Today's property has been featured before, but the price reduction is so significant, I thought it worthy of a new post. This property may be selling for rental parity.
One of the key concepts we have been espousing here at the Irvine Housing Blog is the idea that prices will bottom at rental parity. When a potential homebuyer can save money versus renting, it makes sense to own. A homeowner does not need appreciation for real estate to be a sound financial investment. If you are saving money versus renting, you are coming out ahead. This property can likely be owned for its rental value. If you are willing to live there long term, you will see substantial savings over renters who face subsequent rental increases. Of course, you have to want to live there, and that is the problem with this property and all apartment-like condos for that matter: They are transitory housing. These units will likely fall below rental parity. They should bottom out at prices where an investor can obtain positive cashflow as a rental. Properties like this will see $250,000 at the bottom.
Great opportunity in desirable Community of Woodbridge. This home
features laminate floors throught out the main living area, living room
fireplace, newer kitchen cabinets and counters, eat-in kitchn and large
laundry area which doubles as a pantry. Master bedroom has huge
mirrored closet. Large enclosed patio with storage and direct access to
your own carport. Newer water heater, heater and A/C unit.
throught? kitchn?
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Do you think this 3/2 could be rented for $2200? That would cover the cost at a 160 GRM. I have seen other rentals in the area at $2,500, so I don't think $2,200 is unrealistic. It looks updated inside.
When I first featured this property, I did not have access to mortgage data. Now I do. The bank is going to eat a steaming $hit sandwich on this one. The owner exercised their "put" option back in November of 2006. The Homecomings Financial Network loaned them $550,000 on this property with a $440,000 first mortgage and a $110,000 stand-alone second. WTF? How did this property ever appraise at $550,000? Can you imagine the lender losing in excess of $200,000 on such a small property? For the record, assuming the lender agrees to the short sale, assuming they get their asking price, and assuming they pay a 6% commission, the total loss will be $220,154. We get used to $200K plus losses here at the blog, but we usually don't see them on small condos. Yikes!
Is it any wonder the banks are hoping someone, anyone, will save them?
I hope you have enjoyed the week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
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Prison gates won't open up for me On these hands and knees I'm crawlin' Oh, I reach for you Well I'm terrified of these four walls These iron bars can't hold my soul in All I need is you Come please I'm callin' And oh I scream for you Hurry I'm fallin', I'm fallin' Savin' Me -- Nickelback
Another day, another market crushing REO. I have to wonder when the knife catchers will start to realize there is a steady flow of these properties entering the market. It isn't like you need to buy this one because it is the only good deal in the market, and it isn't going to be the only one we will see in the future. In fact, as each one of these comes on the market, they lower the comps and cause a whole new wave of foreclosures as all the overextended homeowners in the area lose their ability to refinance. We are witnessing the first stage of the market's downward spiral.
THIS IS A GREAT CHANCE TO OWN A HOME IN ONE OF THE BEST CITIES IN
ORANGE COUNTY. THIS IS THE CITY OF IRVINE! THE HOME FEATURES THREE
BEDROOMS AND TWO AND ONE HALF BATHROOMS. THE REAR YARD IS JUST THE
RIGHT SIZE FOR YOUR ENTERTAINING NEEDS; YOU WILL ENJOY THE ASSOCIATION
POOL AND SPA AND PARK AND RECREATION. THE HOOME IS CLISE TO AL THE
GREAT THINGS IN THE CITY; SCHOOLS, SHOPPING, ENTERTAINMENT AND
TRANSPORTATION. COME HOME TO IRVINE AND START LIVING THE ORANGE COUNTY
LIFESTYLE TODAY.
HOOME
IS CLISE TO AL? What?
ALL CAPS?
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This property has an interesting history. It was first purchased from Pulte homes in May of 2005 for $650,000. The first owner obviously grossly overpaid, but they were fortunate enough to find the greater fool to buy this property for $745,000 on November 30, 2006. Even after commissions, this original buyer made $50,000 for holding the property just over a year. The second owner was not so fortunate. This owner put $149,000 down and lost it all. The bank purchased the property for $625,338 which appears to be the outstanding balance on the mortgage when the missed payments are added on. If the lender gets their asking price (some knife-catcher will probably step up,) they stand to lose about $60,000 after commissions. A relatively small loss by Irvine standards. Of course, the total loss on the property is over $200,000, but the buyer lost the majority of it. It wasn't a particularly successful flip. Also noteworthy is the asking price is a full 20% under the peak sales price. We are 20% off the peak and still falling...
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In my place, in my place Were lines that I couldn't change I was lost, oh, yeah I was lost, I was lost Crossed lines I shouldn't have crossed I was lost, oh yeah And yeah, how long must you wait for it? Yeah, how long must you pay for it? Yeah, how long must you wait for it? Oh, for it I was scared, I was scared Tired and under prepared But I wait for it And if you go, if you go Leave me down here on my own And I'll wait for you, yeah Yeah, how long must you wait for it? Yeah, how long must you pay for it? Yeah, how long must you wait for it? In My Place -- Coldplay
Today's featured property is another mortgage equity withdrawal casualty. Properties like this underscore the dangers of partaking in the appreciation kool aid of the Great Housing Bubble. Most, if not all, of the people who believed in endless appreciation and serial refinancing took out their equity. Many utilized Option ARMs, and they are going to lose their homes. Think about the ramifications of that belief and the decision it influenced: Homeowners who did not take out their equity and refinance with Option ARMs are not going to be in financial trouble, and they will keep their homes. Those that did take out their equity are going to lose their homes. This is one very important life decision supported by a bevy of fallacious beliefs with very serious consequences. Financial bubbles are only fun when they are inflating...
Mortgage Equity Withdrawal 1991-2007
There could be any of a number of reasons this house is for sale now,
but the fact that the owner took out an Option ARM with a 1% teaser
rate in January of 2006 is likely the reason for the sale. A 2/28
Option ARM would have reset in February, and the payment on a
$1,000,000 mortgage is quite large. There is also a HELOC for $144,500. If the HELOC is tapped, and if the negative amortization has accumulated, the total debt on this property could be approaching $1,250,000. It doesn't seem likely they owe less than a $1,000,000. Perhaps they invested the money wisely and they can pay down the debt at resale. If so, they would be the exception and not the rule.
Beautiful, Brentwood/French Country elevation with long driveway,
porte-cochere w/ security gate, first floor bonus room, grand entry w/
hardwood floor and spiral staircase entry, separate formal
living/dining rooms, two fireplaces, kitchen w/ large sit-up center
island, granite, built-in Monogram refrigerator, G. E. profile
appliances, dual ovens, convenient breakfast nook w/ built-in seating
overlooks courtyard, walk-in pantry, custom media niche built-ins,
second floor computer work station, crown moulding, plantation
shutters, berber carpet, window casings, large master suite w/ sitting
area, luxurious bath w/ upgraded counter tops, separate shower, deep
oval soaking tub, individual vanity, dual sinks, huge mirrored walk-in
closet, entertainer's backyard w/ built-in BBQ/sink, fireplace, resort
amenities: pools, parks, spas, tennis/sports courts
Do you like our new graphic, MaxedOut HELOC?
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If this seller obtains their asking price, they stand to make $476,760. That is a great profit for 7 years ownership. Of course, they probably won't get their asking price, and it is likely they have already spent their profits, but if they get lucky, someone will bail them out of their debts and buy this property. Let's assume for a moment this seller gets their asking price and walks away with no debt and no credit damage. So what? If they spent all the money, they don't have any equity to take with them to buy the next property. Do they have the income and the saved downpayment to afford a similar property in the future? Maybe, but I rather doubt it. Once that money is spent, it is gone forever. There is a price to be paid for that "free" money during the bubble. Many former homeowners will pay the price with a greatly diminished quality of housing. HELOC abusers do pay a price. Nothing in life is free.
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Another song about the housing bubble? Is it raining debt? Is it raining REOs? Will praying for a bailout help? Where is the market going? going down now...
If it keeps on rainin', levee's goin' to break, If it keeps on rainin', levee's goin' to break, When The Levee Breaks I'll have no place to stay.
Mean old levee taught me to weep and moan, Mean old levee taught me to weep and moan, Got what it takes to make a mountain man leave his home, Oh, well, oh, well, oh, well.
Don't it make you feel bad When you're tryin' to find your way home, You don't know which way to go? If you're goin' down South They go no work to do, If you don't know about Chicago.
Cryin' won't help you, prayin' won't do you no good, Now, cryin' won't help you, prayin' won't do you no good, When the levee breaks, mama, you got to move.
All last night sat on the levee and moaned, All last night sat on the levee and moaned, Thinkin' about me baby and my happy home. Going, going to Chicago... Going to Chicago... Sorry but I can't take you... Going down... going down now... going down....
Financial manias are built by greed and fear: the two motivations driving the fluctuation of prices in all financial markets. When prices get greatly detached from fundamental valuations, the market is poised for a dramatic fall. There is a phenomenon in residential real estate markets where
foreclosures become bank-owned properties (REO) that causes prices to drop. Today's post explores the impact of a single REO in a neighborhood as it lowers the values for everyone else.
although it is designated as a condominium on tax records this is a
detached Home. Unit is in rear and affords additional pricacy. 3 levels
with master suite on 3rd floor. seperate guest room/office/play room
detached from main residence above garage. Interior upgrades include
grantie coutners, flagstone private patio and pad laid for a spa. View
of greenbelt. Buyer's to independently verify all information including
size, shcools, mello-roos, amenities to their satisfaction.
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This property is a rather unique bank-owned property. It is the first I have seen where the lender received a deed in lieu of foreclosure rather than going through the foreclosure process. I have no idea what the terms of the agreement were, but it is interesting that Countrywide was willing to go through this process rather than foreclose on the property. Another interesting feature was that the seller who gave up the property put $151,700 in a downpayment and gave it up. Based on the neighborhood asking prices, it would appear as if this seller had some equity, but then again, the asking prices in the neighborhood may be wishing prices and this seller may have been better off giving the property back to the bank rather than going through with a sale and paying a commission (although I imagine the local realtors don't see it that way.)
The property sold in 2005 for around $750,000. This was not the peak as that occurred about a year later. The 20% off the original purchase price is more like 25%-30% off the peak. Let's take a quick look at the asking prices of neighborhood comps:
We have three sellers on the same street with either the same model or a very similar one. The wide disparity in prices has little to do with the quality of the prices and much to do with the delusions of the sellers. The market is about to give them a cleansing dose of reality.
In a healthy real estate market, when a foreclosure occurs, the auction price is not reflected in property appraisals, and when the REO hits the market, it is absorbed at market prices similar to the asking prices in the rest of the neighborhood. In an unhealthy real estate market like ours, asking prices are all over the spectrum, and they are all greater than bids in the market, so transactions are not occurring. Buyers are either unwilling or unable to purchase at the prices being asked. When there is an REO in a neighborhood it works like a Wal-Mart rolling back the prices of all its competitors.
This REO is going to sell for less than $614,900. When it does, it will serve as a comparable property sale an appraiser cannot ignore. Lenders are now very sensitive to puffed appraisals, and ignoring this comp will not be possible. After this property is sold, buyers looking at the other three properties listed above will have to deal with the lower comp when they seek financing. The lender is going to assume the value of the three properties above are somewhere around $614K, and they will apply their loan-to-value limits based on this amount. If a buyer is only going to be loaned 80% of $614K to purchase any of the other three neighborhood properties, the only way those homeowners are going to obtain their asking prices is if some buyer is willing to put 30%-40% down. How many buyers are ready, willing and able to do that? Not many.
In a restrictive lending environment like we are witnessing now, volume dries up, and prices fall with each sale. Each lower sales price lowers the amount lenders are willing to loan to purchase the next property in the neighborhood. This downward spiral of lower comps reducing lending amounts continues until we reach bottom at rental parity. As the total amount of borrowing declines both the prices of individual properties and aggregate home price measures like the median fall precipitously, just as we have been witnessing since the credit crunch began last August. When we see they aggregate measures reported, it makes for an interesting statistic, but when you see how the process is happening on the ground with properties like today's, you can see the mechanism for the price decline in action. This is happening all over California, and it will continue to drive prices lower as credit continues to tighten and REOs continue to flood the market.
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The wrong time, the wrong place, our smiling face of distrust. Buried, the seed deep in all our heads. Prepared ouselves for the fall.
The greed killing!
Instinct to mistrust, instinct- the lust. Their butchery of feelings, geared for the greed killing.
Just in case any of you forgot, about 1/3 of all loans originated in 2005 and 2006 in California were Option ARMS. Very few if any of the people with those loans will be able to refinance.
Thomas Jefferson believed "Financiers, bankers and industrialists make cities the cesspools of corruption, and should be avoided." It is hard to argue with him given it is the actions of lenders that enabled the Great Housing Bubble.
Today's property illustrates why something needs to be done to prevent irrational exuberance from creating volatility in our real estate markets. The family that bought this property put 25% down, and although they started with an Option ARM, they refinanced in 2006 into a fixed-rate mortgage. They tasted the kool aid and did not find it palatable. Families like this should not get screwed based on the timing of their purchases due to life's circumstances. From the photos, it appears they have young children. They probably bought this as a family house. People should be able to do this without losing their life savings. If lenders did not enable people to overborrow, prices would rise about 4.5% a year, and people wouldn't have to worry about when they bought or sold. Housing bubbles are not created with equity; they are created with borrowed money. People blow bubbles; lenders provide the air.
Fabulous 3 Bedroom Northwood Home WITH BONUS ROOM and Master Retreat.
This well maintained home is nicely situated on a well manicured
cul-de-sac. An elegant entryway, that includes a curved staircase,
leads to the formal living room and dining room. The large front window
in the living room adds extra charm and sunshine. The kitchen is well
designed, including a breakfast bar, walk in pantry and plenty of
cabinets. A breakfast nook is convenitently located between the kitchen
and spacious family room. A large firplace adds to the beauty of the
family room, making it the perfect gathering spot. Two upstairs
bedrooms open onto the Bonus Room, making the Bonus Room a great spot
for a toy room, excersize room or library. The backyard is beautifully
landscaped including a patio, large shade trees, flowers and grass.
This home is very close to schools, shopping and freeway access. This
Northwood HOA includes 2 Tot Lots & Swimming Pool.
Anyone want to comment on the decorative tastes of the owners?
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If the sellers get their asking price (it seems about 10% too high), and if they pay a 6% commission, they stand to lose $104,494 -- over half of their $200,000 downpayment. Realistically, they are going to lose almost all of it.
Just to provide a reminder of how overpriced homes still are, this property would probably rent for about $2,800 a month. A 160 GRM puts the value at $448,000. I you look back at the sale history, this property sold for $390,000 in 2001. Prices in 2001 were inflated, but not in bubble territory yet. A value of $448,000 is about where this house should be; it is where it would be if there was not a bubble, and it is about where it will be in 3-5 years...
BTW, the featured song today wasn't written about real estate bubbles, but the lyrics offer that interpretation.
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The summer had inhaled And held its breath too long. The winter looked the same, As if it had never gone, And through an open window, Where no curtain hung, I saw you, I saw you, Coming back to me.
A transparent dream Beneath an occasional sigh... Most of the time, I just let it go by. Now I wish it hadn't begun.
The National Association of Realtors hopes that the American sheople are American idiots. They control the media message nearly everywhere, and they constantly push their self-serving agenda: it is always a good time to buy or sell and generate a commission. Unfortunately, you can't even find the truth in newspapers anymore. Does anyone think the OC Register would be willing to write stories about how and why the market is tanking? If they did, I suspect their real estate advertising section would get a lot smaller. People come to the Irvine Housing Blog because we tell them the truth about falling prices, and we explain why prices will continue to fall. Last week I wrote a post called Inventory Panic. In that post, I mentioned that there are a large number of bank owned properties not yet for sale on the MLS. When these get listed and sold, they will continue to push prices lower. Currently, there are more foreclosures each month than there are sales, and Irvine is in the eye of the storm. How long can that continue before the banks start becoming even more aggressive? We better hope there is an increase in sales volumes soon, or the lenders will own all of Southern California.
Today's property is one of those I mentioned in the Inventory Panic post. It has just been listed for about 24% off its peak sales price back in 2005.
Well Taken Care of Bank Owned Property on Cul-de-Sac Street. Single
Story Floorplan with a Large Backyard. Interior Features Include a
Large Open Kitchen, Brick Fireplace, Laminate Wood Flooring and a
Spacious Master Bedroom. This Property is Bank-Owned and the Bank is
Known to Have Quick Response Times.
Well Taken Care of? It looks like pretty run down to me.
Bank is
Known to Have Quick Response Times? LOL!
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Can you believe someone paid $655,000 for this place? That is $550 / SF. It is still ridiculously priced at $419 / SF.
Properties like this will be real bargains 2 or 3 years from now. IMO, a good way to buy is to find a run down POS like this one and renovate it to your taste (assuming there are not structural defects.) Everyone wants to personalize their home, but if you pay move-in-ready prices, you won't have much left over to renovate.
So how much is the lender going to lose today? Well, sadly, the buyer put 20% down, and they lost $131,000 -- funny how it is sad when the family loses money but not when the lender does. If this sells for asking price (it went for $100,000 less at auction), and if the lender pays a 6% commission, the total loss on the property would be $185,094. The homeowner would be out their 20% downpayment of $131,000, and the lender would be out $54,094.
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Welcome to a new kind of tension. All across the alien nation. Where everything isn't meant to be okay. Television dreams of tomorrow. We're not the ones who're meant to follow. For that's enough to argue.
Don't want to be an American idiot. One nation controlled by the media. Information age of hysteria. It's calling out to idiot America.
Welcome to a new kind of tension. All across the alien nation. Where everything isn't meant to be okay. Television dreams of tomorrow. We're not the ones who're meant to follow. For that's enough to argue. Idiot America -- Green Day
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Prison gates won't open up for me
In my place, in my place
If it keeps on rainin', levee's goin' to break,
The wrong time, the wrong place,
The summer had inhaled
New Listing (24 hours)
Welcome to a new kind of tension.
