“Aggressive lending allowed people to buy homes who otherwise could not have, and that increase in demand is part of the reason home prices soared in the first half of the decade. In a December 2006 paper, “Aggressive Lending and Real Estate Markets,” Wachter and co-author Andrey Pavlov of Simon Fraser University concluded that neighborhoods and cities that had high concentrations of aggressive lending suffered the largest home-price declines after the market cooled.
They focused on neighborhoods in which disproportionate shares of loans were ARMs — adjustable-rate mortgages. “For each one-percent higher share of ARMs in 1990, the price decline increases by 1.3% for that neighborhood,” they write.”
∙ Could Tremors in the Subprime Mortgage Market be [a Sign] [Knowledge@Wharton]
Precisely what people like tipster and myself have been saying for months now. Gets a lot tougher to buy property when the bank will only lend you the amount of money you can actually pay back.
I’d wager that we here feel less of the mortgage fallout than the stucco sprawlburgs out there in flyover country. But SF won’t be immune.
At a sales office for a project that upon reflection I ended up not putting a deposit on (thanks to this site) I was fascinated that the couple at the next salesperson’s desk were interested in a two bedroom about $500,000 more than what I was interested in. Having “big ears” I was able to pick up that my single income was almost double their combined income but the salesperson told them this would “not be a problem” as they would be making a fortune in appreciation. (“Everyone wants to live here!”) I have never forgotten my experience that day and I wonder how many owners are in situations similar to the couple I observed almost 9 months ago. I doubt that today that couple could get the money (even with a liars loan) that they were able to get almost one year ago.
I remember looking at a $1.5m condo in pacH that was eventually taken off the market. The agent proudly showed the home; along with his co-marketing Loan Broker who had several no money down financing options (preprinted on a brochure) with monthly payments for the first 1-3 years ranging from $3500 to $5000/month. God only knows what those payments adjust to after the teaser period; and its clear that some people actually did in fact take out these loans otherwise no one would ever take the time to print it and market it.
Should be interesting….
eddy
PS: I just went to a mortgage calculator and $1.5M over 30yrs with no money down is $9500/month (not including taxes. no one that financially “needs” to take out teaser rate ARM can afford s 2.5 – 3x increase in monthly payments. These loans were meant for wealthy people that could pay cash, but had better places to put the money to use than in real estate.
if the cap fits, wear it