A good sign for Los Angeles real estate?
New mortgage tools, such as Interest-only loans or ARMs, have made it much harder to determine the 'real' value of real estate. That's because creative financing makes it easier for marginal buyers to bid up the price of a home, possibly inflating the real value of a home. Additionally, more and more home appraisers claim that mortgage originators only work with those that are willing to over-appraise houses, again possibly inflating the real value of real estate.
In the 80's, when similar loan programs were offered in California, these mortgage tools resulted in a default rate that was 3 times higher than conventional mortgages according to UBS mortgage strategist, David Liu.
Lots of defaulted loans will ultimately push home prices lower.
According to BusinessWeek writer, Peter Coy, "If lots of your prospective neighbors are taking out loans with low initial payments but much higher costs down the road, it could mean that they're stretching to buy houses they otherwise couldn't afford. That's a sign of an overpriced market."
In 2004 in San Diego, 48% of mortgages were financed with interest-only mortgages. San Francisco stood at 45%. Los Angeles didn't even make his list.
While that doesn't mean that there isn't some bubbling in the Los Angeles real estate market, it does indicate that there appears to be much less speculation in Los Angeles than in the other hot markets of California.
That's good news for Angeleno home owners.
In the 80's, when similar loan programs were offered in California, these mortgage tools resulted in a default rate that was 3 times higher than conventional mortgages according to UBS mortgage strategist, David Liu.
Lots of defaulted loans will ultimately push home prices lower.
According to BusinessWeek writer, Peter Coy, "If lots of your prospective neighbors are taking out loans with low initial payments but much higher costs down the road, it could mean that they're stretching to buy houses they otherwise couldn't afford. That's a sign of an overpriced market."
In 2004 in San Diego, 48% of mortgages were financed with interest-only mortgages. San Francisco stood at 45%. Los Angeles didn't even make his list.
While that doesn't mean that there isn't some bubbling in the Los Angeles real estate market, it does indicate that there appears to be much less speculation in Los Angeles than in the other hot markets of California.
That's good news for Angeleno home owners.
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