Get In While You Can!!! (Los Angeles, Beverly Hills: condos, credit card, student loans)

[motoman]

Originally Posted by Charles

This is the part I don't understand. The loan issues described in your big post pretty much affected the entire country. Therefore the same drivers apply to all regions' housing prices. So why did SoCal house prices rise so much higher than middle America? For example (and I am making up numbers) why did Houston prices go up say 30% or 40% from 2000 to 2005 and LA went up like 150% (again, I am just assuming these numbers..but they are probably good enough for illustration.)

Why did California prices inflate so much more than just about everywhere else? That's essentially my question.

Actually, California has a significantly disproportionate amount of this type of financing. California is about 12% of the US population, but we represented about 25% or so of all subprime lending in the US in the past few years.

I have a graphic on my tackboard that shows the percentage of new mortgages that were high-interest-rate loans, by dollar volume, between 2004 and 2006. Between 25% and 40% is the highest grouping and is colored in red. While there are pockets throughout the eastern portion of the country, primarily the southeast, with Florida having high concentrations, roughly half of the state of California is colored in red. It is the highest concentration by several multiples of anywhere else in the country. The LA area appears to fall in the 15%-20% range.

Here is The Wall Street Journal article. I don't know if you can get to it without a subscription. It has some good data in it. Here is the graphic I was talking about.



There is an interactive map in that article that shows that in 2006 (just in 2006), in California, there were 573,102 high-rate loans made, representing 29.4% of all mortgages made that year, $155.3 billion in dollar volume, and 24.3% of total dollar mortgage volume.

The next highest concentration of these types of loans was Florida, with 447,983 mortgages of this type made, for a total dollar volume of $75.6 billion.

So although we made 28% more of these mortgages in 2006 than were made in Florida (which also is suffering from a tremendous real estate bubble), the dollar volume in California was twice as much. So even bigger bubble.

And look at the coast in California. Although the percentages are lower than inland, in the 5%-20% range, when you compare California to anywhere else in the US, we have by far the largest concentration of high-rate loans in the country.

And THAT, my friends, is the primary driver of the boom out here. The only things that support housing prices are incomes and financing. Again, incomes haven't changed that much over the past five years. They certainly haven't doubled. Low interest rates only explain a portion of the increase. The crazy financing explains most of it.

Take away the crazy financing, most of which never should have been done to begin with, and prices MUST come down.

Also notice other boom areas, like Vegas and Phoenix. They fall in the 20%-25% range. The high level of high-rate financing and the price bubbles is not a coincidence. Again, the crazy financing has been the primary driver of the bubble.

[motoman]

Here is an interesting article.

Bloomberg.com: Exclusive

Four million subprime borrowers with limited or tainted credit histories will see their mortgage bills increase by an average 40 percent in the next 18 months, according to the National Association of Consumer Advocates in Washington. About 1.45 million of those will end up in foreclosure by the end of 2008, said Mark Zandi, chief economist at Moody's Economy.com, a research firm and unit of Moody's Corp. in New York.

Just out of curiousity, how many of you could afford to have your rent or mortgage payment increase 40% without it impacting you financially?

[JackSparrow]

Originally Posted by motoman

Here is an interesting article.


Just out of curiousity, how many of you could afford to have your rent or mortgage payment increase 40% without it impacting you financially?

It's only relevant to those that have sub-prime loans.

[motoman]

Originally Posted by JackSparrow

It's only relevant to those that have sub-prime loans.

Umm...that's a lot of people. And not true actually. There are prime loans that will reset as well, negatively impacting prime borrowers. The number of people impacted won't be as great as subprime, but there will be negative effects.

[JackSparrow]

Originally Posted by motoman

Umm...that's a lot of people. And not true actually. There are prime loans that will reset as well, negatively impacting prime borrowers. The number of people impacted won't be as great as subprime, but there will be negative effects.

Dear Rocket Scientist:

My loan is fixed, the rate doesn't change.


Signed,

Logic FTW

[motoman]

Originally Posted by JackSparrow

Dear Rocket Scientist:

My loan is fixed, the rate doesn't change.


Signed,

Logic FTW

Umm...how do you make the jump from discussing the the impact of adjustable rate mortgages on the general population to your personal fixed rate mortgage?

Is it possible for you to have an intelligent discussion without resorting to pretending to be God?

[JackSparrow]

Originally Posted by motoman

Is it possible for you to have an intelligent discussion without resorting to pretending to be God?

We're so far beyond reasonable discussion it's OOC.

You wish to focus on the PAINFULLY OBVIOUS; and thus we shall? I won't bother trying to focus on anything else because in doing so, I get the same result as if I was focusing on the obvious. So, I'm just speaking in the same simplistic way that I am being spoken to- generalizations with disregard for detail.

[greggd]

I think the orginal post was suggesting to get into "los Angeles" while you can before it
becomes even more cost prohibitive. Comparing inland California to west los angeles is difficult because the buyers, i would suggest, are completely different.

I would venture to say that a very large % of real estate purchased in West LA was not first time buyers, but those who upgraded. in the process, Instead of taking a traditional 20% down, that money was directed into a short term investment, looking to take advantage of low interest rate options.

I'd say those inland california homes in foreclosure will drop in value & re-sell. The displaced group will be shaken up in a big salt shaker and re sprinkled back into the area as renters rather than homeowners.

An opportunity for the new landlords and a sigh of relief for the prior homeowners who enjoy the month to month freedom and the private landlord who understands that Christmas makes January rent a little late.

[Charles]

Originally Posted by motoman

Actually, California has a significantly disproportionate amount of this type of financing. California is about 12% of the US population, but we represented about 25% or so of all subprime lending in the US in the past few years..

OK, I read your reply. Thanks. It makes sense in that it illustrates that how housing hyperinflation correlates to percentage of wacky loans. Now, the next question is, Why did California have so many wacky loans? For example If the laws were different in California then that would explain it but I don't think the laws are different in California. So what is it about California (and perhaps Florida and those other "red" places on the graphic) that produced so many of those wacky loans?

[Charles]

A nugget of info from this morning's Liz Pulliam Weston LA Times Q&A column,


Dear Liz: It seems that everyone who has an adjustable-rate mortgage is scared about having it adjust. I don't understand the concern. I thought the point of an ARM is that it will adjust to the current rate, and current rates aren't that high. What's the big deal?

Answer: Adjustable-rate mortgages typically don't adjust to the current fixed mortgage rate. They adjust according to formulas that can result in a rate that may be higher or lower.....

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