Market Conditions: The Upper Bracket in the Chicago Housing Market is Hot, Hot, Hot
We’ve been chattering for awhile that the upper bracket in the Chicago housing market seems to be much stronger than other tiers of housing.
Recently, a $4 million house sold (actually closed) in Lincoln Park. Several other multi-million dollar condos have also sold and one priced at nearly $10 million is under contract.
Reuters explains that the rich are back and buying housing again, not just in New York, but in Chicago too.
Like an increasing number of well-heeled Americans, the Hodgsons decided it was time to buy a new home, even if most of the U.S. housing market remains in the dumps.
After years in an apartment building, “we were just tired of sharing space with other people,” says Cari Hodgson, 32. “It was time to have space of our own.”
She and her commodities trader husband sold the condo and recently bought a $1.2 million, five-bedroom home in Chicago’s north side, sealing the deal with the kind of big down-payment that is heating up the high-end of the U.S. property market.
Cari, a part-time nurse, declined to say how much of their own money the couple put into the house. But she did say the mortgage was less than a so-called jumbo loan, which are bigger than most U.S. mortgages and currently start at $730,000.
That means the Hodgsons put down at least 40 percent of the house’s value, a chunk far out of reach for most Americans.
“We were told by a number of people that it was very difficult to qualify for a jumbo loan,” Cari Hodgson said. “So we didn’t even try to get one.
As the bulk of the market remains hobbled, the contrast with the high end is sharpening.
Mike Sato of Chicago-based Jameson Sotheby’s International Realty, cites the recent sale of a $4.5 million home not even built yet as a sign of the change among rich clients.
“I haven’t seen a deal like that since 2008,” he said.
High-end borrowers find it easier to get credit but even for them it is not guaranteed.
Matt Farrell, managing partner at Urban Real Estate in Chicago, recounted how a buyer with good credit and seeking a loan for a $2 million home was unable to secure a mortgage in time. So the buyer wired cash to pay for it with no loan.
“After the banking sector was infused with all that government cash to go out and lend more money, you’d think we’d be seeing more activity out there,” Farrell said. “But when someone who can pay $2 million in cash can’t get a loan, then you know you have a real problem.”
While sales are rising in the upper bracket, they are also hot in the lowest bracket as investors race to buy foreclosures under $100,000.
What’s left?
Everyone in between.
We have chattered about the difficulty in selling in the $400k to $800k range due to tougher loan requirements, including the need for bigger downpayments. The downpayment requirements makes the pool of buyers much smaller.
Properties worth between $100,000 and $500,000 make up more than 60 percent of U.S. housing. Sales in that category in March were down across every region of America from the same month a year earlier, when tax breaks were propping up demand.
Foreclosures and short sales — whereby struggling homeowners sell their homes for below what they owe, with the consent of their lenders — are still a big drag. Credit remains tight and middle-income families are more pessimistic than their wealthier compatriots about the economy.
“It’s kind of quiet right now,” said Fred Arnold, president of lender American Family Funding. “There’s no real excitement out there that we are used to seeing in the springtime.”
As we’ve also chattered about, there is a standoff between sellers who aren’t going to “give it away” and buyers who want a deal. It means some properties stay on the market for years.
“Buyers still think properties are too expensive and want bigger discounts,” said Mario Greco, a Chicago-based realtor. “Sellers are still not ready to take their lumps yet and recognize what their property is worth in today’s market.”
And what about those that don’t have all cash and need to get that loan?
“It’s difficult, and getting more difficult,” said Bob Walters, chief economist at Quicken Loans in Detroit. “All the moves whether it be regulatory, underwriting, pricing — I can’t think of an exception — all of them are pointing toward making it more challenging to get a loan.”
The government-rescued housing finance giants Fannie Mae and Freddie Mac tightened up lending standards in 2007 and 2008 as bad loans began to soar and there has been a steady drip of new requirements since then. More changes to credit rules are under discussion and could constrain lending further.
Keith Klein, a mortgage loan consultant at Bank of Blue Valley, a local lender in Overland Park, Kansas, said tougher underwriting standards mean that if prospective buyers cannot put down 20 percent, they cannot get a mortgage.
Will we see a two-tier market where the million dollar property prices move higher while the rest of the market continues to see price declines?
Some signs of life in housing, credit drought goes on [Reuters, Nick Carey, Apr 25, 2011]
Admittedly I skimmed the article and your post pretty quickly but I’m not seeing there a lot of evidence that the high end is coming back. It’s mostly just anecdotal evidence. They don’t really provide any data.
“But when someone who can pay $2 million in cash can’t get a loan, then you know you have a real problem.”
Aren’t jumbo loan in Chicago still at $417,000? That means they put down 65% cash to get under that rate? Or are there still vehicles out their that can get you under the jumbo threshold without putting that much down?
ahhh yeas another reason the trickle down theory is a bunch of bull shyte, give people with money and power more money and power and they will create jobs and blah, blah, blah.
now people with money and power just use it to get more money and power for THEMSELVES.
the real trick is give the money to the lower & middle class. give it to them and watch those bastards spend it like they are trying to give it back before the world ends. Now that mass spending spree will create more jobs as we will need to replenish the shelves and create more services for the demand.
oh wait Bush already tried that with a $300 check to tax payers. or the obama cash for clunkers, or the first time home buyer credit, or the credit for new appliances, or the threat level is red buy duck tape thingy.
i guess all i trying to say is WHO GIVES A FLYING FUCT ABOUT THE TOP BRACKET HOME mARKET?
I will be convinced the upper bracket is booming when Lincoln Park 2520 is sold out… I just don’t see it happening quite yet.
“Admittedly I skimmed the article and your post pretty quickly but I’m not seeing there a lot of evidence that the high end is coming back. It’s mostly just anecdotal evidence. They don’t really provide any data.”
if you google million dollar home sales there is a glut of data supporting an increase of sales in recent months not only in Chicago, but in several cities nationwide.
“i guess all i trying to say is WHO GIVES A FLYING FUCT ABOUT THE TOP BRACKET HOME mARKET?”
Isn’t that where everyone hopes to live? I rather talk about high-end then $25k foreclosures in dangerous parts of the city, that nobody wants to live in. And we cant talk about the middle class properties because that is todays theme.
Wait someone put 40% and the other paid cash, this can’t be right. HD told me that no one puts more than 5% down on house.
And you know what he always says ” behind every million dollar house is a million dollar mortgage”.
This must be all BS no one puts, or has that kind of money for a down payment!
Which ten million dollar unit is under contract?
Sabrina, you posted the first part of this article just for Clio, right?
(Just to be clear, I’m kidding)
“i guess all i trying to say is WHO GIVES A FLYING FUCT ABOUT THE TOP BRACKET HOME mARKET?”
Agreed.
“I rather talk about high-end then $25k foreclosures in dangerous parts of the city, that nobody wants to live in. ”
Disagree since dangerous parts of the city is relative.
I think Sabrina is going to have to change the format and maybe have Mult-million Dollar Monday, 2/1, 2/2 condo Tuesday, Short Sale Wednesday and Neighborhood you never heard of Thursday.
Friday can be bash clio day. 😀
“I think Sabrina is going to have to change the format and maybe have Mult-million Dollar Monday, 2/1, 2/2 condo Tuesday, Short Sale Wednesday and Neighborhood you never heard of Thursday.
Friday can be bash clio day.”
I now bow down to your supreme word skills 🙂
“Isn’t that where everyone hopes to live? I rather talk about high-end then $25k foreclosures in dangerous parts of the city, that nobody wants to live in. And we cant talk about the middle class properties because that is todays theme.”
not everyone has a dream of living in a 30 room mansion. I would rather skip the high end discussions and talk about REAL homes. and someones 25k foreclosure is in a dangerous part of the city is someones elses 25k mansion with winery.
Shills be shillin’!
Is it Friday yet?
The $10 million under contract (has it sold already?) is this one:
http://cribchatter.com/?p=10279
“I will be convinced the upper bracket is booming when Lincoln Park 2520 is sold out… I just don’t see it happening quite yet.”
Or the Ritz on Michigan Avenue downtown (also under construction.)
“They don’t really provide any data.”
Data? What’s that? 🙂
Yeah- they don’t actually give any sales numbers for the upper bracket in Chicago (or even NY.)
But I think it’s interesting that there is a perception that the market is improving in the luxury market.
“Aren’t jumbo loan in Chicago still at $417,000?”
Yes, but it’s not too hard to also get good rates and terms for “jumbo conforming” or whatever they call the intermediate level before you get to super jumbo at $730k or so.
wake me up when we get back to bob trying to convince us that gay people can’t biologically reproduce.
I don’t want to get into the basics of highschool biology, Ze, but maybe you shouldn’t have slept through that one.
i see them pushing strollers through cobble hill so they must be able to! Btw a home sold for several million. The whole housing market is fine…. Ah single point extrapolation…
“i guess all i trying to say is WHO GIVES A FLYING FUCT ABOUT THE TOP BRACKET HOME mARKET?”
Uhhh – I DO – and so should you. You guys should know by now that the rich and powerful control the world. Keep them happy and they may let you share in some of their wealth!! Remember, while a happy boss doesn’t always equal happy employees, I can guarantee you that an unhappy boss DOES equal unhappy employees (and my staff can attest to that)!
Jumbos getting much easier to obtain – I know from direct experience. Sea-change in just the past 3-4 months.
funny, clio
hey you wanna share some wealth and buy my condo for the loan amount?
“hey you wanna share some wealth and buy my condo for the loan amount”
maybe – it’s 60654, right? Is it a 2/2 or a 1/1? How many sq ft? Parking? How much do you want? I’m not kidding
this doesn’t really surprise me, Obama kept the Bush tax cuts in place for the uber-wealthy, so they have to be feeling confident about their financial position.
but I’m with the groovy one, this is pretty irrelevant to the bulk of Chicago, and I certainly have a ZERO desire to live in a McMansion in Chicago, it defeats the whole purpose of living in the City, IMO. If I want to live isolated from other people, I’ll go to some boring gated community, not pay a premium to live in what is essentially a fenced-in yuppie zoo.
Clio,
here is where you are wrong and you showing that your ego and other “rich” peoples need to be stroked.
I/We dont need to pet your kitty, kiss your ring, or all praise as you drive by. there is no need to keep you kind (the rich) happy.
Seriously your a smart guy at one point in time you had to sit in some history lecture and pay attention.
you would learn that its really the other way around. you need to keep “the poors” just happy enough so a revolt does not occur.
your bubble of a life is becoming ridiculous and cartoon’ish to the point its becoming a dark comedy.
my boss “the rich” is even above your class of “rich” (he is in the top 20 of property tax paid) and never at one point does he act like a tool that you do.
I will agree Shyte runs downhill, but i make him unhappy every first week of the month and without having your Dyckheaded view happen.
“I will agree Shyte runs downhill, but i make him unhappy every first week of the month and without having your Dyckheaded view happen.”
do you make him read Best of Crib Chatter?
“do you make him read Best of Crib Chatter?”
we do have a end of fiscal year Cribchatter drinking game!
we sit on a ledge of a tall building after some heavy drinking and read only HomeDelete’s post, the fist one to get depressed and jump is the looser.
Oddly the game goes fast
(i know, i know, “in bad taste” groove, baaaad taste)
I just did a quick query and I don’t see any evidence in Chicago of $1MM+ home sales taking off. I think it’s all anecdotal. Will have to do a blog post on it at some point. And Oakbrook isn’t doing much better 🙂
“Data? What’s that?”
The plural of anecdote?
Max Conforming Limit in Chicago is $417k
Max FHA Base Loan amount is $410k
Anything above $417k is considered a jumbo although there are different tiers of jumbo lending. It is very common for borrowers to put enough down to stay out of jumbo territory. This is why the 2/2 condo in $550-$700k range is toast. Most borrowers these units appeal to (high income young professionals) with the income to buy those places don’t have the liquidity for the jumbo down payments. By the time they have saved it up most rather just go buy a single family home.
However, I am seeing quite a few young borrowers with 20% down payments. In fact, vast majority of deals I see these days have 20% down, even with the conforming stuff. Seeing a lot of gifts from parents.
Every LO has seen the multi-millinonaire with cash on hand and can’t qualify for a small loan due to some mindless underwriting nuance. Usually those with issues are self-employed or have some kind of spotty or complex income stream. These borrowers are why we had stated income loans until the guidelines got so loose that they became a license for fraud. Now hardly anyone can get them and in some cases they are illegal. Even for multi-millionaires.
Same ancedotal evidence of economic prosperity seen in high-end restaurants, luxury-item stores, and private school enrollments. Top 2% are doing fine, thank you! Next 3% is stable if worried. The malaise is affecting the other 95% of Americans. That’s not ancedotal.
“Max FHA Base Loan amount is $410k”
Until it gets revised lower on 10/1/2011.
I second Architect’s and Russ’s comments. Otherwise, yawn.
Nice to see someone gets it right.
“Same ancedotal evidence of economic prosperity seen in high-end restaurants, luxury-item stores, and private school enrollments. Top 2% are doing fine, thank you! Next 3% is stable if worried. The malaise is affecting the other 95% of Americans. That’s not ancedotal.”
Yes, but it’s not too hard to also get good rates and terms for “jumbo conforming” or whatever they call the intermediate level before you get to super jumbo at $730k or so.
JJJ The Fannie/Freddie “Conforming jumbo” was just available in specific counties throughout the country. They have never been available in any areas in or around Chicago!
i’ll get back to you in a few days clio 😉
about that middle ground:
this seems like it could be an interesting deal on a Jackson Park Highlands foreclosure:
http://www.redfin.com/IL/Chicago/6930-S-Euclid-Ave-60649/home/13927276
ugly rehab, and perhaps not well done, but assuming plumbing/electric etc is solid, good price for a big, pretty home in that neighborhood.
not under contract after a week’s listing, though, so perhaps market disagrees.
Russ – do you know why there is such a large spread between fixed and ARM loans? The spread between a 30yr fixed and a 5 and even some 7 yr ARM loans is about 1.5% which is the highest I have ever seen.
“JJJ The Fannie/Freddie “Conforming jumbo” was just available in specific counties throughout the country. They have never been available in any areas in or around Chicago!”
I’m sure that someone like Russ who knows this stuff can clarify, it’s not really something I am strong on. Certainly, a lender can set its own requirements for its loans, although that may affect whether it can be resold certain ways or if it can be an “FHA” loan or whatever. In my experience, around Chicago, it’s pretty easy to get good terms and rates up to the “super jumbo” limit. If you’re willing to put 20% down (25%-30% for investment properties), there’s not generally going to be a lot of additional cost to loans in that range (in fact, they’re often lower per dollar borrowed and on an “APR” basis because the closing costs doesn’t rise as fast as the loan amount.
There are certainly lenders who lend for properties in Chicago who base their available rates and underwriting requirements based on where the loan size falls – below $417k, above $417k but below whatever the “super jumbo” limit is, and above the “super jumbo” limit. I wouldn’t be surprised if that doesn’t conform to what Fannie and Freddie are doing but that doesn’t mean those rates and products aren’t available in the marketplace, and it’s exactly what I suspect the woman quoted in the article was talking about.
“Or are there still vehicles out their that can get you under the jumbo threshold without putting that much down?”
You can do a conforming and with a HELOC to keep you out of jumbo territory… yes — the banks still do HELOC.
“do you know why there is such a large spread between fixed and ARM loans? The spread between a 30yr fixed and a 5 and even some 7 yr ARM loans is about 1.5% which is the highest I have ever seen.”
That’s easy – the market sets these rates based primarily on expectations about interest rates and the cost of money in the future. This gap reflects an expectation that interest rates will be relatively low for next 5 to 7 years but will raise significantly at some point so that the cost of capital over those next 23 to 25 years is going to be higher (on a nominal basis, so maybe reflecting expectations about inflation).
That 150 bps gap is pretty sweet, although I think that it got to about 185 or so during the bubble. This is why ARMs are such a great product if you understand them and their benefits and detriments. That 150 bps gap will save you $6k a year on a $417k loan.
Chicago attached/detached SFH 3/1/xx — 4/22/xx each year
Year/$1M+ closings/$2M+ closings
2007 101 22
2008 140 24
2009 52 15
2010 96 25
2011 72 18
Year/$1M+ contracts/$2M+ contracts
2007 168 29
2008 136 24
2009 64 23
2010 106 28
2011 115 26
Note: current contracts are not directly comparable to historical totals since some (many?) will fall out of contract.
Oh yeah, the current contracts are for list prices and historical contracts are sold prices.
I didn’t know Alan Greenspan posted on Cribchatter!
The problem with ARMS is that the buyer doesn’t save that $6,000 – buyers simply use that extra $6,000 a year to buy more house for the same monthly payment vs. a 30 year fixed. It drives up the cost housing for everyone and especially for the 30 year fixed buyers because they’re competing with the guy with the ARM whose asking ‘howmuchamonth?’
Bongs are sold to used for tobacco products only but nobody actually does that.
“This is why ARMs are such a great product if you understand them and their benefits and detriments. That 150 bps gap will save you $6k a year on a $417k loan.”
@B: It is hard to say. I wouldn’t say the spread is that wide. I remember when the yield curve had ARMs nearly as expensive at the 30 year a couple of years ago. Most borrowers are reluctant to take ARMs, so I suspect banks are trying to spur demand with them. At some point, the spread does start to get really attractive. The 7/1 is pretty popular, but most of my clients don’t want anything to do with a 5/1 ARM even with sub 4% rates. With the 30 being still pretty attractive, it seems less risky, particularly given that ownership horizons have changed drastically.
This brings up another reason why borrowers are trying to avoid jumbo loans. The ARM rates on jumbos are not bad at all (I closed a $3m loan with a 7/1 ARM at 4% in December), but the 30 year rates on jumbo mortgages actually suck (relative to the 30 year conforming, almost a full point premium if not more – pushing 6%). Most jumbo lenders only want ARMs (banks don’t want 30 year loans on their books at low rates) and most consumers only want fixed rates.
If you really want to see what the mortgage market looks like without Fannie/Freddie, the jumbo market is a good proxy.
“The problem with ARMS is that the buyer doesn’t save that $6,000 – buyers simply use that extra $6,000 a year to buy more house for the same monthly payment vs. a 30 year fixed. It drives up the cost housing for everyone and especially for the 30 year fixed buyers because they’re competing with the guy with the ARM whose asking ‘howmuchamonth?’”
No, your idiot clients do that.
MANY, MANY, MANY people do that so they can accelerate the amortization or invest elsewhere with the savings. Just because *you* don’t encounter many fiscally prudent homeowners doesn’t mean they do not exist or are even necessarily all that rare.
Thanks for adding some evidence, G.
When you say current contracts are not comparable to historical totals, do you mean that the data for previous years only includes contracts that eventually closed? If so, isn’t data on total contracts signed during the period (regardless of outcome) available? If not, why do you say they aren’t comparable?
”
Note: current contracts are not directly comparable to historical totals since some (many?) will fall out of contract.
“
@HD, I disagree. Most borrowers really don’t buy based on ARM rates. I would say most of folks I see at least are considering 30 year rates at first and then start to consider ARMs once they see the rate differential. They would buy at the 30 year rate. The ARM is just icing after the fact. I agree, the Pay Option ARM craziness was based on affordability, but that is really comparing apples and oranges.
@JJJ, statistically, the ARMs probably make the most sense as most people don’t keep their home or mortgage longer than 7 years. However, given the housing market I am not sure that stat is still valid. The ownership horizon is a longer and even if you are saving money with the ARM, there is something to be said about being able to sleep at night.
ARMs do have built in protections though. It was the subprime ARMs and POAs that had the crazy margins that freak people out. Conforming ARMs really don’t have the same levels of extreme risk. The standard margin on a conforming arm is 2.25%. Yearly adjustment caps are typically 2% up or down.
“When you say current contracts are not comparable to historical totals, do you mean that the data for previous years only includes contracts that eventually closed? If so, isn’t data on total contracts signed during the period (regardless of outcome) available? If not, why do you say they aren’t comparable?”
Believe rate of non-closing varies, and is generally higher now than in 07-08.
And the bongs sold at head shops are for tobacco use only. uh-huh. Just like we were all told that Option ARMS were for sophisticated consumers – Mozillo himself believed that too he said in an interview – until he found out that more than 90% of Option ARM consumers paid only the minimum amount every month, not enough to cover the interest. Consumers aren’t picking out their home and then getting preapproved for a mortgage – it’s the other way around. They get preapproved for the ARM and THEN go shopping for the house.
“No, your idiot clients do that.
MANY, MANY, MANY people do that so they can accelerate the amortization or invest elsewhere with the savings. Just because *you* don’t encounter many fiscally prudent homeowners doesn’t mean they do not exist or are even necessarily all that rare.”
A friend of mine just bought a 700k home with only 80k down. I didn’t think that sort of thing was possible anymore. They got two mortgages, a 417k mortgage and a second for ~203k.
Using the same argument, one might say that people who buy 2/2s have a greater chance of saving and hence later on moving to SFH if that is the aspiration. I always wonder if all these renters really save as much as they claim for their future purchases.
Basically, there is a notion of bounded rationality (loosely used here) that enters human decision making process which is by far away from the optimal strategy a completely rational entity would take.
“The problem with ARMS is that the buyer doesn’t save that $6,000 – buyers simply use that extra $6,000 a year to buy more house for the same monthly payment vs. a 30 year fixed.”
Russ – What are current conforming rates for 5/1 ARM, 7/1 ARM, and 30 Year Fixed? Are those the two most popular ARM products?
“And the bongs sold at head shops are for tobacco use only. uh-huh. Just like we were all told that Option ARMS were for sophisticated consumers – Mozillo himself believed that too he said in an interview – until he found out that more than 90% of Option ARM consumers paid only the minimum amount every month, not enough to cover the interest. Consumers aren’t picking out their home and then getting preapproved for a mortgage – it’s the other way around. They get preapproved for the ARM and THEN go shopping for the house. ”
Had a hard Easter, HD? House shopping not going well? Because that’s uncharacteristically obtuse.
“I always wonder if all these renters really save as much as they claim for their future purchases.”
Heh. G.O.!
“Had a hard Easter, HD? House shopping not going well? Because that’s uncharacteristically obtuse.”
It’s uncharacteristically greater than 90 but less than 180 degrees?
HD, they USED to do it that way. It hasn’t been like that in probably 4 years now. Also, banks qualify on rates higher than the start rate on an ARM. MOst borrowers that stupid have been flushed out of the market.
POAs were for sophisticated borrowers. Stated income was for wealthy self-employed borrowers. 100% was for higher income young borrowers. All of these products have been around for DECADES before the housing bubble.
The problem was banks kept searching for further originations and kept loosening up the underwriting requirements to bring in more borrowers. POAs had a great track record until WAMU and Countrywide decided to market them to Joe Sixpack and lower the credit score and LTV requirements.
Stated income for legitimately self-employed performed well because they all required large down payments, great credit and proof of self-employment. Then banks decided to just open up the low doc stuff to 100% LTVs and even w-2’d borrowers which allowed all the fraud and specuvestors to essentially lie on their loan apps – “Landscape engineers (yardman) claiming $10k a month in income….” Grocery Supply Chain Manager (Head Bag Boy at Jewel) – $20k a month. Dog Walker Owner – $25k a month.
“And the bongs sold at head shops are for tobacco use only. uh-huh. Just like we were all told that Option ARMS were for sophisticated consumers – Mozillo himself believed that too he said in an interview – until he found out that more than 90% of Option ARM consumers paid only the minimum amount every month, not enough to cover the interest. Consumers aren’t picking out their home and then getting preapproved for a mortgage – it’s the other way around. They get preapproved for the ARM and THEN go shopping for the house. ”
Your simplistic view of the world as informed only by your personal experience and your inability to differentiate your specific experiences from accurate descriptions of all activity is truly staggering. Your rhetorical approach is probably effective when dealing with people you come across in your practice, but your anecdotes and examples are pretty empty when you’re talking to anyone else.
I’m not even really sure what you’re arguing here – are you saying that adjustable rate mortgages should be illegal, that the government should determine which mortgages are appropriate to offer to consumers? It was the government’s enabling of the complete separation of the monetary value of loans from their underlying credit risk that allowed the housing bubble to happen, so I’d vote for a little more free market in mortgage lending, not less.
Look at this chart, folks: the most amount of Option-ARMs ever are set to recast between now and November of next year.
http://www.calculatedriskblog.com/2010/03/new-credit-suisse-arm-recast-chart.html
I can’t wait until the first idiot interjects that interest rates are at historical lows so this won’t be a problem…in…3…2…
“I can’t wait until the first idiot interjects that interest rates are at historical lows so this won’t be a problem…in…3…2…”
No need. It’s in your own link:
Resets are not a huge worry right now – because interest rates are so low – but if interest rates rise, this could lead to more defaults in the future.
“I can’t wait until the first idiot interjects that interest rates are at historical lows so this won’t be a problem…in…3…2…”
You should be kinder to those you cite (from Calculated Risk):
“Resets are not a huge worry right now – because interest rates are so low – but if interest rates rise, this could lead to more defaults in the future.”
In Bob’s defense, he was referring to recasts not resets. Big difference.
Recasts….not resets are the worry.
“In Bob’s defense, he was referring to recasts not resets. Big difference.”
Sure, but this:
“the September 2009 Fitch Ratings report showed that 30-day delinquencies on option ARMs sat at 46%”
leads to a reasonable conclusion that it ain’t gonna be much worse because of recasts, as the majority (by now) are *already* delinquent.
See here:
http://www.businessweek.com/news/2011-02-15/option-arm-time-bomb-blows-early-limiting-housing-hit.html
Speaking of bongs, I made an awesome bong last week out of two pieces of bamboo. Organic bong!
“When you say current contracts are not comparable to historical totals, do you mean that the data for previous years only includes contracts that eventually closed? If so, isn’t data on total contracts signed during the period (regardless of outcome) available? If not, why do you say they aren’t comparable?”
Data on total contracts signed is not available. There is only one contract date field, so only the last contract is there. I include any outcome in my historical data, but in actuality there are very few with contract dates that didn’t close. Obviously, some of the current contracts will fall out. Additionally, in this example of contracts in a pre-determined price range, the current contracts are based on list price where some will actually close below the range. The historical contracts are only based on list price for the very few that expire/cancelled with a contract date still recorded, all of the rest are closed price. That sums up my basis for why a comparison with current contracts is not precise due to certain inflation of current numbers.
“Believe rate of non-closing varies, and is generally higher now than in 07-08.”
Perhaps this is true. I don’t have data to support it, so it is not part of my caution regarding current numbers.
As for the ARM thing. It’s not that you are getting something for nothing.
Saying you are benefiting is the same as saying you are at a disadvantage buying 3 yr treasuries for 1.13 vs 10 yrs at 3.39.
There is a reason!!
You are pretty much doing the reverse with an ARM, you are essentially buying the 3 yr and being short 10 yr rates. Worse is you have serious term mismatch as you are really short up to 30 years. There ain’t no free cheese here, just looks it. current 3-10 yr spd is 2.26 and you would be shorting it at 1.5.
At these levels, in this environment, why fuck around, I’d take in my 30 yr risk.
“At these levels, in this environment, why fuck around, I’d take in my 30 yr risk.”
I think you are missing one big aspect. Seems many people aren’t buying for the long term anymore. If you plan on moving in 7 years anyway, doing a 7/1 ARM is a great deal. After all, you can’t take your mortgage with you to the new place.
Basically, you need to match your loan term to your time horizon.
“At these levels, in this environment, why fuck around, I’d take in my 30 yr risk.”
Depends what you do with the excess and your intent on paying the mortgage. I know you’re leverage tolerant, but many *want* to (and have reasonable prospects to) pay off the note asap.
I think my effort was more to point out that you are not getting something for nothing. As an isolated transaction, what appears to be a benefit has a true cost in risk. And obviously, and not unexpectedly, you are actually transacting at a lower value than true value (the banks edge).
“I think my effort was more to point out that you are not getting something for nothing. As an isolated transaction, what appears to be a benefit has a true cost in risk. And obviously, and not unexpectedly, you are actually transacting at a lower value than true value (the banks edge).”
Does the bank of Ze give stuff away for free?
I realize that it’s a common misconception that banks are our financial partners and not trying to maximize their profits from each of us, and every reminder of that is useful.
I think I’m also trying to point out that many unknowingly are taking the equivalent of a large short position, at a level they probably do not want to take it. Then again, so does a renter.
“I realize that it’s a common misconception that banks are our financial partners and not trying to maximize their profits from each of us”
Oh yeah! No truer words! The amount of CEO’s that walk into Goldmans doors with smiles on their faces, feeling all proud and intelligent by association, having no idea how ass raped, in how many ways, they are about to get. Leaving without knowing as well. ROFLMAO!
“Then again, so does a renter.”
But they are saving sooo much money, and they’ll use that extra down payment $$ to buy more house for the same monthly payment vs. FHA financing. It drives up the cost housing for everyone and especially for the 100% financed buyers because they’re competing with the guy with the huge down payment who is asking ‘howmuchamonth?’
“having no idea how ass raped, in how many ways, they are about to get. ”
To be fair, it’s the shareholders getting ass raped. The CEO’s just get paid to hold them down.
“Oh yeah! No truer words! The amount of CEO’s that walk into Goldmans doors with smiles on their faces, feeling all proud and intelligent by association, having no idea how ass raped, in how many ways, they are about to get. Leaving without knowing as well. ROFLMAO!”
6% for taking (essentially) no risk–how is GS not the IPO equivalent of realtors?
Oh, right, they have huge upside on their overallotment, especially if they underprice it sufficiently to get that IPO pop.
chuk.. True! True!
anon.. they are much more creative than realtors… so many ways, so many many ways..
“But they are saving sooo much money, and they’ll use that extra down payment $$ to buy more house for the same monthly payment vs. FHA financing.”
Wait, anon(tfo), a 1/3 of renters spend half of their income on rent and utilities!
http://www.chicagotribune.com/business/breaking/chibrkbus-many-chicago-renters-spend-half-of-income-on-rent-utilities-20110426,0,7789986.story
“anon.. they are much more creative than realtors… so many ways, so many many ways..”
I know, but the dig on the cost of an IPO is just something I can’t resist. And the industry fights to keep it in much the same way the NAR does.
Looks like Lincoln Park help up and the rest did not. Thanks in advance as I know I was right!
My brother John is right!