Irvine Housing Blog

Keeping interest rates low in the face of falling/stabilizing prices is one thing, keeping them low in the face of rapid increases (G’span) is another.  Your armageddon scenario would be much worse than the other two because of the collateral damage, unemployment, actual destruction of housing stock in disgruntled foreclosures, etc.

BigBen also is dealing with the nation, not just Irvine.  In SEFla, prices are pretty much as 2000-2003 levels depending on the area.  In many places, the bubble has popped and they are in recovery mode.

Purchase mortgage apps are down because purchases are down, no the other way around.  When the tax credit was expiring in Nov, a huge amount of demand was pulled forward, demand that’s not around now.  I always wondered that if a super option-arm with no documentation needed didn’t get all the on-the-fence home buyers into the market, why would an 8k credit do it?  There aren’t many renters waiting to move in and buy (in most of the country, Irvine prices still have some room to fall).  Combine that with people’s low interest rate refi’s, and you will have low existing home sales for a while, and even lower once rates increase.

I was talking to a mortgage banker at a big, but not too-big-to-fail bank that has weathered the storm about as good as any.  He mentioned that after the 2003 wave of refi’s only a small fraction of their loan book was more than a year or so old - 10% is the number the pops to my head.  Any idea now at the average age of a mortgage?  It really is like a reset button has been hit…twice in the naughties.  Problem is, we don’t have another shot at a reset.

If you want to understand where interest rates can and will be take a look at Japan.

As Japanese debt increased dramatically over a 20 year period, interest rates on debt kept getting lower and lower.

Believe it or not, the US has plenty of room to ramp up debt when compared to Japan.  Expect this to drag on for a long time with low interest rates for debt probably getting lower.

Is it the lighting in the photo, or are the cabinets mismatched in the kitchen? If this is a renovation warranting a 35% increase in value, I don’t see it.

When you take the time to ponder the consequences of mortgage rates at 6 - 10%, it’s easy to conclude rates will stay low.

I predict a flatter ice scenario for Irvine, but a deeper ice scenario for most of Orange County.  Irvine might even get back to peak pricing faster.

“The Federal Reserve will intervene if problems become too big.”

There are limits to government’s power. High unemployment, budget deficit and upcoming inflation may be more serious issues than housing market.

That is one ugly house, it looks like it started as a one story rancher and then a box was added on top of the garage.  Anybody who pays almost 800K for this is completely insane.

Regarding interest rates, I’m sure Big Ben and the other stooges already have their memos written for extending the MBS purchase program.  This current economy won’t function with higher rates, it barely functions as is.  That’s ok, we’ll just have the next few generations clean up this collosal mess.

http://realestate.yahoo.com/promo/where-home-prices-are-rising

Are these real, oranges to oranges or apples to oranges comparisons?

The MBS extension whispers started literally hours after the Fed gave a March termination date for the program. Never consider the loud headlines, but listed for the still, soft voices saying otherwise.

As long as your not the only one hearing those said same voices, of course…. Did I just say that out loud?

My .02c

Soylent Green Is People.

“How much speculation is occurring due to buyer’s beliefs in perpetual government supports?”

If the government is going to support the market for the next several years, doesn’t this open up a window of opportunity for flippers and speculators to do their thing? They just have to make a guess about how much and how long the support will be there, and try to get out before a significant rate rise.

Is there any corner of Irvine that a Realtard won’t call “highly sought-after,” “desireable” or “exclusive”? College Park is bounded on the south by the Amtrak and Metrolink tracks (“You’ll get used to it”) and the houses are approaching 40 years old, which, in Irvine, is almost prehistoric. What IS highly desireable is the near-absence of HOA fees and no Mello-Roos.

The HARP program (Home Affordable Refinance Program) has been extended to 2011 as per recent press release. If it’s been extended AND rate are suppoosed to go up, what good is extending the program. A sign, IMHO, that the Fed will continue MBS purchases.

My .02c

Soylent Green Is People.

I love Jim Croce’s songwriting and singing.

Actually, when it comes to Croce’s songs, the best fit to Bernanke would be Bad Leroy Brown, after all they’re both GAMBLERS…

....
And it’s bad, bad Leroy Brown
The baddest man in the whole damn town
Badder than old King Kong
And meaner than a junkyard dog

Now Leroy he a GAMBLER
And he like his fancy clothes
And he like to wave his diamond rings
In front of everybody’s nose
He got a custom Continental
He got an Eldorado too
He got a 32 gun in his pocket for fun
He got a razor in his shoe
...

Great songs.

A title search would turn up a previous owner, one D. Downer.

Based on the haunting photographs, this is a home is a place for depression and regret; for learning afresh each day that hell is an endless conversation with oneself. A negative force sucks you into each image, beckoning your psyche into a closed loop of self-absorption and alienation.

The non-rectilinear photo of the façade suggests that the house itself is rearing up in preparation to strike at the viewer. The patio photo beckons you toward a dark place, uncertain only in its particulars, but not in its finality. The reticulated kitchen flooring places you in a chessboard worthy of Dali: the pieces may meet at right angles in the foreground, but as they move away, who’s to say what at what angle they ever met?

The remaining photos of bedroom interiors are the final, decisive clanging shut of the prison door of depression. Each has just enough light from a far-distant window to allow one to contemplate the futility of the treadmill on which we march to nowhere but death. Perfect rooms in which to awaken each morning, as Philip Larkin:

  I work all day, and get half drunk at night.
  Waking at four to soundless dark, I stare.
  In time the curtain edges will grow light.
  Till then I see what’s really always there:
  Unresting death, a whole day nearer now,
  Making all thought impossible but how
  And where and when I shall myself die.

...

  And so it stays just on the edge of vision,
  A small unfocused blur, a standing chill
  That slows each impulse down to indecision
  Most things may never happen: this one will,
  And realisation of it rages out
  In furnace fear when we are caught without
  People or drink. Courage is no good:
  It means not scaring others. Being brave
  Lets no-one off the grave.
  Death is no different whined at than withstood.

Or Auden:

  The glacier knocks in the cupboard,
  The desert sighs in the bed,
  And the crack in the tea-cup opens
  A lane to the land of the dead.

I wish Bernanke had an option not to stop buying RMBS …
It should be obvious to many by now that the whole US (as well as most of the nations in the developed world) economy over the last 20 years resembles nothing but a house of cards – economic prosperity/expansion and low unemployment were built on fast growth in consumption which was in turn built on easy credit/debt and wealth effect induced by appreciation of asset price, which was in turn built on expansion of bank lending, which was in turn built on rapid house price appreciation that support the underlying securitized debt, which in turn was supported by Fed’s low interest rate policy at the very bottom. Fed’s 0% rate and QE (buying MBS and Treasury) is about the only thin layer of glue that holds the house of cards together (at least for the time being). Remove the prop the whole thing collapses - not just house prices, but the entire economy.
The thing about a Ponzi scheme is that once it is set in motion there is no turning back. It is strictly a one way street. You need to keep going by increasing the bet but the moment you think about reversing the course, game is over. In the next several years Bernanke will have no choice but to up the ante every time the previous stimulant begins to wear off. Not only will helicopter Ben not stop buying MBS, he is far more likely to buy ever larger quantity of MBS down the road to keep this Ponzi scheme going. If Japan experience is of any indication, it won’t be far-fetched to envision the US mortgage rate to eventually slide down to 2-3% range. As more and more demand gets pulled forward it will take increasingly larger incentives to boost “affordability” and entice people to buy. But buyers will soon figure this out and opt to wait for even lower rates or sweeter deals.
When subprime loans imploded in 2007 we probably all thought that was the end of the whole Ponzi scheme. But as it turned out housing correction was only a road bump for the schemers. Central banks around the world have far more chips to dispense to get the game going than I had ever imagined. Here at home Bernanke should keep the re-inflating going for at least another 3-4 years. With USD as the world reserve currency Fed is free to monetize debt.  So just relax, go get yourself some popcorns, find a good seat, and enjoy the show… it amazes me just how any society built on saving, sound investment and productive innovation, would one day mutate into something that’s all about mindless consumption and wild financial chicanery.

Ben is between a rock and a hard place, but we do not know if he sees it.  If he allows free market interest rates to rise, as they would without Fed intervention, the US treasury and all civic issuers of debt would not be able to roll over their present paper or be able to pay the interest on their debt.  The US federal government alone must roll over $5 tril in the next 18 months.

China has already started selling their US paper and if Ben does not allow interest rates to rise, they will sell much more, and Japan may sell theirs, causing massive inflation and a rise in interest rates.

There is no where for Ben to go or anything for him to do.  Toast

Oh gosh, and that is not even considering the trillions in interest rate swaps that go boom when interest rates rise.

I really like the monthly cost analysis. In the short term, I’d probably exclude the equity hidden in payment (if I assume that housing values stay relatively flat and someone has to pay over $50K in transaction costs to sell the house in 6 years, they’ll barely break even). So would the rental parity of this property be $3,036 + $729 = $3,765?