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
I have completed my manuscript on The Great Housing Bubble. I have never published a book, and I know very little about the publishing industry. It was suggested to me that I use the power of the blog to get some help. Please, help me. My first attempt at a book proposal is contained in the PDF link above. It contains the information typical of a submission including a table to contents, a list of tables and exhibits, the preface explaining why I wrote the book, and introduction describing the book in more detail, and 2 sample chapters. Advice on writing a good book proposal would also be appreciated. If any of you know publishers or agents who could help me get my manuscript in print, I would appreciate any advice or contacts you can offer. My first choice would be a large, commercial publisher. I would like this book to reach the widest possible audience. Smaller publishers, niche publishers or University Presses would be my next choice, and self-publication would be my last resort.
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
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.
Wait
Prison gates won't open up for me
If it keeps on rainin', levee's goin' to break,
The wrong time, the wrong place,