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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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We're starting to see the beginnings of the second wave of foreclosures here in sunny C. That shadow inventory is going to expand tremendously. The glut will be driving down home prices dramatically which will, in turn, reduce property tax receipts. Now the parasite effort is on increasing other taxes. Still no significant cuts being made in state workers or wages/salaries, no cuts to pensions, no cuts to agencies or departments other than those with the most immediate and painful impact on taxpayers.
The article says all the good deals are short sales where someone knows the banker, this is what I am seeing, 1st time buyers are pushed aside by cash asshole insiders. NO FREE MARKET!
It's "you're" - the contraction of "you are." Not "your". If you have student loans, I suggest you engage a lawyer to sue the institution for "your" (correct usage) money back.
Thank you.
Thanks Ned for pointing that out to me. However I do not have any college debt at the age of 65. My neices and nephews do. At my age with these eyes I do good to type. I usually make even more mistakes. Thanks I will try better just for joo!
4 idiots do not like on the spot corrections.
I went to an all-day Bruce Norris seminar entitled All In or Fold a couple weeks ago. He successfully called the housing crash at a much briefer speech I attended that he gave in 2006.
There are still a lot of headwinds, but his conclusion was that CA real estate is now a good buy. Some of the reasons are that net migration is now positive in many CA counties, the echo boom generation will be adding to household formation even taking into account aging boomers, 'affordability' (depends on home prices, income, and interest rates) is at an all-time high, and many rentals can be purchased below replacement cost. As he said during the Q&A though, if you think we are in or will be entering into deflation (I don't and neither does he), then don't buy real estate.
You can listen to part 1 of the presentation at his YouTube channel,
http://www.youtube.com/watch?v=_9hoqQox6Qc (1 hour)
I went to an all day CHUCK NORRIS slugfest and he said Cali suxs.
The general economy will inflate, but housing in general will continue to deflate.
Other than being a housing expert, he is a great actor, my favorite was the Col Braddock role he mastered.
IF YOUR FROM MEXICO ILLEGALLY THE WHOLE US IS THE PROMISE LAND
http://www.wthr.com/video?clipId=7054149&autostart=true
Ha ha! Suck shit.
Excellent! That was great to see, I hope they are able to get millions more.
I thought Cali was the promised land?
WTF?
It probably was until politicians made too many promises.
As a CA resident blessed with wonderful friends, many of whom hold responsible positions in the local, county and state governmental infrastructure, I'd suggest that the states' budgetaary problems relate directly to the public employees sense of entitlement as to better than private sector salaries, pensions, medical benefits, extended purchase retirement contracts and most importantly, a veritable industry of functionally useless agencies estebliahed with the sole purpose of reemploying the retirees for lesser jobs than before at even greater salaries and benefits.
Further, CALPERS and CALSTRS are broke. Try imaginary valuation, neglected mark to myth and imagination. The thing is shot to hell bedcuse of the politicicns bribing the state employees with largess in exchange for votes.... leaving the taxpayer nothing but the bill.
...wonderful friends, many of whom hold responsible positions in the local, county and state governmental infrastructure...
Your "friends" are unionized govt workers who are parasites on the back of taxpayers. I would guess they also shove ferrets up their <censored> and their friends <censored> holes.
CALPERS has been a piggy bank for Ron Burkle - friend of Clinton and Obama, Sean Puffy Combs aka Puff Daddy and other Democrat Party lackeys.
Hey Freddie...
Did knukles have to put up the obvious "/SARC" to signal sarcasm to the fucktards in the audience??
The "Big One" earthquake will take care of the problem.....
It was. Then it got He-Locked and Ninja-Loaded and then elected the Terminator for Governor.
About says it for the story of Kalifornia in it's current dead Lock.
ori
Moonbeam just announced that California's shortfall is nearly twice what was expected.
Wants increased taxes, again, instead of continuing to cut.
NOT.A.PENNY.MORE!!
No increased taxes of ANY SORT.
Continue Cutting...slash pensions for public workers, cut wages and salaries to comparable rates in what's left of private businesses. Stop 'Sanctuary State' status for illegals and force the costs onto private taxpayers. Cut welfare, cut everything the State is involved in.
Union Defends 13 Calif. Lifeguards Making Over $120,000: ‘Very Fair & Very Reasonable’
http://www.theblaze.com/stories/union-defends-13-calif-lifeguards-making...
The idiots raised taxes last time and every other time before that. The revenue keeps going down. I bet that you cannot find a UHaul to leave the state.
Arnold wasn't that bad. He tried to reign in some crazy state salaries n' shit through referendums, and the voters slit their own throats by voting them all down, and borrowed massively instead. Now they can reap what they have sown. I have a vision of IOU's once again in Cali's future.
He also tried to take on the almighty prison guards' union but they ran a scaremongering campaign and got the voters to send their pot-smoking children away to be assfucked (for their own protection, of course).
The dispensaries were promising but they have sold out. They are now lobbying against legalization. Full legalization, plus a 10th Amendment clause to keep the Feds away, will be the best way to break the power of the cartels and the prison-industrial complex. Don't expect it to happen until the state is in total collapse.
His hummer was enough as a statement for california
Governor Moonbeam and the whole state of Mexifornia is way spaced on bad acid right now and coming down from that trip is going to be one hard freaking ride.
“From the mid-1980s to 2005, California's population grew by 10 million, while Medicaid recipients soared by seven million; tax filers paying income taxes rose by just 150,000; and the prison population swelled by 115,000.”
http://online.wsj.com/article/SB10001424052702304537904577277242682364690.html?mod=googlenews_wsj
If there are all these Islamic terrorists trying to blow up Amerika...
Then it makes you and 5 million illegal Mexicans wonder...
Why hasn't the US government every closed that sieve of a border?????????
Cuz most of them are legel now and they vote.
On Drudge tonight:
“Shortfall in California’s Budget Swells to $16 Billion”
-“We are now facing a $16 billion hole, not the $9 billion we thought in January,” Mr. Brown said..
he urged viewers to back an initiative he is putting on the November ballot that would increase sales taxes by 0.25 percent and impose an income tax surcharge on wealthy Californians to try to stave off more cuts.”
-Maybe Mr. Brown needs a little French vacation to consult with Monsieur Hollande on soaking the rich.