Tear the roof off? Remember when Jim Cramer said we should plow under the Inland Empire? That might be a bit extreme, but these lazy houses need to be punished somehow, don't they? Houses used to provide a steady supplemental income, and now they don't. Think about all the people out there who became accustomed to the free money their houses were generating. If I were one of them, I would be pretty angry.
Today's featured property is another in our endless series on HELOC abuse. For any of you that thought this was not common, I hope all these posts are opening your eyes to the reality of the situation. HELOC abuse is everywhere, and these people are watching their supplemental income disappear which in turn is taking down our local economy. Are these cases the exception rather than the rule? It really doesn't matter, does it? There are enough of these properties to materially impact the market. These are properties that would not ordinarily be for sale. They are added market inventory, and when they become REOs, they will be sold at whatever price the market will bear. Market prices are set at the fringes. It doesn't matter if 95% of homeowners where responsible (they weren't) because all of those who were not responsible are going into foreclosure and causing the precipitous price declines we are currently witnessing. The vast majority of HELOC abusers are going to lose their homes, and the resulting REOs are going to continue to pummel the market for some time to come.
So what happened to today's sellers? They took out $726,500 and exercised their "put" option leaving the lender holding the bag.
Isn't that the most annoying song you have ever heard? Can you fathom a reason why someone would write and record it? In the same way, can you imagine why someone would buy this condo backing on the 5 for $699,000? Some things you look back on and go, WTF?
Actually, this does illustrate the mindset of the bubble rather well. Any property is a good property when prices are going up. Quality doesn't matter because the property's desirability comes from increasing prices, not from the characteristics of the property itself. This guy bought the tip; he purchased on the high tick of the market action. There was nowhere to go but down.
Would you like to get stranded on Alicante Isle? (I know it is spelled Aisle and it means something else, but just go with it.) People buying properties as flips during the down cycle are betting on the return of the market. There is no shortage of ignorant prognostications of the bottom, and if flippers are foolish enough to believe them, then they deserve to become bagholders. If flippers and lenders became the bagholders for the decline, Karma would be delivering its comeuppance. Flippers hope to get in and out of a property quickly, and like the passengers on the US Minnow who thought they were going on a 3 hour tour, getting off the island will likely take much longer than planned. They end up stranded in a condo searching desperately for a way to get out. The market will eventually rescue them. The castaways of Gilligan's Island were only trapped for 4 years until the series was mercifully cancelled. The flipper who gets trapped in today's featured property will likely be there much longer.
Did you see the recent CNN article on Irvine, Welcome to subprime's ghost town? How about the post at Calculated Risk on the See-through buildings - reminiscent of the '80s. The Business Week article The Other Orange County about the boom town gone bust? We are becoming the center of attention as the housing bubble deflates because the activities here were largely responsible for inflating it. Are we reaping what we sowed? The rest of the nation seems to think so...
Today's featured property was featured before back in November of 2007. It is back now as REO. Last year it was offered as a short sale for $529,000. Anyone who thought about buying that one will be happy they didn't. Now it is for sale for $459,900.
Don't buy now. Just say no. Don't let your downpayment wash away with the declining market. As Boys II Men say "We'll make the biggest mistake of our lives. Don't do it baby"
Today's featured property is a major comp killer establishing a new low water mark in the Watermarke development. They developers of this property are geniuses. They started a high-end apartment complex just as the bubble was taking off, and being opportunistic, they decided to convert the properties to condos, and they made a fortune off the frenzied buying of the Great Housing Bubble. The property was purchased on May 18, 2005 for $367,500. It was flipped on July 3, 2006 for $435,000 right at the peak. The 2006 purchaser used 100% financing (big surprise,) with a $348,000 first and a $78,000 second. The property went REO on January 23, 2008 for $324,900. It appears as if the loans were originated by IndyMac. It was purchased by Deutsche Bank National Trust Company, and the Federal National Mortgage Association (Fannie Mae.) This is the first property I have seen where Fannie Mae has been on the hook. Fannie Mae is one of the Government Sponsored Entities (GSEs) that makes its money by insuring mortgages to facilitate transactions in the secondary mortgage market. Although the GSEs are explicitly not backed by the Federal Government, investors behave as if they are, and if they keep seeing huge losses like the one today, the Federal Government may step in to rescue these companies. If there is going to be a federal bailout, it will probably be caused by the collapse of one of the GSEs. Did you realize your tax dollars are implicitly backing the secondary mortgage market? They are...
* * * GREAT 1 BED / 1 BA CONDO WITH 1 CAR PARKING SPACE! FEATURES:
Great rear end condo , balcony in living room, hardwood floors, granite
counter tops in kitchen, upgraded cabinetry, stainless steel
appliances, this is a must see!!! HURRY or MISS this great DEAL
Hurry, you don't want to miss your chance to be trapped in a 635 sqaure foot apartment for the next several years...
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This unit is being offered for 40% off its peak purchase price. Let that sink in a moment... 40% off in Irvine... Who would have thought that was possible? Oh yeah, we would have...
I must admit, I did not think we would be seeing such large discounts so quickly, but then again, this property will probably fall further -- who wants to own a tiny, one-bedroom apartment? An investor might, but a cashflow investor would want to see a positive cashflow, and considering the $290 a month dues, this property probably needs to fall to $125,000 to be a true cashflow investment.
If this property sells for its asking price (some knife-catcher will think this is a bargain) the total loss will be $187,780. That is the lender loss on a 635 SF condo. When we start seeing losses that large on properties that small, what will the losses on the larger properties look like? I hope Fannie Mae has some significant loss provisions set aside, or we will end up paying for it in the bailout.
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Wait Don't wait for the water Wait Don't wait for the water
We don't even talk anymore And we don't even know what we argue about Don't even say I love you no more 'cause saying how we feel is no longer allowed Some people will work things out And some just don't know how to change
Chorus: Let's don't wait till the water runs dry We might watch our whole lives pass us by Let's don't wait till the water runs dry We'll make the biggest mistake of our lives Don't do it baby
Now they can see the tears in our eyes But we deny the pain that lies deep in our hearts Well maybe that's a pain we can't hide 'cause everybody knows that we're both torn apart Why do we hurt each other Why do we push love away
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