Fires of Heaven Guild Message Board - View Single Post - Jumbo mortgages (part of stimulus package)

Kurk · 02-09-2008, 05:22 PM

Extending the conforming loan limit will allow better interest rates for higher loans. This won't help the crashing housing market. Neither will the stimulus package. The problem is most people simply don't make enough money to afford housing in the bubble areas. They took teaser payments via ARMs and interest only loans. Now those teaser rates have adjusted, housing prices are slumping so they can't refi or HELOC any more money from their house. So basically that leaves them with their paycheck to pay the mortgage. They already effectivly HAD really low rates and still do (rates in the 80s were 14%)...but when the average family income in Los Angeles is ~ $55k and an average home costs $600k the math simply doesn't work in a down market.

Housing needs to correct to the traditional afforabilty ratio of 2.5 to 3 times income. The average starter house needs to return to ~200k in Los Angeles. Banks are losing their shirt on bad bets placed on loans and this will continue for quite a while. They are also tightening their lending practices and trying to hoard cash to write off the bad loans which come back to them in the form of foreclosures.

I predict a nasty recession this year with blood in the streets by this summer. Cash is king and will remain so for the next couple years.

02-09-2008, 05:22 PM	#3 (permalink)
Kurk Registered User Join Date: Apr 2005 Posts: 11 +0 Internets	Jumbo loans won't help housing Extending the conforming loan limit will allow better interest rates for higher loans. This won't help the crashing housing market. Neither will the stimulus package. The problem is most people simply don't make enough money to afford housing in the bubble areas. They took teaser payments via ARMs and interest only loans. Now those teaser rates have adjusted, housing prices are slumping so they can't refi or HELOC any more money from their house. So basically that leaves them with their paycheck to pay the mortgage. They already effectivly HAD really low rates and still do (rates in the 80s were 14%)...but when the average family income in Los Angeles is ~ $55k and an average home costs $600k the math simply doesn't work in a down market. Housing needs to correct to the traditional afforabilty ratio of 2.5 to 3 times income. The average starter house needs to return to ~200k in Los Angeles. Banks are losing their shirt on bad bets placed on loans and this will continue for quite a while. They are also tightening their lending practices and trying to hoard cash to write off the bad loans which come back to them in the form of foreclosures. I predict a nasty recession this year with blood in the streets by this summer. Cash is king and will remain so for the next couple years.