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im not sure if they will drop that much, if it did, it would be priced equal or less than parts of south Florida and north NJ and because jobs pay alot more in Cali and also Cali has better weather and lots of things to do, millions will move there. I can see a 25% drop tops.
In the few blocks around me, prices are up nearly 200% since 2003 so a house that sold for $300K in 2003 would sell for $900K now. Can the price of that same house fall back to $450K? You betcha! Some of the other areas are even more out of whack. My neighbor was just telling me about her daughter who bought a house in 2001 for $170K and sold it for just under $2,000,000 last year.
Salaries in California may be a bit higher but they are nowhere close to high enough to afford these homes!
Wow are you in south Cali? As for that $170k house selling for near $2m, thats gotta be a record! Whoever paid $2m got ripped off badly for a house worth more like $500k. That house was never worth $2m.
Uninformed buyers and investors may pay way too much, far more than market value even for that time. Did they think of getting an appraiser to inspect and reveal the true value? This is what ill be doing before I buy a house so I ensure I dont overpay fair market value. We have 4 sellers in our neighboors asking way too much, one guy was asking double what the house was worth(even at that time, the peak of the bubble!)
Many sellers are dropping their asking price, giving further illusion to the declining value of houses. It goes both ways, the market is correcting and sellers are learning to price relistically. Nothing wrong with buying a house today, its a buyers market. Find a seller who asks a reasonable price then negotiate it down more, especially to take into account the house bubble correction and you can get a good deal. Once the bubble correction is complete, the market may shift into neutral, neither buyers nor sellers. Do your reserch, check fair market value, check appraisals, check what others in the neighboor sold for and dont be afraid to negotiate!
"In the few blocks around me, prices are up nearly 200% since 2003 so a house that sold for $300K in 2003 would sell for $900K now."
Wow what area is that? We never had anything that far out of whack. Why would people pay nearly triple for something that was much cheaper just 3 years ago? I say a 1.5x increase might be fair if its a rapidly growing area with tons of new jobs or something like that.
Alot of people will lose money and just let the bank forclose their house when they find that their morgage far outcosts the house and have negetive equity, they will feel cheated and ripped off and refuse to pay outrageous prices. Of course they will ruin their credit completely so they may be stuck renting or will need owner financing or save up for 100% downpayment.
I have a neighbor who refinanced her house last year, took some money out for house repairs, closing costs and the costs came to over 10,000 and this year she does it again and has an adjustable rate mortgage, and some clause that says if she sells the house or refinaces it she will have to pay interest equal to 6 months interest. To top it off it has a balloon payment in 30 years which is 130,000, she refinanced the house for 200,000, what kind of creative financing is this and how is it legal? This is a poor lady with little education. I don't know how much cash she got or what her costs were this time. This is in Florida.
Hot areas of Southern California have gotten much hotter in the last few years. The $2,000,000 house was somewhere near Venice Beach. Most of the beach areas near Santa Monica have gone up astronomically over the last few years. Ditto with areas like Pasadena and Burbank.
The reason why prices have increased so much is because these areas are "close in" and they are nice areas. In other words, they are close to business centers like downtown and Santa Monica/Beverly Hills. A lot of people like to live close to where they work.
It still doesn't mean that these prices will hold long term. The fact is, most people don't make enough to buy these houses.
Santa Monica was #1 on the Forbes list of highest priced zipcodes for housing. It's hard to find anything for under a million dollars in Santa Monica -- and we aren't talking big mansions either.
How could it be many times cheaper just a few short years ago? My dad was thinking of living in s. Cali some 26 years ago before I was born and he couldnt afford the average $250k houses he saw! How is it possible even 3 years ago you could find a house for $170 when they were $250k 26 years ago? California was always much more expensive. I bet that $2m house was still more than $1m 3 years ago. I can prove and confirm this with Zillow.
The only thing that this "crash" will do is bring prices back to inflated instead of SUPER inflated...
It's not a difficult concept...
Use any desireable place to live - FL, NY, CA etc...
Interest rates were super low...
People went nuts and bought, bought, bought!!!
Lots of people were smart & thought, "Let's sell!!! We can double what we bought our house for!!!"
Or in some cases triple, quadruple, etc.
And people were buying like hotcakes!!!!!!!!! (Can you buy like hotcakes too, or is that only for selling?)
So a house that would sell for say 500k, was selling for 1mil!
On The Beach, there was (this KILLS me that it wasn't me!!!) someone who bought a house for 500k
and sold it I believe a month (or was it a year?) later for 1mil!!!!!!!!!!!!
They just made HALF A MILLION DOLLARS with probably hardly any money!!!
So...Now you take a house like ours...
Bought for 200k in 2005. Should have been able to bargain it down to 175k - it needed a new roof, electrical was not "legal", no dryer or dishwasher, one wall needed to have sheetrock, whole house needed painting...
But if we didn't snatch it - BAM! - an investor would have!
Now they might have been screwed, because we JUST squeeked in...
So if the market were still like it was a year ago, we could probably get 300k, maybe more if we did the repairs. (which we did some)
Now we could "only" get 260-275K...60k in 2 years is a PRETTY darn good return, don'tcha think???!!!
If anyone knows of a stock that will give me a 30% return in 2 years LET ME KNOW!!!!!!!!!!!!!!!!!!!!!
So other than the flippers & people ONLY trying to make big bucks, (and it taking 3-6 months instead of 3-6 MINUTES to sell!!! ) WHAT'S the problem???!!!
I have a neighbor who refinanced her house last year, took some money out for house repairs, closing costs and the costs came to over 10,000 and this year she does it again and has an adjustable rate mortgage, and some clause that says if she sells the house or refinaces it she will have to pay interest equal to 6 months interest. To top it off it has a balloon payment in 30 years which is 130,000, she refinanced the house for 200,000, what kind of creative financing is this and how is it legal? This is a poor lady with little education. I don't know how much cash she got or what her costs were this time. This is in Florida.
Hi Alexander59,
Do you know what kind of mortgage she got? Did a family member or friend go with her when she applied for this mortgage? I agree the 10k on a 200k house is high for closing costs, but did she buy down the rate? If so, that is part of the closing costs. The "clause" you are speaking of is normal, it is called a "pre payment penalty" it is a common thing with mortgages, it enables the lender to give you a lower rate if they know you are going to keep the mortgage for 1, 2, 3, and sometimes more years.
If you neighbor walked into her broker or bank office and said, "I want the lowest rate mortgage no matter what" yes, putting the pre payment penalty (P.P.P.) on gives her a lower rate. There are different types of P.P.P, 3 or 6 months worth of interest, hard or soft (soft means if you sell the house you don't pay it, only if you refi in that time.) ,how close you are to the end of that P.P.P. and other factors. Depends on the lender also. Most mortgages come with one unless you ask for no pre payment and that will cost you in interest rate. Usually, the P.P.P. goes right along with the same amount of years as the fixed term. Example, if you get a 2/28 mortgage, which is fixed for 2 years at said rate, then adjusts in year 2 month 1, you have a 2 year P.P.P. So if the rates are rising, you plan to refinance and start the paperwork the month before it adjusts and the prepayment penalty is about to expire. If the rate is going down, keep the loan. Being an adjustable rate mortgage also gives her a lower rate. Getting interest only for a 10 year term will make her payments lower for 10 years but does cause a balloon payment of the extra principle at the end of the 30 years. So, if she did ask for lowest rate and payment no matter what, she got the exact loan she asked for and at the rate and term she qualified for.
As a side note, no one who gets a Interest only option actually keeps the loan for 30 years, they refi using the equity growth to get a lower loan to value mortgage so there is no balloon payment. Any mortgage loan officer worth there weight in salt will do a refi for a low cost to a repeat client. There are always about 5k worth of closing costs involved with a mortgage, however that does not all go to the Loan officer. Usually a LO will charge a percentage of the loan amount, 1%, 1.5%, 2.% 2.5% as their fee. This is clearly shown on the good faith estimate. It is the only thing of the closing costs a LO can adjust and you can negotiate, but remember they can't work for free and you get what you pay for. Federal and state law limits the amount a LO can charge. Example, the State of TN allows up to 7.99% of a loan in closing costs, this consists of the LO's, title agents and lenders fees. If a LO tries to charge more than that, they can go to jail, no lie! So it is very regulated. Each state is different. (In all the years I have been doing this, I have never seen a LO get even close to the 7.99% by the way.)
In short, to answer your question "...what kind of creative financing is this and how is it legal? This is a poor lady..." It is not creative, it is normal and legal. She can't be very poor if she qualified for a 200k mortgage and refinances every year. Is it smart? I can't say in her case as I don't know any other information than you gave in your post, but there are a lot of people who refinance every few years to get the equity out and invest it, or use it to improve the property, (which raises the value) not spend it. The walls of a house is not a very smart place to save your money, same thing as putting it under your mattress. It looks to me, just from what you have said, as if maybe she refinanced it last year, got the cash out to improve the house, refinanced again this year, got the improvement money right back out, to save and gain interest on that equity and plans to for several years before refinancing again. If she had a good LO and she is following their advice, she will pay that 200K off in 15 or so years making the same low payment. Sounds strange, but it works in most cases. That is why there are mortgage brokers to spend the time, energy and knowledge to find the best mortgage not only for your property but for you and your financial goals.
I hope that helps explain it a bit better?
How could it be many times cheaper just a few short years ago? My dad was thinking of living in s. Cali some 26 years ago before I was born and he couldnt afford the average $250k houses he saw! How is it possible even 3 years ago you could find a house for $170 when they were $250k 26 years ago? California was always much more expensive. I bet that $2m house was still more than $1m 3 years ago. I can prove and confirm this with Zillow.
Since I don't know her daughter's address, I thought I would take a look at some of the property values in Venice Beach on Zillow. I found quite a few that sold for under $200K in the mid-1990s. Perhaps your dad was trying to buy during a different bubble?
At any rate, check out this home I found: 729 Nowita Place, Venice CA.
Sold 03/05/04 $875,000. Sold 4/28/06 $2,190,000. And this house is a 1 bedroom, 1 bath, 660 sq. ft. mansion built in 1921! LOL!
Here's another one: 2324 Boone Avenue, Venice CA.
Sold 09/01/95 $230,000. Sold 11/07/03 $694,500. Sold 06/22/06 $2,490,000. This one is a 2 bedroom, 1 bath 930 sq. ft. home built in the 1950s!
So, ask me again if I think house prices are gonna fall around here...
(I just found another one on Howard St. in Marina Del Rey. Built in 1999, it sold for $350,000. Last sale in August 2006 was $1,899,000.)
MBmouse I live in Florida and a 200,000 house is not much, mine was estimated at 220,000, the lady gets county help, so that helped her qualify her original mortgage was 160,000 her interest rate now is7.95 and can go up to 10.90, and it is a interest loan only and her payments are1410.79 and that is not insurance and taxes.I don't think Florida has a cap on interest, I have heard of 13 percent!. House values are not going up like they were and she is not a young lady, all the costs at closing are crazy if you have bad credit. I am sure she will refinace so she won't have the balloon payment of 139,000,. By the way the lady is about 60, If the interest rate was a lot lower I could understand her taking the equity out of the house and invest but at that rate I don't see it. Seems to me she has paid over 15,000 just to get these loans. She did take her husband with her, who is as cute as he can be, but no English and no education. This is really creative financing at its best. Thank you I am going to copy your answer for future reference, if you want to see the mortgage I can tell you where to find it. I tried to find what kind of mortgage but I either didn't see it or its not there.
Last edited by alexander59; 09-25-2006 at 02:12 PM..
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Perhaps you and a lawyer can help her out of this mess
) WHAT'S the problem???!!! 
Might be just right
