FHA may be setting up repeat of housing bubble, lawmakers worry

“The percentage of loans backed by the agency that are delinquent or in foreclosure hit nearly 8% at the end of June. Critics say borrowers don’t have enough of a stake in keeping up with payments.”

Especially looking at short time windows where your selections can greatly skew the median, median sale price is not a useful indicator.  Case-Shiller has a lot of research behind their methodology and I’m looking forward to it tomorrow.

Let me play the devil’s advocate (hmm…I think I have been doing so recently) and say that 92% are NOT in that category.

Unemployment (U6) is around 20%....but that means 80% are employed.

Oh well, no SHTF yet….they’re all hiding in the banks’ balance books

I think using $/sq ft is a better measure than median home price, because typically more expensive houses are also larger.  Obviously, location and condition have something to do with it as well, but $/sq ft seems to scale pretty well excluding those (that is, a 1,000 sq ft property in the same condition and general location as a 4,000 sq ft property both tend to have about the same $/sq ft, although the second would have an overall price of four times the first).

Dollars per-square-foot is a useful measure. Changes in trend will be noticed here before they are picked up by the median. It is a good leading indicator.

House prices on a $/SF basis tend to get less expensive as they get larger—at least in a normal market. The expensive square footage in any home is the kitchens and bathrooms because of the fixtures, plumbing and special flooring. A large home is mostly inexpensive bedrooms and living spaces, so the $/SF declines as homes get larger. The reason builders put up so many McMansions during the bubble is that sales prices on a $/SF basis were not much different based on unit size, and since the large stuff was less expensive to build, they made more money. More money equals more McMansions.

Since the bubble made financing so much easier, prices at the high end were pushed skyward, and they have been floating in the clouds ever since. There will be significant compression in this difference before move-up buyers can push up prices again.

I am quite surprised that you don’t think Case Shiller is a better indicator than the median.

The no absolute rule on condition and ammendaties on the house.  Some general rule of thumb are: 
1.  Large sf give more ammendaties while keeping sf cost roughly the same.
2.  RE appreciation is in the land, not in the building.
3.  Building is what sells a house in the short term.
4.  Location is what keeps the price up in the long-term.
5.  Medium is the best single gauge. 
6.  Better gauges have been made by comparible sales, factors/adjustments for the condition of the house, location, lots size, etc. Those may be found in a good appraisal.
7.  When the market is “bad” the house price goes down a little but the condition goes way up.  A dump is a good market would sale quickly.  The best condition house sale moderate quick in a bad market.
8.  Unemployment at 9% or more.  U-6 at near 20% and we are in a recovery? RE is at the bottom?  I have some RE to sale to you….  buy before you’re price out of the market….  latter may be true in the short-term or if your cash is “taxed” away by inflation.  But BO would never do that to hard working Americans. or is he.

If you are a house bear be very careful if you haven’t own at least one.

Irvine housing is running very low inventory now, this is contributed by ultra low interest and mortgage rates, and $8000 incentive. If Obama extends this and even raise to $15000, then the housing price in Irvine will probably backup again.

I received a couple of call from bank, just recently, and will loan me $. This hasn’t happened in last two years. I thinks Obama is creating another bubble, In next two years, US dollar will goes down around 15% and inflation will up 15%, but of course CPI will be low, so does rates. Given this combination, I think IR previous chart, to predict the house prices in next couple of years, need to be modified to be justified with these factors.

For example, 15% inflation + 15% dollar down + $150000 incentive + 1.5% CD rates + 4.5% mortgage rates. If housing prices stay the same, this means that the house actually goes down 30%.

Be a winner…

“instead I find $340,000 worth of HELOC abuse”
“I guess this won’t be a short sale as this is about a 50% DTI.”

If you pull out money and only have 50% DTI, is it HELOC abuse? As long as the loan gets paid off, I am not sure I would call that abuse. Were they smart to get a 1 year arm? That is debatable. But I would stop short of calling it abuse.

Taking out loans that you can not payoff and can put your family or personal finances in jeopardy—that is abuse.

From some of your posts in the forums, you have convinced me to look at $/sq ft as a very reliable gauge.

I think you would agree there are aspects that must be considered (location, total square footage, etc.) but I think I’ve learned that $/sf is a great tool for weeding out absurd listings.

I would suggest $/sf is a better market measure than the median price.

From IrvineRenter’s post:

“Tomorrow, we will look at Alternate Market Price Measurements including the more reliable S&P/Case-Shiller Index.”

One downside I hope IR touches on is how CSI might be inaccurate in the absence of repeat sales.

That is, when the market freezes and sales volume drops significantly, there is a much smaller number of repeat sales. Does this smaller sample size match the current market, or is it possible the sample size gives a different answer.

I don’t know if CSI considers foreclosures or distressed sales as “real” sales. If they don’t, then the CSI will be definitely skewed from what is really going on. If they do, than the CSI will show accurate ups and downs without showing the actual state of the marketplace (whether the market was healthy or in crisis).

Overall though, by equalizing units (using repeat sale of the same house) the CSI captures home appreciation/depreciation best.

Good god, are these people in Washington this blind and ignorant:

David Kittle, chairman of the mortgage bankers group, said an increase in the minimum down payment would be “catastrophic” for the market.

“Why would you want to deter people further from buying homes when clearly you need to get homes off the market?” he said.

Some members of Congress, however, believe the risk may be too high.

“I’m concerned that the private market for loans with little or no money down has shifted directly onto the books of the federal government,” said Rep. Ed Royce (R-Fullerton). “We need to make certain that taxpayers are not again on the hook for the failures of Washington.”

I think you’re missing the point that as long-time owners, the property should have been paid off (if the owner were financially responsible).

Clearly, rather than paying off the home, the owners have re-financed all along the way.

Put another way, the debt is 819% of the original purchase price.

hahahahahah

Did IR mean 50% LTV? DTI can only be calculated if someone’s income is know which I doubt that’s the case here… FWIW.

Kick out the lulz

BWAH HAH HAH HAH HAH HAH!!

::wipes eyes::

No, seriously, say that again.  Louder.

::dies laughing::

Two phone calls, and you think the Great House Giveaway is back on.  Go ahead, take them up on it.  Come back in April 2010, when you’re not only underwater but behind on payments.

Ah yes, 14951 Sumac Ave, a beautiful place.  Just half a click down from cross streets Poison Ivy Blvd and Poison Oak Pkwy.

Ya, Obama will win Nobel prize in Economics next year

... 15% inflation & 15% drop in dollar and you are worried about housing (or think that housing will rise)... repeat this 10 times and then revisit your post.
We can discuss the joke about 1.5% CD rates @15% inflation at a later date.

Yes, I meant LTV, and I have changed the post. Thanks for pointing that one out.

Halloween Costume Suggestion:

“9. Make a globe large enough to walk in, cover it with sections of the newspaper’s house sales section, and go trick or treating as the housing bubble!”

Case-Shiller is a better indicator of market price direction than the median is, but since it is an index number, it doesn’t give you a number you can easily relate to price.

I read somewhere that case-shiller doesn’t include the new-home to first existing home sale in its index.  Say a home sold new for 1M in 2006, then 500k in 08, wouldn’t influence the index.

There should also be a weighted index for the whole housing market.

It is still sad that so many felt that rising prices were inherently good.  Why were rising prices a curative to having larger mortgage payments?

It goes that way for the stock market also.  If you’re actually interested in getting a real return through dividends, shouldn’t you be at least somewhat interested in not overpaying for access to those dividends?

Housing risks still lurk even as buyers return

RIVERSIDE, California (Reuters) - On the surface, a glimmer of confidence is returning to the battered U.S. housing market, after more than three years of gut-wrenching defaults, price slumps and foreclosures.

But investors and homeowners in California, the most populous U.S. state and a benchmark for housing across the country, are bracing for another fall as emergency government support measures fall short or expire.

“All that has been achieved is to put off the real pain until later on,” said Mark Jacques, a mortgage broker in Corona Del Mar, California. “I’m hunkering down for the storm.”

Imagine where home prices would be if real estate markets were complete… where you could not only take a long position, but a short as well… where you could buy a put (or sell one)... Imagine how fast people would start selling homes into a rapidly distressed market as people see their homes dropping in value immediately.  Luckily for existing home owners that the market is biased in one direction. If sellers don’t like the price… stay living in their property… or better… stop paying and give the home back to the bank.

It’s not even internally consistent logic.  Shouldn’t the 150000 be 15000, and the CDs/mortgage be subtracted instead of added?

Either that, or Obama’s going to pass a $150000 incentive…

Hey Irvinerenter,

Can you do a post/analysis on what is the approximate $/sqft costs for home size? I’m hoping to buy in the near future (2012) and want to be able to realize a good deal when I see one. An understanding of $/sqft trending would help immensely.

Ex: Square footage for kitchens, first two bathrooms is full sqft value, while first couple of bedrooms and 3+bathrooms are 70% of full sqft value, and subsequent bedrooms are 50% of full sqft. So a 1000 sqft house w/ 2 bdrms (300sqft)/ 2 baths would be approx. 910 sqft of premium space and a 2000 sqft 4 bdrm (500 sqft) / 3 bath (150 sqft)is approx. 1700 sqft of premium space…

Dejnov.

As long as you pick a common starting point (like Jan 2000), you can use the CS index for a fairly long period of time without trouble.

What is missing is the appropriate price for homes built since 2000 that have not been resold.  If those homes are very different from existing homes, the CS index might not be as good an indicator of price.

At the risk of doing too much stat, you could adjust the mix of homes in various ways.  You could adjust for square footage, bedrooms, etc. 

One of the problems with the CS index is that when homes in a particular area, or of a particular type, just stop selling, there isn’t data.  I think I could probably fix this, but it would cost S&P (who now does the indexes) some real money to have me set it up.

Yes, I too think that the price per square foot it the best indicator.

It works rather well with homes in similar sized lots.  And you can usually fudge it just a bit for smaller/larger lots and houses.

Indeed, you can go further and do an analysis based upon the size/complexity of the kichen and the ration of bedrooms to bathrooms.  That is, a small house with 2be/bath and a smaller kitchen will likely go for the same $/sqft than a larger with the same ratio…

So, when I see homes like this asking fr almost 40 bucks per square foot I think they must be nuts.

err….  400 bucks…

When is the government gonna stop this stupid shell game.  They cannot support a real estate market that has been artificially pumped up with ponzi scheme mortgages.  There are no fuc*ing mulligan’s in economics, and this is the reason why we’re suppose to use history to prevent debacles like the one we’re dealing with now.  Idiots that start talking new economic paradigms (REIC, Stock Market Analyst, CNBC, etc) should be offered a last meal.

Now back to the FHA subject ... This is not rocket science people.  Make them put 20% down, or don’t giv’em the fuc*ing loan!

I don’t know if anybody posted this last week, but it was posted on Calculated Risk:

FHA Shortfall Seen at $54 Billion May Lead to Bailout

(can u even believe this shit?)

Oct. 8 (Bloomberg)—The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because it has $54 billion more in losses than it can withstand, a former Fannie Mae executive said.
“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae, the mortgage-finance company that is now government-run.

The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said.

What a joke this is turning into!

yep… I got two letters offering us mortgage loans too.

This on top of several credit cards offering us 0% cards.

Of course, the buffoons at Macy’s sent us a letter saying our card there is going up to 27%.  LOL… I haven’t used it for eons.  I guess they must really want my business, huh?

OTOH, the Amex at Costco is going strong.  I opened the account about a year ago, with a 3000 dollar limit (huh?)... they have kept raising it, and just popped again to 14K.

I guess they hope we’ll stop paying it off every month?

Anyhow, money is getting cheap again, except that some companys (Macy’s) must be hurting.

The significant part is that the banks are again drumming up mortgage business and money is cheap again.

However, those of us with money in bonds should start looking at buying gold and silver?

I think you have to track new and existing homes separately.  There’s a premium for new ones, just as there is for cars.  RE prices need something like Kelly’s Blue Book for used homes.

For the record, I am close to paying off a mortgage on a rental I own; I am not saying that running up debt is a good practice.

That said, to say that someone that borrows money against a piece of real estate is not financially responsible is a bit judgmental. Not all people that borrow money waste it on $2,000 bottles of wine. Some, if not most, use the money for kids college, to start a business, to invest, etc.

That was my point. As long as these owners have not put themselves in jeopardy and pay back the money, I would not call this abuse. With a 50% LTV, I am not so sure this is a good candidate of abuse.

819% is a shocking number, but adjusted for inflation, it is not so impressive. Not sure what the inflation adjusted number is, but I am sure it is not such a shocking number.

I get the point of what IR is saying. I just think that he should not use a home with 50% LTV as abuse. What if that money was put to very good use and paid back with little effort? That was what I was trying to say.

Interestingly, the size of the lot tends to have a much smaller effect on value than the size of the house.  Hence the trend of builders building big houses on small lots, since that’s how they can maximize their profits per acre.

Yes, money is getting cheap again, very cheap. The bank can take huge profit from this
Dollar already down 10% last half year, if it goes down another 10% and along with housing prices already down at least 20%, that is actually a 40% discount. This equals a full bailout of the entire US hosing bubble, or eight trillion dollars.

What do we get? Wall St has big pay cut this year compares last year: the amount is $800/yr.

BTW, I was looking either investment properties or upscale house last two years, that’s why I got call from some banks contacted.

Absolutely in the same boat here.

I don’t think the dollar per se has been devalued so much.  Otherwise money invested in Euros would be worth that much more.

So far it seems like ALL fiat currencies are being devalued at the same time.

That’s why gold is at record highs.

If you think about it, perhaps owning a house clear is not such a good idea if

(a) You are working
(b) You have the ability to invest the money elsewhere and make more money than the cost of the loan
(c) You think the value of the house is going to drop
(d) You have the discipline to invest the money, not spend it.

Owning a house clear is a good idea when you retire and/or when you want to live with a low cashflow headache.

holy hell that is funny

There are also:
1.  if you think inflation will be going significantly up and you will be paying back with inflated dollars.
2.  take a Sch A house loan instead of a non-Sch A loan (e.g., car)
3.  Need cash for other investment, business or education—not for needless spending.

Why (c)?  How is a loan going to help if house price is going to drop?  Do you mean a walk away with cash in pocket?  Assumes that the bank won’t go after you?

Little off topic, but since Dodd was mentioned. This guy who got a $75,000.00 break on his mortgage (bribe) from CountryWide is now mentioned constantly by Obama for being a major player in Health Care and as a leader in Finance. Obama knows Dodd is a crook, but will support him because Dodd’s seat is in jeopardy in CT in 2010.  Dodd who already oversaw and is responsible for the mortgage crisis is the reason we cannot determine if we should buy our first homes or not. How can we trust the market when the market has been, and is going to be again, manipulated by our politicians. We can only hope that the people of CT dump Dodd. His 30+ years of service as a Senator has been abused and all of us across the country has suffered because of it.

“BTW, I was looking either investment properties or upscale house last two years, that’s why I got call from some banks contacted. “

If the bank is contacting you, you’re the “mark”.

If you were looking at investment properties two years ago, you’re a fool.

Thanks for catching some knives however.  Our economy depends on foreigners such as yourself! 

I know how you feel.

“Why (c)?”

Basically when you borrow on purchased RE, you are getting a free put option. Sure your credit gets whacked, but you have the option of if you want to exercise the option. If you pay cash, you lose, end of story.