Is there any way prices can appreciate from here?

NEW -> Contingent Buyer Assistance Program
<strong><a href="http://www.federalreserve.gov/boarddocs/hh/2007/february/testimony.htm">Testimony of Chairman Ben S. Bernanke</a>


<em>Semiannual Monetary Policy Report to the Congress</em>


Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate


February 14, 2007





</strong><em>" The risks to this outlook are significant. To the downside, the ultimate extent of the housing market correction is difficult to forecast and may prove greater than we anticipate. Similarly, spillover effects from developments in the housing market onto consumer spending and employment in housing-related industries may be more pronounced than expected. "</em>





Not the most bullish statement I have heard from the FED.
 
<p>Truely amazing numbers. We still lag San Diego by quite a bit, but Riverside looks like it really turned on a dime. It's gonna be bloody out there. My Mom lives in Perris, and they are building new 350K homes all around her. She talks to her neighboors, and they all make less than 40K per year per household.</p>

<p>People in Riverside making 40K buying 350K houses. People in OC making 80K buying 600K houses. Come on! How did they think this was gonna end?</p>
 
<p>I discovered another study from PMI Mortgage Insurance Company which talks about price appreciation and affordability. I think it makes for a fascinating reading... The tables on pages 4-5 are best read printed out in color or "side by side" in Adobe Acrobat Read it <a href="http://media.corporate-ir.net/media_files/irol/63/63356/Winter2007ERET.pdf">here</a>.</p>
 
IrvineRenter, in your opinion, why is San Diego ahead in price adjustment and foreclosure? How much ahead are they compare to OC?
 
Red,





I lived in San Diego in 2000-2002. They were about 1 year ahead of Orange County on the way up, and they seem to be leading the charge on the way down by 1 year as well.





I really don't know why they led the charge on the way up. They may have simply caught on to the whole sub-prime lending idea first. Someone has to blaze the trail.





However, I would speculate they are leading on the way down simply because the market there has had 1 more year to ripen. All the of the conditions that are going to take down the OC market already exist in San Diego and have existed for 1 additional year. I don't see any difference between the two markets structurally that would lead one to believe that San Diego's market would crash while OC's market will remain strong. Affordability is at an all-time low in both markets, and fewer buyers are willing to pay the higher prices. Depending on how quickly credit tightens, you might see more of a dead-cat bounce there, but with the tsunami of foreclosures coming, I don't see prices entering a phase of sustained appreciation.





Check out this article:


<a href="http://www.latimes.com/business/la-ex-homes14feb15,0,1150841.story?coll=la-home-headlines">January home sales weak, but prices go up</a>

"That is already the situation in San Diego and Ventura counties. Last month, San Diego's median price fell 5.6% to $472,000 and Ventura's dropped 6.5% to $565,000.





San Diego in particular is viewed as a housing trend-setter, because it was the first Southern California county to experience double-digit price appreciation at the start of the housing boom. As prices soften there, many expect the rest of the region to follow.





"We will see a price peak and we will see prices come off that peak," said John Karevoll, DataQuick's chief analyst. "It just hasn't done that yet.""
 
<a href="http://piggington.com/guest_commentary_ramsey_on_foreclosure_impact"><strong>Foreclosures, Real Estate Financing, and Their Impact to the Real Estate Market</strong></a>





This is a somewhat long but excellent piece written by a realtor who specializes in foreclosures.





Some excerpts:







The up cycle: lower interest rate creates demand, prices go up, more homes get built, easy financing creates more demand, prices go up more, investors/flippers create more demand, prices go up more, more homes get built, easy financing allows previously unqualified buyers to own homes creating more demand, prices go up more, more homes get built. This cycle ended in 2005, and was confirmed in 2006.

The down cycle: the “must sell” properties will lower prices to sell their units, lower prices will depress overall prices making it more difficult for those facing recast to refinance or otherwise work out their financial woes, creating more foreclosures, more foreclosures add to the inventory, creating more price competition and further tightening of underwriting standards. How vicious this cycle will be is anyone’s guess now.

>

<p><strong> Conclusion </strong></p>

<p> Time has always been kind to owners of real estate as long as they can hold indefinitely. Homeowners who live in the same house and service the same fixed rate mortgage using income from the same jobs can hold indefinitely. To them, the house is a home, a shelter. The utility of the home does not change with the value. The credit bubble has created circumstances for some homeowners that even if they remain employed and live in the same house, their debt service may rise beyond their ability to pay. Furthermore, the size of this credit bubble could trigger systemic failure, far beyond the S&L fiasco of the late 1980s. </p>

<p> 2007 will be the year that we find out how strong the US consumers really are. We know with certainty that the builders have too much inventory in both land and specs. We know defaults are escalating and REOs from foreclosures completed a few months ago are just starting to show up as inventory. Without the fuel from the credit bubble, absorbing the estimated 1 million to 1.5 million units of excess inventory is going to be challenging. </p>

<p> I opine that the biggest danger lies in the complacency exhibited by economists, market participants and regulators. It is not whether they are optimistic or pessimistic; it is quite obvious that many have not given the widely available data much thought before jumping to their respective conclusions. </p>

<p> Does anyone have a plan in the event of a hard landing? </p>
 
Graphs of foreclosures:





<img src="http://bp3.blogger.com/_POODYyn-wc0/RdNiYpSMAvI/AAAAAAAAAEM/HEYT4rgSjiw/s400/Socal+Foreclosures.jpg" alt="Southern California Foreclosures" />





<img alt="Foreclosure Graph" src="http://www.voiceofsandiego.org/storyart/dec06defaults.jpg" />





Not trending in a direction indicative of rising prices.
 
<p>Wow! Not a good sign.... </p>

<p>At least my evil plan to buy up property once the prices go down is coming together, but its going to take a few years...</p>

<p>-bix</p>
 
<p>Slightly off topic: I have found what I think is the holy grail of links to Real Estate news and articles (other than blogs and forums) on the web. The website is SeeklingAlpha.com and the topical coverage of RE is <a href="http://usmarket.seekingalpha.com/by/type/housing">here</a>. Bookmark it and check it daily! I like to read the posts compiled by Judy Weil, under the topic that is recurring on a daily basis called "Housing Bubble and Real Estate Market Tracker".</p>

<p><a href="http://usmarket.seekingalpha.com/by/type/housing">http://usmarket.seekingalpha.com/by/type/housing</a></p>
 
<p>I wonder how the short term housing market is doing... Hmm, maybe I'll read the latest article from Money...</p>

<p><a href="http://money.cnn.com/2007/02/15/real_estate/home_prices/index.htm?postversion=2007021518">http://money.cnn.com/2007/02/15/real_estate/home_prices/index.htm?postversion=2007021518</a></p>

<p> </p>
 
<p>crucialtaunt,</p>

<p>I've been reading SeekingAlpha for months -- great site. The best columnist is Barry Ritholtz, <a href="http://seekingalpha.com/by/author/barry-ritholtz">http://seekingalpha.com/by/author/barry-ritholtz</a>. His columns on housing are insightful and he agressively attacks the spin spewed by industry types. For example, see <a href="http://usmarket.seekingalpha.com/article/25511">http://usmarket.seekingalpha.com/article/25511</a>. He hangs David Lereah with his own words. Enjoy.</p>
 
<p><strong>Updated! - 2/20/2007, 12:56 pm - The survey has closed.</strong></p>

<p><strong>There were 53 visits and 37 completes.</strong></p>

<p>The <strong>final</strong> survey results are in! There were a big whoppin' <strong><u>37</u> responses</strong> (THANKS!!) so this not a big enough data set to base anything! But here is goes anyway... There were three questions on the survey:</p>

<p><em>1. Please state the approximate range of your <strong>liquid net worth</strong> in taxable accounts or trusts (i.e. outside of retirement accounts such as IRAs/401(k)/Roth-IRAs, outside of children's education funds such as 529's etc., and any qualified medical reimbursement accounts such as HSA etc.).</em></p>

<p><strong>28% - less than $100,000</strong></p>

<p><strong>36% - $100,000 to $250,000</strong></p>

<p><strong>33% - over $250,000</strong></p>

<p><strong>3% - Other: $3.2 M 1031 trust, savings</strong></p>

<p><em>2. If you were to purchase a house in the near future, what would be the <strong>approximate value of your down payment</strong>?</em></p>

<p><strong>22% - less than $50,000</strong></p>

<p><strong>11% - More than $50,000, but less than $100,000</strong></p>

<p><strong>25% - More than $100,000, but less than $150,000</strong></p>

<p><strong>6% - More than $150,000, but less than $250,000</strong></p>

<p><strong>31% - More than $250,000</strong></p>

<p>6% - Other i.e. (1) "The diff betw price and a $500,000 mortgage" and (2) "dependent upon house, looking for payment"</p>

<p> <em>3. With your down payment in mind, what is the <strong>range of house values that you would consider purchasing</strong>?</em></p>

<p><strong>19% - None, I am a bubble sitter</strong></p>

<p><strong>8% - $450,001 - $550,000</strong></p>

<p><strong>16% - $550,001 - $650,000</strong></p>

<p><strong>11% - $650,001 - $750,000</strong></p>

<p><strong>24% - $750,001 and above</strong></p>

<p><strong>3% - Other: "1mil -> 2mil"</strong><strong></strong></p>
 
I wanted to say I really appreciate all the very informative blogs on this post. As I have just recently moved to the O.C. I find some of the rationalization that certain folks come up with in buying a house a complete 180 from what we have always been accustomed to in the Midwest, that is 20% down, your mortgage should never make up more than 60% of your total income, and oh yeah I/O Loans are for very, lack of better words, "desperate ppl."





With that said I ask these questions:





1) No one ever talks about paying yourself first? Even if you have a $3200.00 / month mortgage and you only clear $4200.00 you only have $1000.00 for yourself and a "rainy day acct."





2) Please explain to me why you can "net" out taxes from your mortgage payment? Yes you receive a portion of that money back but at the end of the day you have to be able to make a mortgage payment regardless of what you get back from the IRS.





3) As for the survey, ppl that have liquid assets of over $100K, I would like to suggest we add another question and what portion of those assets are tied up in Real Estate?





Also, I was wondering has anybody looked at job growth / job creation in O.C.? What is a good site to find out about those things as I think it has a much bigger impact on future housing developments then ARMs expiring or builders offering great incentives.
 
The survey is a good start... I wish questions 1 and 2 had more answers (for numbers higher than 250k) though.





Looks like at least 2/3rds of the people who responded has at least $100k in cash. I'm also curious about where everyone parks their cash? That'd be a good survey question too. Hopefully not "whatever jim cramer recommended" on Mad Money. LoL.








mino2126:


I think maybe some people can take additional deductions (tax withholding) so they can access the $ earlier?
 
mino2126 - welcome to the O.C.





In California, you can choose to pay property tax twice a year instead of monthly, and thus you can use the IRS check from previous year to pay the bills.





So you still have to account for mortgage and HOAs in your monrhtly budget but can rely on your tax deduction to cover property tax.





I/O loan can be useful if your income varies and lately it has become more popular for affordability reason. I think it is fine as long as you use a longer term rate (7/1 or 10/1) and have some downpayment. You can pay principle in the months which you have extra money. In a way it is like renting but with I/O loan you can have a fixed payment for the next 10 year, and refinance when it makes sense - hopefully before your rate reset.
 
<p>After the fact suggestions:</p>

<p><strong>1.</strong> Total Liquid assets (non-retirement monies available for purchase); <strong>2.</strong> Transferable equity (monies immediately available from sale of [existing home/investment] property); <strong>3.</strong> Monthly Gross Houshold Income (pre-tax, pre-retirement contributions); <strong>4.</strong> Monthly Net Household Income (post tax and retirement contributions); <strong>5.</strong> Desired Home Price Range (eg 500-750, 750-1 mil, 1 mil +); <strong>6.</strong> Years in present position of employment; <strong>7.</strong> Percentages of #1 & #2 (above) intended for utilzation in new home purchase.</p>

<p>I believe that these questions would help demonstrate when people are being reasonable/rational or as mino2126 coins as "deperate ppl" or if the buying population is more prone to contribute to existing economic weaknesses.</p>

<p>PS - how did I miss the survey? Its not like I'm actually working at work... I'm surfing blogs constantly...</p>
 
Red good point about how you can leverage an I/O loan to take advantage of months when you have more money than other months to pay down the principle. Also, correct me if I am wrong, you should have a bigger tax deduction at the end of the yr that you can apply to principle. I have actually considered this as I have looked into buying a house as of late and I think it is feasible for a very limited number of ppl.





From all the articles I have read as of late the amount that working ppl in the US save and put into their savings acct is at an all time LOW. I don't see very many ppl taking advantage of those lower payments to pay down principle when they have the funds available....maybe a new BMW thought...j/k.
 
<p>Good suggestions coming in from everyone - I will keep an eye out for these questions over the next day or so and draft a new survey sometime this week.</p>

<p>I already have a new one in the hopper about people's expectations of the Irvine housing market. I might start a separate 'survey thread' so it's not cluttered up in between these posts...</p>
 
For property tax, I prefer to setup escrow account with lender and pay monthly. My lender will make the 2 annual payments to county. I don't take additional deductions, so I get a fat tax rebate check and use that to make extra payment, so I can pay off the loan in 22 years instead of 30.





I think if we're going to do the survey again in the future, maybe we should add a question "what type of loan product will you use?"





My preference is 15 or 30 year fixed. I don't like ARM or interest-only loans, but others like them.
 
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