The Housing Bubble

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Some housing bubble news from around the globe. Brent & Kilburn Times in the UK: “Flats in the controversial proposed development on the site of the scrapped Willesden Green library have gone on sale – in Singapore. Even though the first brick has yet to be laid, the ‘high quality London apartments’ are being sold by Hong Kong based Grosvenor International, who are asking the equivalent of £340,000 for a one-bed flat. As well as listing transport links as a key benefit, the agent has angered local campaigners by listing the lack of ‘affordable and key worker’ housing as a benefit.”

“On a blog run by campaigners, a resident said: ‘Like a slap in the face for those on the Council’s housing list, the estate agent advertising in Singapore has made the lack of affordable homes/key worker homes a selling point! ‘Presumably this ensures prospective buyers have the right sort of neighbours.’”

The Jakarta Globe in Indonesia. “Property developers have responded negatively to the central bank’s stricter mortgage rules saying they could stifle future demand. According to the regulation effective on Sept. 1 consumers who take out a mortgage on a second property larger than 70 square meters must make a downpayment of 40 percent with banks only able to provide finance of up to 60 percent of the price. For a third property, the down payment is higher at 50 percent. Bank Indonesia governor Agus Martowardoj said that the regulation was intended to prevent a housing market bubble.”

“I don’t know where Bank Indonesia wants to go with this,’ said Setyo Maharso the chairman at the Indonesian Real Estate Association. He rejected the idea that people buying second or third properties were speculating. ‘That’s not speculation, that’s investment. It [buying property] is not like buying stocks,’ he said.”

The New Straits Times on Malaysia. “At a recent condominium launch in Sentul, it took a mere two days for the 900 odd units to be sold out. This despite each unit, slightly more than 1,000 sq feet, costing about RM800,000. There were so many people at the property launch. Some waited from the night before and placed shoes and pieces of paper and arranged chairs to indicate their place in line. When they reached the showroom, it was like a game show — each participant was given exactly one minute to choose his or her unit. Those who failed to do so would lose their turn.”

“Of course, a great number of the people who attend these kind of sales are speculators. With the prices of property on an upward spiral, buying a home is always a winning proposition. But while some people are still able to afford the sky-high prices, most Malaysians can’t. ‘I think it has come to the point where maybe up to 60 per cent of Malaysians cannot afford to purchase properties,’ said real estate valuer Dr Ernest Cheong.”

The South China Morning Post on Hong Kong. “A luxury residential project in Causeway Bay received a tepid response despite a cash rebate of 3.75 per cent offered by the developer to make up for the extra stamp duty. Yoo Residence, developed by Couture Homes and ITC Properties, sold a 539 square foot unit for HK$16.41 million, or HK$30,460 per square foot of saleable area, in the first three hours after sales began at noon yesterday, the company said.”

“The firm released for pre-sale 50 units at yoo Residence, due for completion in June 2015. Lily Cheng, a senior district manager at Centaline Property Agency’s Wan Chai and Causeway Bay branch, said yoo Residence was the most expensive project to hit the market by per square foot value since the rules on marketing of new flats took effect on April 29. ‘Given that these units each cost more than HK$10 million, buyers will take more time to make up their minds. The response to these flats should not be compared with that in the case of mass housing projects that involve small lump sum payments,’ Cheng said.”

Bloomberg on China. “China’s eastern city of Yancheng has halted limits on home prices because an increase in supply was putting pressure on prices, the official People’s Daily newspaper reported. ‘Smaller cities like Yancheng probably face bigger risks of prices falling as demand couldn’t keep up with the construction boom,’ Dai Fang, a Shanghai-based property analyst at Zheshang Securities Co., said.”

The Australian Broadcasting Corporation. “Earlier this month, Australian Property Monitors released figures showing Perth was just shy of topping Sydney as the most expensive place to rent in the country. The data revealed that Sydney’s median price tipped $500 a week, while Perth’s was just $10 behind. But has Perth’s rental bubble burst? Tim Nickoll, property manager for Harcourts Realty, says activity in his rental portfolio has dropped about 20 per cent. ‘I am finding the vacancy rates for properties are sitting longer,’ Mr Nickoll said.”

“The head of the Real Estate Institute of WA, David Airey, said tenants who had signed leases at the height of the boom were even worse off. ‘They are facing huge bills because properties can only be re-let they what they were previous paying,’ he said. ‘For example, if you’re renting a property at $600 a week and now it can only be rent at $500 a week, that’s $100 a week difference for the term of your lease. Laws offer a lot of protection for tenants but you cannot be protected from the contract.’”

From Business Day in South Africa. “It was a tough auction for the Aucor multiple commercial property sale in Rosebank and a number of lots were passed over for lack of demand, but good properties in well-established and sought-after areas did well. Properties in the leisure market are feeling the pinch of economic conditions and are not fetching high prices, said Aucor’s Mark Kleynhans. ‘Demand is weak as financially things are beginning to bite and one can pick up phenomenal value in the leisure market as many owners are trying to offload their assets to meet current financial obligations.’”

“A 39m² one-bedroom unit in Dogon failed to attract a bidder at the auction. A modern 141m² duplex in The Newtown complex was knocked down for a hammer price of R450,000, which auctioneer Darren Winterstein said ‘was for nothing.’”

CNBC on the Netherlands. “‘Going Dutch,’ a term used to indicate that each person pays for himself, may be associated with frugality. But recent data shows that households in the Netherlands have been anything but frugal. The country has the highest total household debt-to-income for the seventeen countries that share the euro, according to Eurostat. At more than 250 percent, it far surpasses the same figure for Ireland, Spain and Portugal.”

“Surging house prices in the country have now given way to a ‘painful post-bubble adjustment.’ according to Michael Taylor, an economist at Lombard Street Research, similar to the adjustments in Spain and Ireland. ‘The Dutch housing bubble was not caused in the main by inappropriately low interest rates following euro membership as occurred in Spain and Ireland. Instead generous tax relief on mortgages fueled a prolonged period of strong demand that pushed house prices to extreme levels,’ Taylor said. ‘Any revival in external demand will almost certainly not be strong enough to lift the economy out of recession.’”

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A reader suggested a topic on housing loans. “Will the home mortgage market ever go back to the way it was 20 years ago? Will econmic growth ever get above 2%? If not how will growing Goverment debt be paid back?”

The Washington Post. “The politics of housing finance reform are starting to get interesting. Wednesday, the Republican-controlled House Financial Services Committee passed the Protecting American Taxpayers and Homeowners (PATH) Act, which would wind down Fannie Mae and Freddie Mac and replace the busted entities with — well, nothing, pretty much. For the first time in decades, no ‘government-sponsored enterprise’ would be responsible for bundling most mortgages into marketable securities.”

“Under PATH, private investors would perform that function; Washington’s only role would be to supervise the quality of securitized mortgages. The Federal Housing Administration would remain as a source of government backing for mortgages to low-income first-time homebuyers, albeit to a more limited extent than present law allows. In short, Congress now has before it a fairly pure free-market alternative to the status quo, one that is likely to pass the House if and when the Republican leadership brings it to the floor.”

“The PATH Act opponents’ best economic argument is that reducing the supply of government-backed securities would reduce the overall depth of the U.S. financial markets, which is one of this country’s greatest advantages in the competition for the world’s supply of capital.”

“Still, politics is the least refutable objection to the PATH Act — quite simply, realtors, home builders, bankers and other housing interest groups would exercise their clout to defeat it, or anything like it. Bowing to that perceived inevitability, a bipartisan group of senators offered a bill last month that would also end Fannie and Freddie but keep government in the business of insuring mortgage securities against catastrophic losses, as long as private investors paid a fee and agreed to risk a substantial amount of their own capital.”

“Unlike the House’s PATH Act, the Senate bill has yet to make it through committee. But between the two proposals, the debate now shapes up as a contest between a nearly pure free market and a continuing role for government that is significantly smaller and more transparent than it was.”

From Barrons. “In part, Fannie and Freddie are now paying the price for their long and seamy history in Washington. No agencies of government operated in as meretricious fashion as Fannie and Freddie in the decade leading up to their demise. The companies lavished hundreds of millions of dollars in political donations and lobbying fees to literally all of K Street, and on high-paying executive appointments to leading Democratic and Republican operatives and former key congressional staffers.”

“Both companies got caught in the mid-2000s cooking their books in order to meet earnings targets that maximized executive bonuses. At the same time, they used their muscle in Congress to bully their regulators and keep their capital levels at risibly inadequate levels.”

“Their implied (now explicit) government backing of their debt allowed them to raise money at low, Treasury-like rates and then plunge those proceeds into higher-yielding risky instruments like, in the end, subprime and Alt-A securities for their investment portfolios. By the middle of the last decade, the value of these portfolios had soared to over $1.5 trillion. They were akin to internal hedge funds that supplied most of the agencies’ profits and the earnings growth so important to shareholders and bonus-hungry GSE executives. And the game worked like a charm until housing prices began their relentless decline in 2006.”

“Reform is inevitable with a reduced role for the government in housing finance. Fannie and Freddie will eventually disappear, to be replaced by the insurer FMIC and a public-financing platform open to all players. The U.S. taxpayer likewise will be far better protected than in the past. This won’t likely be good news to the proponents of a largely privatized mortgage market nor the hedge-fund managers looking to score big profits off the bailout of Fannie and Freddie.”

Investors Business Daily. “A pre-crisis bill written by Democratic Rep. Mel Watt — President Obama’s nod to run the Federal Housing Finance Agency — reveals that his ideas for regulating Fannie Mae and Freddie Mac are more radical than he lets on. On the eve of the financial crisis, Watt actually proposed the creation of the regulatory agency he now seeks to run — only, he designed it not to reform Fannie and Freddie but to pressure them to underwrite even more affordable housing, exposing them to even more risk.”

“The bill he co-sponsored with then-banking panel Chairman Barney Frank — the Federal Housing Finance Reform Act of 2007 — would have forced the federally backed mortgage giants to meet even tougher quotas for affordable lending, while contributing to an ‘Affordable Housing Fund’ to rebuild blighted urban areas. ‘The real benefit of this bill is that it will provide a big stimulus for more affordable housing,’ Watt said at the time, ignoring concerns the agencies already were overexposed to low-income loans.”

“In March 2007, Watt said he co-authored the bill to create a new regulatory apparatus that ‘will provide a means to achieve our ultimate goal of expanding the supply of affordable mortgage credit across the country.’ At the time, Watt was a senior member of the House Financial Services Committee and had just stepped down as chairman of the Congressional Black Caucus, where he’d pushed the government to boost minority homeownership.”

“His bill proposed enhancing existing federal goals boosting Fannie’s and Freddie’s low-income mortgage portfolios by adding ‘a new affordable housing sub-goal for re-financing transactions.’ The proposed regulator, dubbed ‘the Federal Housing Finance Agency,’ also would direct Fannie and Freddie to make contributions to an Affordable Housing Fund for ‘very and extremely low-income families’ in amounts equal to 1.2 basis points on each of their total outstanding mortgages — including those held in portfolio and those securitized.”

“The bill, which failed to become law, authorized the new agency to set ‘housing goals and an annual home purchase goal for’ Fannie and Freddie, and to ‘take enforcement action against an enterprise for failure to meet the housing goals.’ Proposed enforcement actions included issuing fines, cease and desist orders and even criminal penalties against Fannie and Freddie if they fell short of the social lending goals. ‘The agency,’ moreover, ‘has the authority to remove management.’”

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It’s Friday desk clearing time for this blogger. “The U.S. Treasury Department needs to do more to learn why more than a quarter of the borrowers in a federal mortgage workout program have re-defaulted, costing taxpayers at least $815 million, according to an audit. The report underscores a disagreement between the auditor and Treasury over the performance of HAMP, which has used TARP funds to pay lenders incentives to modify loans for nearly 1.2 million delinquent borrowers since February of 2009. More than 300,000 of those homeowners had re-defaulted by the end of April this year. SIGTARP also said it found an ‘alarming’ number of HAMP re-defaults in an April audit.”

“The audit found that struggling borrowers who entered the program in 2009 and 2010, who make up more than half of all HAMP participants, had re-default rates of 46 percent and 38 percent, respectively. ‘It is important to keep in mind that HAMP targets borrowers in demonstratively difficult financial situations,’ Treasury Assistant Secretary Timothy Massad wrote. ‘While the program is designed to reduce the default probability of these loans as much as possible, these loans present a higher-than-usual risk of default to begin with.’”

“A group of around 50 people gathered outside the San Francisco home of Wells Fargo CEO John Stumpf Saturday calling for changes in the way the bank handles foreclosures. Wells Fargo spokesman Ruben Pulido said that, on average, customers who had completed a foreclosure over the past six months were 25 months past due on their payments. Manuela Alvarez said she is to stay in her home following foreclosure proceedings, and would be back in court on Monday to fight an eviction order. ‘I’ve been holding out for almost four years, but its getting harder and harder,’ Alvarez said.”

“A woman who’s losing her home to foreclosure, picketed outside the office of her Boca Raton lawyer on Monday. Gail Zamore held signs at the office of C. William Berger. Zamore says she paid Berger thousands, but only found out about the foreclosure auction sale of her Tequesta home two days after it happened. ‘I did not get the help of $25,000 that I gave this lawyer,’ said Zamore. ‘I received nothing– except my home is gone.’”

“Berger called us later, and defended his work on Zamore’s case. He said he’s kept her in her home for more than 3 years.”

“Retired postal clerk Jaymie Kelly of Minneapolis, Minnesota, is holding onto her home by a thread, despite having paid five times its value in ballooning monthly payments. ‘We bought this house for $74,900 in 1983, and I’ve paid $425,000 for it so far,’ Kelly said. ‘I wouldn’t have gone into foreclosure if these house payments weren’t so high. I’m in one of the poorest neighborhoods in Minneapolis. It started with a predatory lender after my husband died. I had insurance money and thought I was paying off my house, but instead I was signing off on a loan at 5.5 percent interest. It went up 13.5 percent, and it had a prepayment penalty. I had to buy my way out of the deal. I was so ignorant. This was someone who I met in church who basically took advantage of the situation. I was trying to get out of that and refinanced several times.’”

“Since the bankruptcy was announced on July 18, talk of snapping up Detroit housing for a pittance has picked up on Sina Weibo, reports Sina Finance. Caroline Chen, a real estate broker in Troy, Michigan, says she’s received ‘tons of calls’ from people in mainland China. ‘I have people calling and saying, ‘I’m serious—I wanna buy 100, 200 properties,’ she tells Quartz, noting that one of her colleagues recently sold 30 properties to a Chinese buyer. ‘They say ‘We don’t need to see them. Just pick the good ones.’”

“Chen says that Chinese investors sometimes pick up and fly to Detroit without notice and call her to say, ‘Hey, I’m at the airport.’ Because Chen is unwilling to risk her safety for a $3 commission on a home sale, she recommends that they hire a taxi to drive them through downtown Detroit. So far, most haven’t called her back. ‘Once they see the scary area, they give up,’ she says.”

“The housing market in Halifax and Dartmouth has taken a dip over last year, and realtors say many houses are staying on the market longer before selling. Some homeowners told CBC News they have been waiting as long as 14 months, without so much as an offer. Realtors can’t say exactly why buyers aren’t biting, but some like Margot Aldrich say, sellers need to be realistic about their expectations. ‘In the last two years, you could get really cheeky with your asking price. You can’t do that anymore, you have to list very realistically,’ she said.”

“An easing in mining activity, political uncertainty and the state of the local housing sector may have all combined to kill off a well-known Canberra business. Unless a ‘white knight’ investor emerges, Fisher Discount Workshop Machinery in Fyshwick will close at the end of the month. ‘Everywhere you go - interstate as well - builders are not building houses,’ said Rob Chambers, who bought the business in April. ‘Builders I know in Canberra have got houses they built 12 months ago that still haven’t sold. They’re hardly in a position to go out building more. We need to sell nails by the pallet load in Canberra, now you’d never sell a pallet of nails.’”

“PT Sinar Mas Land corporate strategic director Ishak Chandra said prices of residential units at their projects had risen by between 40 and 70 percent since the start of the year. Sinar Mas Land subsidiary oversees the Bumi Serpong Damai City township in Serpong, Banten, which borders Jakarta. ‘At the start of last year, the price was roughly Rp 4 million (US$397) per square meter, but prices are around Rp 8 million per square meter this year,’ Ishak said in a recent interview.”

“He said that the rising prices did not amount to a bubble forming because property investors here were not desperate to score sales. ‘A bubble partly happens when investors are forced to sell or rent their units at low prices. As a result, they default on their mortgage payments, triggering an increase in non-performing loans at banks,’ he said.”

“More than 400 people who had booked or bought flats in Teen Kanya - a much hyped Bengal Shelter housing project in New Town - are in shock after SBI announced that it was taking possession to recover dues in excess of Rs 176 crore. Rajesh Ghosh has already paid Rs 45 lakh for his flat. ‘Only the last tranche is left. We were supposed to get the flat in mid-2010 but three years on, there has been little progress. If work starts now, it will still take 16-18 months to complete. But Bengal Shelter officials cannot say if they can find the money to complete the project,’ said Ghosh.”

“The Town Hall is calling for new powers to stop overseas investors buying up flats in Islington and leaving them empty – driving up property prices and depriving residents of accommodation. Housing chief Councillor James Murray made the call after research revealed that two-thirds of the 127 flats in the curved Bezier luxury development in City Road, built in 2010, are empty. Many have been bought by investors in Hong Kong, Singapore and Malaysia, he added.”

“Labour councillor Claudia Webbe added that the Bezier, in her Bunhill ward, was not a one-off. ‘There are a lot of developments in Central Street which they call the Clerkenwell Quarter,’ she said. ‘This includes the Orchards development, which they sold in one evening and the cheapest one-bedroom flat started at £550,000. We are insisting that all new developments have 50 per cent affordable flats. But there is a row over the definition of affordable. One so-called affordable flat in my ward was valued at £700,000.’”

“Professor Robert Shiller made his prognosis for Norway after taking stock of a 35-percent price rise across the country’s residential housing market in the last five years. ‘This really does look like a bubble,’ he told business newspaper Dagens Næringsliv. The professor, who is in Oslo, said it was difficult to be sure whether a collapse was imminent. ‘But it does look like it’s pretty close to the end,’ he said.”

“The professor added that bubbles weren’t usually punctured by external factors. It wasn’t the financial crisis that caused the US housing market to crash, he said. In fact, it was the other way around. ‘It was the drop in real estate prices from 2006 that eventually triggered the financial crisis,’ said Shiller.”

“If Norway wants to dampen its bubble tendencies, he said, the country should seek political solutions that might include freeing up new areas for property construction. ‘For centuries, towns have been spreading out ever further. I can’t imagine that would be a problem in Norway. If there’s one thing you have enough of, it’s land,’ said Shiller.”

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Palo Alto Weekly reports from California. “At Classics at Monroe Place, a development of 26 homes on the former Palo Alto Bowl site at 4329 El Camino Real, four homes previewed on Saturday, July 13. Bids were proffered by 6 p.m. Sunday and offers accepted by 6 p.m. Monday. The prospective new owners had 48 hours to back out. Officially, the houses were on the market for six days. The housing market has been competitive this year — and subject to bidding wars — so the quick sale was not a surprise to local Realtors.”

“The four homes were all three-story, a little more than 2,000 square feet. Two were free-standing; the other two shared a wall. The base asking prices were $1.51 to $1.62 million. ‘It’s not unusual for something to sell this fast,’ noted Coldwell Banker, Palo Alto, agent Nancy Goldcamp. ‘Especially new construction and in entry level.’”

The San Francisco Examiner. “After a meteoric recovery, San Mateo County’s residential real estate market might be flattening, but that has not driven down prices, according to a recent report. Susan Tanner, a real estate broker with Dreyfus Properties, said cooling off after a spring run-up on housing is typical in the county. Current home prices — with a median value of $960,000 — will likely hold for the remainder of the year, Tanner said. Even in those cities north of Menlo Park, entry-level homes are running for about $1.5 million, Tanner said. And many buyers assume they have to bid at least 10 percent above the asking price, which still can be insufficient to secure a deal, Tanner said.”

“The homes that are hitting the market are receiving multiple offers. ‘There were 17 offers for a house listed for $900,000,’ Tanner said.”

The Mercury News. “The median sales price for all types of homes in the nine-county Bay Area jumped 33 percent to $555,000 in June, the largest annual increase in at least 24 years. But in a reflection of the small number of homes on the market, the number of sales dropped sharply in a month when they typically increase, according to DataQuick. ‘Three factors that got us to this amazing yearly price gain are ultratight inventory, ultralow mortgage rates and record or near-record levels of investor purchases,’ said Andrew LePage of DataQuick. ‘Now all three are changing in a way that suggests these kinds of price increases won’t continue for long.’”

“Julie Pavlova lost out on two homes to offers that were $50,000 and $20,000 more than hers. Now she is buying a home in South San Jose for a little less than its owners’ $670,000 asking price. After selling her townhouse in less than a week in June for $165,000 more than she paid for it a year ago, Pavlova said she shopped around for about month and saw the market getting a little less intense. ‘I’m not sure if it’s interest rates going up or what the reason is,’ she said. ‘It’s gone down a little bit price-wise, and fewer people coming in with these huge offers.’”

The Santa Cruz Sentinel. “The median price for a single-family home in Santa Cruz County was $595,000 in June, spurring more people to put their homes up for sale. The recent increase in interest rates is making it harder for buyers on the low end and may keep values from rising further. Sally Bookman of Keller Williams, who has been in real estate since 1974, cited an example of buyers who had qualified at $540,000. ‘Suddenly they can only spend $515,000,’ she said.”

“The upside of rising values is more choices for buyers. ‘We’re seeing twice as many listings coming on,’ said Bookman, noting 16 pages of listings for brokers a week ago Thursday compared to the six to eight that had been typical. She sounded a cautionary note for sellers. ‘A lot of people are pie in the sky,’ she said. ‘They don’t want to list where we feel they should be. … You have to price very accurately.’”

From Bakersfield Now. “The local real estate market is making a comeback, but local experts don’t think it’s headed for another so-called bubble. Long-time appraiser Gary Crabtree says home prices in Bakersfield have gone up 36 percent in the last 12 months, but he predicts a ‘more normal’ market is ahead. ‘Housing prices are rapidly escalating right now,’ Crabtree told Eyewitness News. ‘As of today, for the month of May, our median price is $188,000.’ He compares that to data showing the local median home price at $175,000 in May of 2004 at the high point in the bubble, to the near the low point in May 2009 of $125,000.”

“‘If that vacancy factor goes up and it becomes more competitive in the rental market, rental prices are not keeping pace with price increases,’ Crabtree says. ‘And therefore, there’s going to be a point of diminishing returns where the investor is going to have to make a business decision whether to keep that rental property or to place it on the market for sale.’”

The Merced County Times. “The ground was broken last Friday on the first major housing development in Merced in years and already half the homes have been presold. The price range of the new homes is very affordable at $215,000 to $225,000. Roselin Charitar, lead broker for the homes, said since bank owned properties are now bringing 20 to 30 bids and many above asking price. ‘We felt it was an ideal time to add new housing to the market.’”

“Bernie Heyne, the developer, knows how few homes have been available in the Merced market area. At one point recently there were only 82 homes on the market. Heyne said, ‘This led me to believe that it is an opportune time to start construction.’”

The Daily Pilot. “An ‘urban industrial’ housing project in Costa Mesa’s Westside is being marketed with Millennial buyers in mind. Sea House — a 33-home tract — will feature three-story homes starting in the low $600,000s. The homes — which have two or three bedrooms, two full bathrooms and two half bathrooms — are between 1,587 and 1,785 square feet. The ground levels have attached, two-car garages and an entry room that can be used as an office or den. The second story has the kitchen and a combined living and dining room. Some also have second-story balconies. The third story houses the bedrooms.”

“When asked about the nearly $600,000 asking price to a young generation — many of whom, according to recent studies, are burdened with college debt and a lack of full-time employment — Timothy A Kane, MBK’s president, said sales will be aided by the Newport-Mesa area’s affluence and proximity to the ocean. Furthermore, there are good-paying jobs and high-end restaurants nearby, he said. He used surf/skate/snow company Volcom, based on nearby Monrovia Avenue, as an example.”

“‘Volcom is down the street, so there’s all those executives at Volcom that need places to live,’ Kane said.”

The Burbank Leader. “The median price for a single-family home climbed roughly 10%, from $544,500 in June 2012 to $598,750 last month, according to Realtor Eric Benz with Dilbeck Real Estate in Burbank. Realtor Marion Goodman, a member of the Burbank Assn. of Realtors board, said that although prices were still rising last month, she’s starting to see the market flatten out. ‘There’s a plateau that we’ve reached, and I hope it’s just temporary,’ she said.”

“Goodman said a number of factors could be contributing to the market’s leveling off, including first-time buyers who are taking a step back from buying aspirations because they have seen their offers rejected in favor of all-cash transactions. ‘It does something to your psyche. You think you’re making a good offer and then you get beat by all-cash buyers,’ she said. ‘It’s a tough market for first-time buyers right now.’”

From Bloomberg. “Jung Lim plans to offset the cost of rising mortgage rates by using an adjustable-rate loan to buy a home for his expanding family. For the California endodontist, the money he’ll save makes up for the ARM’s risky reputation. Lim is leaving a two-bedroom condo in Los Angeles’s Hancock Park to buy a four-bedroom house in the city’s Sherman Oaks neighborhood for $1.12 million. His lender offered him a rate for an adjustable mortgage that is about a percentage point cheaper than a fixed loan.”

“‘If I could have gotten a 30-year fixed at the interest rate I’m getting the ARM for, I would have felt a lot more comfortable,’ said Lim. ‘But I’m hoping to refinance in five years or less. And we’ll be in the house for about 10 years so we could also sell. Hopefully prices have bottomed, so we won’t be underwater.’”

“Vivian Cohn in Hollister, California, lowered her monthly mortgage payments to about $940 from $1,400 in May when she took out a 5-1 ARM, meaning the rate is fixed for the first five years. After that, her 2.2 percent initial rate could adjust as much as 5 percentage points higher. Cohn doesn’t see the threat of a rate change as a problem. When she retires in two years, she and her husband are moving to Panama, Cohn said. If they can’t sell the house at that point, they’ll rent it for the next three years and sell then, before the loan adjusts, said Cohn.”

“‘A fixed rate isn’t for everybody,’ Cohn said. ‘We know we’re moving, so there’s no point in paying for a guaranteed rate if we won’t use it.’”

“In Los Angeles, Lim is happy to be locked at a 4.6 percent rate for an adjustable mortgage that is fixed for 10 years, about a percentage point cheaper than a loan fixed for 30 years, he said. ‘It’s a bet that prices will appreciate, that your income will stay the same or increase and that rates will stay stable,’ said Leah Guerra, the agent with Rodeo Realty who is helping Lim with the purchase. ‘It’s a bet that confident people make.’”

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