree w/UCGal and TG. Really depends on the ZIP.
evolusd
November 12, 2010 @ 10:51 AM
My wife is pressuring me to
My wife is pressuring me to pull the trigger and buy something right now, but I have concerns about values as do most of you based on the poll results. I’m fine renting, but she’s home with the kids and wants to put down some roots, not bounce around every year from rental to rental.
I completely understand the stability of owning a home, being able to put your things away for good, painting the walls, working in the yard, building relationships with the neighborhood, etc; however, I’m too hung up with leveraging up to buy a depreciating asset.
If we do, I’ll probably go FHA and put as little down as possible, which also stinks b/c the payments will be higher and we’ll have to pay PMI. But at least then I can minimize my losses if things go the way I think they’ll go – down.
Heck, if things go bad, maybe I can be so lucky as so many I know – stop paying the mortgage and live rent free for a while! Totally against my conservative, responsible nature, but that’s what the government seems to be supporting.
Waiting to feel the magic
November 12, 2010 @ 11:19 AM
There’s still a lot of
There’s still a lot of distressed homes out there to flush through the system, and jobs still seem stagnant, so I don’t see prices going up. OTOH, as long as the economy doesn’t tank I don’t think there will be a huge drop either. Small declines for the next year or so seem like what’s going to happen.
moneymaker
November 12, 2010 @ 5:57 PM
I guess I’ll have to say
I guess I’ll have to say downward we go. I don’t want to but this month is the first month that Zillow said our recently purchased house did not increase in value. If I time it right I will refi into a 15 year at an incredibly low rate right before the appraisal plunges, allowing me to stop paying PMI after only occupying less than 2 years and only putting down 3.5%. Cool !
poorgradstudent
November 14, 2010 @ 1:21 PM
I went with stagnant.
If the
I went with stagnant.
If the timeframe was 3-6 months I’d have said -2 to -5% drop. But I actually think we’ll hit a trough and start recovering by late 2011. Early 2009 was the true bottom in the San Diego housing market.
Relative to inflation I expect true home values to drop in the next 12 months. Interest rates probably are lower than they will be 12 months from now. For someone with steady income and a down payment, it’s probably time to buy in the next 3-6 months.
peterb
November 16, 2010 @ 11:25 AM
Average recessionary periods
Average recessionary periods are in the 6 year range. Eventhough this one is a much bigger than usual, playing it by the numbers suggests that 2013 should be about the end of the down cycle. 3%/year decline from here, seems about right.
But the bigger question is how long before it would start to rise?? Historical charts suggest CA needs unemployment to get closer to 7% before housing prices will rise. That, to me, is a much tougher call.