Irvine Housing Blog

I would add another ‘fundamental’ - the elimination of ‘owner-occupancy’ requirements for most residential mortgages. Allowing 5-10% DP’s, low-interest rates, and I/O or pick-a-payment amortization schemes makes things ripe for speculation.  The role of 2nd home buyers, while less in Irvine, cannot be ignored in the bubbliest locales.  85% of condos in Miami sold in 2005 or 2006 went to people who didn’t plan to live there, but were investments.  1/3 of all home sales nationwide that same year were ‘investment properties’.  How many were bought with ‘owner occupant’ mortgages?

I think this guy gets voice in the NYT because they want a Chicago market fundamentalist to parry any criticisms of a liberal bias.

Great post - there was way more actual thought in your single post that doesn’t have the backing of the Times name than Mulligan’s two articles combined.

Cut him a little slack - Geithner didn’t even realize prices had fallen when he listed his house.

The four market fundamentals listed above are spot on. However, I also believe that as we move forward, the tax rates will depress home values in the same way that interest rates do.

I disagree strongly with the statement that prices have not bottomed.  Prices have, in fact, bottomed in almost every area.  (Look at any pricing chart for proof.)  Now, there might be a double dip once things like the tax credits are withdrawn and if more REOs are released to the market.  But there most certainly has been a bottom and a recovery.  It’s possible that the recovery is false and temporary-but it’s also possible that it is real and permanent.  Even if it is false, there certainly was a bottom, if not the bottom.

“Here is an example of the author not knowing what he is talking about. Commercial and residential construction workers are not interchangeable. In fact, very few commercial construction personnel at any skill level go back and forth between the two. The skills required to build commercial construction differ from those required in residential. The office work is also very different. A developer of commercial projects is not going to hire a residential specialist to analyze the deal, supervise the construction, or perform other tasks related to the project.”

The two types of construction are not very interchangeable, yes but during the boom we had everyone working on housing Residential and Commercial.  L.A., San Diego and San Francisco had commercial projects in the form of historic renovations of office buildings to residential lofts and condo high rise building all these projects were built with commercial construction resources.

I think a major factor is the ability to purchase without a down payment. This has drawn forward the supply of buyers into upside down loans, effectively eliminating their participation for years to come.The supply of eager savers ready to plop down their savings on a falling asset are reasonably few, leaving cash buyers at rental parity or investors at cash flow fundamentals.

“According to the blue series, created using the “bubble theory” premises, real housing prices would be 3 or 4 percent lower now than they were before the housing boom (a value of about 97 for the index) if in fact housing demand were no different, because the “overbuilt” inventory of houses is supposedly 3 or 4 percent greater now than it was then.”

From where did he pull his one to one correlation between percent overbuilt and housing prices? That is about as non-linear as I can imagine. Once there is an over supply, prices fall back in an accelerating fashion. Don’t forget the dissipated supply of buyers. Today is a furlough Friday in Sacramento. There will be a few thousand less cars on the road. The freeway will appear empty.Where’s my one to one correlation?

You relate: Sometimes I wonder what borrowers had to do to induce lenders to give them so much money. It must be a convincing story when lenders shell out a couple of million dollars. Based on the HELOC abuse, anyone could have temporarily made the payments from the borrowed money. It wasn’t very difficult to live like a Ponzi in these high-end properties. It didn’t require any wage income.

Honestly, before I started to read your blog about two months ago, I never knew that HELOC lending, Alt-A lending and Option Arm lending, enabled one to live a ponzi lifesytle.

I’ve been naive and ignorant most of my life; not good, because one gets clobbered in many ways for being a simpleton.

During my reading I read of one migrant worker who obtained a stated income home loan from Washington Mutual for $750,000 in Riverside County. The greed of commissions offerred at WaMu, Countryside, Wachovia, Citi, Bank of America, Lehaman and others has destroyed our nation beyond repair.

The only outcome of toxic lending and HELOC abuse will be a sharp evaporation of credit liquidity much like what happened yesterday May 6, 2010 where there was a violent exit from yen carry trades, including but not limited to the Aussie, the Loonie, the Peso, the Rand, the Ruble, and the Rupe, as investors bought the Yen, FXY, which rose a spectacular 3.8% to close at 109.77. The Euro, FXE, fell to 125.96. The US Dollar, $USD, rose to a 14 month high to close at 84.85. Currency traders sought safety, if it be called that, in the US Dollar.

This one day violent extinguishment of carry trades was a repudiation of investment risk. The Aussie Yen carry trade, FXA:FXY, fell to its 250 day moving averge. In one day, currency carry trade investment fell back seven months, to the early October level when gold broke out. This extinguishment of carry trades represents a “vaporization of investment liquidity”, and places one’s investment capital in brokerage accounts and money market accounts at risk. Then interest rates will jump and home loans will not be available; one will lease or rent not buy; property values will fall.   

Perhaps one might enjoy the financial reading on my linked blog article.

I think of all the things I could have experienced had I had the insight to obtain one of those stated income loans and then simply walked away. Would it have been wrong to do so? Well many, many, many Americans have and are doing just that.

“Ezra Solomon (1920-2002) was a professor of economics at Stanford University. As a member of the President Nixon’s Council of Economic Advisors (1971-1973), Solomon contributed to the change in monetary policy that saw the United States end the gold standard of U.S. currency. By at least 1985, Solomon was credited with this quote: “The only function of economic forecasting is to make astrology look respectable.” By the 2000s, however, the quote was misattributed to economist John Kenneth Galbraith (1908-2006).”

http://www.barrypopik.com/index.php/new_york_city/entry/the_only_function_of_economic_forecasting_is_to_make_astrology_look_respect/

15 years ago I interviewed for a position at medical clinic at Stanford U.  The physicians were all on salary and they showed me a paper they published showing how primary care could never make any money.  Then it turned out that Stanford owned the building these turkeys were practicing out of and was billing the primary cares rent at more than 5 x what I was paying in So Cal per sq ft.  I told them of course you can’t make any money at those rents.  I thought they were complete idiots.  Of course, they didn’t hire me…..

Just goes to show that academics anymore is more about getting your name in print than actually doing any real research.

IR,

Why is this house a short sale (according to Redfin) when Total property debt is $2,740,000 and listing price is $3 mil.?

I’d love to see a followup on this property in a month.  If it is in “backup offer” status, that means that there is an accepted offer, right?

If that deal goes through, I’d like to know what it is… because at 19% over the 2005 price, that is a real WTF asking price.  That would essentially be what the property would have gone for at the peak, isn’t it?

Everyday when IR profiles a home that still lists with WTF price of the bubble years, particularly a high end home, and there’s a back up offer, I always wonder

1.  who are these buyers?

2.  what are they thinking?  what went through their mind when they buy a house with such an inflated price?

3.  Do they know they’re buying with inflated price and have a great chance of being the bag holder?

IMO, for someone to buy at that price and don’t care about inflated price, along with heavy tax, mello roos, HOA, insurance…, they must be FILTHY rich to not care about throwing hundreds of thousands away (I’m talking about someone with net worth of hundreds of million)

But for some reason, I doubt it these people are that rich.  I have a feeling that these are well to do folks but no where near the filthy rich (probably income of around $500,000/yr).  If my gut feeling is right, then I can’t imagine the ignorance, the risks, the stomach for leverage these people have.

Sorry everyone for my rambling, but just need to vent my frustration

Is it me, or do the front of house photo’s appear “shopped” a bit? At $2,999,999 and a short sale, they must be squeezed for cash and couldn’t pay for interior photos.

My .02c

Soylent Green Is People.

One of my UCB Econ. Professors said that the study’s sponsor know which well know economist to hire for the desired outcome.  In other words, the models used and prejudices of the economists will drive the data to a forgone conclusion.

Those in power promote a school of thought that support their positions and not likely the general welfare of the country.

Plain common sense is boring to most people.  They want to have their ears tickled with some new thought that’s only available to the select or avant guard.

Almost $500 per square foot?  I don’t think so.  It’s a nice home.  But this is a wishing price.  Knock off 50% and you’d be in business.

Let me ask one question about Woodbury homes (new ones).  What is it about Woodbury homes which make people pay so much premium for these houses?  I can see certain advantages, such as the Woodbury houses being new and new ones such as Montecito having good floor plans, but paying IMO close to $100,000 plus higher price than Northwood homes and paying Mello Roos tax and higher HOA fees doesn’t make any sense to me.  Besides, I think the location is more inconvenient.  Am I missing something here?  Would like to hear opinions from others.

A Surprise Tax Hit on Foreclosures
For People Who Lose or Walk Away From Their Homes, A Big Tax Bill May Loom

http://online.wsj.com/article/SB10001424052748703686304575228783947789118.html?mod=WSJ_hps_MIDDLEForthNews