Higher mortgage interest rates will cause loan balances to shrink and prices to decline; although, realtors would prefer to you believe it means you will be priced out forever.
Today's featured property is another equity surfer hoping to sell out with a few dollars before the auction.
Irvine Home Address … 7 West RAVENNA Irvine, CA 92614
Resale Home Price …… $939,000
{book1}
I see the bad moon arising.
I see trouble on the way.
I see earthquakes and lightnin'.
I see bad times today.
Don't go around tonight,
Well, it's bound to take your life,
There's a bad moon on the rise.
Creedence Clearwater Revival — Bad Moon Rising
Rising interest rates are a bad omen for the housing market. When the market is composed only of first-time buyers and renting former owners, no move-up market exists. Very few offers on properties have been submitted over the last few years where the buyer is contingent on selling a home. Without home equity to create a move-up market, pricing is established at the limit of available savings and loan balances. In short, it is set almost entirely by first-time buyers.
When first-time buyers face rising interest rates, their ability to borrow is curtailed. If there were no distressed sales, such an occurrence would cause a drop in volume followed by a drop in prices. When distressed sales are abundant, prices quickly drop to a new clearing price established by current loan terms. In our current market environment, higher interest rates will result in lower prices.
In January of 2010, I wrote about realtor ways in the post Urgency Versus Reality: realtors Win, Buyers Lose. I had just attended a realtor sales meeting where the interest rate gambit first surfaced:
realtor Reason Du Jour
The marketing presentation I attended had many examples of how to manipulate the current situation to create urgency when none exists. One of these pertains to the inevitability of rising interest rates, and it goes something like this:
If a buyer is looking at a $400,000 home, very low interest rates make the payment affordable, but when interest rates go up, it will be harder and harder to finance that $400,000 home. In fact, if interest rates go up a full point, a buyer might lose as much as $100,000 in buying power; therefore, you should buy before interest rates go up.
Hmmm… I nearly raised my hand to ask a follow up question but then I contemplated who my audience was and what they understand about real estate markets and finance, I decided against it. I ask the question here:
OK, if I buy today, the buyer who wants to purchase the house from me in the future when I am ready to move may not be able to borrow as much money. Won't that make my house harder to sell, and might I have to lower the price — a great deal — like the $100,000 mentioned in the example? Isn't the fact that my take-out buyer is going to be much less leveraged working against me?
We all know the answer to those questions (Your Buyer’s Loan Terms), and that was when I had an epiphany: the realtor mind is unconcerned with reality, it is only concerned with urgency, and if urgency conflicts with reality, urgency wins, and buyers lose. Buyers are supposed to believe the realtor cares and that they are looking out for the buyer's best interest; beliefs wholly incompatible with a realtor Mind®™ that places urgency over honesty.
Now that the troops in the field are all trained in how to make the interest rate argument, the NAr is stepping up its faux news stories to scare the masses.
Homebuyers scramble as mortgage rates rise
Higher payments could price many would-be buyers out of the market
By ADRIAN SAINZ and ALAN ZIBEL
WASHINGTON – The era of record-low mortgage rates is over.
The average rate on a 30-year loan has jumped from about 5 percent to more than 5.3 percent in just the past week. As mortgages get more expensive, more would-be homeowners are priced out of the market — a threat to the fragile recovery in the housing market.
Buy now or be priced out forever. They never get tired of that nonsense, do they?
In an environment where sellers do not have to sell, and there is very little inventory, sellers can hold their prices and affordability drops; however, when must-sell inventory hits the market, prices drop to the level of affordability necessary to clear the supply. Because we have more must-sell inventory on the way, higher intersest rates will translate to lower prices.
And if you wanted to refinance at a super-low rate, you may have missed your chance. Mortgages under 4 percent are still available, but only for loans that reset in five or seven years, probably to higher rates.
Rates are going up because of the improving economy and the end of a government push to make mortgages cheaper.
Yes, that is exactly why interest rates are going up.
Right now, investors have few good choices. The Federal Reserve has lowered interest rates to zero to push money out of savings accounts. The next best investment is longer term Government Treasuries, but the Federal Reserve has lowered the returns on those to historic lows to push money out of those as well. With few viable alternatives, money seeking a higher return will gravitate toward government-backed mortgage loans because they are basically as safe as Treasuries because they have explicit government backing.
Government insured mortgage finance is the next rung up the debt ladder from 10-year Treasuries. The only thing preventing an exodus of capital from the mortgage market is lack of a better place to go. The recent stock market reflation rally owns much of its strength to money finding a better return. As new opportunities arise — which is the sign of an economic recovery — money flows from safe assets to riskier assets yielding better returns.
When money leaves a market — as it will with mortgages — yields must rise in that market to attract capital. If yields must be raised to attract capital to residential mortgages, then mortgage interest rates must move higher. 
For people putting their homes on the market this spring, rising rates may actually be a good thing. Buyers are racing to complete their purchases and lock in something decent before rates go even higher.
"We are seeing some panic among potential buyers who have not found houses yet," said Craig Strent, co-founder of Apex Home Loans in Bethesda, Md. "They're saying: Man, I should have found a house three weeks ago or last month when rates are lower."
And realtors and mortgage brokers everywhere will stoke that fear to set the market on fire. Scare the crap out of buyers, and they will bid whatever sellers want to obtain the property. When the properties decline in value, they will feel no guilt over their fear mongering.
Decline in purchasing power
It's all about affordability. For every 1 percentage point rise in rates, 300,000 to 400,000 would-be buyers are priced out of the market in a given year, according to the National Association of Realtors.
The rule of thumb is that every 1 percentage point increase in mortgage rates reduces a buyer's purchasing power by about 10 percent.
For example, taking out a 30-year mortgage for $300,000 at a rate of 5 percent will cost you about $1,600 a month, not including taxes and insurance. But the same monthly payment at a rate of 6 percent will only get you a loan of $270,000.
Eureka! Someone finally did the math properly. This "news" story is a NAr press release disguised as news. Do you think any would-be buyers who read it stopped and wondered, "Wouldn't that make a $300,000 home fall to $270,000?" I hope they are asking that question because the answer is yes.
Good economic news is the first reason rates are rising: U.S. government debt, a safe haven during the recession, is losing its appeal as investors turn to stocks and riskier corporate bonds.
Lower demand for debt means the government has to offer a better interest rate to sell its bonds. The yield on the 10-year Treasury note, which is closely tracked by mortgage rates, has hovered around 4 percent all week, the highest since June.
The second reason is the Federal Reserve. Last week, the Fed ended its program to push mortgage rates down by buying up mortgage-backed securities. When demand from the central bank was high, rates plummeted to about 4.7 percent for much of last year. And business boomed for mortgage lenders as homeowners raced to refinance out of adjustable-rate mortgages and into fixed loans.
As of Wednesday, the Mortgage Bankers Association put the national average for a 30-year fixed-rate mortgage at 5.31 percent. One week ago, it was 5.04 percent.
6 percent rates likely
Many analysts forecast rates will rise as high as 6 percent by early next year. If they go much higher, the already shaky housing recovery could stall. And that could slow the broader economic rebound.
Not really. The reason interest rates will go up is because the economy is doing better. All higher mortgage interest rates will do is make home prices go down. That will have little or no impact on what happens in the broader economy; although, it will keep residential investment in check.
In a normal market, with home prices steadily rising, a jump in rates doesn't cause a big dip in demand. That's because people know their homes will eventually rise in value, and are willing to accept a higher mortgage payment.
Yes, some buyers are stupid. With cajoling from the NAr and the belief prices will go to the moon, borrowers often over extend themselves to capture appreciation and live the HELOC good life.
But now home prices are flat nationally and still falling in some places. Potential buyers are nervous about jumping in.
"In this environment, any rise in mortgage rates does significant damage because people don't think they're going to get their money back" if prices fall, said Mark Zandi, chief economist at Moody's Analytics.
That is because they won't get their money back. People are wise to sit on the fence and see how this plays out.
For people who bought their first home in the 1980s, when rates stayed over 10 percent for several years, paying 6 percent for a home loan may seem like a steal. But it's coming as a shock to many first-time homebuyers this spring.
Rising interest rates is also going to put a cramp on HELOC borrowing. That is going to come as a shock to everyone buying their personal ATM machines.
In Overland Park, Kan., Sirena Barlow checks mortgage rates online once a day. She's been shopping for a something around $130,000 and wants to sign a contract this month, to take advantage of a tax credit for first-time homebuyers.
Barlow, a legal assistant, has already told her landlord she's moving, so her stress level is high. Her real estate agent, Michael Maher, has been doing his best to calm Barlow and other clients, but rising rates are making them anxious.
"It's like giving hyperactive kids ice cream," he said. "It has really taken the ones who are focused on buying and amped them up a little bit."
Perhaps that characterization is correct, and this realtor is a Realtor and really is calming his clients. I rather doubt it. realtors for the most part are using any tool they can to motivate buyers including trying to scare them with the spectre of higher interest rates and lower affordability.
Spending themselves out of house and home
Since there is no shortage of wretched HELOC abuse among Irvine's elite, I thought we might look at yet another. Owners like these are the rule rather than the exception. From what I have observed, many loan owners were taking out their equity and spending it in a measured way to consume some significant portion of their appreciation income. Many borrowers overspent their home-price appreciation even when it accrued at the dizzying rates of the housing bubble rally. Those that were more restrained — perhaps they only spent 50% to 70% of their imagined gains — those borrowers are the ones to surfed the equity wave and departed peacefully on shore no better or worse for the journey but with memories of the good times.
I still have difficulty getting my mind around the idea that home-price appreciation is income. California borrowers freely access and spend this money as a gift from the housing market gods. Many borrowers set up plans where they routinely go to the housing ATM as a yearly bonus or housing stipend. These same borrowers are eagerly awaiting the return of widespread appreciation so they can resume cashing out of the housing ATM. Are the banks really going to do that again so soon?
- This property was purchased on 11/18/2002 for $655,000. The owners used a $530,000 first mortgage, a $66,750 second mortgage, and a $58,250 down payment.
- On 2/2/2004 the first mortgage was refinanced for $605,000.
- On 5/12/2005 the first mortgage was refinanced for $620,000.
- On 6/20/2007 the first mortgage was refinanced for $745,000.
- Total mortgage equity withdrawal is $148,250, a fairly typical Irvine take on the last half of the bubble.
These people were very ordinary in their HELOC spending — conservative you could argue. This is what passes as sophisticated financial management in California.
Foreclosure Record
Recording Date: 11/16/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 08/07/2009
Document Type: Notice of Default
Irvine Home Address … 7 West RAVENNA Irvine, CA 92614 
Resale Home Price … $939,000
Home Purchase Price … $655,000
Home Purchase Date …. 11/18/2002
Net Gain (Loss) ………. $227,660
Percent Change ………. 43.4%
Annual Appreciation … 4.6%
Cost of Ownership
————————————————-
$939,000 ………. Asking Price
$187,800 ………. 20% Down Conventional
5.24% …………… Mortgage Interest Rate
$751,200 ………. 30-Year Mortgage
$199,776 ………. Income Requirement
$4,144 ………. Monthly Mortgage Payment
$814 ………. Property Tax
$67 ………. Special Taxes and Levies (Mello Roos)
$78 ………. Homeowners Insurance
$36 ………. Homeowners Association Fees
============================================
$5,138 ………. Monthly Cash Outlays
-$1024 ………. Tax Savings (% of Interest and Property Tax)
-$863 ………. Equity Hidden in Payment
$390 ………. Lost Income to Down Payment (net of taxes)
$117 ………. Maintenance and Replacement Reserves
============================================
$3,759 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$9,390 ………. Furnishing and Move In @1%
$9,390 ………. Closing Costs @1%
$7,512 ………… Interest Points @1% of Loan
$187,800 ………. Down Payment
============================================
$214,092 ………. Total Cash Costs
$57,600 ………… Emergency Cash Reserves
============================================
$271,692 ………. Total Savings Needed
Property Details for 7 West RAVENNA Irvine, CA 92614
——————————————————————————
Beds:: 4
Baths:: 0003
Sq. Ft.:: 2528
$0,371
Lot Size:: 6,500 Sq. Ft.
Property Type:: Residential, Single Family
Style:: Two Level, Contemporary
Community:: Westpark
County:: Orange
MLS#:: S594539
Source:: SoCalMLS
——————————————————————————
XLENT QUIET INSIDE TRACK LOCATION, WITH NEW HARDWOOD FLOORING, DESIGNER PAINTS, WITH PROFESSIONAL LANDSCAPING AND BEAUTIFUL POOL, SPA. LARGE CUL-DE-SAC LOT, VERY DESIRABLE FLOOR PLAN AND AWARDS WINNING SCHOOLS.
I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.
Have a great weekend,
Irvine Renter
XLENT
I refuse to pay nearly $1Mil for something whose description is not fully spelled out.
XLENT!
Bil And Ted’s XLENT Realty.
Bill S Preston Daily Market Report: BOGUS.
XLENT news Redfin says this is under contract. So if the contract price is near the listing price the sellers will get some more equity out of this. Guess someone was in a rush to get his $8k credit and low rate before he was priced out forever. Especially for a house with Designer Paints – I’ve seen houses with designer paint, but this has a plural amount of paint, most awesome!
XLENT post, LOL
I can’t wait for agents to reduce the listings to a twitter-like feed:
u r going 2 <3 this 1
--------------------------
Also... Why are they trying to sell at 900+ while in FC, when they only owe 700+?
Because they are entitled to a handsome reward for holding the house for all those years. That’s how real estate works – you and your neighbors collude to corner the market in your neighborhood and then stick it to the next generation of house buyers buy forcing them to pay the price set by the cartel.
“Also… Why are they trying to sell at 900+ while in FC, when they only owe 700+?”
They are facing foreclosure because they are not paying on their loan. They should have some urgency to sell because they have equity. If this goes to auction before they sell it, the buyer at auction gets all their equity. That is why there are so few auctions in a healthy market because distressed homeowners have equity and sell to get it rather than lose it at auction.
Actually, if the winning bid at the foreclosure auction is more than the total liens, fees, etc, isn’t the excess paid to the homeowner?
Awgee, I think your right. The one action rule applies for a trustee sale on the first. Is the second next in line and if the bid is not enough to cover his loss, can the second go after the borrower/owner?
Speaking of “designer paint” I read a description by a realtor the other day that said custom “decorator white” paint. WTF?
If the owners paid an extra $7 per gallon or 15% for the paint, the property must be worth an extra 15% over the contractor’s grade painted house. :}
I’m not too concerned about REA misspellings —
I concerned about losing $200,000 or I could be smart and use a walking away 3.5% FHA loan with 2 years of free rent.
God bless our Congress, President, Fed and the banksters for their generosity.
EXLENT!
Saved yourself 3 characters there! Way to go!
I propose that we petition to have the english language modified to use this much more SOPHICATED word.
http://www.crackthecode.us/images/realtorspelling.jpg
XLENT!!!
I WOLUD LIKE TWO SUBSCRIBE TOO YOU’RE NEWSLETTER!
If the resale home price is over 900k and their last mortgage was “only” $745k why was there ever an NOD? Oh wait, that’s right because no one can actually pay a $745k mortgage, unless they are amongst the privileged few who make over $200k/year.
Redfin has excellent income demographics for particular neighborhoods. Check the income demographics for a neighborhood with 100% SFRs. You’ll quickly learn about wealth disparity that exist. The number of households making over 200k and 150k is high.
Obviously this owner wasn’t amongst them. Just because your neighbors can pay it doesn’t mean you can.
In the race race of Irvine there is cash to quickly replace the pretender or folks who fell on hard times. The data speaks for itself.
The data speaks for itself folks – notice that mortgages don’t happen in Irvine. It’s 100% wealthy and successful cash buyers. No pretenders there, no sir. Irvine is the one example of a stable real estate market that is not subject to gravity. The fact that no buyer since 07 has received a NOD is the proof in the putting. Buy a house today from PlanetReality or be priced out forever. Hurry! Interest rates are rising and the tax credits are about to end! Isn’t that right PlanetReality.
Proof in pudding not putting. My cell phone tries too hard to help sometimes.
Ooo, neato. Where I live they only have them by zip, which shows $200k+ earners in the zip of this home are rare, but you guys get them by neighborhood, which shows things like Turtle Rock is off the charts with $500k+ earners being the rule.
Westpark however is dominated by the $100-125k and $150-200k buckets, neither of which could handle the existing mortgage comfortably. There’s only a total of ~500 households that could in the area (out of 3627 total households). Is that commensurate with the number of SFHs in Westpark?
Cara the best data is for a specific tract of SFRs with 95%+ home owners. I’ve seen it where the median is over 150k.
They do now have it for my area too!! Neat!
My one hesitation is, do we no anything about the veracity/reliability of Onboard Informatics?
I’ve seen so many demographic links before that have turned out to be incredibly inaccurate. I was totally fooled early on in my search by one that had the median income for my neighborhood at $80k. (It’s more like $110k, which is big difference).
And don’t forget that many of these house debtor idiots have cheerfully walked right into the double income trap. Rather than be smart by buying a house that is affordable by just one of the incomes, these folks are doubling down and betting that nobody will lose a job or want to have children over the next 30 years. Of course we all know the real bet being made is on house prices shooting back up so they can play the refi Ponzi scheme.
They have exposed themselves and the taxpayer to even more risk because of their foolish decision to leverage themselves based upon a monthly payment that is serviceable to them today.
Hi Planet..how do you get to these income demographics on Redfin? I’m not seeing them…
If you click on demographics there should be a follow on link for demographics my neighborhood. Some of the neighborhoods are quite small. It’s eye opening data revealing what happened.
I wish they were more transparent about their data source. I have no way of knowing if the numbers given are any more accurate than the property valuation numbers from Zillow. The neighborhoods I looked at seemed reasonable.
My guess is that they use claritas. They provide data to just about everyone. Most likely a Prism NE or P$ycle NE Demographic Listing.
http://www.claritas.com/MyBestSegments/Default.jsp
You can look up just about any zip in the country with this free tool. For more detailed analysis you have to pay lots of money for a subscription.
Or even if the “income” includes HELOCs. Perhaps the data is even generated based on the home vlues themselves since they couldn’t afford them IF they really didn’t make that much.
You’re assuming everybody HELOCed up and/or bought at peak. Many people did, but if one did not, those types of salaries should be able to pay the mortgage on a house this size fairly easily. For example, 8 Ravenna, across the street, is a bigger house, backs up to the park, but was bought for $485k in 1998 (which was actually $5k less than the previous sale in 1991). That type of pricing pattern actually might be what we get in the future-flat prices for seven years or more.
I’m discussing the mortgage amount on this particular house.
Implicitly I’m asking the valid question, could the current owners in the neighborhood afford their own homes if they had to buy them again at today’s prices. If the answer is, yes they could, then there’s nothing to worry about, if the answer is no, then there’s the potential for problems.
Answer to Cara’s question is “HIGHLY UNLIKELY”.
It’s a big ripoff of the next generation is what it is. It has been documented several times that first time buyers today have to work much longer to pay off a house than the previous generation.
The boomers gave us great innovations in debt engineering that have enabled them to run a game on their neighbor’s children. They got to collect all the money created from the debt taken by their neighbor’s children. Now we get to fight it out for the privilege of owning a POS starter house while they jet set around the country to their seasonal houses and run the Government tin ways to screw younger folks even more.
Worst generation in history. An epic disgrace.
David,
That was always the working assumption on this blog, but if the Onboard Informatics statistics are to be believed, then actually in some neighborhoods there isn’t a problem. There may or may not be a two income trap problem. Numbers of incomes per household is not listed.
And why was it $5K less then? Oh, that’s right, the government didn’t panic and apply trillions of dollars to the real estate and financial markets added to the fact the everyone with pulse is now conditioned (and demanding) that home prices always go up. And if that wasn’t enough, a bankrupt state like CA is even willing to give you $10K (of other peoples money!) to go out and leverage yourself into debt slavery forever!
I agree with your perspective on the boomers. They saw unprecedented “good times” for all their lives. Most CA boomers made a killing in real estate, I think most of them still think you simply cannot lose by purchases real estate here.
I wonder if this has had any effect on the mini bubble we are seeing again. Cash flush boomers could be scooping up some of these properties that are near rental parity and using them as investment properties. I honestly don’t know.
I work with several boomers nearing retirement. These guys aren’t hurting one bit. Houses in Palos Verdes, rental apartments, fat pensions and killings made in the stock market over the last 40 years. Boomer offspring who inherit this gold mine will have it made.
+1000000!
I am looking forward to seeing the revised household income numbers. My neighbor went from a 180K real estate job to working in an apartment leasing office for 30K a year.
I am sure there will be no similar stories coming out of Irvine. Not with so much raw talent running around there to push paper around 9 to 5 for six figures.
Redfin statistics, if I’m reading correctly, show Robbery index at 2 to 4 times in several neighborhoods of Irvine like Shady Canyon and Turtle Rock at 3.98 times the National average. Is that probable? Am I missing something?
Property crime is a problem in high end neighborhoods. It doesn’t take too many crimes when something of high value is stolen to make the statistics look pretty bad.
If we are at rental parity it is possible for prices to stay flat over the next 3 to 5 years and interest rates to rise. In fact this is what I expect.
However using this as a scare tactic is ridiculous. There are many possible scenarios. I view this as the most probable scenario given current rental parity and interest rates.
Your dilemma is explaining how the prices are going to be sustained when a large segment of the moveup crowd is shutout due to rising interest rates.
It’s very obvious that the majority of people buying these overpriced houses are using bubble money from a previous house sale as a down payment. It’s people cashing out before prices retreat and house swapping. In the meantime the Government is running a game on the lower end of housing trying to sucker the first time buyer with cheesy gimmicks and parlor tricks.
So what happens when house prices begin to decline 3% per year because interest rates are going up? People are going to have to pay off their debt in order to make that move up house swap.
You are using rental parity to justify a plateau making the foolish assumption that rents don’t go down.
Did you read that new college graduates are earning les this year than college grads last year? Are these folks going to be in a position to buy these overpriced houses 10 years from now after paying off their debt and having no free equity to tap? I don’t think so.
There is a limited supply of boomers to keep pumping hot air into the system. Just wait until the high paying jobs flee the area and these invincible hi wage earners become disposable as corporations leave for areas that are more business friendly. It’s obvious that California is about to declare bankruptcy – who do you think they are going to stick it to in order to pay their bills?
And you sit here saying that everything is stable. The plateau is reached….because of your handwaving declaration of “rental parity”
When you can buy for the same monthly cost of renting that is the cornerstone of stability. Rents and interest rates can rise together.
There is no magic hand waving when people are making the logical decision to buy for the same cost of renting.
Logical….
So I can rent and get a 3% reduction each year or I can “lock in” to a 30 year payment plan on an asset that will decline in value 3% a year for the next 10 years while basically paying off no equity since the lender’s shell game applies most of my payments to interest and hardly any to the principal.
You think option 2 is the most logical…. I am not seeing the logic in that but I can see the opportunity to bamboozle a dumbass into buying an overpriced house to earn a commission on. That part seems very logical.
After the next big earthquake, I am sure there will be some happy renters.
Do rule out the risks in owning.
Planet, you are making a big assumption that rents continue to rise. Where I live in the South Bay, rents have plummeted in the last two years and continue to decrease. People are losing jobs at an alarming rate and those lucky enough to hold on to them are not seeing any increase in wages…how is it justified to pay more rent year after year?
An increase of mortgage rates to the 6% range will definitely affect home prices, especially in areas like Irvine where the loans are big.
I will keep repeating myself like a broken record here. Even if a house is at rental partiy today in places like Irvine, there is still too much downside risk to buy now. Most people will be better off waiting out the storm. Life happens: jobs loss, job transfer, divorce, kids, health problems, etc. Most normal people will not want to “rent their place out” for years while wating for a recovery in prices. Often it is best to cut the chord that is attached to the boat anchor so you can keep yourself above water.
Just my 2 cents.
Another garage-with-an-attached-house. Seriously, where’s the front door? Does it even have a door at the front for humans to walk through, as opposed to just ones for vehicles?
What do you expect for a mere 940 Thousand Dollars? Curb appeal starts at 1 Million – the hag on the Property Virgins show said so.
“… when must-sell inventory hits the market, prices drop to the level of affordability necessary to clear the supply.”
IMHO, it is true, but not that simple:
1. Housing market is not free market. Market regulation may have dramatic effect.
2. Must-sell inventory is not necessary must-sell-today inventory.
3. Theoretically economic recovery may increase buying power. It means more cash and less unemployment.
Have you noticed that the Government’s new definition of economic recovery is how many “jobs” it can create?
We lose a job that paid someone six figures to push paper around and turn around and replace it by hiring a hostess at the Olive Garden. The recovery is in! The jobs numbers prove it! The data is what it is. Buy now hurry!
That is why I wrote “theoretically”. Economy has a mind of its own. Sometimes it prevails despite best government’s efforts.
There a big economic recovery.
My cousin has 3 of them jobs.
How are the databases measuring income? All salary, bottom line on 1040 page 1, after all deductions? Or are the medium income from no documentation loan documents? The numbers can be very different.
I know one REA who as gone from near $200K income to near zero and no real saving, but that has not stopped her from her $75 per week golf. Life if tough when you have to live off the income from a refin. Do I smell a walk-way in 2 years?
The economy does not have a mind of its own. Sick and tired of everyone acting as if the real estate market and economy are impossible to understand and predict. YES short term noise is unpredicatable. Long term trends are completely predictable with mild degree of accuracy.
The economy is not turning around right now. The real estate market is not turning around right now. Short term noise (subsidy via gov/t) is the only thing happening right now.
Higher rates… phsaw. Rates were in the 5’s last summer. Sales did not collapse. Will rates go to the 6’s? If they do (which I doubt) so what? A 6.0% 30 fixed means a 5% ARM rate which people will flock to. That does not mean it’s right, it just means “that’s what it is”. 6.0% fixed, 5.0% ARM’s and many, many new properties on the market – all distressed. That will be the biggest part of the 2010 Real Estate story.
My .02c
Soylent Green Is People
I don’t think anyone expects sales to collapse. The effect is going to be more of a psychological loss of enthusiasm. People will still foolishly buy but I would say that the low interest rates are running out of steam to get people all excited at this point and that is what the system depends on – exciting the emotions of buyers and taking advantage of them while they are all roofy’d up.
Wall Street Journal (04/09/10) P. A1; Karmin, Craig; Hagerty, James R.
There will be a surge in foreclosures this year on houses with loans of $5 million or more, predicts a RealtyTrac study. Just in February, a total of 352 homes nationwide in this category were scheduled for foreclosure auction — the biggest monthly number since the financial crisis started. First American CoreLogic’s data shows that big borrowers are more likely to default than ordinary folks. The firm’s loan database currently contains about 1,700 loans with balances of $4 million or more, and about 14.8 percent of those loans were 90 days or more overdue as of Jan. 31.
http://online.wsj.com/article/SB20001424052702304198004575172303998670976.html
The maximum amount of forgiven debt for which the tax exemption applies is $2,000,000.
Inflation to the rescue. I along with many others on and off this board always suspected this will be the case: Inflation.
http://tinyurl.com/y5qjw3y
It’s not without cost – especially to savers.
Inflation is currently neglibile (we actually had deflation last year) and will probably continue to be for a least several years.
The article says the Fed is hoping for more inflation. It did not say there’s much inflation right now. IMHO, we will have inflation, at least a commodity inflation above the normal average 2% to 3% levels – sooner or later. Hopefully, i won’t be a runaway inflation.
inflation will be the “bailout” mainstreet is looking for – squashing the debt with cheaper dollars.
The irony of the situation is everybody gets poorer and life gets harder.
Irvine Renter,
Great post!
We all know the massive buying of RMBS by Fed temporarily (yes, only temporarily, mark my words for it) stopped by end of March. What’s supporting the MBS market right now is that dreadful interest rate arbitrage, also known as carry trade, in which large banks and hedge funds borrow at a little over 0% and turn around invest in higher yield instruments (Treasury, MBS, stocks, foreign gov’t bonds …) with 15 to 1 leverage. While large zombie banks made out like bandit and blew up several spectacular bubbles along the way, real economy is going nowhere and broad credit contraction remains in full swing.
The $64 question is when the unwinding of this mother of all carry trades (as we are experiencing now) will start. That in turn depends on when Fed will begin raising interest rates, which pushes up short term borrowing cost and wipes out profits of the trade. So any hint of rate hike from Fed, which signals the dawn of a new tightening cycle, will trigger a stampede for the exit. Bernanke has taken out the “extended period” verbiage from their latest statement and made their rate decision “data dependant”. A flurry of “good” economic news is expected to come out before the mid-term election, but I doubt Fed will pull the plug before November. But after the election it would be a different story. I will have popcorns/soda ready for the show. Collapsing of bond market? End of the equity bear market rally? Second leg down of housing market? I know, I know …. But I can always dream, can’t I?
I think your analysis is right on. I doubt there will be any change in the status quo prior to the election. The Democrats bought themselves some seats at the mid terms with the stimulus package. The remaining pain is reserved for the period between this November and early 2012.
The stimulus was not large enough to turn the economy around (the economy would have been worse without it, but “almost completely sucking” is still bad, even though it’s better than “completely sucking”). Basically, since the economy will probably still suck come election time the Democrats will lose significant numbers of seats in both houses merely due to the fact that they are the incumbent party (and due to the fact they won the Presidency in 08-after a party switch in the Presidency, that party always loses seats in the next mid-term). I think they will keep both houses, but just barely.
Now, my longer term prediction is that Obama is re-elected and the Dems regain some (but probably not all) of their 2010 losses in both houses of Congress in 2012.
That’s true – unless some internal/external shocks (a couple of PIIGS blow up, Chinese RE market finally implodes, a sudden fall in consumer spending, upshot in unemployment rate … ) rattle the market and collapse yield spread before November. But of course Benny Boy will not sit idly and allow this to go on. We can expect a quick revamp of QE if things turn south again.
Even if Fed begins to raise the rates after the election, the tightening cycle probably won’t go very far before economy slumps again. Then we will have a replay of 2008-2009 crisis with more desperation and ends up with even larger scale QE and bailout programs (remember nothing has changed. The only thing different between now and 3 years ago is the exponential growth of moral hazard) Anyway you look at it, Japan’s lost two decades (will be lost three decades in 10 years I am sure) will be the BEST possible outcome US can expect.
House price demand takes a while to react to a raise in interest rates. The first step is buy before the rate goes up again. The second step is will the house be a hedge against inflation? The third step is for prices to go down. The REA and government job will be to keep beating the drum to have people in steps 1 and 2.
I didn’t think the stock market could rebound in only 2 years, but it did with govt support and free money for the banksters. Could this be the same for housing? Who will be left holding the bag on the stocks and who will be left holding the bad on the bad loans? I know it will not be the banksters.
The word “NARR” in German, means “fool” or “court jester”. An appropriate choice of organizational acronym, at least from a Teutonic perspective.
I have a stupid question relating to working with an agent to buy a house. Is it improper to ask your potential buying agent, how many houses has he sold and helped buy in the last few months? Can he give you the exact addresses so that you could verify if he is one to pressure buyers into buying too much?
I would ask and ask for a list of all house put on the market, which sold, why or why not sold, and the number of offers written. As for your latter question, I don’t think you will get an honest answer from either the buyer or REA. They always properly place a buyer and buyers are not very likely to admit purchasing over their head.
Also some time a buyer’s REA can hard sale to break a sale.
The Fed and Treasury will do everything in its power to prevent interest rates from going up for at least 2-3 more years, thus fostering inflation for the next 5-10 years.
It’s clear that the Fed has decided to print ourselves out of this Almost-Great-Depression-2. Inflation will get us out of these national and personal debt problems, at the expense of those of us who were prudent and saved money in the bank or via investments this past decade.
See: http://tinyurl.com/yeszf38
The unconventionally smart thing to do in the next 2-3 yeard will be to mortgage yourself into the highest amount possible, with low fixed 5% interest rates. You benefit from the great government housing subsidy via a tax deduction on mortgage interest payments, plus you’ll also benefit from owing very little down the road on an inflation-adjusted dollars basis.
10-15 years down the road it’ll take $300 to fill up your grocery cart for the week at the same store where it currently takes $100. Likewise, your $1,000,000 home will cost $3,000,000 on the market…not due to fundamentals like rising income, but the Zimbabwe-like inflation solution currently being executed by Helicopter Ben.
Geotpf: “Inflation is currently neglibile … and will probably continue to be for a least several years.”
COMMODITIES (1 YEAR CHANGE)
– Crude oil: +64%
– Heating oil: +57%
– Natural gas: +9%
– Gold: +31%
– Silver: +48%
– Copper: +72%
– Live cattle: +14%
– Feeder cattle: +15%
– Sugar: +37%
– Cotton: +65%
– Soybeans: -5%
– Wheat: -11%
This picture does not bright.
How about you show us what those numbers look like vs. 2007.
Funnily enough, almost no one was talking about inflation in 2007. Talk about being behind the ball there.
Treasury bubble will be the real reason interest rates go up.
If rates rise, buyers can afford less. Would they then start shopping in a lesser neighborhood?
I’m going to go out on a limb and say now is the time to buy merely because most of my friends and co-workers around think its a bad time. That’s a clear signal to buy!
The time to buy is when you can afford to buy, end of story. Thinking of housing as an investment is foolhardy unless you have gobs of liquidity and even then it shouldn’t be YOUR liquidity (eg REIT). 🙂
I agree with Mark in terms of the responsible borrowers getting the short end of the stick. Do you read Peter Schiff? You sound a lot like him. What would you do with the funds once you withdrew them from the house?
Hoarde gold and silver coins of course=).
When people take cash out of their house equity, does it count as “income” which then affects the area demographics for average income? Hmmmm…
No. It does not count as income because it is generally a loan. So, while you have an infusing of cash, you have an obligation to repay that cash back so your net worth has stayed the same.
It is only income if (when) the bank decides you no longer have to pay. If a bank releases you of your obligation to repay it, you have now received cash with no obligation to repay and your net worth has increased. It is at the point when the bank releases you of your obligation to repay that you have had income.
2009-2010 Secured Property Tax
Property Tax Information
FISCAL YEAR 2009-2010
This page presents tax information on the parcel you have selected. Payments, corrections and/or other adjustments made today may not be reflected until after 2 days.
Parcel No. 447-231-16 View Original Bill (See Bill Disclaimer)
Legal Description N TR 12627 BLK LOT 130
Tax Rate Area 26-087
Roll Type Secured
This bill was generated on 10/02/2009.*
Installments Delinquent Date Status Amount Due Remarks
First Installment 12/10/2009 PAID $0.00
Second Installment 04/12/2010 NOT PAID $4,218.34 Until 04/12/2010
Total Due and Payable $4,218.34 Click Here to Pay Online
The amount above represents the amount due for the 2009-2010 tax year only, and includes any corrections, penalties and fees not reflected in your original tax bill. You may go back to the previous page for any prior year information. For any questions, please contact the Tax Collector’s Office at (714) 834-3411.
Payment Summary
Installments Date Paid Amount Paid Remarks
First Installment 12/07/2009 $4,218.34
Second Installment $0.00
Total Amt Paid $4,218.34
Assessed Values and Exemptions
Description Full Value Computed Tax
Land $462,598
Mineral Rights $0
Improvements $278,402
Personal Property
$0
Others $0
Total Values $741,000
(Less) Exemptions
$0
Total Net Taxable Value $741,000 $8,436.68
Click Here for Details
Total Due and Payable $4,218.3