Comments on: Limited Jumbo Loan Access Perils CA Market

By: Glenn

Glenn — Wed, 07 Nov 2007 00:22:57 +0000

Good points all

However, I regret to say that the stock market is far more intelligent than all of us. And it seems to be forecasting that all is good in the economy

Oil is at $98, there are no loans being made, but the Fed is cutting rates

So I don’t get the disconnect between the housing market and the economy

It’s either a matter of time before the pain spreads or before banks start lending again

Frankly banks have to lend or they might as well go out of business and if they lend then this corection will work itself out sooner rather than later

Remember, the US population has an organic growth rate of 3 million a year. This year new home starts are about 1 fifth of that. At some point in the next 2 years, supply will be absorbed, at A price.

People need to live somewhere and will find the means to do so.

By: Ann

Ann — Mon, 05 Nov 2007 23:17:55 +0000

I agree that CA is one of the states that should have the limits raised. It is hard enough with the housing situation already, they are now making it even more difficult for the few buyers out there…

By: Tom Stone

Tom Stone — Mon, 05 Nov 2007 04:57:10 +0000

The median price in Sonoma county is still about 9x median income or a little more.A 40% correction in nominal dollars over the next 2-4 years will bring prices to a reasonably affordable level.I will note that the systemic problems in the financial markets that were IMO caused by getting rid of Glass-steagall and similar protections could accelerate and exacerbate the problems in Residential real Estate.Citi’s press release anouncing a further $8-$11B in writedowns today had no mention of CRE,Alt-A,Pier loans or that awkward $80B in SIV’s… these large exposures by big banks can have interesting effects on the availability of $ for Real Estate as well as the larger economy…..luckily for us GW was appointed by God,(if you can’t trust Pat Robertson,who CAN you trust?) so no worries.

By: NorCal CMPS

NorCal CMPS — Mon, 05 Nov 2007 04:36:00 +0000

The question needs to revolve more around the Ownership paradigm than the Investment model.
I bought at the top. I’m down 5% right now with more to go. I don’t want to retire here, but I’ve got alot of life to live. Translation: I’ll be holding on and taking the Tax incentive to boot, in 5+ years all be right-sized and in the meantime the government has helped to underwrite the beginnings of my ownership process.
Again, the 70/30 rule applies. In the end, yes, send the keys back if you’re getting squeezed. It’s part of the normal market environment. I mentioned before that this group was getting away with being squeezed because they were able to sell at par or partial gain.
If you can make it happen for the next 5 years, pull your hat down over your ears and stop believing that the home behaves like an ATM, or the next Google stock certificate.
Real Estate Mortgages have 30 year terms because that is the life expectancy of the return on invetment. Greater than 9% growth (or outstipping inflation by +5-7%) is ABNORMAL.
By example (I am from Europe by heritage), my grandparents live in the house Their Grandparents built. I think real estate in Europe grows at a rate on par with inflation meaning that in reality there is no “growth”.
Again, our economic system being what it is treats us to run-ups as experienced in recent years and occasionaly lets us down too (see the primary article for this thread).

By: Morgan Brown

Morgan Brown — Mon, 05 Nov 2007 04:03:48 +0000

Fielding – Great points. While I am sure that the Option ARM was sold by devils I do know many investors who actually knew what they were doing that made a lot of money utilizing that loan on short-term property investments. It’s the saps that took it for their “dream home” that are watching it explode on them; forcing them out of their house.

I agree with you as well on the people who think they’re getting great deals now. Unless you are buying something at 50% of comparable value you are still leaving yourself with potential downside risk in many markets (IMHO).

By: Morgan Brown

Morgan Brown — Mon, 05 Nov 2007 04:01:57 +0000

Got Rocks – You are right. They were made ‘affordable’ by exotic loan products that people vacuumed up in an attempt to buy anything they could get their hands on.

By: Morgan Brown

Morgan Brown — Mon, 05 Nov 2007 04:00:56 +0000

NorCal – You make some good points. What would you recommend to one of those people that bought at the top and didn’t buy their dream home that they can live in for 10-15 years to recover their lost equity? Stop making payments and send the keys back to the lender? Especially if they’re subprime borrowers to begin with – does it make sense to keep struggling to overpay on debt that isn’t likely ever to be fully paid down?

By: Fielding Mellish

Fielding Mellish — Mon, 05 Nov 2007 03:34:58 +0000

PS… The investors who are starting to seek “deals” on foreclosed and/or discounted properties must not have heard of a “dead-cat bounce”. They’re getting head-faked into thinking that just because they can buy a property for 85% of its former value, that they’re getting a bargain. Three years hence they will have been proven to have been mistaken. Values will go up, but only after they’ve bottomed out, and we’re still 2-4 years from the bottom.

By: Fielding Mellish

Fielding Mellish — Mon, 05 Nov 2007 03:04:17 +0000

Option ARMs were designed by the devil & sold by demons. Interest-only loans could theoretically be OK, but, in practice, are often a ripoff, since one needs to take a meaningfully higher rate to get the i/o feature (1/4% is meaningful). This article is, of course, correct that tightening underwriting standards will limit buyers & help further deflate home values. That will also happen within the “conforming” (Fannie/Freddie) space too, though. Fannie has been tweaking Desktop Underwriter to reduce considerably the layered risk it will allow. A loan officer friend of mine recently couldn’t get a 100% My Community Mortgage approved in DU despite a 43 DTI, 725 score & 6 months’ reserves. (My apologies to any non-mortgage-geeks for the lingo.) That loan would have been an automatic approval just a couple months ago. Contrast that with the garbage files that DU had been approving for a couple of years – virtual subprime.

By: GotRocks

GotRocks — Sun, 04 Nov 2007 23:27:06 +0000

One clarification to this sentence, in the second paragraph: “These two changes have made homes in the most-popular California areas unaffordable to potential home buyers.”

It’s not that the changes have made the homes unaffordable, it’s that the people who could never afford these homes are no longer being given mortgages for these homes. These homes have ALWAYS been unaffordable, to the vast majority.