There has been a lot of talk about the declining inventories. Inventory has been declining, and sales have been increasing, but prices have also been dropping because many of the sales are REOs going at "fire sale" prices. Increasing volume and decreasing prices is not the sign of a market recovery, it is a sign of market panic. Some lenders holding these REOs are trying to clear their books while there are still buyers to be found willing to pay our still-inflated prices. However, many lenders are not, and there is much more REO inventory out there than is widely known.
The Irvine Housing Blog now has a subscription to ForeclosureRadar.com. Their service is a good place to get a "heads up" and buy a foreclosure before it hits the market. I use it to find properties along with Redfin. I want to share with you an observation I have made while looking for properties to profile: many of the REOs are not listed yet. While looking for a house to profile for today's post, the first four properties I found on foreclosureradar were not listed on Redfin. These included 105 Mission, 9 Timberline, 14952 Greenbrea, and 11 Bull Run. There are more. What are the lenders doing with these? In all likelihood, they are simply overwhelmed with the number of homes they own, and nobody is actively managing them or trying to secure their disposal. Someday, they will. So how many distressed properties are there in Irvine?
Red is bank owned, blue is scheduled for auction, and green is in some stage of preforeclosure. If you want to find out more, go to ForeclosureRadar.com.
THIS IS THE SOUGHT AFTER CITY OF IRVINE! THE HOME FEATURES ROOM FOR ALL THE FAMILY, FIVE BEDROOMS AND TWO AND ONE HALF BATHROOMS ON ONE OF THE LARGER LOTS IN THE AREA. YOU WILL ENJOY ALL THE BEST THINGS THA LIVING IN IRVINE PROVIDES; SCHOOLS, PARKS, SHOPPING AND ENTERTAINMENT. COME HOME TO IRVINE AND START LIVING THE 'O. C' LIFESTYLE TODAY.
THIS IS THE SOUGHT AFTER CITY OF IRVINE! Do you get the impression this was written by someone from out of state?
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This property has a strange history. The buyer put down $175,000 of his own money when he paid $870,000 taking out a $695,000 loan. He then defaulted starting with the third payment, and the lender foreclosed on the property for $734,453 which is the total of the loan plus outstanding payments. The property records show a trustee sale amount of $593,550. I suspect there was an 80/20 involved and the lower amount represents the surviving first mortgage, but it is not clear. The buyer is out his $175,000, and the lender is not going to recoup their money either. The total loss on this property after a 6% commission, assuming they get their asking price, would be $259,000.
We generally profile 4 or 5 properties a week, and lately the average loss has been $200,000 to $250,000. We are documenting $1,000,000 a week in lender losses. It it any wonder the banks are in trouble?
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Panic on the streets of London
Panic on the streets of Birmingham
I wonder to myself
Could life ever be sane again ?
The Leeds side-streets that you slip down
I wonder to myself
Hopes may rise on the Grasmere
But Honey Pie, you're not safe here
So you run down
To the safety of the town
But there's Panic on the streets of Carlisle
Dublin, Dundee, Humberside
I wonder to myself
Burn down the disco
Hang the blessed DJ
Because the music that they constantly play
IT SAYS NOTHING TO ME ABOUT MY LIFE
Hang the blessed DJ
Because the music they constantly play
Panic -- The Smiths
Why spend just a Night at the Roxbury when you can live there? Look at this fantastic property. It comes complete with a hose on the roof, termite damage on the porch, broken concrete, a leaning sidewalk light, an empty milk bottle on the walk, and a pair of statues that looks like a man staring down a cow. At least the grass is green. You can't beat this location. It is so close to the railroad tracks, the vibrations from the passing trains will shake the pictures off the wall, and the position at the end of a "T" intersection guarantees a strong flow of negative energy and enough flashing car lights to ensure you can't sleep at night. As the realtor noted, it is "PERFECT FOR FIRST HOME BUYERS." Yeah, perfect...
BEAUTIFUL HOUSE IN A NICE AREA. PERFECT FOR FIRST HOME BUYERS.
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You can sense the enthusiasm the realtor has for this listing. I can't blame her. How do you get too excited about an overpriced short sale that has almost no chance of earning a commission.
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The seller of this property put 5% down when it was purchased, but they refinanced in 2006 and took out an Option ARM with a 1.8% teaser rate for $548,000 and a simultaneous HELOC for $64,000. They are exercising their "put" option, and the lender is going to eat another one. If this property sells for its asking price -- which seems very unlikely -- the total loss to the lender will be $99,700 assuming they maxed out the HELOC and pay a 6% commission.
Anyone want to live here? It is Irvine, and It's a beautiful life, oh oh ooo...
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You can do what you want just seize the day
What you're doing tomorrow's gonna come your way
Don't you ever consider givin' up, you will find, oooh
It's a beautiful life, oh oh ooo
It's a beautiful life, oh oh ooo
It's a beautiful life, oh oh ooo
I just wanna be here beside you
stay until the break of dawn
Take a walk in the park when you feel down
There's so many things there
that's gonna lift you up
See the nature in bloom a laughing child
Such a dream, oooh
Irvinehousingblog.com is an exemplary Internet mashup. Irvine, the master-planned community in Orange County, Calif., was in many ways the epicenter of the housing boom. Many of the now-defunct ambitious subprime lenders were based there. And the O.C. housing market was a hothouse of speculation and refinancing. Today, it's the "seventh circle of real estate hell." Using realty listings, public records about debt, and YouTube videos of popular songs, an anonymous blogger who goes by IrvineRenter skewers homeowners who paid too much and are now desperately trying to recoup their investments. Realtors who post lame photos, misspell words, or engage in silly promotion-speak also come in for ridicule. At the end of each entry, the blog calculates precisely how much a homeowner—or the bank that foreclosed on his or her property—will lose if the house gets its offering price.
It is very gratifying to see nationally syndicated columnists reading and appreciating the work we do here...
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Weekend Open Thread Chart Extravaganza
Irvine, California House Price Predictions based on Historic Appreciation Rates 1984-2026
Los Angeles House Price Predictions based on S&P/Case-Shiller Indices
Orange County House Price Predictions based on Price-to-Rent Ratio 1988-2020
Irvine, California House Price Predictions based on Price-to-Income Ratio 1986-2030
The list price on 78 Sorenson is down t0 $549,000, and the property is in escrow.
That's life (that's life), that's what all the people say You're ridin' high in April, shot down in May But I know I'm gonna change that tune When I'm back on top, back on top in June
I said that's life (that's life), and as funny as it may seem Some people get their kicks stompin' on a dream But I don't let it, let it get me down 'cause this fine old world, it keeps spinnin' around
I've been a puppet, a pauper, a pirate, a poet, a pawn and a king I've been up and down and over and out and I know one thing Each time I find myself flat on my face I pick myself up and get back in the race
This song speaks to our market on many levels. The first stanza speaks to the denial in the market. This years selling season was a bust, but come next June it will come roaring back -- Not. One a deeper level the message of this song is wonderful. A great many people are going to get kicked in the teeth by the market. They are just going to have to get back up and carry on because that's life.
Beds: 3 Baths: 2.5 Sq. Ft.: 1,622 $/Sq. Ft.: $370 Lot Size: - Type: Condominium Style: Contemporary/Modern Year Built: 2001 Stories: Two Levels Area: West Irvine County: Orange MLS#: S503062 Status: Active On Redfin: 64 days Act Fast! This great home is priced for a quick sale! Fantastic interior private location. Office/Den downstairs, 3-large bedrooms upstairs with spacious closet. Light & bright and spacious, durimar wood floors, blinds, recessed lighting. Close to Tustin Market Place and schools.
Act Fast! After only 60 days on the market, the bidding war will soon begin. .
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Can you imagine the conversations the couple selling this house must be having?
Honey, do you think the bank will come after us for the $151,000 they are going to lose on the mortgage?
I don't think they can in California.
Won't this hurt our credit?
So what? We could have made hundreds of thousands, and the worst we could lose is a temporary ding to our credit. I think it was worth it.
No stress, no big deal. They took a risk to their credit and passed the financial risk onto the bank. The bank is going to lose their entire second mortgage. In our forums someone told the story of their friend who was invested in a fund that provided second mortgages. How many loans like this does it take to wipe out a fund like that?
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A poster from yesterday tipped me off to this property.
Beds: 4 Baths: 2.5 Sq. Ft.: 2,201 $/Sq. Ft.: $372 Lot Size: 4,750 sq. ft. Type: Single Family Residence Style: Traditional Year Built: 1985 Stories: Two Levels Area: Woodbridge County: Orange MLS#: S493874 Status: Active On Redfin: 129 days Unsold in 90+ days * * * This is a Short Sale! Great Interior Location in Woodbridge! Remodeled kitchen with granite counter tops, cabinets and appliances. This plan offers a large family room with ceiling to floor brick fireplace. Open floor plan with vaulted ceilings in living room and master bedroom. Great size Front and Back yard. Enjoy the Lakes, Swimming Pools, Spas, Tennis Courts, and many wonderful Woodbridge Amenities with a very Low Assocciations Dues!
If they get their asking price, and there is a 6% commission, the total loss on the property would be $115,140. The sellers would lose their entire $88,500 downpayment, and the bank would lose $26,640 on the second mortgage.
Let's take another look at the real problem here...
A more dramatic decline in prices is not forecast because inventory levels have not climbed that high and the fall-out from the subprime mortgage crisis will be less severe in Orange County than other areas of the state.
Some people still don't get it. It is not subprime mortgages that are creating the problem. It is 100% financing and exotic loan terms -- two items which are common in OC. We have documented case after case of 100% financing deals going bad. This is the primary driver of lower prices in Irvine right now. As the multitude of exotic loans reset over the next few years, this will cause the next major wave of foreclosures and short sales.
Also, when you think about the financing picture, it is going to get worse before it gets any better. Credit is not going to magically get looser. Look at the losses to second mortgages we have been documenting day after day here in Irvine. Extrapolate that to every city in California, and you get a sense for how big this problem is for second mortgage holders. This will stop the origination of second mortgages, or it will make them so expensive as to render them useless.
Without second mortgages people will be required to make 20% downpayments. Look at these prices and the downpayment requirements. Who has that kind of cash saved up? Who do you know who is saving money from their salaries to make a downpayment? Where will the first time buyers come from?
Sales volume will not suddenly return to the market when very few people have the required 20% downpayment. The chain of move-ups will be disrupted until the entry level buyers save 20% downpayments and the entry level market pricing drops down to meet them.
The bulls in denial seem to believe credit conditions similar to the bubble rally will be returning soon. Lenders are experiencing unprecedented losses. Who is going to through their money into that abyss? Credit will continue to tighten until the lenders are safe. This means 20% downpayments, 28% DTI ratios, and good credit. If you don't meet those three requirements, you will not be buying a house. If you are facing a mortgage reset, and you don't meet these requirements -- which, of course, nobody does -- you will not get refinanced, and you will lose your house.
While I am on a rant, I would like to point out the most widespread delusion about financing workouts the suddenly generous lenders are promising: borrowers will not be able to keep their house and their lifestyle. The reality is that the bank will demand a dramatic reduction in personal spending and a change in lifestyle to keep a home.
A great many borrowers who are facing a reset believe they can go to the bank, and the bank will work with them to reduce the payment. True to a point, but the bank will analyze your financial situation, determine your bare minimum financial needs, and take everything else -- just like a bankruptcy. They will also ding your credit for your efforts. Borrowers can keep their houses in exchange for a decade or more of financial servitude to a lender. Enjoy the Ramen noodles.
Perhaps someday, the mainstream media and our academicians will fully comprehend the nature and scope of the problem. Until then, we will continue with our message and continue to document the results.
I guess that's life...
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Some closing words of advice and perspective from Frank Sinatra...
And now, the end is here And so I face the final curtain My friend, I'll say it clear I'll state my case, of which I'm certain I've lived a life that's full I traveled each and ev'ry highway And more, much more than this, I did it my way
Regrets, I've had a few But then again, too few to mention I did what I had to do and saw it through without exemption I planned each charted course, each careful step along the byway And more, much more than this, I did it my way
Yes, there were times, I'm sure you knew When I bit off more than I could chew But through it all, when there was doubt I ate it up and spit it out I faced it all and I stood tall and did it my way
This one went back to the bank on 2/4/2008 for $616,250.
Our house, in the middle of our street Our house, in the middle of our Our house, was our castle and our keep Our house, in the middle of our street Our house, that was where we used to sleep Our house, in the middle of our street Our house, in the middle of our street
Beds: 4 Baths: 3 Sq. Ft.: 2,344 $/Sq. Ft.: $299 Lot Size: 5,940 sq. ft. Type: Single Family Residence Style: Other Year Built: 1972 Stories: Two Levels Area: Northwood County: Orange MLS#: P595176 Status: Active On Redfin: 37 days
From Redfin, "This house features 4 bedroom plus a bonus room, 3 full bath, remodeled kitchen with new appliances, granite countertop and travertine backsplash, dual panel windows and located close parks and tennis courts, schools, restaurants, shopping centers and easy access to I5 and most of all a motivated seller."
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You have to admit, this is an impressive rollback. The asking price is a full 20% under the purchase price, and this property was purchased before the 2006 peak. If the seller manages to get their full asking price, they still stand to lose $211,094.
Realistically, this one is headed to foreclosure. This was another 100% financing deal, so the seller is motivated to walk. The bank will foreclose before they take a hit on their first mortgage, so any loss in excess of $173,800 will not get approved. The second mortgage holder... well, that is probably going to be a total loss. These are big numbers. How many of these can the banks absorb?
BTW, all the "moderates" who think we are only due for a 10% to 15% correction should be rejoicing. This must mean we are at the bottom.
You know, it doesn't look or feel like the bottom to me...
Through me the way to the city of woe,
Through me the way to everlasting pain,
Through me the way among the lost.
Justice moved my maker on high.
Divine power made me,
Wisdom supreme, and primal love.
Before me nothing was but things eternal,
And eternal i endure.
Abandon all hope, you who enter here.
Housing market bulls must abandon all hope. We are witnessing a collapse of house prices not seen since the Great Depression. There are no signs of bottoming or even a slowing of the decline at this point in time. The secondary mortgage market is in shambles; despite the best efforts of the Federal Reserve, mortgage interest rates are rising; credit is tightening; sales volumes are anemic; if it were not for the persistent talk of government bailouts, there would be no hope at all.
We need hope. Hope is as essential as food or water. Presidential candidate, Barack Obama wrote about "Hope in the face of difficulty. Hope in the face of uncertainty. The audacity of hope!" We all want a bright and hopeful future, and for people renting and saving their money, the collapse of house prices is reason to hope; however, for those who speculated on real estate; for those who are overextended on their mortgage obligations needing to refinance; for those who are depending on their home equity for a comfortable retirement; for those people, the market reality is pretty bleak, and denial and hope is all they have left.
During the Great Depression, the last time the nation witnessed house price declines on the scale we are seeing now, America turned to a new president for hope. Franklin Roosevelt gave radio addresses known as "fireside chats." He used these chats to outline his policy programs (many of which made the depression worse,) but the primary service President Roosevelt provided the nation was the dispensing of hope. There was not much the President or anyone else could do about the problems of the Great Depression, just as there is not much anyone can do about the Great Housing Bubble. Franklin Roosevelt's chats during the Great Depression and Ronald Reagan's speeches during the worst of the recession of the early 1980s gave Americans comfort and hope. If we are in a deep recession at election time (which seems likely,) our next President will be called on to do the same. The election will become less about issues and intellectual competence and more about inspiration and emotional comfort. People vote for emotional reasons; people want to believe in their leaders and be inspired by them. When Barack Obama wrote "The Audacity of Hope," he hoped to inspire a generation with his words. Given the sorry state of our national economy, Americans may turn to this man, not because he is the best qualified to be President, but because is the best at dispensing hope.
Great corner unit with private balcony above garage. Spacious and large living room. Custom paint, Berber carpet, & paneled flooring. No one above or below with only one shared wall. Parks and all recreation just steps away. 2-car tandem garage with lots of storage.
Love those tandem garages...not!
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Look at this rollback -- 15% off a 2004 price. If this isn't hell for homeowners, I don't know what is. Price declines of this magnitude certainly cannot be inspiring much hope.
This unit was purchased in September of 2004 by a flipper using 100% financing through Accredited Home Lenders. The loan was sold off to a CDO managed by the Bank of New York Trust Company. Our flipper walked away, and the property went into foreclosure on July 12, 2007. The trustees paid $457,854, and they have been trying to sell it ever since. Apparently the trustees are not skilled at disposing real estate because we are 8 months later and this property has seen two listings and six price reductions.
Date Price
Original List $535,000
Jul 03, 2007 $519,000
Sep 27, 2007 $499,000
Sep 28, 2007 $495,000
New Listing
Dec 25, 2007 $469,900
Jan 23, 2008 $460,500
Feb 15, 2008 $439,900
Mar 20, 2008 $399,900
It is difficult to say exactly how much the CDO will lose on the deal. The trustees managing the CDO have likely been accumulating unpaid interest and fees associated with this property and added this to their basis. In other words, they probably have upwards of $550,000 tied up in the property that collateralized the original $470,000 loan. Let's assume they have a $535,000 basis based on their original asking price back in July of 2007, although it is likely much higher. If the trustees gets their asking price the total loss to the CDO bond holders will be $159,094 after a 6% commission.
Remember, this is on a 2004 purchase. When the lenders start losing this kind of money on loans they made in 2004, imagine the losses they will take on loans made later at higher prices. What is going to happen when all the 2004, 2005, 2006 and 2007 buyers -- who are currently underwater -- start walking away from their properties? This is what the people who manage our economy fear most, and it is probably what is going to happen. The losses to the lenders and to those holding their toxic waste are going to be staggering.
Prepare yourself for financial Armageddon.
That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’
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Razors edge
Outlines the dead
Incisions in my head
Anticipation the stimulation
To kill the exhilaration
Close your eyes
Look deep in your soul Step outside yourself
And let your mind go
Frozen eyes stare deep in your mind as you die
Close your eyes
And forget your name Step outside yourself And let your thoughts drain
As you go insane... [go] insane
Inert flesh
A bloody tomb
A decorated splatter brightens the room
An execution a sadist ritual
Mad intervals of mind residuals
Close your eyes
Look deep in your soul
Step outside yourself
And let your mind go
Frozen eyes stare deep in your mind as you die
In the era of 100% financing, speculation was widespread. Why not, speculators had nothing to lose other than their credit score, and if prices had gone up, they would have reaped a huge windfall. We have documented case after case of this behavior right here on this blog. Are we flagellating the equine after it has already perished? Perhaps, but until this behavior is seen for what it was, lenders will not learn their lessons, and they will do it all over again. Realistically, the only thing that could save housing prices would be a return of 100% financing and the elimination of lending standards like we saw during the bubble. There is only one problem with that: people cannot afford the payments -- They have proven that much. The continued use of 100% financing through 2007 was the only thing delaying the crash. Now that the FED is lowering interest rates, they are hoping this will translate into lower borrowing costs and help knife-catchers finance the huge sums necessary to afford today's pricing and slow the decent of prices. There is only one problem with that: as the FED lowers interest rates it increases inflation expectations, and mortgage interest rates go up. Hmmm... It is really quite a quandary.
The low interest rates we are experiencing now may prompt a few sales in 2008, but the FED will not be able to keep interest rates low for long or inflation will get out of control (anyone remember the 1970s?) If the FED starts raising interest rates later this year to curb inflation, mortgage interest rates will again rise -- not because of inflation expectations but because base rates will have increased. Mortgage interest rates hit the floor in 2004. The Federal Funds rate was 1%, inflation was low, and risk premiums were artificially low because investors in mortgage backed securities did not recognize the risks. 5.8% is as low as interest rates on a 30-year fixed-rate mortgage can get. Higher inflation and more rational risk premiums will prevent interest rates from getting that low again. It seems very unlikely mortgage interest rates can get any lower than 5.8%. We will not see 4% mortgage rates to prop up prices.
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Have you noticed when the real estate market bulls are proven wrong, there is always some unforeseen outside factor to blame? David Lereah had the nerve to claim nobody saw the subprime crisis coming despite the fact warnings about subprime lending were widely known and reported. Remember that you read this here: Mortgage interest rates are going to rise. You will probably not see mortgage interest rates on 30 year fixed rate mortgage below 6% again in your lifetime. Sometime in late 2008 or early 2009, the federal reserve will start raising interest rates, and mortgage rates will rise with them. This will be blamed for the big drop in prices and it will be held up as the reason for the faulty forecasts of bullish realtors. If it wasn't for the FED, trees really would grow to the sky, right?
One of the primary functions of the FED is to provide a stable financial system. Once the Federal Reserve begins to see economic growth and liquidity in the debt markets, interest rates may rise as quickly as they fell in order to stop hyperinflation from occurring. The FED does not want to see its member banks receive worthless currency in return for the loans it made; although I suppose this is better than receiving even less currency in a default.
Mortgage Interest Rates 1972-2006
When a country knowingly devalues its currency, it causes a severe recession as the prices of imported goods and raw materials increases dramatically. Perhaps a severe recession and price inflation is preferable to an economic depression like the one of the 1930s in America, but it is certainly not desirable. There will be some benefits to a devalued currency. A less valuable currency is a boon to exporters. The United States has run a chronic trade deficit for many years, and much of the recent deficit has come from inexpensive goods imported from China. The trade imbalance may correct itself with currency devaluation. Of course, this rebalancing of trade will come at the cost of more expensive imported foreign goods and a commensurate decline in spending power from US consumers. Also, prior to currency devaluation, wages in the United States were so high that jobs were being outsourced to foreign countries where people can be paid much less. Wages could not rise significantly from where they were without devaluing the dollar to prevent wage arbitrage from moving jobs overseas. The devalued currency provided some room for wage increases, and these wage increases could theoretically provide additional support for housing prices. If the FED does chose hyperinflation, there needs to be wage inflation to go along with it or the economy will experience a very deep recession due to the steep drop in consumer spending (It may anyway.) If wages rise, houses become affordable again. I wouldn't mind paying today's prices if my salary doubles.
Put today's problems in perspective: the Federal Reserve is being forced to chose between stagflation and depression, house prices are crashing, and homeowners are being foreclosed on in record numbers. This situation is the result of declining home prices; the declining home prices are a direct result of the unsustainable price levels created during the bubble rally; the unsustainable price levels were created by widespread use of 100% financing and the elimination of lending standards, so this is important stuff worthy of daily exposure on blogs like this one. In today's 24 hour news cycle, it is easy to focus on the sensational and forget about the root causes of our problems. The roots are here in properties like this one and in borrowers like this one who used 100% financing to speculate in the real estate market at the expense of our banking system.
6 bedrooms total - 4 bedrooms upstairs, 2 bedrooms, 2 dens downstairs, with 2.75 baths. Wood flooring downstairs. Remodeled kitchen with double ovens, flat top cooking surface, large pantry & newer cabinets. Leaded glass front doors, plantation shutters, newer central A/C, newer tile roof, 8 ceiling fans and recently painted in & out. Large backyard. Close to park and community pool.
$241 / SF is real progress.
The price will have to be reduced for the cost or repainting. The pink and green colors are truly ugly.
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This property was purchased less than one year ago, and if the short sale is approved, and if the seller gets their asking price, the lender (NBGI Inc.) stands to lose $207,400 after a 6% commission. There have been some comments on my equity burn calculation where I take 10% of the purchase price and divide it by 12 to get a monthly equity loss on the property. How much was this lender's equity burn? $17,283 per month. If this flipper had any of his money in the deal, that would have been his loss, but since it was the lender...
Anyone looking to buy in today's market really should pay attention to the equity burn number. In today's market, borrowers have to put money down. It is their money evaporating into the ethers. The phenomenon is real, and it will continue for the foreseeable future.
It is a good time to be a renter.
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Tonights the night well make history, honey, you and i
And Ill take any risk to tie back the hands of time
And stay with you here tonight
I know you feel these are the worst of times
I do believe its true
When people lock their doors and hide inside
Rumor has it its the end of paradise
But I know, if the world just passed us by
Baby I know, you wouldnt have to cry
The best of times are when Im alone with you
Some rain some shine, well make this a world for two
Our memories of yesterday will last a lifetime
Well take the best, forget the rest
And someday well find these are the best of times
These are the best of times
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Panic on the streets of London
