Lost, or Jaded’s Return

Lost Valley Road just listed as MLS #90003449.  It is a 1830 SF 3/2 in one of Centex’s Cyan projects in the South Meadows, which has been heralded as the one bright spot for new housing sales.  Listed at $247,000 as a sort sale, the home was purchased less than 7 months ago for $285,105.

I don’t have any personal information about the seller or what went wrong – sometimes life just happens.  What drives me to distraction is the financing that was allowed to be used.  The loan is for $280,699 through CTX Mortgage, a division of the developer.  It is classic FHA paper, 97% financing with some closing costs thrown in.  The seller put $4406 worth of skin in the game, and now  We the People are going to eat the loss on this one.  This was less than 7 months ago – didn’t we already know better?

Am I cherry picking again?  Nope, right across the street on Lost Valley is MLS #80019024 listed at $249,900 short.  It was purchased 4 days earlier for $279,908 with a $275,282 FHA loan through Wells Fargo – $4606 down payment.  Though I don’t know the pricing history, this home has been on the market 90 days.

Are FHA loans going to be the new Sub-Prime?

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About Mike McGonagle

An architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective.. A former Chicagoan, Mike earned his MArch from Harvard University. Mike can be reached at mike@macassociates.com or 775-345-7435. His continued musings can be found on the REreno.com blog.
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35 Responses to Lost, or Jaded’s Return

  1. Avatar Sully says:

    I am following a similar property, just closed a few days ago – same thing. Almost 100% financing.

    Until you mentioned it, I thought it was just one of those oddball deals. Now, I’m thinking FHA is trying to start the party all over again.

  2. Avatar KofoedMedia says:

    I totally agree with your fears. A coworker got a sweet FHA loan for a trailer (strike that) Manufactured Home last summer, and was crowing about the great deal she got… until it came time to make the first payment. THEN she was panicked at how she was going to make the payments on her small salary (with a kid and a deadbeat dad in the mix, too). I can see this broad walking away from her house if she ever gets fired/laid off. FHA loans are indeed dangerous – for taxpayers.

  3. Avatar BanteringBear says:

    Like Sully said, the politicians, bankers, etc., are desperately trying to re-spike the punch bowl, and blow another bubble in an effort to avoid the inevitable. These people are mentally retarded, or blinded by greed, or both.

    Until we get back to where large down payments and verifiable income dictate who qualifies to buy a home, the foreclosure train will keep on rolling. I see NOTHING to indicate a pricing bottom is near. Like I’ve talked about so many times, many of today’s sales are tomorrow’s foreclosures. Mike’s post is evidence of that. The knife catchers are already packing it in.

    I do not see a bottom in housing prices until we see a turnaround in the economy. Housing will not lead the turnaround, but follow it. I don’t care how many “investors” are buying, you need first time buyers with JOBS.

  4. Avatar Ralph says:

    I love the smell of burning comps. Sub-prime, option ARMS, Alt-A, FHA, I don’t care. They all lead to the same place. Foreclosures. Falling prices.

    Unemployment in Reno is now at 11%. And rising.

    BB is right. Those saying the bottom of the market is near are howling at the moon. Howl on.

  5. Avatar DownButNotOut says:

    It’s easy to be Nostradamus these days if your siding with the RE market going down. Terms like howling & carnage make for great visuals. Having the foresight to accurately predict the RE market – that’s a talent.

    Believing jobs are driving prices is probably true on its own, but it can’t be the only indicator. There still too much wealth to put 1st time buyers in the front seat of driving our economic return. Ultimately many indicators will go hand in hand for when and how we get out of this. Not just job creation, or unemployment decline, although certainly those will be big factors.

    After all, looked at another way there are still 90%+ employed. Many making the exact same thing they were making 2-3 years ago, while still paying down their long term debt.

    Is the market at bottom? At the risk of taking a lot of heat here, I’d venture it’s awfully close. But there’s a lot of factors that have yet to play out to verify that.

  6. Avatar BanteringBear says:

    I read your whole post, Down, and I see nothing but the usual happy talk with little substance to back it up.

    You posted:

    “There still too much wealth to put 1st time buyers in the front seat of driving our economic return. Ultimately many indicators will go hand in hand for when and how we get out of this.”.

    Would you care to support this awkward statement with some FACTS please? Furthermore, can you also give a few reasons as to WHY you see the bottom as being “awfully close”.

    Some of us were talking about the “carnage” when prices were still rising. Don’t try to paint us all as johnny-come-lately’s. Of course, you were nowhere to be found at that time, so you probably don’t remember. Methinks your financial interests are clouding your better judgment.

    The Reno-Sparks area just recorded the highest unemployment rate in it’s history, and you’re talking about a price bottom? We’ll just add you to the ever growing list of bottom callers. I’ll make a mental note of this thread, and we’ll check back and see how that pans out for you.

  7. Avatar diablo says:

    bantering why don’t you go hibernate.. your nothing more than an internet prowler with not life.

  8. Avatar inclinejj says:

    FHA will need a bailout in the next 2-3 years also.

    Yes, it is the new subprime..

  9. Avatar BanteringBear says:

    Nice link, inclinejj. I read that on another blog. From the article:

    “Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves.”

    Until this loose lending is arrested, we will continue down the path of foreclosure indefinitely. Old habits die hard.

  10. Avatar longerwalk says:

    The concept behind all the looser monies from the government’s perspective is that homeowners traditionally create more stable communities. The flaw in thinking that expanding ownership would create even more stable communities, especially in lower-income areas, is that having one’s OWN money in the house, and the requisite interest in keeping the property up, doesn’t exist w/exceedingly low down payments. Many of those who were lured by ‘a home of their own’ were thinking about the DREAM or IDEA of owning a home, not the real-life toilet-backing-up-window-broken-need-insulation-in-the-attic homeownership. (Habitat for Humanity insists on sweat equity for this very reason. Commitment.)

    The mix of easy money from refinancing and teaser rates just exacerbated the lure of the dream.

    FHA is trying to recreate the ‘stability’ approach, complete with flawed concept. Bah. Idiots. (I include Congress in that, as well as other government entities.) I’m really growing worried about the intergenerational credit card.

  11. Avatar DownButNotOut says:

    BB- I figured my statement above would get a rise from you. Your predictable because you have only one way of looking at things. Check back in a few months, I’ll still be here. And if I’m wrong you can be our seer for another few months.

  12. Avatar Inept One says:

    Bantering Bear is right. Making more bad loans will not get us out of the mess we find ourselves in. When something is worked for it is appreciated 10 fold over something that is given for free. I was poor as a child and I can remember my father saying “Sometimes it is better to want than to have”. It was hard for me to believe then, but I believe it now. The American Dream is something that a person should have to strive and work hard for and cannot be arranged by a government agency. Part of the dream is in the accomplishment, looking back on the struggle and appreciating the obstacles you overcame and the new strength these obstacles gave you. Buying a new “home” that you cannot afford is not an accomplishment, it is a farce. It is like lying to yourself. I can actually remember being turned down for a loan on a house and I had 25% down and good credit. Looking back, I was trying to buy too much house for my income. The bank did me a huge favor by NOT giving me the loan. They probably saved me a forclosure. Ah the good old days, when you had to do more than fog a mirror to get a mortgage. Bantering Bear is right, the sooner we get back to those days, the better. Then we will have a true “housing market” where people only buy what they can actually afford and houses will sell for what the market will bear.(Bad pun) I say bring back the “good old days”. IO

  13. Avatar BanteringBear says:

    So, Down, you just show up as a cheerleader here and there, hoping to get a rise out of people? Cool, if that works for you. Carry on. I’ll be more than happy to continue to refute that Pollyana crap.

    You’re right, I do “have only one way of looking at things”- my way, without blinders on. I’m a realist. I don’t buy into hype, and Kool-Aid fueled hopes and dreams. People like you have been spewing your “it’s a great time to buy” nonsense from the beginning, and will, no doubt, until the bitter end. Problem is, you’ve got zero credibility. It’s not from an objective stance you opine. It’s from one based on dreams of personal financial gain. Prepare to eat some more equity.

  14. Avatar DownButNotOut says:

    BB- You wrote ‘People like you have been spewing your “it’s a great time to buy” nonsense from the beginning, and will, no doubt, until the bitter end’

    I don’t believe I was advocating that. Scroll up and read what I wrote. But don’t let the facts get in the way of any preconceived notions you might have.

  15. Avatar Move to Reno says:

    Are we at the bottom yet?

  16. Avatar Future Buyer says:

    I did see some positive economic data on the news yesterday that maybe Down was refering to? In comparing today with the Great Depression–based on overall deposits in banks we are no where near the losses of those times. There are actually many rich people who took their money out of the stock market and are holding it in bank deposits. Based on this evidence these economists feel when we recover–we will recover big. However, this doesn’t mean they will buy houses with the $$ or particularly houses in Reno–but it was some positive news in these very gloomy times (mostly for the stock market). I do see a lot of short sale pendings, however, and I am almost to a point where it would be cheaper to buy the rental I’m in (based on zillow and short-sale prices) than continue renting–when it is cheaper to buy vs. rent we will start to see a recovery. Once people can afford to buy again, builders will start building and all those lost jobs will come back. I can’t believe I just posted something positive?!! On the negative side, it will take years to get out from under the inventory!

  17. Avatar Future Buyer says:

    PS. You need to change the time to Daylight Savings…

  18. Avatar billddrummer says:

    I’m not trying to fan the flames, but to provide some perspective.

    FHA was always a 97% financing program. It was designed originally for first time homebuyers, required full documentation for approval, required the borrowers to qualify at much tighter debt ratios than conventional mortgages, and included PMI premiums in the front end ratio, which couldn’t be more than 28%. When I got my FHA loan in 1988, the ratios were 28/36, with the front end ratio including PITI and PMI.

    I don’t know whether the underwriting criteria have changed in the past 20 years, but for awhile, few mortgage companies wrote FHA loans because the rules were so complex compared to private mortgages.

    Now that lots of people don’t have the 20% down to acquire conventional financing (either through savings or equity from their existing home), it looks like FHA financing has become popular again.

    I don’t know what went wrong on those two homes you mentioned, but job loss comes to mind as a primary reason the purchasers elected to walk away.

    This has always been a risk with FHA loans (and VA loans as well, with no money down required in most cases). I think that it’s just a function of the tough economy that is wringing people out of these loans much faster than anyone expected.

    (By the way, the home I purchased in 1988 is the same one I lost in 2007. Most of you know the story, so I won’t bore you with it here [again].)

  19. Avatar 3niner says:

    BB:

    You said: “Until this loose lending is arrested,…”

    The way to “arrest” the loose lending, is to arrest (and imprison) the fraudsters. Many “buyers” have obtained loans by fraudulent means, loans they never intended to pay back. Many brokers and mortgage officers have processed paperwork they knew to be false, in order to get a commission. Send a few thousand of these people to prison and this crap will stop.

    FB:

    You may be right. I am beginning to believe that the low end of the market, in Reno, has reached the point where it can be significantly cheaper to buy than to rent. This has made me start to think about income property.

    If you want to buy a low end property to replace what you are renting, you might get a very good deal, but are likely to have to take an unattractive property, in a less than desirable neighborhood.

  20. Avatar DonC says:

    I can’t see “loose lending” being a problem at the moment. The opposite perhaps but not loose lending. AFAIK the banks, having had terribly lax underwriting standards, now have terribly restrictive underwriting.

    I don’t think that housing can truly recover until the economy stabilizes, but Down has a point about the upside. Housing affordability is at an all time high. At some point people will decide to buy the house they want and can afford. Assuming of course they can get a loan.

  21. Avatar diablo says:

    Bantering bear is such an ass wort!

  22. Avatar SkrapGuy says:

    “Bantering bear is such an ass wort!”.

    Not since derrick has anybody posted anything so totally useless.
    Could it be that our boy is back with a new name?

  23. Avatar Rory says:

    Bantering Bear calls himself a realist? That’s cute.

  24. Avatar BanteringBear says:

    DonC posted:

    “I can’t see “loose lending” being a problem at the moment. The opposite perhaps but not loose lending.”

    Interesting. So, 97% LTV doesn’t constitute loose lending in your world?

    Further:

    “Housing affordability is at an all time high.”

    Again, I’m going to have to disagree. We’ve been through this before and, while affordability has definitely improved, we’re NOT at an all time high. I do not know how you arrive at such a conclusion, or what bogus statistics you rely upon, but I beg to differ.

    I think everyone would agree that a large portion of what is selling right now is skewed towards the lower end houses. If we look back to the last time the median was around $200k, the homes sold represented a good mix of all price ranges as it was a healthier market.

    I continue to believe that people, in general, are overpaying for the lower end homes as the stronger hands continue to try to wait it out. But, they’re really starting to crack, as is evidenced by recent foreclosures in nicer neighborhoods. As the high end finally collapses, the lower end homes values will fall apart. Homes selling for $200k today, will be next year’s $100k homes.

    One last thing to consider is that many neighborhoods are deteriorating, and their values will likely fall well below what they once were- and stay there.

  25. Avatar Sully says:

    DonC, I don’t know where you got your info either, but according to Case Shiller index (Dec 2008) prices still had to fall 20% to meet historical norm and 35% to match all time lows.

  26. Avatar SkrapGuy says:

    With all due respect, we are nowhere near affordability at an “all time high”. “All time” as in never, in history, have houses been more affordable?? Come on.

    Yes, houses are more affordable now than they were at this time in 2005. But never, in history, have houses been more affordable than now? Please.

  27. Avatar Reno Ignoramus says:

    In June of 2003, the median price of a house in Reno/Sparks was $194,000. That’s a tad lower than it is today. That was the high water mark for the median up to that time. In other words, at all prior times, in history, the median in Reno/Sparks had been lower than that. For example, in March of 2002, the median was $160,000. Interest rates were about the same as they are now. And household income, when adjusted for inflation, was little different than it is now. As recently as 7 years ago, houses were more affordable here in Reno than they are now.

  28. Avatar DonC says:

    BB, Sully, RI – The housing affordability index is at an all time high. That is simply a fact. If you doubt this just do a Google search and you’ll find countless citations. Here is one of many summations:

    “NAR’s Housing Affordability Index rose 13.6 percentage points in January to 166.8, a new record high. The HAI, a broad index of affordability using consistent values and assumptions over time, shows that the relationship between home prices, mortgage interest rates and family income is oddly the most favorable since tracking began in 1970.

    NAR said the HAI indicates a median-income family, earning $59,800, could afford a home costing $283,400 in January with a 20 percent downpayment, assuming 25 percent of gross income is devoted to mortgage principal and interest; affordability conditions for first-time buyers with the same income and small downpayments are roughly 80 percent of that amount. A year ago, the typical family could afford a home costing $263,300.”

    Conceptually you have to understand that affordability depends on price, interest rates, and median income. The Case-Shiller index or, for that matter, nominal or adjusted price is one part of affordability. Interest rates and median family incomes are the other factors. Basically the question you have to ask when looking at affordability is whether, if you had to finance a house purchase, you’d rather buy a $250K house with a 4% loan or a $150K house with a 10% loan. Or whether you’d find it easier to buy a $250K house when making $75K/year or a $150K house when making $35K/year.

    The housing data from the Reno monthly sales and the RPX report cited in another thread indicates that markets and market segments are breaking into two groups. One group — say the lower tiers of the Reno market and cites with many foreclosures — show rising volume and falling prices. This is a sign of a bottom. The other group — say the upper tiers of the Reno market and cities with relatively few foreclosures, shows mildly declining prices and declining volume. This is a sign of a market where prices are sticky downward and are still above market clearing prices. While the the latter is more typical of falling housing markets, I’m not sure that the former isn’t more healthy. While some people are losing their homes, a horrible situation, in this case what you’re seeing are people who for whatever reason can’t afford homes being replaced by people who can.

  29. Avatar Sully says:

    Don, if the NAR wasn’t the publisher of the index I might believe it. Since they are I will stick with the Case-Shiller Index.

    This is not to argue with the rest of your post, just the part about housing affordability being at an all time high as a fact, which it is not, its an opinion.

  30. Avatar CommercialLender says:

    The elephant in the room is this: very few people (users, not investors) are feeling frisky enough today to buy homes for reasons-o-plenty:
    1) can’t sell their current house
    2) downpayment money lost in the stock market
    3) have no clue if their job is secure
    4) even if job is secure, they sure won’t make the bonuses or incomes this year they did in years past
    5) lack of general confidence / sky is falling
    6) feeling that house prices are not yet at bottom
    7) realization that those of us who said “rent, don’t own for the next few years” were dead-on accurate
    8) assurance of higher taxes for all, despite Obama’s pollyannish assurance of just stickin’ it to the ‘rich’
    9) et. al.

    Despite the widely discredited NAR and their dubious at best ‘statistics’ on ‘housing affordability’, the elephant still stands in the room and must be addressed.

  31. Avatar 3niner says:

    DocC said:

    “The housing affordability index is at an all time high. That is simply a fact.”

    “NAR’s Housing Affordability Index…”

    Unfortunately, the source you cite has less than zero credibility. The NAR has a terrible track record of making ridiculous statements through the peak of the housing bubble, and afterwards, in an attempt to keep the bubble inflated.

    You mention factors, other than price, which affect affordability. Unfortunately, you also leave out some important additional costs. These concern risk. Yes, risk is a cost, just ask an actuary.

    The risk of experiencing a sharp drop in income, is quite high, right now. The risk of property dropping in market price, and putting a buyer under water for years, is also currently high.

    If you really believe what you are posting, I suggest you go right out and buy.

  32. Avatar BanteringBear says:

    As 3niner and others have pointed out, NAR’s Housing Affordability Index is about as reliable, unbiased, and honest as their chief economist Lawrence Yun. If someone is willing to cite such bogus sources as factual, there is really no point in arguing; they’re chugging the Kool-Aid from concentrate.

  33. Avatar DonC says:

    There is a valid point and a misplaced point about the NAR affordability index. The misplaced point is that since the index is published by NAR it is inherently unreliable. This is really not the case. The index has been published since 1970. It’s just a number. If there was a bias you should have seen the number be high during the boom years. It wasn’t. While I understand the skepticism about NAR in general, and BB’s disdain for Mr. Yun in particular, the affordability index is a solid number. In fact you can demonstrate that if you like by comparing it to similar numbers put out by other organizations. They all more or less say the same thing.

    The valid point was brought up by CL, which broadly is that affordability is high because buyers are few. This is fair enough. Cheap stocks may not be a good buy in that they may be cheap for a reason.

    My point would be that some real estate looks like a pretty good deal, if you intend to live in it. Prices are down and interest rates are down. What’s not to like?

    The caveats would be that in some markets and in some market segments (higher priced houses in Reno) have not fallen as much as you’d expect. Prices there are probably not going anywhere for quite a while. But the lower few tiers of the market look pretty well priced. (The condo market seems like a disaster waiting to happen).

    Of course, following up on one of CL’s points, I don’t think this matters if people can’t get loans. I see that as a big issue. However, I did hear an ad on radio today from a S&L saying that it had money and inviting people to apply for a 4.875% loan. I haven’t heard anything like that in several years (may be the station(s) I listen to). It definitely got my attention.

  34. Avatar Reno Ignoramus says:

    The NAR exists for one reason and one reason only. To inflate the incomes of its legions of dues paying six-percenters. It exists only to shill real estate. According to the NAR, has there ever, ever, been a bad time to buy?

    As far as the 4.875% loan, not a problem if you have 30% down, and a FICO of 800? For everybody else, well, yes we have loans, but not at that rate. It’s like the car dealer ads that hawk a really great deal, and then in miniscule print the disclaimer “one at this price”.

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