More Random Thoughts On Housing And Lending

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Millionaire Now! by Larry Nusbaum

This blog is based on the organizational principles found in my new book, "Millionaire Now! - A Financial Toolbox with Seven Steps to Wealth".

More Random Thoughts On Housing And Lending

Posted on 03/17/2007 14:16 PM | Link | Post Comment

I believe there is a coming storm in the Phoenix housing market that no one is talking about that will only add to the housing dilemma. What is it? The sudden explosion in property valuations by the county (Maricopa) assessor. My own residence saw a 67% increase in valuation for 2007 (over 2006) and a bump of another 11% for 2008 over the increased 2007 level. It will mean hardship for many as the increases will be added to the woes created from dealing with ARM resets. And, there is no way to fight the valuations since they are probably still under actual values. It's just that the "sticker shock" will lead, in my opinion, to a tax revolt similar to the one experienced in California back in 1977.
Remember back after the stock market crashed in 2000/2001 there were law firms advertising for clients who lost money in the market to sue their brokers? A cottage industry was born and is still going on today. Lose money, blame (sue) your broker. And, to a large extent, it worked. Lawyers made a fortune.....Well, get ready for part two! The lawyers should all gather in a convention to learn how to sue the lenders who "forced" people into "bad" loans in which nothing was explained. I believe that many who lost their homes will and can recovery lots of money. I don't think they should, however.
There are some in congress and on Wall St. calling for a bailout for sub-prime lenders. They don't need it, let them close. It won't do a thing for the homeowners. Unless............and only if, they are allowed to go back and refinance all of the predatory-like loans into conforming loans, thus possibly saving their borrowers financially when they need it most and taking NO fees for doing so. This is absolutely the wrong time to shut off credit to people who need to restructure their mortgages the most! And, banks do not want to own houses.
Every Saturday I post the WEEKLY MORTGAGE RATES as another of the many financial tools available on my blog. In the post each week I say, "Do not refinance your house and combine consumer debt for the purposes of Debt Consolidation. Most lenders do not agree with me. However, why make unsecured debt secured by your home? Isn't that, in theory, putting your household at more risk than not in case something goes wrong?" Now, you know why I have always felt this way. I am also against using the equity in your own home to buy more income property. Always have been.
Just finished reading Your Home Isn't the Nest Egg That You May Think It Is from the WSJ. This type of thinking is starting to pop up everywhere and I don't get it. Who wouldn't want the comfort & safety of owning a home? And, the fact that equity builds up over a long period of time and can eventually be turned into income at retirement is great. Unless, of course, you live live with mom until age 65.
$1,300...$2,000...there goes your mortgage from CNN Money profiles a sub-prime borrower who got into trouble. "But the larger loan was fixed for just two years. After that, the rate would adjust every six months, which is typical for subprime borrowers. " They can't claim that they didn't know that the payment wasn't going to increase after the 2 years. "Fast forward a couple of years, and the Sanons, like so many other subprime borrowers today, are struggling to keep their heads above water. As the housing market boomed, refinancing or selling your home was a simple solution for borrowers who had trouble making the mortgage payment. Now that the housing market has stalled, subprime borrowers are stuck with loans they really couldn't afford in the first place." That's both true and unfortunate. Exactly why they need access to credit as I outlined in 3 above.
Subprime loans accounted for 19% of originations nationally in 2006. See the list by market HERE. Most were in California. I have heard that the percentage of all existing sub-prime loans is somehwere between 5-10%. Only 4.84% are delinquent. In 2006, 0.50% of credit worthy borrowers were delinquent. The worry is that the "liar loans" in the prime market may become an issue. No one really knows. Just another something to worry about that doesn't really affect you and me. So, why worry?
In the October, 2005 issue of Money Magazine Columbia University professor Chris Mayer calls San Francisco (and a few others) "Supercities" stating, "To be a supercity, you need two things: limited ability for new construction and big demand. San Francisco is the extreme example of a supercity: Since 1940, housing prices have increased 2.1% more each year than they have in other cities. These cities are simply attractive places to live for high-income people to live."
His conclusion: that despite the recent boom, prices in most big cities have remained in line with long-term trends.
SoCal homes were again a hard sell. But prices hit a new high, DataQuick reports. Highlights of the February stats:

• Last month's sales were the lowest for any February since 1997.

• The median price paid for a Southern California home was a record $495,000 last month, up 2.1 percent from $485,000 in January and up 5.3 percent from $470,000 in February last year. The previous record was $490,000, reached in both June and December of last year.

• Last month's 5.3 percent annual rise in the median was the highest gain since July 2006, when the $487,000 median rose 5.9 percent.

Read entire report HERE

FANTASTIC: Los Angeles to San Francisco in Ten Minutes by Video from CurbedSF
Commercial real estate syndicates and commercial property REITs continue to thrive. There are several reasons:

1. Commercial real estate is in short supply in many places. Look around Manhattan. The endless construction is residential spec, not office spec. Ditto for much of the country. Think of all those houses that were built during the recent residential boom. All those people have to work somewhere.

2. Rents continue to explode. If you're in finance, you need to be in town where you can entertain your well-heeled clients. And you'd better have nice digs.

3. Interest rates are low. So buildings can be leveraged nicely.

4. Big portfolio owners are selling off big collections. Some syndicators are finding beauty in size.
Bay Area homes selling at 11-year low, DataQuick says today ...
A total of 6,305 new and resale houses and condos sold in the nine-county Bay Area last month. That was up 2.2 percent from 6,168 in January, and down 7.9 percent from 6,844 in February last year, according to DataQuick Information Systems.

February has averaged 6,600 sales since 1988. Last month's sales were the lowest for February since 1996, when 5,940 homes sold. January sales were also at an 11-year low. On a year-over-year basis, Bay Area sales have fallen for 25 consecutive months. The declines have generally eased each month since sales fell 32.4 percent last July.

The median price paid for a Bay Area home was $620,000 last month, up 3.2 percent from $601,000 in January, and up 0.3% percent from $618,000 in February last year. The Bay Area median peaked last June at $648,000. Since August the year-over-year change in the median has hovered near zero, ranging from a decline of 1.5 percent to a gain of 1.6 percent. San Francisco's Median increased 2.4% to $757,000 and Marin by 3.8% to $829,000. Napa and Sonoma are not really part of the Bay Area, but still counted by DataQuick.

"This is what we mean by a market 'flattening out' in terms of price appreciation," said Marshall Prentice, DataQuick President. "Given the normal month-to-month wobbling of the median, prices just couldn't look much flatter than this."

To read more, CLICK HERE

Also: LA the top U-Haul destination in 2006, SF at 36
Morning Opera At Caffe Trieste

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