If Cramer’s as right on housing as he has been on Google stock - http://www.stocktagger.com/2007/07/jim-cramer-google-inc-goog-track-record.html - then we may all have to burn down our homes
——-

Any bets on when we will see trashy apartments(condos) like this one selling for $201 per square foot. My guess is that we are about 12 months away.

I think Jim Cramer is addicted to prescription drugs.

I’ve never seen somebody get so amped up, on a many subjects so quickly, without being on some type of prescription drug.

Holy Smokes!  Good Find IR.  Every few weeks I feel more and more that I dodged quite a bullet.  I’m looking forward to coming home to OC in a couple of years with bags of cash, rather than mountains of debt.

As to you addition of the tagline “Chronicling ‘the seventh circle of real estate hell’ since September 2006”, I should say that the seventh circle of Dante’s inferno was actually a nice place, in fact a walled garden that the honorable people of Greece lived in since obviously they couldn’t be in heaven.  I think the housing market in Irvine is worse than that.  In fact, I had my house on the market when this blog started and let me tell you, I was in a much more inner circle of hell!

Boo-yah !  Love Cramer, but he does seem as if he’s on amphetamines in this clip.

That’s so funny!  He’s just really animated about everything….and maybe some drugs.

Tony Robbins

Rush Limbaugh

Good find IR!

Based on the pics, this is a nice starter condo for someone at 250k. People who pay 400k for it are just “catching the knife”.

Your point is taken however, whoever bought it in 2003 is in fact taking a pretty big loss.

“This is a private end unit with no one above or below”
This and the attached garage are its saving grace.

If I recall correctly, in the mid 90s the home prices in Moreno Valley dropped like 50% and took 10 years to move up.

Interesting thing about plowing over The Inland Empire.  I assume he’s talking about San Bernardino and Riverside? 

What are the homes in Moreno Valley and Temecula doing nowadays?

However, I think he’s a bit too pesimistic about the 20% drop.  It all depends on what your take is on the home.  If you moved in with a fixed 30 year at 6% you might just want to sit tight.

OTOH, these 2/28s… oh boy.  I think Cramer is close to the truth on that one.

My gut feeling is that the Fed will drop rates by 0.5% within the next six months.  Not a full percent, but half of a percent. 

Unless, of course, we run into a full blown kredit krunch in which you might see a serious reduction in rates along with a tightening on credit standards.  That would allow people to stay in their homes a bit longer, allow the commercial markets to move and keep some type of lower limit on how much will RE prices drop (by cutting back on the number of foreclosures).

Either way, the flippers are surely gone.

New show on HGTV:  Flippers Gone Bad.  Where flippers get drunk and their wives/GFs show their tits.

that was without being on a prescription drug

Prices were too high in 2002, and they were insane in 2003.

So it should sell lower, much lower. I will be watching.

I have calculated that, to get a price at parity with local rents, that prices have to go back to 2001 levels- AT LEAST.

This goes for almost all major metro markets, including those that don’t seem “hot”. Cleveland, OH, might look dirt-cheap to someone from SoCal, Chicago, or FL, but it might be outrageous in terms of the local income levels, given that OH, as just one example, is now one of the poorest states in the country.

I don’t think Cramer was serious.  I think he was making fun of the re bears and the stock market bears.  No one seriously recommends burning down homes.  If someone takes him seriously and burns down their house, and says Cramer said it was a good idea, every neighbor of the torched home will be suing Cramer and Cramer has got to know that.  I think he was just trying to get attention.

The Seventh Circle quote is from the Daniel Gross article in Slate, Newsweek, and other publications.

“Another Irvine-based operation, IrvineHousingblog, brilliantly drives home the same point with daily dispatches. The blog is a guide to the seventh circle of real estate hell—people who buy houses on spec with no money down.“

Here’s the link:  http://www.slate.com/id/2171235/fr/flyout

Every comment here is ignoring Cramer’s last comment.  Just as Greenspan inflated the bubble, Bernanke can keep it afloat and/or manage its deflation by dropping the fed funds rate.  And there’s a lot of room to move with the current rate being at 5.25%.  Congress has been all over this issue (for political purposes of course).  If the housing market values start spiralling downward, there will be tremendous pressure on the fed to lower the fed funds rate.

What the fed can basically do is counteract the banks’ removal of credit from the mortgage market.  And then we’re back to where we started - in a price stagnant residential real estate market.  The fed can wait ‘til the teaser-rate loans clear through the system over the next year or so, and adjust accordingly.  Of course, it always sounds easy to control spiralling markets in theory.

And who is Cramer suggesting “walk away” from their homes because they “lose 20%“?  That was just idiotic advice.

I think Cramer was trying more to get his point across the Fed to lower interest rates, not only it will help housing/financial sector in the short term, it will up the stock market overall.  Even if he was not serious, I am firm that housing is in turmoil and nothing will save it.  Not even Fed.  Keep in mind, Fed controls only the fed rate which is the interest only version.

Looking at lack of equity, falling dollar, increasing inflation, as an investor why would you want to invest in mortgage backed securities on an deflating asset?  Long term fixed rates are controlled mostly by investors in China and they can pull the plug by demanding higher rates of return on their investment given the risk involved in US Mortgage industry.

Falling Dollar = increase in imported goods prices (80% consumer goods come from china) = increase in inflation = increase in interest rates to counter inflation.  Why do you think Fed would lower rates?  If they do so, watch what happens to the 30-year rates, it will spike up.

Not to mention, oil will continue to get more expensive for US as oil is traded in US dollars and will falling $, refinearies will raise prices to make up for low $$ value.

The house in question on this post is worth less than 2001 prices.  probably $200/SF

A home you live in isn’t a true asset, in that there are many more variables considered than its immediate appreciation.  However, the belief that the home will lose 20%+ does outweigh the other considerations.

One thing a home with a fixed-rate mortgage is, is a good hedge against the inflation that concerns you (another one of those variables to consider).

According to the auction website’s terms and conditions a 10% buyer’s premium will be added to the sale price. What buyer is going to pay a $40,000 commission on a condo in Irvine?

No, the buyers will just lower their bids by $40,000. The seller pays either directly or indirectly.

I don’t understand a lot about investing and how the fed works, but it would seem to me that if the fed lowered rates to try and “save” the housing market, it would end up creating large inflation.  If the housing prices stick where they are right now, incomes are going to have to start increasing.  The college grad level employees are not going to be able to afford to live in southern california, so they will leave.  The only way they will stay is if starting salaries for college grads at average jobs starts increasing to $60,000+.  And companies will have to raise prices to pay those salaries, etc.

Just to keep everyone honest, condos are often the first to fall and the last to rise.  So while it is interesting to see a property at a 2003 price, this is not necessarily reflective of all Irvine properties.

Robin Williams

You’re suggesting it’s simply a leading indicator?  I’ll go along with that.

What would this place rent for in today’s market?  Anybody?

Who says they aren’t.  A brand new engineer here got a 60-65k starting packages.  Lets just say there is ALOT of compression in the market right now.
-bix

I’d guess $1400-$1600/month.

Maybe I guessed low.  I found a few 2BR Condos on Craigslist:

$1850
$1825
$1640

I’m thinking even some of the lower level employees such as accounting, human resources, customer service, etc.  These companies are going to start suffering when they can’t pay people enough to be able to afford to live here.  That’s basically the boat I’m in.  My wife’s a teacher, and I make about the same as her.  I say that a community is in trouble when teachers are not being paid enough to buy a home in the community where they teach.

Even a 65k salary cannot support a 400k mortgage.

Probably in the 1800-2100 in the corresponding location.  At these prices, the rental would be half to a little over half of what the mortgage is….
Anyways good luck and don’t work too hard.
-bix

And the loan tightening continues…

American Home Mortgage Investment Corp. Provides Update on Liquidity

http://biz.yahoo.com/bw/070731/20070731006127.html?.v=1

Quote rom the Corporate Overview section of American Home Mortgage website (http://phx.corporate-ir.net/phoenix.zhtml?c=68091&p=irol-IRHome) pasted below:

“American Home Mortgage Investment Corp.‘s primary goals in managing its portfolio are to gain yield through the benefit of self-origination, and otherwise seek to reduce risk. The Company attempts to minimize the risks associated with holding a leveraged portfolio of securitized loans held for investment by approximately matching the duration of its securitized loans held for investment with the duration of the liabilities the Company utilizes to finance those loans. The Company further seeks to mitigate risk by investing primarily in adjustable-rate mortgage (“ARM”) and hybrid-ARM securitized loans. “

That is provided it actually rents. I rent in Turtle Rock and the units on either side of me are for rent plus the one three doors down. These have been for rent all summer. And that’s just on my street.

Cramer straight up turned into a raging housing bear.  I was surprised that he said the Inland Empire should be “plowed” over.  Maybe that’s why he has his shirt sleeves rolled up; ready to hit the farm and get some work done.  So much for a housing rebound.  We’re in full implosion mode. 

This is a great find and just one of many we will be seeing in the next few years.  Remember people saying we will never see 2006, 2005, 2004, or even 2003 prices? 

A home has to reflect area incomes and also lease/rent rates.  No longer can you use these arguments:

“housing always goes up…“
“you will be priced out if you don’t buy now…“
“we have great no-doc stated income loans…“

We are in a different time now. 

Dr. Housing Bubble

That range would produce an intrinsic value of between $300K and $350K or roughly $225 to $265 PSF.  This assumes a 100% finance scenario at 6% and that tax savings offsets county taxes + HOA dues.  Which are probably both somewhat generous, but reasonable as a basis for analysis.

Interesting.

“Even a 65k salary cannot support a 400k mortgage.“

But two can.  Quite nicely.  And $65K is the average for teachers around here.  And firemen, and police ...

A two worker “civil” service family can readily afford at $400/$500K place, slightly more with the recent low credit.

A quick check of Craigslist today shows 437 properties showing up with search term of Irvine, 2BR selected and a max rent of $1800.

120 show up with the same search max of $1650.

You can readily rent for less than $1600.

You mean they’ve been sitting empty all summer.  Maybe you should ask for a rent decrease.

Where do you get the figure of $65k for an average teacher?

agree, even less than 200 per sf when all is said and done. just my opinion, as money becomes expensive to borrow, people will start becoming careful what they buy.

Just got back from the auction site, 15530 Rockfield, A-1 .  Office is empty and no one there from 12:45pm - 1:00pm. Realtor Steve Cook did not answer his phone.  Looks like no one was interested in offering $400K + 40K buyer’s premium for a 2bd, 2.5ba condo.  So need to re-calibrate pricing, $300 per sf doesn’t cut it anymore.

One of our posters was told by their realtor that they shouldn’t even bother to go look at this unit because there was “its not going to go for less than 500K.“

It is a good thing we look to these experts for their read on the market.

Is there a site for the auction results?

The Education Trust.  They did a study to highlight the hidden gap in spending in schools with poor & minority students versus predominantly affluent students.

Here’s the link to the Irvine school district average pay.  http://tsa.hiddengap.org/schools.php?district=30736500000000

““its not going to go for less than 500K.”

It is a good thing we look to these experts for their read on the market.
“

Was that their ‘market’ opinion or their inside knowledge of a reserve price?

Yup,  you need an expert realtor opinion to conduct an re transaction.  Just think of how you could be taken advantage of if you did not have a realtor representing your interest.
NOT!!!

Lots of doublespeak for, “We are overleveraged and a sneeze will blow us over.“

follow up Cramer video:

http://housingdoom.com/

Here’s a link to the IUSD pay scale.  I used to be a teacher (about 10 years ago), those numbers seem very high compared to the pay I’ve seen in other states.  Makes sense though - if you want an excellent educational experience, the teachers are the backbone of that.

http://iusd.org/human_resources/pdfs/cert0607.pdf

Wow.  That’s quite an interesting video.  Interesting point he has about the just default and walk away ... comments anyone?

Great find, thanks !  IR, you should make this video it’s own stand alone post…. AND make it sticky.

Cramer is absolutely right.  Many people purchased a “financial” asset, not a home.  They leveraged themselves to the hilt betting that prices would go up.  They bet poorly and lost.  Remove emotion and look at it from the financial aspect.  You have a net liability - $525,000 Irvine home against which you owe $650,000.  You can walk away, mail in the keys and avoid thowing away $125,000 (and probably much more before this all shakes out). 

As an analogy, say you bought 1,000 shares of Global Crossing on 100% margin (I know you can’t, but it’s an example) for $125.00 per share and now it’s bankrupt.  Say the Charles Schwab, who gave you the margin loan told you, “Hey, you don’t have to pay but it will be a ding on your credit,“ would you pay?  Never.  Ding my credit.  For $125,000, who cares?  It’s EXACTLY the same.  The smart home debtors (who owe more than it’s worth) should walk away.  They have one “get out of jail free” card and they are fools if they don’t use it.

Cramer just told it like it is.  Who really loses?  The Asian investors who bought this toxic crap.  They took the risk, they wanted to gamble on a risky asset and they lost.  Why should some Irvine homedebtor pay for years and years, deprive his family and himself, so some Asian multi-millionaire can get back 81.065% of his risky investment instead of 81.064%?

Homedebtors - you’ve been give the chance of a lifetime for a “do over.“  Don’t be a fool - use it!

Sue,

Actually, I did just that in 1995.  I had bought a little condo for 70K in 1989…then the bust came.  Over the years, as no one bought, the place turned into a dump.  Slum lords starting picking them up cheap (they were apt conversions….note to self…never buy an apt conversion)...and renting them to whoever would pay a few hundred bucks.  Then the auctions started.  I kid you not, my neighbor picked up my exact unit for 3000.00 at an absolute auction because he was the only bidder and that’s the number he threw out.  Yes, you heard right….3000.00…three thousand dollars….what I had paid 70,000 for.  I walked away at that point.  The complex never recovered and the units now sell for around 50,000.  It made economic sense, even though it hurt my credit report for 7 years (but I was still able to buy 4 years later with a slightly higher interest rate and a letter to the lender explaining the default.)

My place is smaller than the ones for rent. Thanks to my boyfriend’s skill at haggling I’m paying at or slightly below market.
But you can bet at renewal time I will be pointing out all the For Lease signs in the neighborhood so I’m not stuck with an increase.

buster, that’s some of the worst advice I’ve ever heard.

What do you think the government will think of the $125,000 you didn’t have to pay when you mailed in the keys?  Hint:  debt forgiveness = income.  In your hypothetical, Joe homedebtor mails in his keys and gets hit with a tax bill for $125k in income he never saw, simply because he wanted to get rid of a paper loss.  So now he’s not only out of a house, he’s stuck with a massive debt to the IRS.  At least he can tell everyone he had a six figure income.

Please don’t believe what Cramer tells you.  He should be used for entertainment purposes only.

I see buster’s point, even though I would not give that advise to people for other reasons (as Maverick described some above) plus if you can afford the home, just enjoy it, who cares how much its worth on paper.

OTOH, if you cant afford it, then get it over with, no need to prolong the pain, people will still have to pay for their actions
—>IRS, damaged credit and so forth.

as far as lenders, investors—> tough sh*t, they took the risk and they too will feel pain. may be we should go back to banks holding their loans, let see how much risk they are willing to take.

I believe we have to take some medicine which will taste nasty and the best way to do it,  drink it all at once, get it over with, then we can return to sane times and feel somewhat better.

just my 2 cents.

“ ...I was still able to buy 4 years later with a slightly higher interest rate…“

If anyone tells you that mailing back the keys, or a short sale, is a bad idea, then read this first. 

The other thing we’ve all heard is that the IRS will make you pay taxes on the amount of forgiven debt.  Of the bloggers here who have walked, how many have actually PAID the FULL amount of income taxes on the FULL amount of the loan balance in excess over the post-walk sales proceeds?

More Cramer, he had a new video today.

http://housingdoom.com/2007/07/31/cramers-not-kidding-just-default/

Question: Where is the fear? I still do not see it in Newport.

Idea: Jingle Keys is an emerging trend…. It will be giant.

Maverick - Well, you’re technically right and very wrong in the real world.  Any CPA worth 5 cents can change this to a deemed sale AND get you a capital loss for any downpayment or loan paydown.  Sale price is the debt relieved and the basis is the adjusted purchase price.  Hey, It’s too complicated to go into now, but there are different rules for discharge of recourse and non-recourse debt securing a capital asset. 

That being said, I’d rather pay tax a dollar of taxable income than pay a full dollar to the mortgage holder.  But that’s really moot since nobody would ever end up with taxable income if they have a CPA help them out BEFORE foreclosure.  But too many people don’t get the tax advice before acting, and it can be too late to clean up the mess after the transaction is already done.

But here’s a summary for those thinking of giving back the property:
1) California is a NON-RECOURSE state.  The loan(s) used to initially purchase the property are non-recourse.  If you refinance, you lose the non-recourse status.
2) Capital assets forclosed upon subject to a non-recourse loan are considered a “sale or exchange.“
3) Thus, the amount of debt forgiven is the sale price, your purchase price plus improvements is the basis and any gain or loss is the difference.

“The other thing we’ve all heard…“

Are you kidding?  It’s not an urban legend—the lender is required by law to report the amount of canceled debt to the IRS on Form 1099-C.  You really think the lender is just going to ignore their reporting requirements, or even better, the IRS is just going to forget about it and call it a day?

Take tax advice from anonymous bloggers at your own peril…

buster - I am unsure of your point, but bottom line is; the borrower will receive a 1099C, and the borrower is liable for tax on the capital gain resulting from the forgiven debt.  And Sue, the borrower is liable for the tax incurred, whether they report it correctly or not.  The only way I know to forgo paying the tax on forgiven debt is to be declared financially insolvent.  I don’t think there is anything a CPA, worth 5 cents or $5, can do.

I have heard of cases where the lender did indeed fail to issue a 1099C, but the borrower is still liable for the tax incurred on the capital gain, (realized forgiven amount), whether the lender is in compliance or not.
Folks do all sorts of stuff on their return, and most of the time their return is not reviewed, but, per tax code, they are still liable for tax owed.  Sometimes is takes years for the IRS to audit a taxpayer’s return.  The IRS does not usually audit returns more than three years old, but legally they can audit any return they think is in error or fraudulent, with no time limit.

RESULTS: ABC 7 did a story this evening (5pm news) on the auction and apparently a lady won at $410K but the seller refused the bid.  The reporter interviewed the winning bidder who was disappointed that she had the highest bid but still didn’t get the house.  However, it turned out that the bidder and seller agreed on a slightly higher price after the auction.  They didn’t disclose the price but it sounded like it was within $10-15K.  I personally think the seller just wanted the price they paid.

Interestingly enough, the reporter also interviewed one of the presidents of a local realtor association and the president talked down the entire auction process stating that it was unproven and not really meaningful for our market.  He said that auction usually makes people think about properties under stress and the Irvine type of property would do better with a traditional sale.  Clearly he was looking out for realtors and their pay checks.

I wish I could find the video clip online or more details.

I think this is the abc 7 story you are referring to:

http://abclocal.go.com/kabc/story?section=consumer&id=5529594

The article says that the bidder won with a $420,000 bid.  Then you’ve got to add the auction fee of $42k, so really she bid/won at $462,000 (although the buyer didn’t accept that offer). 

I imagine that the auction fee will still have to be paid, even though the seller didn’t accept the offer that won the auction because they eventually came to a deal.  So, if the seller got the buyer to up their offer 10-15k, then the final price to the buyer will probably be somewhere around $475,000 or $358/sf, right?

Still a great bargain compared to the $500/sf current listings, but maybe not 2003 prices…yet.

That is how I interpreted the video link. I will update this post on Saturday.

Good find fyh!  I clearly have a bad short term memory   Didn’t mean to misrepresent the details.

So did it sell after or not?  Yep, listening to the video, Juliet, the home seller, lowered her price and the buyer raised her price.

IMHO, the buyer should have dropped Juliet like a dead fish, the buyer was high and was likely bidding against shills up to a minimum anyway.

She should have left it, come back next week when it’s back on the MLS and offer whatever her previous bid.

I wonder if the auction fee still needs to be paid.  If the auction didn’t make the reserve price and the seller rejected it, the auction failed.  Negotiations afterwards are no longer part of the auction.  In such, the buyer could raise her price to $440K ($20K) and still be $22K less that what she would have paid at the auction price of $420K.

Still, my gut tells me the auctioneer milked her with either bids from the wall or a shill.

I would have to imagine the auctioneer would have a claim to a commission if a transaction takes place between those parties. They were the facilitator of the transaction whether or not an agreement was reached as part of the auction.

Yea, I can’t imagine the Auctioneer is going to let that $42K get away easily.

IMHO, massively dumb on the buyers part.  She could have bought the property for the amount she paid any time in the last 30 days.  Or let the seller stew for the week and buy it next week.

Buster,

There is no need to stereotype sellers of these “distressed” properties.  “Who really loses? The Asian investors who bought this toxic crap. They took the risk, they wanted to gamble on a risky asset and they lost. Why should some Irvine homedebtor pay for years and years, deprive his family and himself, so some Asian multi-millionaire can get back 81.065% of his risky investment instead of 81.064%?“  A closer look at NOD and NOTS lists, and short sellers show the owners to be of various ethnic backrounds.  Let’s keep this blog clean as it is clearly the best housing blog covering OC.

Slowly but Surely (in regards to the rollback prices)

I think buster was refering to the MBS and not the actual properties.  Most of the loans were securitized and sold to investors and a lot of these investors were from Asia.

I received no 1099c.  I did not have to pay taxes on the forgiven debt.  fyi.

If you did not pay taxes on capital gains due to a forgiven loan, you are in non-compliance, and if the IRS figures it out, you will have to pay the correct tax, penalties, and interest.  It matters not that you did not receive a 1099C.  You are responsible for filing your return correctly and paying the correct tax and the non-receipt of a 1099C does not preclude the incurrence of tax liability.  If the IRS does not contact you on this matter within three years, chances are they will never contact you regarding it, but, there are no guarantees.

Is there any update on how the auction on this property turned out?  What was the final price?

Home is in escrow.  Sold price unverified.

sold on 8/28/07 for $473,000. No liens per public records.