Houses and Commodities Trading

Houses and Commodities Trading

Commodities are items of value and uniform quality produced in large quantities and sold in an open market. Although every residential real estate property is unique, these properties became uniformly desired by investors because all real estate prices rose during the Great Housing Bubble. The commoditization of real estate and the active, open-market trading it inspires caused houses to lose their identity as places to live and call home. Houses became tradable stucco boxes similar to baseball playing cards where buying and selling had nothing to do with possession and use and everything to do with making money in the transaction.

In a commodities or securities market, rallies unsupported by valuation measures will fall back to fundamental values. It is very clear the rally in house prices was not caused by a rally in the fundamental valuation measures of rent or income. Many people forgot the primary purpose of a house is to provide shelter — something which can be obtained without ownership by renting. Ownership ceased to be about providing shelter and instead became a way to access one of the world’s largest and most highly leveraged commodity markets: residential real estate.

Commodities markets are notoriously volatile. In fact, this volatility is the primary draw of commodities trading. If market prices did not move significantly, traders would not be interested in the market, and liquidity would not be present. Without this liquidity, hedgers could not sell futures contracts and transfer their risk to other parties, and the whole market would cease to function. Commodities markets exist to transfer risk from a party that does not want it to a party who is willing to assume this risk for the potential to profit from it. The commodities exchange controls the volatility of the market through the regulation of leverage. It is the exchange that sets the amount of a particular commodity that is controlled by a futures contract. They can raise or lower the amount of leverage to create a degree of volatility attractive to traders. If they create too much leverage, trader’s accounts can be wiped out by small market price movements. If they create too little leverage, traders lose interest.

The same principles of leverage that govern commodities markets also work to influence the behavior of speculators in residential real estate markets. If leverage is very low (large downpayments or low CLTV limits,) then speculators have to use large amounts of their own money to capture what become relatively small price movements. If leverage is very high (small downpayments or high CLTV limits,) then speculators do not have to put up much money to capture what become relatively large price movements. The more leverage (debt) that can be applied to residential real estate, the greater the degree of speculative activity that market will see. Also, the smaller the amount of money required to speculate in a given market, the more people will be able to do so because more people will have the funds necessary to participate. When lenders began to offer 100% financing, it was an open invitation to rampant speculation. This makes the return on investment infinite because no investment is required by the speculator, and it eliminates all barriers to entry to the speculative market. In a regulated commodities market, the trader is responsible for all losses in their account. In a mortgage market dominated by non-recourse purchase money mortgages, lenders end up assuming liability for losses in the speculative residential real estate market. This is a fantastic deal for speculators; for the lenders… not so much.

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{adsense-ir}

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Today’s featured property is a classic example of speculation in the residential real estate market. When this seller was a buyer, they utilized 100% financing right at the peak of the bubble. Now that resale values have gone south, the speculator is letting the property go into foreclosure, and the lender is going to be left holding the bag.

63 Copper Leaf Kitchen

Asking Price: $575,000IrvineRenter

Income Requirement: $143,750

Downpayment Needed: $115,000

Monthly Equity Burn: $4,791

Purchase Price: $733,000

Purchase Date: 10/5/2006

Address: 63 Copper Leaf, Irvine, CA 92602

Beds: 3
Baths: 3
Sq. Ft.: 1,656
$/Sq. Ft.: $347
Lot Size:
Type: Single Family Residence
Style: Other
Year Built: 1999
Stories: Two Levels
Area: West Irvine
County: Orange
MLS#: P624528
Status: Active
On Redfin: 11 days

Terrific Location in Irvine–conveniently close to parks, schools, shopping, dining and entertainment. Beautiful landscape/hardscape done by professionals in the backyard. Hardwood floors throughout first floor.

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{adsense-ir}

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If the lender gets the asking price on this one, they stand to lose $192,500 after a 6% commission. This also assumes the borower is current on the mortgage and there is not a large amount of deferred payments adding to the balance due. All part of the price these lenders paid for enabling people to trade houses as commodities and assuming the risk of loss.

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Nine Inch NailsGod money Ill do anything for you.

God money just tell me what you want me to.

God money nail me up against the wall.

God money dont want everything he wants it all.

Head like a hole.

Black as your soul.

Id rather die than give you control.

Head like a hole.

Black as your soul.

Id rather die than give you control.

Bow down before the one you serve.

Youre going to get what you deserve.

Bow down before the one you serve.

Youre going to get what you deserve.

God moneys not looking for the cure.

God moneys not concerned with the sick among the pure.

God money lets go dancing on the backs of the bruised.

God moneys not one to choose

No you cant take it

No you cant take it

No you cant take that away from me

Head Like a Hole — Nine Inch Nails

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71 thoughts on “Houses and Commodities Trading

  1. AZDavidPhx

    733K for this place? Seems like kind of a rip-off.

    But then again, it’s on the banks dollar so “oh well”.

    It will be nice to see the return of days when people have to look at the house price in the big picture rather than the monthly payment to rent it from the bank.

    Mortgages going to people with not even a buck to put down.

    I love it. Let the bank eat it.
    —–

  2. George8

    Orange County Inventory (Sales) 2008
    Tracking Orange County, California

    Population 2007: 3.10 million
    01/01/2007 Listing per population ratio 1:244
    09/30/2007 Listing per population ratio 1:155

    01/2007: 13,302 (2,400)___01/2006: 8,430 (2,868)
    02/2007: 13,704 (2,449)___02/2006: 10,420 (2,928)
    03/2007: 15,324 (3,130)___03/2006: 11,762 (4,203)
    04/2007: 17,094 (2,682)___04/2006: 13,268 (3,563)
    05/2007: 18,353 (2,675)___05/2006: 15,048 (3,762)
    06/2007: 19,263 (2,641)___06/2006: 16,692 (3,862)
    07/2007: 19,470 (2,391)___07/2006: 17,458 (2,982)
    08/2007: 19,996 (2,281)___08/2006: 17,758 (3,456)
    09/2007: 20,039 (1,643)___09/2006: 17,475 (2,919)
    10/2007: 19,599 (1,700)___10/2006: 16,650 (2,929)
    11/2007: 18,731 (1,567)___11/2006: 15,188 (2,867)
    12/2007: 17,161 (1,731)___12/2006: 13,220 (2,985)

    Population 2008:
    01/10/2008 Listing per population ratio 1:186

    01/10: 16,673
    01/31: 17,151 (1,286)___01/2007: 13,302 (2,400)
    02/29: 17,140 (xxxxx)___02/2007: 13,704 (2,449)
    03/10: 17,300

    Inventory numbers are listed first followed by sales figures in parenthesis, with corresponding inventory and sales information from prior year to the right. Inventory include SFR, Condos, MFR, and land parcels, data obtained from ZipRealty. Sales include new and resale homes from DataQuickNews.

    http://bubbletracking.blogspot.com/

  3. CapitalismWorks

    There are a few mistakes in the analysis in relation to commodities.

    1) Commodoties indices exhibit the same level of volatility as equity markets (GSCI vs. S&P500)

    2) Investors in commodity future so not invest purely for speculation. Many investors, such as oil refiners, do so to smooth costs over time and ensure adequate supply for production. This is why commodities will, at time, trade in contango.

    3) One of the key facets of the futures exchanges is the liquity of the market. This liquity is not the result of volatility (that connection is absurd). The liquidity is the result of natural shorts (farmers, miners, ranchers, etc), and natural longs (consumers, distributors, refiners, etc.).

    4) The commodities DOES NOT control the volatility of the market. The free markets, buyers and sellers, control the volatility of the markets.

    5) Most futures investments are fully collateralized positions. You imply that leverage is the motivation behind commodities investing. This is simply untrue. Aside from natural longs in the markets, investors enter into the markets in an effort to improve portfolio diversification.

    6) Commodities have Intrinsic Value (not fundamental value).

  4. IrvineRenter

    I don’t want to turn this thread into a debate on commodities trading, but since you chose to correct my “errors” I will correct the errors in your corrections.

    “Investors in commodity future so not invest purely for speculation.”
    There are two types of commodity traders: speculators and hedgers. Hedgers want to transfer risk, and speculators want to take it on. The oil company example is a hedger. There are no cashflow investors in the futures markets.

    “This liquity is not the result of volatility (that connection is absurd).” Without volatility, there would be no speculator interest and therefore no liquidity. The connect is direct and accurate.

    “The commodities DOES NOT control the volatility of the market.” The exchanges directly control the degree of leverage on all traded commodities in order to set the degree of volatility to a range to entice speculators without wiping them out. The actual volatility is a function of market action, but the long-term degree of volatility is controlled by the exchange.

    “Most futures investments are fully collateralized positions. You imply that leverage is the motivation behind commodities investing.” I can control a $40,000 futures contract on the Dow emini for $500 intraday and $4000 overnight. That is 80:1 leverage intraday and 10:1 overnight. My account balance and contract with the exchange promising to pay any losses is the only “collateral” in the deal. This extreme leverage is exactly why speculators trade futures.

  5. ConsiderAgain

    Thank you IR for your on-going discussion and clarification of the elements contributing to our current housing market.

    In regard to today’s poll, I was not able to find an answer to vote on. I do not find “play(ing) the game” immoral; risky yes and incredibly foolish if using your own home, but not immoral. The second choice is silly.

  6. Stupid

    Though there was some speculation, I’d argue that most of the appreciation was just due to the “I want a nice place now!” with no financial planning factor. Kinda like the “Buy a couch now for 0% down and no payments for 6 months! ” kind of pitch, but for houses.

    Well, at least it didn’t get as crazy as the UK with their 125% mortgages (ie. “buy a couch today and get $100 cash back, and no payments for 6 months!”).

    You’re assuming the average person is way more financial savvy than they actually are…

  7. CapitalismWorks

    “I don’t want to turn this thread into a debate on commodities trading…”

    If you are going to make a comparison between commodities and houses in the perjorative, you sure better understand what you are talking about. The entire basis of the post is an analogy between commodities and housing. I don’t see how you can avoid a discussion of the commodities markets.

    The commodities exchanges DO NOT control the amount of leverage, they set the margin requirement (which must be posted daily based on market movements). It is up to the individual investor how leveraged any one position will be. As I mentioned previously most investors in commodities futures do so on a full collateralized basis (read: Zero Leverage).

    You are going to have to come up with something better than, the exchange sets the margin requirement, and that controls volatility. The CRB has volatility and is a spot price index. Huh, no exchange needed on that one. So why is it volatile?

    “The oil company is a hegder”. Which part, the drillers, the transportation company, the refiner, the gas station. Each are exposed to price risk, and will take on futures positions as appropriate.

    Investors in commodities futures can do so in order to earn the arbitrage implied discounted value of the future spot price and the insurance premium rewarded for taking on price risk. Both of these items compensate investors in futures outside market movements. Ergo, one does not need to speculate on price movements in order to earn a return.

  8. buster

    Capitalism is right on the mark, at least for a lot of people dealing in the commodities market. We use gold in our electronics manufacturing, so we buy futures contracts so we can provide longer-term prices to customers without worrying about the price of sensitive raw materials.

    We also sell a substantial amount of our product overseas and, in the past, have put currency hedges on to protect ourselves from volitile currency markets. So in these two cases, we are doing the OPPOSITE of what IR postulates — we are reducing our risk and eliminating speculation.

    But as IR points out, there can be a lot of pure speculation as well. We’ve took off our currency hedges in early 2007 to “speculate” on the drop in the dollar. So far, we’ve been huge winners. Gets me to thinking — maybe it’s time to put those hedges back on. As they say, pigs get fat and hogs get slaughtered.

  9. tenmagnet

    The redfin link says backup offers accepted.
    Is this one in escrow?
    Don’t see it listed on Ipop’s site either.

  10. IrvineRenter

    “So in these two cases, we are doing the OPPOSITE of what IR postulates — we are reducing our risk and eliminating speculation.”

    Perhaps I needed to add a paragraph on the difference between hedgers and speculators because everyone seems to be getting lost in the distinction. Futures markets exist so hedgers can transfer risk. Speculators must be enticed to the market to provide sufficent liquidity to meet the demands of hedgers. In your example, your company is doing the opposite of what I described because you are a hedger. Nobody who was buying a home during the bubble was acting as a hedger. There is no analogous party, although the lenders took on the counter-party risk, they did not do so out of desire to be a hedger, they did it because they were stupid and did not see the situation they were creating.

  11. IrvineRenter

    “you sure better understand what you are talking about.”

    You are right. I don’t know what I am talking about…

  12. flyovercountry

    Both sides of a futures exchange can be hedgers…. A producer hedges the risk of prices going down after they invest in production (whether it is seeds, calves, or oil wells they had to invest in). And a consumer hedges against prices rising after they make commitments (selling future airline tickets, pricing items in contracts, setting MSRP on new cars).

    Or, both sides of a futures exchange can be speculators that use leverage. One investor things oil is going up, another thinks it is going down. Neither of them actually drills for oil,or even wants to own it.

    I have no idea about the relative number of speculators vs hedgers in futures trading.

  13. SeattleGameboy

    The commodities market was created in the first place to provide a way for people to hedge their risks on both sides.

    For example, an airline will want to lock in the future prices so that they can sell tickets months ahead with guarantees that they won’t lose money on that flight. While on the otherside, the oil producers want to lock in their prices so that they P/L doesn’t swing wildly with prices.

    This kind of trading is what dominates the commodities market, because in the end you HAVE to either buy/sell the commodities at the agreed price.

    Yes, there are a lot of speculators who trade commodities, but the commodity market is run by the people who want to hedge their bets, not by people speculating. And to state otherwise is a gross misrepresentation.

  14. CapitalismWorks

    You are claiming that the only people that purchase commodities futures are speculators playing the price action offered by leverage, furthermore that the exchanges actively set the volatility in the underlying contracts.

    It is NONSENSE.

  15. CapitalismWorks

    I want to add, I love your work and the blog. I am not intending to derail the argument. Speculation was a serious driver of bubble pricing in housing, I just don’t think the link with commodities is accurate.

  16. SeattleGameboy

    Oh Darn,

    That means that we won’t get the usual AZ’ rant like

    “OMG WTF? What crazy knifecatcher is going to pay this price when you can buy a palace in Phoenix for $200k!!!???”

    Too bad…

  17. IrvineRenter

    “You are claiming that the only people that purchase commodities futures are speculators playing the price action offered by leverage”

    Perhaps you read that in to what was stated, but I made no such claim. I agree that speculators are not the only people in the commodities market. The market would not exist if it were not for the hedgers. As I pointed out in a comment below, there is no analogous party to the hedger in the housing market, although lenders assumed the role unwittingly.

  18. IrvineRenter

    “Yes, there are a lot of speculators who trade commodities, but the commodity market is run by the people who want to hedge their bets, not by people speculating. And to state otherwise is a gross misrepresentation.”

    And who are these hedgers selling to? Speculators. The market is necessitated by hedgers, and it exists for hedgers, but if it were not for speculators, the hedgers would not have a counter-party to sell to. Speculators make up the vast majority of the volume on the commodities exchanges.

    http://www.cme.com/files/globalleadership.pdf

    http://www.cme.com/edu/res/intro/futures/index.html

    http://www.cme.com/edu/res/intro/futures/futrhist.html

    http://www.cme.com/edu/res/intro/futures/futrvsstck.html

  19. Surfing in Newport

    All of you are actually miss representing the nature of commodity markets.

    1) The volume of contracts are much larger than the actual products delivered.
    2) This fact says nothing about the amount of speculation vs. hedging that is going on. You could be entering into a contract as insurance with no intention of receiving or delivering the actual goods. That does not make you a speculator.
    3) Margin is provided to entice speculators into the market.
    4) Speculators are required in the market to provide liquidity.

    Speculation can temporarily cause problems in the commodity markets, just like it can in the home market. Speculators have a function in the home market (i.e. flippers) just as in the commodity market. They add liquidity.

    However, one word of advice. If everybody is doing it, whether it’s buying gold or flipping a house, then there are probably no more profits to be made by following that advice. So when a “Expert” comes out and says this is the way to make money it’s already to late to make money that way. I knew that the housing bubble was just about over when shows about flipping houses came out.

  20. tenmagnet

    AZ is a disgruntled Suns fan. Especially now that team is going nowhere and they’re on the hook for Shaq’s bloated contract of $40M over the next two years. Go Lakers!!!

  21. CapitalismWorks

    I think the builders are the natural hedgers in the housing market. They plan production far in advance of delivery and accept small payments (margin) to ensure delivery for a buyer. The discount offered by buying production forward is one of the arguments used to justify the purchase of new homes, because the buyers implicitly picks up a discount from the builder based on the builders’ incentive to lock in price (and smooth earnings which helps for financing).

    So yes there are natural hedgers in the housing market.

  22. SeattleGameboy

    [quote]And who are these hedgers selling to? Speculators.[/quote]

    You are not listening. There are plenty of hedgers on both side of the trade. Most of the hedgers are selling to other hedgers. You DO NOT have to have a trade that involves a speculator.

    Speculators offer additional liquidity. But to suggest that there are speculators on the otherside of every trade, again, is a gross mis-representation of the commodities market.

  23. Lost Cause

    This house, on the face of it, looks like a good deal. But $347/sq ft would turn me away. These buyers are going to be upside down in no time, I’m afraid. This is a starter home. A 3/3 at 1600 sq ft, probably pretty crowded. No way is anyone going to stay in that house for very long, but sadly it will take 8-10 years for this buyer to get to the break even point.

  24. IrvineRenter

    The fact that builders cannot hedge adequately is the main reason Robert Shiller has been working with the Chicago Merchantile Exchange to develop the tradable S&P/Case-Shiller indices. Right now builders cannot hedge themselves for times like right now when house values are plummeting and they have lots of inventory.

    http://cmegroup.mediaroom.com/index.php?s=43&item=603

    I agree with what you are saying about the builder’s hedging by taking contracts prior to delivery. Unfortunately, the hedge isn’t complete as buyers still cancel. It is really more like an a options contract where the buyer’s deposit is the premium.

  25. Mr Vincent

    Not exactly the most attractive house on the block, but I would give 300k for it if I was looking.

    At least they showed us how very small the back yard is with the pics.

  26. Mr Vincent

    This place is the exact same size of a Townhome that I own, but my Townhome has 2 bedrooms.

    I think the patio in my Townhome is bigger than the backyard in that supposed house.

    Yes, I see someone has bought it and probably paid like 550k for it. Total suckers!

  27. ipoplaya

    Got my update done… Some closing prices and found a couple more pending sales/escrows as well:

    http://www.ipoplaya.com/

    At least the Suns took care of San Antone for a night. Too bad the Lakeys choked against Sacto though. The defense has been lagging of late. Gave up 114 to Sac and 111 to Portland…

  28. Emma Anne

    That’s not a back yard; that’s a patio. And you can mow the front lawn with a weedwhacker.

  29. ice weasel

    As much as I hate to invoke Heinlein on any discussion forum I think this quote works here:

    “Sure the game is crooked but it’s the only game in town and the only way to be guaranteed loser is not to play”

    All of which is to say, yes, it’s immoral but by not playing you cede power to others. I wish it were something else but then again, I wish a lot of things were different.

    One of the more annoying contributors here was right when they said effectively the same thing. The real fools sit out and don’t speculate because of some moral objection. They may be moral but they are fools nonetheless. Until there is a moral option, you play the only one you get.

  30. CapitalismWorks

    Regardless of whether or not the hegde is effective, builders are naturally short production. In that sense they are that same as farmers, miners, oil drillers, etc. They need all need to monetize production. The point is your statement regarding the vacuum of hedgers in the housing market is innaccurate.

  31. Kelja

    I sat out the bulk of the bubble thinking the home values overdone. I sold my house in ’02, thinking things might soon return to earth & I’d re-buy. Of course, that didn’t happen – as we all found out. My thinking was right; my timing sucked.

    Sometimes I have to wonder what I would’ve done if I had been a home-owner during the bubble. Would the skyrocketing appreciation, nothing down loans, liar’s loans, HELOCs, etc, clouded my vision. I watched from the sidelines, mainly investing in precious metals, always thinking reality is about to set in and prices would return to normal.

    As much as I marvel at how many made incredibly bad financial decisions during the false housing price spike, I don’t think anyone is immune to a mania. But, just as our grandparents (great grandparents for some) were forever scarred by the Great Depression & changed their attitudes towards risk, the coming collapse will have far-reaching repercussions.

    Thanks for your insightful work – keep it going!

  32. skek

    I agree that the question could have been worded fairer (or additional options offered), but interesting poll results, nevertheless. (62% yes, as I write this.) Especially for this blog.

  33. skek

    I disagree. I don’t think speculation accounted for a majority of residential real estate transactions or anywhere close, but I think the flippers and speculators were a much bigger part of it than you say, both in numbers and impact.

    In terms of numbers, I have been looking for a new house for quite some time, and I’d estimate that 10-20% of the houses we look at are owned by a real estate agent or an LLC that was obviously formed to flip the house (i.e., it’s name is the address of the property — “123 Main, LLC”). Anecdotal evidence, to be sure, but my experience leads me to believe that there were a large number of speculators in the market.

    In terms of impact, even if there aren’t many speculators by volume — if they are bidding up the properties in the hopes of flipping them at a still higher price, those “comps” are going to set the market for all the normal buyers. Accordingly, just one speculator in a neighborhood could adversely affect home prices (and by adverse, I mean drive them higher).

  34. tenmagnet

    Some minor complacency set in those games, so what.
    No need to panic Ipop, they’ll be ready come playoff time.
    You forgot to include the incredible beat down we laid on the Clippers this past Friday.

  35. crucialtaunt

    “Yes, there is nothing to lose and everything to gain. (62%, 156 Votes)”

    Is this for real? Do a majority of IHB readers really believe that what has happened in the housing market was immoral? Have we been collectively brainwashed into “taking riskless profits” by wall street?

  36. zaleriana

    The “123 Main, LLC” type entity is common among small-time builders and redevelopers, too. If it’s a teardown or gut re-hab job, that’s what I would expect to see.

  37. IrvineRenter

    LOL!

    It will be interesting to see what you think of tomorrow’s post on mortgages as options…

  38. IrvineRenter

    When I came up with the poll, I couldn’t think of many other reasons not to participate. I suppose I could have added the risk to one’s credit.

    Interesting indeed that so many would do it. When the system can’t keep honest people honest, you know what impact it must have of the ethically challenged.

  39. JNinWB

    Listing Price History, 9 Utah, Irvine

    Date Price
    Dec 19, 2007 $799,000
    Jan 03, 2008 $765,000
    Jan 09, 2008 $748,000
    Jan 10, 2008 $749,998
    Jan 13, 2008 $738,000
    Jan 16, 2008 $739,000
    Jan 18, 2008 $759,000
    Jan 25, 2008 $750,000
    Feb 09, 2008 $749,000
    Feb 13, 2008 $735,000
    Feb 23, 2008 $725,000

  40. lendingmaestro

    No way in hell this short sale gets approved, especially if the 2 liens are with different lienholders.

  41. ipoplaya

    And your resident Prognasticator of Prices, your Carnack of Current Market, Mr. IPO, said this about Utah’s pricing in early January:

    “Based off the transactions this summer, which would have had this property in the low $800K range, it is probably worth $700-725K in today’s market.”

    They could have saved themselves 10 price changes if they would have just listened to me! I need to get a gig as an Irvine real estate pricing consultant… Just like those fancy shmancy jury consultants that people hire when they are going to trial.

  42. lawyerliz

    I totally agree. I don’t think it’s immoral, I just think it’s stupid, and far too risky for me to get involved with.

  43. ipoplaya

    I think the 1st and 2nd are both with NOVASTAR MORTGAGE INC. I expect they probably get the short price approved before they listed…

    They place is probably worth right around $600K based on very recent comps so someone is getting themselves a little bit of a deal.

  44. moving back

    We’ll be moving back to the area later this year – an avid reader of this and other blogs. What’s the deal with a number of listings raising their prices? Is this just a way to get some market exposure? Or, are the owners using their HELOC’s to buy crack?

  45. mark

    “…just as our grandparents (great grandparents for some) were forever scarred by the Great Depression & changed their attitudes towards risk…”

    Financial crisis tend to scar, don’t they? And they forever change your outlook. Debt is real. It impedes freedom.

  46. houseonlegs

    I think the real estate agents are suggesting to increase prices b/c they are getting so many low ball offers. So if they increase the price and then get a low ball offer, it might be closer to what they were actually hoping to sell for. Then, they all smoke crack while waiting on all the buyers to put in their offers.

  47. Genius

    Good choice of song today IR. One of my favorite songs, from one of my favorite albums.

    You may have to feature one from Broken, the most rage filled album I’ve ever heard, once the decline really gets going.

  48. Genius

    I don’t see any recent similar sales(but I didn’t look very hard); you aren’t basing this off of list prices are you?

    I honestly think they’ll be lucky to get much, if anything, over $500k right now.

    The FED is handing out free money though, so who knows. I want my spot at the discount window; anyone want to start a bank with me?

  49. looker

    I actually been in this home and talk to the parent and the son (owner). I personally don’t like the house, and I can’t imagine why anyone would pay that kind of money in today’s market. The neighborhood is ok, not great, there was a Buick beater park outside with major hood damage. The only thing that caught my attention was the Sony XBR LCD in the house, other than that, nothing special about it. IMO, a fair price would be $475k in west Irvine.

  50. Eric U.

    I voted yes, but I really wouldn’t buy once the house seemed un-affordable to me. I’m guessing there are a lot of “yes” voters just like me.

  51. George8

    Public auction 3/15/2008. I wonder if anyone in or around the area can attend this auction and report to the blog how the auction goes?

    http://www.redfin.com/stingray/do/printable-listing?listing-id=1547680

    3 MAGNOLIA DR
    Mission Viejo, CA 92694
    Price: $429,000

    Buy with Redfin and Save $8,580*
    Beds: 4
    Baths: 3
    Sq. Ft.: 3,116
    $/Sq. Ft.: $138
    Lot Size: 6,000 Sq. Ft.
    Type: Single Family Residence
    Style: Spanish
    Year Built: 2003
    Stories: Two Levels
    View(s): Panoramic, Park or Green Belt
    Area: Mission Viejo South
    County: Orange
    MLS#: M109190
    Status: Active
    On Redfin: 1 day
    New Listing (24 hours)

    ‘PROPERTY TO BE SOLD AT PUBLIC AUCTION EVENT MARCH 15TH AT THE POMONA FAIRPLEX. LIST PRICE IS THE STARTING BID FOR THIS HOME, SUBJECT TO A RESERVE PRICE AND LENDER CONFIRMATION. YOU MAY BID AT THE AUCTION, OR VIA LIVE INTERNET WEB CAST, OR VIA ABSENTEE BID ( WRITTEN OFFER ) SUBMITTED IN ADVANCE OF THE AUCTION. NO OFFERS WILL BE ACCEPTED PRIOR TO AUCTION. HOMES OPEN FOR INSPECTION FROM 10AM TO 4PM ON SAT AND SUN MARCH 8TH AND 9TH. FOR PROPERTY AND AUCTION INFORMATION CONTACT LISTING BROKER’

  52. awgee

    I do not think that speculating on housing is immoral, nor do I think that it comes without risk. I have nothing against flippers. Nor do I think that non-flippers who get caught up in bubble dynamics should be bailed out when they become upside down. I do not think that people who buy a house to live in are any more moral or to be commended than people who buy homes to speculate. I think they all take their chances. I think extremes in real estate cycles would be less extreme in a non-federal reserve fractional banking fiat currency nation, but as long as they exist, it is my intention to take full advantage of them.
    Is this a great country or what?

  53. ipoplaya

    1 Armory Place in West Irvine was 1550sf and closed on 3/1/08 for $578K. It is very comparable…

    47 Carriage, also in WI, closed on 2/11/08 for $707K. It was 2500sf.

    I figure a price somewhere between these two, more toward Amory’s of course, so $600K sounds about right to me.

    The 2200sf place on Carriage that backs to Jamboree has had offers up to $675K…

  54. mmg

    Seatlegameboy

    you should offer 1 mil for that mcPOS, you dont want to be priced out for ever 😆

  55. No_Such_Reality

    Debt used to be very real with very real strings attached that followed you through the community for years.

    Today, getting free of debt is just a “oops, my bad” away and within a month, credit will be re-offered to you.

    We may, very slight chance on the may, see a return to a very harsh creditworthiness or lack thereof follows you when this financial crises plays through and the banks, servicers and investors eat mortgage after mortgage of bad loans and then get to eat maxed credit card after maxed credit card of bad debt.

  56. Food

    In your compiled list, it looks like the ones in escrow are done with the buyers paying top dollars. I wonder what their financial strengths are in making these deals at such steeply declining market. In mere 3 days, the numbers of properties already gone foreclosures increased by 5 to 69. In the same 3 days, the pre-foreclosure has gone up by 10 to 281 as of today. It would make sense if these buyers’ contingent offers are subject to their own sellings of their current residences, or less than 20% down payment. Do you have any information on these?

  57. Genius

    They won’t let it go for under $650k I bet. The lowest $/sqft I see for SFRs in Mission Viejo is a bit above $200.

    It would be a waste of money at that price.

  58. Dianna MacDavid

    This article is from the Calif Assoc. of Realtors web site, basically, if you’re in a position to buy, this summer may be a good time. Dianna:First Team Real Estate, Irvine

    California Leads U.S. in Defaults, Home-Price Decline

    By Daniel Taub and Dan Levy

    March 20 (Bloomberg) — Sacramento may eliminate up to 600 jobs in the city’s first staff reductions in half a century, and the police and fire departments in the California capital may have their budgets cut by 20 percent. The culprit is the collapse of the U.S. housing market.

    California, the birthplace of the subprime mortgage industry, is paying the highest price of any state as the housing meltdown persists. Its gross domestic product will drop 1.5 percent in the first half of 2008, the most in the U.S., analysts at Lexington, Massachusetts-based Global Insight Inc. estimate.

    The state had the most foreclosure filings in the U.S. last year and the biggest fourth-quarter decline in prices, according to RealtyTrac Inc., an Irvine, California-based seller of data on defaults, and the Office of Federal Housing Enterprise Oversight in Washington.

    “The depth and magnitude of what’s happening in the real estate market is really, really grim,” said Russell Fehr, Sacramento’s finance director, in an interview.

    California, the most populous U.S. state and accounting for almost one-seventh of gross domestic product, will lose $25 billion in personal income by the end of 2008 and property values will fall by $630.7 billion, according to forecasts from economist Jerry Nickelsburg at the University of California, Los Angeles, and the U.S. Conference of Mayors.

    Economic `Drag’

    “The housing slump is the real drag on the economy,” Nickelsburg said.

    Almost half of the 25 biggest U.S. subprime lenders were based in the state, according to industry newsletter Inside Mortgage Finance, and almost a quarter of the country’s outstanding subprime loans were issued there, more than in any state, data from San Francisco-based research firm LoanPerformance show. Such loans are made to borrowers with limited or tainted credit histories.

    Prices that more than doubled in California from 2000 to 2005 fueled demand for nontraditional mortgages that allowed people to purchase homes, said Peter Navarro, a professor at the University of California, Irvine. Half of the 10 most expensive metropolitan areas for home prices are in California, according to data compiled by Chicago-based National Association of Realtors.

    “The high home prices here made it very difficult to get into houses unless you started doing really funky things,” Navarro said.

    Foreclosure Filings

    The number of houses and condominiums sold in California plummeted 30 percent in January from a year earlier to 313,580, and the median price for an existing home dropped 22 percent to $430,370, according to the California Association of Realtors. The time it would take to deplete the supply of homes on the market at the current sales rate more than doubled to almost 17 months in January from a year earlier.

    California had 481,392 foreclosure filings on properties last year, the most of any state, said Daren Blomquist, a spokesman for RealtyTrac. Stockton’s metropolitan area had the second-highest U.S. foreclosure rate and Riverside-San Bernardino, Sacramento and Bakersfield ranked fourth, fifth and seventh, respectively.

    In Sacramento, half of the city’s current home sales involve bank-owned property, helping explain why the increase in property tax revenue will slow to 2 percent in fiscal 2008-2009 and may fall in 2010 and 2011, said Fehr, the finance director.

    Bedroom Community

    The resulting reduction in department budgets by 20 percent will cut library-branch hours to 35 a week from 44 and will decrease maintenance in Sacramento’s public parks. To cut as many as 600 jobs, the city will first offer buyouts.

    `We’ve got 200 to 300 employees who are nervous, and with good reason,” said Fehr, who met with bondholders and investment banks last week in San Francisco to assure them that the city will honor its commitments. “This downturn is so sudden and so severe, we’ve got to take extraordinary measures.”

    Vallejo, a bedroom community of 120,000 near San Francisco, was forced to weigh whether to file for bankruptcy in February after declining housing-related tax revenue left it close to insolvency and unable to pay rising labor costs.

    Tax Hit

    The area has been one of the hardest hit by the housing- market slump in Northern California. Home prices in Solano County dropped 21 percent in February from a year earlier, according to La Jolla, California-based DataQuick, which tracks the property market. Almost half of the estimated 334,500 home sales in 2008 will be trustee sales, according to the Norris Group, a Riverside-based firm that buys and sells foreclosed properties.

    Declining prices are crimping property tax revenue throughout the state. Growth in such revenue probably will drop to 6 percent next year and then to 3 percent in 2009-10, according to state forecasts. Each 1 percentage point decline means more than $450 million of lost tax revenue, the state Legislative Analyst’s Office said.

    Under Proposition 13, a ballot measure approved by California voters in 1978, real estate is reassessed to market value only when it changes owners. Otherwise, the assessed value rises by no more than 2 percent a year.

    The real-estate boom led to a 60 percent increase in local property tax revenue from 2002 to 2007, or about a 40 percent advance when adjusted for inflation, the Legislative Analyst’s Office said in its November fiscal outlook.

    More Reassessments

    With no end in sight to the slump, homeowners are racing to get their property revalued to reflect current prices and lower their tax bills. In San Diego County, 11,456 applications seeking reassessments were received last year, more than triple the 2006 number and the most in 10 years.

    Los Angeles County Assessor Rick Auerbach announced today his office is reviewing about 310,000 houses and condominiums purchased since July 1, 2004, for reassessment. Already, 41,000 properties have had their values cut by an average of $66,000 each, Auerbach said.

    “Not only are you going to have a loss in turnovers, but also probably a growing number of reassessments,” said Stephen Levy, director of the Center for Continuing Study of the California Economy, an economic research group in Palo Alto.

    Losing the House

    Harry Subers, a 59-year-old unemployed engineer, said he and his wife “paid way too much” for their house in Ben Lomond. They did it because they love living among the redwood trees of the Santa Cruz mountains, he said.

    After their adjustable-mortgage rate rose last year, their payments climbed 20 percent to $1,900 a month, or more than two- thirds their monthly income of $3,000. The couple put the home up for sale because they could no longer afford it, Subers said.

    Selling turned out to be tougher than they thought since three other nearby homes have languished on the market and one hasn’t sold for three years, he said. They paid $412,000 in 2004.

    “Everything would have been fine if the bubble didn’t pop,” Subers said. “We’re resigned to the fact that we’re going to lose the house.”

    The real estate slump has taken its toll, with more than 31,000 jobs eliminated last year in the subprime mortgage industry by California-based companies, including 12,000 positions at Countrywide Financial Corp. in Los Angeles, 3,200 at New Century Financial Corp. in Irvine, and 2,600 at ACC Capital Holdings in Orange, according to Chicago-based outplacement firm Challenger Gray & Christmas.

    Lost Jobs

    The subprime collapse has spilled over to financial services, where employment fell 6.7 percent in January to 881,800 workers from its December 2005 peak of 945,200.

    Employment declined 6.9 percent in the construction industry to 814,100 workers in January from a year earlier, resulting in a loss of $3 billion to the California economy, according to data from the state’s Employment Development Department.

    “That’s literally money not available for spending,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., an organization that works to attract businesses and jobs to the Los Angeles region.

    As demand for new home furnishings has dried up, bankrupt retailers Levitz Furniture Inc., Wickes Furniture Co. and Bombay Co. are closing dozens of stores in the state, Kyser said.

    Spending Cut

    The typical homebuyer spends about $20,000 for furnishings in the first two years of ownership, said Alan Nevin, chief economist of the Sacramento-based California Building Industry Association.

    Sales in California for household furnishings and appliances didn’t increase in 2006, the last year for which statistics are available, “and we know the pain intensified in 2007,” Kyser said. Sales for lumber and building materials declined 3.3 percent in 2006, he said.

    Homebuilders have been hit hard as the inventory of unsold existing homes rises and the availability of mortgages declines. Shares of Irvine-based Standard Pacific Corp. plunged 89 percent in the past three years, driving its market value down to $303.5 million. Los Angeles-based KB Home dropped 60 percent in the same period.

    Mick Pattinson, president of Carlsbad-based builder Barratt American Inc., which constructs homes and condominiums in Southern California, said the company cut almost half of its 140-person staff.

    “This is easily the worst housing recession I’ve experienced, and I’ve been through four of them,” Pattinson said.

    The number of homes Barratt American built last year fell by more than 50 percent to 116, he said. This year, the company will build even fewer.

    “The overall impact is very bad,” Pattinson said.

  59. IrvineRenter

    I fail to see what about the conditions described would make it a good time to buy? It sounds more like a good time to stock up on foodstuffs and ammunition.

  60. ipoplaya

    I need cellular or satellite internet for when all the big bandwidth pipes spanning the globe begin to fail! Civilization will have to crumble a very long way for satellites to fall out of the sky…

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