The Real Estate Research Council of Southern California has a unique way of studying local home pricing — every six months they send out volunteer appraisers to reevaluate the exact home homes they’ve tracked for 22 years.
This math tries to ignore the statistical noise of the constantly shifting mix of sold products or the recent overabundance of cheaper, foreclosed homes in the collection of homes sold. The latest RERCSC report reaffirms the glum news that we’ve been hearing:
- In the year ended in October, O.C. home values fell by 18.1% — largest annual loss in the study’s history. (That’s the RERCSC O.C. index in the accompanying chart. Click on it for bigger version) It was the fourth straight annual decline dating to April 2007.
- By appraiser math, local house values are 24% off their October 2006 peak. DataQuick, as a comparison, has home values 35% off a June 2007 peak.
- Also by this math, prices are back at April 2004 levels. DataQuick’s median is back at June 2003 pricing.
- A bit of good news: In the six months ended in October, RERCSC sees O.C. home values down 6% — loosely half of the 12.8% six-month loss recorded in April. This is also the fourth consecutive loss for this six-month measure.
- RERCSC’s largest annualized loss was in northern O.C. at 21.6%, followed by 19.6% in central O.C. and 14.6% in southern/beach towns.
- In northern O.C., the best price performance of the 13 sampled homes was a 14% drop in a year for the value a 3-bed, 2.5-bath home in Fullerton. Worst? -20% for 3-bed, 2-bath in Anaheim.
- In central O.C., best of 9 sampled was a 4-bed, 2-bath home in Fountain Valley down 9% in the year. Worst? Santa Ana 3-bed and a bath that’s off 32%.
- In southern/beach cities, the best price performance of the 17 sampled was a 4-bed, 3-bath in Laguna Niguel, off 3 percent in a year. Worst? Down 28% for a 3-bed, 1.75-bath house in Costa Mesa.
- Across the region, 7-county SoCal area saw price fall 10.9% in six months ended in October, that made for a 20.9% drop in the year.
Here are a few noteworthy O.C. business stories you may have missed …
- Split decision on housing’s bottom may be correct
- Local Realtors name 2009 officers
- O.C. housing will level off in 2010, Insider Q&A told
- 90% of O.C. ZIPs lack home gains in mid-Nov.
- Calif. crushed under mountain for unemployment claims
- Kellogg saves Mother’s Cookies
- Priciest Surf City condo has lots of sand — for $1.7 mill
- Office gift exchanges yield weird presents
- Ritz-Carlton Laguna Niguel offers ‘Beach Bailout’ special
- 90% of O.C. ZIPs lack home gains in mid-Nov.
- Dec. job report: 19 stores, restaurants hiring
- Broadcom axes exec who never graduated from UCI
- Judge in billionaire’s case will unseal documents
- O.C. subcontractor cuts 60% of workforce, closes office
- 1st home ($20 million+) hits O.C. seaside project
- New five-diamond golf resort is ultimate in indulgence
- Bankruptcy sought for ocean-view homes in San Clemente
- Crystal Cove homesellers stubborn on pricing
- Slice of Nixon’s Western White House? Only $15 million
Homeowners,
Obama wants to help the homeowners in a more direct way to bringdown the foreclosures.
Dont sell your home atleast until next summer.
After that prices would have stabilized that there will be no need for you to sell. Who knows, they may even start appreciating.
The bloggers here are upset because they could not buy a home. From next summer, they will have nothing to write on this topic.
Own_home just shows us that we have still not won the war against crack and drugs. Only some crackhead would say something like this.
I really think we are close to the bottom in California, when you consider all the aid, from Citigroup and others. In addition to Citi, Fannie Mae, The federal gov’t FHA, many states, JPMorgan Chase, Wachovia, and Bank of America/Countrywide have committed to helping over 2 million homeowners between them keep their homes. I found more info on the programs here.
http://www.needhelppayingbills.com/html/help_with_mortgage.html
own_home can’t think clearly because he already owns a home and has lost perspective with how difficult it really is to buy an overpriced OC home. He thinks everyone is walking around burning their excessive piles of money. He thinks that 400,000 is cheap. He thinks that the economy is really gonna turn around, afterall there’s really not much wrong with it in the first place. He thinks thinks this constant downward spiral of home values will stabalize since he thinks there’s so many great fundamentals to support that theory. I’m not sure what those fundamentals are….
from my guestimates of this chart, which looks somewhat like most other index charts, we’re still ~2x the height of the last bubble/boom.
looking back at history, the last bubble/boom was the highest EVER.
http://photos1.blogger.com/blogger/6089/1833/1600/shiller.gif
good to see things are affordable now! oh wait…
I’ll trade you 25 Chevy Suburbans for your house, or 23 GMC Denali’s ..any takers..
tom and mick,
do both of you know how many zeros are there in one billion?
If obama targets a fraction of his new stimulus amount, to homeowners (both of you are not eligible for this), it will reduce the foreclosures
dafpx, your graph is 2006 one. update it with all the bailouts.
Hey Lanser, the freeway is closed down to one lane right now, 433,000 cars got taken off a few miles back (worst wreck since 74) and the repair crew has been workin’ on it 24×7 since the accident (when a Daniel Sadek drove his Quick Loan Funding into a casino marker at The Wynn and his Enso into a wall), but the triage guys are starting to drop and are muttering something about maybe only getting two lanes open until Volcker and his relief crew can get on the scene. So right now, people aren’t too concerned about what’s going on with all the scenery (house prices) –they’re mainly looking for an alternate route –but when they can hit the gas again, just know they are going to start pop’n like it’s September 2008 baby. And on that note…
http://www.youtube.com/watch?v=ctPZ0-Y3wA8&fmt=22
PS: Yes, I admit it. I did go to a California Public School. You can sort of tell I know what’s going on, but it all comes out oh so messed up sometimes…
what goes down must come up
Sorry man, that should be LansNer and EnZo…after that HD mind scrambling video I am lucky to be able to spell my three letter name, lol.
tom turkey,
did you take any drugs or what?
what you are writing is not related to the topic
relax for a while
own_home,
$1B are you kidding me?
do you know how many OC median homes you buy
with $1B?
about 2000
Billions of dollars, doesn’t do jack squat…… that’s like trying to pay for your groceries with the pennies in the jar, give a penny, take a penny
you can’t print enough money to solve the problem
in fact all the money that is printed is being destroyed
instantly, covering bad bets to mitigate losses and aid capital requirements……….. homes were leveraged at absurd ratios, and then those loans were leveraged…. it’s ball game….
How do we stop the systematic decline in real estate values?
Answer: You Don’t! That’s why you don’t allow people and co’s with huge authority and influence (Alan Greenspan & Credit Rating Agencies), to operate unchecked.
The RE picture looks pretty bleak…….But not as bleak as the renters’ prospects at buying a home in OC. Every time a reasonable estimate shows up that doesn’t fit their scorched earth dreams of buying a split level 3000 sq ft home in the burbs for 2X their annual $40k salary, they get very agitated. The thought of having to get married in order to afford a condo in the IE is a hard pill to swallow. But hey, a renters gotta do what a renters gotta do!! They may try day-trading, doomsday blogging, cut and paste logic, or whining, but in the back of their minds, doubts linger……….
own_home, it’s called an analogy. we’ll give you the benefit that we caught you skim-reading, lol.
i would like more home owners to write in this blog, so that the renters are well informed
Dear own_home:
As a homeowner, I have lost $200K in savings through equity losses in my home. I’m hoping you can pump enough to turn it around.
One billion dollars is equal to 2,000 $500K mortgages or about two weeks’ worth of your crack consumption.
buy houses now!
at what price did you buy and what is its current value? in which month/year, did you buy the home?
do you grow any pot plants in the basement?
But not as bleak as the renters’ prospects at buying a home in OC
Only a complete idiot would make such an outlandish comment. But what should we expect, you’ve been wrong the entire time.
In the meantime, I pay my rent and watch the firework show.
“Obama promises not to smoke within the white house, Dow up 280″
regarding the graph in this post
i expect we will get back into the 1988 - 1991 index range on that curve
classic bubble
Per the US Comptroller of the Currency John C. Dugan, regarding loan modifications during the first quarter of 2008:
“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent”
These homes should just be placed back on the market, they will search and discover a buyer at the right price. More engineering, only causes more problems.
Lee, Can You give me the winning Lotto Numbers? LOL
Shock-
I cannot give you the winning numbers, but based on past performance, I can sure the hell get a lot closer than you or any other real estate permabull.
Here is San Clemente (Talega 92673), we went to a couple short-sales/REOs and the realtors are very excited about Obama’s new “aggressive plan to stop foreclosures” and the leak of the new low conforming rate going to 4.5%.
They all “predict” prices stopping from falling and actually going up (!!)during next year.
Sales here in Talega are about 40% lower than peak and inventories are down about 50%.
Around here the talk of bottom in RE is everywhere and buyers are starting to actually believe it. When a home comes on the market low enough (around 35-45% lower than peak), it creating multiple offers…and often sells above asking price. (!!!)
The rational buyer (I believe we are since we knew this was coming and sold our house here in December 2005)) knows to wait another couple years but the irrational market could change if the government intervenes in unprecedented ways buy reducing homeowners “principal” to accomodate their loan to current market values and reducing mortgage rates. Irrational buyers WILL bite the bullet and this is terrible news for us who are not looking at the “monthly payments” but the overall price of a house.
Thoughts?
As they say, past permformance is no guarantee of future performance.
own_home, you sound like you want to learn more about buying. I don’t want to make a long post, so what you need to know is that a lot of people bought homes in OC in the 1980s for under $200K and lived in them while the population and community infrastructure increased, causing their homes to appreciate over a million dollars, through no real effort of their own. Then came financial crooks who gave these middle class people access to hundreds of thousands of dollars in cash secured by that increased value, or equity, in their homes. None of these people had any business borrowing against that money because they could never pay it back without losing their home, so the financial crooks came up with schemes to make the payments artificially low (by effectively increasing the principal amount borrowed every month) in any number of schemes that virtually assured that the homeowner would be back every few years (if not months) to re-finance their home again (causing the financial crooks to take another $10K+ commission) and also depended on home prices always going up in value. The system that regulates the financial loans was looking for this kind of illegal behavior from the perspective of the financial crooks wanting to take the borrower’s house –not put the borrowers through multiple transactions over and over again, so they got away with it and it eventually caused the system to fail. The whole system is now suspended while the authorities sort everything out. (Over simplification!) So why did the borrowers have to keep borrowing over and over? Because with so much access to cash for the first time in their middle class lives, they began to feel wealthy and do foolish things with the loan proceeds, like buying $45K SUVs that are guaranteed to break after 3 years using money borrowed over 30 years. As they went from $200K to $500K to $800K to $1.1M in debt, they even started making the payments on their loans with the proceeds of their loans. They changed socially too, to the point where they felt rich and even though their incomes only support $200K 30-year fixed (on a normal 5x multiple), they began to talk about OC’s elite renters (who are on the curb if they don’t cough up their $1700-$2300/month, which is, guess what, about the monthly payment on a $200K home over 30-years) as if they were illegal aliens or sub-humans. Class warfare between real people and credit people. So my point is that you don’t really want ‘more home home owners to write in this blog, so that the renters are well informed’ because too many of the home owners in the area have a sickness and are very angry/frustrated and in their mental state where they now owe hundreds of thousands more than their home is worth and can no longer keep refinancing to make the payments and have only their irrational feeling of superiority over renters to cling on to and vent out here on LansNer’s blog. Meanwhile, the renters, who justifiably feel disrespected just because they are too young to have saved money or were too wise to go for the crooked financial schemes, are on here too firing back. Throw in some real estate industry people trying to manipulate public opinion and Whew! Mouthful. Larry King has got to do a show on this blog, lol.
Anyway, there are a few good people on here and when I see home owners or renters looking for help, I try to drop good stuff on them. For example, a year or so ago I was pushing home owners who would cry out for help here to stop listening to the bad folks and just go get a lawyer and sue the the crooked financial companies to force what today they everyone calls a ‘mortgage workout’. If you’re losing your job, take in renters. If you are a renter with stable income above $10K/month, then today I would advise you to ask your landlord to report your payments to your credit reports (and move if they refuse) now that this is allowed by the credit bureaus –and to get a casual acquaintance with a lawyer going and approach one of these badly mortgaged folks to take their home off their hands with a carefully drawn sales contract (give them enough money to move out on and their security deposit for their new apartment as being YOUR down payment to them, then takeover their mortgage payments and enjoy all of their crazy home improvements they made with all of that home equity they couldn’t afford) or otherwise, just hang tight until you can qualify for a 30 year fixed loan with a FICO above 680 and buy a foreclosure (and if you have never owned a home before, are not from the East Coast or Europe and are renting with a FICO score higher than 780, then shame on you –even though you have good credit, you and I both know that means you are using credit way too much and that has to end before you go borrowing hundreds of thousands to buy a house). Ok, this post is officially too long. Did I nail it? I hope so…Peace out.
http://www.youtube.com/watch?v=ym4pODLHR18&fmt=22
002 revo si qi ym
“As they say”
“Those who don’t know history are destined to repeat it.” Edmund Burke
the mortgage payments should be further reduced, so that all owners can pay the amouny
own_home –My post seems to have gotten, uh, “lost”, shall we say. Gist of it was: don’t look here for advice on how to transition from renting to ownership. Guys that paid $175K for their house in the 80s and spent the next two decades living off their home equity (which went north of one million dollars) tended to believe they really were rich, spent like heck and refinanced over and over again. Along the way, they began to think of renters (who make about the same money, but obviously couldn’t come into such cash for no work like that) as ‘all the little people’ [to paraphrase 'The Good Which of the North'.] This is where they come to moan and argue with the real estate industry people trying in vain to manipulate the market like a child molester on MySpace…so don’t hope for good advice here. (I stop in once in a while to throw them a curve and to help out struggling home owners –for renters, right now my advice is to stay renting unless you need the tax deduction or a home for your baby and if you do, then either go through HUD.gov to buy your place, or partner with a lawyer –not by-the-hour– and approach a busted out homeowner to give them a contract and enough cash to move and takeover the payments on their mortgage…ie, you pay what they owe, not what the property is worth and you refinance it into your own name when credit market conditions are more favorable.)
http://www.youtube.com/watch?v=Mib9PnHU7fg&fmt=22
Nice to see I have not missed much around these parts.
Nice to see all is well in the land of OC RE…
Quote from the US Comptroller of the Currency John C. Dugan:
“Credit quality continued to decline across the board, with delinquencies increasing for subprime, alt-A, and prime mortgages – and the greatest increase in percentage terms was in prime mortgages.”
Did you catch that? Prime Mortgages are indicting the greatest percentage increase in delinquencies. This is something many of us have been predicting. It wasn’t hard to forecast … all you had to do was look at this famous chart:
http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg
I am a renter, and I would love to be buyer. Im not sure if today….this moment in time is right or not.
My reasons for buying are multiple. I need a bigger place, I need a tax deduction, I’d like to have a garage and not a carport, Id like to have central air and not a wall AC….mostly Id like to start building a home for me and my GF and any future kids we may have.
My story is simple, I almost bought in April of 2007….I started to research and realized that I could barely afford anything that was even decent as compared to the apt I lived in and the cost was over twice as much. So I waited.
Now the same places I looked at are 100K less than they were before, my income is now over 90K, my FICO is well over 750, my credit cards are paid off and my car will be in 3 months.
I can now afford a much larger place, I can go for a house as opposed to a condo, etc…If rates drop to 4.5%, I may have to pull the trigger and buy. I know very well, that it is likely that prices will fall further, but I think that is a risk I may be willing to take.
Whatever I go for, I know I will offer around 10 to 15% under the asking price and let them work out the price. My window of purchasing is around April to August of 2009. I feel that will be a decent time to buy.
Than again, I still need to get financed…so there is always that issue.
samson, you are one of the smart ones. You are taking care of business and planning carefully. You know what you want and what it will likely take to get it. You have achieved a certain amount of success neccessary to afford some nice stuff. You know that once you buy, you’ll have a solid investment and home. You’re not one of the ones here that simply hope that a complete collapse and financial anarchy will give them a break.
er own_home, better make that http://WWW.hud.gov –no WWW no worky…
http://www.youtube.com/watch?v=PefpqdRfMF8&fmt=22
We’ll see ya’ all at planet hollywood Saturday! (Everyone but you, Daniel Sadek, lol!)
John,
The alleged “help” for distressed buyers is not happening. I work directly with these banks to negotiate loan modifications, and let me tell you, half the time, it’s barely a 15% discount from their current monthly payments. A small number suffered even worse payments.
Countrywide/BoA? That’s funny because they are currently being sued by investors for modifying too aggressively without their permission - woops. There’s going to be a chilling affect on all modifications as a result of this class action lawsuit against Countrywide/BoA.
This is a mess that’s only getting worse. And all those “government programs” that are supposedly helping homeowners reduce payments to 38% of their income? Of the 50 odd cases I’ve looked at over the last month, I have yet to see that offer ever appear. Indeed the best offers are still made by IndyMac and Fannie Mae, but only because the losses from the modifications are subsidized by the Fed. All the other lenders refuse to budge.
Expect foreclosures to continue unless there is direct government intervention. The lenders and their investors hate modifications.
Lee, it’s a pointless drain on the mind to engage the trolls.
Besides, it’s not our fault they paid 680K for a 1500SF stucco-box near the 5.
No surprise they’d lash out at the people who just said no to the stupidity.
I just printed out the table illustrated above. I estimated the natural appreciation in OC real estate with a straight line(with slope) between Apr. 86 and Apr 96. Then I hand drew in a curve that looked ” reasonable” for the fall in home prices.
I get a home index of around 110 in April of 2011. So if the index is now 210 we have a 50% correction ahead of us.
If someone has a better method for estimating the future of OC prices, lets hear it………
Nano,
VoiceofReason, shockg, crystal balls and Mulli could probably convince themself they have a better way to estimate future pricing.
In their infinite wisdom this downturn is just a temporary aberration caused by bear-bloggers and those angry-renters:)
Interesting how all those whackos came out this morning all at the same time. Monday morning realtor meeting out early?
OWN_HOME has a great way of estimating future home prices.
a - stick head up bottom
b - yell and shout
Mulli ! - What do you mean implying that nothing here has changed! Can’t you feel the pent-up Hope ?
(Granted; house values continue to race to fundamentals, but that will all come to an abrupt ‘bend’ come January. Own_Home has provided abundant arguments on this issue, please check earlier stories *).
OK, nothing has changed YET. But keeeeeep watching !
“while the median-based price indicators may be exaggerating the extent of the decline, it’s pretty clear that home prices are still falling” . . . That was the old news ! Boy is THIS going to be a funny plot when the big horizontal trend starts to emerge . . . starting in late January:
http://voiceofsandiego.org/toscano/
* (Creation of Jobs, new policies on everything that matters on Main Street . . . infrastructure projects . . . couple million renditions of “yes we can !” )
# VoiceofReason Says:
December 8th, 2008 at 8:26 am
“Every time a reasonable estimate shows up that doesn’t fit their scorched earth dreams of buying a split level 3000 sq ft home in the burbs for 2X their annual $40k salary, they get very agitated.”
Who? Who’s scorched earth dreams? You seem only to view the world in extremes. The only two options aren’t (1) insanely high idiot prices (2) insanely low idiot prices.
There is a 3rd option that will happen whether you like it or not: (3) healthy fundamental-driven prices.
Nobody here thinks that a “split level 3000 sq ft home in the burbs for 2X their annual $40k salary” is healthy for the economy or will even happen. NOBODY.
We want a normal healthy market because we care about the economy. we see how unhealthy economies hurt us all. YOU can’t see past your home’s depreciating value and how it affects YOU.
yobama is gonna create 2.5 million new jobs and stop the housing market from imploding and all of this done before he even takes
office– thank god we are finally getting real change- no more
government beauracrats to F everything up- we are entering
the dawn of a new era- free from the usual incumberances
praise the lord
No one can stop the fallout from the massive greedfest that consumed America. Sorry, but it is not going to that easy. It’s funny to listen to all the people in denial in spite of all the news coming out on the economy. Well, time will tell.
VOR:
I read Samson’s post.
As long as someone posts a comment stating they are looking to buy and is willing to take a loss, you will ALWAYS reply with “you are one of the smart ones.”
Who in the world is being objective there?
Samson never mentioned anything towards how much he has saved.
He never mentioned if his GF works or even if her income comes into play. If it does, then his plans for having kids should be put on hiatus until he earns well over six figures.
Seeing Samson only earns $90K per year, how much home do you think he should buy? In other words, I am VERY CURIOUS as to how much the bulls think he could afford a month on a mortgage COMFORTABLY?
Samson - how much did you pay in NET income taxes last year (not the total amount deducted from the paycheck)? What’s your downpayment going to be? How much home price loss can you take before it starts to keep you up at night? From the posts of my fellow homeowners here, we can all surmise that it keeps plenty of those folks up at night today. Keep in mind their presence here is not to evaluate buying opportunities - but to encourage others to join them.
Samson is ripe for the same ‘ol OC story: He will live in a comfortable home and be very uncomfortable trying to pay it off.
Samson - where are you looking? I have engineers working for me that earn $140K/yr, most are married with small children. They cannot afford to buy right now AND still maintain their current standard of living. Every month they wait - they get closer to buying that dream home.
I suggest you do the following and share with us the learning experience (Note: the bulls will state this a bad idea):
From now to August, all perspective buyers should play the following game:
(1) Calculate what you think you can afford in a mortgage payment each month.
(2) Reduce that amount by your current rent
(3) Let’s hold off on the tax advantage just yet - since I am not including property taxes, insurance, HOA, maintenance, etc. - and the fact that the tax advantages are almost always overestimated. Consider that over 25% of the people that bought property in 2005 through 2007 in the OC could NOT EVEN LEVERAGE the full tax write off since they didn’t even pay that much in taxes in the first place. Once Samson divulges what he pays in taxes each year, we can give him a more accurate estimate for modifying this line item.
(4) Take that amount you calculated in step 2 and save that much EACH and every month before you buy in a new savings account.
(5) Keep a journal as to what changes you have to make in your life in order to keep making that “preverbal” payment into your savings.
Do this for 6 months - if you find this to be easy and you feel confident this will work for you in the long term - then by all means go and buy. If you think you can still build a bigger nest egg if you leverage the current stock market collapse - then I suggest you do some research before you decide to buy - because the opportunities are there. You just need to talk to some people who have made millions in both RE AND the stock market - not with someone who is lopsided and heavily biased to one over the other.
Samson - I am very interested to see what you report back.
Lastly, before you assume anything about me, please ask first, or research my posts here since I started posting in 2006. I am a homeowner and I own investment RE in the OC and in 3 other states. I love making money, but I can’t stand lies, and the lack of integrity by those so willing to tell someone to step into the fire without knowing the facts. I’d be happy to answer any questions you may have.
Wow Brain, you really told me!
But seriously, do you read this blog? The people repeating every doomsday headline and emphasizing the extreme downside for all they’re worth. The people posting videos of someone getting evicted from their home and laughing. I’m not the extremist here. And by the way, you won’t see “fundamentals” here, at least for more than a nanosecond. The medium household OC income is 75k. Two to three times that is 150-225k. If the medium price of an OC home gets anywhere near that, you will see a run on RE like you have never seen and the prices will skyrocket. So, what you should be hoping for is Lansers ‘OC premium”, which is about 3X the national average. Better get your ducks in order Brain. It won’t be long, yea.
NBI….I bet you’re the life of the party…….
Nano, I can suggest a better methodology–How about rolling dice? It’s random, but it least it has some chance of being correct.
Bailing out the flakes who bought what they couldn’t pay for is looking like such a wonderful idea.
As some have said, it will only prolong the process — the process of house prices dropping to the level that responsible people (who will pay) can afford.
Here’s to Barney and Bernanke and the assorted bulls-of-the-blog. Here’s the payback on the bailouts:
http://www.reuters.com/article/domesticNews/idUSN0847256620081208
Not buying,
I appreciate your concern and interest. There are many things, that I need to figure out before I buy. I am looking mostly in the Fullerton, Brea, Placentia area. My price range is on the low end 275 to 340K….I really only need a 2 bedroom that is around 1,100 square feet or so.
My goal is to buy something and possibly one day keep it as a rental, so a small house or condo in that area would work well as a rental in the future….now the future could be 5 years or it could be 10. There is no real way of knowing that.
My current rent is roughly $1,200 a month. I live in a fairly small one bedroom.
My Fed and state tax so far this year is over 22K. My GF will use her income to pay the utilities and HOA dues, if we have them. At this point with my current take home pay (not factoring in the tax savings) I know I can afford roughly 2,200 a month.
I figure at min. I would get a 6K savings in taxes or 500 a month. This puts me at 1,200 a month plus 500 a month (counting taxes). So that is 1,700 a month…..at 5.5% a loan for 325K, the monthly payment is around 1,900…that of course exludes taxes, HOA (if any) and insurance.
Now like I said if it gets down to 4.5% the loan drops to 1,650 a month. Now of course this doesnt include PMI and other expenses.
As I see it I am looking at maybe around a 500 a month tax savings, which meansI would need to pay around 600 to 700 more a month to buy.
The one thing I will say, is that I dont have as large of a savings as I would like…roughly 20K. I do have the option to “borrow” against my future retirement if I need to. Mostly it is used collateral.
I can afford that. I am not looking to buy some lavish home on the hillside. Just a simple place to call my own….I knew by stating this I would get jumped on…but moving for me isnt just a financial decision. It is also looking to the future and a desire to have a little bit larger and more comfortable place, if we ever decide to marry and have children.
I dont have a insane standard of living, I dont travel alot, I dont own a fancy car, I dont have expectations of having a brand new kitchen the day I move in…..For certain, I will begin to see what is out there, work with lenders, see what I can really afford. If I cant do it, I wont….I know my limitations.
Being in my 30’s and living in a less than 700 square foot apt. is getting tiresome. Moving to a larger apt. doesnt make a lot of sense either….so I wait. Trust me, I know there is a lot to think about. I will for certain weigh many options before I make a move.
I had posted along response…but it got lost somehow.
Let’s see to answer your questions.
Taxes…I had 16K deducted from paycheck last year and I got 0 back, actually I had to pay a couple extra 100.
This year I have made over 10K more than last, and I have paid out over 22K in taxes. I imagine it will work out to be about the same.
My down wont be huge, roughly 20K…I can also borrow against my retirement if need be….they use it as collateral.
MY GF does work and the goal is that she would cover the costs of all the utilities and the cost of an HOA if any….she currently works part time and is in school to be a teacher. Utilities are roughly 250 a month right now….if you add in HOA it would be around 500 a month she would cover, that I wont be.
I am mostly looking in Fullerton, Brea, Placentia, etc…area.
I am looking at 2bd.+ condos/houses that range from 290K-340K with around 1,000+ sq. feet.
My current rent is 1,200 a month for a 1 bd that is less than 700K.
A loan for 320K at 5.5% is roughly 1,900 a month. You add in taxes and insurance you add another 300-400 a month. So around 2,200 to 2,300.
My main point was that if interest rates drop to 4.5%, you end up with a loan that is 1,650 a month….and adding in the 300-400 a month you end up with a loan of around 2,000 a month….of course their will likely be PMI an other costs. I figure even if I get a tax savings of 300 a month, this could bring the costs down to around 1,700 a month or so…which is only about 600 a month….very affordable for my income level and lifestyle…than subtract the 250 a month that the GF will be paying in utilities, that is only an additional cost of 350 a month…but Im sure there are many more costs involved.
Also, I said I plan on waiting until April-Aug of next year…..most seem to think that the market will drop another 10%…so you can likely knock off another 20-30K of the purchase price….which in turn can knock off another 100 a month.
I think I would be comfortable with a 10-20% drop in value from the time I purchase until the market bottoms out. If you take the current drop from peak of roughly 30%, add in another 10% by waiting until next year, this allows for a 50 to 60% off of the peak value. This doesnt seem very likely considering many of the homes in the area I am looking are already close to 40% off of peak value…I guess anything is possible.
Obviously before I buy, I will shop around, offer 10-15% below asking price, work with many lenders and just do the math. There comes a point in life where you make certain decisions, and take certain risks. There is more to buying a home, than making the best financial decision your ever made. For certain it could be the worst….It is just very difficult to imagine homes decline to 60% off of peak in the area I am looking in…and honestly, Im tired of living in a small apt. I could move to a larger nicer 2bd….but most of them are costing around 1,800 a month. This isn’t that far off the cost of buying.
I dont want to sound bullish, I do believe the market has room to drop…I will be bummed if I lose all the money I put down…but whatever I buy I will likely be in for many years, and if I can afford to I will hang on to it as a rental and buy something else.
As I have been doing since April of 2007, I will continue to evaluate month to month and just see where things are headed.
Samson says:
“I am looking at 2bd.+ condos/houses that range from 290K-340K with around 1,000+ sq. feet.”
if you wait until 2011-2013 you will get a much better deal than that
you are going to be very disappointed if you purchase at that price level
you’ll be stuck in it with kids, you are better off waiting a while in your situation….. save a real down payment in the mean time.
Well that is on the low end, I am just stating my min. desires. For example, there is a “condo” that I am looking at that is 3bd. 1,600 square feet that is selling for 335K. It is single story and I believe shares 2 walls, has a rear yard and is in a small complex of maybe 30 homes. $209 a sq. ft. seems to be a pretty good price.
There are many single family homes in this range that are 2 to 4 bedrooms and in the 1,300 + sq. foot range.
Like I said, I need to keep my eyes open and see what kind of deals are out there. I need to do the math and see what I can afford.
A 4.5% interest rate is a pretty good deal. If rates jump up to 6% the loan would need to be for around 280000 to have the same roughly 1,700 a month payment. Of course there would be a slight difference in property tax, but I think it results in about $50 a month. If the rates jump to 7% for some odd reason…I would need to buy a place for 255000 a month to get the same payment. Than of course it is less to payback in total.
The point Im trying to make is that there is a time when 4.5% rate is better than potential drop in prices. I would need to wait for a 16.4% to 24% if the rates go up as mentioned above to have the same payment.
So there is a lot to balance out in making this decision.
“The point Im trying to make is that there is a time when 4.5% rate is better than potential drop in prices.”
Samson, I think you need to think about this some more….. think logically… I would explain it, but someone already explained it quite eloquently:
http://www.irvinehousingblog.com/blog/comments/4.5-mortgage-interest-rates/
I smell fear!
Or forget the sure thing and gamble your life away.
I dont have anything in escrow, nor have I even pre-qualified for a loan. There is a lot to think about. I am not afraid of anything related to this market. I can wait longer if need be.
I clearly understand that there is a great potential that the market will continue to colapse. I too feel that it is way over valued as compared to incomes. Ill have to read that blog later tonight and give you a response.
So I guess the question is Mav what price do you think is right for the area I mentioned. How much more do you think the market will decline?
What happens if rates climb to 7% or more….isnt there a point that almost any further decline is a wash?
Like I said I too believe that the market will continue to drop, but there are more factors to consider than just price declines. I dont mind where I live, but I dont know if I want to do so for another 3 years or more. Again, it doesnt make much sense to move to a larger apt that wont be much less than the cost of buying at this point either.
I am watching carefully…I dont want to be a major knife catcher, nor do I want to “miss the boat” as many bulls will say. More so I want a nice home for me and my GF, to build a future for us….. All I am saying is that life is full of risks and rewards. You must balance them all and hope for the best. Ive been fairly smart this long by waiting, and I will likely wait awhile longer. I will keep you posted on my decisions.
hey samsung if rates do go that high just imagine
how low prices will have to fall for people to
be able to buy…. I’ll be paying cash when they hit 98 prices
ok I give up trying to post a response.
bubble states awash in negative equity.. uh that would
be california and of course orange county.. home of
the most underwater homeowners in the entire nation
crystal balls and voice of the village idiot
are living proof right boys lloolll @ribsplitter
http://mrmortgage.ml-implode.com/
News Flash:
“Dow Climbs Almost 300 on News that Obama’s Lack of Citizenship Won’t be Considered by Supreme Court”
(the market doesn’t respond well to prospects of race riots)
Pdu,
That is incredible how 58% of all loan modifications still went delinquent.
With the recent collapse in the stock market and the massive wave of layoffs still to come, the delinquency rate will rise to an all time high.
This is the only recession where the population has entered in with a negative savings.
This will finally prove that most people are dead broke.
I just hope people aren’t relying on Obama to fix things.
We have already spent billions on previous infrastructure projects that have built roads to nowhere and with nothing to show for it.
Belgium buys Budweiser then immediately slashes 1,400 U.S. jobs.
Dow Chemical will lay off 5,000 employees and 6,000 contractors plus it will idle 180 plants causing thousands of additional employee payroll losses.
Dupont will lay off 2,500 + 4,000 contractors
Sun Microsystems - 6,000
Nortel – 5,000
Sandisk – 3,000
3M – 1,800
Viacom – 850
NBC - 500
Plus many factories are being shuttered this month amid a “dramatic slowdown” in global industrial production.
We are on schedule for a second Great Depression.
Home prices will surrender a great deal more in 2009.
Interesting irvine blog post. It does make sense, but all that you take away from it is that it is better to buy later at a higher rate than it is now, because if you buy at 4.5% your home will lose value. The logic only works if many things happen.
1. If many people buy at 4.5% the drop in home prices will slow.
2. Since many people are buying rates will start to climb, to upwards of 10%
3. This will cause values to again begin to drop to historic lows.
4. Rates will have to drop again to get people buying.
5. Those that bought at 4.5% will have a home worth less than they paid for it.
6. Those that bought at 10% will now be able to refi into a lower rate loan, so they are the brilliant ones.
I am as much of a bear as anyone else, but it seems like this is a perfect storm of home buying….and will take many many years to happen.
In the mean time, people are having children, needing more space, renting in less desirable areas etc.
I understand the short term loss of value if you purchase in the next 6 months to a year. I just dont know if I fully buy a flip in interest rates and another large drop in prices due to higher rates.
Whats to say the Gov wont require this 4.5% for the next 5 years?
Than what?
I do believe that another 10% to 15% is in the cards for Orange COunty….This is up to a 45% decline from the peak…or back to something like 2000 prices.
I dont know, I think life has to be a balance. There is probably no perfect time to buy. There are quality of life issues and the desire to build a future…Im not getting any younger…I dont plan on having large house payments when Im 70.
I will have to keep watching the market, see what I can afford, see where rates are etc….and than make a decision.
Hey Samson,
You’re asking the right questions, but permit me to make a small suggestion. Go buy the latest TurboTax software. Calculate your ‘08 taxes. Then run an alternate scenario, plugging in the interest and taxes that would match your target home. Rather than “back of the envelope” figures, you will have an actual number of $ that you would save on income taxes. Divide by 12 to get a monthly number; deduct that from the prospective PITI payment. Compare the result to costs of monthly renting. Now you have a pretty good number that tells you what it would cost to step up to ownership. (And compare it to the aggravation of dead end renting). Any perfect time to buy? No, it’s just what works for you personally.
last try.
Thanks Mike, thats a great idea. I will do that this year, when I do my taxes. The other thing I need to figure is what PMI will cost me.
What I do know is that I for certain can afford to buy a place that is just like the place I live in now. There are 1 bd condos that are going for prices that are near what I pay now in rent, and less if I factor in a tax break.
Anything I buy would be an improvement, at least in size. For someone like me you start to put a price on having a larger place, with AC, with a garage, my own laundry room, etc…those things have a certain value that you take into consideration when buying.
Any comparison I make has to be just that a fair comparison. Just comparing my rent to buying isnt a fair comparison unless you have many of the same things I am looking to buy for. For certain if I can rent a place that has all those things for a price that is far less than renting…I will gladly do it. I just dont think I want to do that for the rest of my life. So there comes a point where you must jump. What you see now are prices lower than they where 5 years ago and a proposed interest rate that is possibly the one of the lowest in history.
The prospect of having all those things I mentioned at an affordable price, at a low rate is extremely tempting. I like to think that I am a bright guy…..but I am cautious. Now think of all those fence sitters that are not so cautious….they will want to buy as well. Once much of the inventory is purchased, where will prices go then?
Just things to think about.
Thanks Mike. I had a longer response, but again it is too difficult to post here. John needs to change something.
and keep in mind Samson.. for example on a 100K (with 1.2 % property tax), you’ll deduct:
at 4.5% interest on 100K
4500 interest +1200 tax= 5700
say 3 years from now, drops another 30% in value, and tax at 9%
at 9% interest on 70K
6300 interest + 840 tax=7140
got it? you wait.. you’ll have lower balance to pay off, more deductions!! and more savings monthly since it’s still cheaper to rent than buy right now.
Now say property is 400K now.. 280K in 3 years:
total savings:
120K is abvious
5720 more on deductions if you buy later (per year)
more saving until you buy.
not including tax, association, not much diff in payment?
100K.. @ 4.5 %
Your estimated monthly payments are $506.69 and you will pay $82,407 in interest over the life of the loan.
70K.. @ 9 %
Your estimated monthly payments are $563.24 and you will pay $132,765 in interest over the life of the loan.
but lower balance, more deductions.. hmmm
you’re asuming that lower interest will get people buying, what if they won’t.. prices continue to drop..rates will continue to drop
what if 3 years from now (or sooner), prices are down another 30-40%.. and rates get to 3.5% ?? what does your crystal ball say?
Obama will create 2.5 mil jobs by 2011..but we’ve already lost close to 2, and going at 1/2 mil per month..hmmm
pp will still walk if they need 2 through end of 09! will that get extended? hmm maybe!
3.5 milion forclosures.. and it’s about to double through end of 09
Samson – thanks for sharing. Gotta keep this quick. I agree with Mike – do the research. Factor in HOA, and expenses - even the new temporary tax incentive that you will have to pay back over time if you leverage it. You sound like you want to carefully plan this. Good for you.
You should also factor in other options, such as:
(1) To wait and save to get into a SFR instead of a condo, as long as home prices keep dropping - nothing to lose - inventory is still high.
(2) If you wait until rates go higher and then find that the true bottom occurs at that time - then buy at the true bottom and use an ARM, you can refi into a low fixed rate a few years later when rates drop - at least prices will have already dropped enough. I’ve been hearing that many believe that when rates go up, most of the depreciation will have been factored in.
(3) First time buyers that buy in a down cycle usually end up waiting longer to move up since condo’s generally appreciate slower than SFR’s - especially in light of the recent growth in condo inventory (and will continue) - here’s the reasoning: when prices turn, SFR’s will appreciate faster. If you have a low rate of savings while owning a condo, you will be getting further behind than if you bought the SFR. The impact to you really depends on your rate of savings. Although - you may be at a point where rents match your cost of ownership at that time. Right now - we all know that is not the case.
(4) Almost all investors buy condos only when the rental equivalent is in play. Condos are considered discretionary purchases more often than not. You are buying something where people are more willing to walk away from.
(5) Do not make the mistake that rates are not currently low or have not been low. For the last decade, rates have been historically low. 8% is the historical norm for rates. The last decade was GREAT for rates. I would not bet that rates will not be higher a year or two from now. I will not bet that homes will not be a great deal in four or five years but rates might be a bit high - and man, the use of the ARM at that time will allow you to rent that one out, slight chance even for a small profit. People typically buy when rates are low and don’t when high - when that time occurs, the saying, “Buy when no one is buying,” will hold.
(6) The FED’s are negotiating for low rates. Forcing is not possible. They can strongly suggest, negotiate and provide incentive – a la tax payer – and even then it usually lasts months not years. This time, the FED is going to buy $500mil in MBS’s. An amount equal to the value of 1000 median priced OC homes. Not much. The rates will stay for a short time – definitely not even a year.
(7) There definitely exists a very perfect time to buy – just ask the biggest bull of them all – Jimmy – LOLOLOL
(8) If your GF worked, I would think you could save and get into a small SFR that will work longer for you and probably will prove to be a better long term investment.
(9) Condo living is not much different from apartment life – according to many of the young engineers that work for me.
(10) Have fun!!
Seeing you are a first time buyer - I suggest you do what you feel is best for you and the future of your family. I think Mike’s suggestion is very good – get the software, run the numbers – all the numbers. Plan for the risky scenarios. Make the best choice. If you need a plan B then have one before buying. Then stick with the plan at all costs.
if 58% of mortgages went bad, then it will be logical to rework their payment, so that they can afford it
i am glad that for the rest 42%, it worked well
4.5% int rate on 625K conforming loan only seems to equate to about $70K price drop at 5.5%, or around $450 difference in the monthly payment.
That’s just Not enough juice to fix this problem, IMHO
own_home:
What evidence do you have that any financial bailout will work for this real estate market? Any precedent from any past housing bear market? Or just your wishful thinking?
Because if it is based on your ‘logic’, then your word is as good as mine. And I say you’re wrong.
Oh yeah, by the way. I can easily afford a very very nice home right now. I am what you call a buyer ‘on the sidelines’. I am already pre-approved for a mortgage (unlike many I have a very signficant downpayment and have excellent credit). I am just waiting for the right time, house, and place. And I monitor this everyday. With the resources out there now, you really don’t need a Realtor to find you a house.
And by my watch, it is getting better and better every month….
Those prices just keep dropping!!! As they say it is a good time to be a buyer. I see absolutely NO RUSH to buy. Everytime I see a ‘good deal’ on a house, just wait a little longer and better deals come popping up.
If you want to convince me that the housing market will turn on a dime and I will be missing out on this market you will need to do more than flash the statistics of the bailout. On my count they have already spent a very large sum of money and it has done little to mitigate this bear market.
If I find the right house and price, I’ll buy. But I won’t be ’scared’ that I am going to miss this market. In addition to that, I believe most people don’t realize how much their homes have declined. Have you looked up the recent comps in your neighborhood lately? It’s pretty interesting.
Oh yeah, and have you heard? The economy sucks! This thing is likely going to get worse. Housing is just a small part of this pie — then we have automakers, retailers, newspapers. People will be losing their jobs. I really don’t see how housing can turn around in this environment.
snacker,
people are trying to figure out some solution rather than letting it become worse. So there is no harm in trying different strategies.
when you want to buy a house, is your problem.
in this world, things can change for a person in few seconds. So dont be overconfident of what you feel, your strong position
own_home Says
“So there is no harm in trying different strategies”
If you call wasting trillions of tax payers’ dollars no harm.
Lower rates and principle reduction are not working.
These homes will eventually end up going back to the lender and they will have to be re-priced back to reality to be able to have true homeowners actually afford them.
In other words, your bubble home you keep trying to defend will be worth substantially less by the time this fallout finally ends.
Pending home sales in October declined 8.7% in the West, despite lower interest rates.
http://www.marketwatch.com/news/story/Pending-home-sales-index-down/story.aspx?guid={CA42B683-2389-44A5-AA99-6B1C10F1CD66}&dist=hplatest
Thanks for the advice. I do appreciate it. I will say that I have been looking more and more at SFR’s as prices have dropped. Im not in a giant hurry…so plenty of time to decide. As long as prices are still falling I feel that time is on my side.
Samson - you said it best. Time is clearly on your side. Prices cannot be sustained unless lending practices permit DTI’s over 35% for home expenses - and that will never happen in a depreciating market, and definitely not in a market whose downfall was caused by the very same practice.
The FED can wish low rates. Buying $500mil in MBS’s will make about 10 people smile - that’s about it.
own_home is missing 3 letters from his name.
clown_homer
own_home - do you realize how ambiguous you are? Do you have any understanding of how the markets work or where this one even failed? Do you know how this mess got started?
You seem to be concerned with one thing: the value of your own home
You stated “when you want to buy a house, is your problem” - are you saying this problem exists only for homeowners? or are you stating that when you buy a home, its the SOLE responsibility of the homeowner to pay back their debts? I agree with the latter.
Forgiving people’s debt obligations to the extent that would be required to stop foreclosures would be DISASTROUS to the credit markets - unless of course the taxpayer is paying back the original holders of the notes. Once the taxpayer takes on the responsibility of paying the debts of homeowners that simply defaulted, you might as well call this the United Socialist Republic of America - because that crosses the line over to communism buddy.
What is the reason why you fail to offer any logic to your arguments?
I am not calling you names - I am not getting angry. I am just struggling to find the reason in your arguments - if any exists.
The only logic I see in your arguments is the following:
“I own a home
the value of my home is falling
I now owe more than its worth
I am not happy
Somebody stop this bleeding
Forget about what is right and moral - and let people live in their homes for what they want to pay and not what they contracted to pay
help me - help me - I have no idea why this is happening!!”
Now - it would be great if you provided a bit more insight into your logical reasoning - if any exists.
I am guessing here but something tells me that when you read the newspaper, you understand maybe 20% of it. Am I accurate?
Do you know that there are plenty of politicians that own homes that do not want bailouts for people that should not have been able to buy in the first place? If its a moral debate with you - then at least specify the moral grounds you are basing your arguments on.
Samson
Why don’t you just rent a nice SFR for (much) cheaper than your mortgage would be (even adjusted for tax writeoffs/hoa/etc…)?
Just because you rent doesn’t mean you should be stuck in a smaller place.
I have been thinking about it, but packing to move to unpack and possibly move again in less than a year would suck. Also, if I can hold out and pay the cheaper rent, I can save that additional money for a bigger down.
If I can find a place to rent that is around 1,500, it might be worth it.
Bring back debtors prisons and prosecute the people involved in fraud including the realtors and loan officers. These people are criminals NOT victims and should be treated as such.