Thursday, December 10, 2009

FHA is the New Subprime

With only requiring 3% down on homes up to $750,000, our beloved FHA is the lender of choice these days. Along with the government $8,000 credit, that means coming up with less than $15,000 to "buy" a house. Nice try at re-inflating the bubble with a few "buyers" that want to be home debtors. Chances are, they can't really afford the payments and destined for foreclosure, with little skin in the game. Home prices are still at least 25% overvalued on the Westside and the timebomb is ticking away with Alt-A and Option ARMs. Foreclosures are piling up higher behind the dam, only to be a bigger disaster once it breaks.

Now that FHA appears to be approaching insolvency, what government agency is next to throw under the bus?

55 comments:

Anonymous said...

I think for 700k-800k prices have NOT dropped at all in W. LA. There is a listing on Redfin:

bought in 2005 for 710K
Listing price: 824k

it doesn't matter what everyone things on this site. The reality is that prices have not dropped, and will not drop.

Anonymous said...

How did you come up with the 25% over-value figure?

Anonymous said...

it is listed on redfin, what i am trying to say is that folks who bought SFR in the 700k range during the peak in W. LA is flat or making some money on their sales.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

What is it with the spammers on all the RE blogs lately????

latesummer2009 said...

Prices over the conforming loan limit on the Westside have been declining for over 2 years now. Depending on the location prices are off 20-30%. If we look at average incomes to support prices, we still have about 25% to go on properties that have already corrected. For those that have not, ($800K and less) we are looking at a 45-50% drop, once the govt stimulus is removed.

Anonymous said...

"Comment by latesummer2009
February 5th, 2009 at 8:00 am

Tick Tock, Tick Tock, Tick Tock. That’s the sound of the Real Estate Timebomb getting ready to detonate on the Westside. There isn’t time left to sugarcoat the truth anymore. No amount of arrogance, ignorance or denial will obscure the facts. We can’t sugarcoat it any longer. Just look at human history and behavior. It is your own fault now, if you don’t."

Merely continuing to repeat something over and over makes it no more true now than it was back then...

BTW - im intrigued by your name. Please tell us what is supposed to happen in "Latesummer 2009"?

Anonymous said...

Anyone else bid on 612 17th in the 90402? Can we compare notes on this one.

I am trying to figure out who all the people bidding against me are

Anonymous said...

Anon 4:43

'I am trying to figure out who all the people bidding against me are...'


Um, someone richer than you?

Anonymous said...

723 11th just sold - located right next to a busy parking lot

anyone know how many bids there were on this one

Anonymous said...

south of montana
house just sold for over one thousand bucks a sq foot

look it up 3218 Arizona

over one thousand a square foot and just sold

Anonymous said...

I don't understand why ppl think that WLA 700k SFR will go down in value? It would only go home. The gov't and banks won't let it happen. Either buy now or be ready to pay an additional 100-150k in 2011.

Anonymous said...

Must go down and will go down - might take longer than anyone thought but it will happen. Baby boomers retiring en masse will make it happen. Hollowing out of LA economy will make it happen. Studios are already moving production out of LA, rates and available work for Hollywood talent and writers is dwindling, and studio staff is constantly being cutback. Where are the high incomes going to come from to support these home prices? Outside of rich actors and other Hollywood people, LA is largely a low-wage economy - tons of retail, saturated with small businesses. Even skilled knowledge workers make less in LA than they do in other cities, so then how can LA properties cost more than any other city's properties?

Anonymous said...

12:52
I am grateful for your comments. Thank you for sharing your perspective.

When you say that skilled knowledge workers make less in LA than they do in other cities, help me understand what you mean. What professions pay less here than in other cities?

I see plenty of people here who seem to make more money than they would be able to make elsewhere in the US so I am just not sure what you mean

Anonymous said...

Someone thinks prices will be up 20% by 2011? I don't see what the fundamentals are that will fuel that. The last boom was fueled largely by easy money and the self-fulfilling prophecy of constant appreciation, not by any dramatic change in demand caused by need. Not sure what will happen to change the current state of affairs....

Anonymous said...

the WLA SFR housing isn't about fundamentals. Tell the ppl that who earn 100k, and buying entry level 700k homes in CC/MV. Gov't subsidiaries, low quality inventory, and banks waiting it out are the fundamentals. Also, of course, ppl who make money elsewhere, and decide buy to buy in WLA because of the sun, beach, close access to hollywood, etc. Plus, alot of ppl of color with money feel ALOT more comfortable in WLA b/c everyone is different so they do not stick out.

Anonymous said...

"I see plenty of people here who seem to make more money than they would be able to make elsewhere in the US so I am just not sure what you mean"

He doesnt know what he means either. Its just something you say "skilled workers make less in LA than in other cities" to feel better about your lot in life.

Also, even though its likely just his opinion, and likely has no statistical basis for being true, it just sounds better when you state it as fact with an air of authority. Kinda like our host telling us home prices "have another 25% to correct".

Vast majority of these declarative statements are likely in no way grounded in fact. Its just what happens on a bubble blog filled with disgruntled buyers who cant afford to live where they want.

Anonymous said...

Let's not be rude here.

I really want to understand what professionals make less money in West LA than they do in the rest of the USA.

I mean, I know plenty of professionals making little money here in West LA. Most screenwriters I know make little money here. But these same screenwriters tell me that they would make even less money if they lived anywhere else

So if you are saying that huge numbers of people who work on the West side can't afford to buy a house here, I agree with that.

It seems that many professionals of all sorts get jobs on the West Side when they are young, and that a small percentage of them make it big and can afford to buy a house and the ones that don't make it big sort of throw in the towel in one of two ways - either move to a distant suburb and commute in, or they accept living in an apartment.

I mean, just because most professionals can't afford a single family home doesn't mean something has to change.

Professionals in Boton and DC and San Francisco can't afford to buy single family homes there either.

They accept life as either live in an apartment or commute a long time. Why shoud it be different here ?

Anonymous said...

Sounds like a lot of scared realtors and sellers here, wishing things were still the same during the bubble years. Our host might have his timing wrong, but one cannot ignore the overall trend. FHA is almost insolvent and the banks' balance sheet have yet to take the hit from ARM recast tsunami. No point in arguing, only time will tell. I will say that the buyers have the advantage since they are sitting on a pile of money and can wait for a long time. Sellers on the other hand are sitting on depreciating assets and mountains of debt. Maybe in a few years I'll go buy your house from the bank or your loan from the bank.

Anonymous said...

I agree. Prices will go down 30% from here

Anonymous said...

Did anyone see these two Westwood (90024) houses before they sold?

From Redfin:

1357 Comstock Ave Los Angeles, CA 90024 3bed/2ba, 2115 sq.ft sold 10/6/2009 for $474,000.

10551 Lindbrook Dr Los Angeles, CA 90024 6\5 4237 sq ft. - $311,248 on 12/09/2009

The second one must be a misprint. The first one is closer to the 3x-4x local median income, but still odd. Family sale?

Still, a sale is a sale, and will affect the comps.

FrankH

Anonymous said...

Frank
thanks but I have to call BS on both of these sales

1338 comstock just sold in jan for 1.6 million
there is no way a comparable could sell just down the street for less than one third of that

Anonymous said...

IRS will definitely be auditing the sellers and buyers of if the these numbers are indeed correct.

1357 Comstock Ave Los Angeles, CA 90024 3bed/2ba, 2115 sq.ft sold 10/6/2009 for $474,000.

10551 Lindbrook Dr Los Angeles, CA 90024 6\5 4237 sq ft. - $311,248 on 12/09/2009

Anonymous said...

I agree. Prices will go up 30% from here.

Anonymous said...

This site gives ppl false hope. I have decided not to visit this site anymore as it makes ppl think more about WLA real estate then they need to. How ever much ppl analyze the WLA market as being overpriced, etc...the prices are sustained and in some cases keep on going up.

Farewell.

Anonymous said...

Lindbrook and Comstock were family sales...

Anonymous said...

The two Westwood sales may be family deals, but they are recorded at those prices and will affect (slightly) the comps.

FrankH

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Anonymous said...

Man oh man I wish my family would sell me houses in Westwood at prices like that.

Anonymous said...

"The two Westwood sales may be family deals, but they are recorded at those prices and will affect (slightly) the comps."

FrankH.....please.

Are you serious?

Yeah, if I was a buyer....I would be having this conversation..

"Oh, that house I want is 2m, but that 400K comp. makes me believe I should offer 350K...

Are you high?

Anonymous said...

FrankH is a moron. He bought or inherited in Westwood 80 yrs ago, and is out of touch with the realities of westside prices. 3-4 income ration is the biggest fallacy out there. And yes, FrankH, ur ass would be priced out too if you did not buy 80 yrs ago.

Anonymous said...

I agree that 3x income is not happening here. Try Indiana where many incomes are higher than they are here and houses are cheaper.

By the way the people rushing to buy in LA right now at the 800 thousand dollar price point may be smart

they only got to put 3% down and the laws of California allow them to walk away any time they want This is a free call option, if price doubles they sell and put $700 thousand in cold hard cash in to pocket. If price goes down they mail the keys back to FHA and lets the tax payer take the hit. Seems to me people buying today are smart

Anonymous said...

Hmm . . . who are these people who are getting FHA loans of $726K with only 3% down to buy $800K properties on the Westside? How does this math work. Where can I sign up? Heck, I'll take two.

Anonymous said...

Ummm, WHERE are decent properties under 800K in Santa MOnica?

Anonymous said...

Uh
just gooogle FHA it is listed there

Very simple - buy a house for 700k
you have to put about 24k down
but then the government gives you 8k
so net you only are putting down 16k to own a 700k house

then sit back and watch what happens to prices - if they go up you quickly re fi and put cash in the bank

if they go down you stop paying the mortgage and rent the place out - you get one year of rental income before they foreclose

so you win big if the prices go up and you break even if prices go down

google it it is EZ

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Anonymous said...

"I think for 700k-800k prices have NOT dropped at all in W. LA. There is a listing on Redfin:

bought in 2005 for 710K
Listing price: 824k

it doesn't matter what everyone things on this site. The reality is that prices have not dropped, and will not drop."

Is that a sale or a "wishful thinking" listing price by a flipper...Oh man, are the real-estate cheerleaders back already...and do they really believe that prices will go up, or are they just trying to lure some suckers in?

Prices have already dropped, and will drop more, and will continue to drop, and most likely will drop severely within the next two years...and nothing that the gov't tries will stop it. This is based on metrics such as area incomes, un-employment and and demographics such as the ageing of the baby-boom generation. All of this data is clearly presented over on the Dr. Housing Bubble blog.

Anonymous said...
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Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

"if they go down you stop paying the mortgage and rent the place out - you get one year of rental income before they foreclose

so you win big if the prices go up and you break even if prices go down"

Break even? Good luck borrowing money for anything for seven to ten years. Mortgage, no way. A car, forget about it. Renting an apartment, house or commercial property...don't think so. A credit card, sure at 30% interest and mostly secured by your own money. Your local utility, probably not. Reputation, destroyed forever.

If you call this break even then go for it.

As an industrial real estate landlord I know how the system works out there. Those trying to work the system maliciously might feel clever in the short term, but they always get caught by those in the know and, well, they get chewed up and spit out.

Anonymous said...

I am sorry I just don't understand - here on the West Side, 50% of the homes purchased in the past 4 years are underwater.

People North of Montana who borrowed $4 million sometimes have houses worth $3.5 million

are you saying it is silly for them to walk away? Think about the numbers - they are in the hole for 500 thousand

Do you really believe the negative consequences are worth 500 thousand?

I mean yes, if you are talking someone in the hole for only 100k I hear you. But 500k? Come on I have to assume anyone would walk away if they were that deep in

Latesummer2009 said...

Westsiders walk away in mass during 2010-2011. No brainer if your on the hook for hundreds of thousands. They will quit paying rent and start paying cash for everything, without the need for credit. Market meltdown has barely scratched the surface of affluent areas. They are probably already plotting their strategic defaults, IF they didn't re-finance (non-recourse loans). If they did refinance (recourse loan), good luck, the govt will tax your loss as income, as far as I know. Your screwed.

Anonymous said...

@ December 19, 2009 9:56 PM

Foreclosure is very serious, but oh please you got to be kidding me-- get a life...

"Reputation, destroyed forever."

You must be a drama queen!

Anonymous said...

I agree 100%. Anyone have the stats - how many of the home owners in the 90402 between Montana and San Vicente have stopped paying their mortgage?

If you own already in the 90402, you are hoping it is a small number. If you are planning to buy when prices hit bottom in two years you are hoping that the number is massive.

Let's have some stats!

Anonymous said...

Strategic Default Foreclosures ---

A. Acceptable as more and more do it - so there goes the personal embarrassment issue (see 1992 - same deal).

B. Stop paying mortgage - keep the cash and build up a warchest. No need for credit if you have a real job, and plenty of cash if you have a $10-15k per month mortgage.

C. Go rent with the cash - no problem! Live better for less!

D. Buy a new property for LESS in about 2-3 years, max. Lenders will be there when you put any decent money down!!

E. Credit rating impaired for about a year, then improves into the 700s if you are otherwise a good credit! Will be FINE!!

Anonymous said...

I agree with the above poster..

I was as strategic defaulter, and its been 9 mos.
I hired a credit repair company to work on my FICO, and i'm almost back into the 700's....

It was not my first choice, but 13K/month for something that was losing value by the day was killing me and my family.

We rent an ocean view house in the palisades now for 6K....so you see how it works...

Anonymous said...

I have followed this blog for about a year, all the while subscribing fully to the theories espoused on it. Then, after sitting on the sidelines and renting a SFR in Mar Vista, I realized that the people making-up these theories, as smart as they are, are really only using an extremely small set of variables and, perhaps the biggest mistake, their theories are laden with value statements (i.e. "debt slaves," and "capitulators" yada yada..).

I started re-reading several of the original posts and realized that along with the data there were a lot of value judgments inserted as facts; however, I had originally accepted these as facts- compelling ones- to confirm my own desires that the Westside would become more affordable.

Once I parsed these facts from opinion, I realized that there were few points of substance, which are hammered over and over, and decided that the blog is interesting and, still, a recommended read for people thinking about buying now. The information is laden with value judgments about how people should be investing, etc., which are often positioned as "fact."

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Anonymous said...

New thread please - we need more discussion of the high end homes that are actually closing escrow right now. There are very very few of them, but I think we need to look at the $3 million plus homes located WEST of the 405 that are closing escrow in Oct, Nov, and Dec and study them

Anonymous said...

Is anyone on this board actively attending open houses in north Santa Monica can we discuss each of the houses after each open house

Anonymous said...

There are a couple things I really don't understand....

On the low end houses...why would anyone want to buy a house in the $700-800K range in the westside. I recently searched rentals because I had thought about moving to CC, MV, WLA etc. What I found is that houses that sell in this price range are renting at $2-3K a month. And many are renovated and very nice. To own would be much more expensive. Probably twice as much. So I don't understand the push to own at this price range. I don't understand it at all.

As to the high price areas...Are people really that delusional that they believe houses priced at 1.5million are going to lose half their value? Some areas are always going to be priced at a premium. Apparently parts of Santa monica fall into that category. What I find REALLY odd about this is that there are very nice areas with good schools not so far away that are priced right in the wheelhouse of someone who cannot afford "North of Montana", and have good schools and so forth..namely Sherman Oaks and Torrance. Yeah it requires a 30-45 minute longer drive, but isn't that the sacrifice people in LA have always made? Really, not everone gets to live in BH, Bel Air, or San Marino.

Anonymous said...

A 30 to 45 minute commute to my job in Santa Monica means less time each day with my kids.

So the commute is unacceptable.

My job is in Santa Monica. So a very small house in Santa Monica beats a very large one in Sherman Oaks

Anonymous said...

30-45 mins won't even get you onto the 405 from Santa Monica during peak traffic hrs

Anonymous said...

Bundy to Sunset to 405 from Olympic/Bundy has always gotten me to the 405 in about 15 minutes.

If I wait on Olympic it has taken over 30 minutes to go 1 miles sometimes.

And as I said, people in LA have long chosen commute to live in a nicer area. It explains Simi Valley, Thousand Oaks, Santa Clarita, etc. Most of them have kids and there is a tradeoff. If you choose to stay on the westside in a small house because you don't want to make that commute, you've chosen high prices as your tradeoff and you ought not bemoan those high prices.

Anonymous said...

I agree 100%
If you want a house you can afford, move to Simi Valley

If you want a house you can't afford stay in SM