Irvine Renter will be on the radio again this weekend. I will be a guest of John McCauley on KBPK FM 90.1. I can be heard on Sunday November 30, at 6:30 PM. The streaming internet broadcast can be found here. I invite you all to tune in.
P.S. If you missed it, the MP3 link is here.
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I would like to make an announcement. Irvine Renter will be on the radio again this weekend. I will be a guest of John McCauley on KBPK FM 90.1. I can be heard on Sunday November 30, at 6:30 PM. The streaming internet broadcast can be found here. I invite you all to tune in.
AZDavePhx has been busy at the IHB. Last weekend I featured several of his works, and this weekend we have even more.
Like many people, he saw the rampant expansion of credit and a debt-fueled lifestyle to be a problem. It was a problem encouraged by our government and the purveyors of credit.
Many people used their homes as ATM machines, and this money was a huge stimulus to the economy.
Like many of us, AZDavePhx wonders where all this money went…
The lure of real estate was all the free money is generated.
Of course not all these purchases worked out as planned.
Some people are finding their purchase is very scary and painful.
Now our government wants everyone to step up and buy an overpriced house to bail out the banks.
The loan modification terms are good. With the fear of death, the lenders are suddenly willing to negotiate.
Are these companies too big to fail?
Has our government given them a get-out-of-fail-free card?
Author Interview—Jim Randel
I would like to introduce you to a new book by bestselling author, Jim Randel, called The Skinny on the Housing Crisis, What Every Homeowner and Homebuyer NEEDS TO KNOW.
Jim Randel takes the complex issues related to the housing crisis and presents them in an easy-to-understand manner. The book is well written, it can be read in under an hour, and the reader is left with a basic understanding of the mess we are in today. If you or someone you know wants to understand the housing crisis, but you don’t want to spend several hours reading a 250 page book, I highly recommend The Skinny on the Housing Crisis.
The basic presentation is similar to the stick-drawing joke circulating the internet. The story is presented through the eyes of Billy and Beth, a typical couple who trusted the “experts” and were duped into a disastrous financial transaction. In a series of cartoon-like scenes, the author takes us through the buying process and shows how all the parties involved had incentives to push Billy and Beth into a transaction they did not understand. The average buyer can easily relate to Billy and Beth’s plight, and all of us can empathize with what people went through as they got caught up in the housing crisis.
Many of you who have been reading the IHB and have purchased my book, The Great Housing Bubble, have commented on how I am able to take complex subject matter and make it understandable. Jim Randel takes this one step further. His simple presentation is understandable to everyone. This book will serve as education to teenagers preparing for adulthood and the personal finance decisions they will face. He is planning a series of books using the same methods to explain other personal finance issues. I look forward to seeing them.
Today’s featured property is typical of what I see on the market today. Long-term homeowners who are selling in today’s market in Irvine have on average doubled their mortgages since they purchased. There was so much HELOC abuse and housing ATM dependancy during the bubble years, it should come as no surprise that consumer spending has fallen off a cliff, and our entire economy is in shambles. Today’s owners will likely still make a profit on their home and pay off their mortgage. They won’t have much to show for it, but at least they will not face bad credit for their free-money spending spree.
Asking Price: $839,000
Income Requirement: $209,750
Downpayment Needed: $167,800
Monthly Equity Burn: $6,991
Purchase Price: $302,000
Purchase Date: 4/29/1998
Address: 23 Washington, Irvine, CA 92606
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Thanksgiving—George Winston
I hope you all are having a wonderful Thanksgiving. Despite all the bad news, we all have much to be thankful for. No matter how bad things look for us, Americans still have life far better than most people on this planet. We here in California have a great climate, plenty of activities to enjoy, and a peaceful existence. I am thankful for a loving family, a roof over my head, continued employment, and of course, Thanksgiving turkey.
Since we have been looking at Turtle Ridge properties this week, I wanted to show you the crumbling base of the property pyramid. Apparently Turtle Ridge is not immune, and the stress at the low end is taking its toll there too.
Asking Price: $320,000
Income Requirement: $64,000
Downpayment Needed: $80,000
Monthly Equity Burn: $2,666
Purchase Price: $445,000
Purchase Date: 3/25/2005
Address: 133 Danbrook, Irvine, CA 92603
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Terror & Hubris in the House of Frank Pollard—Lamb of God
It is a recurring theme in our culture that the rich and famous live by a different set of rules than the rest of us. Once you achieve wealth and fame, people treat you differently. They look up to you with respect and envy. Many people desire wealth and fame for the status it brings—at least in their own minds. Some people want to be envied, they want to believe everyone wants what they have, and they find it very empowering to be able to put themselves above others. For these people, the lure of a prestigious neighborhood is their belief that living there makes other people envy them. The pretense of owning a McMansion in Turtle Ridge or Shady Canyon makes some people do whatever it takes to purchase there—including paying ridiculous prices. There are people who buy in these neighborhoods because they are nice places to live, and they want a beautiful home just for their own enjoyment. Many people do not care what others think, and they do not base their home buying decisions on those considerations. However, there is a significant group that does, and these people often have artificially inflated opinions of themselves and the value of the properties they own.
Kill my hopeless life I cannot be hypnotized. You owe me.
Push aside the veil to welcome in the visitors.
I don’t know the owners of today’s featured property, and I have no idea why they bought in Turtle Ridge. They may be very nice people who bear no resemblance to the profile above. However, the asking price they have put to their property says something about them: they do not live in a reality-based real estate market. The high-end of the Irvine market has shown the least stress so far. Very little is selling, but those few properties that do sell do not show large losses. I recently profiled a $5,000,000 property selling for 10% off in Shady Canyon, so prices are starting to fall, but by and large, the high end has not seen the carnage witnessed at the low end so far. However, these properties are certainly not appreciating, and to believe they have doubled in price, well… that is a little crazy. The kool aid still flows in Turtle Ridge.
Asking Price: $2,860,000
Income Requirement: $715,000
Downpayment Needed: $572,000
Monthly Equity Burn: $23,833
Purchase Price: $1,433,000
Purchase Date: 9/29/2004
Address: 28 Blue Summit, Irvine, CA 92603
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Sweet Baby James—James Taylor
The low end of the market collapsed first while the mid- and high-end of the market dropped at a slower rate. There is still a great deal of denial at the high end, but now the mid range is starting to break down. I have profiled a number of properties in the $600,000 to the $1,000,000 range that are showing significant price drops from the peak. The collapse is working its way up the food chain.
The first sign of a troubled real estate market is a dramatic reduction in volume known as buyer exhaustion. There are simply not enough buyers able or willing to push prices any higher even at the lower transaction volumes. In a residential real estate market, this phenomenon is particularly pronounced at the entry level. The imbalance between supply and demand first becomes apparent at the bottom of the affordability scale with entry-level buyers because these buyers are not bringing the profits from a previous sale with them to the next property. Affordability is less of a problem for existing homeowners in the move-up market due to this equity transfer.
The real estate market can be visualized as a massive pyramid. There are very few multi-million dollar properties at the top of the pyramid, and a large number of relatively inexpensive entry-level properties forming the base. Like any structure, if the foundation is weakened, the structure may collapse. In the same way, housing markets collapse from the bottom up due to problems with affordability. The foundation of a residential real estate market is the entry-level buyer. Entry-level buyers are generally young people starting to form new households. When homeowners want to sell their house and move up to a nicer one, someone needs to buy their house. If you follow this chain of move-ups backward, eventually you come to an entry level buyer. If there are no entry level buyers pushing the sequence of move ups, the entire real estate market ceases to function.
Today’s featured property is one of the move-up type properties in one of Irvine’s most desirable neighborhoods: Turtle Ridge. We have not seen much distress in this neighborhood to date as knife catchers have been quick to gobble up any property coming on the market at a discount. The WTF prices at the high end are still living on healthy doses of kool aid. If (I should say when) more properties like today’s enter the market, the bough might break, and down will come prices, Turtle Ridge and all.
Asking Price: $849,000
Income Requirement: $212,250
Downpayment Needed: $169,800
Monthly Equity Burn: $7,075
Purchase Price: $985,000
Purchase Date: 5/24/2006
Address: 49 Bower Tree, Irvine, CA 92603
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Get Out of This House—Shawn Colvin
I got myself this house now and I can’t get out
According to recent reports, 50% of home resales are foreclosures. This statistic speaks volumes about the health of our housing market, but if you look at the overall inventory of distressed properties, the evidence is even more alarming. I look at a variety of property records every day to prepare to posts for this blog. It is very rare that I come across a property where the owner did not add to their mortgage. As a general rule, Irvine homeowners who are trying to sell their properties in today’s market have doubled their mortgages over the last several years. If you add together all the foreclosures, short sales, underwater homeowners, and those owners who have increased their mortgage debt to the point they can no longer handle the payments, and I estimate 90% of our market is distressed.
Well I never got home, but I did what I did
And I got myself this house and you can’t come in
There are very few properties available for sale by homeowners who either are not underwater or who did not add significantly to their mortgage. Homeowners in that category are not trying to sell. Why would they? Some owners have to move for a relocation, some owners must sell because they are unemployed, and some owners believe prices will drop further and they are going short (There are a few like that, but not very many). The remainder of the population of non-distressed homeowners are not trying to sell. Most believe this price drop is temporary and prices will rebound soon, and many simply do not care what happens to house prices because they are primarily interested in providing shelter for their families. All this means that non-distressed homeowners are not selling now. By the same reasoning, the homeowners who are selling now are, by definition, distressed.
Like many others, I have been thinking about all that I am thankful for with the holidays approaching. I have stresses about the economy like many others, but my worries are centered around what might happen. Many people who are financially distressed and waiting for their mortgages to blow up, they are worried about what is going to happen. Remember the Cold War when we all lived with the worry about a full-scale nuclear war between the superpowers? That was a worry about what might happen. Imagine if the news broadcast that the missiles had been launched. Then we would have been worrying about what was going to happen. Do you see the difference? Owners of most of the properties for sale today are financially distressed, and many of them are living with the worries about what is going to happen.
I spent eleven long years in a hot house zone
I spent twentynine more trying to get home
The saddest stories of the housing bubble have to be the long-term homeowners who spent their houses. Some we have already profiled ended up as short sales or foreclosures, and some who still have equity are on their way there. With price falling and resets looming, most of these people are doomed. These people are not going to be living in their homes in the future. Many will face credit problems. There is no telling how bad it will get for them, but there is a negative certainty about their future prospects. The stress levels of this group of people must be very high because they are worried about what is going to happen.
Today’s featured property is a long-term homeowner who over the course of the last 14 years managed to steadily and significantly increase their mortgage debt. It appears they have enough equity left to get out without being a short sale, but unless their income has more than doubled over the years, they are facing much more arduous mortgage payments if they do not sell, and even if they do sell, they will not get the cash their term of ownership could have provided.
Asking Price: $749,990
Income Requirement: $187,500
Downpayment Needed: $150,000
Monthly Equity Burn: $6,250
Purchase Price: $256,000?
Purchase Date: 9/27/1994
Address: 16 Carver, Irvine, CA 92620
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