After a twenty-year hiatus, I made my return today to the La Jolla REBA pitch session and broker’s open house.
The meeting starts promptly at 8:30am, and is always well attended – today there were 50-60 realtors in attendance. It is a very friendly, jovial atmosphere, but everyone is there for business. There were a handful of pocket listings pitched, some buyer wants, and a few previews of upcoming listings. There were 4-5 mentions of sellers losing $1 million-plus, but hey, it’s La Jolla.
Then it was off to conduct broker’s open house at my new listing on Loring, in Pacific Beach:
For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg.
According to the Congressional Budget Office, the losses could balloon to $400 billion. If housing prices fall further, some experts caution, the cost to the taxpayer could hit as much as $1 trillion.
Two things are clear: Taxpayers don’t want to foot the bill, and Fannie and Freddie, taken over by the government in 2008 to stanch the financial bloodletting, need a major overhaul.
“Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale Universityeconomics professor and co-creator of the S&P/Case-Shiller Home Price Indices.
Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”
At the crux of the financial crisis, the government took over Fannie and Freddie to avert possible massive losses for banks, money-market funds and, perhaps, most importantly, foreign institutions that purchased billions of Fannie and Freddie debt because of its implied government guarantee. The Chinese, for example, had invested heavily, and the US decided it didn’t want them to take a loss on their investment.
One possible scenario for the entities is to turn them into utilities, said Sean Dobson, CEO and chair of Amherst Securities, whose company trades as much as $50 billion in mortgages annually.
“Freddie and Fannie could be used to standardize the mortgage product,” Dobson said, “to completely describe what the risks are and then act as a conduit for the capital markets to take the risk.”
The long-term mortgage, which began as a Depression-era remedy to keep Americans in their homes, may be out of step, given the current housing crisis.
Could it be time to say good-bye to the popular 30-year mortgage?
“The 30-year mortgage is outdated, the standard fixed-rate mortgage is outdated, and it has to be improved,” housing expert Robert J. Shillertold CNBC. Shiller is Yale University professor and author, who is best known for co-creating the S&P/Case-Shiller Housing Indices, which track home prices in the United States. “People want a more modern vehicle, and that’s something we need to think about next,” Schiller said.
With the sweeping financial regulations billnearly finished, the next big job of Congress may be to revamp the broken housing market and scrutinize all its key elements, even the vanilla 30-year mortgage.
Once Americans look more closely at this country’s housing situation, they may realize, and maybe even be surprised by, the fact that even though the US leads the world in 30-year mortgages, it doesn’t in home ownership.
“We spend a whole lot on housing in the US and don’t necessarily get a very big bang for the buck,” said Mark A. Calabria of the Cato Institute.
American homeowners, it turns out, have a very sweet deal to buy their home sweet homes, with the government being their candy man. For instance, America is nearly alone in not charging a fee for paying off mortgages early. And it’s one of the most liberal countries in allowing interest to be tax-deductible.
“If America wants the government out of housing, it has to get used to a number of things,” said Raghuram G. Rajanformer IMFeconomist, author of ‘Fault Lines: How Hidden Fractures Still Threaten the World Economy’and professor at the University of Chicago’s Booth School of Business.
“For example, shorter mortgage durations, higher interest rates [and] potentially lower housing prices, because the cost of financing has gone up. Is it ready for that? I don’t know.”
First I put my own kid on the hot seat, then here I’m subjecting one of my favorite clients of all-time to the scrutiny of the blogging public – all in one day!
This will be a very interesting test case, because this’ll come down to how much the view is worth, and if we can get lucky with some clear weather over the next few days. If you’d like to stop by and say hello, this will be on the La Jolla REBA caravan on Wednesday, June 30th, from 10:00am to 12:30pm, and open Saturday July 3rd from 12-3pm (if unsold ;)):
At what point do borrowers who owe more than their homes are worth decide to stop paying the mortgage?
A new study from economists at the Federal Reserve Board aims to answer that question. The research found that the median borrower who “strategically” defaults doesn’t walk away from the mortgage until the amount owed exceeds the value of the home by 62%.
(the new study uses -62%, JtR math shows $800,000 x -62% = $496,000)
The study is bad news for the mortgage industry in that it backs up the idea that a growing share of borrowers are walking away from loans. Concerns are mounting among lenders and investors that some borrowers who owe far more than their homes are worth are now choosing not to pay mortgages that they can afford.
But the silver lining here is that it suggests a rather high threshold for borrowers to walk away.
“The fact that many borrowers continue paying a substantial premium over market rents to keep their homes challenges traditional models of hyper-informed borrowers” choosing to simply walk away, the authors write. The results suggest “that borrowers face high default and transaction costs” that make strategic defaults less widespread than they might otherwise be.
The substitution effect can squish down values in other areas, and for the bank clerks charged with the responsibility of determining the opening bids, it is a moving target.
Here are two properties from the foreclosure list who have published opening bids – which hopefully means that this week’s trustee sales are for real. But for buyers who are paying attention, the first house pictured in the youtube below is leading the market:
The Carmel Valley market can probably be split into two separate segments, under and over $1,000,000. With the Fannie/Freddie/FHA limit being $697,500 and most buyers having a healthy down payment, the supply and demand is fairly balanced under $1,000,000. It’s when you go over $1 million that it gets a bit squishy.
I’ve been a big proponent of agents doing their own video tours of listings, and this guy has one! It probably played a role in him finding his own buyer in just seven days: http://www.youtube.com/watch?v=y8iQPpi6sOo
The logistics of implementing these benefits would be cumbersome, to say the least...New homebuyers would get tons of cash under plans from Biden and his party https://finance.yahoo.com/news/homebuyers-tons-cash-under-plans-000300369.html?soc_src=social-sh&soc_trk=tw&tsrc=twtr via @Yahoo
"Jim the Realtor is legit - I interviewed three brokers; he said list price should be $100,000 higher than the other two brokers; listed it with him and had all cash (no financing) offer in two days, five day contingency period, closing in two weeks - and it closed at his recommended list price. I could not recommend anyone more than I recommend Jim the Realtor. more "
by gary t moyer
"When we moved to San Diego in 2005 we rented a big house on Mt. Soledad (La Jolla) with 180 degree ocean views for the same payment as a mortgage on a dump in Chula Vista. Clearly something was wrong. Yet, the media was full of the usual happy-talk nonsense, so I was glad to find Jim's blog. I've followed his honest assessments and data since. more "
"Where do we begin..2020 has been a year for everyone. When COVID hit and shut down both my husband and my businesses, we were left with a mortgage and very little income coming in. We were stressed, scared and felt stuck. We made the hard decision to sell our home and move out of state. We contacted the Klinges' and spent a good hour going over what we hoped we could accomplish. Jim and Donna came over with comps in hand and suggestions on improvements to get our house ready for the market. It was overwhelming to think about, but Donna was there and one step ahead in every scenario. more "
"Jim and Donna Klinge made the sale of our condo extraordinarily easy. They know the market and gave us sound advice backed by details and very considerable experience, reflected both in the initial pricing and subsequent negotiations. They work together as a team and are always available to talk. more "
"I cannot believe there are no reviews of Donna yet, ugh!! She is the secret sauce of the Jim Klinge/Donna Klinge combo! I will touch on Jim here, but Donna is why I'm so totally loyal to these two (no offense to Jim :)).
I consider myself a rather savvy buyer/seller. I've bought/sold 7 times in more "
"Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community... more "
by Ann Romanello
"Jim educated us, helped us find the perfect house, and then negotiated us a great deal. I would hate to be sitting across the negotiating table from ... more "
"Jim is thorough and will be brutally honest about the homes he shows you. He provides great service and follows through until the very end and even ... more "
"I highly recommend Jim as a buyer’s agent. Working with Jim, we closed this week on a San Diego condo. Jim prepared a list of comparable sales to ... more "