Rising interest rates / housing market scares me

[adios]

Wachovia Shares Fall on Golden West Deal

Wachovia paid a hefty premium to book value for Golden West in a deal that was announced today. From the article:

Golden West earned $1.5 billion last year, primarily from making the adjustable rate mortgage loans that have been its bread and butter for decades.

Golden West is basically an S&L making loans for California real estate. Wachovia saw value in Golden West, perhaps things aren't as bleak in California real estate as many believe.

[laserboy]

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Wachovia Shares Fall on Golden West Deal

Wachovia paid a hefty premium to book value for Golden West in a deal that was announced today. From the article:

Golden West earned $1.5 billion last year, primarily from making the adjustable rate mortgage loans that have been its bread and butter for decades.

Golden West is basically an S&L making loans for California real estate. Wachovia saw value in Golden West, perhaps things aren't as bleak in California real estate as many believe.

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adios,

Golden West Financial is a legend in the banking community for their fiscal responsibility and disciplined lending practices. Their all time worst loss ratio of 18 basis points is better than most banks' all time best. They make it a policy not to lend in areas that have had the highest price appreciation or to lend more money than the borrowers can afford to repay.

In short, they are the polar opposite of the pump'n dump crooks at Ameriquest who will basically hand out a loan to anyone who can fog a mirror.

There is a great discussion of Golden West Financial and their foudners, Herbert and Marion Sandler, in Peter Lynch's book "Beating the Street". He describes how their sound lending practices allowed them to thrive during the S&L crisis while the banking industry was collapsing around them. Peter Lynch practically made a living investing in regional thrifts during the heydey of the Magellan fund and he had nothing but adulation for Golden West and the Sandlers.

[DesertCat]

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Golden West Financial is a legend

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What he said. And note that the Sandlers, the savviest operators in the history of S&L's, have chosen now to sell out. They are in their 70s, but I'm suspicious of the timing.

[DesertCat]

Fortune has an article on real estate right now.

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San Diego: Since opening in October, The Point 92103 a 48 unit condo, had sold a meager two apartments. The developers cut the list price on one bedroom from $349,000 to as low as $299,900 and lured outside brokers with rich 5% commissions. So far the moves have led to just one sale.



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I hope you are negotiating a huge discount to asking price on your condo. According to Fortune, San Diego's homes are an average of 67% over priced. I believe they are using income ratios for this estimate.

[SoCal11053]

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If you need a place to live, why not rent? Price/rent ratios are at historic lows. Not only do you avert the risk of a major housing collapse and the burden of onerous mortgage payments, you'll also get to pocket an extra $1000-$1500/month in savings.

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I'll add to this the property taxes and HOA fees you'll avoid by renting as well - not to mention maintainence expenses.

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This is basically the bottom line, if you can rent far cheaper than what it costs to own then it has to be better to rent. Where that threshold happens to be is open to debate but there certainly is a threshold.

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[KaneKungFu123]

If you have to live in SD then just rent for now. As for where to invest your money, I think international ETF's probably will make the safest bet. otherwise gold/oil but that could get bumpy.

if you wait for gold/oil to pullback and then get it, it should be less bumpy.

[Indiana]

While this may be a general trend, housing in San Diego will never go busto. You are likely making a purchase that will be an easy profit sale before the end of your ARM. There is no shortage of people like me here in Indiana/Midwest that will continue moving out to Cali for the weather, food, and biotches, even if it means that we will go broke doing it. I only stay here because of the 3.4% flat state tax and the low cost of living, but most of my friends are either out there or in the process of moving there. Its all good.

Indy

[Indiana]

In addition, I think the people that should be really worried right now are those in overpriced markets in the northeast because who the hell wants to live in a place like Boston anyway. I don't care if they are giving condos away up there, I would never move there. Bad weather, stinky people, that's the market I would not buy into right now. As for Cali, its always going to be hot. I'll personally buy your condo before it gets too low in price, and I'll buy it in cash.

Indy

[DesertCat]

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While this may be a general trend, housing in San Diego will never go busto.

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Cali has gone "busto" at least twice before. When I lived there (in the early 90s) I had a friend who owned a townhome that was underwater for 7 years! Should OP buy if he can rent the exact same condo for thousands of dollars less a year?

[Indiana]

Well I'm cool with renting for sure. I'm just saying that SoCal is not Boston. Housing values will certainly flatten out, but how can there be a crash of any sort? There are so many people like my wife and myself who are just eyeballing the San Diego market and waiting for a 20% drop so that we can swoop in and buy a condo in Del Mar. On the other hand, we hate the northeast and its residents and would never consider bailing out that overpriced market. Hell, I have like 5-6 colleagues who talk daily about moving back to San Diego if the prices ever go down a little. Bottom line is that San Diego is a very desirable housing market and it wouldn't take much of a drop in housing prices for lots of people like me to jump in and start buying condos.

Indy