Seriously, how do people qualify on 500,000 loans with 80,000 incomes? (San Bernardino: mortgages, homes)

[CMartel2]

Originally Posted by Charles

Why?

Because California real estate speculation and demand lead to ever increasing waves of optimism and greed. California was the center of the house flipping universe. Everyone was making money. Everyone had to have a home. And a second to flip. Then a third. So prices soared. Yes, incomes were higher in certain areas than the rest of the country. But not THAT much higher.

Then along came the ALA-A and Option ARM loans, and people were allowed to lie about their income. They thought, well, sure, I'll just flip this house and make a big profit. And so they bought into the greed.

What's ultimately going to happen is that the folks in the middle of the country are going to have to end up bailing out California. Where prices remained relatively stable, you aren't seeing these massive declines in the price of homes. I'd guess regional banks in the south and midwest will end up with a larger share of the banking industry when it's all said and done, as they tended to stay away from these toxic loans.

[Charles]

Originally Posted by CMartel2

Because California real estate speculation and demand lead to ever increasing waves of optimism and greed. California was the center of the house flipping universe. Everyone was making money. Everyone had to have a home. And a second to flip. Then a third. So prices soared. Yes, incomes were higher in certain areas than the rest of the country. But not THAT much higher.

Then along came the ALA-A and Option ARM loans, and people were allowed to lie about their income. They thought, well, sure, I'll just flip this house and make a big profit. And so they bought into the greed.

What's ultimately going to happen is that the folks in the middle of the country are going to have to end up bailing out California. Where prices remained relatively stable, you aren't seeing these massive declines in the price of homes. I'd guess regional banks in the south and midwest will end up with a larger share of the banking industry when it's all said and done, as they tended to stay away from these toxic loans.

Why did this happen in California so much more than elsewhere? The rules were the same everywhere. The availability of these mortgage products was everywhere.

Case Shiller Index

[sheri257]

Yeah but ... California homes have always appreciated more. In 1970 a house cost 24K. In 2000 it cost 240K.

http://www.mybudget360.com/wp-conten...5_medianus.gif

That's tens times appreciation over 30 years ... that's a lot of appreciation even without the boom. With the boom ... it was even crazier.

[sheri257]

Originally Posted by CMartel2

Home prices are not going to stop decling in Orange County.

I do hope you're right and I think that will be the case with certain areas BUT ...

Houses in Irvine actually sold for higher prices last month ... $635K versus $580K a couple of months ago when this thread first started.

That's actually up, not down.

[CMartel2]

[quote]Why did this happen in California so much more than elsewhere? The rules were the same everywhere. The availability of these mortgage products was everywhere.[/QUOTE}

Because homes in other parts of the country were actually more in line with the standard 3x to 3.5x one's income than in California. Homes were far more in-line with income in other places. People making $80,000 per year have no business buying a $700,000 home.

All sorts of things fell in place with California. You also had massive out-of-state demand for homes fueling this nonsense. Then people became home investors, trying to get ahead. And that's what really fueled these terrible loans. These people had no intention of hanging onto them. They were going to sell them, eat a penalty, and make a killing. Right? And then their hands got stuck in the cookie jar. But in the process, they drove up the price of homes, and everyone else was left to catch up as these prices were skyrocekting.

And others, not just speculators, were willing to take risks. You also have the issue of how horrible the public schools are in California. People were willing to pay for better schools. Further, if you want to use Denver as an option, the suburbs are actually affordable there with their better schools. There isn't a coastline pulling people to a beach, either. Other cities had room to expand. In California, expansion takes you away from the coast. And people wanted to be near that, so they paid more for a home than they could afford.

I still believe California hasn't seen the end of this. There are some vicious loans coming due, and someone is going to have to eat them.

[Woof Woof Woof!]

Originally Posted by bishop25

I was told we can do a FHA Loan in Santa barbara up to 620,000 and only have to put 3.5 % down and was curious if any body had any insight on this. If this is correct how much money would we have to earn annually??

I reckon that things are changing quickly. Banks are not as apt to take on any more risky loans.

[jaynetarzana]

Originally Posted by CMartel2

I still believe California hasn't seen the end of this. There are some vicious loans coming due, and someone is going to have to eat them.

All signs seem to point in that direction. I have a broker friend who has always seemed to have a sixth sense about this stuff and he is saying not to even think about buying until 2011 or possibly even 2012. The ripple effect created by the default of these ALT-A loans is likely not only to be catastrophic to California's economy, but the global economy as well.

[CMartel2]

Originally Posted by jaynetarzana

The ripple effect created by the default of these ALT-A loans is likely not only to be catastrophic to California's economy, but the global economy as well.

And that's my question... I can't see this not hitting the global economy. I just wonder how the price of homes in regions not so heavily entrenched in these toxic loans is going to react. For instance, does the south take another massive dive? *shrugs shoulders* I'd think a decline is in order, though perhaps not on the scale I think we'll see in California.

[jaynetarzana]

I would imagine that the entire country will continue to see declines for some time to come. Some places just have farther to fall than others. California couldn't have continued on the path it was on. The cost of housing is so far beyond income levels, it just wasn't sustainable. There is only so much old money.

[sheri257]

Originally Posted by CMartel2

Because homes in other parts of the country were actually more in line with the standard 3x to 3.5x one's income than in California. Homes were far more in-line with income in other places.

Yeah but the California coastal market has always sold way above 3x income ... for decades now.

If you're hoping that the good OC neighborhoods are going to drop to 3x income ... it's never gonna happen. You also have to take into account that people are willing to pay higher prices to live on or near the coast.

In 2000, California homes sold for $240K while median family income was 53K.
In 1990, California homes sold for $190K while median family income was 40K.

California QuickLinks from the US Census Bureau

http://www.mybudget360.com/wp-conten...5_medianus.gif

The only way you can get 3x income prices is if you move way out to the boonies, far away from the coast. This is nothing new ... it's been like this for decades now.