People read this blog for a variety of reasons. Some like the in-depth coverage of housing issues unfettered by bias and bullshit. Some like the entertaining cartoons and HELOC abuse stories of woe. Some like the market information and cogent analysis of current trends in the OC market. This last group usually has one question in mind: is it a good time to buy a house?
The answer to that question is an unequivocal maybe.
There is no perfect time to buy a house. For those who want to buy at the absolute bottom of the market, unfortunately, there is no definitive sign as to when that will be. Further, to actually time the bottom of the market, one must enter escrow while prices are still falling. Most people overlook that fact. By the time the bottom is obvious in retrospect, it is also obvious to everyone else, and many sidelined buyers come to the market to compete for available inventory. In short, timing the bottom is very difficult. It takes much courage and even more luck.
Buying too early means suffering through a period of declining values. This can be quite stressful, particularly if the decline is deeper than anticipated. Because of this likelihood of declines and the potential loss of equity if a sale is necessary, Shevy and I have consistently advised people not to buy unless they plan to hold the property for quite a while to give sufficient time for prices to recover. Further, we recommend people obtain properties where the cost of ownership is at or below rental parity. That way, if they had to move to take a job or for whatever reason, they could rent the house and not be drained by persistent monthly losses. This is the advice we still give today and likely will continue to give for the next several years.
Is Now the Time to Buy Your First House?
May 14, 2012 — Wall Street Journal
It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?
After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.
On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.
This is true. Houses are trading below rental parity in many markets. This is a precursor to housing finding a bottom. Prices below rental parity are required to motivate new buyers, both owner occupants and investors, to come to the market and absorb the overhanging inventory. The remaining question is how long it will take to absorb this overhead supply?
An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.
It infuriates me whenever I read the “buy now or be priced out forever” bullshit. This buying opportunity will be with us for quite some time because liquidating the overhead supply will not happen quickly.
On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.
Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.
This is also true. Liquidation of excess inventory is the determining factor on when the housing market will bottom.
Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer. A. Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J., says buying now is a terrible idea.
Yes: It’s a Rare Opportunity
By Eric Lascelles
This could be the best time in a generation to be a first-time home buyer.
It is certainly the best time in the last decade or more on a payment affordability basis: O.C. house payments at 10-year low.
Cheery views such as this are out of vogue and easy enough to dismiss as the ravings of a serial optimist. And yet this opinion isn’t based on any heroic economic assumptions. To the contrary, it is constructed upon a more curmudgeonly foundation: In my estimation, the stock market probably underestimates Europe’s woes, U.S. economic growth may fall short of expectations, and—of greatest relevance—the overall housing market is likely still several years from normality.
All of this means even if today is the bottom, significant appreciation is years away. Even the Pollyanna’s aren’t touting rapid appreciation… although I expect realtors will start spouting that nonsense soon enough.
Nevertheless, this is still a remarkable time to be a first-time home buyer. Affordability is the best it has been in 30 years, thanks to the combination of a 34% decline in prices since the 2006 peak and a historically low 4% average rate for a 30-year, fixed-rate mortgage.
The two affordability metrics that truly matter are how much monthly income a mortgage consumes, and whether this is less costly than renting. …
Rock-Bottom Rates
Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.
I can personally attest to the fact that investors both large and small are buying properties right now for their rental cashflow. It is the activity of these investors which will finally turn the tide of falling prices. It’s only a matter of when and at what price point.
… the situation for first-time home buyers is different. They largely skated through the past few years. They weren’t yet in the housing market, and so escaped that devastating hit. And with an average age of 30, they hadn’t yet accumulated sufficient assets to truly suffer when markets fell.
Unfortunately, this group is overloaded with student loan and credit card debt as a vestige of our loan ownership society of the 00s. 
A significant part of this cohort’s savings has been generated in just the past five years, and while markets have been enormously volatile over that period, a monthly savings plan would have generated a 26% return in equities and 22% in bonds. First-time home buyers may not be so hard up for their down payment after all.
That’s just crazy bullshit. The 3.5% down payment requirement on an FHA loan is the biggest impediment to buying today. And with the default rates of low and no down payment loans, the down payment requirement is far more likely to go up than go down.
Heck of a Deal
But is it wise to take the plunge in this era of economic uncertainty? While the economy remains very fragile, it has become less so since the fall. Still, say the worst happens—you buy a home and then immediately lose your job: The foreclosure backlog provides breathing room ….
I am not proud to admit it, but when I bought my first property in Las Vegas, i felt a sense of relief knowing I had a place to crash.
Could home prices fall further? Yes they could. The home-inventory overhang is still quite large and credit availability remains poor. Home prices are unlikely to bloom in earnest for quite some time. …
Arguably, the bigger risk is rising interest rates, which could erode affordability and snuff out this buying opportunity.
Will rising interest rates cause house prices to crash? If interest rates go on a sustained rise, financing home purchases will become more expensive. That is the math. The real question then is whether or not these rising interest rates are compensated for by rising wages. If wages rise as fast as interest rates do, then borrowers will still be able to finance large sums, and house prices can remain stable or even rise. However, if wages do not rise as interest rates go up, then loan balances will decline, and house prices will fall again. Given the choice between inflation and falling house prices, which do you think Bernanke or a future central banker will chose? After the all-out effort they have made to prop up house prices over the last several years, I suspect they will chose inflation, a devalued currency, and steady house prices over a strong currency and falling house prices.
… Mr. Lascelles is the chief economist at money-management firm RBC Global Asset Management Inc. He can be reached at reports@wsj.com.
No: The Fall Isn’t Over
By A. Gary Shilling
Don’t buy your first house now unless you’re willing to lose 20% of its market value in the next several years. Maybe more.
It will take a 22% drop to return median single-family house prices to the trend identified by Robert Shiller of Yale University that stretches back to the 1890s and prevailed until the housing bubble began. (It adjusts for inflation and the tendency of houses to get bigger over time.) And corrections usually overshoot on the downside just as bubbles do on the upside.
This is a compelling argument. No trendline can be drawn which supports such high inflation-adjusted house prices. I explored this issue in depth in the post Real house prices will take 90 years to reach the peak absent another housing bubble.
There is only one reason house prices may bottom at such a high nominal price level. Interest rates declined from 6.5% in 2006 to 3.8% today. That’s an over 40% decline in borrowing costs. This may cause house prices to stabilize at current price points, but over the long term, such low interest rates will create inflation, and in inflation-adjusted terms, prices will revert to the long-term trend, but at today’s higher nominal price.
In short, low interest rates will prevent the 20% decline in aggregate pricing Mr. Shilling believes is coming. 
The problem is excess inventories. They are the mortal enemy of prices, and we’ve calculated an excess of two million housing units, over and above normal working levels of inventories of new and existing homes. That is huge, considering that before the housing market collapsed, about 1.5 million new homes were being built annually, a figure that shrank to 568,000 in February. At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices.
Excess inventories, of course, were spawned by the earlier housing boom, which was driven by a host of factors—including low interest rates, almost nonexistent lending standards and government attempts to put even those who couldn’t afford chicken coops into four-bedroom houses. But most of all, the housing bubble was driven by the conviction that home prices never fall—they hadn’t on a nationwide basis since the 1930s—so any bad purchase would eventually be reversed.
As such, the homeownership rate expanded to 69.3% by late 2004, from the earlier norm of 64%. But now, homeownership has retreated to 66% as foreclosures mount, lending standards stay tight and many worry about their jobs and/or the responsibilities of homeownership. Everyone knows that house prices can and do fall.
Every point he makes above is accurate, and those will make for substantial market headwinds.
Pushing Up Inventories
The optimists will tell you that home inventories have stabilized, but their thinking is flawed.
The recent decline in MLS inventories of REO are completely artificial manipulations caused by lenders witholding inventory.
Our estimate of two million excess homes takes into account those on the market as well as hidden inventories, such as foreclosed homes not yet listed for sale and those withdrawn from the market because owners couldn’t stomach the bids they received. A U.S. Census Bureau category that measures such hidden inventories has leapt by one million units since 2006.
Additionally, our inventory estimate doesn’t even include future foreclosures, some five million of which are waiting in the wings. …
8.7 years to clear Orange County distressed inventory at stable liquidation rate. Housing bulls largely dismiss the realistically dire estimates of people like me or organizations like S&P who say it will take nearly four years to clear the backlog.
A Disastrous Investment?
Sure, the always optimistic National Association of Realtors tells you that based on mortgage rates, incomes and house prices, single-family houses have never been more affordable. But according to their index, that was also true in December 2008, and prices have fallen 9.2% since then. Ugh! Home prices may have dropped 34% since the peak in early 2006, but that doesn’t make them cheap if prices continue to decline. …
The NAr affordability index is a joke. It is bullshit and propaganda put out to convince people houses are affordable even when they are not. Unfortunately, like the boy who cried wolf, nobody believes them now when prices really are affordable on a monthly payment basis. The virtue of telling the truth escapes them because they are so caught up in spinning their own bullshit.
The homeownership dream of an appreciating asset and huge ATM has been replaced by the nightmare of a liability that is expensive to own and falling in value. Act accordingly.
Mr. Shilling is president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J. He can be reached at reports@wsj.com.
That last sentence is the same sound advice Shevy and I have been giving for the last few years. The housing ATM is shut off for a generation. I wish we had smart politicians who would turn it off permanently, but now that our entire economy is dependant upon HELOC spending, the pressures to reflate the Ponzi scheme are too strong for policymakers to resist.
A tale of two bottoms
When thinking about the bottom of the housing market, it is important to keep in mind that there will be two distinct bottoms: a nominal price bottom, and a payment affordability bottom. These may not, probably will not, be at the same time. In all likelihood, the bottom of payment affordability will come first, and the bottom of nominal prices will come later once interest rates begin to rise.
For example, today’s featured property costs $425,000 in nominal dollars, but with 3.78% interest rates, it only costs $2,048 per month to own. We may be looking at the bottom in payment affordability for this property. What happens when interest rates rise?
Imagine two or three years from now, this same property is selling for $375,000, but interest rates are back up to 5%. In such a scenario, the nominal price is $50,000 less, but the monthly cost of ownership is $2,122, nearly 4% higher. As you can see, rising interest rates can make lower house prices have a higher cost of ownership. And since rising interest rates is eventually going to happen, it is also likely that payment affordability may bottom before nominal house prices do. (This is a topic I may revisit in depth in another post.)
So what is better? A lower monthly cost of ownership, or a lower purchase price? There is no clear answer. Personally, I would rather have the lower cost of ownership, particularly if I were looking to own the same property for a decade or more. However, not everyone has the same circumstances. For those who may want to sell and get a different property five years later with move-up equity, they are better off buying at a lower price point even if that means making larger payments to do so. There is no single right answer. It depends on your circumstances.
Option ARM to the rescue
Many late buyers nearly missed their chance for HELOC riches. For example, today’s featured property was purchased for 30% more than its current asking price. Despite how stupid the purchase was in 2004, the owner still managed to extract $211,500 in free money with an Option ARM refinance with a HELOC chaser in 2007. The greater fool theory worked for this former owner. And in this case, the greater fool was a lender.
Garden Grove Overview
Median home price is $323,000. Based on a rental parity value of $457,000, this market is under valued.
Monthly payment affordability has been worsening over the last 2 month(s). Momentum suggests unchanging affordability.
Resale prices on a $/SF basis declined from $235/SF to $231/SF.
Resale prices have been weak for 12 month(s). Price momentum suggests weak prices over the next three months.
Median rental rates increased $50 last month from $$1,866 to $$1,916.
Rents have been slowly rising for 12 month(s). Price momentum suggests slowly rising rents over the next three months.
Market rating = 8
Proprietary OC Housing News home purchase analysis 
8622 ORANGEWOOD Ave Garden Grove, CA 92841
$425,000 …….. Asking Price
$600,000 ………. Purchase Price
4/6/2004 ………. Purchase Date
($175,000) ………. Gross Gain (Loss)
($48,000) ………… Commissions and Costs at 8%
============================================
($223,000) ………. Net Gain (Loss)
============================================
-29.2% ………. Gross Percent Change
-37.2% ………. Net Percent Change
-4.2% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$425,000 …….. Asking Price
$14,875 ………… 3.5% Down FHA Financing
3.78% …………. Mortgage Interest Rate
30 ……………… Number of Years
$410,125 …….. Mortgage
$108,702 ………. Income Requirement
$1,906 ………… Monthly Mortgage Payment
$368 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$106 ………… Homeowners Insurance at 0.3%
$427 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,808 ………. Monthly Cash Outlays
($291) ………. Tax Savings
($614) ………. Equity Hidden in Payment
$19 ………….. Lost Income to Down Payment
$126 ………….. Maintenance and Replacement Reserves
============================================
$2,048 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,750 ………… Furnishing and Move In at 1% + $1,500
$5,750 ………… Closing Costs at 1% + $1,500
$4,101 ………… Interest Points
$14,875 ………… Down Payment
============================================
$30,476 ………. Total Cash Costs
$31,300 ………. Emergency Cash Reserves
============================================
$61,776 ………. Total Savings Needed
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
We're sorry, but we couldn't find MLS # P821200 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$748,800 9401 North TOWN AND COUNTRY Dr |
0.75 miles 3 bd / 3 ba 3,482 Sq. Ft. |
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$319,900 7765 CENTRAL Ave |
1.09 miles 3 bd / 1 ba 3,302 Sq. Ft. |
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$775,000 12642 GILBERT St |
1.41 miles 4 bd / 3 ba 3,000 Sq. Ft. |
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$649,900 10702 PAMELA St |
1.94 miles 5 bd / 3.5 ba 3,106 Sq. Ft. |
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40 Responses to “Should you buy a home, or should you wait?”
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Prospective homedebtors must consider the following:
1) agreeing to a mortgage payment, NOT buying a house
2) current values are based on a fraudulant standard
3) corporations are in the wage suppressing business
4) wages not indexed to inflation
5) current prices are based on the continuance of negative real rates
6) future labor mobility requirements
7) household impact of sustained depreciation
Housing Recovery to Occur in Two Phases: Demand Institute
The housing recovery will come in two phases. First, home prices will rise by just under 1 percent in the second half of 2012. In 2013, prices will rise by 1.5 percent, then go up another 2.5 percent in 2014. For the second phase, home prices will increase 3 to 3.5 percent between 2015 and 2017. These are the predictions from a report released by the Demand Institute, which is jointly operated by The Conference Board and Nielsen.
The report, titled The Shifting Nature of U.S. Housing Demand, stated investors who buy rental properties will lead phase one of the recovery, as opposed to buyers who purchase properties as their own residence.
However, Bart van Ark, chief economist at The Conference Board and co-author of the report, said the expectation for homeownership rates is not expected to change in the long-term.
“Over 80 percent of Americans in recent surveys still agree that buying a home is the best long-term investment they can make. What will be intriguing to watch is how their aspirations around home ownership are affected by this period of extended austerity,” he said.
During the first phase, the demand for rental properties will come from young people hit hard by the recession and immigrants.
As investors buy up the oversupply of homes to take advantage of low prices and rising rents, the report also predicts that this will lead to the absorption of the existing surplus, which will clear by the start of 2015.
Then, phase two will begin with higher home prices and a return to home ownership.
According to the report, currently, 11 percent of homeowners say they would like to sell their home, but about half of these homeowners say they aren’t listing their property because they won’t get the price they want.
The prediction is that once prices rise by 3 percent in 2015, homeowners will start to return to the market, increasing the volume of home sales.
Credit will also become more accessible as standards ease, leading to more renters to become buyers. The report stated a crash in demand for rental properties is unlikely.
According to the report, about $7 trillion in American wealth was lost when home prices dropped 30 percent after the housing bubble burst.
“Should you buy a home, or should you wait?”
Now that is a great question. Anyone entertaining this idea right now needs to understand a few things:
1) The government is artificially propping up real estate with programs and subsidies designed to prevent housing from reaching natural and historical values when compared to incomes and inflation.
2) The Federal Reserve has become the asset back-stop for everything from oil to equities to bonds to housing. Our “free market” no longer exists.
3) The Banks are all colluding to protect what little equity they have by allowing home debtors to live mortgage free (rent free) for months, and months and months.
So to answer this question that now is the time to buy, it may be for some. I do think we may be reaching a “bottom” with regards to monthly affordability, but not with prices (cost basis). I believe that all three points mentioned above are unsustainable and will eventually impact credit dependent markets like Orange County in a negative way.
When mortgage rates do increase, the banks release all this shadow inventory, and the govt is forced to reduce the deficit, it will place a dampers on the possibility of future home price increases.
Unfortunately, few agents understand the key points you raised above, and even fewer are bothering to explain these circumstances to their clients. Right now, most agents are telling their clients the foreclosures are going away, inventory is tight, and if you don’t buy now, you’ll miss your chance to lock in low prices and low rates. Shameful manipulation in my opinion.
I heard an argument;why home prices will rise when interest rates start to tic up; becuase people will be jumping off the sidelines chasing the low rates in fear of missing them. Is this fear mongering or a possibility..Thoughts?
Mostly, that is fear mongering. If interest rates go up in the absence of wage increases, people will not be able to raise their bids. Either prices will fall, or transaction volume will fall. As rates first start to rise, some will be motivated to buy for fear of being priced out, and realtors will stoke those fears, but in reality, those fears are unfounded.
The old line of “buy now or be priced out forever” is a massive lie. There is no such thing as being priced out due to higher mortgage rates. If mortgage rates doubled in the next 12-months, home prices would get crushed.
Buyers and sellers do not dictate housing prices like lenders do. Your home is only worth what a lender is willing to loan another party to pay for it. Sure, all cash sales do influence housing prices, but there’s not enough of them to sustain prices.
If sellers ever lost the ability to transfer their homes to the next generation of buyers, the entire real estate market would go to hell.
It seems that with the economy starting to tank. Huge tax increases at the end of the year and Europe dragging down the world economy, House prices in bubble areas still have a large amount to fall.
Particularly in the move-up markets, prices should be very weak. There are very, very few buyers with $200,000 or more in savings or equity to support a move-up market, and thousands of properties priced in ranges that require that kind of money. The below median price points may be bottoming, but the above median price points will continue to show weakness, and the farther above the median the house is priced, the weaker the market will be.
There are plenty of them in the bay area. Up here we truly live in a 3 rd world region. Middle class in the bay must make at least 200k/yr.
AGI incomes for people making over 200k is 600k.
Take that occupy!
Gary – not sure if I agree that the economy is starting to tank. It showing continuous growth all be it at a snails pace.
* housing starts have bottomed and are now posting impressive gains—up 30% in the past year, and up 50% from the 2009 low
* Weekly unemployment claims continue to drop
* April U.S. industrial production was stronger than expected, rising 5.2% above year-ago levels.
* U.S. retail sales are rising at a healthy 6% annual pace, with no signs of any slowdown
* The export sector of the U.S. economy is doing quite well (goods exports are up 57% in the past three years)
There is more out there. I admit that recent data have not reflected any unexpected economic strength, it is also the case that to date there is no evidence that the economy is sinking into another recession.
Uh… Gary is correct
*retail sales rolled-over in March
http://confoundedinterest.files.wordpress.com/2012/05/adjretailsalesp610.gif
*Empire State Manufacturing Survey
The Empire State Manufacturing Survey came out on May 15th; BELOW June 2010.
I quoted April – up 6.4% YoY.
http://www.census.gov/retail/marts/www/marts_current.pdf
Good points but I think you’re missing the fundamental problem mentioned earlier that will plague the market for years to come … Income.
I don’t have the data handy but its clear that real wages are still flat and or worse yet, declining. Anecdotally speaking, I see it happening to at least 1 and 3 people I know, including myself. I am on pace this year to make almost 30% less in gross income than I did in 2007. I am not alone. My neighbor just suffered a “temporary” 15% salary cut. These are just two examples of many and I think you’d agree, not a positive trend for the economy.
It’s my opinion that the bump in economic data is supported primarily by an increase in household debt spending and/or savings being spent as consumers are feeling slightly better about the economic outlook, perhaps falsely so. I also believe there is a deep psychological need for people to feel like this long, dark nightmare be over. We’re suffering from a kind of economic gloom fatigue … So people free the purse strings a little and maybe buy that thing they’ve been eyeing for awhile.
Just my two cents but I don’t think we see real economic recovery until wages return to sustained positive trends … And we know big corporations aren’t charities so consider when that might be.
The income argument is a good one. With persistent unemployment, wages will not rise. Employees simply don’t have the bargaining power. Without rising wages, house prices won’t be going up — unless of course, lenders lose their minds again and start giving out loans to people who won’t pay them back.
That’s why Bush’s and Obama’s plan is working. Wages are kept down with massive inflation for non-discressionary goods and services. It’s a way to transfer wealth from one group to a favored group. The other is making a non-essential an essential for the masses. Monthly phone charges for G4 phones for streaming movies to a tiny screen. $200 for yearly cell phone replacements. I see high school and college students busy with their 4G phone movies. The monthly and data feees must be sky high.
Also, building permits do not support your claim that ”starts have bottomed”.
http://confoundedinterest.files.wordpress.com/2012/05/bp051612.gif?w=645&h=461
Really??? You are so pessimistic that you don’t see a bottom in that chart?
Since I’m an optimist by nature, my perspective merely reflects realism, not pessimism.
um ya…optimist…sure thing.
at least you made me laugh…so you got that.
Housing starts have bottomed for the cycle. If anything, we will overbuild in 2012 in response to lenders withholding REO from the market.
I anticipate our taxes increasing at the federal and state level. We pay a ton of mortgage interest annually (6.5%/9% piggyback). The MID in 2011 reduced our housing costs $1,420 monthly. The benefits of the MID only increase as our marginal tax rate increases.
If we refinanced today into a 15Y 3% rate 98% LTV FHA loan bringing $100K to closing, our net monthly (P&I + MIP) would be the same due to $244 non-deductible MIP (60 bps) and the MID benefit decreasing to $537 monthly. The benefits are knocking 10 years off the end of the loan and watching the principal decline at 3x its current rate.
Why can’t you just pay 2x month for the same effect?
Uh..oh…
broadbased capital destruction is now accelerating in CMBS-land (indices tanking across all rate stratums).
http://www.markit.com/en/products/data/indices/structured-finance-indices/cmbx/cmbx-prices.page?
re housing; PrimeX indices to soon follow along with credit.
You heard it here first
Commercial loans are the extreme of amend-extend-pretend. Perhaps as default rates rise further, pressure will mount on banks to stop playing games.
US 10-Year Treasuries at 1.71%, I figure they will this opportunity to increase the mortgage tax through the g-fees. Interesting times.
I think it was our friend Barry Ritholz who pointed out that NAr’s “affordability index” showed only 1 month during the run up that housing was un-affordable. Whenever you hear how affordable housing is from an industry spokeshole be careful where you tread next.
I remember during 2005, CAr changed the way they calculated affordability to assume borrowers were using interest-only loans with 10% down. That made their affordability numbers look a little better for a time.
When the numbers don’t show what they want, realtors change the methodology to get the numbers they want. It’s one of the reasons they didn’t bother correcting their faulty sales number for 3 years after it was apparent that their numbers were a joke.
“The greater fool theory worked for this former owner. And in this case, the greater fool was a lender.” IR.
The lender was no fool. He got the 1% fee up front. The loan is likely back stopped by one of the GSE. The fools are the taxpayers’ who are stuck with the bill but don’t know it. It’s like going to a restraunt, order a small affortable meal, while the other table orders lots of drinks, large meal, wine, dessert, take-out. You pay you the bill, but years later find that the next table’s purchase was put on your credit card with no payment until 2015 and intester accurring.
May thoughts are many areas that have crashed are likely near or past the bottom. Irvine is another matter. What does IrvineRenter say about buying in Irvine with a large downpayment?
“What does IrvineRenter say about buying in Irvine with a large downpayment?”
Large down payments are always a good idea, but now is also an excellent time to buy with a small down payment and maximum debt. When you can borrow at 3.7%, you have to figure inflation will exceed that figure in the medium term.
10yr yield now @1.69 signals that inflation will not exceed that figure med-term, as deflation is the prevailing influence. Just say’n
I’ve been trying to make sense of the T-bill rates, saving interest rates and inflation. Inflation seems to be uncoupled to interest rates. Food, insurance, gas, utilities, medical car, transportation cost are all going up, which means inflation, but with low interest rates. Normal time will have the borrowing interest rates be higher than inflation rate. Currently the borrowing rate is lower than the consumer inflation rate.
The cost of borrow a car is low for the first 3 years with $400 per month, but will the borrower be stuck with high payments thereafter. What’s to stop the borrow from walking away from the car payments? 36 x $400 = $14,600 which is less than half of the cash price of the car. It doesn’t make sense. If the bank reposses the car, can they sell it used for more than half of the original cash price?
The use of 3.5% down is essentailly purchasing insurance on the cost of the house. If the value drops, squat and walk away. If I make a large down payment, the banks are more likely to FC and for me to loss much of the down payment. Essentially the srewd and gamers will be rewarded without risk, while the savers (those with large downpayments) will take the risk.
IR,
What about the timing of buying in Irvine within 4 months? Will the house be a falling asset after I purchase? What are the odds that the price will drop 15% in the next 2 years? $100,000 of after tax cash is hard pill to swallow for a working stiff. I don’t see rapid going up in the next 5 years to make up for such a loss.
It depends on what price points you are looking at. If you are looking at houses under $500,000, those should be at or near the bottom. Houses in the $500,000 to $750,000 range will likely go up this year due to the short supply, but they will be under pressure again in the fall and winter. Houses above $750,000 will continue to weaken even with the withholding inventory. The high end carries the most danger.
IR- Kind of off the subject but somewhat germane … I’ve mentioned this property in the past as perhaps an interesting case study – KB Homes’ “Whisler Ridge” new homes in Lake Forest.
KB started this property last last year and began selling in the past few months. What makes this seemingly bizarre is the prices ranged in the mid-600′s which seems to be WTF pricing. Well it now gets better … their sign on the property now lists prices starting in the low 700′s! WOW!
What in the H-E-double hockey sticks is going on with them!? The whole thing seems to defy any market logic whatsoever … or am I missing something? I’d love to hear your thoughts.
KB Home thinks they have enough demand to raise prices. With the banks withholding inventory and with 3.7% interest rates, they may be right.
How do you determine average rents in a neighborhood, to figure out whether a purchase price for a home/apartment is at rental parity or not?
I get the aggregated data directly from the MLS. When we prepare reports for clients, we pull MLS comps specific to a property to give a more accurate estimate.
You said “It infuriates me whenever I read the “buy now or be priced out forever” bullshit. ” You are NOT alone. I appreciate your honest and clear nature of what I view as a total mess. It is to me living proof that the masses are asses. I wouldn’t buy a damn place right now …if my life depended on it.
Appraiser dropped by the other day – our landlord is re-financing the property – and asked me if I was in the marked. Then started in on me with the “prices are up around here since last year – analysts say we’re looking at rising values over the next few years.”
I had said nothing on the subject of prices to provoke this. I almost said “They’ve been saying the bottom is here for six straight years”, merely replied “I see two decades of falling prices, just as happened in Japan, before this clears up.”
Again: this was an appraiser, not, AFAIK, a realtor. The brainwashing and Kool-Aid inebriation are still so rife that they spread it around like Scientologists and evangelists. The main topic of conversation in the business must be “Looks like we’ll see the recovery this year” over and over again.
Perhaps my stock reply to this should be “Sorry: I respect your beliefs, but I’m not a religious person, and I am uncomfortable with your proselytizing.”
Be very careful whom you trust with any connection to this industry. The forced optimism is part of the mentality, and they believe their own bullshit absolutely.