Entries Tagged 'Foreclosures' ↓

I am sure that most Americans are quite excited about the tax rebates that may be coming soon this year due to a major economical stimulus package. What is lesser known about this package is that it will also raise the “conforming” mortgage loan limit from $417,000 to $729,750 in high priced regions until the end of this year. This means that government sponsored enterprises such as Freddie Mac and Fannie Mae will be able to purchase loans as large as $729,750, and any loan under this limit will not be a jumbo loan. Basically, people will be able to borrow more money and pay less interest. Who is cheering for this change and why? More importantly, how will you be affected?

Opposing Views on the Issue

What I found interesting is that the National Association of Realtors put out an extremely positive review about this move stating that “NAR’s research found that simply increasing the loan limits for Fannie Mae and Freddie Mac to $625,000 would permit as many as 300,000 families to enter the housing market, reduce foreclosures by as many as 210,000 and allow as many as 500,000 jumbo loan borrowers to refinance to lower cost loans, saving these people $274 to $411 a month.” On the other hand, this article states that “the director of the Office of Federal Housing Enterprise Oversight (OFHEO), which is the governing body over America’s government-sponsored enterprises (GSEs), warned the Senate Banking, Housing and Urban Affairs Committee this week about expanding the GSEs’ ability to take on jumbo loans without first having the appropriate stipulations and regulatory structures in place.”

Who should we believe? The glowing report of an association of realtors who have lobbied for the change or the director of a branch of the government that has been tracking housing prices and demographics for more than three decades? I personally believe that the director of OFHEO’s opinion is prudent and logical. With bigger loans, the government sponsored enterprises will be taking on more risk, and if these agencies are destablized by more risky debt then the entire economy could collapse even further.

Best Case Scenario for the Average American

The best case senario I see is that nothing really happens and very few loans get funded under the new limit. These few homeowners will benefit from the lower rate and keep on paying their bills. Hopefully, the paltry number of these homeowners will not affect the housing market in any significant way. The prices of houses continue to decline for a while making homes more affordable and lowering the need for jumbo loans. Basically, the best we can hope for is that nothing changes.

Worst Case Scenario for the Average American

Unfortunately, I think it is possible that this footnote to the stimulus package could have a devastating effect on the current mortgage crisis. First, it may prolong the bubblicious prices in California and the Northeast. Right now I am reading many stories where offers on homes fell through because of the lack of financing. Considering the fact that the average price of shacks in my neighborhood is $700k to $800k, most of these buyers are trying to secure jumbo loans. Once this package goes through, financing will be possible, and the prices on the shacks will not come down as quickly. Even though this higher limit is only in effect for one year, it is possible that more speculators and fraudsters will get into the market and drive prices up even higher. After all, it only took about two years (2004 to 2006) for home prices to double in many parts of California. You may say that this is not a problem for the rest of America, but if Freddie Mac and Fannie Mae become insolvent because of more risky debt, then all Americans will have to pay dearly with mandatory bailouts. Then we can kiss that tax rebate and even more money goodbye.

What I Think Should Happen

I am not an expert, but I firmly believe that what we need is more affordable homes, and not larger loans. So it is probalby best if the limit was left alone and the ridiculous prices fell back down to earth. I think it is ludicrous that the “conforming” loan limit is being lifted more than $300,000 in this package in the blink of an eye considering that it took a span of 23 years for the loan limit to go up from $115k to $417k. Is more debt really good for Americans? What do you think should happen?

Share This

We’re heading into the winter doldrums of real estate and these two weeks I examined 218 properties that were up for sale in San Mateo County. Of these, 28 qualify as home sellers in trouble. Here are some highlights. Continue reading →

Share This

Well, it’s been two weeks since the last update and in the last fourteen days about 305 homes in San Mateo County were listed on Redfin. This time 59 homes qualified as home sellers in trouble. This is nearly 20% of all the new listings in San Mateo! Quite a few of these homes are marked as lender owned. Here are some highlights.

Continue reading →

Share This

Even though I have never been to Cleveland I feel like I have some kind of strange connection to it through a few friends. One of my super geeky friends likes to say three things to indicate that something is cool. Those three words are “orange, ninja, and Cleveland”. I guess he got it from the opening song of Drew Carey where they yell “CLEVELAND ROCKS! CLEVELAND ROCKS!”. So sometimes he says “I’m in Cleveland” to mean that he’s awesome. Anyway, two of my other friends from high school are also connected to Cleveland. One of them is actually attending Case Western’s medical school, and the other one grew up in Cleveland. The three of us had a sort of “big head club”, because we all have quite large heads. So imagine my surprise when I read that most of the foreclosures in the Cleveland we love is now owned by Deutsche Bank. The BBC has also provided a lovely graphic to pinpoint all the German-owned properties:

I am at a loss for words. Though one thing that is clear is that the foreclosure situation in America affects financial institutions all around the world. It makes you wonder, how many other cities are getting owned by foreign banks?

P.S. Cleveland still rocks, because Ohio is going to start teaching mandatory personal finance classes in high school. Californian public schools are in desperate need of such courses too.

Share This

So, I am a pretty big fan of the blog Sacramento Area Flippers in Trouble where the blogger lists houses that are bought in the past two years and currently listed for lower than the last sale price. So I wondered if I could find some listings in San Mateo County that qualify as “in trouble”. A lot of people are saying that San Mateo County’s real estate is resistant to the current housing market and won’t ever fall, but after browsing Redfin’s San Mateo listings I found over 100 homes that are current asking prices less than their last selling price. I found a lot of interesting data through this exercise and I will share it here all week long. Today I will present the overall averages and the five homes with the greatest annualized percentage loss plus the five homes with the highest current price per square foot.

Overall Average Statistics:

I found a total of 102 homes in the San Mateo County that were last sold within the last 3 years and are currently selling for lower or equal to their last sale prices. The average amount of time from last sale date is 1.78 years. The average current asking price is $631,059 and the average last sale price is $703591. The average size of these homes is around 1200 square feet and the average annualized loss per year is about 6.76% if all of these homes sell for their current asking prices. Overall, they are still quite expensive and have an average per square foot price tag of $540.

Top 5 Homes with the Largest Annualized Percentage Loss:

I calculated the annualized loss using 10/7/07 as the current date and assumed yearly interest compound. Four out of these five homes were bought less than a year ago, and that is probably why their annualized loss is so high. I know that the home at 2318 Flores St. is a short sale and it has been advertised for months.

Address: 2241 Addison Ave, East Palo Alto
Last Sale Date: 05/23/2007
Last Sale Price: 543099
Current Asking Price: 429000
Annualized Loss: -46.7%

Address: 2318 Flores St, San Mateo
Last Sale Date: 12/29/2006
Last Sale Price: 1250000
Current Asking Price: 888000
Annualized Loss: -35.8%

Address: 1139 Cleveland, Redwood City
Last Sale Date: 07/24/2007
Last Sale Price: 688937
Current Asking Price: 649900
Annualized Loss: -24.7%

Address: 2632 Meath Dr, South San Francisco
Last Sale Date: 06/21/2007
Last Sale Price: 476469
Current Asking Price: 439000
Annualized Loss: -24.2%

Address: 645 Bermuda, San Mateo
Last Sale Date: 05/20/2004
Last Sale Price: 1984091
Current Asking Price: 862000
Annualized Loss: -21.8%

5 Homes with the Highest Cost Per Square Foot

I think most of these homes belong in an episode of Dr. Housing Bubble’s Real Homes of Genius. Four of these homes are smaller than the condo I rent and the cost per square foot is more than some parts of Manhattan. The largest home in this list is a condo so there is no land premium. It is a condo in a good location, but it still seems to be quite overpriced. So here they are:

Address: 3570 Oak Knoll Dr, Redwood City
Current Asking Price: 889900
Annualized Loss: -0.7%
Size: 910 Square Feet
Price Per Square Foot: $978

Address: 222 6th Ave #102, San Mateo
Current Asking Price: 1599999
Annualized Loss: -16.5%
Size: 1911 Square Feet
Price Per Square Foot: $837

Address: 1906 Alameda De Pulgas Ln, Redwood City
Current Asking Price: 850000
Annualized Loss: -8.9%
Size: 1030 Square Feet
Price Per Square Foot: $825

Address: 1953 Ivy St, San Mateo
Current Asking Price: 649000
Annualized Loss: -0%
Size: 820 Square Feet
Price Per Square Foot: $791

Address: 2737 Marlborough Ave, Redwood City
Current Asking Price: 529000
Annualized Loss: -4.1%
Size: 680 Square Feet
Price Per Square Foot: $778

Tomorrow I will post the following: Cities with the Most Homes in Trouble, and The Least Expensive Homes by Price per Square Foot.

Share This