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Living the California debt based dream – Bankruptcies in California increased 557%
The California housing market sits in an odd stage of limbo. You can see that the public for the most part is fully aware of the situation like an Alamo standoff in real estate. People fully acknowledge now that banks are holding off a tremendous amount of inventory. There is little that is secretive about the shadow inventory at this point. Yet with all the distressed properties, people are looking at artificially low rates and are wondering if this is the time to buy (assuming they are not one of the 20+ percent that are underemployed). Adjustable rate mortgage use is at all-time lows and why would you not go with a fixed rate given the insanely low rates? Yet the market and economy is not healthy. Mortgage rates and low inventory would be signs of a healthy market in other times but the opposite is the case. What does this mean for housing going forward?
Low use of adjustable rate mortgages
The use of adjustable rate mortgage is at all-time lows:
Source: First Tuesday
The use of ARMs is practically non-existent when at the peak it was nearly reaching 80 percent of all loan originations. This is the Alt-A and option ARM universe that we once inhabited. The low usage of ARMs might be obvious on the surface but I think it tells us more about the market. Some ARMs currently have incredibly low rates (yet many go under conventional underwriting standards requiring a larger down payment). The argument coming from some is that mortgage rates will remain low for a very long time similar to what Japan has experienced. If this is the case, then wouldn’t you think that going for an ARM with a 1 to 2 percent cut in APR would make sense? My take from this is that the public doesn’t believe that the Fed can keep this artificially low rate going for a long-time so grab those fixed rates while you can. Take a look at all the bailouts and actions the Fed has had to do to keep rates low:
Source: Bruce Kasting
In other words, the Fed has had to become incredibly active and become even more aggressive just to keep rate at where they stand today. The low usage of ARMs reflects the notion that this is the rock bottom for interest rates and people need to lock in before something happens. Yet the bigger question is, what is happening? The economy is still facing tough challenges ahead. State and Federal governments will get a piece of their pie. Even if you look at some places in Orange County with high HOAs and Mello-Roos the fees are already starting to add up in non-mortgage related items.
The state of the California economy
Everything would seem to favor a booming housing market but that is not happening. You essentially have a sub-group of folks with equity in their homes trying to trade to one another and first time buyers trying to scrape together enough for that 3.5 percent down payment FHA insured loan. This is a reflection of a poor economy more than a healthy one. Take a look at bankruptcies in the state:
Keep in mind that the falloff in 2006 hit because of the rush to file in 2005 before bankruptcy law became tougher and more difficult to process. We are very much near peak levels under these new stringent requirements. In 2006 we were closer to 35,000 bankruptcy filings while last year we hit 230,000 (an increase of 557%). What this dramatic change signifies is that the underlying economy is still very weak and many people are unable to meet their current debts. A large part of this is driven by housing debt via mortgages or HELOCs or other forms of debt based spending. Keep in mind over 30 percent of California mortgage holders are currently underwater owing more on their home than it is currently worth.
Again the question remains, who can pay for these homes with a poor economy? The major growth group in the state is from baby boomers:
You have an aging population that essentially can sell to one another and transfer equity to each other and a much less affluent younger population that is mired in other forms of debt including student debt. The above chart highlights where the growth will be. People form households in the 25 to 44 age range and you see growth in this segment is not exactly dramatic. Household incomes are flat for over a decade:
Moving forward this is very important. The leverage being afforded to the current market is driven by a few artificial items:
-Federal Reserve market actions as shown by a previous chart (risk of market disruptions become larger when confidence starts breaking)
-FHA insured loans requiring very little down (this is getting more expensive with default rates)
-Controlled shadow inventory by banks artificially restricting supply. This is artificial because accounting standards and bailouts were essentially developed to change the way banks did business at the expense of the public.
The public now largely realizes that banks are operating in a pseudo-market and prime properties are being allocated even before they hit the MLS. I’ve gotten a few e-mails from folks seeing some interesting action in the short sale process especially when it comes to more prime properties. Again, this is not a “free market” but one that is being carefully managed. Yet you need to ask to what end? The real economy doesn’t seem to be producing the jobs to sustain current prices. This November taxes will be on the table. When money is running short and employment opportunities seem limited you can expect the unexpected. Those that think housing is balancing itself out on its own need to look at that Fed chart again and examine FHA insured loan default rates.
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I hope those gates are strong. Moonbeam is in a panic because the state defecit is $16 billion. I guess MAYBE the GOP in the House is blocking Obama from his side bailouts of employee unions in lib states plus bailing out the states that has been going on since 2009.
The chickens are coming home to roost in CA.
Yup. Typical liberals. We have the same scum in gated communities near me. I wonder what happens when the checks start bouncing?
Yep. No wonder Mitt bought a crash pad in CA.
I'm in Carlsbad and Mitt thinks he's going to do that big remodel, but he needs Coastal Commission approval(tough), especially to put a parking garage below into the bluffs in La Jolla (or anywhere near the coastal bluff), I know he hired a lobbiest but I don't know how he will EVER get that thru like he think$.
Dr Housng Bubble web site is full of facts ..I alays read his newsletters since they correct out all the BS from MSM:
http://www.doctorhousingbubble.com/
I would love to see somebody analyze the average California boomer balance sheet and income statement. I suspect it would look something like this:
Home value: $250k
Home mortgage $300k
Income: $60k
Savings: $5k
Retirement income: $30k
Default Date: 6 months after retirement
No, buy price would be $500K and current value $350. Income would be about $80, no savings and retirement $10K (or less). Your picture is more optimistic than reality. It might explain why anyone who can - businesses or individuals - is fleeing the state and no one is moving in except zombies.
So. Cal "Jim the Realtor" is a lot of fun to hang with. Some really incredible sites to see.
http://www.youtube.com/watch?v=wHh2V1qPZFY&feature=related
Until I found Jim I couldn't really get my head around the housing bubble, the frauds.
why buy a home, when you can reside at a fema family fun center for free! i heard they have free wi-fi!
Lets not forget about the mother of all earthquakes thats coming to California sometime in the next decade.
Overstated. Yes, California may suffer a big quake. But it will not be a Japan-Fukushima event.
Reason is the crust plates. Japan sits very close to a subduction zone, i.e. one plate jams itself under another. Subduction zones produce truly monster quakes. California's West coast, in contrast, is a strike-slip fault, i.e. two plates slide and grind past one another. Strike-slip can produce good-size quakes, but not as large as subduction zones.
As for California breaking away into the sea -- it's never happening, because the plates are not, and will not, move in that way. The Cali coast is here for the duration.
As a result everything east of California -- that includes WDC and NYC -- will fall off into the Atlantic Ocean. Things will be better.
The absolute best read on California real estate. No, it's not mine- it's much better. http://www.doctorhousingbubble.com/
This article was written by the good doctor. His site has been a favorite of mine for a few years,
oh shit...i guess i could have noted that....thanks
Equities are higher. What's the problem?
I'm 49 born and raised in Los Angeles, I'm still saving for my first home.
I can tell you this, homes in LA & So Cal are gonna drop in value ANOTHER 50%* (adjusting for inflation) sometime over the next 5 years.
We got
And of course Me, the cheapskate with cash but I won't pay the current prices, I may die a renter with a huge downpayment.
Aside from celebrities, public employees, loan fraudsters and idiot foreigners, nobody is buying in LA (dont get me wrong, they're a big group, but not big enough to push the prices up against the bigger group of sellers).
Don't worry too much about taking your time. Decades ago it was a no-brainer that one should own their own home. It's far from obvious now. In my experiences when it's hard to make a choice such as 'buy or don't buy' it means there's no clear, good answer. That's the case with real estate right now and that's one why there aren't a lot of buyers. At the end of the road whether your life gets an 'A' or an 'F' won't hinge on whether you own your own home so keep following your gut.
The problem is you don't own sh*t anymore. Assuming you pay off the bank - your job as a homeowners is to be a host for local unioned govt workers to live on you as a parasite. You are not a homeowner but a slave to the county unionzed govt "workers."
Housing doesn't need to keep up with inflation in order to make it a profitable investment. I recommend you sign up for Daniel Amerman's free Turning Inflation into Wealth mini course. Excerpt:
"Most people thought it was the houses that produced their increased real wealth, but as we learned early in this course, their houses were on average losing money on an inflation-adjusted basis. The more financially sophisticated may have known the mortgage had a lot to do with it..."
California Dreamin, The Mama's and the Papa's
All the moneys gone
and the guys are gay
help me finish someone....
California Creamin, The Muthas and the Fookers
All the moneys gone
All the moneys gone
and the guys are gay
and the guys are gay
I've just got some pork
I've just got some pork
In my rump today
In my rump today
I'd be felching big time
I'd be felching big time
If I was in L.A.
If I was in L.A.
California creamin
California creamin
On such a queerish day
Stopped into a bar
I passed along the way
Well, I got down on my knees
Got down on my knees
And I began to blow
I began to blow
You know the owner locked the door
Owner locked the door
He knows I'm gonna suck
Knows I'm gonna suck
California creamin
California creamin
On such a faggish day
All the moneys gone
All the moneys gone
and the guys are gay
and the guys are gay
I've just got some pork
I've just got some pork
In my rump today
In my rump today
If I didn't tell him
If I didn't tell him
My gerbil died today
My gerbil died today
California creamin
California creamin
On such a felching day
California dreaming
On such a felching day
California dreaming
On such a felching day
Dude. How about a PG version? Poor Momma Cass. If she were alive today she would be polishing off a pizza and a What A Burger.
Sad about CA. The only thing decent is Ken and John on KFI. Phil hendrie would be funny if he was such a guilty white PC liberal arsehole.
... on a sunny day.
Currently I have relatives looking for a 3 bedroom home to buy in the San Francisco Bay area. Nothing can be found under $800K, and those at $800 k are fixers in poor neighborhoods. It's unbelievable.
that's a bit of an exaggeration.
here's a 3br 2ba just north of downtown san jose just a few blocks from where i live, for $300k, decent residential neighborhood (though i havent seen this house):
http://www.zillow.com/homedetails/1492-Keoncrest-Ave-San-Jose-CA-95110/1...
there's plenty of decent 3br houses in the south bay for $400k-$600k, even cheaper if you look in the east bay.
your statement of nothing under $800k might be true of san francisco proper, but defintiely not sf bay area.
Not arguing with you, but what I have seen is the better values are in higher prices homes. Also, if you buy in a less expensive neighborhood, you are more likely to have 3 hispanic familes band together and all buy the house next door. Its like driving class - you need to drive (buy) defensively.
...." My take from this is that the public doesn’t believe that the Fed can keep this artificially low rate going for a long-time so grab those fixed rates while you can...."
Actually, it is more of a case that nobody wants to be tied to an ARM when it comes time to refinance due to the rates going up.
Who would trust that what you bought a house for today will still be at the same price (or higher) tomorrow?
Nobody.
Wait until interest rates start correcting upward to the mean....house prices will fall further as Shiller's book on the economy describes....has a great chapter on house prices as well as general economic data.
It's interesting that companies and people are leaving Cali as evidenced by it's negative pop growth rate.
I live here. The illegals are leaving, going back to Mexico. That in itself should say all you need to know about the California dream.
And the American one for that matter. Don't forget to vote you reverse immigrants you!
What's to happen with short sales if the tax holiday on debt forgiveness expires at the end of this year? Would think it would put paid to this portion of RE sales. Of course, come December, if no extension is in the cards it might be a very good time to make some low ball cash offers on a short sale if the banks will have no alternative but to foreclose come January 1st.
Some perspective is in order when considering the "California housing market". It goes without saying that this is a large state, both in terms of population and geography. Some parts of the state, typically, coastal areas in Southern California, particularly coastal Orange and San Diego counties, the Westside of L.A, and those in the Bay Area, have very robust markets with few properties available, back-stopped by growing economies and higher-income households. Importantly, these are also areas with large foreign-born (not Mexican, but Asian and Russian) populations with substantial personal assets. Generally, these areas and households have comparatively low rates of foreclosure and personal bankruptcy. This is also reflected in low vacancy rates for office and apartments.
Then there are the other populous parts of CA: the Inland Empire, Central and Imperial Valleys, etc. which tend to be more industrial (IE) and agricultural, have large pockets of seasonal unemployment and were substantially overbuilt during the real estate excesses of the mid-2000s. Household incomes tend to be much lower, unemployment much higher and household assets much smaller than in the coastal areas. It is reasonable to assume that these areas will take much of this decade or beyond to recover, and will experience a much higher rate of personal bankruptcy and foreclosure than the So CA coastal and Bay Area markets.
California is still the promised land, and always will be, for many in the coastal areas and other parts of our state. I live here in beautiful Surf City, having moved from Back East years ago, and can't imagine living anywhere else, especially during winter. It's not without its problems, but then, what part of the world isn't? At the end of the day, any place can be a personal hell or paradise - it's what you and others make of it that counts.
If you live in a gated community near the beach, you are ok. Otherwise, you may want to learn some gang signs.
There are many non-gang areas here. I have been a shopper of cheaper homes in California, and have bought in 6 diffferent parts of Northern California in areas with no gang activity. The Sacramento area was the only area I bought in that had gang activity, but it was really interesting there. Different areas just blocks away, had very different character. I did not buy on a block that showed signs of gang activity.
Sacramento is home to the most dangerous gang of all, their clubhouse is the State Capitol building.
"California is still the promised land, and always will be"
California stopped being the promised land in the mid-70s.
I think the end was when the fresh faced and cheerful Beach Boys, was it Dennis house, ended with the Manson family living with them. I think in terror they moved out of their own house. This was before the murders.
They actually did one of Charlie's "songs." Charlie was kind of the end of CA. The dream was shattered by Charlie. Libtard hell hole.
Actually the "Bay Area" is a mixed bag. San Francisco is good, many others are not.
Coastal CA is still enormously over-priced. In my town, price/income is still about 7 to 1.
I've been looking online, ALMOST ALL AREAS ARE OVERPRICED! The entry-level CRAP is still $200.00+/sq ft, ALL DEALS ARE SCOOPED UP BY INSIDERS who know the bankers, and pay cash for short sales, all the crap on MLS is just that, over-priced crap because there is NO FREE MARKET, in anything in the US except lower wages!
The average person unless they are a govt unionized millionare "employee", hollywood fraud, lawyer, doctor, tech geek with stock options - is getting paid like they work at 7-11.
Correct, but in Cali several families and/or working adults live in a single house. And it's not just the Mexicans. That's why you cannot find a parking spot in any decent neighborhood. I knew plenty of people flopping in a house together to make the monthly nut. It's a way of life for them. Wages are not that higher in Cali than elsewhere for working stiffs. So if you want to move there, bring some friends.
Yeah, I had tendants that did that. I thought they were nuts. I moved to a cheaper area after I got laid off from my job with a fat paycheck. No need to stay where prices are higher if I didn't have a wage to match. They with their 4 minimum wage jobs stayed there together.
Yes, the prices are much higher here.
But you can't measure the affordability index here compared to other (non coastal) areas.
Different bag o' beans.
Real estate markets vary based on local conditions to some degree. However, most of the bags o' beans will be headed down for a generation or more.
"all real estate is local" I have read:
Bank repossesses the Austin Music Hall“I'm surprised that that would happen, given Austin's economy is supposed to be good, relatively speaking, and given that we're the live music capital of the world,” said Paul Maldonado, who lives near the Austin Music Hall at 208 Nueces Street in Downtown Austin.
http://www.kvue.com/news/local/Bank-repossesses-the-Austin-Music-Hall--1...
The plunge is global:
Australian House Prices down 10% from Peakby Steve Keen on May 1st, 2012 at 2:04 pm
http://www.debtdeflation.com/blogs/2012/05/01/australian-house-prices-do...
Even with the drop in prices in California housing is still out of reach for most of the population. People are worried and scared and even if you apply for a home loan you better have pristine credit or you will be disapproved. Tough to buy homes in California when your making minimum wage or you have a good paying job and your paying off your student loans. I think California will have alot further to fall before home buying picks up.
There is something wrong when my fathers home which is two miles from the beach built in the 1930's and is valued at close to a million.
There is something wrong when my fathers home which is two miles from the beach built in the 1930's and is valued at close to a million.
Its because the MANIACAL legistatures, and Muni gvts there need all the $ they can get for tax revenues.Prices there need to drop at least another 30-40%, for a recovery.
I cannot fathom why any SANE human,would buy a home in that Socialist/Marxist Utopia.