Feeling like 2006...

Happiness said:
Life is like Monopoly, you can survive by just passing Go, but to win, you must buy property.
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46142b_fORREST-GUMP-rich-visore.jpg
 
Happiness said:
Life is like Monopoly, you can survive by just passing Go, but to win, you must buy property.
Click to expand...

Ha ha, here's why we have a inventory shortage here, people keep hording up houses.  :)


 
Compressed-Village said:
The next crash will be a big drop in buyers demand. The real estate transactions volumes will craters.

With the lessons from the last crash, lenders will be hesitant to process their foreclosures quickly and flood the market with REO. Plus, most of the loans today are 30-year fixed-rate mortgages which historically have proven much more stable. In all likelihood, the next market deflation will be a long, slow grind as prices gently fall along with affordability limits.
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This is the argument commonly made by Larry but you have to ask yourself what type of loans are being originated now?  Everybody loves to point to "stable 30 year fixed rate" loans being the norm, but it's not often pointed out that FHA loans are the new subprime and aren't nearly as stable.  These are the loans that go to the weakest borrower profiles (low down payment, low FICO, high DTI, high LTV). 

The thing that most people don't realize about FHA loans is that HUD has very strict guidelines about how quickly these need to be foreclosed on in the event of default.  Lenders simply won't have the option of extending and pretending like they did with subprime and alt-a loans during the bust.  If they fail to meet HUD guidelines, not only are they penalized, but the penalties can be treble damages!  HUD takes it's duty to protect the FHA insurance fund very seriously.  Secondly, you have to remember that GNMA is the largest purchaser of FHA loans, so these aren't as likely to sit on lenders' balance sheets the way subprime and alt-a were back in the day.  In other words, lenders have no incentive this time to avoid foreclosing on loans that go bad.

I think the next bust will be more regionalized like the busts of the 80's and 90's.  It won't be one big nationwide bust like the Great Recession.  Locales that get hit hard by smaller, regional recessions AND have a high concentration of FHA loans will be the places to score deals on houses.
 
Hey Paperboy (or anyone), how do you see mortgage amounts & rates on a property?

Okay I'm convinced. Can't lose with Irvine real estate.  It IS affordable.  Everyone who is anyone around here plops down a 50% + down payment, can't compare any income stats because Irvine is a snowflake where everyone crushes it except for students, absolute worst case is single digit dip in prices followed by quick double digit gains.  All is well.  Nothing to worry about.
 
Liar Loan said:
Compressed-Village said:
The next crash will be a big drop in buyers demand. The real estate transactions volumes will craters.

With the lessons from the last crash, lenders will be hesitant to process their foreclosures quickly and flood the market with REO. Plus, most of the loans today are 30-year fixed-rate mortgages which historically have proven much more stable. In all likelihood, the next market deflation will be a long, slow grind as prices gently fall along with affordability limits.
Click to expand...

This is the argument commonly made by Larry but you have to ask yourself what type of loans are being originated now?  Everybody loves to point to "stable 30 year fixed rate" loans being the norm, but it's not often pointed out that FHA loans are the new subprime and aren't nearly as stable.  These are the loans that go to the weakest borrower profiles (low down payment, low FICO, high DTI, high LTV). 

The thing that most people don't realize about FHA loans is that HUD has very strict guidelines about how quickly these need to be foreclosed on in the event of default.  Lenders simply won't have the option of extending and pretending like they did with subprime and alt-a loans during the bust.  If they fail to meet HUD guidelines, not only are they penalized, but the penalties can be treble damages!  HUD takes it's duty to protect the FHA insurance fund very seriously.  Secondly, you have to remember that GNMA is the largest purchaser of FHA loans, so these aren't as likely to sit on lenders' balance sheets the way subprime and alt-a were back in the day.  In other words, lenders have no incentive this time to avoid foreclosing on loans that go bad.

I think the next bust will be more regionalized like the busts of the 80's and 90's.  It won't be one big nationwide bust like the Great Recession.  Locales that get hit hard by smaller, regional recessions AND have a high concentration of FHA loans will be the places to score deals on houses.
Click to expand...

I tend to agree with you that FHA loans are the new subprime loans today.  That being said, I think out of all the offers on my listings and all of the buyers that I've worked with for the past 3-4 years for Irvine properties I've only seen 3 offers with FHA loans.  I am fairly certain that FHA loans are very rare in Irvine, but more common in other areas.  So that is another reason that when the next downturn comes, Irvine home prices will outperform most other cities again.
 
zubs said:
What's better?
Maxing out 401K and IRA every year, or collecting rental properties throughout your life.
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Why is it framed as an either/or question?  Here's my game plan:

1. Contribute to 401k enough to get the employer match
2. Max out Roth IRA's
3. Use HELOC against primary residence to buy rental properties that cash flow
4. Use any remaining savings to buy stock in a trading account, or pay down debt, as necessary.

Optional:  Contribute a higher amount to 401k to lower yearly tax burden
 
USCTrojanCPA said:
I tend to agree with you that FHA loans are the new subprime loans today.  That being said, I think out of all the offers on my listings and all of the buyers that I've worked with for the past 3-4 years for Irvine properties I've only seen 3 offers with FHA loans.  I am fairly certain that FHA loans are very rare in Irvine, but more common in other areas.  So that is another reason that when the next downturn comes, Irvine home prices will outperform most other cities again.
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Yes, I don't think Irvine is going to have much FHA activity but there are neighboring cities in OC that do, as well as probably most cities in the IE.  Even with stable financing and higher down payments in Irvine, you could still see stagnant or slightly declining prices because buyers will substitute down to other areas if prices go on sale nearby.
 
someguy said:
Hey Paperboy (or anyone), how do you see mortgage amounts & rates on a property?

Okay I'm convinced. Can't lose with Irvine real estate.  It IS affordable.  Everyone who is anyone around here plops down a 50% + down payment, can't compare any income stats because Irvine is a snowflake where everyone crushes it except for students, absolute worst case is single digit dip in prices followed by quick double digit gains.  All is well.  Nothing to worry about.
Click to expand...

You can't. I looked up historical rates for my calculations and put them in a loan amortizer to calculate the payments.
 
Liar Loan said:
USCTrojanCPA said:
I tend to agree with you that FHA loans are the new subprime loans today.  That being said, I think out of all the offers on my listings and all of the buyers that I've worked with for the past 3-4 years for Irvine properties I've only seen 3 offers with FHA loans.  I am fairly certain that FHA loans are very rare in Irvine, but more common in other areas.  So that is another reason that when the next downturn comes, Irvine home prices will outperform most other cities again.
Click to expand...

Yes, I don't think Irvine is going to have much FHA activity but there are neighboring cities in OC that do, as well as probably most cities in the IE.  Even with stable financing and higher down payments in Irvine, you could still see stagnant or slightly declining prices because buyers will substitute down to other areas if prices go on sale nearby.
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Agreed other less affluent cities have more FHA buyers and so those areas will see higher price declines than Irvine because the buyers are more levered.  You'll definitely see price declines in Irvine when (not if) we get a recession but I doubt it'll be anything north of 10% like some people are hoping for unless China and/or Europe implodes.
 
paperboyNC said:
someguy said:
Hey Paperboy (or anyone), how do you see mortgage amounts & rates on a property?

Okay I'm convinced. Can't lose with Irvine real estate.  It IS affordable.  Everyone who is anyone around here plops down a 50% + down payment, can't compare any income stats because Irvine is a snowflake where everyone crushes it except for students, absolute worst case is single digit dip in prices followed by quick double digit gains.  All is well.  Nothing to worry about.
Click to expand...

You can't. I looked up historical rates for my calculations and put them in a loan amortizer to calculate the payments.
Click to expand...

Actually you can but you would need an account here:
https://www.fidelitypassport.com/
 
someguy said:
Can you guys believe this fake news? http://www.ocregister.com/2017/05/1...-an-orange-county-house-now-at-154120-a-year/

These journalists just don't get it.  OC is not like anywhere else.  Homes ARE affordable, the stats are not reliable, we're all making 50% + down payments, we're killin it with 200k incomes per capita, OC real estate has no where to go but up.

/s
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The basis for that article is the CAR affordability ratio, which shows that 21% of OC residents can afford a median priced house ($750k).  There are two other historical periods that match the lack of affordability we are seeing, 1990 and 2002.  The first, 1990, was about a year before the market peaked.  The second, 2002, was a year that many people thought the market was peaking (Jon Lansner at the OC Register famously predicted 2002 would be the top).  Instead, prices continued their march to insanely high levels due to the explosion of affordability products.

So based on the CAR affordability ratio, the market doesn't feel quite like 2006 but rather 2002.  Yes, the market is overpriced, but not inflated into a financial bubble like it was in 2006.  For prices to continue increasing at this rate something needs to create more affordability.  Either wages need to rapidly increase, interest rates need to keep hitting new lows, or the introduction of "affordability" products needs to resume once again in the mortgage industry.
 
I am ALL for tight restriction and heavy handed scrutiny on mortgage loans. If you can truly afford a home, then get it. Otherwise it will maybe an equation of disaster on your own making. Financially ruin is the worse.

What is wrong with renting????
 
Compressed-Village said:
I am ALL for tight restriction and heavy handed scrutiny on mortgage loans. If you can truly afford a home, then get it. Otherwise it will maybe an equation of disaster on your own making. Financially ruin is the worse.

What is wrong with renting????
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People on TI don't like the R word. (rent)

My thoughts if you can't afford it then don't buy. My own belief is 20% down or more is the key. Makes the loan affordable in general, depending on the property value. Also, pmi is stinker and those other options 1st and 2nd to avoid PMI, I wouldn't do it.

 
Compressed-Village said:
Unless, they are investors and landlord.i guess it's good for them either ways.
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Also, I would have reserves if the tenant doesn't pay. It can take a while to evict a person. If the person drags their feet through the process.
 
Liar Loan said:
The basis for that article is the CAR affordability ratio, which shows that 21% of OC residents can afford a median priced house ($750k).  There are two other historical periods that match the lack of affordability we are seeing, 1990 and 2002.  The first, 1990, was about a year before the market peaked.  The second, 2002, was a year that many people thought the market was peaking (Jon Lansner at the OC Register famously predicted 2002 would be the top).  Instead, prices continued their march to insanely high levels due to the explosion of affordability products.

So based on the CAR affordability ratio, the market doesn't feel quite like 2006 but rather 2002.  Yes, the market is overpriced, but not inflated into a financial bubble like it was in 2006.  For prices to continue increasing at this rate something needs to create more affordability.  Either wages need to rapidly increase, interest rates need to keep hitting new lows, or the introduction of "affordability" products needs to resume once again in the mortgage industry.
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https://www.zillow.com/research/rent-affordability-2013q4-6681/

Rent affordability ratio is off too. 

https://wp.zillowstatic.com/3/Make_Room_Preso-8e25cc.pdf

If anything rents are overpriced. 

http://www.doctorhousingbubble.com/price-to-income-share-of-income-spent-on-rent-and-mortgages/

Since inventory is low, average days on market is low, rents are high, and home prices have been going up I don't think home prices are going to go down anytime soon.
 
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