O Holy night, the stars are brightly shining
It is the night of our dear Savior's birth
Long lay the world in sin and error pining
Til He appeared and the soul felt it's worth
A thrill of hope the weary world rejoices
For yonder breaks a new and glorious morne
Fall on your knees
O hear the angel voices
O night divine!
O night when Christ was born
O night divine!
O night, O night divine!
And in His Name, all oppression shall cease
Sweet hymns of joy in grateful chorus raise we
Let all within us praise his Holy name
Christ is the Lord!
Their name forever praise we
Noel, Noel
O night, O night Divine
Noel, Noel
O night, O night Divine
Noel, Noel
O night, O holy Divine
Beds: 2
Baths: 2.5
Sq. Ft.: 1,824
$/Sq. Ft.: $288
Lot Size: -
Type: Condominium
Style: Other
Year Built: 2005
Stories: Two Levels
Area: Woodbury
County: Orange
MLS#: S515272
Status: Active
On Redfin: 3 days
From Redfin, "Great 2 level condo located in Woodbury!! Very open and spacious with large rooms throughout. Family kitchen, wood and stone tile floors, living room with fireplace, seperate laundry, and private courtyard entry are just some of the features of this home. Close to everything Irvine has to offer!!"
Two exclamation points? I thought three was the standard?
seperate?
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Sales History
Date...................Price
05/29/2007 $605,032
09/08/2005 $679,000
I assume this is an REO. Interesting that it took them 6 months to list it. If they get their asking price, assuming they originally loaned $679,000 and they pay a 6% commission, the total loss would be $185,594. Notice this asking price is 22.6% off the peak sales price. Yikes!
There is a reason for the credit crunch: lenders are losing money. Lenders don't like to loan money when people do not pay them back. The more they get burned, the more conservative they become. As they get more conservative, fewer people qualify for loans and loan amounts decline. This in turn puts more people underwater makes refinancing that much more difficult and causes even more bank losses. It is a classic downward spiral. This is why credit will not loosen any time soon. There are people out there who believe the credit crunch is a temporary thing that will pass soon. It isn't, and it won't. In fact, it is likely to spread to other forms of borrowing as the situation continues to deteriorate.
So what does all this mean, and how do you prepare for it? Basically, it means borrowed money will not be widely available, and what is made available will be more expensive. If you live a life without credit dependency, the credit crunch will not impact you much. If someone takes away something you do not use, it doesn't harm you much. However, if you are like most Californians and you are addicted to credit, you are in for some struggles.
The best thing you can do to prepare for the upcoming deepening credit squeeze is to stop using credit. Pay off what you have and stop using it. If you don't, you might find your interest expense increasing dramatically, and you will find yourself subject to the whims of your creditors. There is no freedom when you have debt. The next thing you can do is to start saving money. Things could get very bad, particularly locally. We have already seen waves of layoffs in the real estate industrial complex, but this could easily trigger a wider slowdown in the economy and put people in related fields out of work. It could be you. Save now, and you will be prepared to weather the storm.
Jingle bell, jingle bell, jingle bell rock
Jingle bells swing and jingle bells ring
Snowing and blowing up bushels of fun
Now the jingle hop has begun
Jingle bell, jingle bell, jingle bell rock
Jingle bells chime in jingle bell time
Dancing and prancing in Jingle Bell Square
In the frosty air.
What a bright time, it's the right time
To rock the night away
Jingle bell time is a swell time
To go gliding in a one-horse sleigh
Giddy-up jingle horse, pick up your feet
Jingle around the clock
Mix and a-mingle in the jingling feet
That's the jingle bell,
That's the jingle bell,
That's the jingle bell rock.
When I first started blogging about the housing debacle, some of the more bullish commenters would bristle when I suggested that a great many people refinanced all their equity out of their homes and would end up in foreclosure when prices went south. I have already profiled some pretty egregious HELOC and refi abuse on this blog, but today's listing sets a new standard.
First Mortgage $696,000
Second Mortgage $699,900
HELOC $436,700
Total Debt $1,832,600
Total Cash out $962,100
Beds: 5
Baths: 4
Sq. Ft.: 4,000
$/Sq. Ft.: $405
Lot Size: -
Type: Single Family Residence
Style: Other
Year Built: 2002
Stories: Two Levels
View(s): Park or Green Belt
Area: Northpark
County: Orange
MLS#: S514550
Status: Active
On Redfin: 10 days
From Redfin, "Executive luxury home backed to tree-lined greenbelt, elegant wrought iron staircase-distressed hardwood flr entry, main flr bedroom/bath, huge kitchen w/ center island, granite, maple cabinets, butler's pantry, wine compartment, built-in media center, surround system, decorator paint, shutters, crown moulding, French doors, large upgraded master suite w/ extensive wardrobe organizers, backyard w/ built-in BBQ, fireplace, ref/sink, garage w/ epoxy finish, cabinetry, resort ass. amenities"
Resort ass? Is this the person you fool around with when you are on vacation?
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This house was purchased 5 years ago, and these people have already taken out at least $525,400. If they have also maxed their HELOC, then they have taken out an unbelievable $962,100! That comes to $192,420 per year of additional spending money. If their house were a W2 employee, it would have been making over $300,000 a year to generate that kind of take-home income.
So how bad is the bank going to lose on this one? Assuming they maxed their HELOC, they get their asking price, and they pay a 6% commission, the lender will lose $310,928. For the lender's sake, I hope the owners have not tapped their HELOC.
Do you imagine these sellers think they are rich? After all, they probably make around $200K, and they have been spending as if they make $500K. Only rich people do that, right? As the housing bubble continues to deflate, we will all see who was pretending. As Warren Buffet said, "Only when the tide goes out do you discover who's been swimming naked."
I wonder how well they will adjust to the 50% drop in spending money and being cut off from credit after the short sale?
It's the most wonderful time of the year
(Most wonderful time)
With the kids jingle-belling
And everyone telling you
Be of good cheer
It's the most wonderful time of the year
(Wonderful time)
It's the hap-happiest season of all (wonderful time)
With those holiday greetings
And great happy meetings
When friends come to call
It's the hap-happiest season of all
There'll be parties for hosting
Marshmallows for roasting
And caroling out in the snow (out in the snow)
There'll be scary ghost stories
And tales of the glories
Of Christmases long, long ago
First Mortgage $629,600
Second Mortgage $157,400
Total Debt $787,000
Beds: 3
Baths: 2.5
Sq. Ft.: 1,510
$/Sq. Ft.: $417
Lot Size: -
Type: Condominium
Style: Modern, Other
Year Built: 2003
Stories: Two Levels
View(s): City Lights, Hills, Mountain
Area: Quail Hill
County: Orange
MLS#: S515205
Status: Active
On Redfin: 4 days
From Redfin, "Vaulted Ceiling In Living Room, Private Corner Lot With Open View Of Outdoor Sports Center. Spectacular City Light View From Master Bedroom Balcony & Other Area. Beautifully Upgraded In Spacious Private Courtyard. Wood Floor On Fist Level, Dining Room Open To Kitchen, Convenient 2nd Floor Laundry Room. Plantation Shutters, Granite Counters, Stainless Steel Appliances."
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So how is it that someone can own a house for 5 years, sell it for $200,000 more than they paid, and still end up leaving the bank with a huge loss? Welcome to the Great Housing Bubble mania. Today's seller refinanced this property in July of 2005 for $787,000 taking out a whopping $350,500 cash. Now that the day of reckoning is at hand, if they get their asking price and pay a 6% commission, the shortfall will be $194,800. This is a recourse loan as it is a refi. Do you think they have $194,800 in assets for the bank to go after?
Should this seller be sent to debtor's prison? I would like to think so, but in reality, they are escaping debtor's prison -- their house.
What is a debtor's prison? A prison is any place you cannot leave until you have served your sentence, and these debtors will not be able to leave until they can pay off their mortgage. Most will not be able to do so until market values go back up. Hopefully, it is a gilded cage, but it is still a cage.
Houses are America's new debtors prisons. By the end of 2008, anyone who purchased between 2004 and 2007 will be underwater. Let's say for a moment that the government comes up with some substantive bailout program where homeowners can stay in their house and continue making payments of 50% or more of their gross income. House prices will still fall, albeit at a somewhat slower rate if there are fewer foreclosures. Everyone who is underwater and making crushing home payments will be stuck in their homes until values climb back above their purchase price. Since there are a great many people in this circumstance, and since each of these people is in at a different price point, each one will have a different term in debtor's prison, but when their sentence is up, most will opt to sell to get out from under the crushing payments. Each of these people selling their home keeps prices from rising. This is called overhead supply. It is also why the market will not see meaningful appreciation without capitulatory selling. A bailout will make for a slightly higher bottom and a much slower recovery.
Anyone who purchased in the late 80s or early 90s knows the feeling of being imprisoned in their house. This is not a new phenomenon. This time around the sentence will be much longer, and the debt service will be much larger.
Home, sweet home? We will see...
My question to you today is this: Who is better off, the homedebtor rotting in their debtor's prison, or the family thrown to the curb in a foreclosure?
(all right you Chipmunks! Ready to sing your song?
-I'll say we are! -Yeah!
-Let's sing it now!
Okay, Simon?
-Okay!
Okay, Theodore?
-Okay!
Okay, Alvin? Alvin? ALVIN!
-OKAY!!!)
Christmas, Christmas time is near
Time for toys and time for cheer
We've been good, but we can't last
Hurry Christmas, hurry fast
Want a plane that loops the loop
Me, I want a hula hoop
We can hardly stand the wait
Please Christmas, don't be late.
First Mortgage $769,342
HELOC $500,000
Total Debt $1,269,342 + Neg Am
Beds: 5
Baths: 4.5
Sq. Ft.: 3,049
$/Sq. Ft.: $435
Lot Size: -
Type: Single Family Residence
Style: Contemporary
Year Built: 2003
Stories: Two Levels
View(s): City Lights, Hills, Has View
Area: Quail Hill
County: Orange
MLS#: S511977
Status: Active
On Redfin: 38 days
From Redfin, "Back on the market. Buyer take over existing loans. .view side. .Gourmet Gas (5 burner cooktop) Granite kitchen. Stainless steel appliances. .2 convection ovens+microwave. .Enormous walk in pantry. Giantfamily rm/cozy fireplace. Downstairs bedroom and full bath. Wood floors thru out downstairs. .Extra lg. lgrm & DR. 2nd floor plush carpet. Fabulous master/retreat(or 5th bedrm) Separate oval tub & big stall shower. 3/4 bds. up+loft. The builder states plan 3 is 3049 Sq ft plan 2 is 2841 sq. ft. $275 mo. mello"
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Buyer take over existing loans? Whoa! Think about what is going on here... This seller has taken out a negative amortization loan with a 3.6% teaser rate that is about to recast. She has also taken out a $500,000 HELOC to cash out her downpayment and likely fuel some consumer spending. Now that the bills are coming due, she wants someone else to come in and pay them. Unbelievable!!!
(I feel like such a realtor :( )
Any of you want to overpay for her depreciating asset so she can pay off her bills? I will pass.
I am going to make a bold prediction: sales will improve in 92602, 92606 and 92620. After an 80% decline in sales, some improvement is nearly certain. Then again, sales could drop off to zero if sellers don't reduce their prices more...
Just in case you wanted to see just how crazy everyone got with interest-only and negative amortization loans.
One of the cornerstones of my analysis of the housing market is the relationship between income, rent and house prices. When prices rise to where it is less expensive to rent, people who do not get caught up in the irrational exuberance of rising prices chose to rent rather than buy. From the graph above you can clearly see the last two bubbles: one in the late seventies caused by rampant inflation, and one in the late 80s caused by a booming economy and simple irrational exuberance. Our bubble is obvious.
We see "napkin" calculations on posts on this blog all the time. Someone will pick a somewhat arbitrary year when prices were "normal" and proceed to calculate how much it should be worth today based on inflation, etc. It is clear from the graph above that prices were too high back in 2000. By 2002, we were at the top of a minor bubble. By 2004 we were at the top of what would have been an unprecedented real estate bubble. Then, the Option ARM came along and sent prices even higher.
My premise is simple: prices will fall back to the historical relationship between prices and rents. It will because it must. Unless people suddenly start wanting to stretch to by depreciating assets, there won't be very many buyers until we get back to rental equivalent value...
Well, way up North where the air gets cold
There's a tale about Christmas that you've all been told
A real famous cat all dressed up in red
And he spends the whole year workin' out on his sled.
It's the little Saint Nick
little Saint Nick
It's the little Saint Nick
little Saint Nick
Just a little bobsled, we call it Old Saint Nick
But she'll walk a tobogan with a four speed stick
She's candy apple red with a ski for a wheel
And when Santa hits the gas, man, just watch her peel.
Today's property was purchased on 10/16/2006 for $869,000 and sold at auction on 9/27/2007 for $682,763. These are not asking prices, these are actual transaction amounts. That is a 21.4% loss in less than one year, and that is not including any transaction costs.
Beds: 4
Baths: 3
Sq. Ft.: 2,150
$/Sq. Ft.: $344
Lot Size: -
Type: Single Family Residence
Style: Other
Year Built: 2000
Stories: Two Levels
Area: Northpark
County: Orange
MLS#: S514361
Status: Active
On Redfin: 9 days
From Redfin, "Charming home in guard gated community of Northpark!! Main floor master suite with large oval tub, enclosed shower, and dual sinks. Upstairs bedrooms with walk-in closets. Kitchen with breakfast bar plus seperate dining room. Spacious laundry room with deep sink and cabinets. Nice patio in side yard. The many association amenities iclude pool, spa, barbeque, sport court, tennis and more. Close to parks, golf, dining, and shopping at The Market Place"
Only two exclamation points? The realtor must not be excited enough about this listing for the standard three exclamation points.
seperate, iclude... I routinely misspell separate, but then again, I take the time to use a spell checker...
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From the ownership records, it is not clear if this is an REO or a flip. The new owner is an LLC suggesting it might be a flip attempt, but the low asking price relative to the purchase price suggests this LLC may have been formed as the REO holding entity. In either case, the 21.4% loss may actually get larger. In a normal foreclosure situation, the first mortgage holder, who usually has an 80% loan against the property, will go to auction and bid the loan amount. If they are the highest bidder (lately they have been the only bidders,) they end up with the property. The price may need to fall further to find the real market. If this property sells for less than its purchase price, it really reflects a larger loss on the original sale.
In a small market correction, a property such as this one that comes up for sale at an auction generally does not go back to the bank. Since the bank is only going to bid 80% of the original purchase price (the amount of the first mortgage,) there is usually someone who thinks the property is worth more than what the bank is willing to bid and buys the property. The bank does not care because they got their loan money back, and if the speculator is correct, they can make a few dollars in the deal. You know the market is in bad shape when banks bid 80% of original purchase price and get the property. You know the market is in really bad shape when nobody even bids against the bank (which has been happening regularly.)
So where is the Irvine market right now? 15% to 20% off the peak. We have documented numerous cases of properties with asking prices 15% -20% off the peak, and today's property is a recorded sale at 21% off the peak. It is hard to argue with the data.
This has been another eventful week at the Irvine Housing Blog. We had two days of well over 100 comments in a lively conversation. Come back again next week as we continue to Chronicle ‘the seventh circle of real estate hell.’
I want to leave you this week with a picture of me -- at least how some of the bitter homedebtors see me.
So this is Christmas
And what have you done
Another year over
And a new one just begun
Ans so this is Christmas
I hope you have fun
The near and the dear one
The old and the young
A very merry Christmas
And a happy New Year
Let's hope it's a good one
Without any fear
And so this is Christmas
For weak and for strong
For rich and the poor ones
The world is so wrong
And so happy Christmas
For black and for white
For yellow and red ones
Let's stop all the fight
A very merry Christmas
And a happy New Year
Let's hope it's a good one
Without any fear
First Mortgage $435,750
Second Mortgage $109,150
Downpayment $0
Beds: 2
Baths: 2
Sq. Ft.: 1,341
$/Sq. Ft.: $373
Lot Size: -
Type: Condominium
Style: Other
Year Built: 2002
Stories: Two Levels
Area: Northpark
County: Orange
MLS#: P609749
Status: Active
On Redfin: 28 days
From Redfin, "Beautiful Tuscan Village architech with desireable front entrance with small balcony. 2 bedroom 2 1/2 baths with a living area of 1341 Sq. Ft. in an incredibly well kept gated community with guard. Association Pool and spa with very low association fee. Ceramic tile and carpet flooring throughout. In very good condition with breakfast counter/bar and very spacious floor plan. Master bedroom with dressing area and walk in closet. Central A/C and Heating. And so much more!"
desireable? architech?
incredibly well kept? Is it really?
Shouldn't the asking price be $499,999.99 and 9/10?
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Since this is another 100% financing deal, the lender will eat this one. Assuming a 6% commission, they will lose $76,047.
These sellers will probably not pay the bank back the $76,047, and they will just walk away. They probably could afford to repay the debt as it isn't that large, but in many instances, the debt is overwhelming. Those are the circumstances I would like to discuss today.
There is a "strictly business" aspect to the decision that most often points to walking away, and there is a moral aspect that never points to walking away. This is a complex dilemma, and it is easy to moralize when one is not in the dire financial straits a massive home debt can bring about. However, people often find it far too easy to just walk away and justify their immorality.
IMO, walking away and declaring bankruptcy probably go together. There is probably not much distinction between the two as it impacts one's credit score (perhaps some, I don't know, but they are both bad.) Bankruptcy law was put in place to give people a fresh start when life's circumstances create a debt that could not be repaid in any reasonable amount of time (7-10 years.) We can debate whether or not these circumstances were self created, and we can debate the morality of bankruptcy law, but these laws are on the books because debtor's prisons were not serving the greater good (we can debate that too if you want.) Therefore, it can be argued that society has determined it is desirable -- and thereby moral -- to wipe the slate clean and give people a second chance. Lenders knew what the bankruptcy laws were when they chose to make the loan. If they chose to extend the credit, do they bear any moral responsibility to the outcome?
IMO, when faced with a debt that cannot reasonably be paid off in 7-10 years (which will be very common in the aftermath of the housing crash,) it is the right financial decision to walk away from the debts. It is in society's best interest to have a productive citizen whose income is going toward restrained (due to lack of credit) consumer spending rather than unrelenting debt service. Is this moral? You tell me.
Beds: 2
Baths: 2
Sq. Ft.: 900
$/Sq. Ft.: $411
Lot Size: -
Type: Condominium
Style: Other
Year Built: 1987
Stories: One Level
View(s): Park or Green Belt
Area: Westpark
County: Orange
MLS#: P610348
Status: Active
On Redfin: 24 days
From Redfin, "Welcome Home! Nobody above or below! Peaceful interior location above the garage. Two balconies, cathedral ceilings, pergo flooring throughout this home, cedar-lined closets, mirrored wardrobes, two full baths, two master suites. Nice, clean, and bright home. One of the nicest units in the entire complex! New interior paint, kitchen light fixture, and cabinet makeover. New bathroom floor and mirror. "
That first picture is my nomination for the worst, most useless photo on the MLS.
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I have stated on this blog that the leading edge of the decline is 15% to 20% off the peak. Here is more proof. The property above is priced 14% off the July 2006 purchase price. If they get their asking price, they stand to lose $82,294 -- a little over 20% in about a year and a half.
Beds: 2
Baths: 2
Sq. Ft.: 871
$/Sq. Ft.: $431
Lot Size: -
Property Type: Condominium, Attached
Year Built: 1989
Stories: One Level
Area: Out Of Area
County: Orange
MLS#: C07174665
Status: Active
On Redfin: 1 day
New Listing (24 hours)
From Redfin, "Short Sale, Indymac Bank has to approve sale amount. Seller is highly motivated. 2bed 2bath."
Short but sweet.
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Indymac bank stands to lose $78,500, just slightly under 20%. Have you seen the new Indymac bank branch in the Oak Creek plaza. Perhaps it will help them process all the Alt-A REOs they have in Irvine?
This short sale is providing some competition to the first property. Since it is a new listing, the race has just begun.
First Mortgage $750,000
1% Neg Am
Downpayment $250,000
HELOC $150,000
Beds: 4
Baths: 2.5
Sq. Ft.: 2,500
$/Sq. Ft.: $360
Lot Size: 7,000 sq. ft.
Type: Single Family Residence
Style: Contemporary
Year Built: 2002
Stories: Two Levels
View(s): Pool, Trees/Woods
Area: West Irvine
County: Orange
MLS#: S491800
Status: Active
On Redfin: 181 days
Unsold in 90+ days
From Redfin, "HUGE PRICE REDUCTION: Absolutely one-of-a-kind home on cul-d-sac. ONE OF THE LARGEST Back Yards you have seen in IRVINE. Beautifully hardscaped with Salt-water Solar heated POOL AND SPA, Built-in bar-B-Q and outdoor kitchen. .. .beautifully landscaped yard beyond!! Inside this home has all the bells and whistles. .. .granite, stainless, stone, crown moulding, large bedrooms, balcony, Family room, family eating area off kitchen, formal Dining room, BUT only one lucky family gets this GREAT home!"
HUGE PRICE REDUCTION -- from WTF to LOL...
"BUT only one lucky family gets this GREAT home!" Even though it takes two to afford it.
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Asking Price History
07/07/2007 $1,112,000 to $1,069,000
unknown $1,069,000 to $999,900
10/19/2007 $999,900 to $949,900
11/19/2007 $949,900 to $899,900
You can see the psychology at work with these asking prices. First, they want the profit they deserve, so they list it for a couple of months at a wishing price. Then reality starts to set in, and they give up their fantasies and start lowering the price to sell. The first reduction would get them out at breakeven with a 6% commission. When the house doesn't sell, they start methodically chasing the market down in $50,000 increments getting more frustrated and desperate with each reduction. Unfortunately, the are still one or two reductions away from finding the market, and the market keeps moving lower with their asking price. I find it amusing they think this is a huge price reduction. It is huge -- only in their minds. They are still over the market. If they had priced it appropriately from the beginning, the price reductions leading them to this temporary milestone wouldn't seems so drastic.
If the owners manage to get this asking price, they stand to lose $154,094 after a 6% commission. I suspect their loss will be closer to $200,000 before they find a knife-catcher willing to lose the next $200K.
O Holy night, the stars are brightly shining
