ContraCostaTimes.com | 08/14/2006 | More use homes as main asset
The trend to tap equity seems especially prevalent in the East Bay, primarily because of the white-hot housing boom in the region. Valentine, who has hundreds of clients, sees differences in the portfolio mix of his East Bay and Peninsula customers.

“Among my East Bay clients, I often see a person’s retirement plan and equity in their home comprise well over 90 percent of their net worth,” Valentine said. “Among Peninsula clients, it’s only about 50 percent.”

Valentine believes South Bay clients tend to have more individual stocks and bonds, or wealth accumulated from venture-capital investment than is the case with East Bay clients, who have gained wealth from rising home values over the past 15 years.

Data specific to the East Bay seem to confirm that. In May 2004, the value of the average refinance mortgage was about $333,000. In May 2005, that climbed 17 percent to $390,000. In May 2006, it went up an additional 7 percent, to $417,000.

But tapping the equity in your house constantly, or cutting back on saving for retirement because of rising home values, can backfire, warned George Feiger, an executive with Berkeley-based Contango Capital Advisors.

“You are mortgaging your future,” Feiger said. “If you borrow money on the house, you have to pay the interest. That’s cash out of your pocket. So, you are betting not only on the house value appreciating in the future, you also need enough cash flow to service that debt.”

Fortunately, in the long run, real estate always appreciates. Of course, in the long run, we’re all dead.

Once in a while, I read something that truly cracks me up… check out the comments from this online chat:

Real Estate Live
Welcome to Real Estate Live, an online discussion of the Washington area housing market. Post staff writer Kirstin Downey fills in for Post Real Estate editor Maryann Haggerty.

Are you ready?

Ashburn, Va.: I’m so mad at my neighbor. I bought my new home here in Ashburn last summer and plan to sell it next year (after holding two years to avoid taxes) to make a nice return on my investment. The problem is my neighbor is trying to sell his house (very similar to mine) right now and he keeps lowering his asking price. Each time he lowers his price, I see my potential profits next year getting squashed. Doesn’t he realize he’s hurting the comps for all of his neighbors by doing this? I don’t think he is acting very “neighborly” by doing this. I want to say something to him and tell him he should stop putting his interests ahead of his neighbors. Its people like him who are ruining the market for the rest of us. If he would just refuse to lower his price, we could maintain our comps and everyone would benefit. What can I do to stop him?

Kirstin Downey: Wow. Interesting question. There’s nothing you can do. It’s his house, of course. It’s frustrating, to be sure. One word of advice: Don’t resort to violence.

Oh man… looks like someone doesn’t understand “the market” or “Prisoner’s Dilemma“… or that prices don’t always go up.

Be sure to check out the whole transcript - there’s also a pretty funny “How do I tell my neighbor to raise his price?” piece at the very bottom.

Bay Area still isn’t building enough houses
Bay Area cities and counties built 83 percent of the homes needed to meet population and job growth over the last seven years, exacerbating the region’s affordability crunch and lengthening many residents’ commute times, according to a study by a business-oriented think tank.

While cities from Hercules to San Jose approved more than their “fair share” of housing between 1999 and 2005, other municipalities such as Larkspur and Redwood City issued permits for only a fraction of the total condos and single-family homes prescribed by a regional group of governments, said authors of the Bay Area Housing Profile.

[snip]

In fact, researchers at the council expect that unless the pace of building in the Bay Area increases substantially, the housing crisis will deteriorate over the next quarter-century with the region expected to grow by 600,000 households and 1.6 million jobs.

Further proof that the Bay Area is special, and that they’re not making any more land. Just like I said - forget stock options, give me a house!

Re-Refinancing, and Putting Off Mortgage Pain - New York Times
With his new loan, his third adjustable-rate mortgage, Mr. Perry, a former technology project manager, cashed about $200,000 out of his home’s equity and is investing it into his four-year-old financial planning business. “I could have sold my house and made my family move,” said Mr. Perry, 42, who lives with his wife and a 3-year-old son in Danville, about 20 miles east of Oakland. “But I didn’t do that. I said, ‘Look, I want to start a new business,’ and this product allowed me to do that.”

He said he was taking on more risk than many of his clients would be willing to because he believes his business will continue to grow. After spending 15 years in the technology industry, which put him on the road constantly, Mr. Perry said that being self-employed allowed him to spend more time with his family, which he also expects to grow. As far as the house, he said: “I am not going to be here for 30 years. Why is it important to have a fixed mortgage?”

That sentiment resonates nationally, and especially in California.

So that’s the secret to California living - continual refinancing!

Keep Eyes Fixed on Your Variable-Rate Mortgage - New York Times

Someone now paying $350 a month for a $100,000 interest-only loan could be facing payments of $680 both because of the shift to the higher rate and because the borrower would have to start paying off the principal as well as the interest.

“You need a couple of good pay raises in order to afford it,” said Mark Fleming, chief economist with CoreLogic, which develops risk models for the mortgage lenders. “It’s pretty hard to deal with a payment shock of 80 percent or 90 percent,” he said.

The mortgage industry is not worried about payment shock. Why?

“It offers an opportunity,” said Brad Brunts, managing director of portfolio management at Citi Mortgage, a unit of Citigroup.

He, like others in the mortgage industry, sees the higher payments as a boost to the flagging mortgage refinancing business. Lenders will adjust about $500 billion in mortgages this year and $700 billion next year, according to Freddie Mac, the quasi-government agency that repackages mortgages for investors. Expect to find the mailbox stuffed with refinancing offers.

Oh great. That explains the recent explosion of SPAM in my inbox for refi offers.

As an aside, does anyone actually have a $100,000 mortgage? What the heck?

Article: Money - Refi loans could prove costly in foreclosure
Homeowners behind in their mortgage payments after hocking the house to pay for a major remodel or a new boat or car may be in for a rude awakening.

If they previously refinanced and their lender decides to foreclose, they may not only lose their house, but the bank also may be able to go after their other financial assets including stocks, savings and their paycheck.

And even if the bank doesn’t go after their other assets, a foreclosure may mean a big tax bill from the IRS and state Franchise Tax Board for any shortfall between what the bank gets for the sale of the owner’s home and the value of the loan.

[snip]

In the past, when a lender foreclosed, the homeowner usually still had the original loan they got when they purchased the house. Original loans, considered purchase money, are non-recourse loans that limit lenders to recovering only what they can get when they sell the house. They can’t go after the owner to pay any difference between the foreclosure sales price and the loan balance.

But in California, refinanced loans, second trust deeds and home equity lines of credit are generally considered recourse loans. In these cases, a lender can file suit and go after almost any of the borrower’s assets once they obtain a court judgment.

“They can literally go after everything you have,” Hall says.

There are a few limited exceptions. Retirement accounts are excluded, and declaring bankruptcy could protect some homeowners.

Interesting times lie ahead!  I guess the lesson is to put as much money as you can into your retirement accounts!

Let’s see what’s in the news…

Santa20Clara20County20Real20Estate

Wow… who knew that it was a Buyers’ Market back in 2003. Well, times have changed … and Bay Area real estate is clearly better than stock options: it always goes up.

DQNews - Most Recent Press Release
The median price paid for a Bay Area home rose to a record $628,000 last month. That was up 1.0 percent from March’s $622,000, and up 7.2 percent from $586,000 for April a year ago. Last month’s year-over-year increase was the lowest since August 2003 when the $447,000 median was also up 7.2 percent.

DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $3,048 in April. That was up from $2,958 in March, and up from $2,659 for April a year ago. Adjusted for inflation, mortgage payments are 20 percent higher than they were at the peak of the prior cycle sixteen years ago.

So you know those Capital One credit commercials where end asking “What’s in your wallet?”

For the Bay Area, I guess that’d be “NOTHING.”

(Thanks to http://sonomahousingbubble.blogspot.com/ for the find)