Anyone more familiar with MEW than I, isn't his number for MEW for 2006 low? Can anyone reconcile where he comes up with his numbers versus CR's posts?
Does anyone else think that the house payments led to their divorce?
Yeah, I was thinking the same. They buy the place last August and within about six months they're getting a divorce. You'd think that if they were seeing that coming they would have held off on buying. Aren't there statistics that say that most divorces are caused by money problems?
Cal, I can't speak to the MEW number, but want to thank you for sharing the Carson piece.
For me, this is the other side of the equation. It's going to be one hell of an interesting ride through the end of 2008. A lot of people are going to end up severely damaged.
I don't think history is going to be kind to Alan Greenspan.
The MEW numbers from Carson appear to come from the Federal Reserve Board Haver Analytics & Alliance Bernstein which sounds formidable enough, but only 151B for 2006 looks wrong compared to ~400B for both 04 and 05.
Nonetheless, the Chart showing Household Balance Sheets look ominous enough.
For me, what is more important than the actual MEW number itself is the debt load across income quintiles. It suggests to me that quintile 3 wasn't significantly better than quintile 1 in managing household finances.
If quintile 1 goes, 2 and 3 go with it, along with a portion of 4.
At the risk of having my head bitten off if one person earns more money in a relationship and the other cannot see that this means that this higher earning person gets some kind of authority with that higher income then you can imagine that it will create problems for the relationship.
1.Romance....seeing the best in each other...and being special for the other person by design. Spending money with love for their benefit.
2.Power struggle. Reclaiming your individual identity as it belongs to you only. A higher earning person is more independant than a lower earning person. Is that accepted or resisted?
3.Resignation/stability. You accept you cannot change another person. You only have so much power and influence.
4.Committment. Acceptance and a desire to build and support rather than score points
5. Cocreation. Like 4 only about living life as a way of encouraging all to live life in a more posative and loving manner.
Many fail at 2.
If you are at 2. and you earn the big bucks then ensuring your spouse is houseless and youless and in debt would seem like a real good idea:-) (Why give them half! Are you crazy??? It was your money)......until later when you have grown a bit and can hopefully make a better fist of it with the next marriage
I'm going to predict a new law (temporary? only the beautiful people?) will allow zero taxation on the forgiven portions of loans from homes that dropped in price. Anyone
care to take the other side of that bet, or should we just start a pool on when it will happen?
This will be a HO (home owner, not the other kind) bailout (ala S&L bailout) coming, and it's bound to be a rather well rounded package. I said it over on Mish's board....I think a Fed that's willing to go 1% to pump housing assets to kick the can down the road will be more than willing to drop some more helicopter money...er...bailout for the poor unfortunate banke...er....home owners.
I reiterate, with the divorce rate at 50%, it's better to know what goes on in the house than the LTV.
The loss of certain abilities in our civilization [sic] may be at least partly blamed on our global objectivist religion: everything is a fixed, measurable quantity, including human potential. We are born with a fixed potential, and we may use that potential or not; either way, it will never change. Since we cannot build ourselves, we instead turn our energies toward building things to make ourselves more powerful by proxy: gadgets, weapons, corporations [,MacMansions], etc.
" I'm going to predict a new law (temporary? only the beautiful people?) will allow zero taxation on the forgiven portions of loans from homes that dropped in price."
Take a gander at H.R. 1876, the Mortgage Cancellation Tax Relief Act, in the House.
Can a borrower walk away without consequences other than credit difficulties later? The issue in the UK would be addressed by a lender asking the question "do you have any outstanding county court judgements against you" or "have you ever been declared bankrupt"
CR: Like in the case of housing starts geography is again the key.
'For the week ending April 7, 46 states and territories had an increase in jobless claims while seven had a decrease. The state with the largest increase was California, an increase of 8,644 which was attributed to increased layoffs in service industries.
My view is that a lot of what we call "exotic" products are, in some sense, a way of engineering around usury problems. "Usury" is generally defined as an unconscionable interest rate. It pretty much exists only when borrowers 1) have no access to other kinds of credit or 2) have no reliable information about what market rates are or 3) are desperate.
So usury laws got put on the books, and they mostly just have some kind of rate cap, either a stated maximum interest rate that can be charged, or a maximum percent over some defined market rate that can be charged.
But anyone who has had a credit card problem can tell you that there are ways around that. Negative amortization, remember, is a way of charging interest on interest. True yield to the lender is more than a matter of the contract rate. Interest only loans always carry a higher interest rate than the amortizing version, so people who want that low payment are actually paying more for it.
This kind of thing will continue as long as borrowers have--or think they have--limited access (say, to the neighborhood broker who speaks their language), they don't understand the terms of credit or the math of APR enough to be able to compare, or they're just too desperate.
My problem all along in the boom is that people were giving financial advice to other people when they had no more idea what they were talking about than the gullible souls who took those loans. Neither lenders nor borrowers were exercising sufficient caution. I don't care to throw the term "usury" around in this situation. I think it's more profitable to consider why the information market is so dysfunctional that exotic lending can flourish.
Neil, it's usually money or sex, so there's a good chance that this was part of the problem. I'm not sure that the person bringing in more money has more authority to say how it will be spent. I AM sure that having similar attitudes towards spending and debt are critically important in a marriage. Any mismatch will lead to resentment between the spendthrift and the "cheap bastard." As a friend of mine pointed out, even if you're both in broad agreement on HOW MUCH you should be spending, differences on exacty WHAT you should spend on are most easily patched over by spending on both priorities rather than neither. This tends to leat to couples being more profligate than either would be singly. Popcorn or Cheze Doodles? Whey you're married the answer is usually both.
I don't know how I've stayed married for 25 years if similar attitudes towards money and debt are critically important! What I do know, is that even though my better half makes more money, he's still had to have my signature on any and all loan papers. Powerful or not, I still have a choice on whether to live beyond my means or face reality... Popcorn or cheese doodles? If we're making 70K and they cost 538K, someone's going to have to sell a lot of pop bottles!
Look, there are a lot of idiots out there, but cheif among them are anyone that thinks that divorce will help their financial situation. Been there, done that and trust me divorces are expensive and significantly lower the living standards of both parties. Lawyers don't come cheap, and it is far far more expensive to run 2 households than one. In addition the tax code is deliberately set up to screw single people. If finaicial stress is the illness, then divorce is a "cure" that makes the disease much worse. Generally it is the guy who comes out worse (being a housewife is the only job in the U.S. where you can volentarilly quit and get 3 years worth of severence pay if you have 10 years of tenure on the job) oh and child support payments are claculated as a % of pretax income but are not tax deductable (and tax free to the mom).
--
"Is it in society's interest to permit usury in that context?"
Usury has lost meaning to today's society. People forget that a certain ethnic group of moneylenders was summarily thrown out of jolly old England in 1290s when ***** too many people started to lose their properties***** to these moneylenders. Then few years later they were thrown out of most of France.
I wonder what Americans will do to Bankrupters and Fraudsters once stuck in the Greater Depression and finally learn the truth about the Debt Pushers.
People learn nothing from history do they? Yeah, it sure looks like the New Era.
Average Citizen said: "I don't know how I've stayed married for 25 years if similar attitudes towards money and debt are critically important!..."
Right on, another voice from the real world.
Although my wife and I have very different views of how smaller amounts of money should be spent the disagreements aren't important...because they're about smaller amounts of money. When it comes to larger purchases (major appliances, furniture, car, house) we both agree on what's appropriate to our financial situation.
--
"Look, there are a lot of idiots out there, but cheif among them are anyone that thinks that divorce will help their financial situation. Been there, done that and trust me divorces are expensive and significantly lower the living standards of both parties."
Why do you think that we have so many divorces?
To FEED the Kapitalists! They have known that Divide and Conquer must be taken to the family level including the level of parents and kids.
No other ruling elite dared to attack the family in the past but we have a new kind of ruling elite. The Bankrupters and Fraudsters knew exactly what they were doing by encouraging the breakdown of family (more people in the labor pool and more spending). That is what makes them evildoers par extreme. They are clearly immoral.
American system must collapse in order to get rid of these evildoers. The voting machine cant. Or, can it?
All roads lead to Baghdad! I mean the modern Baghdad -- New York City, the modern Babylon. Towers of Babel?
When a friend of mine was getting a divorce, he said "I think I'll come out okay if the split the debt evenly between us." I laughed and said "Dude, you're the one with the income*, you'll be the one that gets the debt. It's not about fair, it's about minimizing bankrupcies."
To continue the tangential digression of this topic into divorce, it was somewhat surprising for me to learn that the divorce rate in the United States has been trending down.
I don't have the long-term data, but I read recently on a blog that the peak in divorce rates was after the introduction of no-fault divorce.
Hyperbole aside, the explanation I remember hearing is that people are getting married at later dates or not at all, and thus divorce is less common. Being an early 30-something myself, I have more friends who are divorced than successfully married, and most of the rest are couple living together in long-term monogamous relationships.
--
"To continue the tangential digression of this topic into divorce, it was somewhat surprising for me to learn that the divorce rate in the United States has been trending down."
Yes, the divorce rate peaked in late 1970s early 1982 (bet 1979-82). That is also when the Fundamental Demand for housing peaked! (It was also the period of peak household formation for Doomers).
The demand now is only 60-70% of the peak. That is why lazy economists are still tied to their "estimates" of the yesteryears. They refuse to look at latest data and revise down their estimates.
I've been reading CR for a long time now, but have never posted. as an aside Tanta, next time I'm in DC, I owe you dinner, smart women are soooo hot.
How does Los Angeles fit into these calculations of real estate drop? I can only provide ancedotal evidence, but prices stayed steady or dropped by 10% last summer (2006), but now are on the significant rise again, probably another 10%. The nicer neighborhoods seem to be rising at an even higher rate. And from what I can tell, foreclosures in the LA area seem relatively muted, again, especially in the upper-scale neighborhoods.
Is higher priced housing in large cities really going to take that much of a hit? My assumption would be that because those areas are more affluent, the peope in them would be more financially savvy and be unwilling to sell for losses and not have trash mortgages and/or no LTV. Is it possible that the price decline in housing in major cities might be confined to homes for middle class folks while more affluent neighborhoods and bigger houses will continue to gain significant value?
Jeff - I'm not sure which Los Angeles you live in, but my LA (including most of the south bay, all of the eastside and many westside condos) is almost all owned by people with minimal to no downpayments and very, VERY high dti ratios.
The boomers with their modest million-dollar 2brs on the westside may be perfectly safe just because they've been there so long, but the great hordes of middle and lower-middle class owners that bought in the last five years appear to be as screwed as anywhere else.
All of my friends that bought recently have interest-only loans; I don't think they actually write any other kind here any more. They also put no to minimal amounts of their own money into the deal; a "typical" LA FTB buys a $600,000 house on the eastside with $80,000 in income, an IO loan, 50% DTI and a few thousand in down payment. Most of the time the seller pays the closing costs - that's what all of our friends have done.
Don't think for a second that LA's immune. It just started from a lower baseline and took longer to heat up here. My neighborhood (90039) has tripled in price since 2004. I doubt there will be much decline as long as the "breath test" for mortgages is still the standard because of the huge demand. I also doubt prices will increase much here, but I've been wrong before.
I haven't seen the 10% increase you mention, at least not in my 'hood.
I'd bet dollars to donuts that there were marital problems BEFORE this house purchase. How likely is it that the marriage was great, happy, successful, symbiotic, etc., etc., and then this one house was bought, and WHAM, divorce time.
Here's my guess: there were problems in the marriage before and buying the house was, in part, a way to focus on other issues rather than issues in the marriage. Once the house was bought, now we have to deal with marital problems, and now there's tight finances, which adds more stress.
The point being, this couple likely had a rocky road ahead of them regardless of this house purchase. It may have expedited the divorce, and perhaps the marriage might have been saved had this extra stressor not been added. Who really knows other than the ex-husband and ex-wife?
I'm in Burbank and from what I can tell, RE from Encino to Glendale (I would also include the Hollywood Hills) seems to be in full on boom mode at least as far as the luxury homes are concerned. The 10% price increase seems to be sticking even though it's taking considerably longer for people to sell their homes.
I was debating selling my house a year ago and moving up, but decided not to because I figured we hadn't hit bottom yet. Again I only have anecdotal evidence, but the house I almost bought last year sold, and then was recently placed on the market again where it sold for 130K increase.
I agree that IO loans are becoming prevalent in LA. Every broker I know is certainly continuing to try and push them onto me, claiming that I can "buy more house." Is there any data on the number of IO loans by zip code so that we can tell where in the US most IO loans are going? It might be interesting to see if they're being used a lot more often in higher priced areas or if they're being sold equally to all.
Interesting analysis on where people are relative to cash flow and outlays and how that relates to the mortgage issues.
http://www.alliancebernstein.com/CmsObjectABD/PDF/EconomicPerspectives/REPUS_070413_JC.pdf
Anyone more familiar with MEW than I, isn't his number for MEW for 2006 low? Can anyone reconcile where he comes up with his numbers versus CR's posts?
Cal, I'm not sure where Carson is getting those numbers. The numbers from Kennedy-Greenspan are:
2004: $754B
2005: $744B
2006: $421B (through Q3).
He is using a different measure and calling it MEW.
Best Wishes.
Does anyone else think that the house payments led to their divorce?
$538k is a lot of debt/taxes/insurance to service. As to them having to owe $118k... awwww. Thank you for playing the housing bubble game.
Got popcorn?
Neil
Does anyone else think that the house payments led to their divorce?
Yeah, I was thinking the same. They buy the place last August and within about six months they're getting a divorce. You'd think that if they were seeing that coming they would have held off on buying. Aren't there statistics that say that most divorces are caused by money problems?
Cal, I can't speak to the MEW number, but want to thank you for sharing the Carson piece.
For me, this is the other side of the equation. It's going to be one hell of an interesting ride through the end of 2008. A lot of people are going to end up severely damaged.
I don't think history is going to be kind to Alan Greenspan.
The MEW numbers from Carson appear to come from the Federal Reserve Board Haver Analytics & Alliance Bernstein which sounds formidable enough, but only 151B for 2006 looks wrong compared to ~400B for both 04 and 05.
Nonetheless, the Chart showing Household Balance Sheets look ominous enough.
For me, what is more important than the actual MEW number itself is the debt load across income quintiles. It suggests to me that quintile 3 wasn't significantly better than quintile 1 in managing household finances.
If quintile 1 goes, 2 and 3 go with it, along with a portion of 4.
At the risk of having my head bitten off if one person earns more money in a relationship and the other cannot see that this means that this higher earning person gets some kind of authority with that higher income then you can imagine that it will create problems for the relationship.
Couples tend to cycle thru the following:
couples journey, stages of intimate relationship
1.Romance....seeing the best in each other...and being special for the other person by design. Spending money with love for their benefit.
2.Power struggle. Reclaiming your individual identity as it belongs to you only. A higher earning person is more independant than a lower earning person. Is that accepted or resisted?
3.Resignation/stability. You accept you cannot change another person. You only have so much power and influence.
4.Committment. Acceptance and a desire to build and support rather than score points
5. Cocreation. Like 4 only about living life as a way of encouraging all to live life in a more posative and loving manner.
Many fail at 2.
If you are at 2. and you earn the big bucks then ensuring your spouse is houseless and youless and in debt would seem like a real good idea:-) (Why give them half! Are you crazy??? It was your money)......until later when you have grown a bit and can hopefully make a better fist of it with the next marriage
I'm going to predict a new law (temporary? only the beautiful people?) will allow zero taxation on the forgiven portions of loans from homes that dropped in price. Anyone
care to take the other side of that bet, or should we just start a pool on when it will happen?
This will be a HO (home owner, not the other kind) bailout (ala S&L bailout) coming, and it's bound to be a rather well rounded package. I said it over on Mish's board....I think a Fed that's willing to go 1% to pump housing assets to kick the can down the road will be more than willing to drop some more helicopter money...er...bailout for the poor unfortunate banke...er....home owners.
I reiterate, with the divorce rate at 50%, it's better to know what goes on in the house than the LTV.
The loss of certain abilities in our civilization [sic] may be at least partly blamed on our global objectivist religion: everything is a fixed, measurable quantity, including human potential. We are born with a fixed potential, and we may use that potential or not; either way, it will never change. Since we cannot build ourselves, we instead turn our energies toward building things to make ourselves more powerful by proxy: gadgets, weapons, corporations [,MacMansions], etc.
--Mark Chen in Old Frame, Chen Family Taijiquan
I would add that interest payments are clearly a marriage stressor.
Is it in society's interest to permit usury in that context?
And, by the way, Tanta, that is what we're talking about here, isn't it?
Usury.
I mean whatever else you can say about neg-am, 110% LTV loans, they're usury, aren't they?
Oh, I know, there are usury laws. But extracting more interest than the borrower can pay is usury, isn't it?
Nuts, I forgot, those illegal immigrant borrowers handcuffed the lender to a chair and pistol-whipped him until he gave them the loan. My bad.
" I'm going to predict a new law (temporary? only the beautiful people?) will allow zero taxation on the forgiven portions of loans from homes that dropped in price."
Take a gander at H.R. 1876, the Mortgage Cancellation Tax Relief Act, in the House.
Why people are so afraid of foreclosure? It will be so many of them in the nearest future that nobody will pay attention, later on.
Screw the bank, foreclose, stop mortgage payments. It's a bank problem, not yours.
CR - any idea how to explain your data (which I do nor doubt) of 2006: $421B (through Q3) with this research who claim about 1/4 of this in 2006 ????
Yal
CR answered that at the top of this thread
Oxy
Can a borrower walk away without consequences other than credit difficulties later? The issue in the UK would be addressed by a lender asking the question "do you have any outstanding county court judgements against you" or "have you ever been declared bankrupt"
CR: Like in the case of housing starts geography is again the key.
'For the week ending April 7, 46 states and territories had an increase in jobless claims while seven had a decrease. The state with the largest increase was California, an increase of 8,644 which was attributed to increased layoffs in service industries.
Page not found
Woorried/CR: sorry I missed previous answer by CR.
My view is that a lot of what we call "exotic" products are, in some sense, a way of engineering around usury problems. "Usury" is generally defined as an unconscionable interest rate. It pretty much exists only when borrowers 1) have no access to other kinds of credit or 2) have no reliable information about what market rates are or 3) are desperate.
So usury laws got put on the books, and they mostly just have some kind of rate cap, either a stated maximum interest rate that can be charged, or a maximum percent over some defined market rate that can be charged.
But anyone who has had a credit card problem can tell you that there are ways around that. Negative amortization, remember, is a way of charging interest on interest. True yield to the lender is more than a matter of the contract rate. Interest only loans always carry a higher interest rate than the amortizing version, so people who want that low payment are actually paying more for it.
This kind of thing will continue as long as borrowers have--or think they have--limited access (say, to the neighborhood broker who speaks their language), they don't understand the terms of credit or the math of APR enough to be able to compare, or they're just too desperate.
My problem all along in the boom is that people were giving financial advice to other people when they had no more idea what they were talking about than the gullible souls who took those loans. Neither lenders nor borrowers were exercising sufficient caution. I don't care to throw the term "usury" around in this situation. I think it's more profitable to consider why the information market is so dysfunctional that exotic lending can flourish.
Neil, it's usually money or sex, so there's a good chance that this was part of the problem. I'm not sure that the person bringing in more money has more authority to say how it will be spent. I AM sure that having similar attitudes towards spending and debt are critically important in a marriage. Any mismatch will lead to resentment between the spendthrift and the "cheap bastard." As a friend of mine pointed out, even if you're both in broad agreement on HOW MUCH you should be spending, differences on exacty WHAT you should spend on are most easily patched over by spending on both priorities rather than neither. This tends to leat to couples being more profligate than either would be singly. Popcorn or Cheze Doodles? Whey you're married the answer is usually both.
I don't know how I've stayed married for 25 years if similar attitudes towards money and debt are critically important! What I do know, is that even though my better half makes more money, he's still had to have my signature on any and all loan papers. Powerful or not, I still have a choice on whether to live beyond my means or face reality... Popcorn or cheese doodles? If we're making 70K and they cost 538K, someone's going to have to sell a lot of pop bottles!
will IRS forgiving debt in foreclosure hasten the demise of the bubble?
Esp if there is a time component to it-- expires in2009 or something
Bought a new Mercedes, drove it off the lot, had to sell it for 20% less than I owed, nobody wrote a sob story about me. Wah.
Look, there are a lot of idiots out there, but cheif among them are anyone that thinks that divorce will help their financial situation. Been there, done that and trust me divorces are expensive and significantly lower the living standards of both parties. Lawyers don't come cheap, and it is far far more expensive to run 2 households than one. In addition the tax code is deliberately set up to screw single people. If finaicial stress is the illness, then divorce is a "cure" that makes the disease much worse. Generally it is the guy who comes out worse (being a housewife is the only job in the U.S. where you can volentarilly quit and get 3 years worth of severence pay if you have 10 years of tenure on the job) oh and child support payments are claculated as a % of pretax income but are not tax deductable (and tax free to the mom).
--
"Is it in society's interest to permit usury in that context?"
Usury has lost meaning to today's society. People forget that a certain ethnic group of moneylenders was summarily thrown out of jolly old England in 1290s when ***** too many people started to lose their properties***** to these moneylenders. Then few years later they were thrown out of most of France.
I wonder what Americans will do to Bankrupters and Fraudsters once stuck in the Greater Depression and finally learn the truth about the Debt Pushers.
People learn nothing from history do they? Yeah, it sure looks like the New Era.
Jas
Average Citizen said: "I don't know how I've stayed married for 25 years if similar attitudes towards money and debt are critically important!..."
Right on, another voice from the real world.
Although my wife and I have very different views of how smaller amounts of money should be spent the disagreements aren't important...because they're about smaller amounts of money. When it comes to larger purchases (major appliances, furniture, car, house) we both agree on what's appropriate to our financial situation.
Sebastia
--
"Look, there are a lot of idiots out there, but cheif among them are anyone that thinks that divorce will help their financial situation. Been there, done that and trust me divorces are expensive and significantly lower the living standards of both parties."
Why do you think that we have so many divorces?
To FEED the Kapitalists! They have known that Divide and Conquer must be taken to the family level including the level of parents and kids.
No other ruling elite dared to attack the family in the past but we have a new kind of ruling elite. The Bankrupters and Fraudsters knew exactly what they were doing by encouraging the breakdown of family (more people in the labor pool and more spending). That is what makes them evildoers par extreme. They are clearly immoral.
American system must collapse in order to get rid of these evildoers. The voting machine cant. Or, can it?
All roads lead to Baghdad! I mean the modern Baghdad -- New York City, the modern Babylon. Towers of Babel?
Jas
When a friend of mine was getting a divorce, he said "I think I'll come out okay if the split the debt evenly between us." I laughed and said "Dude, you're the one with the income*, you'll be the one that gets the debt. It's not about fair, it's about minimizing bankrupcies."
*She was in grad school at the time.
To continue the tangential digression of this topic into divorce, it was somewhat surprising for me to learn that the divorce rate in the United States has been trending down.
See, for example, Error
divorce90_04.pdf
I don't have the long-term data, but I read recently on a blog that the peak in divorce rates was after the introduction of no-fault divorce.
Hyperbole aside, the explanation I remember hearing is that people are getting married at later dates or not at all, and thus divorce is less common. Being an early 30-something myself, I have more friends who are divorced than successfully married, and most of the rest are couple living together in long-term monogamous relationships.
Worried, you're a moron.
where do we talk about the new all-time high in the DOW and blow-out earnings from the big boys like CAT, HON, and GOOG?
the market has clearly re-established its bull momentum as evidenced by the recovery from the wicked correction earlier this year.
funny - the doom and gloomers predicted this earning season to be when the shit really hit the fan -
Donna
So the romance of stage 1 is over and we are in the power struggle phase 2?
Maybe we could opt to move to stage 3?
Acceptance of differences.
--
"To continue the tangential digression of this topic into divorce, it was somewhat surprising for me to learn that the divorce rate in the United States has been trending down."
Yes, the divorce rate peaked in late 1970s early 1982 (bet 1979-82). That is also when the Fundamental Demand for housing peaked! (It was also the period of peak household formation for Doomers).
The demand now is only 60-70% of the peak. That is why lazy economists are still tied to their "estimates" of the yesteryears. They refuse to look at latest data and revise down their estimates.
Jas
Question for Tanta.
I've been reading CR for a long time now, but have never posted. as an aside Tanta, next time I'm in DC, I owe you dinner, smart women are soooo hot.
How does Los Angeles fit into these calculations of real estate drop? I can only provide ancedotal evidence, but prices stayed steady or dropped by 10% last summer (2006), but now are on the significant rise again, probably another 10%. The nicer neighborhoods seem to be rising at an even higher rate. And from what I can tell, foreclosures in the LA area seem relatively muted, again, especially in the upper-scale neighborhoods.
Is higher priced housing in large cities really going to take that much of a hit? My assumption would be that because those areas are more affluent, the peope in them would be more financially savvy and be unwilling to sell for losses and not have trash mortgages and/or no LTV. Is it possible that the price decline in housing in major cities might be confined to homes for middle class folks while more affluent neighborhoods and bigger houses will continue to gain significant value?
Jeff - I'm not sure which Los Angeles you live in, but my LA (including most of the south bay, all of the eastside and many westside condos) is almost all owned by people with minimal to no downpayments and very, VERY high dti ratios.
The boomers with their modest million-dollar 2brs on the westside may be perfectly safe just because they've been there so long, but the great hordes of middle and lower-middle class owners that bought in the last five years appear to be as screwed as anywhere else.
All of my friends that bought recently have interest-only loans; I don't think they actually write any other kind here any more. They also put no to minimal amounts of their own money into the deal; a "typical" LA FTB buys a $600,000 house on the eastside with $80,000 in income, an IO loan, 50% DTI and a few thousand in down payment. Most of the time the seller pays the closing costs - that's what all of our friends have done.
Don't think for a second that LA's immune. It just started from a lower baseline and took longer to heat up here. My neighborhood (90039) has tripled in price since 2004. I doubt there will be much decline as long as the "breath test" for mortgages is still the standard because of the huge demand. I also doubt prices will increase much here, but I've been wrong before.
I haven't seen the 10% increase you mention, at least not in my 'hood.
I'd bet dollars to donuts that there were marital problems BEFORE this house purchase. How likely is it that the marriage was great, happy, successful, symbiotic, etc., etc., and then this one house was bought, and WHAM, divorce time.
Here's my guess: there were problems in the marriage before and buying the house was, in part, a way to focus on other issues rather than issues in the marriage. Once the house was bought, now we have to deal with marital problems, and now there's tight finances, which adds more stress.
The point being, this couple likely had a rocky road ahead of them regardless of this house purchase. It may have expedited the divorce, and perhaps the marriage might have been saved had this extra stressor not been added. Who really knows other than the ex-husband and ex-wife?
Hey there Eprobert,
I'm in Burbank and from what I can tell, RE from Encino to Glendale (I would also include the Hollywood Hills) seems to be in full on boom mode at least as far as the luxury homes are concerned. The 10% price increase seems to be sticking even though it's taking considerably longer for people to sell their homes.
I was debating selling my house a year ago and moving up, but decided not to because I figured we hadn't hit bottom yet. Again I only have anecdotal evidence, but the house I almost bought last year sold, and then was recently placed on the market again where it sold for 130K increase.
I agree that IO loans are becoming prevalent in LA. Every broker I know is certainly continuing to try and push them onto me, claiming that I can "buy more house." Is there any data on the number of IO loans by zip code so that we can tell where in the US most IO loans are going? It might be interesting to see if they're being used a lot more often in higher priced areas or if they're being sold equally to all.