California First-Time Buyers on the way to Extinction

Can you think of a better scenario for first-time buyer extinction than:

• The average cost of a house is $600K. Entry level condos $350K.
• No 100% financing
• Tighter lending standards based on verifiable income and higher FICO scores.

Gone are the hay days of 80/20 notes, over-stated appraisals, taking a buyers word that their $50K income is really $75K.

It’s DejaVu all over again.

Seriously, here in the San Ramon Valley and TriValley areas of California, the first-time buyer may soon be an extinct species. The housing affordability in this area is heading downwards of 20%. Jeff Davi, the California Commissioner of Real Estate, says the situation is a crisis. The Governator sees the state’s infrastructure in crisis and higher on the list of priorities.

How much of this state’s economy is driven by housing? A lot. When first-time buyers become extinct and are no longer entering the market to push move-up buyers out of entry level homes – what will the impact be?

Condos are going up faster in Dublin, CA than prairie dog holes in Wyoming. Are we about to have a condo glut - the likes of which have not been seen in this area for years??

The subprime apocalypse may soon be upon us. The National Association of Realtors just revised their time line for a housing market turn around to 2008. In the following days, Wells Fargo, WaMu, Countrywide and First Franklin all announced the discontinuation of the 2/28 subprime mortgage products. In the same period, about $2 billion dollars of subprime losses are acknowledged by major players.

Any day now we can expect a new NAR timeline on the housing market recovery. It makes me wonder if anyone at the NAR is actually involved in any critical analysis of what is really happening.

The population of California grows by 400,000 people a year just from instate reproduction. The most obvious scenario for California first-time buyers seems to be –  mom and dad pull $50K to $100K of equity out of their house to help the kid get started.

Am I overreacting? I don’t know. This whole subprime thing seems primed to make Enron and all the other economic messes of 2001 look like walks in the park.