4 ms·

Housing is generally expensive everywhere in California. I know the Bay Area is even more expensive still, but pricing is a major concern beyond the local econ

Housing is generally expensive everywhere in California. I know the Bay Area is even more expensive still, but pricing is a major concern beyond the local economy. If their first-time home buyer assistance eliminates all down payments it would be helpful. This is what got me into my house as an owner, but then the total value of my house where I live is the equivalent to half a garage in San Jose.

sokoloff 7y ago
I’m conflicted about zero down payment programs. Obviously, it lets more people qualify to buy, but I’m not sure that having a lot of people with zero skin in the game and no demonstrated track record of accumulating savings is a good thing. What happens when a $5K recurring maintenance item comes up? What happens when a $20K repair comes up?
- lotsofpulp 7y ago
  The bigger problem is that it masks the real problem. Insufficient income to save for the down payment in the first place. It’s a nice way to keep people treading water for their whole lives.
- austincheney 7y ago
  You still have to qualify for the home loan just the same as somebody who does have a down payment. The only difference is a higher monthly rate in the term amount since 100% of the principle is remaining. A bank's risk calculations don't change simply because the borrower has fewer liabilities. To assume home loans are simply given away to everybody because the down payment is absent is ignoring how the process actually works.
  - sokoloff 7y ago
    I don’t assume that loans are given away to everybody without qualification and I’m unclear where you got that idea from my text. There are other differences in zero down payment situations. Having (or wanting) to sell the house in a few years makes it more likely the seller will need to bring cash to closing (as the lack of down payment makes it likely that the sales proceeds after commission won’t cover the loan balance). This can “trap” people in their home, desiring to sell to improve their life in some other way but forced to choose between doing that with the 7 year short-sale black mark on their credit report or staying put. This same phenomenon makes a zero down loan more risky to the note holder, making it more likely that the effective interest rate will be higher.
    - austincheney 7y ago
      Again, that isn't how the mortgage industry works. The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. Interest rate, on the other hand, is determined by all manners of risk factors, but not so much the down payment. Typically the bank assesses the risk of the applying borrower using things like employment history, financial factors, credit history, and other factors allowed by law. Fortunately, my 0 down situation comes with no PMI and a low interest rate.
      - sokoloff 7y ago
        PMI, though often split out as a separate line item and sometimes paid to a different party, serves to increase the effective interest rate on the loan. That is how the mortgage industry works. > The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. PS: The mortgage "note holder" is the lender, not the borrower. In the quoted paragraph, you should replace the first two uses of "note holder" with "borrower". That "percentage fee" is exactly what makes the effective interest rate higher.
lotsofpulp 7y ago
If prices are too high, then supply must be increased and/or demand decreased. If prices are too low, then supply must be decreased, and/or demand increased. Any other attempt at manipulating prices will result in distorting the market and price obfuscation will lead to a suboptimal allocation of resources (usually to the benefit of sellers). For examples of problems with manipulating prices outside of supply/demand, see higher education costs, home costs, taxi medallions, and traffic jams.
- austincheney 7y ago
  The economics of supply and demand work very differently when supply is fixed. You cannot create more land regardless of the demand. More buildings upon that land means more space and thus a longer commute with increased traffic.
  - lotsofpulp 7y ago
    The supply of areas with sufficient economic opportunities to make them desirable can be increased, at least within the US, in my opinion. Also, the supply of dwellings in a given land area can be increased by building up. However, you are correct that the supply of land for single family homes with garages, driveways, and yards, within commuting distance to a major city is supply constrained. But the solution is still to shift supply and demand curves.
    - austincheney 7y ago
      This is a distraction. The bay area's problem is not demand and not so much supply. Seattle area has much greater supply limitations with far less of a housing crisis. The largest problem is pricing. This is true even in economically depressed areas of California. The state of taxes in California encourage price inflation: high income taxes and low property taxes. That is a property owner's and land lords dream. On the contrary if income taxes were sacrificed for increase in property taxes real estate holdings and value both become cost prohibitive. In this case increase value only benefits an owner when selling, but otherwise is prohibitive. This causes people to seek lower value properties, without regard for selling price, and for people to petition the tax assessor for value depletion of their property holdings. Without realistic pricing controls it only makes sense for a property owner to continuously increase the value of their property.
swiley 7y ago
That just sounds like it will create the same problem we have with student loans.

sokoloff 7y ago

I’m conflicted about zero down payment programs. Obviously, it lets more people qualify to buy, but I’m not sure that having a lot of people with zero skin in the game and no demonstrated track record of accumulating savings is a good thing. What happens when a $5K recurring maintenance item comes up? What happens when a $20K repair comes up?

lotsofpulp 7y ago
The bigger problem is that it masks the real problem. Insufficient income to save for the down payment in the first place. It’s a nice way to keep people treading water for their whole lives.
austincheney 7y ago
You still have to qualify for the home loan just the same as somebody who does have a down payment. The only difference is a higher monthly rate in the term amount since 100% of the principle is remaining. A bank's risk calculations don't change simply because the borrower has fewer liabilities. To assume home loans are simply given away to everybody because the down payment is absent is ignoring how the process actually works.
- sokoloff 7y ago
  I don’t assume that loans are given away to everybody without qualification and I’m unclear where you got that idea from my text. There are other differences in zero down payment situations. Having (or wanting) to sell the house in a few years makes it more likely the seller will need to bring cash to closing (as the lack of down payment makes it likely that the sales proceeds after commission won’t cover the loan balance). This can “trap” people in their home, desiring to sell to improve their life in some other way but forced to choose between doing that with the 7 year short-sale black mark on their credit report or staying put. This same phenomenon makes a zero down loan more risky to the note holder, making it more likely that the effective interest rate will be higher.
  - austincheney 7y ago
    Again, that isn't how the mortgage industry works. The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. Interest rate, on the other hand, is determined by all manners of risk factors, but not so much the down payment. Typically the bank assesses the risk of the applying borrower using things like employment history, financial factors, credit history, and other factors allowed by law. Fortunately, my 0 down situation comes with no PMI and a low interest rate.
    - sokoloff 7y ago
      PMI, though often split out as a separate line item and sometimes paid to a different party, serves to increase the effective interest rate on the loan. That is how the mortgage industry works. > The increased risk that you speak of does exist and is an additional charge on the note called Private Mortgage Insurance (PMI). It is a percentage fee the note holder pays to the mortgage company for an insecure transaction, such as low down payment. It is automatic and at set rates and the note holder doesn't get a voice. Either way the mortgage holder is financially secured. PS: The mortgage "note holder" is the lender, not the borrower. In the quoted paragraph, you should replace the first two uses of "note holder" with "borrower". That "percentage fee" is exactly what makes the effective interest rate higher.

lotsofpulp 7y ago

If prices are too high, then supply must be increased and/or demand decreased. If prices are too low, then supply must be decreased, and/or demand increased. Any other attempt at manipulating prices will result in distorting the market and price obfuscation will lead to a suboptimal allocation of resources (usually to the benefit of sellers). For examples of problems with manipulating prices outside of supply/demand, see higher education costs, home costs, taxi medallions, and traffic jams.

austincheney 7y ago
The economics of supply and demand work very differently when supply is fixed. You cannot create more land regardless of the demand. More buildings upon that land means more space and thus a longer commute with increased traffic.
- lotsofpulp 7y ago
  The supply of areas with sufficient economic opportunities to make them desirable can be increased, at least within the US, in my opinion. Also, the supply of dwellings in a given land area can be increased by building up. However, you are correct that the supply of land for single family homes with garages, driveways, and yards, within commuting distance to a major city is supply constrained. But the solution is still to shift supply and demand curves.
  - austincheney 7y ago
    This is a distraction. The bay area's problem is not demand and not so much supply. Seattle area has much greater supply limitations with far less of a housing crisis. The largest problem is pricing. This is true even in economically depressed areas of California. The state of taxes in California encourage price inflation: high income taxes and low property taxes. That is a property owner's and land lords dream. On the contrary if income taxes were sacrificed for increase in property taxes real estate holdings and value both become cost prohibitive. In this case increase value only benefits an owner when selling, but otherwise is prohibitive. This causes people to seek lower value properties, without regard for selling price, and for people to petition the tax assessor for value depletion of their property holdings. Without realistic pricing controls it only makes sense for a property owner to continuously increase the value of their property.

swiley 7y ago

That just sounds like it will create the same problem we have with student loans.