Irvine Housing Blog

Big deal rates are re-casting lower.  That may not matter in markets like Riverside where housing prices have crashed 50% with 20% unemployment and a downward spiraling economy.  When rates are resetting lower in Irvine at near peak priing and cash buyers buying, you can figure out what that means for Irvine.

I think that you do not understand the term “recast”, as you are using it as one should use “reset”.  and you are assuming that people affected are paying a standard IO loan, not an optionARM teaser.

The rates are “resetting” lower.  Recast means moving from IO to an amortizing status.

and if you are paying an optionARM at 2% on your $900k Irvine mansion, the rate reset to LIBOR plus 2% means doubling your mortgage rate.  If it is also recasting, your payment will go to 4% of $900k plus principal, effectively quadrupling your payment.

Right, so there are lots of assumptions that need to be made, but let’s start with the facts:

1. Irvine is near peak pricing
2. Rates are lower
3.  You don’t have an Irvine specific chart

Forget the facts, let’s see the overall reset chart which is littered with areas like Vegas and riversde, and most of lower class america LOL.

@freedomCM:

I have to chime in here because I think there is a common misconception concerning how OArms work on in the comments section of this blog.

I’ve gotten into this before but an OArm doesn’t STAY at the teaser rate and then recast after 5 years, it moves up yearly and then after X years (usually 3), it uses whatever index plus the margin as a monthly adjustable rate.

So if a teaser started in ‘05 at 2% and then got up to 5-6% and then stayed there… if they were able to make through the first 5 years, the recast is less of a sticker shock then you think. I know people who’s current OArms are 4.89%. They want to refi but have been quoted 5.125% fixed so they are waiting a little longer.

I don’t think the OArm is the harbinger of death it is illustrated to be in the more premium areas, most of the distressed ones have either been modded, foreclosed on or refi’d. I would assume everything else that is left… the owners can afford.

Remember, OArms started way before 2005 yet I haven’t seen the demolition those recasts should have caused the last 2 years… at least in premium OC.

Actually, we have witnessed a great deal of carnage from these loans. You and many others seem to forget that these distressed loans are accumulating in shadow inventory. Of the 3000 or so loans that are delinquent in Irvine, many are likely Option ARMs. What we haven’t yet seen is this inventory make its way to the market. Don’t fool yourself into thinking that just because you haven’t seen it yet that it isn’t there.

Sure. It was also a FACT that JDSU was selling for $200 a share on one of those days 10 years ago. I remember that because a friend of mine told me it was a good deal to buy JDSU @ $200/share - on that very day. Saying something is safe haven just because it is near its peak price today means little to me. Come on, with all these “unprecedented measures” from Fed/gov’t, supply restriction, 0% rate, tax credit, GSE bailout, FC prevention … “near peak” price is all they had to show for??? Under any normal circumstances price should have shot thru the roof by now. OC RE market peaked in summer 2007. So we are only 3 years onto the declining side of the curve. Who knows which direction the market will go in the next 10 years. Way too early to call the game when we are not even done with the first quarter.

But anyone genuinely believes Irvine RE is a safe haven (for at least next 10 years) should definitely jump in with both feet and scoop up a few properties. Look around at today’s global market place – how many investments can you still call a safe haven? Everything seems more or less a gamble.

I wish Irvine RE were safe haven. I would rush to buy a house in Irvine right away if someone can present a convincing case as to why (1) all the positive market conditions that support its current price level, such as low mortgage rates, gov’t policy support, supply control, squatting, rich foreign buyers etc… will very likely remain unchanged for the next 5-10 years; and (2) all the negative market conditions, such as stagnant economy, structural high unemployment rate, credit contraction, debt overhang, job outsourcing, financial insolvency of local gov’t at every level, etc, will quickly go away and not become a drag on the market for the next 5-10 years.

If there is strong evidence that both (1) and (2) will likely hold then I would agree that Irvine is in fact a safe haven and call my RE agent tomorrow.

@IrvineRenter

So why are prices so high in Irvine? From what I recall, this is Year 2 of “The Carnage” (I have seen those OArm Apocalypse graphs here since 2008) and it hasn’t been as bad as predicted.

3000 loans delinquent? What percentage is that of non-distressed homes? How does that compare to the rest of OC, the rest of California or the rest of the US? Please give me some perspective here because numbers without comparison are just numbers.

You know, when Woodbury 2010 Collection opened up, just like everyone else, I had my doubts that it would do as well as The Irvine Company was hoping… 700 new homes in a bad economy with high unemployment. Guess what? Over 400 of those homes are in contract in under 6 months. 3 of the tracts are in their last phases with more finishing and TIC is opening up 3 more neighborhoods with more to follow. You would think that all that new inventory would put a dent into pricing… instead TIC RAISED prices EVERY PHASE!

So I look forward to those 800 homes you say are waiting in shadow inventory… because if 700 new homes can’t make a dent… maybe 800 old ones will.

The Woodbury shadow inventory devastated the market by making prices go up, please let’s see more carnage.  More price increases.  Why people here expect anything different after 5 years is insane.

Planet, some days I just want to smash a pie in your face.  Have a good day!

I was thinking about the same thing.  Right now the real problem is not the GROWTH of the shadow inventory but the SIZE of the shadow inventory.

However, if the growth of the shadow inventory is slowing down, then that means that at some point the size of the shadow inventory will stabilize and eventually shrink,

Think first and second derivatives here.

So, is the growth of the shadow inventory slowing down?

Is the growth of the growth (acceleration) of the shadow inventory gone negative?

If so when?

I suppose this is what the Fed is trying to do by keeping interest rates absurdly low:  ensure that less people get into trouble with their loans so that anyone who was going to get into trouble with their teaser rates would have done so.

A reasonable way of containing the problem.. except my mother lost money on some Fannie Mae bonds… dude, I’m I pissed at the broker and the Feds or what?