Irvine Housing Blog

For a 15 year mortgage, 6%, roughly $33k/yr would have been going into home payments.  Around $300k over the 9 years they made payments.  Equity extraction was $240k.  Net into the home was $90k over 10 years.  $9k/yr.  $750/mo.  This is probably not even a worst case, as it was only 75% increase from initial sale price to final loan.  Miami saw a 175% increase in their Case-Shiller index.  Imagine $500k of equity extraction.  The home that should have cost the owner $330k over 10 years produced a NET $170k income above the free living.  A lot of people lived like this and it is a huge change. 

I would imagine that prudent borrowers that have lowered their interest rates, maybe from a 6% 30yr to a 3.5% 15 yr, could be saving $12.5k/yr on a $500k loan.  Do you think they’re spending that, or saving it?  How does it compare to the $50k 10% appreciation could give a homeowner?  If that got tapped, it got spent.  Lower interest rates don’t translate into consumer spending as quickly as extremely loose lending standards.

When will the market hit bottom and the boom time return for homes/apartments so I, me, I can be wealthy?  That’s the essence of the question from investors and homeowners.  Touched often before on IHB, two factors are left out of this analysis that trace to the Fed.  First the fed and the treasury are purposely inflating our money supply 5-15% per year, depending on the methodology used.  Inflation is what drives people to hard assets (thus bubbles), and housing is the one large hard asset “little” people can buy, joining along with speculators and developers.  Thus the upturn will hit very fast; it was supposed to already have happened, to save the banks and turn around their bad mortgage losses and make people and speculators clamor to buy everything in the shadow inventory.  Don’t sell this galloping inflation factor short as the single most potent weapon of the banks and their captive government.  Second, the US has millions a year added to the population; that should have by now, but will still in the opinions of the same old boy economists/bankers, cause tightening housing for two reasons. The first is simple supply, the second is race/economics.  White people and asians buy homes largely in newer, self-segregated race/economic neighborhoods and move out if they can, and as soon as they can, if racial composition changes, or economic sometimes (we refer to this as “the schools” but it is much more race, than economic self-stratification).  That these factors haven’t worked so far, is ignored and still expected to work! It is ingrained, institutional arrogance of the Fed and lenders that these forces would guarantee their slipshod looting of fast money would never fail, failure biting into their wealth and bonus pools, and they still seem to believe these will work, to this day. (thus “helicopter” Ben bernanke, Mr. inflation). That’s why there’s no real jobs program other than “fix housing by socializing the loss”.  Paying thrifty savers a decent rate versus saving the banks?  That’s an easy call for a Banker, isn’t it?

Lawler: Census 2010: Homeownership Rates by Selected Age Groups

http://www.calculatedriskblog.com/2011/08/lawler-census-2010-homeownership-rates.html

IR:  “When the economy and employment finally picks up, wages will increase, “

How many astute observers here really believe that wages will increase for workers outside of the top 5%?

Still plenty of cool-aid which tells me that it’s unlikely that we are close the bottom in some areas of OC. I just saw a deal close that had been on the market for almost 200 days. We’d been negotiating it and had a counter offer from the seller for $100,000 less than what the buyer that closed on it paid. What makes it even worse is that the seller was also doing a large carry back for our counter, I figure with no carry back he would have likely taken circa $200,000 less than what it closed for. Particularely because the buyer closed so quick, it must have been cash.

  The seller was motivated; it had been on the market for nearly 200 days, if the buyer/ buyers agent showed any patience or retrain they would have saved $100,000+.I wonder what the buyer(s) that closed would think if he saw the comps we showed our client or the counter the seller had given us just three weeks ago?

One of the things that I found most interesting during the bubble was that overall percent equity in US homes was falling, even as the value of those homes were rising.  People were extracting equity at a rate faster than the values were increasing!  I think we will see something of a reverse.  I ran some numbers on a colleague’s for-rent home, with a 15yr @ 3.5% being something like $2700 total payment, but a cost-of-ownership of $1444.  The $2700 @ 25% DTI translates to roughly $150k/yr.  What really lowers the cost-of-ownership is the forced savings of $1333/mo.  Annually that works out to $16k/yr.  So the forced savings of a 15 yr mortgage is over 10% of the 25% DTI, 15yr-frm potential buyer.

The listing description from the MLS forgot to mention that this house is “freeway-close!”. And I mean really, REALLY freeway-close.

Breathe deeply!

-Darth