Housing bubble part 2 (Irvine, Alpine: insurance, credit score, loan)

[nyc2020]

one difference this time around is that banks are not handing out $1 million loans to house painters, laborers, and homemakers. so if these cash investors want to sell later, there won't be as many qualified buyers and properties may not appraise to qualify the borrower for the loan.

here in dc i'm seeing prices are between 2004 and 2005 prices in some areas whereas they are at 2003 prices in other areas. but things didn't go down as much here.

[Ultrarunner]

People have to live somewhere... rents are going up in many places where home prices are still down... feels good to get a deal even if it is perceived and not reality because someone paid a lot more 6 or 7 years ago.

Overbids are the norm here too.

One that I followed very close was vacant for 7 months... the bank paid the guy 25k to leave the home in good condition and hadn't received a mortgage payment in two years.

It was listed at 525K and the traffic never stopped for 10 days... it sold for 800k cash. The last owner had paid 1.2 at the absolute peak of the market.

The couple that bought it are very happy and said they were not going to be outbid again... they had been living in an extended stay for 71 days... older, retired and wanting to get settle after relocating to be closer to family.

I thought there are rules on turn around refi's... apparently, they just got a small loan on the place to free up some of their savings...

[CAVA1990]

Originally Posted by nyc2020

one difference this time around is that banks are not handing out $1 million loans to house painters, laborers, and homemakers. so if these cash investors want to sell later, there won't be as many qualified buyers and properties may not appraise to qualify the borrower for the loan..

As the market and economy heat up over the next few years we may very well see a return to that type of behavior. Perhaps that's what these cash buyers are forecasting.

[niteflite]

Originally Posted by CAVA1990

As the market and economy heat up over the next few years we may very well see a return to that type of behavior. Perhaps that's what these cash buyers are forecasting.

that would be quite unfortunate for it to happen at the same levels so quickly. how many people are out there with such cash? to pick up some condos in the <200k range is one thing but to be able to buy half million dollar homes? are they just going to hold or rent these larger homes out? i have to assume it is more difficult to rent out a larger home for several thousand a month vs renting out a 1 bed condo for 1,300.

but yeah....inventory is low, DOM is very low. need to bid up in order to buy. why is inventory so low? people who are slightly underwater not wanting to sell/upgrade because there isn't much out there for them to upgrade to? people thinking home values are still too low and will see a decent appreciation over the next few years? that leaves a lot of first time buyers just waiting and jumping on whatever comes out because they want to lock in on the low interest rates and are tired of dumping money into rent and think home prices are low.

[DocGoldstein]

Originally Posted by CAVA1990

As the market and economy heat up over the next few years we may very well see a return to that type of behavior. Perhaps that's what these cash buyers are forecasting.

No down loans are not coming back from the private lending industry.

FHA is needs a bailout. Who is going to provide those type of risky loan products?

[Ultrarunner]

I can only speak to recent transactions that I have been involved.

I asked a man that just bought a home I was following...

He is a retired builder and paid 1.3m for a property on 5 acres in the Bay Area that is 12 years old and fully landscaped and turn key.. the builder/owner had passed away and the kids had it listed.

The buyer said he couldn't even begin to duplicate the property at that price... said the lot, unimproved in this desirable area would be at least 750k plus another 200k in development plus the cost of a spacious home and 4000 square foot barn that looks like it should be in a magazine.

He told me it had been appraised at 2.3 million in 2004 and fully believes it will be again... so while he intends to enjoy the property by living there, he is banking it will be a stellar investment and was tired of CD and Money Markets rates being in the dumper.

He has also locked in his property taxes based on his purchase price... making it a win/win.

Desirable areas will always be desirable and the cost of construction has not gone down and the cost of permits, utilities, etc has not either.

[Joe Van Fossen]

Originally Posted by DocGoldstein

No down loans are not coming back from the private lending industry.

FHA is needs a bailout. Who is going to provide those type of risky loan products?

This is true. Additionally, it's much harder to qualify for a conventional loan now than it was back during the mid-2000s bubble.

[Leonard64]

Originally Posted by Joe Van Fossen

This is true. Additionally, it's much harder to qualify for a conventional loan now than it was back during the mid-2000s bubble.

This will impact future growth and pricing on homes. Investors, unless buying only to rent and not sell at a later date, they need to buy at a price they can sell at or above, in the future. If they drive the price too high, actual individual buyers won't be able to afford/qualify for it and .... prices will drop. Maybe extremely desirable areas of CA will avoid this due to limited inventory or no growth possible in the future due to a build out condition. OC may keep going up, but Riverside County wouldn't.

[CAVA1990]

Originally Posted by DocGoldstein

No down loans are not coming back from the private lending industry.

FHA is needs a bailout. Who is going to provide those type of risky loan products?

Never say never. If conditions are right there will be a sudden contagion of amnesia in the banking sector. Greed is always lurking and everyone thinks they'll be ones to get in, make a bundle and get out before it crashes. I've not seen many huge financial reforms that would prevent it from happening again given the right conditions. It may not be tomorrow but down the road a bit.

[DocGoldstein]

Originally Posted by CAVA1990

Never say never. If conditions are right there will be a sudden contagion of amnesia in the banking sector. Greed is always lurking and everyone thinks they'll be ones to get in, make a bundle and get out before it crashes. I've not seen many huge financial reforms that would prevent it from happening again given the right conditions. It may not be tomorrow but down the road a bit.

Banks are not stupid. The entire sector nearly imploded on itself permanently only 4 years ago.

It may happen again, but not in our lifetimes. Think 1929.

The only reason home prices have risen is because of artificially low rates (at the cost of creating a bond bubble), and banks are not foreclosing, and managing their shadow inventory in a non-mark-to-market accounting environment(at the cost of demand destruction and sales volume). Rising prices are a sign of recovery only in numerical terms, not in fundamental terms.