The battle lines in the fight to create a stable housing market is being waged over minimum down payment requirements on qualified residential mortgages.
Irvine Home Address … 2306 SCHOLARSHIP Irvine, CA 92612
Resale Home Price …… $254,900
Oh but ain't that America for you and me
Ain't that America somethin' to see baby
Ain't that America home of the free
Little pink houses for you and me
John Mellencamp — Pink Houses
America was a frontier country. People flocked to America from Europe for the opportunity to own their land, something denied to most living in post-feudal Europe. The idea of having a piece of property with your own pink house is deeply woven into the American culture. it's part of our history, and to this day, many identify home ownership with being American.
I wrote about our modern perversion of ownership in Money Rentership: Housing and the New American Dream. Questions of our concepts of financing and ownership are coming to surface in Washington as we take up debate on down payment requirements for the new qualified residential mortgage.
Homeownership should not be part of the American Dream
Posted by Nin-Hai Tseng, writer-reporter
March 15, 2011 8:30 am
Most banks want to securitize loans made to borrowers buying homes with little money down. Did we learn nothing from the financial crisis?
Lenders did learn from the financial crisis. They learned they can underwrite unconscionable loans to make a quick buck at origination, and when the loans go bad, the government will cover their losses. Why would lenders want to change that system? Keep that in mind as you watch the lending lobby posture in Washington to game the rules in their favor.
In an attempt to fix some of the problems that caused the housing bubble and financial crisis, banking regulators are coming up with new mortgage lending rules that will address what lower-risk quality mortgages should look like. The goal is to let lenders sell so-called “qualified residential mortgages” to investors without having to retain the risks.
The question the Treasury Department must now answer is what makes a qualified mortgage? Regulators including the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency are pushing for a 20% down payment on such loans. While the big banks like Bank of America (BAC) and JP Morgan Chase (JPM) have not formally weighed in, their lobbyists at American Bankers Association and the Mortgage Bankers Association say that requirement is far too high and would price many buyers out of the housing market.
The most pernicious lie in real estate lending is that restricting access to loans prices buyers out of the market. The hidden assumption is that bids must always be raised because prices never go down. If the government chose to enact the most Draconian standards possible, it may reduce sales volumes at current pricing, but it does not price buyers out of the market — it prices sellers out of the market. As credit tightens, asking prices need to go down for transactions to occur.
Lenders want to make the largest loan possible at the highest interest rate they can. That is their business model. Of course, they would also like the borrower to repay that money, so pushing loan balances up too high leads to Ponzi borrowing, widespread insolvency, and a catastrophic market crash as we have witnessed. However, lenders don't care about the risks as long as Uncle Sam backstops them. They will push for the ability to make the largest loans they can and pass the risk off to whoever they can.
The debate will have broad implications for how homebuyers finance their mortgages. During the housing boom, many Americans took out home loans with little to no money down. When prices fell steeply following their mid-2006 peak, many borrowers didn't have enough equity to cushion the blow, leading to record foreclosures nationwide. Meanwhile, the big banks and investors holding these risky loans suffered huge losses.
We have witnessed many tempest-in-a-teapot issues like robo-signer that flare up and go away without long-term impact on the housing market. This issue is different. The minimum qualifying standard on this loan is going to become the bedrock of mortgage finance. If we get this wrong, we will rebuild the mortgage market on a weak foundation.
Joseph Pigg, vice president and senior council of the ABA, says the 20% proposal is much too narrow and he worries it could further hamper demand for homes, especially when the fragile real estate market is still recovering. And while a heftier down payment generally reduces the risks of a loan, he says, other factors such as income, credit score, and the property's location determine the quality of a loan.
Yes, there are other factors besides the down payment that impact loan quality. There are undoubtedly many buyers who put less than 20% down that will not default on their loan. So what? We are talking about establishing a minimum threshold for all loans. It should be a conservative measure with little or no real risk exposure. Lowing down payment requirements for this loan shifts risk from lenders to the US taxpayer who will end up paying the bills if we create another unstable Ponzi scheme.
But perhaps it's time to question whether homeownership should even be part of the American Dream.
Tighter mortgage lending rules could return the housing market to the way it was in the 1970s, when homeownership was much lower and virtually all homebuyers put down at least 20% of the value of the house. Standards began changing around the 1980s as home prices appreciated significantly and mortgage financing became more sophisticated.
Sophisticated?
Financing has become more sophisticated… sophisticated at creating new Ponzi schemes.
Finance professionals view lower lending standards as progress and tightening lending standards as regression. For an industry of parasites trying to siphon the cashflow from all the world's assets, that paradigm makes sense. In reality, their progress generally amounts to some new Ponzi scheme. I wrote in The Fallacy of Financial Innovation,
“Many in the lending industry think their work is like science that continually advances. It is not. It is far more akin to assembly line work where the same widgets are pumped out year after year. When lenders start to innovate, trouble is brewing. The last significant advancement in lending was the widespread use of 30-year amortizing loans that came into favor after World War II. Prior to that time, home loans were interest-only, short-term loans with very high equity requirements (50% was most common.) This proved problematic in the Great Depression as many out-of-work owners defaulted on their loans. A mechanism had to be found to get new buyers into the markets and allow them to pay off the loan. The answer was the 30-year, fixed-rate amortizing loan. To say this was an innovation is a stretch as this loan has been around as long as banking has existed, but it did not become widely used until equity requirements were lowered. The lenders were willing to lower the equity requirements as long as the loan was amortizing because their risk would decline as time went by and the loan balance was paid off.”
Lenders used to originate loans with an assumption of flat pricing. The reasoning was that they didn't know if that borrower may not be compelled to sell within months of purchase. They wanted to be sure they could discount the sales price, pay a sales commission, and still recover their capital. That meant at least a 10% cushion from day one. Twenty percent was better.
During the housing bubble, the originators of the Option ARM made the assumption that house prices would go up 3% per year every year because past history confirms that house prices rise with inflation. As a lender, if you believed the value of your collateral was rising 3% per year, you could originate with low down payments, increasing mortgage balances, and the whole host of problems the Option ARM created because even when the loans go bad, the loss severities would be low due to the increasing value of the collateral. Hah. That didn't go as planned.
Borrowing against the increasing value of an asset destabilizes the price of that asset. Once aggregate debt levels get too high, a financial disruption can cause prices to crash which in turn spawns wave after wave of strategic default which drives house prices well below fundamental values. The upward frenzy of rally buying is closely mirrored by the downward spiral of default, foreclosure, excess supply and lower prices which causes more default.
It's easy to see why bankers would gripe about the 20% minimum. Smaller loans translate into smaller profits, and a smaller market for securitized mortgages. And lenders can fully securitize only qualified mortgages — any loans made without the designated down payment can still be sold, but the lenders would have to retain 5% of their value on their books.
Wells Fargo (WFC) is the one exception among the banks on this rule — it's arguing for a 30% down payment for qualified mortgages. Wells executives call it skin in the game, but smaller lenders are calling it an unfair competitive advantage — as one of the largest lenders, Wells would be able to tolerate more risk on its balance sheet from the many borrowers who won't be able to afford such a down payment.
That is fantastic. With internal division on policy, it will be much harder for the lending lobby to push a 10% down mortgage.
Certainly a 20% down payment — much less a 30% one — isn't easy for many homebuyers, especially as unemployment stays unnervingly high. The average loan-to-value ratio for January 2011 was 73%, which means borrowers on average put 27% down, according to the Mortgage Bankers Association.
The Irvine bulls always tout the high down payments of Irvine buyers as a sign of special interest by FCBs. Apparently, averaging more than 20% down is normal for real estate markets. Considering almost of third of homeowners own outright, it isn't surprising some amount of ported equity moves from property to property keeping down payments up. Perhaps Irvine is not that special after all?
But while home sales have started to tick up slightly, demand is mostly coming from cash-rich investors who are scooping up foreclosed properties at bargain prices, not from first-time buyers. Economist Paul Dales of Capital Economics recently pointed out that more than two-thirds of existing home sales since last summer were made to cash buyers or investors, while a mere 6% were sold to first-time homebuyers.
Maybe the answer isn't to give borrowers more leeway, but less. Given all we've learned in the years following the housing crash, perhaps a little time travel back to the 1970s might not be so bad. During the boom years, many lenders passed on their mortgages, including all of the risk, to speculative investors. That proved disastrous, leading to a banking crisis and a housing bubble that all too quickly went bust.
It will be painful to endure a longer, deeper housing crisis that could come from tighter standards. But do we want to relive the nightmare that got us here?
I wholeheartedly agree with the author's contentions. Returning to sane lending standards is not regression, it is progress from where we are today. Lending lost its way. The billions in losses prove that. We need to retreat to what works. Some may chose to view that as going back to the stone ages. I prefer to view it as a return to fiscal sanity and a stable housing market.
Nearly $500,000 for a one bedroom apartment condo?
The Jamboree Corridor condos were 20 years before their time, just like the prices of 2006 in general. These condos don't make sense. They never did. Even after a 50% decline in prices and below 5% interest rates, these properties still don't make sense. The prices on these properties are only now reaching rental parity — and these properties should trade at a discount to rental partiy because it is not a place people want to live long term. This is a great 20-something apartment, but it makes for a less desirable family home.
My data service doesn't pick up this particular address, but the details of who lost what isn't important. The lender didn't likely require a big downpayment, so the first mortgage is taking a big hit.
The assymetric nature of drawdown
People who study financial markets and portfolio returns note an interesting phenomenon regarding returns on financial investments: losses are more devastating to returns than slow gains. This property has declined nearly 50% in value since it was purchased in 2006. So when the property goes back up 50% in value, will it be back up to the peak?
Nope. A 50% decline requires a 100% increase to offset it. By the time peak buyers see values reach their entry points, buyers from today will have accumulated $250,000 in equity. Timing does matter.
The frenzied rally of the Great Housing Bubble saw double-digit appreciation for several consecutive years. Depending on the market, most of all of that gain was wiped out in two-years of double-digit declines in 2007 and 2008.
The savvy buyer who picked up this great investment undoubtedly expected double-digit appreciation from his starting point. This should be reselling for a $1,000,000 by now. instead it's REO hoping for a quarter of that.
Irvine Home Address … 2306 SCHOLARSHIP Irvine, CA 92612 
Resale Home Price … $254,900
Home Purchase Price … $478,500
Home Purchase Date …. 6/12/06
Net Gain (Loss) ………. $(238,894)
Percent Change ………. -49.9%
Annual Appreciation … -13.0%
Cost of Ownership
————————————————-
$254,900 ………. Asking Price
$8,922 ………. 3.5% Down FHA Financing
4.82% …………… Mortgage Interest Rate
$245,979 ………. 30-Year Mortgage
$51,703 ………. Income Requirement
$1,294 ………. Monthly Mortgage Payment
$221 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$42 ………. Homeowners Insurance
$310 ………. Homeowners Association Fees
============================================
$1,867 ………. Monthly Cash Outlays
-$121 ………. Tax Savings (% of Interest and Property Tax)
-$306 ………. Equity Hidden in Payment
$16 ………. Lost Income to Down Payment (net of taxes)
$42 ………. Maintenance and Replacement Reserves
============================================
$1,499 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$2,549 ………. Furnishing and Move In @1%
$2,549 ………. Closing Costs @1%
$2,460 ………… Interest Points @1% of Loan
$8,922 ………. Down Payment
============================================
$16,479 ………. Total Cash Costs
$22,900 ………… Emergency Cash Reserves
============================================
$39,379 ………. Total Savings Needed
Property Details for 2306 SCHOLARSHIP Irvine, CA 92612
——————————————————————————
Beds: 1
Baths: 1
Sq. Ft.: 0738
$345/SF
Lot Size: –
Property Type: Residential, Single Family
Style: One Level, Modern
Year Built: 2006
Community: Airport Area
County: Orange
MLS#: P774302
Source: SoCalMLS
Status: Active
On Redfin: 2 days
——————————————————————————
REO Bank Owned – New complex near John Wayne Air Port between Irvine and Newport Beach. Excellent amenities include tennis courts, pool, spa, BBQ area, basketball court A rare opportunity Make you best offer.
Dude face the facts for once. This article is irrelevant to Irvine. The median down payment is 30% and less than 2% are FHA loans.
Yes a third don’t have mortgages. That third is never factored into LTV analysis since they don’t have a loan.
Hey Planet Realty,
How come you never come out to play when I debunk your ass into the last decade? Twice in the last few weeks I’ve posted info and links that prove everything you have been arguing for the last six months has proven to be false. You know, because of facts…
Somehow, those are the only two days in months that you didn’t post at all. Strange.
Please send me a link so I know what the hell you are talking about. Then I will move quickly to get on it right away, carving out considerable time to answer all of your critically imprortant questions immediately, do not delay as I am waiting anxiously to get started.
Today’s astute observations may be interesting….
IR,
One piece of data I think you have been leaving out of your housing payment calculations is the PMI. FHA has a .9% per year PMI factor on these loans with less than 5% down, that’s an extra $184.48 per month. The PMI will in by another .25% in April.
Something to keep an eye on: The next downward leg in price might be lead by financing again. Talks of winding down FMNA and Freddie leading to higher rates and fewer 30 year notes. Contined increases in the costs for FHA financing and the move to min 5% down.
Those fees have been changing erratically over the last couple of years so I haven’t been able to keep up. I will look into it and adjust my spreadsheet accordingly.
Temper. Temper.
The market is up today. Feb existing home sale dives. What could be better?
Is the weather sunny over there in Irvine?
You’re not being a “team player” with comments like that PR.
Please tow the line regarding catastrophic price declines, lack of buyers and liquidity.
Meanwhile, the real story is down payments north of 30% are the norm in Irvine rather than the exception.
Glad to see you are back and posting again PR.
PR must have recovered from the shock of opening his most recent statement concerning his bond portfolio.
BTW, did you see that Bill Gross has completely gotten out of US Treasuries. He no longer believes interest rates are going down.
http://www.zerohedge.com/article/exclusive-bill-gross-dumps-all-treasuries-brings-total-government-related-holdings-zero-flee
From the article: “And many thought Bill Gross was only posturing when he said he is getting the hell out of dodge. Based on still to be publicly reported data by Pimco’s flagship Total Return Fund, the world’s largest bond fund, in the month of January, has taken its bond holdings to zero.”
And the Irvine Co. is building Pimco a new O.C. office tower. Somehow I wonder if all of this is connected in a big conspiracy.
http://www.ocregister.com/articles/pimco-292033-irvine-build.html
“the real story is down payments north of 30% are the norm”
Um, you do realize that a vague statement about typical down payments without providing any frame of reference says nothing, right? What is the average down payment in other areas? And how has the average down payment in Irvine change over time?
How is my statement “vague” ?
IHO just posted and supported it below with real data indicating that Jan/Feb 2011 down payments in Irvine are close to 50%.
You just answered your own question. Your statement was vague, and IHO’s wasn’t.
Sorry, I didn’t mean to attack you; my main concern as I pointed out is not that your statement isn’t specific enough, but that it doesn’t include any context to make it meaningful. IHO doesn’t provide this context either. If you have some I’d appreciate it.
I wasn’t specific enough, are you kidding?
IHO lives and breathes this stuff.
His entire life revolves around Irvine Real Estate.
He attends the grand openings and blogs about the Irvine market 24/7
Of course, one would expect a more accurate number coming from him.
I said north of 30%, he came back with the 50% number.
Either way both of our numbers indicate large down payments are being made and not the 5% that most here seem to think.
The context is on the site I linked to, just click on the closed sales links and look for the columns regarding loan information for the years you are interested in.
There is data there for 2008 and 2009 where the average was close to 40%. 2010 does not have that data but when I started looking up that information myself, it was very similar to previous years but a bit higher.
2011 has started close to 50%.
The data culled from IR2’s site just for January 2011 in Irvine shows 49%, compared to 27% nationally on today’s blog.
I am confident that down payments in Irvine are higher than the national average.
IR: Do you want to bet me the cost of that Dataquick data to find out?
OK. I officially apologize for using the word “vague.” Can we move past this please? Once again, you have ignored my point, which is that the number means nothing by itself without any context. How does Irvine compare to other areas? How does Irvine of today compare to Irvine of the past?
Thanks IHO, this is exactly what I was curious about. If down payments in 2011 continue running substantially higher than 2008-2009, then that may be a relevant bit of data.
“I am confident that down payments in Irvine are higher than the national average.
IR: Do you want to bet me the cost of that Dataquick data to find out?”
I won’t take that bet. The down payments here are likely higher than surrounding areas.
The real question I hope to answer is the degree to which down payments have gone up or down, and how we compare to other areas. It will also be interesting to see the relationship between down payments and price declines. Do increasing down payments really blunt price drops? Conventional wisdom says yes, but what does the data say?
OT, but I was looking at 92603 sales this year at the spreadsheet by Scott Gunther (sp?) and noticed that 0% down is still possible…
14 Vernal Spring closed on 2/24/11 for $2,300,000 with 100% financing from Merrill Lynch (BofA).
Big money is right on target. So a guy in Omaha pays CASH for his $38,000 condo whist a guy in Irvine puts 3.5% down on his $750,000 40-year old tract home. So, wow, the average down payment is 51.75%. Ummmm…no. It was $64,250 / $788,000 or 8.15%. Or was it 51.75%. It’s all in how you present it….
I rent a condo in this complex and can’t imagine how owners feel right now. The ones that are renting it out are losing $$$ monthly like mine (owner losing $1000 month) and the owners that actually live here must hate their decisions. Not only did they lose a ton but the condos are heavily rented to college students and young people packing in 1-2 people per bedroom. Basically their is a decline in the general upkeep and lack of common consideration. I am not against young people but I wouldn’t want to buy a place to live next door to college students who don’t care 1 bit about the place.
Well, the brightside is that the owner can now sell it for a loss and claim the entire loss against ordinary income (& to the extent the loss exceeds ordinary income in the sale year, the net operating loss can be applied to the prior two years’ income). This is a reasonable option if the owner is in a high tax bracket.
Where in the tax code do you see that?
Shoot, I like to do that for my stock losses 🙂
Hey rkp – just curious – what do one bedrooms in this complex go for? How about two bedrooms?
This unit is not in the Watermarke, right…or is it? I liked the Watermarke units, but I think anything with “British” spelling in America is just rediculous…like having a retail “centre” or using “colour” in the title. This whole area is one vast overpriced h*ll-hole. The “North Korea” towers are not that far from here (further up Jamboree @ 405 Freeway).
we arent in watermarke…next door to it
i am not sure on 1b but i recently did an analysis for my friend renting out his unit using IR2’s info on IrvineRealtorSite.com and the average MLS closing rent for 2b in last year was ~$1800. you can pull up the data for 1b from that site
from a renters perspective, i cant get a better deal. i am in a 4th floor loft unit so ~1200 sq ft 2b+loft on a month to month at $1775. same at an irvine company apartment with similar amenities would cost $2300+
Will, Villa Siena next door is much nicer than Ave 1, if you’re interested. I’d pay a 20% premium to live in Villa Siena over Ave 1.
There are no courtyards or greenery anywhere in Ave 1. Also, the parking is completely vertical requiring you do a half-dozen circles entering/exiting. The hallways are long too. e.g. I’d guess from the moment you close your front door, to the moment your car touches Jamboree, 10-15 minutes elapse on average…
i don’t think villa siena is nicer but to each their own. i think villa siena is more crowded and thinner walls but if has more to do.
agree the long hallways totally suck – 10-15 minutes though is a bit of a stretch. the bigger annoyance is when we come home from costco – unloading the car takes at least 20 minutes with the back and forth
Quick check of Craigslist shows these units going (1 bdr / 1 bth) for $1350 to $1450.
It is indeed Avenue One.
Right at rental parity (assuming 15x calc.).
You just gave me a great OC business idea; I’m going to open “The Tyre Centre” which will be an upscale boutique automotive service station provides oil changes and tire replacement/service for all the luxury vehicles running around. The hardest thing on some of those German cars is locating the bunghole.
dont understand…are you saying the rent is too high for a 1b?
“The Irvine bulls always tout the high down payments of Irvine buyers as a sign of special interest by FCBs. Apparently, averaging more than 20% down is normal for real estate markets. Considering almost of third of homeowners own outright, it isn’t surprising some amount of ported equity moves from property to property keeping down payments up. Perhaps Irvine is not that special after all?”
Per data from here:
http://www.irvinerealtorsite.com
Jan/Feb 2011 down payments in Irvine are close to 50%.
C’mon IrvineRenter, as a full-fledged broker in Irvine, you should know the real story regarding down payments in Irvine and who is doing those all-cash transactions. That’s not an Irvine bull argument… that’s just a fact.
can’t speak for IR but my take is that if the national average is 20+% now, what are other irvine like areas averaging? whats the downpayment average for other OC cities? what about areas like porter ranch in the valley which to me feels very similar to south OC?
my gut says that they have similar downpayment amounts meaning that irvine isnt more or less unique.
also, i have an issue with “FCB” – my last name is of south asian descent but i am american. how do you figure the money is coming from abroad vs local? because the grandparents that tour the open houses with their kids speak in another language? i know in my community, saving for a house after you graduate college is normal so many of my friends hunker down for a few years and even live at their parents after marriage for a couple years to save big amounts towards their house. their last names are from other countries but they are local as anyone else
FCB doesn’t mean the cash is foreign (at least to me).
It just means the buyer is of foreign decent (and it could be 2nd or much higher generation) and that they are using a high-cash or all-cash transaction.
It’s F[CB]… not [FC]B.
hmm i think the general perception of FCB is that the money is foreign or the buyer is a recent immigrant. otherwise we all are “foreign” at some point as per your definition
“what are other irvine like areas averaging? whats the downpayment average for other OC cities? what about areas like porter ranch in the valley which to me feels very similar to south OC?”
I am looking into answering these questions once and for all. Dataquick keeps track of all this information, and I am considering buying it to do more detailed analysis.
Like you, I think that data will reveal Irvine down payments are a bit larger, but not so much larger as to make Irvine some unique bastion of cash buyers. Until we have data, these arguments are pointless opinions.
Very cool. Another good thing to see is how have Irvine down payments changed over the last few years. If down payments today are similar to say, down payments in 2008, it would pretty conclusively show that high down payments don’t do anything to stop rapid downward price movements.
Yes, if the price is reasonable, I will get the entire history back to 1988. Dataquick has it. I just requested a quote.
@bigmoney:
How do you define “rapid downward price movements”?
I believe it’s a common opinion here by bulls and bears alike that Irvine’s price declines have been slower than surrounding cities.
While we see huge reductions in the ultra high end like Shady Canyon and the lower end like the 1br attached condos, many of the middle-tier homes have kept their valuation… some are even higher priced now while some are only 10% off of peak. Almost none are close to 1999 valuations.
Do you feel Irvine has undergone a “rapid downward price movement”? I’m just trying to adjust my parameters so I can understand your comments better.
Good question. Well, the case-shiller index for LA-OC fell at a 26% rate in 2008. Now I certainly agree that Irvine has in general been falling at a slower pace than the rest of the market since the crash started. From what I remember as I was tracking prices back then, I’d say that Irvine prices were falling at least half as fast as the rest of LA-OC in 2008. That gives us a 13% YOY decline. I’d call that rapid; you may not. Certainly as a potential buyer I’d consider any double-digit YOY decline worth waiting for.
Fair enough.
Thanks for clarifying.
I’m just wondering how that YOY tracks to 2011 because from my non-professional viewpoint (despite tenmagnet’s assessment of my affinity for Irvine Real Estate), it just doesn’t feel like prices are dropping rapidly comparatively.
Back in ’09 when I was looking at South County 3CWGs, they were near the same price as Irvine’s, but now, in 2011, they are in the $600k range. Whereas most newer 3CWGs in Irvine are still $900k or higher.
I guess I’m just looking at the wrong houses.
2008 was definitely the best year so far. Price declines since then haven’t kept up that pace, in any city. All I’m saying is that if high down payments didn’t stop 2008 from happening, they also might not stop further declines in the future either.
These are all questions I hope to be able to answer with the data I am assembling. When I am done, we will have median and Case-Shiller by Zip Code and Irvine village. That will settle arguments about how much prices have declined. I am also likely to get this information for surrounding communities to provide context.
Please add Aliso Viejo, Laguna Niguel, etc. Thanks!
IR – orange county register should really pay for this or pay you to do the work and keep an updated tracker specific to OC and OC cities. this is valuable data
Agree. But I don’t think the OC Register can afford that.
Oh… and it looks like Irvine Pacific isn’t doing so well with its “luxury” product.
San Marino in Woodbury models just opened last weekend (priced at $995k and up) and while there were many people there, Phase 1 hasn’t sold any homes yet (and they had pre-sales opened weeks prior). Contrast that to last year where Phase 1 homes were sold out on the 1st model tour weekend.
Unlike some… I do see both sides of the coin.
Interesting, I was expecting to hear that phases 1-4 sold out prior to the opening day.
So much for the priority registration process.
one thing interesting about irvine company is that it has the data on household income, net worth, etc about its prospective buyers. its an odd system where you tell the seller all your details before they establish or publish prices.
i normally expect them to sell out with this data as they know the threshold of their interested buyers and can price accordingly
Although they can find customers willing to pay a certain price, I don’t TIC understands that floorplans that work for the $700-$850k range doesn’t translate too well to $1mil+.
No 3-car garages (not even tandem), no extra downstairs living spaces, low bedroom counts and not much in upstairs space… not even a master retreat or bonus room. Hopefully people are getting pickier about what TIC throws at them.
And contrary to the Irvine trend… I’m not a believer in high down payments.
One of the benefits of renting was that you didn’t have to commit a large amount of cash to your home. And for true rental parity in my mind, a home purchase needs to parallel to that low risk investment because of the economic environment we are currently in.
Removing low down payment options will hurt the cities outside of Irvine more. For the same reasons lenders are trying to protect themselves from loan/real estate devaluations, buyers should also think about that too before committing 20%+ down.
i see it differently. you have to put your money somewhere whether its a bank CD or stock market or house. for many people, picking the right stock is not easy but aggressively paying their house down and putting large amounts towards it is. i am not saying its the *best* use of liquid cash but for many, its better than the bank CD rates and less risk than stock market
in my case, the houses i am looking at are about 800k-900k. if i put 200K down and finance 600K, my monthly would be ~3200 and if i put 500K down and finance 300K, my monthly would be ~1600. a very rough rate of return on that additional 300K is 6-7% and while thats not great, its MUCH better than my bank CDs with a lot less risk than the stock market.
Sure, but that rate of return may also be impacted by any depreciation your home undergoes.
If you’re staying for the long haul, that won’t affect you but anything less than 7 years (a statistical average of home ownership) could be detrimental to your down payment.
You should also consider the liquidity of your down payment as HELOCs are not as readily available today. Having that amount of cash locked down for an extended period of time may not work for everyone.
Doncha know, IHO…house prices only go up!
Don’t worry about losing $100k on the million $ house if prices drop 10%.
Worry about the lost opportunity of the leveraged gain on the million $ house if prices rise 10%
I have waited off on buying a house for a very long time and still believe the market has room to go down so by no means am I a bull. We are discussing what is appropriate amount for a DP and not whether its right or wrong to buy right now.
Personally, I am not speculating on appreciation and the decision for me is based on me being there for 15 years and not seeing any appreciation.
My point is that for those who want to buy and have large DPs, what should they do? While having liquid cash is great, how much should one have? Doesnt it make sense to not pay the bank interest and pay that interest to yourself?
When house prices went to the stratosphere (purposely boosted by artificially low interest rates and free money) almost NO ONE put down more than the minimum requirement of 3%.
Now that house prices are STILL incredibly overpriced in relation to actual earnings, interest rates are rising and the free money is only still available to Wall St; WHO IN THEIR F@CKING RIGHT MIND would put down 20% of REAL MONEY ..just to watch it evaporate in a few months as prices continue to drop?
F@CK real estae, F@CK the United States and F@CK all of you azzholes too. I’m OUTTA here.
You forget to add “F@CK OBAMA”.
NOW I completely agree w/ you.