How low can we go? 30 yr fixed at 3.75% with no fees...

[Liar Loan]

LL, tell me how me buying my new Irvine home is a mistake when:

1. I'm exchanging my Eastvale home for the Irvine home.
2. My wife wants a NEW home in Portola Springs. Will I find one in 1 or 2 years when the price stops dropping?

Like IHO said, when buying a home, you need to consider affordability, location and desired features. All three checked out for us. And then there's also availability. How is that a mistake?

Did I misread when you said your budget was 900k-1M, but you stretched to pay 1.7M?  Not overpaying also matters in more ways than one.

If the ups and downs of Irvine prices really didn't bother you, then my posts wouldn't bother you either.  It would be neutral information to you.

 

[Liar Loan]

So why do I care about my home price? In fact, if it does drop 20%, then I'm going to pay less property tax.

Yep...Losing $340k in order to pay less property tax sounds like a brilliant strategy.  Good math too.

You do realize it would be a paper loss and he would be using the home as a necessary commodity (i.e. a home to live in) so unless he needs to sell right away it doesn't matter what prices do in the short term. 

The crypto investors that are down 50-80% have also experienced paper losses of a "necessary" commodity.  In reality, their losses are very real and have a real world impact. 

They can no longer borrow against their holdings, their savings and net worth are decimated, and if they need to sell it's going to take a long time before they can write off their losses, which you as a CPA well know.  What is the rule on writing off losses on a principal residence again? 

Everybody thinks they are a long time owner and will never sell at a loss, but life has a way of punching people in the face and changing their plans.  There are almost too many people to count that were forced to sell at a loss only a dozen years ago.  Same deal in the 90's.

Any way you slice it, buying at the peak of a market cycle is a bad idea.  You will be paying higher taxes and financing costs on a depreciating asset that you could have gotten cheaper if you had only been a little more patient.

Comparing crypto to a primary residence is an apples to orange comparison.  One is a speculative investment while the other is mainly a commodity and housing prices are much less volatile than crypto prices.

Ah, but I wasn't comparing crypto to housing, just using it as an illustration to make the point:  Losing money on paper has real world impacts. 

When CalBears and I purchased our "commodity" homes near the '05-'06 peak, it eventually forced us into becoming involuntary landlords.  That in turn affected our ability to buy move up homes because our DTI's were negatively impacted by having rentals that, in the best-case scenario, were break even.  In my case, it prevented me from loading up on investment properties until my balance sheet was sufficiently repaired.  I would have loved to have bought more properties from 2009-2011, but it wasn't until 2014 that I was in good enough shape to do so.  All because I purchased one property at the wrong time.

I've already recounted the huge pain it was appealing my property taxes year after year.  Thankfully, I was able to get a very good set of renters that stayed in my "involuntary" rental for seven years.  They saved me a bundle by keeping my repair and turnover costs lower, and always paying on time.  It sounds like CalBears' landlording experience wasn't as smooth as mine was.

CalBears and I have similar home buying histories, but there is a major difference between us because I learned the hard way that timing is probably the most important thing when buying real estate.  CalBears is set to repeat the same mistake as last time.

Calling real estate lower volatility than crypto is correct, but that doesn't mean real estate is a low volatility asset.  Anything that moves up or down by more than 20% per year is, by definition, high volatility.

AH HA! SO YOU bought at the peak and weren't able to buy more because of it. Dissing me because I bought at a peak (not 2007. I was in a house nearly paid off by then) but in fact my peak house didn't prevent me from buying another. Nope, in fact not only did I pay that one off in full before renting it out, I bought ANOTHER one in Irvine. This was before I bought the big "forever" home in Irvine.

I WANTED to sell at the top and buy at the bottom but hubby wanted to stay. Did it hurt us? NOPE, not one dang bit. Sat in my nice big Irvine house on a big lot with my four car garage.

AND so after that, you go on and on about how bad a move I'm making. LOL! I sold high and if I bought high as well, who the hell even cares? I took out a whole lot of money. If things go down, they go down a whole lot less for me and my property taxes ain't gonna hurt me one bit cuz in the land of snakes they aren't figured the way they are here and just because houses go up a lot don't mean property taxes are going to there, ESPECIALLY for areas that have lots of new builds contributing to the tax base.

So it finally comes out. I wondered why the hell u r always so bitter.

I bought at the peak in 2006, then near the bottom again in 2010.  Guess which one I liked better?  The only pain I suffered was the unfortunate reality of not being able to buy investment properties until 2014/15.  It would have been great to scoop up more real estate in 2011, but the negative impact of the 2006 purchase on my DTI prevented that.  (Granted, I could have partnered with others, but I didn't want to.)

I've never "dissed" you.  To the contrary, I've given you mad props for your story of humble beginnings and I've also complimented your daughter for her savvy real estate moves.

 

[CalBears96]

LL, tell me how me buying my new Irvine home is a mistake when:

1. I'm exchanging my Eastvale home for the Irvine home.
2. My wife wants a NEW home in Portola Springs. Will I find one in 1 or 2 years when the price stops dropping?

Like IHO said, when buying a home, you need to consider affordability, location and desired features. All three checked out for us. And then there's also availability. How is that a mistake?

Did I misread when you said your budget was 900k-1M, but you stretched to pay 1.7M?  Not overpaying also matters in more ways than one.

If the ups and downs of Irvine prices really didn't bother you, then my posts wouldn't bother you either.  It would be neutral information to you.

I said we initially set a budget for $900k, but that's because we didn't know what the housing market in OC, or Irvine specifically, was like. After we checked out Serrano Summit, we realized that our initial budget would not do. So once we realized what the OC market is like, we CALIBRATED our budget, NOT stretched. We bought the home for $1.55M, and we added $135k of upgrades, so the final price is $1.685M.

Was it expensive? Sure. Did we overpay? Maybe, maybe not. Was it worth it? Hell yeah!

I'll say it again. Your posts don't bother me. Your ATTITUDE bothers me.

 

[irvinehomeowner]

I've never "dissed" you.  To the contrary, I've given you mad props for your story of humble beginnings and I've also complimented your daughter for her savvy real estate moves.

Backhanded compliments.

You even started an Arizona thread to make an example of her decision to buy there until she told you that she wasn't even buying in the places your links/charts were using.

#stealthtrolling

 

[Liar Loan]

I've never "dissed" you.  To the contrary, I've given you mad props for your story of humble beginnings and I've also complimented your daughter for her savvy real estate moves.

Backhanded compliments.

You even started an Arizona thread to make an example of her decision to buy there until she told you that she wasn't even buying in the places your links/charts were using.

#stealthtrolling

The Arizona thread was started because we were already discussing the market there, but it was off topic for the thread where the conversation started.  Providing information about the Arizona bubble isn't making an example.  I also discuss the bubbles in crypto, bonds, and collectibles.  It's her choice what to do with that information, but most people are appreciative when others help them avoid losing money.

I guess much like awgee when I pointed out the bubble in gold back in 2011, some people get mad when you tell them their convictions are wrong.  He rode his convictions all the way down to the bottom and then quit posting on these forums after that.

 

[Liar Loan]

Purchase applications are down to late-2018 levels, which is the last time rates were at 5%.

 

[irvinehomeowner]

I've never "dissed" you.  To the contrary, I've given you mad props for your story of humble beginnings and I've also complimented your daughter for her savvy real estate moves.

Backhanded compliments.

You even started an Arizona thread to make an example of her decision to buy there until she told you that she wasn't even buying in the places your links/charts were using.

#stealthtrolling

The Arizona thread was started because we were already discussing the market there, but it was off topic for the thread where the conversation started.  Providing information about the Arizona bubble isn't making an example.  I also discuss the bubbles in crypto, bonds, and collectibles.  It's her choice what to do with that information, but most people are appreciative when others help them avoid losing money.

Denial modus operandi.

 

[Liar Loan]

Despite the false claim by CalBears that rates don't matter to home purchasers, the purchase index is now down to 2016 levels.

And the refinance index is at it's lowest in 22 years!!

 

[Liar Loan]

Purchase applications are down 40% from the recent peak!!

 

[irvinehomeowner]

 

[irvinebullhousing]

LL, The ORACLE of Irvine. 

I hope he sent that check out my charity of choice is CHOC and St. Jude.

Post the paid check here instead of useless charts will be much more appreciated.

Thanks for the donations.

 

[sgip]

Yes, it's bad out there already, and with today's inflation report reaction it's tougher still. Example - I priced an Agency (strike 1), Non-Owner (strike 2), cash out (strike 3) refinance 30 year fixed rate with a 7 handle last week. Spicy!

In late 2021 I told my Realtor contacts that this mortgage market was a repeat of 2006-2007* and that this rate cycle will see a conforming loan rate in the low 7's. You could see the blood draining from their faces during those conversations. Might we see an 8 handle anytime soon? Who knows! With $6.00 gas, why wouldn't we expect 6.00 percent interest rates?

Hedge accordingly.

* 2006/2007 saw many lenders pull back their traditional mortgage options. Loan Buybacks were just beginning at that time. In rushed HELOC and "Alt-A" lending that while insanely profitable, it was like giving a pre-lit stick of dynamite to a toddler. We all know how that worked out. Today, HELOC's and "Non-QM" lending are all the rage. These loans are insanely profitable and keep the phones ringing for many mortgage bankers. The end result will still be the same. We should see a 2008-2009 repeat of housing problems in 2023-2024, although given we're now living in a consequence free America, the government will likely float non-paying renters or homeowners some kind of relief program.  This is experienced based opinion and not certain fact. Only time will tell.

 

[OCtoSV]

SGIP - thank you for sharing these deep industry insights. The vast majority of analysts I hear on my morning Bloomberg Surveillance pound the table that Powell's primary mission is to kill housing market inflation, and a 7 handle would do that. even if inventory doesn't balloon the buyer pool will be reduced by 90+% - which will induce massive price deflation. We will see higher gas prices until a Republican is elected POTUS, and TSMC and Samsung both have huge capacity crunches at the most advanced nodes which means huge inflation for semiconductors, where 100% PPV rates are routine now.

As always though jobs are the first order variable. Now that remote work is being phased out who are the key employers in OC and what are their outlooks and exposure to inflationary factors?

 

[irvinehomeowner]

Thanks SGIP. I always appreciate your real loan industry posts.

With lending guidelines more stringent than 06/07... does that make a difference? Or I we going to see more relaxed lending make a comeback. I already hear ads on the radio for companies loaning out to no doc/low doc/self-employed situations.

 

[Liar Loan]

LL, The ORACLE of Irvine. 

I hope he sent that check out my charity of choice is CHOC and St. Jude.

Post the paid check here instead of useless charts will be much more appreciated.

Thanks for the donations.

I like your style CV.  I was actually a patient at CHOC when I was small boy, so I would gladly donate to them. 

Keep the economic insights coming because there are still a lot of people here living in fairly tale land about what is really happening.

 

[Liar Loan]

Rates shot up over 1/4 percent today.  How soon until we hit 6%?

 

[morekaos]

Thank god. Just closed a 3% cash our refi with our credit union.  Checked this morning and same loan is at 3 5/8%.  Locked just before the rates Started to rise.  With inflation and tax benefits we are being paid to live on the water.

Wow, that same loan is now at 4 1/8 at the credit union....life is good!!

Now I?m bragging IHO!.. ;D ;D

 

[usctrojancpa]

Thank god. Just closed a 3% cash our refi with our credit union.  Checked this morning and same loan is at 3 5/8%.  Locked just before the rates Started to rise.  With inflation and tax benefits we are being paid to live on the water.

Wow, that same loan is now at 4 1/8 at the credit union....life is good!!

Now I?m bragging IHO!.. ;D ;D

And I was still about to lock in an interest rate of 3.875% for a 10 year ARM in late April on my purchase.

 

[CalBears96]

Thank god. Just closed a 3% cash our refi with our credit union.  Checked this morning and same loan is at 3 5/8%.  Locked just before the rates Started to rise.  With inflation and tax benefits we are being paid to live on the water.

Wow, that same loan is now at 4 1/8 at the credit union....life is good!!

Now I?m bragging IHO!.. ;D ;D

And I was still about to lock in an interest rate of 3.875% for a 10 year ARM in late April on my purchase.

I'm glad I was able to lock back in March at 2.875% for 30 year fixed before mortgage rates jumped.

 

[sgip]

@OCtoSV - It's not a 7% rate that will crush housing. It's everyone locked in at 2x who will NEVER sell unless at the tip of a bayonet that continues to be the issue. We can't build ourselves out of this. Prices won't fall far enough (at least in Irvine) for a genuine affordable home price materializes. What remedy is a 7, 8, or 11 percent rate when it doesn't create the inventory needed? Prices will come down, but so much loose cash swashing around will mean investors and own to rent corporations will simply grab whatever comes to market. People bought homes when rates were very high relative to annual income (1978-1990) because prices were moderate. I'm thinking the Fed wants to kill the casino that stonks have become more than to impact the housing market - but that's for another thread.

We have too many FIRE employees, just like the last recession, so expect these sectors to suffer dearly. We're also running out of shiny new gadgets and sustainable tech innovations that have been keeping American's entertained with. When the next iPhone rolls out with minimal WOW other than it's $1,500 price tag, IMHO we've reached peak tech. One shouldn't wonder why Apple is talking subscription methods rather than ownership for their devices. Tech is not an unstoppable job creator - look at aerospace and defense employment, long thought to be a never ending growth and employment sector that collapsed in the 1990's recession. I'd expect tech companies to begin to scale back their workforce. Many are starting already.

@IrvineHomeowner - lending guidelines after the 2008-2011 recession were tight, but since around 2013 on, lending guidelines are now pretty loose. Yes, paperwork has mushroomed to the point where an Underwriter will ask for a borrower to document a $1.00 deposit on a bank statement (Yes, I've seen that happen) BUT they will still approve your loan with a 49.99 debt to income ratio! Dear reader - stare at your 2022 W-2 when you get a chance. Divide the gross income by 12, then by 2. Now look at your own net check. Imagine being allowed to spend 50% of your Gross Income off of that net check amount! YIKES!! That's a pretty wide latitude to accept as a reasonable risk decisioned mortgage.

Example: A $120k W2 gross is $10k per month and 50% is of course $5,000. A $10k per month income is about a $6,800 or so net check. This leaves after the house payment, utilities, and food a razor thin margin with no room for error. There have been plenty of Irvine area mortgages underwritten just like this putting many at risk of being 3-4 pay checks away from a notice of default.

At least this go around much of the wacky "No Ratio/No Income/No verif" lending has been off loaded to the private sector. Hedge Funds for the most part are the money sources behind the Non-QM lending not FNMA/FHLMC, Wells, Chase, BofA, or Citi as it was during the lasts crash. There still is terrific risk because many hedge funds are linked to companies with banking connections (Goldman Sachs for example) When the Hedgies begin to swirl in the bowl for their bad lending mistakes, they may pull a few brand named turds down the drain at the same time.

Bottom line - relaxed lending has been here for almost a decade. Those seeds sown during that time are now beginning to sprout and will bloom shortly during a high inflation environment.

It will be something to see how this is going to be handled as there isn't much room down the road to kick that can any further.

My .02c