How They Financed

Written by Jim the Realtor

April 27, 2010

Are the govies carrying the market?

Here’s how detached-home buyers have financed their purchase over the last 30 days:

Fin. Type SD County Percent NSDCC Percent
Conv
702
46%
135
67%
Cash
278
18%
49
24%
FHA
386
26%
15
8%
VA
145
10%
3
1%
Total
1,511
100%
202
100%

San Diego County overall is fairly reliant on the govies, with 36% of all houses purchased over the last month being bought with FHA or VA financing. North SD County Coastal not so much – which means that if there are more govie defaults ahead, hopefully the coastal area will be less impacted.

How about those cash buyers!

20 Comments

  1. W.C. Varones

    Conventionals are govvies too!

    That’s the twin black holes of Fannie and Freddie guaranteeing those.

  2. Sol

    How about those cash buyers? I wonder what percentage of those are investor?

  3. Joe

    So are the cash buyers mostly in Rancho/Del Mar/Encinitas/Solana Beach etc? Or are they in less expensive locations too?

  4. Jinx

    Just like roaches, they’re EVERYWHERE.

    ha. Sorry if I offended you. I’m just bitter because I’ve lost 4 houses now to lower all cash offers. The last one being a 1000 sqft dump in the ghetto part of Cardiff for under 500K.

  5. Joe

    What’s the ghetto part of Cardiff? I guess the part east of the freeway isn’t too hot but I love Crest! One of my favorite streets in Encinitas.

  6. chris g

    People will tell you that the lending will never stop. Housing is too important, blah blah blah. Tell those people to open up a history book that is more than a decade old.

  7. CV Asian

    “People will tell you that the lending will never stop. Housing is too important, blah blah blah. Tell those people to open up a history book that is more than a decade old.”

    But a decade ago China wasn’t a factor now were they? Over the last decade China has become a super power and now the Indians are starting to become more one as well.

  8. Jinx

    Joe, the “ghetto” part of cardiff is east of the freeway, south of Santa Fe (Loch Lomond, Munevar, Cathy, Ocean Crest, etc). Crest is nice, that is further East and is considered Encinitas.

  9. livingincali

    To be honest I think NC Coastal is going to be related to the stock market more then anything. That’s likely where the cash is coming from. If the stock market were to turn south because of deflation then I think NCC could be in some trouble but not until then.

  10. UCGal

    I’m also curious about the zips of the cash purchases – were they investors buying up cheap properties to rent or flip? (Oceanside, Vista area) or titans paying cash in Del Mar or RSF…

    And I totally agree with comment #1 – the bulk of the conventionals are government money also – by way of Fannie/Freddie

  11. chris g

    China Schmina. Before china there was nafta, asian tigers, japan, singapore, etc. Cheap offshore labor is nothing new. Buying greenbacks for currency stability is nothing new. Back to debt & mortgage availability, if you look at the big picture (over a century) you will see that the ez money of the last decade was an anomaly. Fannie & Freddie’s helped it along. It turns out their business model is a failure. Will the taxpayers of the U.S. and those buying our treasuries have both the ability and the willingness to keep a broken model going? Is it different this time? Is the last decade the new norm? Are you old enough to remember what it was like to borrow money in the 80s or even the 90s?

  12. Chuck Ponzi

    Chris G.

    Don’t feed the trolls. They only come back for more.

  13. Chuck Ponzi

    BTW, I remember a trip I made to Singapore a few years ago, maybe 2006 or 2007. Singapore is a beautiful country, one of the few asian countries where I would feel completely at home living there.

    One of the persons in our group had come from our China plant. I had the misfortune of sitting next to him in our first shuttle. I listened intently to him describe (for the next hour) all of the amazing sights and experiences of mainland China. I feel that if that had been the extent of my experience, I would have walked away feeling quite enamored with China as well. Unfortunately, it didnt’ end. For the next 2 weeks, ever break, every transfer, every side minute was unfortunately forced to listen (because noone else had the patience or good will) to lend an ear after seeing his devout priesthood of China Ueberalles. At the end of 2 weeks, I wanted to never hear the word China spoken again. Fortunately, in our China plant, we have had incessant turnover, so I have not been forced to relive that experience. However, there is a special brand of koolaid drunk when it comes to China nationalism that permeates each and every one that I work with.

    Chuck Ponzi

  14. Jim the Realtor

    Yes I’m old enough to know what it was like in the ’80s and ’90s. Mortgage rates were higher but we had the same underwriting guidelines as today. So it’s a little easier now just due to a lower payment driven by the rate.

    It was insanity for 5-6 years, but it’s gone now.

    Fannie/Freddie may be backed by Uncle Sam, but they’re only in for 80% exposure. The riskiest 20% is covered by mortgage insurance or the buyers’ 20% down payment.

  15. CV Asian

    FYI, I am Vietnamese so I haven’t drunk any of the koolaid you speak of, when talking about China. I know that the Chinese are very patriotic. I’d even argue they are even more patriotic than Americans but even I can see that they are rising up fast and will become the next superpower. Deny all you want but just travel to China and see for yourself.

    I was there last year for 3 months for work and seen the changes myself.

  16. AMansHomeIsHisATM

    So the lesson is, come bearing gifts (or cash).

    Or in other words, instead of stressing and poring over listings, and making lots of low offers in an attempt to steal one. Put that same effort into making a bucketload of cash, and then overpay on the house you really want and get it and move on with your short existence on this planet.

  17. CA renter

    Fannie/Freddie may be backed by Uncle Sam, but they’re only in for 80% exposure. The riskiest 20% is covered by mortgage insurance or the buyers’ 20% down payment.
    —————-

    Yes, they’re taking on less default risk vs. FHA or VA, but they are taking on a tremendous amount of interest rate risk.

    What would prices look like if the private mortgage market was financing 50%+ of these purchases? That’s what I think very few people are considering.

    Even in NCC, the govt is financing 76% of the market; for the county, it is 82%.

    I also think the cash buyers wouldn’t feel like spending all their cash if they could get a decent return with bonds or cash accounts. Right now, it’s exceedingly painful to be holding cash. IMHO, this is the reason we’re seeing cash being thrown around so carelessly.

  18. Anonymous

    China to dive back into MBS market:
    NEW YORK (The Borowitz Report) – In a settlement of the government’s securities fraud case against Goldman Sachs, the bank’s CEO, Lloyd Blankfein, has agreed to perform two years of community service as Treasury Secretary of the United States.
    His experience at Goldman will be “invaluable” in his new role as Treasury Secretary, the spokesperson said: “Lloyd Blankfein’s years of marketing worthless securities have prepared him for the important task of selling Treasuries to the Chinese.”

  19. pemeliza

    “Right now, it’s exceedingly painful to be holding cash.”

    For all but a year or two it is has been exceeding hard to hold cash since 2002. When I sold my house in early 2004 to move to NC we promptly started earning 1% on the proceeds. Over the next few years the interest rates slowly inched up until finally we were able to earn around 4% or so on short term t-bills. We had maybe one or two good years where our money was earning a rate remotely comparable to inflation. Then the bottom fell out of the rates once again in 2008. In 2009 we went into assets. First by setting up a decent stock portfolio in spring 2009 and then by purchasing a distressed SD property in fall 2009. During the 5 years I held cash I was itching to get out of it. Cash is a deflation hedge and once we had a serious amount of deflation I switched bets and went into inflation hedges. Only time will tell if we were right. The idea that the “savers” will finally be rewarded with high cash returns in this country seems ridiculous to me.

  20. CA renter

    You are absolutely correct, pemeliza, and we experienced the exact same thing. 2007 was a lovely year for people who held cash. My mistake was thinking that interest rates could still rise a bit, so I got into callable bonds. Almost everything that was earning a decent return has matured or been called, and we are back to sub-2% hell. 🙁

    Good move on getting into long positions in the spring of 2009. I’ve been trying to stay liquid (yes, we actually want to buy a house, believe it or not), so didn’t want to risk a possible loss in the stock market. Live and learn, right?

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Jim Klinge
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