Calculated Risk recently had a post Freddie Mac on Walking Away. During a recent conference call, the following exchange occurred:
Analysts: What do you see? Is it in line with historical default rates as they get underwater or does it ...
Freddie Mac: No, it is different. The rate of increase in defaults in that part of the population is much steeper. For those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth, if they find themselves quickly underwater - you know we're even seeing it when we try to modify and renegotiate those loans - they are walking away. They're finding it not constructive.
In short, when people go underwater, they are walking away from the property. We now have some statistical proof this phenomenon is occurring. Statistics are great for discussing macro trends and the like, but we take a microeconomic approach here at the Irvine Housing Blog: we show you the properties the owners are walking away from. Today's featured property is seriously underwater. It is being offered for sale at 27% under its peak purchase price.
Today's property sets a new low standard in Irvine. This is the first property I have seen below $200/SF. Granted, it is a fixer-upper, but those properties will always be the low-price leader. I really did not think we would see price levels this low in 2008.
This is the kind of property that will interest me in a couple of
years. If you find a house in need of major cosmetic surgery (but
nothing structural), you can buy it with FHA financing and take what
would have been your 20% downpayment and renovate the property to your
taste. After the renovation, you can get the property reappraised, and
hopefully, you will have added enough value to be able to stop paying
private mortgage insurance. At that point, you are in a house finished
the way you want it for equal to or less than a "normal" property in
the community. Right now, it would just be a money pit, but when we are closer to the bottom...
Monterey
Cypress Publishing Signs Author, Lawrence Roberts, and Publishes Book, “The
Great Housing Bubble”
Monterey
Cypress Publishing, a small press specializing in real estate and personal
finance related books, audio books, and video presentations, has signed an
exclusive agreement to publish the works of Lawrence Roberts. His first book,
The Great Housing Bubble, details the causes of this historic crisis.
Irvine,
Calif., May. 15, 2008 – Lawrence Roberts, author of “The
Great Housing Bubble,”
joins with Monterey Cypress Publishing in a long-term agreement to
publish a series of books on the housing crisis. “I am very excited about this
opportunity to work with a great publisher,” says Roberts, “and I look forward
a successful ongoing relationship.”
In his
first book, “The Great Housing Bubble,” Roberts contends that a
combination of loose lending standards and irrational exuberance on the part of
borrowers created a “herd mentality” that drove prices beyond any reasonable
valuation measure. He provides detailed information on the phenomenon of
irrational exuberance, the mechanics of lending, the proper valuation of
residential real estate, the role of psychology in housing markets, predictions
for how the bubble will deflate and more. Roberts believes the pain and anguish
caused by the foreclosures and bankruptcies resulting from the deflation of the
housing bubble was an avoidable occurrence – if the housing bubble had not been
permitted to inflate.
Roberts
proposes a series of changes to our current system of appraisal, lending and
sales of residential real estate. He suggests realtors be subject to oversight
by the Securities and Exchange Commission regarding the false statements they
routinely make concerning the investment potential of residential real estate.
About the Author and Publisher
Lawrence
Roberts, author of “The Great Housing Bubble,” is known as the Housing Bubble Cassandra. He publicly predicted the housing
price crash as the primary writer for the Irvine
Housing Blog. From
his unique vantage point in Irvine, Calif. – the center of the subprime
universe – Roberts carefully documents in his book the conditions and practices
that inflated the largest real estate bubble in history. He holds a Master of
Science in Land Development from Texas A&M University, and he consultants
to the land development industry.
Monterey Cypress Publishing is a small press specializing in
real estate and personal finance related books, audio books, and video
presentations.
When your playing blackjack and the dealer has given you great cards, you have the option of taking one more card and doubling your initial bet. When the odds are in your favor, it is a smart play. Since the real estate market was a "sure thing," and prices always go up, it makes sense that people would have doubled down in the real estate market. The more property you owned, the more money you made. Well, at least that was the idea after a few kool aids. If you made the mistake of drinking the kool aid in the summer of 2006 and buying two low-end properties right at the peak, your double-down bet was a short cut from first to last.
Don't cry little Robin-Marie 'cause you know you're losing your home...
It always makes me sad when I see these foreclosures and short sales with pictures from the children's rooms. The disruption to family life caused by the Great Housing Bubble has only one precedent in the United States: The Great Depression. Hopefully, this family will be able to move into a comfortable rental rather than a tent city or Hooverville, but they will have to move. Basically, anyone who bought late in the bubble rally is underwater, and these homedebtors will fall into one of two categories: 1. Those who are forced from their homes (or choose to leave), and 2. Those who are trapped in their homes. It is difficult to determine who is worse off. Those who are forced from their homes will have ruined credit and difficulty in obtaining a home in the future. Those who are trapped in their homes have a complete lack of mobility to take promotions and crushing debt service payments that prevent them from doing anything else. All of these problems boil down to one bad decision: they bought a house during a wild financial mania.
The twin towers known as the Marquee at Park Place is a lasting symbol of everything wrong with the housing bubble (Two mass fires, yes! One hundred stories high.) These urban units were 30 years ahead of their time, and perhaps in 30 years, the buyers in these towers will be able to sell their units for what they paid for them. The obscenity of the prices there will be laid bare in today's post. I will run through the cost of ownership numbers as compared to the cost of a rental and demonstrate what these units are really worth to an owner occupant.
I must confess, I have been holding off profiling these towers. There is limited information available on these units in the data services I use, so my picture is somewhat incomplete; however, the main reason I have waited to post on these units is because in the very first post done on this unit back in early 2007, I lost it in the comments section. It is pretty rare that I lose my cool, but I did there. The exchange went as follows:
Comment from a resident:
2007-01-03 04:56 PM
Everyone
is entitled to their opinion, and sometimes its good to keep it to
yourself. It is very simple, for those of you that don’t like Luxury
living in a place like Marquee, hey, no one is forcing you to buy here.
stay where you are and be happy, what is with all the bitterness. Your
bitterness is in result of ENVY. Chill out. Those who buy or bought at
the Marquee made a choice and obviously like their investment.
Comment by me:
2007-01-03 09:10 PM
(Resident)
“Everyone is entitled to their opinion, and sometimes its good to keep it to yourself.”
You should have followed your own advice.
“what is with all the bitterness. Your bitterness is in result of ENVY.”
You people don’t seem to get what we are saying, so I will try to spell it out for you:
WE
DON’T
ENVY
YOU:
WE
PITY
YOU.
You have made the worst possible purchase in all of Orange County. When
the flippers can’t make the payments and are forced to sell, the value
of your units is going to plummet: more so than others because your
fees are so high. Every time we on this board drive by, we look up with
amazement at the monumental folly of buyer greed. Your dark tower is
going to stand as the symbol for the height of hubris of the housing
bubble.
We don’t envy you, we are very thankful we are not you.
P.S. Please ignore my previous post where I tried to make nice, reinforce your delusions, and leave you with a shred of dignity.
.
The comments section on that original post was invaded by residents and Marquee staff members. I hope we get so lucky this time around
Don't cry little Robin-Marie 'cause you know you're losing your home...
