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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (48546)	3/23/2006 1:23:39 PM
From: Elroy Jetson	Respond to of 116555

In the Los Angeles and greater San Francisco Bay area, the split between low-end and high-end homes is somewhere above $1 million. For, say, $1.2 million you can get a loan and buy a home. New two bedroom two bath apartments (er I mean Condos) sell for around $1 million. Some a little above and some a little below. Now a $2 million home and above is definitely higher end. You can only borrow and deduct $1 million worth of mortgage. For the second million, you need to either: 1.) have cash; 2.) place a loan against your business; 3.) or simply be able to afford not to deduct your mortgage -- which may not be that big of an imposition considering the Alternate Minimum Tax. In Los Angeles, we have seen sales of high-end, that is $2 million and above, simpling fall off the map. Listings are very easy for agents to get, but buyers are tough to find. Just a couple of months ago it was the opposite, and had been for some time. In 1990 in Los Angeles the market "stopped" for expensive homes first, then it stopped suddenly over the course of a week or two when the buying season began in April. Within a couple of weeks everyone knew it was over, yet only the wise were willing to drop their price 15% and sell to some bag-holder. Most followed the market down, offering their home for sale for up to six long years. They would typically withdraw their home from the market once the next price reduction would place them below the level of their mortgage or maximum desired financial loss. Of course when the market began to recover, those still on the market also withdrew their home from the market because greed now replaced fear. From then on, the only homes for sale were foreclosures, and the occasional home being sold by a Fortune 500 company which had purchased it from their recently transferred employee. And boy were there a lot of foreclosures to choose from, more and more each month. They were offered at the real market price or 5% below, often a cut of 50% or more from the peak, and often with generous financing from the bank and other perks, such as the property tax paid for the first year. But they sold very slowly, staying on the market for nine months or more. The collective result was the inventory of homes for sale built up to new highs once again, but this time the majority of those homes were foreclosures. Each wave of foreclosures triggering more as people realized recovery was probably further away than their bank account would permit. Lizzie could tell you more about the current market near SF. My Dad is a developer/owner in Lafayette in the East Bay of SF, but he is in commercial buildings which gives me little insight into homes there. .

To: mishedlo who wrote (48546)	3/23/2006 1:32:52 PM
From: regli	Read Replies (4) \| Respond to of 116555

My theory is as follows. Silicone Valley is on an upswing. This benefits the higher end property buyers. At the low end because appreciation is not guaranteed anymore, people are really worried about getting into such huge commitments where they can barely afford the payments. The news about the bubble popping is making the rounds in the media. On the anecdotal front, I just reviewed some of my subprime lender customer's stats and what is interesting and seems to confirm the above is that applications and calls are increasing, credit checks pass at a similar rate, there is a slight down trend in appraisals panning out especially starting with January. However, the most startling impact is seen in the "call/application to close" ratio which dropped more than 50% since Sept 05. Note that approx. 75% of their business is refinancing. Obviously, there could be several reasons for this, some of them business specific. Changed marketing message, internal call script changes were cited, etc. However, what impressed me was the correlation between their total lending figures and inventories reported on these threads. Sept 05 was clearly the high in lending with a slight drop-off for the next two months and then a severe drop of about 35% from the high. I don't have February figures for lending.