Back in the 50’s Dick Lane used to host Championship Wrestling
on KTLA Channel Five every Wednesday night. Argentina Rocca,
Baron Michel Leone, Mr. Moto, Fred Blassie and Gorgeous George
were among the highlighters. Felix Chevrolet on Figueroa was
the key sponsor for the Olympic Auditorium events….and Dick Lane
used to bang on the fenders of every car and scream: “Any car,
any color….$999.99, no money down with 24 months to pay!” Well,
one night we vividly remember….Mr. Lane banged on the fender of
an old Chevrolet and the fender – fell off.
So, why tell this story? Well, home sales in Orange County are
really in the dumpster. Falling faster than a sky jumper on meth..
those free days of no interest, no money down, interest only for
three years are over. The consequences are sure to be many. Those
free spending days of real estate turnover and rising property
values of 500 percent or more….may have finally seen the sunset.
But is there any reason for alarm really? Nah, mom and dad probably
have seen their property values skyrocket over the last 10 years…
and they can probably move safely into their new Senior Assisted
Living quarters….any time they want….as soon as they do that
“Reverse Mortgage” thing…..and sign over all their worldly goods
and such to their most favorite children. Sub prime, low interest
only loans have come back to bite lots of speculators and unqualified
home buyers right where it hurts.
The Bankruptcy rate is now approaching astronomical….and not just
here in the heartland of capitalism Orange County, California…..but
all over America. The Industrial banking interests are all there,
ready, willing and able to collect lots of property at fire sale rates
while those that are actually looking for a good deal…..are held out.
OK…such is life. Not everyone can win American Idol or Dancing with
the Stars…now, can they?
So, what about interest rates? It’s odd that Fixed rate loans start
around 5.24 percent and APR’s about 5.84 percent. Remember those days
when the interest rate was 2.2 percent? What that means is that your
house payment would be half of what it is now. What will happen when
or if Hillary gets in and the interest rates goes back to the bad of
days of the mid-80’s when double digit interest rates….followed very
quickly after initial APR’s of 8.8 or 9.2 percent. They skyrocketed
rapidly to 13.6 percent and of course Home Owner Association fees and
taxes followed the crowd.
Our suggestion….better buy now, using both elbows…..better get
that All American Dream home….cause things ain’t going to get a
whole lot better soon. “$999999.99…any home, any color….with
30 years to pay! Now back to Championship Wrestling!” Or you can
just rent for seven years – make that ten!
Ron and Anna,
A couple of misleading items are listed in your assessment on values of homes. Homes always will go up in value, for the simple fact there is something called inflation. In fact, did you know homes purchased from 1890 to 1990 only went up by the amount of inflation. The only time we really had a tremondous jump in the value of properties was our recents events we had in 2000.
With that said, mortgages and their rates work in a business cycle, much like the economy. The average interest rate is about 7-8%, therefore rates are still very low compared to the national average.
Ron and Anna- Your method of thinking regrading homes and their mortgages is the old school method of thinking. It involves living in your home until you pay for it. I would challenge you to look at your home from a different perspective and use your mortgage and the equity as a tool to invest and make more money. I encourage anyone to read this website http://www.mortgage-x.com to learn about rates, values of homes, and other information which may sound a little to simplistic. The right time to buy regardless of the market rate is now.
History repeting itself.
Not sure why it is such a darn good time to buy “Now”. Most people in the RE industry are very concerned. It is not business as usual. This spring has been even weaker than last spring in relation to demand. Smart people are waiting to see what happens this Winter as far as pricing goes. Sellers and Buyers still have not budged much, but with the passage of time and the increase in inventories, direction will evolve.
Here is a great site, just in case you think that we are not in a RE bubble: http://drhousingbubble.blogspot.com/
I’ve been blogging about the housing bubble since September of 2006. During the initial months, I was receiving 50 to 60 hits a day. Now in a few short months, we are reaching an audience of thousands a day. Suddenly 90% of articles in the mainstream media are negative about the housing bubble.
You guys have got to go look at some of pictures of homes and their prices to truly get an idea of what things are selling for. Boarded up Riverside property for over $200K.
Scroll down to the Santa Ana Home. It is listed as number #3. Not bad looking but look at the stats:
Price: $435,000
Square Feet: 910
Median Rent in Area: $945
All these fantastic deals are making me itchy to call my mortgage broker! I’m sure you’re getting juiced up to purchase each of these homes. This next beauty is nestled in Santa Ana. At 910 square feet it is one of the larger homes we are featuring. When we analyze the income of folks in the area, they are pulling in slightly below $50,000 per year for family income. The monthly payment on this place will be around $3,500 so that’ll eat up about 90% of their net income. Who cares about debt ratios when you can use leverage to make it happen! Time to act since this place is not only in SoCal, but in the OC.
I bet things will show a bit more sanity closer to December, 2007.
Ron and Anna – unfair, as you failed to include in your recitation of nostalgia things like Hopalong Cassidy, Time for Beany, Captain Jet, Space patrol, Howdy Doody, etc. What a trip back in time!
The tightening up of requiremnets for people to get loans seems warranted given the no down no verifiction mania of the last few years. But, one thing happening is people intersted in buying a bigger and better house are finding they can’t sell the house they currently are in, so they can’t buy that newer/better house. A dominoe effect seems to be in place – Catch 22.Also, builders are throwing in freebies and upgrades to entice buyers, vs. lowering the price – making the statistical leveling of selling prices somewhat of a mirage. Sellers of existing homes are at a huge disadvantage right now.
Ron & Anna are stuck in the 50’s.
“Homes always will go up in value, for the simple fact there is something called inflation.”
That is oxymoronic statement #1!
The “infaltion” means that the currency is declining in value so you need more currency to purchase same assets (in this case house).
You must use the accounting equation [Assets + Liability = Equity].
Please notice that the equity is always constant because the liability (the currency) offsets the assets (the price of the house).
Luis,
Thanks for bringing us into the
21st Century! We understand the
concept…..keep borrowing on the
rise in property value and then buy
more property! This is called a
“Pyramid Scheme” back in the 20th
Century. Now they call it a “Leveage Buy Out”. Normally in
Levage Buy Outs ….lots and lots
of people lose their jobs and just
the owner and the president of the
company get to act like Ken Lay
and Jeff Skillings. There is
however, another old rule of real estate that we do like: “If you are unwilling or unable to live
in a place at least five years ….don’t do it!”
I predict that prices in OC areas like Santa Ana have just begun to soften.
http://www.ocregister.com/ocregister/homepage/abox/article_1709068.php
Orange County bankruptcies have more than doubled this year as homeowners struggle with mortgages and debts…….filings are beginning to grow again, more than doubling in Orange County in the first four months of this year over the same period last year.
One of the myths about filing for bankruptcy protection is that it can prevent someone from losing their home. It’s not necessarily so.
Under bankruptcy law, filing for bankruptcy can temporarily delay a foreclosure. The lender must file a motion asking for the foreclosure to proceed.
If a homeowner is simply behind on the payments and needs relief from other debts to get caught up, they may be able to save their home through bankruptcy. But if they can’t make the payments or if they have equity in their home that can be used to pay off other creditors, they could lose the house.
“The problem with bankruptcy for clients struggling with mortgage default is that it is only a temporary fix unless getting rid of all their unsecured debt leaves them plenty to pay the regular mortgage,” says Lohrenz, the credit counselor. “They will still face foreclosure and the filing only postpones the inevitable.”
This is incredible. If I am reading this thread correctly everybody(Ron, Anne and Luis) are saying right now is the right time to buy because of (1)Ron and Anna belief that a Hillary presidency or other democrat would bring higher and higher interest rate or (2)Luis point is that the right time to buy is now because the rate is still relatively low.
Understand this I have the last four years submitted op-ed to the Oc Register concerning the beginning of the sky is falling on housing prices and how the mortgage industry has continual been able to artificial and fraudently add more value to housing prices when they are unreachable to 85% of the population. Now, people are suffering, families are in facing troubled times and now you want more families to fall into this land mine. I really don’t understand why anybody would claim that today is the right time to buy when all the signs are showing that there will be a flood of foreclosures on the marketin the next few years.
This kind of reminds me of of some CEO, Anthony Hsei, one of the big internet mortage company who was quoted a few years ago as saying that “some people think that it is iditic to have all that equity in your property and not use it” He was pretty much calling me an idiot and now that I did not bit but my neighbors bought it and now border a new family into their house who is the idiot now.
It was all a sham, getting people into homes they couldn’t afford and telling people to but is perpetrating the same thing asa that greedy two bit realtor/mortage broker who was knowing providing the American nitemare to many families.
Jose M
#9
The only reason that people would be promoting the great real estate deals out there at this time would be people who are simply not looking at the big picture or are hoping to scoop out more equity to stay afloat. Either way… they are wrong. And especially wrong if they are talking about over inflated areas like Santa Ana, Riverside, highland park etc…
NO property purchase right now would “pencil out” to make renting it out feasible. In fact if you look at the articles posted, the mortgage payments would eat up nearly 90% of an average family’s income. That figure is not sustainable. Your reference about the family who had to take in renters/boarders illustrates what average families have to do when they buy a home that they don’t really have the income to qualify for.
And remember, the bankruptcy laws changed recently and from the articles, it is now more of a possibility that a debtor can lose his home/equity if he falls upon financial hard times.
Stock markets and real estate go in cycles. Cycles that take years, not weeks or months to play out. Stick to your intuition – this is going to get worse and hurt a lot of people before the “deals get good” in real estate.
There is way too much speculation and fraud in Real Estate to consider it to be a “safe bet”.
For once, Ann/Ron and Luis are all in agreement. However, they are wrong for whatever reasons that have motivated them to post their wishful thinking about how great real estate is right now.
Well done#10! While I didn’t want to assume why someone would tell other people to buy now, I was on the same page as you.
Sometimes I get caught up in the idea that just maybe most people are not trying to make a buck or stay afloat so that another family drowns in debt.
What was so funny is that Luis was calling someone else who agreed on the same belief, “old School” but yet cited useless data from 1890 that doesn’t add anything to his belief.
Don’t get me wrong, I agree that interests rates will rise(affirmitive on agreeing on business cycles) but if I remember this economics 101 class correctly concering interests rates. It is inflation that is one of the factors that can set interests rates higher. Regardless, if its a Hillary Presidency or not, intersts rates will rise, but home values will also.
I would agree with you that central county is overvalued and most people now get it and are staying clear from the idea of buying. My hope is that people continual to understand this and let the true home value of houses in our area come down to realistic amount.
I went on zillow.com to check out a co-workers value of his home in East Garden Grove he sold in 2003. While he was shocked (saddened) that it sold in december 2006 for almost twice the amount he sold it for,(2003 320,000 compared to 2006 610,000) we noticed that it is now valed at 560,000. That’s $60,000 less than some poor sap bought it for in December 2006.
The new owner now has to come up with the difference of at least $60,000 when he/she wants to refiance otherwise deal with ever increasing monthly payments and never pay down a single part of the principle.
Yes, foreclosures are on their way and this is a cycle that is also true.
Fortunately, for me I can sleep at night knowing that I absolutely no part in perpetuating this false dream on another family nor have I bought into the new snake oil salemen
Jose m
Jose,
Look at the numbers in post #3. Median Rent= $945
House payment for comparable housing= $3,500
And if you add the risk factor of your post that “someone” has lost $60k equity over the past 6 months (bought just this past December), you can see why it is a whole lot better to be a renter right now.
Rents got very competitive when the very last person who was showing a pulse got an ARM or some other fancy financing to get into a very expensive home. Rents will go up at some point as people default on their home loans and return to rental housing. At some point it will make “sense” to be a new homeowner, rather than a renter. But we are a long way away from that at this point.
Look at the gap of renting now vs new home ownership (below $1k vs $3.5k/month and possible disappearing equity in a new purchase) and anyone doing the simple math will see that the risk/reward ratio is way out of whack.
Sleeping well is highly underappreciated by most. Congratulations for having self-control during a very emotional & financial roller-coaster for a whole lot of people.
As your post illustrates… Winter can be a defining point. This spring is weak…. ask any truthful real estate veteran. As stock continues to pile up, something will give. How many more springs will continue to give up past prices for lower prices? We’ll see.
Who is willing to “bet” we’ve hit a “bottom” in Real Estate prices? Not me.
Oh… and have u noticed all the new homes/housing being built still? Builders can offer incentives and upgrades on these new units to try and get qualified buyers interested. What is the average homeowner who is trying to sell going to offer? _________?
All,
Perhaps my point was poorly written. The right time to buy is always in the present. In other words, homes will always go up in value, no matter what. If one is willing to hold on to their home for as long as it takes, their home is guaranteed to go up. The reason for it, is inflation. Inflation causes everything to go up in value. A loaf of bread, will cost
$100 in the future, because of inflation. Yes, your earning power also decreases depending on the raieses you receive in your employment(COLA), but your home will inevitably go up in value with out the market dictating it. My point to bring out historical data was to show you, the value of homes did not invrease for over 100 years, however to the naked eye it would show otherwise. The reason for the increase was not the market, it was inflation.
Jose M- Interesting that you bring up Anthony Hseih. I used to work for him. He was the owner of a company which was purchased by E trade, then he began opened another mortgage company named Home Loan Center, which was later purchased/merged with Lending Tree.
Anthony, has been revered as a mortgage expert by all different avenues of the media, and he is a highly respected person in the industry.
He believes, like I do, one you should the equity in the home to make more money. It is the very same basic theory those who have made it for themselves. You use money to make money.
The problem with the current situation we are facing has more to do with bad loans then it has to do with the values in property. If you take a look at those parties losing their homes, they usally were placed in option arm loans (negative amortization loans), and now they have compiled so much principal, they need to refinance but their is no equity in the home. Those people were tricked into believing they would be able to afford a home, when they never could. The mistake most bankers made was assume, value of homes would continue to rise in the short run.
On should still buy a home today if they can afford to at least make the interest only payment on a home, so long as they understand they may have to hold on to their home a while until values go back up.
Good comments all. But since some
of you think we are stuck in the 50’s (How bad could it be?)…..
we might mention a couple of could
be interesting observations: (1)
The Bubble is Real! (2) Prices of
beach front property will fall slower than inland Riverside (3)
Falling prices do not account for
the infamous “Counter Offer”….
available even in the 50’s! Just
because someone wants $500 grand
for 1200 sq ft house in Fountain
Valley…no one is forced to bite
without offering $350 grand first.
This is especially a good time to
“negotiate” and “maybe buy”. If
someone can make “a heck of a deal
without a homeowners assoiciation
to “taxus interuptus” their world,
it could be a good thing. This is
definitely “kick the tire time”..
wondering around the internet and
taking mom out to view the latest
and greatest “buying opportunities”. There seems to be
a lot of motivated “sellers” out
there that would prefer not to take
their properties into the bankruptcy mess along with their own personal finances. There are
divorces, deaths, too much borrowing, too much upgrading that
doesn’t increase the property values and so on. The big rub as
it were will be “qualifying to buy”
for the piece of property you want.
We could probably qualify for an
unihabited roadside shack – just outside of Barstow. Of course that
would be if a billboard wasn’t within 2000 ft….cause then you
would have to pay off the San Berdo board of Supervisors to get
the land “fee simple and designated R-1”.
Thanks so much for the great input
all………………….
Ron and Anna,
Incorrect, a pyramid scheme is an altogether different manipulation of money which involves multiple parties, and it is illegal. It predominantly works by handing money over to someone above with the idea you will receive money from people below you, making everyone wealthy. Those that get screwed are the bottom dwellers. Very different, and very wrong comparison.
Buying a home, refinancing that home to pull out the equity and buying another home, then repeating step one over and over, is simply smart business. A mortgage in essence is free money, because you can use it to make yourself more money and eventually not have a mortgage.
The right time to buy is always in the present. In other words, homes will always go up in value, no matter what. If one is willing to hold on to their home for as long as it takes, their home is guaranteed to go up. The reason for it, is inflation. Inflation causes everything to go up in value
Luis, this sentiment was the very same with stockholders in 2000. People convinced that they could ride through downturns… that their stock would always retain value.
Well, that was a good strategy until reality hit, year after year as their portfolios diminished. People literally sell like mad at the bottom of any cycle. we are not close to a bottom in Real Estate and anyone who is itchy to secure a home in the present time frame by fudging income a bit to “get in” is asking for a grand spanking, imo.
Paying outlandish monthly payments for housing makes no sense. Pay a thousand$$ for rent and bank the other $2.5k/month for a brighter day.
Or just take the plunge and have antacids ready in case you were “wrong”.
Luis,
I always remember housing expert cite a period around 1992 when housing prices did drop significantly. Sure, eventually they went back up but I believe the drop in the interest rate assisted the housing trend of higher housing prices. Then it was the mortagage industry that brought out new mortage schemes that allowed people who could not afford the price of their hosue based on the income they made. i.e. (2yr 5yr 10yr adj loans, intersts only loans, (liar) stated income loans, 2nd loans, 45 year loan, other mortage fraud practices)
Yes, alot of people used their equity to fix up their home. Unfortuately, many who were on fixedrates ended up getting set up on a refi adjustable and now have the added debt of their new home addon, their Yukon and their consolidated credit cards payoff to pay on top of their pre-existing loan amount. These people, who your mentor Anthony Hsei said the sky would never fall and you’ll always be able to take out equiting out of your house have him to thank for puting them into that predictment. Sure, nobody put a gun to their head but please don’t come across as a part of the industry that is helping people gain the American dream. If anything it was bi-lingual con artists who were hired for nothing more to deceive unsuspecting Hispanic homeowners into believe that the price that they pay for their home and/or the loan they get will work will never be an issue because housing prices will continue to grow.
It’s funny how my wife’s cousin wife tried to persuade us this “housing will incresingly go up” idea three years ago. She conned some many that she also bought into the idea and now is stuck with a $3,500 house payment in old town riverside, a house that not worth its value(because she say two houses by her house are forclosure and have lowered her houses’s value), a commute to the OC to a customer service position because the company that she made helped get rich let her go when people prospectives homeowners started getting smart.
Jeez, it took along time for people to realize that maybe their realotor/mortage broker might not be in business to make money and not care if they can’t afford their house.
Jose m
http://roughstock.blogspot.com/2007/04/strawberry-and-mushroom-pickers-qualify.html
This is one of my favorite real estate bubble stories because it is so outlandish. I feel for the homeowners, but there is absolutely no way that they could realistically afford that home:
Friday, April 13, 2007
Strawberry and Mushroom pickers qualify for $720,000 house?
I think someone needs to spend a little time in the poky, and I’m not talking about the produce pickers.
The husband and wife work as strawberry pickers in the fields around Watsonville, and each earns about $300 a week. They have three children. Not only did they dream the impossible dream, they managed to finance it.
It all began when they were talking to another family about escaping their subsidized apartments and getting a real house. The other couple — Jesus Martinez and his wife, who also have three children — work as mushroom farmers, earning about $500 a week each when there is work. The two couples decided to pool their resources and begin house-hunting. Given their total income, they estimated that they could afford payments of $3,000 a month. They spotted an ad in the local magazine La Ganga for Maria Avila of Rancho Grande Real Estate and called her.
“We wanted to live in Watsonville,” says Rosa. “But [the real estate agent] said the houses there were older and more expensive.” One of the first homes they were shown was a “new” four-bedroom, two-bath house in Hollister for $720,000. When the Ramirez’s heard the price, they worried that they couldn’t afford it.
But the couple says they were assured them it was possible.
Worried they couldn’t afford it? Ya think!
“The monthly payment was supposed to be $4,800, but then after we bought it, it went up to $5,378,” says Rosa, speaking of their zero-down mortgage with a one-month “teaser rate.” “Our agent told us that once we refinanced, we could get the payments down to $3,000 or less.” For a number of months Avila, who arranged for the loan with New Century Mortgage, paid the difference between what the buyers had said they could afford — $3,000 — and the actual loan payment. According to the buyers, this arrangement was supposed to carry them over until the group refinanced.
The money-saving refinance failed to materialize, and eventually, Avila stopped subsidizing their current mortgage.
The farm workers may be really dumb financially, but the mortgage company and the real estate company should have their licenses yanked.
Jose M,
We are in agreement, people who can not afford at least the interest only payment on their home should not purchase a home.
Those different loan options you mentioned, including the negative amortization loan have been around for a while, and they were great tools for investors, and those wishing to increase their cash flow for a small period in time. These loan programs should have never been sold for purchases in order to reduce the monthly payment and make the home affordable.
With that said, anyone who can afford a home (interest only) should always buy a house. They should however, expect the home to rise in value immediately. They like the market have too many variables which can cause in the short run a collapse. However, a homeowner wishing to keep their home for a while will not see a decrease in value of their home in the long run. It has just not happened in over 120 years.
The only way houses will not go up in value is if the Government decides to interfere and maybe begin a housing cap, as it has for rents in various parts of the U.S.
OK fellas and gals…..”here we go
..one more time for Mama!”….”Come
on Johnny…we gotta dive for Momma
…one more time!”…famous Gilbert
Roland quote. We loved Gilbert
Roland and his cool wrist bands.
This story is simple….”if” you
have enough cash flow to make your
house payment….and you want to
stay or are willing to stay for at
least five years…..and you are
prepared for any emergency…then
“buy your dream home”. The price?
Well, that is called “wheeling and
dealing makes the difference”. If
you can catch a motivated seller
who is willing to do a 2nd Mortgage
interest only, or you nail a great
buy in Bankruptcy…or someone
just wants to sell to you….they
are all good choices. As far as
prices going up…well, at the beach you are still going to have
to compete with Millionaires from
China or other places…they have
the cash….you may not! In any
event…if you like it….that is
the most important part of the
buying process…not whether you
plan on using the appreciation for
your retirement or not!