Sure there are people who can put 20% down, but I think you exaggerate. The median income here is not that high at $70K/year. Even if you’re a DINK, and have saved up a quarter mil, you can just barely afford a 1M house, which we’ll all agree is rather modest around SF, certainly.

I saw some great stat that showed that something like 12% of bay area households earn enough money and have enough of a down payment to afford a $1M house. 12%. That’ll cover SF and the nicer ‘burbs on the Peninsula, and maybe have enough people left over to populate Piedmont. The rest of the East Bay is going down if loans get more restrictive.

David

Yeah, I definitely agree with the 12 percent figure. A million dollars is a lotta money! But just as a data point, for example, the median home price in Contra Costa County is $620,000, so wouldn’t there be more people, especially DINKs, now that you mention them, who could make a 20 percent down payment?

Could you explain a little more about your last sentence, “The rest of the East Bay is going down if loans get more restrictive?” Sorry if this is a stoopid question, but do you mean the rest of the East Bay is going down in price?

A couple of comments:

The proposed plan does not make loans more restrictive; it makes a class of loan not previously available to many buyers in the bay area available. All other credit vehicles will remain available. The value of the package is that at the margin, affordabity increases. The difference in the rates between conforming and non-conforming loans results in an 11% difference in the monthly payment. At the $1.0m purchase point, it is like boosting income by $20,000 per year for qualifying purposes.

So, if the plan has the impact of making some homes more affordable, prices will be supported (will not fall or will not fall as fast). While the stabilization or support of prices may not be good for buyers seeking lower prices, does not the ability of sellers to sell and put money in their pocket to subsequently spend provide economic stimulus?

The risk I see to raising the limit is two fold: as previously noted, the plan does nothing to help those in loan distress; and, the potential for existing borrowers with good, but not great, loans and good credit and equity, to refinance their loans solely to reduce the cost. Will the savings then be injected into the economy?

As a side note, I certainly feel that increasing the conforming limit to account for cost differentials is good policy.

I really don’t think there are that many people sitting around with $100-200k+ (liquid) that didn’t already jump into the housing market in the past 5 years who are now contemplating it and will be helped by this proposal. No way. Problem is I don’t know where that information can be extracted from, if at all.

Janis, are there people who can put 20% down? Sure, some. But not enough to jump-start a falling economy and save it from recession.

Curious, I agree with many of your points - very good points. But I am not convinced (if this passes, which news today makes me think it might die as is) that the large 1+% current spreads betw conforming and jumbo will remain that large for the rest of the year, which makes this even less attractive to the few it may help.

“does not the ability of sellers to sell and put money in their pocket to subsequently spend provide economic stimulus?”

Exactly, this is good for sellers, not for buyers. Based on price/income ratios, it’s clear home prices must drop further. This plan will just delay this process. What’s worse, is that this is only a temporary measure which will expire in one year. After that, look for prices to continue to drop further. Therefore, based on the increased demand and still elevated prices, it makes very little sense to buy at this time.

“I certainly feel that increasing the conforming limit to account for cost differentials is good policy.”

And how about the 250K tax exemption when selling? Why don’t we increase that also, just to be fair you know.

and Janis… thanks for using my previous comments as new post material. I am flattered.

“I really don’t think there are that many people sitting around with $100-200k+ (liquid) that didn’t already jump into the housing market in the past 5 years who are now contemplating it”

I am in exactly this situation, and am now LESS inclined to buy since the market now is being artificially pumped up with this limit increase.

What I mean is that with flat to slightly lower prices for upper-end homes, those houses will be bought by the “move-up” buyer. However, if loans are getting more restrictive, the number of buyers available for cheaper, “starter” homes (mostly in the East Bay) will drop. If the number of buyers for starters drop, prices will drop.

I don’t think that this move in any case will pump up the market again. Never in history has a bubble been “reflated.” It might slow down the decline, but prices will still decline, in a nominal basis for “subprime” neighborhoods that saw the greatest %% run-up, and at least on a real, inflation-adjusted basis in nicer ‘hoods. Although, again with how huge this past run-up was, I would expect nominal declines throughout the area.

David

Yes, yes, David, you’ve really hit the nail on the head, and I’m glad someone said that! Realistically speaking, in my opinion, trying to stop the decline is like trying to get a tsunami to back up. Not gonna happen.

I do feel that the government, the lenders and everyone involved has a responsiblity to do everything possible to help people save their homes. To me, this is the most important thing.

Also, good to hear from you, curious. I’m with you in thinking that As a side note, I certainly feel that increasing the conforming limit to account for cost differentials is good policy.

Meanwhile, I predict that prices in Contra Costa County and other parts of the Bay Area will continue to decline throughout 2008 and then stay low, but not drop further, for another five years or so. What do you think?

“I do feel that the government, the lenders and everyone involved has a responsiblity to do everything possible to help people save their homes. To me, this is the most important thing.”

Ever hear of moral hazard? The governement should not be in the business of bailing out irresponsible buyers/lenders so they can save their homes. Let them rent and learn from their mistakes. It’s not going to kill them.

But Doug! I think back on when I bought my house. I had never owned a house before, and though I did do the math to make sure I could make the payments, I had only the most hazy idea of how the whole lending process worked. My loan broker pulled a nifty deal where I got a second mortgage and hence avoided PMI. I didn’t have the slightest idea that such a thing as PMI even existed.

I was lucky - he was an honest guy looking out for me. Doug, I’ll tell you, as I tried to negotiate the maze of completely unfamiliar elements - appraisal! Home inspection! Loan qualification! Title insurance! - if he had steered me to an interest-only or ARM, God help me, I shudder to think where I would be today. You know?

Janis, with all due respect, you are an adult. And as an adult, you need to be responsible for the things you do in your life. If you make a mistake, you should own up to them, and deal with the consequences, rather than blaming others and expecting the government to bail you out. As for your scenario, let’s say you were upside down, and had to walk away from your house. And then you’d rent for a while. So what? That’s not the worst thing that can happen.

And one more thing about what you “shudder to think”. Why don’t you look at the bright side? Let’s say you lost the house and had to rent for a while. Wouldn’t that be a great lesson to teach your kids and grandkids? Contrast that to getting bailed out by the government; then you might just repeat your behavior because you’d expect the government to just bail you out whenever you got in trouble. And you wouldn’t have such a great lesson to teach the future generation. And that Janis, is what moral hazard is all about.

i read somewhere that this is only valid until dec 31, 08. if true…what does it all mean and whats the point, again?

Yes, catsjellicle, you are absolutely correct. The $150 billion economic stimulus program approved Tuesday by the House of Representatives would, among other things, raise the conforming loan limit to as much as $729,750 — but only until the end of 2008.

Glad you brought that up, as it’s an important consideration. BTW, for accurate, detailed and up-to-date info answering questions like this, Inman News, www.inman.com, is a great resource, among others. It’s a real estate news site.

Why is the increase temporary? Might legislators decide to make it permanent? I’d be interested to hear what some of the well-informed and opinionated readers here think.