Posted on 05/25/2005 2:09:58 PM PDT by Rutles4Ever
NEW YORK (MONEY Magazine) - Twenty-four-year-old Kelly Pearson says the $580,000 ranch-style house she bought near downtown San Diego last August is a dream come true.
It is nice: 1,450 square feet, four bedrooms, two baths, crown molding, a big kitchen with an island and -- quick! duck! -- a 737 jet descending upon her roof with what feels like 10 feet to spare.
With no savings, and a college loan to repay, Pearson took out a mortgage for 100 percent of the price of the house. Closing costs were paid for by a $10,000 gift from her parents (money first earmarked for her wedding).
--SNIP--
The rub is that fewer and fewer San Diegans have a standard mortgage. According to PMI Mortgage Insurance Co., more than two-thirds of the loans to buy homes here last year were interest-only mortgages, which have much lower monthly payments but much bigger bills to pay down the road. (See "The Miracle Mortgage.")
--SNIP--
What's more, 40 percent of the 18,400 net new jobs (jobs created minus jobs lost) in San Diego last year were in construction and real estate, reports the State of California.
This raises the risk that any downturn in housing prices could cascade through the economy. Falling prices would translate into lower incomes for all those people working in real estate, which means less for them to spend on homes, which would depress prices further. A nasty cycle.
(Excerpt) Read more at money.cnn.com ...
Lenders tend to compute the amount of the required down payment on a loan so that will be a bit less than the unpaid interest on the value of the loan during the period between onset of non-payment of the loan and resale of the house after repossession, plus sale costs. The former protects them from the latter. They make their profit on the mortgage points.
But in this market home prices are rising so fast, and predictably, that at least for the period in question the projected increase in the home's value during the period between "onset of non-payment of the loan and resale of the house after repossession" will exceed lost interest on the principal in that time plus sales costs, i.e., the projected increase in the home's value in the next six months serves the same lender purpose as 10% down payment.
My Pittsburg-area grandparents (Valencia) loved to visit their children in California for the winter. One of my friends freaked out when he heard my grandmother tell my grandfather that it was March and so time to go home to start the spring plowing. He realized she wasn't joking.
My father took us back there one winter and I did not like Pennsylvania winter at all. I was born and raised in the San Francisco Bay Area (western Marin County plus Burlingame in San Mateo County), where it never got below 40 F or over 90 F, and rarely over 80 F.
Max = 2%/yr.
Good Story, One of my good friends bought in a iffy part of Costa Mesa,CA for $300,000 in "99 sold at $585,000 in 04, and moved to Oregon laughing all the way to the bank.
Sell.
A couple pt. rise in interest rates combined w/ the "interest only" & other funny loans will crash this mkt - big time.
Combine above w/ funny biz at Fannie Mae & HOLD ON, it'll be the roughest ride since '29 !
If we were going to move out of state, that would be a great idea.
In state, what's the good reason?
"Good Story, One of my good friends bought in a iffy part of Costa Mesa,CA for $300,000 in "99 sold at $585,000 in 04, and moved to Oregon laughing all the way to the bank."
-Nothing wrong with a good game of musical chairs, I just don't think its good strategy to join the game just as the music stops. God bless your friend. God help his buyer.
"We bought 2 heavily wooded acres on Lake James with 407 feet of shoreline in Western NC, nestled in the Blue Ridge mountains and built a 4,200 sq. ft. brick house, built a gazebo, dock, etc. Total cost... $650,000. "
Sounds like heaven......and WORTH 650!
Ground "creep" is a really slow motion landslide over an extended period - say an inch a year for 50+ years. A whole neighborhood can move almost as a unit. This causes incredible title problems.
I used to practice real estate law and have a friend who is a soil engineer.
-If you have decided to stay, there is no reason to sell
other than to make a mint, and rent until the market crashes, and crash it will.
With all due respect, "carping" will never repeal the Laws of Supply and Demand.
The great state of California and its uncounted subsidiary "governmental" bodies tasked with "overseeing" and "managing" growth in California have succeeded in restricting the construction of new houses in California.
The unsurprising result: the price of housing has gone UP.
If Californians really want "affordable housing", they will have to abandon the "romantic" (albeit naive) belief that wilderness is "good", that development is "bad" and that the "public interest" in "protecting wilderness" must supersede the rights of individual landowners to build and sell what the public wants to buy.
I wonder if any California FReepers would be willing to challenge the conventional "wisdom" on this point?
So, about $100/sf. This is exactly what I keep saying on these threads, this is the price of building new, anywhere. Land is extra.
For people in flyover country, its hard to understand California real estate but as others have already mentioned, this is the way of things - boom/bust cycles that last quite a long time and things are no different now, despite the hyperventilating from Freepers who don't know that historical returns for CA real estate are close to 7% per year, long term. People forget that for 7-8 years, the real estate market was in the tank here and 3 good years doesn't make a bubble in that sort of context. The next market bust could last just as long.
May 08, 2005
"Affordable Family Formation"—The Neglected Key To GOP's Future
By Steve Sailer
I'm tracking foreclosures in NJ on my blog. I haven't figured out if the upturn in foreclosures over the past few weeks is a trend or if its a normal seasonal pattern.
http://shorebubble.blogspot.com/
"Ground "creep" is a really slow motion landslide over an extended period - say an inch a year for 50+ years. A whole neighborhood can move almost as a unit. This causes incredible title problems."
-You make it sound like I dodged a $950,000 bullet. Interestingly enough, I don't think we have had THE BIG ONE yet in California. What happens to all this high priced real estate when a 9.5 Earthquake hits the bay area?
Reaching adulthood, it was a different story - they didn't call off work when the snow hit (one exception - Blizzard of '78, work was called off for one day, my kids didn't have school for a week!).The last winter I was in New England was an "ice year" - not a lot of snow, because it was a rather warm winter, but cold enough for sleet and freezing rain. Beautiful to look at at night out the window with a warm, cozy fire in the fireplace, but ugh - nasty stuff to have to drive to work in early in the morning, or at night.
Now, after 21 years on the Central Coast of California, as much as I still miss, and always will, the beautiful green, rolling hills of New England, I honestly don't think I'd ever be able to live there again. I still don't take for granted that I can walk out to the backyard in my bare feet in January.
Maybe in California and a few other hot spots, but most of the country hasn't seen this crazy spike in prices. Average American has 56.1% equity in their home. A few areas will see prices tank, most of country won't notice.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.