August 9, 2007

Housing And Credit Concerns Abound (Here And Abroad)

While credit concerns once again rocked the equities market ("All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer.”), President Bush spoke out against federal bailouts for individual homeowners that have some concerns of their own (i.e., foreclosure). We note, however, a careful choice of words: "If you mean direct grants to homeowners, the answer would be `No, I don't support that.'"

UPDATE (8/10): And no, we weren't being flippant about "abroad."

Stocks Fall; Dow Down 300 Points [SFGate]
Bush: No Bailout for Pinched Homeowners [SFGate]
U.S., European central banks step in to contain mortgage crisis [SFGate]

First Published: August 9, 2007 1:47 PM

Comments from "Plugged In" Readers

The Greenspan legacy rears its ugly head. Nobody could have seen this coming...oh, wait....hundreds of economists and renowned financial analysts/investors saw it coming, spoke out about it, wrote about it, and lectured about it (Schiller, Roubini, Wilbur Ross, Jeremy Grantham, among notable others). They were summarily dismissed by the broad public, who was too busy not "missing the boom."

Whoops. Reap what you sow.

Posted by: Dude at August 9, 2007 2:37 PM

As I said on another thread, you watch the bushies bail out their buddies on the way out.

Posted by: Melinda at August 9, 2007 2:56 PM

I remember when I was called a "bitter renter" on this site by some for questioning the fundamentals of the current real estate spiral we have seen the last 4 or 5 years. I found this especially bizarre since I own my own home (paid off) and own other property as well. What is interesting is that this time feels different than the past declines, it reminds me more of the Nasdaq which still has not returned to previous values. I do not want my taxes paying for others foolish mistakes. I own some income property and rents are going through the roof right now btw.

Posted by: anonoldtimer at August 9, 2007 3:20 PM

No bailouts of any kind please.

Posted by: james at August 9, 2007 3:28 PM

Melinda & James - I wouldn't worry about it. This thing is too big for a full bailout. Watch for homebuilders and more hedge funds to blow up next. Here's some foreshadowing:

http://www.rgemonitor.com/blog/roubini/

Posted by: Dude at August 9, 2007 3:59 PM

Wow, this is really unfolding badly, isn't it? But it's sort of wikedly exciting at the same time.

Cramer screaming like a lunatic "Open the discount window" probably sounded to the French a lot like Jerry Lewis screaming "Oh, Lady!" They love both of those guys. So they decided to take the lead and flood their own country with money, just like Cramer wanted. It's isn't quite the helicopters famously associated with Bernanke, but it's the next best thing.

The issue now is one of trust in the markets. That usually leads to regulation, and that usually leads to more pain. Much more.

Posted by: tipster at August 9, 2007 4:05 PM

For those of you saying things like "this thing is too big for a bailout", the Savings and Loan thingy was what? Small?

Posted by: Anon at August 9, 2007 4:45 PM

The article mentions that there are roughly 2 million mortgages that are going to reset in the next two years (I can't tell whether it meant 2 million each year or 2 million total).

- Assume 2 million mortgages
- Assume that only 50% of the ARM mortgages will need help.
- Assume that "saving" each mortgage will cost $100,000. This may be conservative since many ARMs were given to CA and FL residents, where housing prices are higher. This includes the bureaucratic costs of setting up such a system of vetting and helping homeowners. Given the efficiency of the government after Hurricane Katrina, this number may need to be higher.

Total Cost Estimate: $100,000,000,000
This is just the first wave of resetting mortgages as well. This only covers two years of mortgages. The total bill for all the incoming waves of subprime and Alt-A might be around 300 billion.

Wiki mentions an estimated total cost of the S&L bailout at around 150 billion.

I'll be the first to admit it's a crude estimation, but I think it's likely in the ballpark. Anybody have a better method of estimation?

Posted by: Math and guesstimation at August 9, 2007 6:07 PM

Bernanke says he isn't going to lift a finger to stop this thing, Bush says read my lips, no bailout, the democrats in congress have refused to bail out a larger subprime problem that has started earlier and affected far more people, Greenspan refused to give a put so as to not encourage the risky behavior that caused the dot com bust, and the general consensus among economists is that the best way out of this is to let it pop, and that we probably already prolonged it longer than we should have and are paying a higher price as a result.

So exactly where are you guys getting the idea that there will be any bailout?

The only bailout was 25 years ago, when the impact was mostly on wholly innocent retirees who had been pursuing what were thought of as risk-free investments in insured savings and loans that turned out to have been insured by the savings and loans themselves (so the insurance companies collapsed with the savings and loans), and who, if they hadn't gotten bailed out would have had to rely on government handouts anyways.

Here we have mostly foreign investors who pumped up a bubble. Someone with a zero down mortgage isn't going to lose anything. They walk away from one home they have zero stake in, they rent another. The only people who are going to lose anything are the Asian investors. American homeowners won't collectively lose a dime: One homeowner will lose $$, the next one won't pay as much, so there is no NET loss from a collapse in prices nor is there any benefit to collective American homeowners for any bailout. Exactly why do you think American taxpayers are going to suffer for years to come to the rescue of foreigners? They aren't.

Everyone has already aligned behind "no bailout", there are strong policy reasons against it, no net benefit to the American people to do it, and yet people are wondering if it might happen? It isn't.

Say what you will about Greenspan, but he just pulled off the greatest transfer of wealth from one country to save another country since the Marshall Plan. American wealth evaporated under the misallocation of resources in the dot com boom. So he engineered a fake recovery that was predicated on massive inflows of cash from foreigners to people who spend money like water: new homeowners. Not just any new homeowners but new homeowners with money management problems. That circulated foreigners money into the economy better than anything any politician could have designed.

And now, the rug is being pulled out from underneath the investors. The Asian investors realized it two weeks ago, and when they pulled the plug, they also learned that everyone else had stopped investing months ago, because when they stopped, the well ran dry. The Europeans just now realized they have been completely snookered.

Bailout? This *WAS* the bailout. The mortgage runup and collapse has all gone according to plan to bailout the American Economy from the dot com bust. Rather than the Americans left holding the bag for the dot com bust, the entire WORLD gets to share our pain. We took their money and spent it a thousand times over, saved our economy and hurt theirs. No politician is going to bring that pain back to the American people by using American's tax dollars to bail out anything.

Posted by: tipster at August 9, 2007 8:55 PM

So what does all of this mean for the San Francisco housing market?

Posted by: baffled at August 9, 2007 8:59 PM

Well, any future SF develeopments which haven't already secured funding are likely to undergo serious consideration for not going forward with construction. Cost of funds just got dramatically higher. And if housing prices may fall futher, why would anyone develop right now? The economics would not make sense.

If all of these thousands of new units don't come online, prices are not going to go dramatically downward. Anyway, this is another bump in the road and over time will pass. I'm sure happy I am not a developer who has just broken ground on a new project.

Posted by: anon at August 9, 2007 9:28 PM

@tipster: you rock :)

Posted by: dub dub at August 9, 2007 9:37 PM

Actually Bush said the following:

"If you mean direct grants to homeowners, the answer would be `No, I don't support that.'"

Those sound like a slippery politician's words to me as they leave the door open for a bailout other than "direct grants to homeowners".

Posted by: Amen Corner at August 9, 2007 10:10 PM

Oh jesus, get real. Projects aren't going to be pulled. People who own land are going to bail out of it faster than ever (or risk being stuck with it for a very long time) selling more of it to developers, and the price of land will go down. Cheaper land will allow builders to build, and sell for less. Some builders will file for bankruptcy because they bought land at too high prices, but most optioned it. They'll walk from the options, the land will get repriced, sold, and built on. Unlike homeowners, very few landowners have an emotional attachment to the land (which may have some antiquated building on it in SF), so prices will fall quick. If prices fall they sell when they need to, not as much of it but lots will get sold.

And builders with projects in the ground will finish them (or the bank will take them back and sell to someone else who will finish them) and rent them, if the early 80s are any guide. You could rent anything for a song just about anywhere - the area was awash in rentals and rental rates were cheap for brand new construction during the lull in sales that will no doubt follow.

Builders aren't going to close shop and land sellers aren't going to eat dirt for the next ten years. Prices ran up to the level of funding available and they'll run down to the level of funding available. There may be a short pause in the meantime while the market finds its equilibrium. The office market is in near equilibrium, generating some, but not a whole lot of demand from that sector. What else are the land holders going to do with it, eat it? What are builders going to do, all do nothing for the next ten years. Please.

What's going to happen? Sellers still want to sell, builders still want to build, buyers still want to buy but they'll be severely price constrained by the lenders, just like they were in 1985. Banks didn't used to lend money to anyone with a pulse and real estate got built by the ton anyway.

The market will still function, but at a much lower equilibrium point. The real story here is people who will walk from mortgages and deposits as prices fall to where it is cheaper to do that than to hold. Everyone else will pause, and then start up again at the new price point. The old price point was predicated on a sham anyway - good riddance. Business as usual.

When I rented after the dot com boom, every landlord in town used to say "Do you know how much I was getting two years ago? People were ringing my doorbell every day asking me if I had any vacancy!" I just shook my head and offered them 40 cents on the dollar (measured in bubble prices) and they were happy to take it. That became its most productive use and so to that use it was put.

What do I think is going to happen to prices? They probably won't go as low as 40 cents on the dollar.

Posted by: tipster at August 9, 2007 11:07 PM

Wow, tipster, you don't think any projects will not go forward, at least for the time being? My company just borrowed $1.5 billion over the last 9 months at the lowest historical pricing ever. Now credit spreads has gone up by a factor of 10x, ratings from the rating agencies are likely to be lower (so higher cost of funds again), and surety provider fees (3rd party guarantees) are likely cost at least double. With costs of borrowing so high, I will bet that some high profile projects will get delayed.

I wonder if anyone will back out of their purchases at under-construction buildings, because either they no longer qualifity for a mortgage, or they wonder if prices will fall enough that it would be worth it to pull out until the volatility has subsided and hopefully they can get a lower price down the road.

Anyway, it is probably a good market to be a landlord if a bunch of people are on the sidelines waiting to see what happens with housing prices and new projects.

Posted by: AC at August 10, 2007 6:50 AM

Wow, how quickly you forget. When the dot com bubble popped, the price of fiber fell by 80% AND a lot of people lost their jobs. It was a BAD time to be a landlord.

The prices of homes will fall AND a lot of people will, unfortunately lose their jobs as the country realizes that we really don't need that many real estate agents, mortgage brokers, etc. The demand numbers that kept those people employed were all fake.

When people lose their jobs, they tend to move away from high cost areas. It may be a good time to be a landlord in Detroit, or at least better than it has been, but not in SF.

How quickly you forget the lessons of the dot com bubble.

Posted by: tipster at August 10, 2007 7:57 AM

"Exactly why do you think American taxpayers are going to suffer for years to come to the rescue of foreigners? They aren't."

One of the dumbest things I have heard in a long time. Remember the US requires $2-3 Billion per DAY of FOREIGN capital to keep its government and economy running? If foreigners decide to reduce their capital flows into the US, interest rates in the US are going to skyrocket and the party here will be over for a while.

Posted by: anon at August 10, 2007 8:02 AM

Prices are heading DOWN right here in San Francisco. Why would anyone buy right now? Even if they are sitting on a pile of cash - just wait, wait wait. The other shoe is dropping and prices are going DOWN, DOWN, DOWN.

Posted by: anon at August 10, 2007 8:06 AM

ANON 8:02AM
LOL!


Agreed

Posted by: anon2 at August 10, 2007 8:09 AM

Pretty interesting, the government's comments about no bailouts, when the Fed has already injected liquidity into the markets twice in recent days to prevent a full-scale crisis. Not to mention the long-term debt market has priced in a rate cut at the September Fed meeting or before (in an emergency meeting).

Posted by: anon at August 10, 2007 8:18 AM

There's a difference between bailing out the fools who bought all this fraudulent, bad mortgage debt and priming the economy with lower rates and injections of funds. Regardless, no matter what bailout, rate decrease, etc. takes place, in no case will the cheap money return to unqualified home buyers any time soon, which is the relevant point for this board. Demand is now a fraction of what it was just a few months ago because a huge number of would-be buyers will no longer be able to get a mortgage. This will hit SF particularly hard since just about every mortgage here is out of Fannie Mae's range.

Posted by: Anon at August 10, 2007 8:31 AM

Hey, all you anons!

Why don't you pick a pseudonym so we can all tell you apart. It's fun! Try it!

Posted by: diemos at August 10, 2007 8:31 AM

Rate cuts would significantly offset tightening lending standards and serve to offset housing price declines. The fed funds target is now 4.75% by the end of the year. Surely that will help steady the market.

Posted by: anon at August 10, 2007 9:00 AM

This thing is unfolding EXACTLY as many of us predicted.

What does it imply for home prices in SF? They'll be going down, folks, here just like everywhere else. You have to be financially illiterate or willfully blind to not see the writing on the wall at this point.

Given that we do indeed thrive on foreign capital, I can't see a scenario where rates fall. They either stay flat or rise to keep luring said capital. Bernanke is not Greenspan (thank God for that) - lowering rates now would only emulate the mess that Japan went through.

Builders/developers will keep building - they have to. Their business model is akin to a shark - need to keep moving to stay alive. Those that don't will fail or be bought out by larger players.

This financial hangover will be very painful. Maybe we won't drink so much next time.

Posted by: Dude at August 10, 2007 9:29 AM

There are certain 'other' SF real estate blogs, that are still writing about micro markets in SF and how the market is still red hot. I can't wait for this drama to unravel completely. I'd really want to read that blog, and this one too, when prices finally demonstrate a semblance of reality. Spending 50% of one's income on housing is just unnatural !

Posted by: Nero at August 10, 2007 9:47 AM

"The fed funds target is now 4.75% by the end of the year. Surely that will help steady the market."

The Fed's short term interest rates have next to no impact on the longer term interest rates. The capital markets are setting these rates - in line with risk. 30 year jumbo loan is now around 8% and going up regardless what the Fed's short term rate will be by the end of the year.

That dumb foreign investors who tipster thinks he can screw are setting our mortgage interest rates now - not Bernanke!

Posted by: anon at August 10, 2007 9:52 AM

So how do I get out of my contract at 1Rincon without loosing my deposit? Can I do it if I don't qualify for a loan?

Crap . . .

Posted by: Runner at August 10, 2007 10:05 AM

Unless 30 year mortgage rates substantially recede in the coming year from the present 8% level, a lot of people without rate locks who reserved units in a new buildings that are not yet completed are no longer going to be able to qualify for the loan. I wonder what % of the sold and unfinished units that group of people represents.

Posted by: anon at August 10, 2007 10:22 AM

"Unless 30 year mortgage rates substantially recede in the coming year from the present 8% level"

CNN Money is still showing avg 30 yr jumbo fixed rates at 6.94%. A big jump of late no doubt, but not 8%.

Posted by: Craig at August 10, 2007 10:29 AM

The spread between conforming and jumbo rates has gone through the roof. If the market does not bring the spread back down in the next few months I predict that the Freddie or Fannie (or some GSE) will be allowed to fund jumbo loans. They will have to be full doc, max 90% CLTV, 680 credit. But they (the government) are not going to let the spread between conforming and jumbo loans remain at .75%-2%. Should be more like .25-.5%. If you listened to what Bush said yesterday, he already alluded to this possibility. And the fed injecting billions of liquidity into the credit markets the last two days is the first step in trying to get the secondary mortgage market started back up..

Still going to be ugly for much of the RE market/county, but there has to be a market for high quality jumbo loans that is not 2% over a similarly qualified conforming loan ($417K). This would cause way too much pain in CA, FLA, NY. Not that W would not like to see us suffer, but the toll on the US economy would be too great.

Subprime is another story, I would not look for a bailout there.


Posted by: Todd at August 10, 2007 10:35 AM

Correction: The dumb foreign investors *WERE* setting mortgage rates - too low. They are leaving the market in droves right now.

The reason they are leaving is that they didn't have sufficient information to price the risk appropriately. The bankers and bond rating agencies fed them crap and they ate it up and now they lost their shirts.

That will be changed at a net taxpayer cost of something approaching zero, and the markets will flow again. Government regulators will try to make sure the risks are fully disclosed. Of course, when they do that, no one will make the loans at an artificially affordable price any more and the fake mortgage market of liar loans, neg am loans, and almost all other subprime and alt-a loans etc. will stay dried up.

BTW, I don't think I can screw foreign investors, I think, and they think, they have ALREADY been screwed! If they were bailed out, we'd just hand cash back to them and they'd stay far away. Instead, we'll demand they have better access to information and they'll keep loaning us money, whatever is left, that is.

Posted by: tipster at August 10, 2007 10:36 AM

"certain 'other' SF real estate blogs, that are still writing about micro markets in SF and how the market is still red hot..." from Nero..


I'm one of those that has been blown out in these Micro Markets over the last few months w/ crazy overbids (15-20%) on places that in January were going close to asking. So, those micro markets WERE hot. I'm sitting here wondering whether getting blown out on those offers was the best gift I've received since the Evel Knievel Stunt Cycle in 70's.

Posted by: sf byr at August 10, 2007 10:43 AM

8% is not a joke.

Wells Fargo Wells Fargo raised rates on a 30-year jumbo fixed rate mortgage from 6 7/8% to 8% overnight. BofA is at 7.94%. Other lenders are expected to follow suit.

Posted by: anon at August 10, 2007 11:11 AM

Perusing the internet, I've seen 30 year jumbos as low as 7.2%....but that's with 20% down.

Posted by: Dude at August 10, 2007 11:14 AM

Re: FED rate cut.

If the Fed cuts rates, the value of the dollar falls. That means inflation, and higher interest rates paradoxically, since so much of the money coming in to the debt market is foreign. Provided any keeps coming in at all after this.

The Fed has lost control of the situation vis. rate adjustments - I just hope they've got the brains to realize it.

Posted by: Jim D at August 10, 2007 11:25 AM

Does anyone know of a similarly delicious real estate blog covering South Florida? Unlike here in SF, the bust is not in the speculative realm (pun intended).

Posted by: DRB at August 10, 2007 12:02 PM

Does anyone know of a similarly delicious real estate blog covering South Florida? Unlike here in SF, the bust is not in the speculative realm (pun intended).

Posted by: DRB at August 10, 2007 12:02 PM

Inflation...Ben says he will fight it but they don't call him helicopter Ben for nothing. I think there is more inflation than shows up in the measurement numbers. This will be part of the fix. As the dollar declines those big loans that people can't afford become relatively smaller. Speaking of big loans that people can not afford, will also lessen the pain for the Fed to pay the debt, entitlement bills, and a war. Makes US goods more competitive abroad. Is the glass half full?

Posted by: Todd at August 10, 2007 12:03 PM

Two thoughts 1) If I could see it coming- this easy credit hangover - me who never even took an economics class at Uni but who dissected The Lovesong of J Alfred Prufrock for months (Eng Major - not a financial genius) - if I could see it coming why couldn't the Fed?

And 2), Remember that the bankruptcy laws were changed so individuals will not be able to just walk away and rent something, as someone stated earlier in the thread. If I understand the new laws correctly they may well be paying off these home loans forever. No more forgive and forget.

Posted by: Bink at August 10, 2007 12:09 PM

Oh, HELL NO, there better not be any federal bailout for individual homeowners in danger of foreclosure. Yeah, the harsh reality is, these homeowners were greedy, bought more than they KNEW they could afford, and have made foolish loan decisions to land themselves in the predicament that they are facing now. If there is a bailout, exactly at whose expense? Taxpayers. And being the large and very enthusiastic contributor that I am to our wonderful tax system, all I've got to say is ... I ... DON'T ... THINK ... SO!!!

No, no sympathy here.

Posted by: S&S in SF at August 10, 2007 12:14 PM

Remember that the bankruptcy laws were changed so individuals will not be able to just walk away and rent something, as someone stated earlier in the thread

People who did not refinance are protected by the no recourse laws in CA and many other states. Those people can throw the keys back to the bank and the bank can not collect the difference.

Their credit will have a ding, but the ding will be very much like the stigma of being laid off in the dot com bust: it will have happened to so many people that no one will consider it a stigma at all.

You don't need to file for bankruptcy or do anything at all to obtain the benefits of the no recourse laws: just mail the keys back to the loan processor and walk away. That's the end of the story and the loan processor and the investors can't do anything about it. What a country!

Posted by: tipster at August 10, 2007 12:17 PM

Bink is right - and who is to say that someone with a foreclosure will have an easy time getting a lease on an apartment - rental companies do look at credit scores.

Posted by: anon at August 10, 2007 12:17 PM

The credit spreads for municipal issuers are going up too..... and we still don't have a budget in California, eh? That bullet train bond issuance proposed for November 2008's ballot just became more costly.

Other thoughts ... Schools are supposed to start up soon - do the Counties have the money to fund them until the State gets their crap together?

I think our reliance on China's money to fund our national debt may just cost Taiwan any hope of independence they were grasping.

Folks living on their credit cards are in an even worse situation now.

On the bright side, oil prices keep declining (for now).

Posted by: Jamie at August 10, 2007 12:33 PM

IMHO there was not as much cause for worry about the SF market due to the strong fundamentals not the least of which was the high demand to live in the City by people with the mans to do so. However, things have just turned decidedly different. When people have the means to buy and the demand is still there, but the banks won't lend, that is an entirely different matter. Interest rates no longer matter in the equation as the banks are not lending at any price.

Posted by: JohnK at August 11, 2007 12:02 PM

Buyers (as opposed to residents) in the Bay Area are as a whole very affluent, with large cash downpayments for their purchase. None of the mortgage mess that affects the rest of the country will affect any of the prime areas of the Bay Area at all. All of the buyers in those areas are financially astute enough to get whatever it is they want at that moment without consideration for pesky external factors like the availability of credit.

Posted by: Jimbo at August 11, 2007 4:53 PM

Jimbo, buyers in the Bay Area are very affluent, and they MAY have put down large cash downpayments, but have you seen how many homeowners in the Bay Area have refinanced their homes in less than desirable ways? I have a neigbor who bought his home decades ago for $150,000 but now owes more than $800,000 through continually using his home as an "atm". This could explain the new Range Rover. I have had friends tell me I was "crazy" for having my home completely paid off, but most of the new younger buyers in my neighborhood make over $200,000 a year, but did not put very large cash desposits down, some even using ARMs as a way to buy into the neighborhood. I think this whole economic situation could get very ugly.

Posted by: Adam Smith at August 11, 2007 5:18 PM

I was being sarcastic... to a point. If you think prices in Atherton are gonna drop anytime soon.... well, don't hold your breath.

East Palo Alto, on the other hand, could perhaps suffer a *tiny* decline in prices when $200k/yr professional couples realise its still a gang-ridden hell-hole. For example.

Posted by: Jimbo at August 11, 2007 5:23 PM

i have been living in SF since 1995 and have seen some crazy things happen; both in business & real estate. i also classify myself as very average for the bay area in terms of career and income. to tipster's point, everyone is forgetting the .com bust. i was one who had cheap rent (controlled) and a decent amount of $ on paper from a tech IPO. "no need to buy, cash is king" was my thinking. i lost my *** in 2000 but learned some very valuable lessons about what "cash" really is (not stock/paper)and markets in general (they're cyclical!, no guarantees, dont be greedy). i also saw many people leave the .com industry and some even leave town. SF was not the same in 2000, then it got worse with 9/11. continuing to rent cheap, i always wanted to "own" my own place in The City. i finally bought a place in SOMA in 2003 when prices were flat and rates were close to all time lows; i got it at offer. i had a 5% ARM for 5 years that i refinanced a year later and got the same rate and pulled out some cash (which i blew most of, of course). so i had 5% money till 2009 (interest only). i was looking to sell in 2005 after 2 years and buy a SFH (in The City specifically). typical job changes and timing wasn't good in 2005 and of course life also changes and my place became too small for 2 (girlfriend move in). things were def not as hot as in summer 2005 and a lot of buzz was happening about potential subprime problems on the horizon. i thought the SF market was different and noticed hot micro-markets (noe, bernal). my opinion seriously changed last fall ('06). i also have a friend who is very astute on the topics (bay area r.e., economics etc.) and was giving me the cold hard facts. it was time; i sold in april of this year and saw a 50% cap appreciation in the time i owned it. spent some of the equity prior to selling (like everyone else) but nothing too drastic at all. still walked with a nice profit. felt i did well on the place and remembered the lessons from the past; i lost my *** once, i do not want to lose my *** again. we decided to rent, sit back and see what happens.

the way i look at these crazy markets is no one has a crystal ball. we can guess what's going to happen, think SF is different or whatever else. i think too often the FACTS are ignored and people believe what they want to believe. i think it all comes down to individual comfort levels. i know i feel a lot better sitting out for now.

Posted by: gladisold at August 11, 2007 6:57 PM

Excellent posts and analysis here. I am in total agreement - except that I think that Atherton too will drop (maybe just by a little - but down in real dollars). Why would anyone buy in SF or the Bay Area right now? Maybe if you really had to and had the means (like a pile of hedge fund money or GOOG or whatever) - but why not just wait this market out? The odds of significant price declines in ALL neighborhoods must be much greater now than the chance of any price appreciation in the near term.

Posted by: howard at August 12, 2007 12:49 AM

Listening to you guys talk about the market, you would think the sky is falling. The current situation with subprime mortgages is only affecting 8% of the market. I personally do not know anyone the past few years that bought a property who could not afford it -- nor did any of my friends get a subprime mortgage. The market is different, no doubt, however, I still don't think the sky is falling. For those of you sitting on the fence waiting for bargains in the best neighborhoods in San Francisco, I would expect they will be few and far between.

Posted by: movingback at August 12, 2007 1:13 AM

Two comments

> The current situation with subprime mortgages is only affecting 8% of the market.

Markets are made at the margins. And, keep in mind AltA of 2006 vintage has a higher default rate, so it's not as small as you think.

> I personally do not know anyone the past few years that bought a property who could not afford it -- nor did any of my friends get a subprime mortgage.

This is a classic example of selection bias.

Posted by: supahfly at August 12, 2007 6:31 AM

What are you guys talking about? Not a SINGLE one of my friends has died of old age. So I'm pretty sure the problem (of death from old age) is contained or exists only on the fringes. The press REALLY has that problem overblown.

Posted by: tipster at August 12, 2007 10:04 AM

I check Wells Fargo on Friday. 30-yr Jumbos are at 6.75%, no points, 20% down.

Posted by: whoope at August 12, 2007 4:37 PM

Rates at Well Fargo ust be going up. I checked just now, Sunday night, Bankrate.com has a $1M loan from Wells at 7% (7.125 apr) with 20% down and 1% as an up front fee (e.g. 1 point).

I guess we can just wait around for buyers to save the 21%, or 210,000.00. That shouldn't take the 70%+ of buyers, who have been buying with nothing down, more than a couple of years. Do you think?

Maybe some of them can take the equity from their nothing down mortgages with Helocs up the wazoo and use that. Excepting for the part about them having to sell their homes to someone else.

I did check for 10% down, and some companies still write them for Jumbos. E-loan quotes then at 10% with no points, down to 6.625 with 3.25 points. I'm sure people will be lining up for these!

Posted by: tipster at August 12, 2007 6:46 PM

What will happen to all of those people who only have small deposits on units still under construction in certain projects? Did they already lock in their loans, or do they still have to initiate them and now come up with more money down now? This could get very interesting for those of us who have cashed out and are waiting on the sidelines right now.

Posted by: anonandon at August 12, 2007 7:01 PM

I checked the Wells Fargo site directly, 7.125% with 20% down and 1 point. Going up fast.

"Rates at Well Fargo ust be going up. I checked just now, Sunday night, Bankrate.com has a $1M loan from Wells at 7% (7.125 apr) with 20% down and 1% as an up front fee (e.g. 1 point)."

Posted by: diemos at August 12, 2007 7:18 PM

Prices are falling and will continue to fall. I am selling my home in Miraloma Park; got an offer; 2 days ago the buyer said that the loan did not go through. Getting a loan is not as trivial as it used to be a year ago when I got my house and less buyers will have financial means to buy property. I wait another 2 weeks and drop the price below the one i purchased my home just a year ago. This simply sucks.

Posted by: misha at August 12, 2007 9:27 PM

sorry to hear that misha. is it possible you overpaid for it last year and the true value is about to be exposed?

Posted by: james at August 12, 2007 10:42 PM

I couldn't find any properties sold in 2006 that are up for sale right now in Miraloma Park(SF MLS). There is a match on the name with an address and it was purchased last year but it's not listed for sale in the MLS. If that is that is the house it is a bit small with only 4 rooms.


Is it overpriced? What's the asking price?

Posted by: anon at August 13, 2007 6:58 PM

Galdisold, we are dot commers too. They just don't understand...

Posted by: dot.com at August 18, 2007 1:36 PM

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