CA foreclosures up 67% from last year!

[JulesMaximus]

<--Sitting on a 30 year fixed at 5.71% (IIRC-I know for a fact it's a 30yr fixed though). I bought my house in San Diego in 1999 before prices went crazy. We only owe a little over $200k on it.

 

[FrustratedUser]

30yr @ 6.375% for me. Not too shabby. At least I know what I have to pay and that I CAN pay.

 

[JulesMaximus]

Originally posted by: Garet Jax

Originally posted by: dullard

Originally posted by: Garet Jax
Because the value of the house has decreased, they can't cover the difference and the mortgage company won't cover the difference.

They're upside down on their mortgage and they can't get out of it.

I bet that is false Garet Jax. Almost anyone who got an ARM several years ago has seen the house price increase. Especially since we are talking about CA, prices have gone up, not down.

That's probably true, but my post was in response to why can't they refinance.

Actually, housing prices are going down in SoCal. They've dropped about 5% so far this year and look to drop another 5% by year end.

 

[conehead433]

God should have a special place in you know where for all the lenders who set people up with ARMs when rates were at rock bottom. Then again, the borrowers should have been smart enough to get fixed rate mortgages.

 

[Slew Foot]

Originally posted by: JulesMaximus

Actually, housing prices are going down in SoCal. They've dropped about 5% so far this year and look to drop another 5% by year end.

Going down in No Cal too, between 5-10% since the beginning of the year. Homes in my area that sold for $450K at the peak, sit on the market for $420K now.


From another board I frequent:
This week is the first week that zillow is reporting major value loss for most homes in Irvine, California across the board. Orange county is different indeed. Look out below.

Incidentally, the homes that I pay particular attention to that sold for $850k last year now sit unsold at $750k. The reported median increase is BS.

 

[Vic]

What that article doesn't mention (and should) is that the tail-end of this housing boom was followed by a tremendous amount of realtor/seller/buyer/appraiser fraud, particularly straw buyer purchases. These types of fraudulently-acquired loans usually don't even make their first payment, which results in immediate default. The value is typically inflated, so the lender takes a huge hit.

Anyone thinking the bubble is gonna explode and $800k homes are gonna start selling for $300k by next year needs to put the crack pipe down.

 

[NL5]

Originally posted by: Garet Jax

Originally posted by: dullard

Originally posted by: Garet Jax
Because the value of the house has decreased, they can't cover the difference and the mortgage company won't cover the difference.

They're upside down on their mortgage and they can't get out of it.

I bet that is false Garet Jax. Almost anyone who got an ARM several years ago has seen the house price increase. Especially since we are talking about CA, prices have gone up, not down.

That's probably true, but my post was in response to why can't they refinance.

They can't refinance a ARM @4-5% w/o going to a fixed at almost 7% (I bellieve is the going rate) - That is a HUGE jump in house payment if youv'e financed a home with CA prices.

 

[Vic]

Originally posted by: Slew Foot

Originally posted by: JulesMaximus

Actually, housing prices are going down in SoCal. They've dropped about 5% so far this year and look to drop another 5% by year end.

Going down in No Cal too, between 5-10% since the beginning of the year. Homes in my area that sold for $450K at the peak, sit on the market for $420K now.


From another board I frequent:
This week is the first week that zillow is reporting major value loss for most homes in Irvine, California across the board. Orange county is different indeed. Look out below.

Incidentally, the homes that I pay particular attention to that sold for $850k last year now sit unsold at $750k. The reported median increase is BS.

So?... CA sees a housing bubble once almost every single decade, going back all the way to the Gold Rush. You would think that Californias would be used to it by now. Figure on a 10%-20% decline in values over as much as 5 years, with urban areas being hardest hit, but not much more than that.
And keep in mind that this has been a global housing boom, and that that alone will sustain values, and also that most of the country really didn't boom that much. Mostly, it was just CA that went fully out of control, although there are some other problem areas (but nothing quite so bad). Most areas will just see flat home values for the next few years.

 

[Slew Foot]

Originally posted by: Vic

So?... CA sees a housing bubble once almost every single decade, going back all the way to the Gold Rush. You would think that Californias would be used to it by now. Figure on a 10%-20% decline in values over as much as 5 years, with urban areas being hardest hit, but not much more than that.
And keep in mind that this has been a global housing boom, and that that alone will sustain values, and also that most of the country really didn't boom that much. Mostly, it was just CA that went fully out of control, although there are some other problem areas (but nothing quite so bad). Most areas will just see flat home values for the next few years.

CA dropped 30% or more in the early nineties, the fundamentals are worse this time around. AZ, LV, Florida are going to get smacked as well.

 

[TipsyMcStagger]

Originally posted by: weirdichi

Originally posted by: dullard
So much to respond to in this thread. Where do I start and where do I end? I'll just randomly pick out some quotes which are interesting.

Originally posted by: weirdichi
My mom is thinking about an interest only loan. I'm just thinking it's nuts. You're basically renting the house if you're paying interest only. How do I convince her not to do it? Any links to resouces I can show her?

I don't have any links, but one simple trick usually works in this case. Ask her specifically why she needs to get an interest only loan. The answer is often something like this, "I need an interest only loan, because is the only way I can get that house, otherwise I can't afford it." Bingo, she answered exactly the problem with the interest only loan. She can't afford it. All the tricks, bells, whistles, IO loans, etc that are pulled won't change that simple fact. She can't afford the house if she needs an interest only loan. Interest only loans have their place in the world, but they are good only in very rare, unusual cases. I bet this is not one of those times.

I think that is the case. The problem is that she really can't afford the house. I help out as much as I can, but working part time only and going to grad school isn't helping out on the bills. The brother is a lazy ass who can't even pay me back for the insurance on his car and the cell phone he promised to pay, so he can't cover anything at all. Is there anything we can do to help us keep the house in it's current state of just paying mortgage and not going with the interest only loan?

Her reasoning is that the payments are lower so she'll be able to afford it and when it's time to move, then she'll sell it and just go get an apartment. The interest only loan is still better than renting and she can afford the monthly payments.

So from what I read, investing the saved money into accounts will be a wise idea? Any help would be appreciated.

*EDIT*
The house is in Brooklyn Center, MN, northwest suburb of the Twin Cities.

I recently went through this scenario, debating a 15 year fixed vs a 5 year interest only. Anyway, I ran the numbers, you can calculate out the payments in excel.

You need to first understand the true differences.

Interest only - fixed amount per month of interest

fixed rate mortgage - It is still a fixed payment but it is made up of interest and principal every month, as time progresses, the ratio of interest to principal changes with the amount of interest decreasing and principal increasing every month.

The interest only strategy seems to be taking the difference between the interest only payment and a monthly payment in a traditional fixed mortgage and investing it at a high enough rate of return.

Now lets fastforward about 5 years. In the case of a 15 year fixed mortage, (I'm using this as the example because that's what I have) You'd have paid about 20-25% of the principal borrowed with your monthly payments. In an interest only loan you will have paid down none of the principal. Now some will say, Hey! that doesn't matter because since the house will appreciate in value, you will still have enough money to pay off the loan when you sell it. However, this assume that the value of the house either appreciates or stays the same. We're seeing now that housing prices may drop. Its probably not going to be a huge 50% drop, but even a 10-20% drop can mean several thousand dollars. If they do drop and your mom has to sell/refinance in 5 years, where is she going to come up with the money to cover the gap between the initial principal borrowed and the current value?

If she'd used a 15 year fixed, then yes, she might be out some money from a downturn in her investment but since she's paid down some principal, she doesnt owe the bank as much and won't have to hop around and get screwed on a higher interest loan to cover it.

Ofcourse, there's the possibility of paying that gap with the money that should have been invested from the monthly saved amount of the interest only loan. When I ran the numbers vs my 15year fixed rate mortage, I'd have to successfully invest that money at an annual rate of return around 15% (after taxes so this may be closer to 20%) to approach the amount of principal I would have paid down after 5 with a traditional mortgage. Unless you're a really good investor that actively manages the money, it's hard to consistently reach a 15% rate of return just investing in market. You'd need to actively invest your money in other ways to make this work.

Ofcourse this may change if the 15year is not an option as the monthly payments are higher. The 30year fixed seems to be a total ripoff to me and you would have only about 6-8% of the principal by year 5, but atleast you have the security of knowing that your payment isnt going to change unexpectedly.

Example: I bought a condo for 140k (I love georgia prices ) paid down 20% which comes to around 113k principal. 6.25% interest rate

15year fixed - over the life of the loan around $60,000 in interest, midway through year four you begin paying more principal than interest.

30 year fixed - over the life of the loan around $150,000 in interest and you don't begin paying more principal than interest until somewhere in your 19th year.

wow that was a longer post than intended hope it helps

 

[Vic]

Originally posted by: Slew Foot

Originally posted by: Vic

So?... CA sees a housing bubble once almost every single decade, going back all the way to the Gold Rush. You would think that Californias would be used to it by now. Figure on a 10%-20% decline in values over as much as 5 years, with urban areas being hardest hit, but not much more than that.
And keep in mind that this has been a global housing boom, and that that alone will sustain values, and also that most of the country really didn't boom that much. Mostly, it was just CA that went fully out of control, although there are some other problem areas (but nothing quite so bad). Most areas will just see flat home values for the next few years.

CA dropped 30% or more in the early nineties, the fundamentals are worse this time around. AZ, LV, Florida are going to get smacked as well.

Actually, it was 22% in Orange county (which was the hardest hit area). And that bubble was caused by (1) global recession, and (2) massive defense industry layoffs. Those fundamentals aren't in place this time around.

I see Las Vegas (LV as you put it), Florida, NYC, Boston, and the greater Washington D.C./Virginia area all taking hits, along with possibly Chicago, Denver, and Seattle, but none of those are going to suffer even remotely as bad as non-rural CA will.

I'm serious, if you think home values are gonna drop 50% or more, put the crack pipe down. There's way too much money in the market. Even small price drops are going to lead to renewed buying frenzies, with a lot of volatile swings in-between, which for the most part means a flat market.

 

[dullard]

Originally posted by: weirdichi
The problem is that she really can't afford the house.
...
So from what I read, investing the saved money into accounts will be a wise idea? Any help would be appreciated.

Theoretically, yes, investing the money that would have gone into principal will often get a better return than the interest rate you are paying on the house. Thus, you can theoretically be financially better this way. However there are two catches.
1) Interest rates are nearing 7%. Your investment has to do significantly better than 7% for this to pan out. Stocks are about your only option then and stock returns aren't guaranteed. Just look at how well someone who invested in stocks in the year 2000 is doing. A big fat 0% return on the stocks and probably 2-3% return for dividends. (0% + 3%) is less than 7%. So financially, investing this money didn't pan out.

2) This is the bigger catch. If she is streched so thin, and she really cannot afford the house, are you sure she will ACTUALLY invest any of the principal savings? Most likely it'll be blown on something that isn't needed. I'd rather get a guaranteed 7% return by paying off the mortgage than blow it on other stuff.

Also think about filling the house with furniture or house repairs or just having fun. If your mother dumps all her money into the mortgage to just barely fit in with an interest only loan, what'll pay for all that other stuff? Nothing. You'll have a great house with no furniture and no way to maintain it and no money to have fun while you are in it. That is the biggest reason why I think interest only loans are usually a bad idea.

 

[rudder]

Originally posted by: weirdichi
My mom is thinking about an interest only loan. I'm just thinking it's nuts. You're basically renting the house if you're paying interest only. How do I convince her not to do it? Any links to resouces I can show her?

Ask and you shall receive.

 

[Slew Foot]

The fundamentals that are in place this time are massive ARM resets. When 50% of the homes purchased are with mortgages whose payments steadily rise, that's worse than having 5-10% of your workforce suddenly underemployed. Then factor in the 20-40% of investor owned homes which are being dumped or rented for neg-cash flow, you have the making for a potential disaster. Then consider how much of CA's economic growth is in RE based industry (1 in 50 CA adults is a RE agent, then add in mortgage lenders, appraisers, etc..) which would likely take a hit in any sort of RE downturn. I dont think 50% is probable, but it is possible if things line up correctly. Im thinking more along the lines of 30-40% in the most bubble prone areas (central valley, SD) and 15-30% elsewhere, followed by a loooong period of flatness.

We're just beginning to see the tip of the downturn, things wont get ugly until 2007-2008. Until now, people who have been stressed for payments simply sold thier house for a profit. now that the market is flat/down, that wont be possible. Theyll be dumped into bankruptcy, short sales, or foreclosure.

I dont hink there are that many people waiting on the sidelines, once you start to hear about price declines everywhere, I think most people will be content to sit on the sidelines and wait things out, especially since inventory shows no signs of falling. No one has to buy, some people have to sell.

 

[dullard]

Originally posted by: Vic
Actually, it was 22% in Orange county (which was the hardest hit area). And that bubble was caused by (1) global recession, and (2) massive defense industry layoffs. Those fundamentals aren't in place this time around.

I see Las Vegas (LV as you put it), Florida, NYC, Boston, and the greater Washington D.C./Virginia area all taking hits, along with possibly Chicago, Denver, and Seattle, but none of those are going to suffer even remotely as bad as non-rural CA will.

I'm serious, if you think home values are gonna drop 50% or more, put the crack pipe down. There's way too much money in the market. Even small price drops are going to lead to renewed buying frenzies, with a lot of volatile swings in-between, which for the most part means a flat market.

Sadly, Vic, I posted a link in this thread with the actual data and people still post with incorrect numbers. LA lost 20.7%, San Franciso lost 9.6%. Yet people still think it was a 30%, 50%, or more loss. The facts are right there in their face and they still get it wrong. You are right that they are on crack if they think it'll drop 50+%.

Here is a good link of estimates of how over/under valued housing areas are. The worst on that list is Santa Barbara, CA which has actual prices of $573K and sustainable prices of $309k. Either (1) the actual prices have to fall, (2) people have to increase their ability to pay, or (3) a combination of the two. Most likely #3 will happen. But even in the worst case scenario that it is entirely #1, the price will only fall 1 - 309/573 = 46%. In the worst imaginable case, it isn't even a 50% fall.

 

[Slew Foot]

Where do you see an average price in SB of 570K? According to Yahoo, of the 240 homes for sale, 5 are below 570K.

 

[HeroOfPellinor]

Originally posted by: dullard
Here is a good link of estimates of how over/under valued housing areas are.

"Company president Ingo Winzer bases those values on local economic and population growth, construction costs, vacancy rates, household income in the area and interest rates."

That seems like a very incomplete formula.

 

[FrustratedUser]

Originally posted by: dullard

Originally posted by: Vic
Actually, it was 22% in Orange county (which was the hardest hit area). And that bubble was caused by (1) global recession, and (2) massive defense industry layoffs. Those fundamentals aren't in place this time around.

I see Las Vegas (LV as you put it), Florida, NYC, Boston, and the greater Washington D.C./Virginia area all taking hits, along with possibly Chicago, Denver, and Seattle, but none of those are going to suffer even remotely as bad as non-rural CA will.

I'm serious, if you think home values are gonna drop 50% or more, put the crack pipe down. There's way too much money in the market. Even small price drops are going to lead to renewed buying frenzies, with a lot of volatile swings in-between, which for the most part means a flat market.

Sadly, Vic, I posted a link in this thread with the actual data and people still post with incorrect numbers. LA lost 20.7%, San Franciso lost 9.6%. Yet people still think it was a 30%, 50%, or more loss. The facts are right there in their face and they still get it wrong. You are right that they are on crack if they think it'll drop 50+%.

Here is a good link of estimates of how over/under valued housing areas are. The worst on that list is Santa Barbara, CA which has actual prices of $573K and sustainable prices of $309k. Either (1) the actual prices have to fall, (2) people have to increase their ability to pay, or (3) a combination of the two. Most likely #3 will happen. But even in the worst case scenario that it is entirely #1, the price will only fall 1 - 309/573 = 46%. In the worst imaginable case, it isn't even a 50% fall.

:Q
Santa Barbara-Santa Maria CA $573.1 $308.9 86% Overpriced

 

[JS80]

Originally posted by: Amplifier

Originally posted by: weirdichi
My mom is thinking about an interest only loan. I'm just thinking it's nuts. You're basically renting the house if you're paying interest only. How do I convince her not to do it? Any links to resouces I can show her?

bro you still maintain equity gained by appreciation. you still can amortize your loan by investing the savings or placing the savings in the bank. its not even close to renting.

why bother explaining finance concepts to non-finance people? they will never get it. you're "throwing away money on rent."

 

[JS80]

Originally posted by: Queasy

Originally posted by: Garet Jax

Originally posted by: Queasy
Why aren't these people refinancing from an ARM to a fixed? Honestly, it isn't that hard. I refinanced my first house when interest rates dropped and I'm about to do the same on my second.

Because the value of the house has decreased, they can't cover the difference and the mortgage company won't cover the difference.

They're upside down on their mortgage and they can't get out of it.

Wait (I don't live in CA so bear with me) home values in CA are dropping? I've only ever heard that they are constantly rising. I can understand being upside down if you pull all the equity out of the house but home values dropping in CA is new to me.

No, prices have hit a floor. Condos have dropped slightly from highs, but still unaffordable.

 

[Vic]

Originally posted by: FrustratedUser
:Q
Santa Barbara-Santa Maria CA $573.1 $308.9 86% Overpriced

That merely compares mostly incomes to prices. It doesn't take into account the "gotta live there" factor, of which SB has a lot, especially with 2nd homes from wealthy people who live out of area.
I'd be more concerned about areas that have a lot of investment property ownership, or where investors/flippers have been a driving force in the market.
Keep in mind that that "equilibrium" figure is mostly subjective. But then it rates my area as a "fair value," which must explain why I'm still doing business.

 

[Slew Foot]

Originally posted by: FrustratedUser


:Q
Santa Barbara-Santa Maria CA $573.1 $308.9 86% Overpriced

I still dont see where the 570K average or median comes from.

Assuming the homes for sale are reflective of the homes of the area, of the 260 total properties for sale, about 12 are below 570k, the median price (home 130 in the list ordered by price) is 1.3 million, and Im sure the average is much higher due to the $6-8 million properties at the high end.

A correction from 1,300,000K --> 310K . OUCH, Not even I think it would go that far.

edit: NVM, didnt see Santa Maria there, which appears to be one big trailer park/townhome city. Kinda unfair to put those two together.

 

[mrrman]

it was bound to happen

 

[cpals]

My area is on the map! (Cape Coral - Fort Myers)... sucks for me.

 

[SampSon]

I love people who have ARMs, they are now fueling a mass influx of refi customers who are jumping on the newly lowered interest rates.
Keep it coming suckers.