Utilize fixed-rate assumable financing: This is the most useful advice I can give those buying during the coming decade.
Irvine Home Address … 14 HONEYDEW Irvine, CA 92603
Resale Home Price …… $899,000
{book1}
Time for the final bout.
Rows of deserted houses..
All our stable mates are highway bound.
We'll rest easy (justified).
I've suffered a swift defeat.
I'll endure countless repeats.
Death Cab For Cutie — Stability
From my first post at the Irvine Housing Blog I am IrvineRenter, I have provided housing market analyses to help people make sound financial decisions with regard to real estate. To date, most analyses have pointed to renting rather than owning, but as conditions change, I will point out the positives and pratfalls of owning today. To that end, today's posting is among the most important because this post contains specific advice that in the future will either help you sell your house faster and easier or for more money.
Utilize fixed-rate assumable financing: Government entities like FHA, VA, GNMA or some other official government program (not Freddie or Fannie) provide assumable, fixed-rate loans desired by your future buyer.
Maximize your down payment (within reason)
I am not advocating FHA loans because they allow you to put down as little as 3.5%. I believe you should minimize your time to payoff by optimizing (generally enlarging) your down payment and utilizing accelerated amortization. Nor am I advocating emptying savings accounts and failing to keep liquid reserves or other investments. The middle road I advocate leads to financial freedom, whereas the road of maximum debt leads to deflation through individual financial disaster. The debt road is well traveled, but like Robert Frost poetically noted,
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.
Money-changers chastise me for advising borrowers to eliminate debt when cheap money abounds. They contend debt is great as long as the borrower's back can bear the payments; similarly, cancer is great as long as the medication can treat the patient. Compound interest grows like cancer, and both are best avoided or annihilated.
Debt is like fat; it is an excess carried around as reminder of glories and gluttonies past. Go lean, purge cancerous debt and grow your net worth; wealth isn't going to appear through home-price appreciation for the next decade, so paying down debt is the best opportunity available for consistently improving your financial life. It isn't a Ponzi Scheme. Take advantage of it.
Expect no home-price appreciation
No meaningful appreciation will occur in the decade of the twenty-teens. The majority of knife catchers and much of the market participation over the next two years will be those who cling to beliefs of past appreciation coupled with those who don't believe prices will remain flat. The activity of knife catchers will provide liquidity as prices continue their controlled decent.
Some will buy without expectation of appreciation — certainly those who follow my writing expect very little — and if prices do appreciate, those not motivated by appreciation will consider it a bonus.
Assumption of Mortgage
Despite the apparent lack of price appreciation, there is still a method for obtaining financing equity from property from a little-known and oft-forgotten loan term known as assumption.
Assumption of mortgage is the purchase of mortgaged property whereby the buyer accepts liability for the debt that continues to exist.
To be more precise, the borrower is assuming both the rights and obligations of the promissory note and the Deed of Trust. Assumable loans have been around as long as lending. Borrowers seeking release from their payment obligations usually sell for cash and terminate the loan; nonetheless, a qualified new buyer may assume the previous borrower's liability and simply take over making payments on the loan.
Lenders despise mortgage assumptions (and they should)
Both buyers and sellers benefit from assumption, but lenders suffer — which is why assumption is generally limited to government programs and adjustable-rate mortgages; lenders do not want their fixed-rate loans assumed.
Lenders borrow short to lend long; in other words, when they underwrite you a 30-year loan, they obtain the money they loan you with short-term borrowing, mostly from savings accounts, maybe even your own. In the industry this problem is known as an asset-liability mismatch. If lenders have a portfolio of low-interest loans outstanding in a high interest rate borrowing environment, they experience a negative spread, and eventually go bankrupt. In fact, much blame for the Savings and Loan fiasco traces back to a negative spread condition and asset-liability mismatch during the early 80s.
Rather than letting thrifts die, we deregulated and allowed them to build taxpayer insured Ponzi Schemes prompting a massive government bailout. The Savings and Loan industry collapse was the early warning of problems with banking deregulation — not all deregulation is good; for instance repeal of the Glass–Steagall Act was a disaster as it enabled the conditions that contributed to our global Ponzi Scheme that collapsed in late 2008.
In rising interest-rate environments lender spreads are squeezed but not eliminated as older, low-interest loans are replaced with newer, high-interest loans. If all loans were assumable, lenders would be handicapped in their ability to rematch their assets and liabilities. To avoid asset-liability mismatch, lenders put due-on-sale clauses in their promissory notes specifically to prevent low-interest loans from surviving to term with a series of debt-assuming owners.
Fortunately for buyers, the federal government cares not about making a profit or cost of financing, and they hold loans to term; as a result, assumable loans are underwritten to standards compliant with FHA or other government programs and insured by same.
Unfortunately for taxpayers, A rising FHA default rate foreshadows a crush of foreclosures and the US taxpayer will be called upon to pay billions in losses for a government policy to keep the house prices artificially high. The taxpayer losses represent the loss burden lenders shifted to us and the moral hazard we are enabling for the future. You should feel defrauded… again.
Understanding by example
A buyer looking at properties like today's will spend nearly $4,000 a month paying down a 30-year mortgage on a $900,000 house (current FHA loan cap is $729,750 in Irvine). Fast forward ten years, and the future buyer of this property will likely be able to afford a $6,000 monthly payment, but since interest rates will also be higher, the mortgage is not larger, and thereby, prices are not higher. As I mentioned in, A Theory of House Prices and Housing Markets, expanding mortgage balances are necessary for prices to appreciate, and rising interest rates cause mortgage balances to contract rather than expand. In fact, if interest rates move higher faster than wages, prices decline.
If a future buyer is spending $6,000 per month to borrow the same amount that $4,000 supports today, then the future buyer would be $2,000 a month better off by assuming the old loan at 5% rather than underwriting a new one at 9% or higher. It is the desirability of the low payment on the old loan that makes assumption work.
Any rational buyer would want to assume a loan with lower payments and fewer than 30 years remaining to pay. The only downside for a buyer is that they will never refinance into a lower interest loan simply because they already have one. I have written many times about the virtue of buying when interest rates are high and refinancing into a lower interest rate to accelerating amortization. Buyers obtain this same benefit through assumption, and sellers can extract value from the transaction.
Seeing this potential outcome in advance will help you position yourself to take full advantage. Most fixed-rate private loans — including those issued by GSEs — are not assumable, and borrowers who utilize financing today with due-on-sale clauses will have no opportunity to extract value from their financing.
Sell faster or sell for more
If interest rates rise, assumable fixed-rate financing has value even if the financing has not been in place long. For instance, if a buyer must become a seller two or three years into their mortgage — and if they have equity and can sell — they will have a significant advantage over sellers with similar properties who do not have assumable loans. A few years from now, the lower mortgage payment will be an attractive feature prompting buyers to select one property over a neighboring one. If you faced two competing properties but one offered an assumable loan that reduces your payments 5%-10%, all things being equal, wouldn't you chose the one with the lower payment? I would.
As interest rates go up and time passes (which reduces remaining amortization), an assuming owner enjoys monthly savings and a shorter amortization schedule. At first, this is merely a sales point, but at eventually, the benefits accruing an assuming owner morphs into a source of real monetary value a seller can obtain.
How to use owner financing to obtain equity from assumable loans
There are three primary ways owners obtain direct and measurable financial value from their assumable loan:
- Buyer increases down payment and pays more total dollars
- Seller offers and buyer accepts a seller-financed second mortgage and the seller either keeps the cashflow or discounts the loan in the secondary market and obtains a one-time cash infusion.
- Seller offers and both buyer and lender accept a wrap-around mortgage.
The first concept — buyers increasing their down payment and paying more total dollars — should be familiar to anyone who has prepaid interest points when originating a loan. People frequently pay interest up-front in order to lower their interest rate and monthly payments over the life of the loan. When a buyer assumes a seller's low interest-rate loan, they are doing the same thing, but instead of that money going to a lender (or mortgage broker) that money accrues to the seller. Do you see why lenders hate assumption?
The second and third concepts — issuing seller financing as either a second mortgage or wrap-around mortgage — are far less common and much more complicated, but the financial rewards are great, and any seller with an aging and assumable first mortgage should explore the options assumable financing creates.
Seller financed second mortgages
Let's go back to the opening example of a loan issued today with a $4,000 monthly payment. Fast-forward to 2020, and the same loan balance financed at 9% yields a $6,000 a month payment. Obviously, a buyer would prefer the $4,000 payment to a $6,000 one, and the seller would like to extract the equity accumulated through paying down the loan balance plus a premium for the value of their financing.
If the seller allowed themselves to be taken out by a buyer using a conventional loan, they would obtain the $138,619 in financing equity obtained by paying down their mortgage debt, and at the closing, the sales price would show no change, and the seller would obtain a check for their financing equity minus fees. However, If the seller offers and the buyer agrees to a second mortgage with a $2,000 payment for a 15-year term at 9%, the seller would obtained an annuity worth $197,186 when the loan balance has only been paid down $138,619 for a value-added of $58,567 or about 8%.
(The annuity value of a $2,000 monthly payment over 15 years discounted at 9% is $197,186)
Why would a buyer agree to this? Well, if you were buying this property in 2020, you are still paying $6,000 a month, so you are no worse off on a monthly payment basis, and your total debt is the same, so you are no worse off on a total debt basis; however, and this is a big however, you will have one loan on a 15-year amortization schedule and another with 20 years remaining out of 30 — you have just accelerated your amortization and reduced your Time to Payoff. I would take such a deal, wouldn't you?
Both buyer and seller benefit greatly from assumption; only lenders dislike it.
Wrap-around mortgages
Wikipedia's description is well written, so I relay it in full here:
A wrap-around mortgage, more-commonly known as a "wrap", is a form of secondary financing for the purchase of real property. The seller extends to the buyer a junior mortgage which wraps around and exists in addition to any superior mortgages already secured by the property. Under a wrap, a seller accepts a secured promissory note from the buyer for the amount due on the underlying mortgage plus an amount up to the remaining purchase money balance.
The new purchaser makes monthly payments to the seller, who is then responsible for making the payments to the underlying mortgagee(s). Should the new purchaser default on those payments, the seller then has the right of foreclosure to recapture the subject property.
Because wraps are a form of seller-financing, they have the effect of lowering the barriers to ownership of real property; they also can expedite the process of purchasing a home. An example:
- The seller, who has the original mortgage sells his home with the existing first mortgage in place and a second mortgage which he "carries back" from the buyer. The mortgage he takes from the buyer is for the amount of the first mortgage plus a negotiated amount less than or up to the sales price, minus any down payment and closing costs. The monthly payments are made by the buyer to the seller, who then continues to pay the first mortgage with the proceeds. When the buyer either sells or refinances the property, all mortgages are paid off in full, with the seller entitled to the difference in the payoff of the wrap and any underlying loan payoffs.
Typically, the seller also charges a spread. For example, a seller may have a mortgage at 6% and sell the property at a rate of 8% on a wraparound mortgage. He then would be making a 2% spread on the payments each month (roughly, anyway. The difference in principal amounts and amortization schedules will affect the actual spread made).
As title is actually transferred from seller to buyer, wraparound mortgage transactions will violate the due-on-sale clause of the underlying mortgage, if such a clause is present.
Note that pesky due-on-sale clause is back. Lenders do not like wraps any more than they like assumption and they dislike it for the same reasons, asset-liability mismatch.
Facts about loan assumptions
I wrote to Soylent Green Is People with help in writing this post, and he provided me the following list of facts about assumption:
- Assumptions do not require a down payment. If the seller has equity it's paid to the seller. If the loan is break even to value to upside down, it's simply taken over.
- Assumptions do not (for the most part) require appraisals. It depends on the investor. An FHA insured loan would not require an appraisal, a private investor ARM loan would.
- Credit qualifying is based on underwriting standards available at that time. Income, assets, credit, and debt to income ratios apply.
- Condo project HOA's are not re-evaluated. If an FHA loan was made in an association that was acceptable at origination but has since deteriorated, it is of no issue to the assumption department. Since the borrower must credit qualify for the assumption, the current HOA dues might impact the buyers ability to qualify, but that's the absolute depth of scrutiny these loan applicants will get.
- "All in" lender costs to assume is about $1,500 per transaction. It is not a scalable fee. There will be escrow, title, and other non lender costs, but minimal at best.
- The loan must be originated and in place for 12 months before an assumption can be completed.
- The seller or borrower must pay any escrow shortage/past due interest.
- These are our current guidelines, subject to change of course, and not applicable to every lender, but likely similar to what everyone else has as policy.
- We get "many" requests to assume, but are closing 1-2 per month. I'd say this is likely due to below market financing available today. Most vintage 2005- 2008 FHA loans were priced in the high 5's. 2009 FHA loans do not have 12 month seasoning yet. Project forward into 2011-2012 – if we aren't all wiped out from the planetary alignment/Mayan calendar event…. I'd guess there will be plenty of cheap rates available for buyers willing to purchase FHA financed homes through assumption of the original note.
The GSEs will underwrite ARMs with assumability, but since they are ARMs, the assuming buyer is not locked in to a low rate, so it becomes worthless and pointless. Assuming an ARM does not work like assuming a fixed loan. Don't mistake one for the other. You want to take out an assumable fixed-rate loan.
Make sure your financing is fixed and assumable
As I stated at the opening of this post, this may be among the most valuable pieces of advice I have offered at the IHB. Fixed-rate financing that allows assumption is the best — and absent appreciation, the only — method of extracting value from real estate going forward.
Use it.
I will.
Irvine Home Address … 14 HONEYDEW Irvine, CA 92603
Resale Home Price … $899,000
Income Requirement ……. $187,208
Down Payment Needed … $179,800
20% Down Conventional
Home Purchase Price … $745,444
Home Purchase Date …. 11/24/2009
Net Gain (Loss) ………. $99,616
Percent Change ………. 20.6%
Annual Appreciation … 77.3%
Mortgage Interest Rate ………. 5.05%
Monthly Mortgage Payment … $3,883
Monthly Cash Outlays …..….… $5,100
Monthly Cost of Ownership … $3,760
Property Details for 14 HONEYDEW Irvine, CA 92603
Beds 4
Baths 2 full 1 part baths
Home Size 2,057 sq ft
($437 / sq ft)
Lot Size n/a
Year Built 2003
Days on Market 4
Listing Updated 2/9/2010
MLS Number S604912
Property Type Condominium, Residential
Community Quail Hill
Tract Lind
Beautiful house in Quail Hill. Upgrades starting from driveway, landscaping to Crown moldings at ceiling. Too many upgrades to list. Seeing is believing. View this gorgeous home before it's sold.
The Twenty-Teens
What is the name of the current decade and who decides? When I started writing this post, I found the world of opinions on the subject, but in the end, common usage will determine what we call it. I am casting my vote with Twenty-Teens because I like the way it sounds. Twenty-teen as the T-T sound sandwiched in the middle that is just fun to say. The nineteen-teens (1910s) sounds ridiculous, so we couldn't have used it over the last seven hundred years because each century name had a -teen ending.
In my opinion, T-T sounds cool, but Teen-Teen sounds, well… teenish. I found one forum where a poster liked the sound of Twenteens, but it is a bit too clever, and too easily misunderstood or confused with Twenteen, "the new age for a person who doesn't want to lose being a teenager once they hit the age of twenty!"
The default choice from the last seven centuries leaves us with the twenty-tens. Boring.
I like Twenty-teens. It is a clean moniker seven hundred years overdue.
IR I saw an interesting question last night with no answer: “IR I have an bank sale question: If one buys a property all cash, to live in or rent out. How long until one can “extract one’s equity” and get a loan out for it? “
The weasel answer is, “it depends.”
Lenders are not keen on making these loans right now for obvious reasons, so some seasoning is probably going to be required. We are exploring alternatives right now, but I have nothing to report.
If I were a lender, I would want to see a rental agreement and at least two on-time rental payments from a tenant before I was confident the rent would cover my payment plus a cushion. Therefore, I would anticipate a seasoning period plus a relatively low loan-to-value.
Also, you need to examine the all-cash returns and make sure taking on debt makes sense. If the property only has a 4% capitalization rate, it is counterproductive to apply 5% debt.
What about owner occupied?
“If the property only has a 4% capitalization rate, it is counterproductive to apply 5% debt.”
If you think interest rates are going up, it might still make sense to get 5% fixed rate financing. Also note that higher inflation implies higher rents and rates. This situation would leave the landlord with a higher cap rate and 5% financing. Not too shabby.
That is still overpaying today and betting on improving conditions tomorrow. It is still bubble thinking. If financial conditions do not make sense now, they may never make sense, so such an investor is simply gambling. The rosy scenario may come to pass, but that wouldn’t make the initial decision to overpay right, it must makes it lucky.
Totally agree if we are talking about buying a property.
But I was referring to “If one buys a property all cash, to live in or rent out. How long until one can “extract one’s equity” and get a loan out for it? ””. If you already have a property, a 5% loan would be a nice hedge. But I agree, this is speculation and it does not make sense today. Problem is, if inflation came back, I don’t think the 5% loans will still be around.
I guess there is no substitute for knowing the future.
“I guess there is no substitute for knowing the future.”
Lenders are betting that inflation will not get out of control and that their 5% loans will still make them an inflation-adjusted return. If you believe they are wrong, and if you believe inflation will exceed the interest rate on the loan for an extended period, then taking on debt is getting free money. I have a difficult time imagining the Federal Reserve allowing sustained inflation in excess of 5%. But anything is possible.
Hi–
Please correct me if I’m wrong, if you buy all-cash, then refinance to withdraw equity, wouldn’t this be a recourse loan?
So, if you plan to “extract” equity, why pay all-cash? Why not get an initial loan which would be non-recourse?
–Thanks
“you should minimize your time to payoff by optimizing … your down payment and utilizing accelerated amortization”
Very dangerous advice, which may lead to loss of money. Whole financial situation must be analyzed and carefully planned.
For example:
1). It may be better to pay off another debt (credit cards, auto loan, credit lines or medical bills).
2). Sometimes fixed income investment may increase net wealth faster then accelerated amortization of mortgage.
3). Shortening loan term may be better then accelerated amortization of mortage.
There are a lot of other possibilities.
My advice would apply to paying down all debt, and that would go in order from highest interest rate to lowest. So, yes, if they have higher interest debt, they should pay that before paying down a mortgage. Of course, they also should stop taking on high-interest debt.
What I am concerned people are going to do is borrow cheap money and go speculating and help inflate more bubbles in other asset classes. Everyone thinks they can out-earn a lender, and they can’t.
Lenders have examined the alternative investments and determined that extending loans is the most productive use of their capital. Whenever a borrower takes this money with the belief they can reinvest it and obtain a higher rate of return, they implicitly believe they are smarter than lenders. Is is logical for individuals to believe they are wiser than the collective wisdom of the lending industry? (perhaps a bad example…)
There is a proper place for debt, and I will explore those issues further, but right now, in out time in history, we need collectively and individually to extinguish debt. Unfortunately, we are so addicted that we will likely go the other way.
If the lender you are referring to is Goldman Sachs (GS), I agree, if you are referring to Countrywide Financial (bailed out) betting against the lender might be good advice.
“Is is logical for individuals to believe they are wiser than the collective wisdom of the lending industry?”
I think it depends on situation and particular individual. Collective is more systematic and powerful, but individual is capable of making quick decisions and moves.
However, it is academic question at the moment. There are massive government interventions, and, IMHO, this lender is completely out of its financial mind. Huge bonus for individuals.
“Sometimes fixed income investment may increase net wealth faster then accelerated amortization of mortgage.”
What type or kind of fixed income investments would you recommend?
Sorry, I am not financial adviser, and I do not want any responsibility.
This is just an example.
Mutual fund FNMIX (emerging markets bonds) had 12.30% average annual return for last 10 years. It was better to invest into this fund then pay off 5% mortgage.
Ahhh…hindsight is 20/20 everytime.
It is best to live debt free with no mortgage. It is much easier to make bring large ROI when one has no debt.
Not really. Debt-free guy has peace of mind, but not good return on investment.
I think it provides both, and I do not believe you can obtain a better risk-adjusted return in other investments. Yes, you can find volatile investments that may have good long-term performance, but one significant drawdown can wipe out the excess gained by leverage and then some. In fact, this is what most people experienced in the stock and housing markets over the last 4 years.
If you managed to produce a positive return over 2008 and 2009, you outperformed most indices and most hedge fund managers.
IR, you know me and you know what my investments have been in. Do you think my investments have outperformed indices, take your pick, and most hedge fund managers?
Prices are not risk-adjusted. It is job of investor to find market imperfections and to fix them.
US social structure looks like 5% rich, 85% middle class and 10% poor. It means that 85+10=95% must fail to invest to keep balance.
Probability is against me, but I like challenge.
awgee,
You and John Paulson. You both pursued the same strategies at the same time.
I will point out that Paulson levered up and hit a big home run. I wouldn’t have had the same nerve.
I favor your approach.
You are wrong. Debt free guy got there by being able to analyze risk and has a better ROI than those in debt.
It does not require any risk analysis or rocket science to transfer money from checking account to lender.
Well, some prefer to file bankruptcy.
Ok, I will spell it out for you.
In order to have the money to transfer, debt free guy is good at taking money from all the stock investors.
We are talking about a person’s life here. Peace of mind is everything! Debt-free is great. Try it sometime.
“Make sure your financing is fixed and assumable”
Questionable advice.
Well, if somebody takes 40 years mortgage, but expects to sell house within 3-7 years, assumability will work great.
However, not good for long term homeowner. Assumable FHA loan costs more then non-assumable conventional. Also, assumability may lose value because of appreciation, mortgage rates and accelerated payments.
I question whether the tiny interest rate markup for FHA insurance would ever compensate for the loss in value caused by giving up assumability. It would only be better for an owner to use non-assumable fixed-rate financing and avoid the FHA insurance fee if they were holding the loan to term and paying it off, and nobody does that anymore.
How much is assumability worth? Maybe nothing at all.
Nobody knows what future will bring. For example, you may have cash buyer, or granite countertop may be more important for buyers then assumable mortgage, or goverment may cancel assumability due to lack of funds.
“goverment may cancel assumability due to lack of funds”
If you are going to throw in the voiding of contracts, this whole conversation is pointless. Our whole financial system is based on the enforceability of contacts, and a legal recourse when they are breached.
Government did it before. Executive order issued by president Roosvelt: “All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership …”
I did not say it could not happen, or that it has never happened, only that if we do not assume that contracts are valid, these conversations are pointless because they are based on contracts.
If this is what you are planning for, gold and a gun is the way to go.
Other than the FHA, who does assumable loans? The spread on FHA loan vs. banks loan doesn’t seem very small and the extra 1.5% FHA fee seems very small comparied to other lender’s fee and only 3.5% down.
IR, A song would be “How Long?” for a blog theme.
FHA works for low down and especially raising interest rates.
FHA is the new sub-prime, low money down. Move bankers liabilities to taxpayer laibilities.
Yesterday, BHO is saying that the stimulus package (bank bailouts) were necessary to prevent another great depression. Why was it bad when GWB was doing it? End welfare for the banksters.
If the bank fails or is too unstable, nationalize them and pay them govt. salaries ( ES as the highest rate and use claw backs for fraud and neggligence).
Got the below off Wikipedia so not exact legislative history, but looks like the ultimate results to the repeal of Glass-Stegall were clear even in 1987.
In 1987 the Congressional Research Service prepared a report which explored the cases for and against preserving the Glass–Steagall act.
The argument for preserving Glass–Steagall (as written in 1987):
1. Conflicts of interest characterize the granting of credit — lending — and the use of credit — investing — by the same entity, which led to abuses that originally produced the Act.
2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.
3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.
4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).
Year after bottom, O.C. home prices up 15%
http://lansner.freedomblogging.com/2010/02/17/a-year-after-the-bottom-o-c-home-prices-up-15/56365/
The question is was this THE bottom or A bottom. Also note that he uses the median so the prices are subject to the mix of property type.
This will be an interesting year. Lets see if the government stops the making homes more expensive programs as planned, or starts them back up at the first sign of pain.
And yet, the Case-Shiller index measure of repeated sales, which removes the property-type mix, is flat or down.
That pretty much tells you the the 15% bump is due to an increasing proportion of “nicer” properties selling (at still discounted prices).
You forgot to add that this is the median price – a notoriously misleading statistic when used on its own.
All it may mean is that the mix of homes being sold has changed.
voice of san Diego chart
http://m.voiceofsandiego.org/mobile/toscano/article_a997184e-15ee-11df-91b6-001cc4c03286.html
Nice San Diego medium price per square foot chart to adjust for larger size houses over time. But it does show some increase per sq. Maybe there a greater percentage of houses selling in the better neighborhood now than a few year ago.
Any medium price per square foot charts for OC and individual neighboorhoods/towns?
Inflation is the middle class blane. Higher property taxes (non-CA) and higher marginal tax rates. Wages are the last to go up in the inflation train and the first to go down by jacking up unemployment rates. Are your expenses less, the same or more than 2 year ago? CPI says it less. My rent is up, insurances up, food down, clothing up, tuitions up, vacation cost about the same except cruises. Wage down. Saving down. Rent when up, then a little down.
A real world FHA scenario:
Irvine purchase, 15 year FHA fixed loan with 10% down. Buyer is getting a 4.5% rate (2/17/10) paying zero Up Front Mortgage Insurance Premium (1.75%, paid by lender at 4.5% rate) and zero Monthly Mortgage Insurance (not required with 15 yr fixed loans).
The buyer has covered all of their bases: – a sub 5% rate that is assumable, no PMI, fast pay down of debt. Yes, it’s a big nut per month, but not as big as one might think at that rate. A 30 yr fixed 5.0% rate for $417,000 with MMI is about $2,450. A 15 year 4.5% rate with no MMI is $3,190 – $740 per month more. The buyers look at it as $370 per paycheck which is manageable for them.
So in 5 years you’ve paid down your loan a bit, but want to move up. Someone wants to buy the property and assume your loan. Let’s say you have $100k equity, perhaps the buyer can put 10% down, offer to carry a $50,000 second TD at 8% providing that the buyer is well qualified. Another win IMHO.
Flexibility of options, not focusing on a low payment only, makes for a smarter buyer.
My .02c
Soylent Green Is People.
Is a loan like this available for investment property? Or only owner occupied?
FHA and VA loans are for Owner Occupied transactions only.
http://news.yahoo.com/s/ap/20100217/ap_on_bi_ge/us_fed_economy
“By JEANNINE AVERSA, AP Economics Writer Jeannine Aversa, Ap Economics Writer – 22 mins ago
WASHINGTON – The Federal Reserve expects unemployment will stay high over the next two years because recession-scarred Americans are likely to stay cautious, making for only a moderate-paced economic recovery.”
Bad economy.. blame Joe 6-Pack. The new media to ignore bad economic policies and support BWB/BHO bailout of the banksters at any cost. Setting up a dip in unemployment right before the elections (in 2 years). The moral hazard for the banks started way before BWB and will continue long after BHO. You can fool some people all the time, you can’t fool all the people all the time, but that doesn’t matter because you only have to fool half of the people most of the time.
With continued high unemployment, how long will the banksters let people stand without paying? How long will the market manulipation continue?
Housing appreciation IS NOT a bonus.
It is INFLATION.
If you run the numbers, you’ll find that you are better off with NO APPRECIATION.
Fuck.
When will people get that SIMPLE FACT?
Probably never.
There is correlation between US inflation and housing, because Consumer Price Index includes housing costs. Nothing less, nothing more.
BINGO !!
Inflation isn’t the result of prices going up, but money supply increased and the RESULTS of this inflating are higher prices…
everything costs more, our Money has less value…
Inflation is a TAX on our prosperity in America.. the stealing of wealth by the BANKSTERS from the People…
The banks want to foreclose on you. Why? Because it looks like they are partaking in an insurance scam with homeowners caught in the middle:
http://www.dailykos.com/storyonly/2010/2/17/837819/-Banks-Want-to-Foreclose-on-You:-Heres-Why
Really, what this constitutes is a second bailout: the first was from the government and the second is now from the insurance industry. You gotta love the banksters.
Basically, it’s similar to buddy A taking a life insurance out of buddy B and making buddy B’s life miserable enough to commit suicide.