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Do we have another bubble?


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2012 Apr 21, 6:37am   18,453 views  41 comments

by REpro   ➕follow (0)   💰tip   ignore  

Very high demand vs. low supply created situation with common multiple offers. Now properties get bids of 10%-40% above asking price including endless cash offers, in most areas. In next month we will have all new houses offered with price adjusted to new sells records. Is this sustainable? Is it a new trend or temporary run-up?

#bubbles

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21   everything   2012 Apr 23, 9:20am  

Yeah, the bubble of fear that interest rates are going up in 2014, buy now or be priced out.

22   drtor   2012 Apr 23, 9:41am  

PockyClipsNow says

All you need is a measly 250k and you can get a 729k FHA loan and live in the fortress with a non recourse mortgage. I'm pretty sure this is most of the buying activity. Sure more cash offers than ever but also more 729k loans than ever. Very odd but this situation is here to stay.

I am curious about this comment. In this case your down payment would be around 25%, is there much benefit for getting an FHA loan in this case?

Also I am not all that convinced that FHA support will stay in its current form. Our political overlords are being pushed into a corner where they have to chose between FHA bailouts or stricter FHA terms and they have shown some willingness to accept the latter. The max limit has already gone back and forth between 630k and 730k it could easily happen again. And just this month FHA fees were increased significantly, that is why I ask if it is even to your benefit to get them if you have a 20%+ down payment (and good credit).

23   REpro   2012 Apr 23, 10:06am  

Thanks everyone for your input.
I’m still afraid that v. low inventory can propel house prices to a new much higher level, by hungry cash investors. At some point banks can refuse giving new mortgages for regular buyers. That may create situation: “NO Cash - NO House Amigo.”

24   eastbay19   2012 Apr 23, 2:48pm  

Whether this is a bubble or not depends on how you define 'bubble.' My sense is that the bubble has not fully deflated in Oakland (where I've rented for 15 years and am looking to buy), at least not in the middle tier.

Prices are certainly not PEAK bubble prices (those were literally insane), but there are still lots of houses in the mid tier selling for prices that seem ridiculous to me.

I did a free search at foreclosureradar.com for all the shadow inventory in Oakland, and compared it to the active listings at Redfin. (I subtracted active REO listings from the foreclosureradar.com total of REOs, which includes off-market ones).

Redfin showed 693 active listings (houses, condos, townhouses, 1+ BR, in all price ranges).

Foreclosureradar showed about 1,650 in the shadow inventory - off-market REOs, 'preforeclosures' (Notice of Default has been issued), and 'auction scheduled.'

Also, a knowledgeable source told me that for every 'preforeclosure' listed, there are TWO loan owners who have defaulted but on whom the banks haven't yet taken action.

In other words, Oakland's shadow inventory is more than DOUBLE the amount of active listings, and if my source is correct, there could be another 1,200 that haven't yet entered the pipeline.

So...the banks are trying to slow the popping of the bubble by controlling inventory, and the government is helping by providing FHA insurance on loans with as little as 3 percent down. No, you don't need 20 percent down. (In fact, I just saw a Redfin listing for a $500k fixer in the Oakland hills that's a Fannie Mae Homepath property, and the first line of the description is 'Own this house for as little as 3 percent down!')

According to data quoted at the doctorhousingbubble blog, low-downpayment FHA loans are almost THREE TIMES more likely to default than loans with 20 percent down.

REpro - I don't think the banks are going to refuse to issue mortgages to qualified borrowers, because the government owns Fannie and Freddie, and they're buying the loans. If they get in trouble, we taxpayers will just bail 'em out again.

In some ways, it seems to me it's not that different from what happened during the bubble, except that liar loans are presumably not being issued any more, and the prices aren't as insane.

That's my $0.002 worth. (extra zero intended)

Edit: By the way, per Redfin, March inventory in Oakland was down over 43 percent compared to March 2011; in Berkeley, it was down over 46 percent.

25   REpro   2012 Apr 23, 3:53pm  

REpro says

At some point banks can refuse giving new mortgages for regular buyers. That may create situation: “NO Cash - NO House Amigo.”

50% loans turn away ???
http://realestate.msn.com/potential-homebuyers-hit-mortgage-brick-wall

26   eastbay19   2012 Apr 23, 4:12pm  

I wonder what the numbers are like in the Bay Area; the broker in that article was in Washington state, and I suspect he might have been exaggerating.

As for the folks in Illinois who can't qualify - what's wrong with renting a house? I don't get it. I don't hear of rentals being terribly expensive except for major coastal markets like the Bay Area, New York City, Boston, etc.

27   hanera   2012 Apr 23, 5:54pm  

REpro says

REpro says

At some point banks can refuse giving new mortgages for regular buyers. That may create situation: “NO Cash - NO House Amigo.”

50% loans turn away ???
http://realestate.msn.com/potential-homebuyers-hit-mortgage-brick-wall

I've been wondering why would banks lend out money when mortgage rate is so low and is expecting to increase eventually. Now, I know they don't want to, merely lending to good credit borrowers just to appease Fed.

Most experts expect mortgage rates to rise eventually, along with the cost of living. Then, your 30-year loan at 4.25% won't look so good on a bank's balance sheet if it could earn 6.5%. "Banks are saying, 'We don't want to get carried away making a lot of 30-year mortgages. If we do, we're stuck,'" Barth says.

28   xenogear3   2012 Apr 23, 7:35pm  

hanera says

I've been wondering why would banks lend out money when mortgage rate is so low and is expecting to increase eventually.

Banks are just the middleman.

They can resell the loan to Fannie Mae. Fannie Mae then sells the bond back to us. These bonds are backed by the US tax payers.

29   ArtimusMaxtor   2012 Apr 23, 10:00pm  

Realtor bullshit. Nothing can be proved by Zillow or the like. With unemployment as high as it is no one risks. That is very tried and true I have been in Real Estate for over 18 years. Don't fall for it.

CNN might as just as well be in lending. Cause those people the Debt Merchants own it. Only someone with really deep pockets could keep something like that going. I'd pick another line of work. I'm just trying to be nice here. Not trying to be a prick at all. Rates mean refi. Never ever do they mean sales. Realtors always try to push rates in an economic blowout. Once again the possiblity of job loss keeps the buyer out of the market.

It's really mean to push something on people when its this bad. Very selfish and they have the real potential of loss.

30   delete this account   2012 Apr 24, 2:32am  

PockyClipsNow says

With the FHA providing loans for million dollar homes no wonder there are buyers.

All you need is a measly 250k and you can get a 729k FHA loan and live in the fortress with a non recourse mortgage. I'm pretty sure this is most of the buying activity. Sure more cash offers than ever but also more 729k loans than ever. Very odd but this situation is here to stay.

Afaik, the conforming limit was lowered from $729,750 to $625,500 in "high cost" areas effective October 2011. I admit that I haven't been out loan shopping so maybe I missed something....

Here's the quote from the FHA release dated Nov 22, 2011:

"The maximum conforming loan limits for one-unit properties, which generally have applied to loans originated since Oct. 1, 2011, are $417,000 in most locations, but are as high as $625,500 in certain high-cost areas in the contiguous United States. For loans originated prior to October 2011, the maximum loan limit was as high as $729,750 in the contiguous U.S. However, that higher “ceiling” was permitted under legislation that no longer applies to newly-originated loans."

31   bmwman91   2012 Apr 24, 2:47am  

fizbin,

Our fearless leaders quickly put the higher limits back in place to appease NAr/CAr lobbyists and the host of other RE leeches in high-cost areas. These higher limits are set to run through 12/31/2012. I have little to no doubt that they will be "extended" again & again for Bay Area zip codes. What better way to help people than to sell them things that they cannot afford? (!!!)

"For areas designated as high-cost in 2008 under the ESA, the FHA national loan limit “ceiling” is $729,750 for a one-unit property. The ESA maximum FHA loan limits (the ceiling) by property size for period stated in this mortgagee letter are as follows:

One Unit $729,750
Two-Unit $934,200
Three-Unit $1,129,250
Four-Unit $1,403,400

A list of the counties at this ceiling for case numbers assigned from November 18, 2011 through December 31, 2011 is provided in Mortgagee Letter 10-40 as Attachment I.

A list of counties at the ceiling for case numbers assigned from January 1, 2012 through December 31, 2012 is provided in Attachment I of this Mortgagee Letter."

Source:
http://portal.hud.gov/hudportal/documents/huddoc?id=11-39ml.pdf

32   delete this account   2012 Apr 24, 3:04am  

Ahhh! Thanks, I stand corrected... That makes ever so much more sense. I couldn't really believe that "they" would ever let the limit roll back in an election year.

33   delete this account   2012 Apr 24, 3:17am  

fizbin says

Ahhh! Thanks, I stand corrected... /p>

Interesting. A little checking reveals that the fannie-mae, freddie-mac conforming high-cost limits DO seem to have rolled back. It's only the FHA loans (ginnie-mae) that have the higher allowance.

It would be interesting to see how many more FHA backed loans are showing up in the SV area. How do they compare in cost to conventional loans when the mandatory MIP is factored in?

34   PockyClipsNow   2012 Apr 24, 3:30am  

Whats really crazy to ponder is that in 2001 the Phonie/Fraudie conforming limit was 220k in high cost areas.

Ten years later its 729k and prices are crashed back to 2002 prices except for prime coastal which might be at what 2003/4 prices?

I would like the limits rolled back to 220k but way more likely they ramp it up to 1m soon. It was proposed by NAR to do this they lost (so far.....)

35   jaz5   2012 Apr 24, 3:34am  

I don't think it's a bubble, I think banks are trying to create an artificial shortage with the government's help (cash infusion into the banks so they don't have to sell their distressed property to survive)... it's a ploy and it may be working.

Here in Orange County, California inventory has suddenly gone to virtually zero, the slim pickings of properties available are going into bidding wars and most are already in Pending status, prices are creeping upwards.

Remember that prices are sticky on the downside but not on the upside, prices can rise 10% in a month but for the same 10% fall it may take 6 months.

In the long run I think home prices will come down a lot in real terms (discounting for inflation), however I think we're in this soup for at least a decade... possibly 2 decades just like Japan since the government will try it's best to put the brakes on the whole correction.

36   drtor   2012 Apr 24, 4:28am  

REpro says

REpro says

At some point banks can refuse giving new mortgages for regular buyers. That may create situation: “NO Cash - NO House Amigo.”
50% loans turn away ???
http://realestate.msn.com/potential-homebuyers-hit-mortgage-brick-wall

In the link you sent we read about a couple with credit score 590, and they want to get a house with about 3.5% down. They are told by the bank that they need to get up to 620, and the article says rates will be high unless they reach 700.

Are we supposed to feel sorry for these people? Is the bank being unreasonable to "regular buyers"? I don't think so. I think the bank is being perfectly reasonable. This is what lending standards are supposed to be like. It is a return towards normal. The problem is just that after a decade people have started to think that no income documentation, no credit, no down payment is normal and that they are entitled to mortgages anyway. This is why 50% fall thru.

37   edvard2   2012 Apr 24, 4:33am  

drtor says

In the link you sent we read about a couple with credit score 590, and they want to get a house with about 3.5% down. They are told by the bank that they need to get up to 620, and the article says rates will be high unless they reach 700.

I've sort of been reading up on this myself and from what I gather, supposedly the "new" threshold for getting a good rate these days is at least 700+ with some sources saying 750 or more. If you're below that then yes, you can get an FHA loan, but you'll also likely be paying a higher interest rate. So yeah, credit is king these days.

38   First Time Buyer   2012 Apr 24, 6:05am  

It's a totally artificial bubble. There are at least 1.6 million homes in the shadow inventory. That figure hasn't changed much since 2009. Interest rates are being held artificially low to enable buyers to buy homes at higher prices than what they are really worth. If interest rates were higher home prices would drop and more underwater homeowners would walk away. Banks are artificially holding back homes from the market because they want their assets to maintain an artificially high value. Again, they are wanting to maintain these prices because they are afraid more underwater homeowners will walk away in droves if their homes lose more value.

At some point many of the homes which are being held off the market will be sold in large batches to investor groups which will rent them out. Since they won't have been sold on the open market they won't bring down home prices. They will have simply been purged from the shadow inventory all at once. By controlling the number of homes for sale at any one time, and selling large batches to huge investors, the banks will eventually emerge from this bigger & stronger than ever.

In the meantime, those of us who are waiting for prices to drop naturally will be left wondering who were those masked men who designed such a plot.

39   RentingForHalfTheCost   2012 Apr 24, 6:07am  

More cash/credit than brains is what we have happening. Good luck to all the players. I hope you have a defensive play as well.

40   REpro   2012 Apr 25, 5:58am  

In many recent sales observations, offers with loans are out of consideration. Houses are going to the highest all cash offer. In transactions looks like investment, ROI becomes a secondary issue.
From some perspective it appears like we are witnessing a gigantic money laundering machine.

41   hanera   2012 Apr 25, 7:03am  

REpro says

In many recent sales observations, offers with loans are out of consideration. Houses are going to the highest all cash offer. In transactions looks like investment, ROI becomes a secondary issue.
From some perspective it appears like we are witnessing a gigantic money laundering machine.

You might be onto something. Who are these cash rich guys?

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