Congratulations San Diego, You Are Leading The Nation
Two California newspapers react to the PMI report. “Orange County has a 58.9 percent chance of seeing home prices decline in the next two years, the second-highest rate among the nation’s 50 biggest metropolitan areas. Only San Diego County had a higher ‘risk index’ rate.”
“San Diego’s risk of price declines was 59.8 percent, the report said. Riverside and San Bernardino counties tied with the fifth-highest risk rate (57.9 percent), and Los Angeles County had the ninth highest (56.3 percent). In addition, Orange County had the second lowest affordability ranking, meaning that the local housing market is among the most susceptible to ‘local economic shock.’”
“The area’s home prices have a 60-percent chance of dropping, one of many factors making San Diego the riskiest real estate market in the nation, according to a quarterly report put out by a California mortgage insurer.”
“‘You guys are leading the nation, congratulations,’ remarked Chris Thornberg, a senior analyst at UCLA.”
“Last year at this time, the quarterly report ranked the San Diego region as the fifth-riskiest market in the nation. That report put Boston as the riskiest. San Diego’s took a hard knock because the area’s homes are among the least affordable in the nation, according to PMI’s data, and that means the people who buy them are more likely to default on their mortgages. The area is also suffering from a slowed price appreciation.”
“Gary London said the report adds to the ‘parade of statistical indicators’ showing that the real estate market is slowing. People who have bought in the last year and who need to sell this year, or people who have entered into mortgages that they simply cannot afford..should probably be concerned at the signals the market is giving off, he said.”
“Stephanie Corns, a spokeswoman for PMI, said that people looking to buy a home need to consider how risky an area is before buying there. That’s especially important when a buyer is considering buying their home using a non-traditional loan such as an interest-only mortgage, she said.”
“‘Some of the exotic (loan) products transfer a lot of the risks to the borrower, so you really need to gauge what amount of risk you are comfortable taking on. Are you comfortable having a lot of risk in your mortgage and a lot of risk in your market area?’”
“Topping out the top five riskiest markets in the nation were Santa Ana/Anaheim/Irvine; Boston; Nassau/Suffolk, New York; Riverside/San Bernardino; and Sacramento.”
‘Some of the exotic (loan) products transfer a lot of the risks to the borrower, so you really need to gauge what amount of risk you are comfortable taking on. Are you comfortable having a lot of risk in your mortgage and a lot of risk in your market area?’
It’s been pointed out before that the homebuilders and Wall Street are very proud of this shift in risk. Ms Corn makes a good point; the risk for a buyer today in SD is in that persons personal finances, and also a ‘market area’ systemic-risk caused by the overvaluation and unaffordability.
Risks to the borrower? No, buries the risk so that when the debt is resold the ultimate owners are unaware of the true risk.
There’s an old saying; you cannot get blood out of a stone. Technically it may appear that overextended borrowers cannot walk away from their obligations but unless -every- FB cannot walk away the risk premium is far to low.
Excellent point, Robert. MBSs/CMOs have really shifted most of the default risk away from mortgage lenders over to institutional investors (CBs of China, Japan, big mutual funds Fidelity, Vanguard, etc.), who are willing to accept absurdly low risk premiums on the assumption that U.S. taxpayers will bail them out (technically, not true, but politically quite possible).
The federal bankruptcy bill has shifted some of the risk onto the individual homedebtor by making it a bit harder to get a Ch. 7 (full discharge), but has still not changed the fact that a non-recourse mortgage is still non-recourse. Totally f@cked borrowers can still hand in the keys and walk away, even possibly without a BK. Unless, that is, they’ve refinanced. That typically converts the mortgage to “full recourse” and complicates things a bit.
Here is the tricky part of “globalization”, the weaker USD becomes, homes that are not affordable for the average U.S. worker, may be very affordable for a foreigner…
Interesting you mention that….mil quite familiar w/blog stories told me of snowbird friend that just went to FL (Summerfield?-it was inland) that said British and Germans were out shopping in her neighborhood. She seemed impressed with sales prices. Anyone else hear anything about that down there?
And my prediction is that the bankruptcy reform will be overturned before this unwinding is completed.
60%? Just what kind of situation must we have for SD to fall into the 40%?
I wonder what Robert Campbell”s theories are on where the SD market is headed…
Based on two separate reversion to the mean calculations, I estimate that the median price home could fall by 36 to 42% in California. These mathematics should also apply to SoCal housing prices as well.
Wonder how these OC predictions will effect the presently planned 5,700 new homes near Irvine Spectrum?
(scroll down to last item) http://www.ocregister.com/ocregister/news/local/article_1075651.php
The full PDF on the development proposal:
http://www.ci.irvine.ca.us/news/displaynews.asp?NewsID=557
Not is Orange County different, but real estate prices only ever go up, they’re not making any more land, and everyone wants to live there, so the 5,700 new units should double within three years. Guaranteed.
I like the ones at the old Tustin Marine Base. My wine storage facility is over there, I always honk at the sign spinners and flip them the bird.
Meant “Not ONLY” … too much Starbucks today (again).
I live in Irvine and talk to realtors all the time in my neighborhood since I am now a renter and what comes out of their lips is the most unbelievable garbage about price going up by 10% per year YOY you have ever heard. These people are proping up the market by their support of higher prices as most potential buyers are not doing their home work and looking at these unbelievable price levels. All they care about is how much does it cost me per month.
Dennis, I hear it all the time, along with them quoting the Gary Watts gospel of 15% “in the bag” for OC in ‘06, so far the OC Register’s RE section is proving him right, with median prices going from 582K in Jan to 625K last week. If only we can end the year under 550K.
RE agents and lenders should beware: Their commission is a pittance compared to the cost of litigation. They need to disclose up front and in writing the extremely high risk of buying residential housing today.
I live in Irvine and follow the Woodbridge / Turtle Rock
market. There have been a few sales, but I know
of many homes (including 1 across the street from me)
that have been on the market for many months.
(across the street since November ‘05).
At the moment, it appears to be a classic stalemate
between sellers/buyers. Sellers are reducing prices
by small “token” ~5% amounts, but buyers are waiting
for prices to fall over the cliff. The weather here
is starting to warm up (finally). This weekend
should be pretty interesting..
““Orange County has a 58.9 percent chance of seeing home prices decline in the next two years, the second-highest rate among the nation’s 50 biggest metropolitan areas. Only San Diego County had a higher ‘risk index’ rate.””
These numbers are B.S. Orange County has a much higher then 58.9 chance of price declines in the next two years. It is more like 96%.
David
http://bubblemeter.blogspot.com
I have a special calculator that calculates just such risk. My calculator says that Orange County’s ‘risk index’ rate is 98.13%. So now we know the real number. When I try to calculate Phoenix’s ‘risk index’ rate, the screen says “SYNTAX ERROR” — good thing it’s still under warranty.
And San Diego is already seeing prices decline…so what kind of ‘prediction’ is that?? (I don’t care about median numbers, look at a specific location in San Diego and the houses sold for more $$ six months ago).
Do you remember the scene in the Wizard of Oz when the Wizard slyly rifled through the contents of Dorothy’s purse before pulling some remarkable predictions out of his crystal ball? The most accurate predictions are the ones which predict something which the forecaster knows is already underway, but the audience does not.
“The area’s home prices have a 60-percent chance of dropping, one of many factors making San Diego the riskiest real estate market in the nation, according to a quarterly report put out by a California mortgage insurer.
‘You guys are leading the nation, congratulations,’ remarked Chris Thornberg, a senior analyst at UCLA.”
*********
I say: “San Diego condos for everyone!”
and San Diego McMansions also. Then OC, Phoenix, etc
There should be plenty of foreclosed ones in both SD and OC to give one to each of our regular bloggers, and still be left over. Ben gets 2 for leading this wonderful blog. Long live this HBB blog.
I must admit to being miffed that San Jose didn’t make the mention.
$700,000 condos anyone ?
$700,000 for the building, maybe.
Does anyone know where Phoenix stands??
phoenix standing? for now maybe. it will be brought to its knees sooner than the sd & oc markets. 63.27% of ben’s army happen to agree.
Q. How do I know I made the right decision to sell our SD home in Feb ‘06?
A. When I saw my old town (Oceanside) featured on Lou Dobbs saying the school district banned the wearing of the American flag at schools
hint: It’s home to Camp Pendleton. A huge Marine base that has in the past had the most casualties in Iraq. How’s that for supporting the troops and their children?
They also have the LCAC (Navy hovercraft) guys over there as well, don’t they? “No beach out of reach”.
Yes, they do. Very fascinating to watch those. They showcase them each year during “Harbor Days” at the O’side harbor.
prediction- dude, all these markets are already 5-10% off peak of 7/4/05
30 yr fixed 6.43%…highest since 2003
“Gary London said the report adds to the ‘parade of statistical indicators’ showing that the real estate market is slowing. People who have bought in the last year and who need to sell this year, or people who have entered into mortgages that they simply cannot afford..should probably be concerned at the signals the market is giving off, he said.”
Really? I thought the Ministry of Truth (CAR) said everything was going to be OK.
rc, i’ve been watching you mop up a few crybaby runny noses on the sd board. you know, our tucson buddies…
I have a question about PMI. I know that lenders generally require PMI if the note is greater that 80% (?) LTV.
1) If the property goes up in value, is there anything you can do besides refinance to eliminate PMI?
2)Are any of the notes written such that if the equity falls below 80% LTV that PMI would be required when PMI was not required when the loan was originated?
Many thanks!
Typically, if you feel that your property has appreciated beyond the %80 LTV, you can petition your mortgage holder for reflief from the PMI requirement. They may ask for and/or require an appraisal. Even then, my experience has been that the homeowner as at the whim of the mortgage holder; if they so “no”, I am unaware of any appeals process or recourse. I guess you could try taking them to court. But until you sell the house, it’s value (and LTV) is really just a matter of opinion- and it’s the banks opinion that counts.
I have never heard of PMI being retro-actively required in a declining market. Wouln’t surprise me if we learned that this was written into the fine print of some loans out there though. I know it’s not in mine (yes, I did read all the fine print at closing).
You can cancel your Private Mortgage Insurance if:
- Your loan balance has reached 80% of it’s original value, you have made timely payments, and you have no subordinate liens on your property (a second TD as an example).
or
- Your equity has built up thru appreciation backed by an approved appraisal.
So what can you do?
Find out your equity position.
Call or write your loan service company and ask them for your exact loan balance.
Ask your loan servicer (not the PMI insurance company) for their PMI removal Policy.
Go to home gains PMI removal calculator. You will need PMI Payment/Month, your purchase price, your original down payment, current outstanding loan. This will give you your equity level and your qualification for PMI removal.
If you qualify, then you will need to prove this thru an accredited state appraiser. It will cost you around $400.
You can 1) refi to get out of PMI or 2) get a new appraisal and, subject to the underwring firm, eliminate PMI. (I have yet to see the 2nd with less than 5 years on the loan.)
Here is a novel approach: read your loan docs.
The question wasn’t really about me. I guess I was more curious as to if adding PMI to a loan might add downward presure to the housing decline. Much as adjusting ARMs no doubt will.
Besides, my loan docs aren’t very interesting. I have one of those kind of loans that were popular back in the nineteen hundreds. 30 year fixed, 5.25%, 30%LTV.
I’m comfortable with my own situation, just concerned about others.
My credit union (OCTFCU) is offering low-down loans with NO PMI. Could all lenders do this? Is it a requirement?
In 1 - 2 months San Diego is going to break the all-time high inventory record of 19,000 listings. I beleive that will be a turning point as hopefully all of the papers will acknowledge thst fact and scare away the “biggest fool” buyers that are still buying in SD. Does anyone know the record high inventory for any other major cities? In still need to get Vegas, Los Angeles, Phoenix, ETC..for my page realestatedecline.com…If you know any high inventory stats for these ciries please post here or contact me at the page……Happy Bubble Watching
Go to
http://www.bubbletracking.blogspot.com
New inventory stats every few days.
its a good page but it doesnt show any all-time high stats
“Indeed, even if prices do drop, London said, that’s only going to open the door to a lot of people who have been watching the market from the sidelines, unwilling to get into the action. If prices drop, even slightly, he said, there are a lot of people waiting to buy.”
Step right up, folks, and try to catch yerself a falling knife…
>If prices drop, even slightly, he said, there
>are a lot of people waiting to buy
There may not be as many “hier trigger” buyers as he seems to think.
Buyer’s thinking: The only way I can afford this house is with an “option ARM”, and only by making the minumum (neg-am) payment. That might be OK if housing prices will continue going up 10% or more per year, but everyone says that prices this year have either leveled off or gone down a bit. Also, since prices seemed to have leveled off, I don’t have to be in such a rush to buy, because there is less chance of me being “priced out of the market” any time soon. And since the only reason I’m thinking about buying a home now is because homes in my area have dropped in price, maybe I should wait a few more months and see if prices drop any further.
Buyers might be tempted to hier trigger buy because “interest rates are going up”; but then again, they may think it’s OK to wait because the RE industry is continuing to advertise that “even with increases, rates are STILL the lowest they’ve been in 40 years”.
that should be “hair trigger”
I know this is OT, but what do you guys and gals think about our little selloff in bonds (rates higher) today?? More hints to greater Fed tightening and inflation.
Damned whether they do or don’t continue tightening:
- Stop now and BB becomes Helicopter Ben forever;
- Continue now and crash the asset markets…
Tough choice, neh? Maybe it is time to sneak in a bit of stealth inflation, without spooking the bond markets in the process?
Stealth inflation will manifest itself quickly because the ripple effects of energy costs have been stifled so far but will soon IMHO
be revealed in everything from UPS to produce.
P.S. Could be a replay of 1987 in the making here:
- New Fed chairman
- Bond market crash in the Spring
- Stock market crash in the Fall
From the article:
In addition, an evaluation of a federal House Price Index from 1986 through 2005 showed that the longer you own a home, the greater chance its value will go up.
Brilliant. Absolutely brilliant research! I see a Nobel price on the horizon for this one…
One little catch. I don’t think the RE market was cresting in 1986 like it is today. So yeah, go ahead and buy now, and the longer you hold it the better your chances of its value increasing. Especially since you will need to wade through a trough of 20% decline in value for your first 2-5 years. But after that hey, your chances of your investment value increasing will improve over time!
In addition, an evaluation of a federal House Price Index from 1986 through 2005 showed that the longer you own a home, the greater chance its value will go up.
Chances? I thought real estate ALWAYS goes up with a guaranteed 30% YOY appreciation, so I can retire at 35.
If a house is no longer a home but an investiment then just like the stock market, you don’t ride out the low period, you sell at the peak and you repurchase at the bottom……alas, you say you just can’t find a buyer and unlike a stock it has monthly maintenance costs as well…maybe it’s time to rethink your theory.
It doesn’t cost me 6% everytime I trade a stock.
check out this graph one of the readers contributed to my site.
Nice one. Suppose this “Notice of Default” cycle plays out the same way this time as the last one. The respective NOD minimums (peaks of the cycles) roughly were hit in 12/88 and 9/04. NODs did not taper off significantly last go round until after maybe 7/96 — 7 years and 7 months down the pike corresponding very closely with the bottoming-out of prices.
Extrapolating off 9/04, it looks as though 4/12 may be the next good time to invest in real estate. Of course, it is possible that bigger bubbles take longer to deflate; time will tell.
Bob Casagrand updated his post on Realty times to reflect this months intitial figures for San Diego - they make for scary reading.
Sales down 28% ish and acclerating down - inventory rising and accelerating up.
http://realtytimes.com/rtmcrcond/California~San_Diego~bobcasagrand
Looks as though the whole SD market is becoming detached…
“Sellers need to take extra care to make sure that their home stands out on the market to create demand for your home to sell faster and for the best price the market will give.”
Just lower the price — it is more effective and less costly than wasting money on last-minute home improvements you will never be able to enjoy.
“Buyers need to be careful shoppers and be aware of what is going on around the homes for which they have an interest.”
Don’t buy unless you are rich enough to absorb the loss of a couple of $100K in paper wealth over the next seven or so years.
Stucco; Thats how rich people stay rich…They wait until the is blood in the streets….
But…but…but…Paul Miller sez about San Diego RE:
“As far as the bubble . . . No bubble here! The current conditions should tend to even out to a more balanced market - So don’t miss out on the current low interest rates and low payments.”
http://tinyurl.com/h6qde
DON’T MISS OUT!
And the Murphys say about San Diego RE:
“It is NOT the real estate implosion some pundits are touting; rather, it seems we are returning to a common sense market. The prior market where sellers could sell to the highest frantic bidder is gone. Pricing is now determined by the market, and what a willing and able buyer us willing to pay. That buyer, in turn, may compete with other buyers to determine an equitable sales price.”
http://tinyurl.com/hgrd3
Compete with other buyers, ehhh? There seem to be less and less of them (and “accelerating down”).
I think I’m finally going to order a “Mr. Housing Bubble” t-shirt, wear it, and see what reactions I get:
http://tinyurl.com/lbbcl
We’re #1! We’re #1!
Hmm, in North Park here, La Boheme (224 unit complex) isn’t quite finished yet. I wonder how it’s going to feel to move into a 50K (at least) loss!
Chuckle!
Man, that’s gotta suck if you’re a SD bagholder. You think it’s ALREADY bad enough! LOL
I will join the regulars here and hope, hope, hope, and do a little voodoo dance, for the prices in San Diego to crash through the floor, because then MAYBE my buddies and I, and all the other people I know who grew up there or were stationed there, but can’t afford to live there, would be able to move back… but crap, the would shoot prices through the roof again, I bet…
San Diego is the only place I’ve ever lived where I didn’t have a working air conditioner, didn’t have a working heater, and didn’t notice the lack of either one…
Look… I use my portable AC unit for at LEAST one week a year. And I run the heater almost a month just past Christmas!
That’s why it’s worth it to pay $600K more than anyplace else in the nation.
San Diego is great. The market is ridiculous. You’ll get yours. I don’t know how many professional friends I have who can’t afford anything and won’t buy until it makes sense.
My buddy turned down his landlord (last year) who offered him the townhome he was renting for $1500 for the low low price of $515K.
He just smirks when he talks about home prices. That feels good… my buddy who rents just smirks…
Well Feep he might be smirking for awhile. Older parts of California like San Diego do not follow all the normal market rules. I own a house purchased in the 70s that is now rented out. I make less than 3 % capital return rate on it. No question, I would do better if I sold and invested the cash into stocks and bonds. But, I might want to move back to San Diego, and I don’t want to give up the proposition 13 tax basis. I pay .2% of the home value in taxes. I like it too much to ever sell, fundamentals be damned.
LOL!!!!! I’m reading your post in 2008, two years later, and it’s hilaaaaaaaaarious! Yes, San Diego was indeed different. It hasn’t crashed one bit
Nice one.
WARNING: PDF (my puter tends to freeze up…)http://www.pmigroup.com/lenders/media_lenders/pmi_eret06v2s.pdf They assume 20% down payment, and only looked at last 20 years. May be a bit optimistic.
Inventory accoring to sandiegorealestatecentral.com is 20397, up from 20206 on the 2nd and 19257 a month ago. Time to raise the temperature on the flippers with some more rate hikes and higher oil prices. Everyone should buy more gold, force the fed’s hand to keep raising rates, give savers a fair deal and punish the speculators in RE.
This guy is boasting about Riverside, CA being #2 in affordability. 15% can afford homes here. So sad!
http://realtytimes.com/rtmcrcond/California~Riverside~raymondfreeman
THe guy bragging about Riverside as a great place forgot to mention that is the #1 place for smog. Nothing like a fresh breath of smog in the morning, or an afternoon wind to make the mountain disappear (literally saw that happen). It is a horrible area, and $500K the starter price? They are F&CKIN NUTS.