Since the government subsidized home credit took effect, the lower end on the Westside has come to life. Multiple offers have appeared on properties purchased with conforming FHA loans. 3% down, 5% loans and an $8000 govt credit, people are jumping at these favorable conditions. With Westside prices off by 20%-30%, it sounds like a no-brainer. Before you jump in, here are a few issues you might want to consider:
1) Having finished only the 2nd year of a typical 7 year cycle.
2) $8000 credit due to end this month.
3) FHA helping to re-inflate the real estate bubble with bad loans once again.
4) FHA quitting to be the lender of last resort due to insolvency problems.
5) Govt raising interest rates sooner or later, while prices remain inflated.
6) Over 100,000 Option Arms in CA recasting and subsequent strategic defaults.
7) 225,000 active Alt-A loans in the LA Metro area where nearly 50% are distressed.
8) Increasing rate of Prime loan defaults.
9) 22% underemployment in CA.
10) Underwater homedebtors and shadow inventory.
Just like the auto industries' temporary sales spike from "Cash for Clunkers", housing appears to have benefitted from the same type of govt stimulus. The $700-$900K starters, generally 50-70 years old and in need of substantial repairs seem to be the only houses moving. Decent houses on the Westside are still stuck, as their prices continue declining, absent any govt subsidy. That alone should tell you something.
Wednesday, November 4, 2009