Irvine Housing Blog

You write: “Since many high-end borrowers are delinquent on their loan payments, the only reason the high end has not collapsed so far is that the supply has been withheld by banks not approving short sales and not foreclosing on squatters.”

How very true. This is the FASB 157 entitlement in operation. But once there is a liquidity evaporation on the stock market, and bank stocks fall, that being seen in the ETFs, like IAT, KBE, and RWW; as well as a sell of in the Treasuries, like IEF, TLT, and ZROZ, then the banks, having had their capital wiped out, will be looking for cash flow, and will start asking the squatters for lease payments.

The $2.8 million house at 65 Grandview, Irvine, CA 92603 is surreal—totally a plastic dream both in price and in ammenities. What a trajedy, I know people who impose and couch serf, and the intoxicated and squat. But I tell you ... Solyent Green Living is coming very, very soon, as Debt Deflation gets underway.

The article mentions New York with a price-to-rent ratio of 33. Perhaps one might enjoy reading my article entitled ” The Surreal Upper East Side … Zip Code 10021” which I provided a link for.

Trulia reports that the median sales price for homes in Upper East Side, New York for Mar 10,2010 to May 10,2010 was $1,235,901 based on 152 sales. Compared to the same period one year ago, the median sales price increased 11.3%, or $125,901, and the number of sales increased 42.1%. Average price per square foot for Upper East Side was $1,198, a decrease of 4.2% compared to the same period last year.

Oshrat Carmiel in Bloomberg article Manhattan Empty Condos May Be Rentals as Leases Reign relates: “When Richard J. Bailes and his family paid $4.1 million in March for a four-bedroom apartment in the glass and steel Georgica on Manhattan’s Upper East Side, just eight of the building’s 58 units were occupied, he said.”

“Bailes and his family had plenty of places to choose from. About 8,700 new condos sit empty in Manhattan, with 75 percent not even listed for sale yet, said appraiser Miller Samuel Inc. Priced at levels the market no longer supports, they’re selling so slowly it would take as long as seven years to find buyers for them all, said Jonathan Miller, president of Miller Samuel.”

“‘Most investors would be happy to buy apartments for operation as rentals, but most sellers and their lenders would not,’ said Susan Hewitt, president of a New York real estate investment and development firm that bought unsold condos in the last property downturn. ‘The original developer isn’t interested in any price below the value of his interest and the lender isn’t interested in writing it down until they’re forced to for regulatory reasons,’ she said. ‘That accounts for the paralysis right now.’”

“So long as regulators don’t force lenders to write down the value of their condo loans, they won’t, said Alexander Goldfarb, an analyst at Sandler O’Neill & Partners LP in New York. ‘Here’s the challenge,’ Goldfarb said in an interview. ‘At the peak, a for-sale condo in New York cost, let’s say $1,000 a square foot to build. To make it work as a rental — conceptually you need a pretty big haircut.’”

“The 8,700 unsold new condos in Manhattan exceed all residential sales in the borough in 2009, according to Miller. About 6,500 of those units are ’shadow inventory’ and have not yet been listed for sale, he said. ‘If you flush that all into the market you tank the market,’ said Daniel Alpert, managing partner of New York-based Westwood Capital. ‘So the only way you can effectively push that into the market is to bleed it out very slowly. Well, the lenders don’t really have the option to bleed it out slowly because they can’t hold onto it for six years.’”

2.8 million and no landscaping? For that price (and less) you could buy acres with horses, pools, views (even ocean views)in Orange County.
The only thing I like is the kitchen

Amazing that somebody paid (ok, “paid”) $3.5 million for a house but never bothered to put in ANY landscaping at all, front or back.

Maybe people are buying now because this last bubble has taught them bad habits:

1. Low interest rates and FHA low downs are like the new OArms.

2. If prices are going down (or at bottom in some places) we are closer to them going back up at some point.

3. If they do, then we can cash out like all those people at the last bubble.

4. If not, we can squat or walk away like everyone else is doing since it’s been shown that the banks are in no hurry to foreclose.

Why wouldn’t a renter (or even a move-up buyer) consider the above scenarios if there is little cash to risk (3.5%)? Especially when waiting on the sidelines so long and noticing that the “suckers” who bought during the bubble not only made money… but are living rent-free so are making more money.

And by encouraging underwater homeowners to strategically default… that’s just adding more sugar to the KoolAid.

The pricing in TRidge was never based on reality, it was pure marketing and speculative mania.

Again, they were charging a 100% premium over TR for no reason other that people were following the herd.. a pure momentum play.

Remember the NASDAQ on 1999 and 2000?

Funny thing about the Trulia data is that in Miami it still isn’t a better deal to buy.  The averages speak differently because there are some high end condos that rent for high end prices in desirable areas.  Unfortunately these same high rent condos cost a lot more than the average sale price.

Lets take a look at the building I live in, recent rentals:
http://www.miamicondoinvestments.com/sales-data/?building=Met-1&type=rental

units for sales:
http://www.miamicondoinvestments.com/for-sale/Downtown-Miami/Met-1/

Now compare a similar floor number (first 2 numbers) with the same unit (last two numbers) and see that a 2 bedroom might rent for $2000/month, but it is for sale at a price of $420K (questionable if this comes with a parking spot).  At first that might seem ok but HOA dues of $680/month and taxes are about the same leave you with a $1300/month cost assuming you bought for cash. 

I will admit my building is nicer than many, but not in the high end league of dozens of other buildings.  The $190K 2 bedroom condos/houses mentioned in the trulia article are further out in less desirable areas and not as fancy.  The large volume of $2K/month renters are all the developers that are not selling any units and just renting whole buildings.

So as the blog post mentioned take this data with a grain of salt.  Nobody is willing to take a loss unless the bank takes over the property.

If their monthly payments that they haven’t paid are about $12,000 and they live in the home without paying for 18 months or more, that is a tax free income of over $200,000.

Someone will have to pay for that.

IrvineRenter,
You make a math analysis; whereas, most investments are made by herd analysis for the possibility of following the money or being forced into an investment by company’s retirement plan, e.g., 401k.

Very similar to other areas of popularity such as drug addiction or usage.  In the 1980’s, coke was called a new drug and new problem never seen in medical history.  Too bad the press and so-called experts did look back to the early 1920’s and 1950’s too see repeats of history.  Same with investments.  No real historical perspective.  It’s different this time, never before in history,  bah bah bah….  Truth is it’s the same old, same old with different names and may times with the same names. 

Re-leverage here we come again.  This time, the purpose of re-leveraging is to transfer the liability from the banks to the federal govt through GSE, FHA and other govt. guaranteed loans.  Banksters and co-conspirators reep the profits and leave the innonocent to clean-up (pay for) the mess.

For your featured property, it made more $ sense for the “current owner/borrow” to buy than rent.  He has no money in the house and one year of free rent in a multi-million dollar house.  Your tax dollars at work.  Let’s see if hecan stright the FC process/free rent for another 2 years.

Would love to see a 1000 yard overview of what else is for sale in the ‘hood. $2.8m for a turd on a prarie seems a bit steep, unless it’s surrounded by $4.m homes with all of the amenities you’d expect for that kind of cabbage.

$2.8m and that kind of description would get my Realtor out on their keister in a heartbeat. Assuming this goes for $2.2m and the Realtor gets even 1.5%, that is a heavy paycheck for such little effort.

My .02c

Soylent Green Is People.

Need a little help understanding the reserve requirement that banks must meet on outstanding loans. It seems that banks nearly always sell the loans which are bundled into CMO, etc. that created the current crisis.
I don’t understand the necessity to maintain a reserve when the loan is sold - and there is now nothing requiring “mark to market” accounting. What am I missing?

I didn’t see it with my own eyes I’d believe that this house was from the IE.  What you can’t even afford to have someone lay down some sod?  Maybe the listing should say “drought tolerant, native landscaping!”

A point to consider on forecasting the future direction of interest rates.  They many continue to fall, not because of anything the Fed is doing directly, but because as people and institutions all over the world exit other asset classes with perceived risk, where the heck else where they put their money?  US treasuries are perceived as riskless, at least for now.

And what happens when the first few recognize the real risk in UST?  Yikes!

As for the lack of backyard landscaping, the cost to landscape will decrease the borrower’s profit margin.  He will get nothing back upon the short sale or FC on the out of pocket investment for the landscape.

As for the HOA forcing him to landscape, he got not money in the property, maybe negative, so if a lien is unforced, the HOA needs to pay off the first and seconds and will be holding a house house under market and legal bills.  I think the banks would like the HOA to take over the loans, backpayments & taxes ....

From the pictures, it looks lived-in. 

I’ve seen one short sale where it was alway unavailable for showing.  A pretend for sale.  Is this a real for sale?

If the owner heloc it out with $38,000 in pocket 3.556k-3.518k) in half year, his annualized ROI was 22% plus years for free rent. 

Now who’s the smart one?

March OC CA US
90+ day delinquency (This year) 8.40% 11.70% 8.93%
From your OC link:

90+ day delinquency (Last year) 5.49% 8.08% 5.79%
Percentage pt. chg. in delinquency
+2.92 +3.63 +3.14
Foreclosure rate (This year) 2.50% 3.29% 3.23%
Foreclosure rate (Last year) 2.02% 2.97% 2.32%
Percentage pt. chg. in foreclosure
+0.48 +0.31 +0.91
REO rate (This year) 0.35% 0.77% 0.57%
REO rate (Last Year) 0.52% 1.13% 0.61%
Percentage pt. chg. in REO
-0.17 -0.36 -0.04

REO are down for this year, so time to buy before your price out of the market.

Ignore that the 90+ day delinquency are up.  Just repeat the mantra:  Everybody knows that RE prices always goes up. 

There was another Polly Anna report that FHA is back on track making new bad loans.  The percentage 90+ day delinquency from the origination date for new loans being deliquent are less than for loans made two years ago.
SO TIME TO BUY.

“Safe-haven buying is not true investment, it is speculation.”

Well said. Ask yourself –

If RE market in Tustin/Laguna Niguel/Aliso Viejo drops another 20%, will Irvine market be able to hold its current price level?

Or if RE market in Mission Viejo/Lake Forest drops another 20%, will Laguna Niguel/Aliso Viejo market hold its current price level?

In the end we are talking about if there are enough high paying jobs left to support all decent locations in OC.

During credit expansion/bubble years a large percentage of the population made disproportionately high income when compared to the median. The top 20-30% (think of all the people working in RE, financial services, mortgage, construction, or house flippers, or sales in all high end goods and services thanks to HELOC induced consumption) probably saw increase in their income far outpaced the wage growth for the rest of the population. Some of these gains have been put back to work in the past couple of years to prop up “premium” markets.

Anyone bother to guess how many of these top earners have ceased to earn 3X or 5X of median income after we entered into the new credit contraction era? But for premium markets in OC to continue to hold their bubble time price level for an extended period (say, next 5 – 10 years) there has to be continuous large number of new “big earners” to replenish the dwindling pool to keep the overall buying power sustained at 2005/2006 level. That makes me wonder whether some of the perceived “safe havens” are really that safe (price-wise) after all.  Easy money made from a by-gone era, coupled with gov’t bailout policy and a low interest environment, may keep price elevated for a while. But for how long?

Until the Chinese economy crashes.