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alstry (35.03)

How Low Will The Banks Go?????

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April 27, 2008 – Comments (1)

“The banks are so eager to unload repossessed houses that they’re discounting them at 40% to 60% below market value and selling them, generally speaking, in ‘as is’ condition.”

http://www.latimes.com/business/la-re-foreclose27apr27,1,5576420.story

Folks, we are still in the busy Spring selling season.  Default notices are increasing rapidly which means more inventory is coming back to banks in coming months.  As sales slow even further, and inventory keeps rising and rising, expect even further price concessions.

Not only that, the economy is still supposedly strong.  Imagine what happens when the layoffs really start kicking in.  States and Municipalities are just starting to cut back.  Month after month tax revenues keep declining.

If we reach the super saturation point of inventory supply, simply too much inventory for demand to absorb...we could see unheard of price reductions.

In Florida, maintenance costs on a luxury condo runs about $1600-$1800 per month for taxes, insurance, and HOA fees.  In many cases, the condo can't rent for $1600 per month due to excess supply vs. demand.  For a cashflow oriented investor, he would not even take that unit if you gave it for free. 

In Miami, after new condo are completed in upcoming months, we could be looking at over 15 years of supply on the market for sale.  How low do you think the banks will go in that environment?

1 Comments – Post Your Own

#1) On April 27, 2008 at 10:41 PM, dwot (97.03) wrote:

Looking at the link some of those prices still seem high to me.  1190 sq ft for $350k?  I suppose my hubby is in that many square ft right now and I think people that own them want about $400k. 

A $350k home requires a $70k deposit and a $280k mortgage.  That is still a lot of money. 

The idiot banks would probably quality you on about $70k of household income with $70k down, but from my sensible lending standards post I think a minimum of about $84k of household income, and I wouldn't personally do it with less than about $140k of household income. 

I would not take on debt more than 2x my household income, but that also has to do with my age.  If I was 10-15 years younger then perhaps 2.5 time household income at today's rates, so $112k of household income. 

But, with existing qualifying standards for prime, 20% down and 30% of household income a $280k mortage on $70k of income would keep you house poor for life.  Even at the $84k I suggest as an absolute minimum this would not be easy.  

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