First-time buyers, WAIT WAIT WAIT! Current home owners are still delusional about their perceived home value. The bubble has bursted and those bubble prices are only dreams now. It will take time for these owners to come back to reality and offer reasonable prices for their homes. Not to mention many more ARMs will reset for the next 4 years and these people will not stay in their homes when their montly payment increases by 50 to 100% AND they are under water by 30% or MORE!

Educate yourself on the matter:
http://www.doctorhousingbubble.com/
http://patrick.net/housing/crash.html

and save your $$$$$ for a downpayment when the bottom hits!

Joe in Campbell

That’s a good point about seasonality, Colin. I hope it didn’t seem as though I was trying to suggest the bottom is here. More like the bottom is closer. As soon as you say the real estate industry is trying to convince us that the bottom is here, that convinces me it isn’t

You know, in 2004 after Fannie Mae’s CEO Franklin Raines took early retirement (did he fall or was he pushed? You be the judge; the COO resigned shortly afterward) the National Association of Realtors was saying this wouldn’t have an adverse effect and the real estate market would rock on for FIVE MORE YEARS. Yes indeed!

If that makes it unaffordable, then it’s unaffordable and has been for a long time (30 years). Wishing for the price to come down won’t make it happen. People might think the economics will force the ratio down here, but I’m simply saying why would the next 30 years produce a ratio different than the past 30 years? It might drop a bit below 6, but probably not much below.

The only way for it to get cheaper in the “inner” Bay Area longer-term is for people to move out a la Detroit, or for a bunch of new supply to come on the market, a la Houston. The latter is next to impossible due to current landowners “protecting” their property values, red tape, and lack of land. The former could happen, but then people like you need to move out.

I lived in Chicago. It’s a wonderful city, and you could live in a few nice ‘hoods in Chicago proper in a single family on a $57K income..but not many. Do a quick search on Redfin and focus on the north and northwest side…you’ll see what I mean. Otherwise, you’re living in the ‘burbs, just like out here (Antioch, Clayton or what have you).

Ah, that’s a great analogy about an individual having to pay higher interest rates for loans if he or she already owes a lot of money and hence is a bigger credit risk.

But why would the national debt lead to inflation? I can understand why, for example, high gas prices lead to inflation, because it costs more to truck goods in and the grocery store, for example, has to pay the trucking company more and then recovers it from the customers. But if the U.S. government owes more money, why would that make goods more expensive?

To understand why increasing debt levels make new debt more expensive, just think of an individual debtor. The first $10K you borrow is probably cheap because you have good credit. But if you try to borrow $10K when you already have $100K in debt lenders are going to be worried about your ability to re-pay. So you’ll be charged a higher interest rate to compensate the lender for the higher risk. In the case of the government, the national debt also leads to inflation which causes interest rates across the board to rise (so its not just the government that will have to pay more for loans).

You know, Fannie Mae has been in trouble for a long time. In December 2004, Fannie Mae’s CEO, Franklin Raines, took early retirement, and its chief financial officer, Timothy Howard, resigned Dec. 21.

The two left in the wake of a Securities and Exchange Commission directive to make accounting corrections that could knock out some $9 billion of Fannie Mae’s past profit.

So er perhaps it was apparent that Fannie was having a bit of a problem, four years ago? Couldn’t something have been done then to ward off the horrific disaster unfolding now?

The upside of that is that I own a house, the downside is I’m stuck in a place I’m not thrilled with now that prices are going down and I could afford a nicer city! Maybe there’s a compromise there for you, perhaps a city that’s at least closer to where you work?

(Sorry, David, I was addressing dg when I asked “David” if he was still looking. Having wrestled frequent commenter mdaccount three falls outta four over a San Leandro property you recommended, I’m well aware that you got a great deal on a property in that city recently.)

Now that the sub-prime foreclosure wave has peaked, you can expect a wave of alt-A foreclosure to begin and last for years. Many of these loans to people with good credit were “option payment loans,” technically referred to as negative amortization loans. These loans will are big trouble because the principal owed on such loans actually increases for the first five years until they reset into a normal amortization loan. When they do reset, the loan payments can be much higher. Meanwhile housing prices have dropped, so the loans can’t be refinanced. This will lead to a new wave of foreclosures.

Amazingly, these option loans are not new. They were tried in the early 80’s and found to be disastrous. So lenders stopped using them. The government should have created strict guidelines for their use. Instead, the government didn’t regulate these loans at all. Greenspan essentially encouraged their use by saying people that have fixed rate loans are “leaving money on the table.” As a consequence, even “honorable” lending institutions were forced to provide such loans (often to people with “stated income”) in order to be competitive. It’s only a matter of time now until these loans go bad and have to be written down.