When Prime Equals Slime
California Crashin'
- In San Bernardino, a house bought for $310,000 in 2005 is now being offered by the bank for $199,900.
- A 2,000-square-foot ranch house in Rancho Santa Margarita is down from $775,000 to $565,000.
- A starter home in Sacramento, sold for $215,000 in 2004, is now down to $129,900.
These are not sale prices. They are asking prices. Don't doubt that they are negotiable.
Unfortunately, when it comes to the California crash, these striking numbers are not the end. They are the beginning. (To give Paulson his due, he said that, too.) Which brings us to the other scary part of the California story: a coming wave of interest-rate resets in prime loans given to people with good credit that are just as bad, or worse, than we've seen in subprime.
The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset. See Slate for all the gory details. We haven't begun to see this deal. This is a real crises. A RIGHT NOW crises. Prime loans do not default. Lenders will soon be walking away too.
4 comments:
You don;t need interest rates to reset or borrowing costs increase in any way for a bubble to burst. Prices become unsustainable and eventually the asset starts becoming worth less. The the thing that made people want to buy houses (expectation of increased price) makes them want to walk away (expectation of declining value perhaps lower than the loan yet to be paid off). The worst thing about this bubble is libs passed laws making mortages non-recourse so speculating in housing became less risky. You don;t loose your retirement or even your car if you can't pay off the loan. That means we are going to get whole abandoned neighborhoods and high rises blighting the value of all nearby homes. What a mess.
Non recourse loans have been around forever, at least in CA. BTW loan terms are governed by state laws, not Federal. My understanding is that it is the Real Estate interests who got the legislature in this state to make RE loans non recourse.
Nothing wrong with non-recourse loans. It's very biblical..in the bible, all debts are erased every seven years anyways!
The problem is giving loans to people who can't, or won't, ever repay it. We had speculation in housing, something that should never happen, aside from apartment housing.
Didn't say it was a Federal law. IMHO it ius an unintended consequence of a kindly intended law.
Lets see . . Where are the kindly liberals helping out the average guy: real estate with tax deduction Ginny and Fanny Mae, education with tax benefits and Sallie Mae, and health care with a whole stew of benefits and regulations. And where are the average Joe's getting reamed? Real estate, education and health care costs.
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