22 Sep

US Economy – A “perfect storm” of housing and lending events

                                       

First let me qualify this post. I am not an economist. However I do have more than the average “Bear Sterns” experience in the real estate world and lending. So here, I like to project some of my own theories as to the culmination of the US economy, turning a 180 because of the effects of what many like to call the subprime mortgage crisis.

I say it’s a “perfect storm” because it took several events together – over more than decades – to create the problematic housing bubble. And without some, we may not be even having this discussion today. So first…

HOME PRICES – MORTGAGE LENDING – FORECLOSURES

What everyone must remember is that foreclosures are not a new entity in the real estate world. In the not so long ago past (pre 2004), if a borrower with a 100% LTV (loan to value) mortgage defaulted on a $300K home… which was worth $300K… that borrower was merely booted out (foreclosed upon), and a new qualified buyer purchased, recouping the lenders cash output. The lender’s loss was confined to the costs of foreclosure.

But one of the largest contributing problems to foreclosures today is something the media doesn’t speak of… and that’s that unnatural and unsustainable housing price inflation that took place most notably between 2004 and 2006. A buyer who purchased a home for 100% LTV in that period bought at the peak of values. If that buyer defaulted, the home was upsidedown in value… with a mortgage far more than the home was worth.

If that is over valued an average of 30% (which isn’t far off, as you’ll see when you observe the rise in prices starting in 1996-97 below), then that $300K home is more realistically worth $210K. This means a default by a buyer incurs the lender a $90K loss, PLUS the foreclosure charges.

When you compound the upside down value on the defaulted loans with the foreclosure charges, you can see why the mortgage industry is taking such a hit. They can no longer just replace one buyer with another, and recoup their losses at a minimum.

What was happening with house prices in the last decade or so? Below is a graph of US housing prices since 1975 to 2008, courtesy of some guy named Vodka Jim. [Mata Musing: See update below…]

The above chart estimates the market value of today’s median-priced house over a 33-year period.

The red line represents real house prices. For those unfamiliar with economic-speak, “real” prices are prices that have been adjusted for inflation. The blue line represents nominal house prices.

Notice that in the 25-year period from 1975 through 1999, real house prices stayed roughly within the range of $132,000 to $171,000. Only since the year 2000 have real house prices risen above the top of this range. The United States median price was at approximately $206,500 as of the second quarter of 2008. This is 21% higher than the previous housing boom peak of an inflation-adjusted $170,900 in 1989.

~~~

UPDATE Mar 2013: Vodka Jim’s site is “locked”, ergo above chart doesn’t display. Below is the housing prices data from jparsons, reflecting US home prices from 1970 thru 2011.

US House Prices 1970-2011

Note that the base of the rapid increase in prices begins in 1999-2000. Coincidentally around the same time that Fannie/Freddie relaxed credit standards under pressure from the Clinton Admin. The result was that the GSE’s cornered the mortgage market, piling on the risky loans, starting in the year 2000, as evidenced below in the CBO chart. The private lenders did not jump on the high risk bandwagon until 2004, surpassing the GSE’s share only for two years…. but never reaching the high volume of risk the GSEs held.

CBO graph govt v private MBS growth

END UPDATE

~~~

Using the red line on the graph (inflation adjusted home pricing) we see a distinct, beeline rise that started in 1997, and continued until the much needed deflation started occuring in 2007. Between 1997 and 2000, the interest rates were higher than what we had, which did help keep the prices in check. However post 911, interest rates lowered, and stayed low, which translates to the price increases that shot up sharply between 2000 and 2006.

I say “much needed” because I don’t believe we are having a home value crash. I have always said this is a required market correction. The home values were rising astronomically, and vastly out of proportion to income.

This same fact is often hard for sellers to swallow. They have it in their mind, after this boom of the past decade or so, that their homes are a veritable piggy bank…. something they can constantly draw out equity and spend on anything but improvements on their home. They bank that, despite an aging and depreciating asset, it will still continue to be worth 10-20% more annually. This is, and has always been a bad risk, as housing – and mortgage rates – has always fluctuated.

Lest ye think this is confined solely to the US, and a Bush created problem, there’s ample evidence to prove your wrong. Another graph below, courtesy of the UK’s The Market Oracle, shows a similar pattern in a similar time frame.

The US Housing market turned lower in late 2006, the down trend to date is accelerating as the number of unsold properties passes the 4 million mark creating a large over hang of supply. There is no technical or fundamental sign of an imminent bottom. US house prices could easily fall another 15% and then be subjected to many years of consolidation before prices can start to rise higher again. This despite the clear inflationary strategy of devaluing the US dollar as evident by the currency adjusted gap developing between US and UK house prices (green line). The US housing market is clearly in the grips of a vicious cycle of house price falls, leading to more foreclosures leading to further house prices falls. The impact of each turn of the cycle is an greater credit squeeze as leveraged banks losses and risks escalate.

The UK housing market peaked in August 2007 and to date is declining at an annualised rate of 7.5%, which is inline with the two year forecast for a 15% price drop from August 2007 to August 2009. Whilst there are many fundamental reasons for why the UK house prices have been more supported than the US i.e. limited new builds and recent influx of immigration from eastern europe. However the degree to which the UK housing bubble has been inflated gives ample scope for a serious price correction that would extend to a period well beyond the initial 2 year house price forecast period, especially if the recent immigrants flow outward during a UK recession and therefore contributing towards a glut of empty rental properties amongst the sizeable speculative buy to let sector.

Not only have UK house prices risen by 170% since January 1999, against US house prices that currently stand at up 111%. But the currency adjusted increase is 225%, where much of this increase has taken place during the past 2 years. The UK housing market seems destined to give up all of the gains made during 2006 and 2007 and therefore targeting a nominal price decline of at least 19%. Declines beyond these are dependant upon inflation and currency trends which could see a real terms inflation adjusted decline of more than 33% over a 3 year time frame (from August 07).

In Jan of 2007, an article in the Director of Finance Online documents the housing inflation’s progress, ranging from low of 7% in the West Midlands to a high of 17.5% in London.

By August of this year, that appreciation had slowed… running approx a year behind the US housing market. The Independent reports that gross mortgage lending is down about 65% from the previous year.

“The monthly numbers of approvals for house purchase, which have fallen by some two-thirds over the last year, levelled off in July,” said David Dooks, the BBA’s statistics director. “It would, however, be premature to think that the housing market will now start to recover, because overall approval activity continues to be very low. The pressures on household budgets are reflected in the relatively weak rise in individuals’ deposits and, with consumer borrowing growing only slowly it seems that consumers are acting prudently.”

~~~

“We continue to anticipate a modest recovery in house purchase activity [in the second half]. But the still very low level of approvals points to falling house prices – we currently expect an 18 per cent drop by year end, and a further 9 per cent decline by the end of 2009.”

The UK did something the US did not between 2000 and 2006… they used their interest rates to attempt to control their prices… raising them for awhile before reducing them again.

This leads me to two conclusions. First, had the housing prices not risen out of control, and become over valued, the high rate of foreclosures from risky subprime ARM loans would not have had the same effect on the overall lending industry. Defaulting buyers would merely be replaced with qualified buyers for a home worth the note value.

Secondly, this is not just a US problem…. Considering the UK’s eerily parallel path, and the reality that George W. Bush has nothing to do with British regulations of lending, it’s difficult to simply tie this to a sitting POTUS or British PM. For whatever reasons the UK experienced their housing inflation, it is having the same economic effect.

EASY MONEY LED TO INFLATED US PROPERTY PRICING

So why did those home prices get driven up so high? Two reasons… first the availability of money to risky borrowers who did not have access before. And secondly, that easy money coming at a cheap rate.

As Dan Danning, editor or Strategic Investments, wrote in his article for the Daily Reckoning, The New Serfdom”, 2003 was a banner year for refinancings and rock bottom rates. By April, the refinance market dropped 30% “on a week-over week basis. That was not long after short-term bond prices cratered – and yields spiked up. Rates went up, healthy borrowers lost the incentive for refinancing and purchasing, and the run at the ARMs by the more risky homeowner began in earnest.

Now there was the opportunity for cheap money at the entry ARM rates, or taking advantage of the no-doc/low doc, stated income or interest only exotic loan packages. The new buyers did not think 3-5 years into the future at the adjusted pricing.

Regulations mandate that lenders disclose the adjustment will occur and payments will be based on a capped percentage off the prime rate. But since no one has any idea what rates will be 3-5 years in advance, it’s almost impossible to tell them what a future loan payment will be. How do you demand disclosure of a number based on a rate pulled out of the hat? Such are the pesky details of reality….

Interest only loans only work when you are guaranteed equity growth… a risky proposition if you’re in a 100% LTV mortgage. You might as well bet you’ll always have at least a full house in the local poker game with every hand.

In 2004, Federal Reserve Board governor Ed Gramlich credited the innovative prime and subprime packages for some 9 million new homeowners. In a speech to the Financial Services Roundtable in Chicago, May 2004, he also noted that “Subprime borrowers pay higher rates of interest, go into delinquency more often, and have their properties foreclosed at a higher rate than prime borrowers.”

At that time, the delinquency rates ran at around 7 percent, compared to 1 percent with prime mortgages. But the subprime borrowers were higher risk, and had less margin for area. Compound that with subprime mortgage lending increasing 25% annually between 1993 and 2004, and that 7% was starting to represent a serious percentage of notes packaged and sold on the secondary mortgage market.

With the easy money, and a drove of risky buyers flooding the market looking to purchase, sellers and listing agents commanded more dollars for the existing inventory… the ol’ finite supply vs increased demand syndrome. Builders were pounding out houses that were selling before the roofs were put on. Nothing could stay on the market long, and bidding wars became the norm, driving prices up.

But, as we see, the price inflation itself was a major contributor to the downfall… the influx of so many high risk buyers may have been somewhat managable without the increased prices. But the two together? Major components of the perfect storm.

EASY MONEY A FAULT OF NO REGULATION?

Today the instinctive rallying cry is the demand for more government regulation. Odd and rather disjointed solution when you consider you’re asking the very entity – Congress – responsible for creating and overseeing the largest secondary mortgage companies (Fannie and Freddie) to take over control and add even more regulations. Especially since they’ve had oversight, and Fannie/Freddie problems were apparent at the end of the 90s.

But let’s take a closer look at that regulation vs degulation – or the removal of government controls on an industry – argument. Curt brought you up to speed on that story with his Sept 20th post, Jimmah at fault for this financial mess. He tells of the Community Reinvestment Act that was established in 1977 by Congress, and signed into law by Carter.

From a very well written article in the winter of 2000 note PRE-GEORGE BUSH era… by Howard Husock:

The Act, which Jimmy Carter signed in 1977, grew out of the complaint that urban banks were “redlining” inner-city neighborhoods, refusing to lend to their residents while using their deposits to finance suburban expansion. CRA decreed that banks have “an affirmative obligation” to meet the credit needs of the communities in which they are chartered, and that federal banking regulators should assess how well they do that when considering their requests to merge or to open branches. Implicit in the bill’s rationale was a belief that CRA was needed to counter racial discrimination in lending, an assumption that later seemed to gain support from a widely publicized 1990 Federal Reserve Bank of Boston finding that blacks and Hispanics suffered higher mortgage-denial rates than whites, even at similar income levels.

But it was a different lending world in Carter’s era. Banking then was small, local savings banks, prohibited by regulations from interstate lending activity, and sometimes being confined to certain areas within the state. Since banking is like any other industry – it must make a profit to survive – the risk was controllable as they knew their risk areas more easily, and competition was minimal.

But upon the arrival of commercial banking in the 90s, the heavy competition caused the collapse of the small banking institution. They could not survive the competition of the national and international business lenders. But they also didn’t know the local ‘hoods, either… thus an increase in risk by being blind to the actual specifics.

Then comes Bill Clinton. Again, from Husock’s article in the winter of 2000.

The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.

One of the examples of the left wing community groups (and obviously their “community organizers”) is ACORN. On one of their releases, they have a report/press release proudly touting their battles against CRA reform that may exempt banking institutions from the CRA examinations of compliance – ala mandated redlining lending – for those with aggregate assets of no more than $100 million…. HR 1858.

When the House Banking Committee considered the bill, ACORN was there in force. Denied the right to testify on the proposed legislation, ACORN president Maude Hurd stood up when mark-up began and demanded to be heard. Subcommittee Chair Roukema (R-NJ) called the Capitol Police who took Maude and four other ACORN leaders to D.C. central booking where they were charged with disrupting Congress. Requests from Rep. Joe Kennedy and Sen. Edward Kennedy to release the ACORN activists failed, and it was not until Rep. Maxine Waters (D-CA) showed up at the jail and refused to leave that they were released late that night. Meanwhile, as mark-up continued in subcommittee, ACORN members again displaced the industry lobbyists who were forced to watch the proceedings on closed circuit television. When the full Committee took up the measure ACORN supplanted the lobbyists once more, this time packing the overflow room as well, leaving many lobbyists in the hallways.

Amazing they spit out the word “lobbyist” with such venom. For when you think about it, what is ACORN but just another “lobbyist” organization?? oh well… They seem to live in a alternative universe.

The problem with Clinton’s reforms is he did not take into consideration the face lift on banking. Now the bank’s efforts to prove they weren’t redlining – or showing discriminatory practices – had to be shown with “the numbers”…. In essence, having high risk loans now became mandatory. These reforms commenced Jan 1st, 1995.. just before the GOP majority Congress took over after their midterm election sweep. This was a desperate act by Clinton, rewriting the regulations, knowing it would be rejected if he submitted it to the new GOP Congress.

During the seventies and eighties, CRA enforcement was perfunctory. Regulators asked banks to demonstrate that they were trying to reach their entire “assessment area” by advertising in minority-oriented newspapers or by sending their executives to serve on the boards of local community groups. The Clinton administration changed this state of affairs dramatically. Ignoring the sweeping transformation of the banking industry since the CRA was passed, the Clinton Treasury Department’s 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count. Where and to whom have home loans been made? Have banks invested in all neighborhoods within their assessment area? Do they operate branches in those neighborhoods?

~~~

The CRA’s premise sounds unassailable: helping the poor buy and keep homes will stabilize and rebuild city neighborhoods. As enforced today, though, the law portends just the opposite, threatening to undermine the efforts of the upwardly mobile poor by saddling them with neighbors more than usually likely to depress property values by not maintaining their homes adequately or by losing them to foreclosure. The CRA’s logic also helps to ensure that inner-city neighborhoods stay poor by discouraging the kinds of investment that might make them better off.

Written in the winter of 2000… sounds like it could have been written yesterday.

In 2003 and on, the Bush WH was actively pursuing Fannie/Freddie reform since they could see the handwriting on the wall for potential massive default. By then, they had issued $1.5 trillion in debt.

Yet supporters of Fannie/Freddie (uh… DNC…) argued that tighter oversight with the changes may make it more difficult to finance loans for the lower income families. Yet it was these very loans that were at the source of the problem.

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Franof Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Will those words return to haunt them today? With our research-deficient MSM…. unlikely.

UPDATE: Now, what Congress members would like you to believe is that securitization, or the bundling of loans to sell interstate as MBSs (mortgage backed securities), then repackaged yet again for resale, is the problem. Yet intersale of assets is necessary to provide opportunity for more buyers.

The reality is that had non-risky loans been packaged, and risky loans had been avoided, none of this would have happened, and the MBSs would be stable. Thus, the problem is not that loans were bundled, but that BAD risky loans were bundled.

See more on this at Countering the DNC blame game from Oct 4th.

So here’s the point. Before we scream for “regulation”, we need to realize it was *regulation* that put us in the quandary that placed the final component into the perfect storm…. the mandated increase of high risk loans. The specifics of any regulation/deregulation really need to be poured over carefully…

THE PERFECT STORM

The Clinton “improvement” of CRA was done in 1995. Now… look at the charts above one more time. Notice that from 1989 to 1995, the home prices remain relatively flat. Now notice that the increase in home prices corresponds to Clinton’s revamping of CRA, and his new mandates to prove compliance by firm numbers.

Now we see a clearer picture to “the perfect storm”.

The mandated easy money (documented by actual loan numbers and not intent) to high risk lenders was accomplished by the creative loan packaging…

The influx of so many buyers from the low rates and exotic loan packages flooded the inventory with ready and able buyers…. this led to overinflated prices of homes and the big boom of 2004-2006…

… which led to the inevitable foreclosures of the high risk buyers. They were unable to refi because of the inflated value…

…finally setting the stage for the high lending losses today – money the banks put out for inflated property values that can not be recouped in a resale in today’s market.

Not so much of a surprise when you see the overview, yes?

Now, let’s reconsider that $700 bill bailout in bad notes… is it really that much? How many of those homes can be resold for a realistic value? Let’s say the average overinflated value in the notes is 25%. That’s $125 billion in lost equity. And that’s considerably less than the $700 billion.

Are we “over bailing” the boat??

About MataHarley

Vietnam era Navy wife, indy/conservative, and an official California escapee now residing as a red speck in the sea of Oregon blue.
This entry was posted in Economy, Real Estate & Lending. Bookmark the permalink. Monday, September 22nd, 2008 at 6:20 pm
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77 Responses to US Economy – A “perfect storm” of housing and lending events

  1. Nan G says: 51

    I’ve been in our condo since 1988, that’s 22 years.
    In that time I’ve watched as people tried to turn a little place (within our condo complex) by the beach into an investment.
    Failures all.
    Utter failures.
    Widows who spent their late husband’s legacy buying up four condos only to have one rent-f’er after another trash the places until the widow died and left the mess (and squatters) for the bank to deal with.
    Men who aspired to be millionaires by age 35 are now in their late 50’s with only woe to show for all their purchases.
    Out-of-town absentee owners who get calls from police and city council about their problem tenants’ drug dealings.
    Nope.
    It does not work.
    A home is a home, not an investment.
    Buy it.
    Live in it.

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  2. MataHarley says: 52

    Not necessarily true, Nan G. Sounds like too many watched the late night “flip and get rich” come on shows. Those guys didn’t get rich flipping. They got rich convincing others to flip. LOL

    But actually, investors purchasing homes, fixing them up and either selling or renting is a good business. It is, like anything, a numbers game. You have to buy in low enough that accommodates for the expenditures you layout in repairs. Problem is, most overestimate the finished value and “over improve” for the neighborhood and market. That is because they 1: do not have access to the data to assess a real market value after improvement, 2: they underestimate the repairs that are needed and the costs, or 3: the market takes a long term dump before their holding time is up.

    But I assure you, real estate is a business as well as preparing properties for other people’s “homes”. It’s just too many have gotten into a business they are ill equipped to do profitably.

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  3. Mata I said no one needs 3 5000 square foot homes and garages filled with exotic cars.Agreed?

    In S.Cal foreclosures are taking place across the board.Multi million value thru 200,ooo- value.My point was people started believing they could get rich by simply acquiring R.E. and watching it appreciate at unsustainable rates.Making it easier for working class families to obtain owner occupied loans was NOT the problem.Greed was the problem.
    Can I assume you’ve never been a Realtor?

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  4. Nan G, hi, LAST summer I went with my neighbord farmer to a place, milles out of the main road, and
    miles of blueberry fields as far as the eye can see, deep inside the farmeland, and end up
    at an old farm alone in the middle of nowhere, my friend was buying some rubber mats for her horses,
    there was a house 3 floors very high, all in pink bricks and many windows, I aske the older woman
    if I may ask her the age of the house, she became very talkative about it being 300 years old, and pass along all those generations to her being the final owner, she was slowly getting ready to leave the house,
    and very sad that none of her children would take the farm, that beautiful house was very facinathing for me,and her story also. bye

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  5. MataHarley says: 55

    rich wheeler: I said no one needs 3 5000 square foot homes and garages filled with exotic cars.Agreed?

    Agreed? Hell no. Who the heck are *you* with the idea you decide what they need? Or how many vehicles, exotic or not, are needed? Forget that crap. Not even close in “agreement”, rich.

    To the last “can I assume”, you assume completely wrong. My living has been in real estate for the past decade, and my following of it for the past two decades. Your notion that “greed” is the problem holds true in some (very few) instances, but not in the majority of my experiences at all. To which I can only assume that your own personal experiences in real estate have to be very dated indeed.

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  6. Hard Right says: 56

    Liberals sure love to tell others what they “need”, don’t they?

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  7. MataHarley says: 57

    @Hard Right, even more funny, they think we buy into their bizarre notions. :0)

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  8. Hard Right says: 58

    Rich must not know you Mata………at all.
    What’s really interesting is that when we don’t agree with them, they think there is something wrong with us!

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  9. MataHarley says: 59

    @ilovebeeswarzone, one of my favorite things is the classic crop and/or equestrian farms. The homes, when renovated or restored, command good prices among the buyer market who feels the same about the architecture and history. But there is no denying that improvements can always be changed, but land always commands value.

    Sorry to hear that you believe the home may lose it’s history, but the farmland, combined with the house has great value to the right buyer. Even if not, the land itself has great value to a prospective buyer. Whatever that woman’s joy in her lifestyle there, it can be recaptured… whether it’s that home standing, or a new home in it’s place.

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  10. Mata My California R.E license is current and has been since 1977.A “bizarre notion” that questions one’s need for multiple mansions and automobiles.There we truly differ.

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  11. Greg says: 61

    The market is telling us what people need. Apparently 5,ooo square foot homes aren’t quite so needed as was once widely believed. If someone actually needs one, now is certainly the time.

    Maybe we should all downsize.

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  12. MataHarley says: 62

    …. and your active RE license status means just what, rich? I know many people that hold various professional licenses, and don’t use them. Big deal. That’s called pay a fee, and show a few hours of CE every couple of years.

    More importantly, are you in the habit of telling prospective buyers you evidently pretend to “represent” that they have “no need” for the homes they choose to shop for? Do you congratulate homeowners, selling the homes you apparently personally disdain, as becoming more moral in your view?

    Or do you just keep quiet and line your own pockets while sitting in judgment, silently?

    Yes… you and I couldn’t be further apart on what America is all about, rich.

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  13. MataHarley says: 63

    Greg, why don’t you document for us just how many of America’s homes are 5000sf? Do you guys think this is the norm, fer heavens sake?

    It’s a good time to find anything from 600sf to 8000sf in a home, if you’re in the market to purchase with a lower rate, and feel secure in your employment or self employment. What difference does the size of the home possibly make to either you, or rich? And what business is it of either of your’s?

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  14. Yes Mata it appears you and I are definately far apart on what America is all about.

    Note The median price for a SFR in Orange County is about $475,000 down from a high of about $690,000 in early 2007.

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  15. MATA, yes your right, I value the land more than the house, because a house without land is missing,
    and not complete, that is what is missing for many people, no matter how big their house if there
    is no land, they will never fully appreciate their house,they don’t realyse it but it’s true,
    better a humble house with big land than the other, that’s my view of observing other houses and the people living in it.

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  16. rich wheeler, AMERICA IS not as free as the people living in it, SHE demand that you earn
    that freedom SHE is giving you, and not forget HER, otherwise SHE will be UNHAPPY,
    and when AMERICA is UNHAPPY, the AMERICANS are UNHAPPY too.
    bye

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  17. MataHarley says: 67

    Well, obviously you aren’t hanging in Laguna, Newport or Villa Park, rich. Then again, your’re also not hanging in Anaheim or La Habra either. Fullerton areas are running about that price range. Larry’s HB is running about $140K higher than that as a Dec average… Yup… even we podunk country types have access to Trulia and Zillow for approx values out of the area, so yes… I’m aware of CA values. Often check in with them as CA is usually a bellwether for the rest of the nation.

    As far as I can see, the celebration of recovering housing is way premature.

    **Using your own supplied area specific figures, this makes Lew correct in assessing 12 years or more before even breaking even with 2007 values. In your case, averaging 3% annually starting this year – and no double dip housing recession – it would take 13 years to get back to $602K, and 14 years to get to $620K value. Way to go, Lew…. someone who knows his math. You’re not anticipating any double digits anytime soon, are you?

    **UPDATED Correction: Saw two different numbers in my email version… i.e. $410K current to $602K past value. Using your replaced(?) numbers of $475K, down from $690K, it will *still* take 13 years to get back to $697,553. At 12 years, you’d still be below that 2007 value at $677,236…. Meaning, Lew is still right.

    But going back to the size of homes, which is what seems to irk you the most, let’s take Fullerton… da heart of Orange County… for example. Trulia has their average price per SF at $282. From Oct to Dec, the average sale price was $376K, based on 295 home sales there. Hummm…. a $376K house at $282 per living sf. My my, that’s an average home size of 1333sf in size… considerably smaller than those that offend you, Rich.

    Let’s move over to San Clemente, shall we? Average sales price per Q4 was $602,500 based on 238 home sales. Average price per sf? A whoppin’ $428 per living sf in price. ouch…. Dang those Pacific Ocean views are expensive. Now what does that make the average size of the home there? 1407 sf.

    Where oh where, rich, are all these 3500-5000 sf homes you (and Greg) rail about? As I said, they are not your normal for the majority of American homes. Those who don’t want “the normal”? Hey, it’s America. Have at it.

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  18. Mata Thanks for your studied response .Adjusted values reflect SFR vs “all homes” which includes condos.No question it will take a long time to get back to grossly inflated o7 prices.

    I can assure you large communities like Newport Coast and Coto de Caza have a substantial % of homes over 4000 sqft.Newport Beach and Laguna Beach where I worked in res. sales have hundreds of mcmansions selling from 3 million to 15 million,still down 25-35% from 07 highs.I’ve been primarily in the mortgage business the last 20 years so missed the boom in values generally working in $100,000-$300,ooo range 1977-1990.
    As a mortgage broker/banker in recent years I’ve funded loans from $50,000 to $3,ooo,ooo.
    Believe me I find joy in helping families buy or finance as big and as expensive homes as they think they can afford to Live in.
    People buying multiple homes on the flip or “greater fool theory”(someone will pay more in a year) do bother me.
    The guy next door to me here in San Clemente in a 1700 sq.ft. home has a Porsche,a Vette,a Lexus and 3 Mercedes and asked to rent half of my garage which houses a 2000 323 i conv with 130,000 miles and a 2005 Mitsubishi S.U.V. which is for my wife and our 2 Goldens.So he often parks in front of my house.Sorry I’m venting.
    Personally I kinda enjoyed the congeniality witnessed last night though I suspect it won’t last long.

    Semper Fi and best of luck in your R.E. career.

    ReplyReply
  19. Missy says: 69

    We are in our 7th home in 30 years. Be bought, fixed them up and moved on, the home we sold in 2002, we had built, lived in it for 5 years and made $44,000, the home before that, we cleared $33,000 after 5 years, that was a HUD repo, nice home, didn’t have much to do other than a good cleaning and a few repairs. As we were pulling the plywood off the doors and windows our new neighbor came by and informed us that an armed bank robber lost that home, we later found out he was still at large so we added new locks and security doors to our plans. He never showed up, all we ever got was a note on the door from the FBI asking us to call, when I called the agent said he was just looking for the bank robber.

    We basically were paid quite nicely to own all those homes, sweat equity. Don’t know if it would be possible to do what we did in today’s market. But, outside of our home we will move to in Missouri, none of the homes we purchased were ever considered a lifetime investment.

    ReplyReply
  20. rich wheeler, hi, next thing your neighbord will want to by your house to put his extra treasures in it,, bye

    ReplyReply
  21. MSBees Extra treasures could be,though with all those car payments doubt he can afford my home BYE

    ReplyReply
  22. MISSY, hi, that is a smart way to earn extra, money If you can repair the problems of the house,
    specialy today you would have the agency to have the expert going around, and see if it is environment adequate or if not you can’t sell it before it’s done.

    ReplyReply
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  25. Jenny Smith says: 73

    Forbes and all the rest of you brainiacs have got to get real. Why do you keep on trying to make your voodoo turnaround work? The Greedy financial geniuses forced the economy out of kilter and the genie is not going back into the bottle until the ones who pulled it out remove the excess fat so that it can fit back into the bottle.

    There are more foreclosures than the industry have brought to light. The industry is allowing some defaulters to remain in their homes FREE, because they don’t want the REAL number of foreclosures to show up on their books. My daughter is one of those lingering in limbo for more than a year. Still trying to manipulate the system hoping they don’t have to pay the pauper for their dirty deeds of creating this greedy monster in the first place. They still want to continue their runaway greed. But, I don’t think it’s going to work. They, the financial industry, has created its own checkmate and what they leave us – the opportunity of taking installment loans in order to live for another paycheck. I predict that one, of two things, will happen. The industry will either eat their self-created losses or there will be a Worldwide financial BUST.

    ReplyReply
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