Irvine Housing Blog

Some economists see principal reductions as central to cleaning up the housing mess AND preventing foreclosures.

Some economists are really stupid.

I think if your requirements are to have a clearing market and not foreclose you need (ongoing) principle reductions. Just ignore the question of where the money for this will come from. Of course if you don’t want to keep pumping money in from outside you need either foreclosure or a stuck market. I don’t think the economists were silly, just answering the silly question they were paid to answer.

Meta-economics: the study of the buying and selling of economists?

Nice home, should sell for around $325,000.

@Swiller…that might be a bit low, but $700K is way over the top.  It seems to me that if principal reductions were at all possible they would have been done by now.  My understanding of the whole MBS thingy is that ANY change in the terms of the original mortgage contract would have to be approved by the OWNER of the contract, i.e. the INVESTOR…..not Freddie/Fannie.  Do these “Senators” know what they’re talking about?

Almost three quarters of a million dollars for a 1500 sq ft box built in the 1970s!  It might be cheaper to own than rent.  This shows how perversely manipulated low interest rates change the equation.

I’ll let some eager buyer scoop this place up.  I might be paying $200 a month more in rent for a similar place, but at least I won’t be losing 2 to 3K per month in equity due to declining home values.

When it was built in the 1970’s, will it really be cheaper to own? How well built were these places? How’s the roof, exterior shell (even if OC does not get much rain or wind), plumbing (inside, and out to the street), etc.? Was the electric panel put in back then adequate for today and the next 10 years or so? What about the state of the water heater and AC? I guess you need a much better inspection than verifying if the granite is real and flat to have an idea of what the major maintenance and repairs are going to be on a 40-year old house. Not having seen the house so I really don’t know, but I’d tend to agree that three quarters of a million dollars is still a lot to pay.

IR has the fundamental value line and could incl. it w/ each home for sale, showing us what it would cost had there been no bubble i.e. the 4% incr. per year idea.  That would be valueable information next to the HOA monthly charges, and it would also provide fodder for P.R.

My god, 700K+ for this little 1500sqft place.  You would have to be quite mad to buy anywhere near this price.  Gosh, now I see why the exodus from OC/California is going on.

Note to possibly insane realtor: If you have hopes of snagging $725K for this baby, I’d suggest more pics showcasing the actual home, as opposed to the weak horticultural display (“Still Life with Three Elephant Ears”) and tiki torch assemblage in pic #3… I for one had hoped to see far more of the highly touted “neutral tile, carpet paint, and decor”....

Just comped this out….2 model matches just sold recently, one for $555K (3 months ago, 0.03 miles away) and another for $614,500 (1 month ago, 0.06 Miles away).  Declining market…this wont appraise for more than $615K (even though it’s totally remodeled….)

Who’s the dope who’s going to bring that “EXTRA” $110,000 to close this “awesome” deal????  You might find an awesome fha buyer (@ $615K) for this bad boy, thanks FHA!!!

Any thoughts?

I don’t know why you use the phrase “loan owner” when a clearer term would be “house-debtor”—the “loan owner” could just as well be the lender, i.e., ME.

That said, I completely agree with you that forcing principal write-downs will solve nothing in the short run, and will encourage more foolishness in the long run.

This house is ridiculously overpriced.  It sold in 2006 for 740k and is being listed today for 725K.  So in the worst real estate market since The Great Depression, this home has only depreciated 15K in 5 years?  Please give me a break.  Why isn’t anyone dealing with the reality of this market? Come on, you know this house is extremely overpriced.  This is why these homes aren’t moving. Price them realistically for crying out loud or don’t list them at all.  In the very least shave 30% off, that is 6% a year. List it for $518k.  Someone will buy it within 90 days and you’ll know it was priced correctly.

I disagree, I majored in economics and when rents equal mortgage that is when it is worth buying. This is why I don’t see the market decreasing too much longer if anything we already hit bottom. These prices maybe artificially inflated but everything is in the US. Also, as forecloses come on the market you will see an increase in demand for rents and a house sitting unused next door which was foreclosed on. This will cause people to get off the fence and buy that home. It is not how much you pay for the house it is your payment. The car industry has been doing it for decades.

I agree Jane, but if it rents for a specified amount it will sell to investors, and they will profit if the 3.5-4% mortgage plus risk of buying is greater then the rent. I don’t see rents coming down in the future. The Fed has been printing money like it was going out of fashion. The only thing for homes to do is drag on an artificial bottom which was created by the banks. Let’s think about it, if you make a profit people will buy in. The CD rates are less then .5% at my bank.

There must be a point where even investors feel it is unwise to rent to someone paying 38% of their income for rent.  At that point, some folks will opt for other choices.  The rental/parity theory will colapse.

I would agree Causal Observer if a place to live was a luxury, but it is not. You have only so many options and then you’re stuck with what is left. Since a place to live is a must have item they (banks + government) know you need it, so if the floor is held for a long time it will become the new norm. Private investors are purchasing property below market prices and when rent losses demand it will go down, but I see it only going up in the next few years due to shrinking rentals by foreclosures and people losing there homes. Economics is only good on current date so when data changes so does the whole model.

There will always be irresponsible borrowers, so I don’t think principle reduction is moral hazard from the borrowers perspective, but rather from the lenders perspective.  It was moral hazard in the implicit(explicit) gov’t backing of fannie and freddie, and the over-time bailouts of LTCM, etc, that led to reckless lending.  So if fannie and freddie owned loans are allowed principle reduction, what does the govt say to those whose loans are held by other than fannie and freddie or those who rent?  The immorality and unfairness is beyond belief.