Irvine Housing Blog

Why the repeat listing?  This property was on the weekend post.

Where in LA is it 2x income?  My parents live in WLA near SM and their neighborhood is at best 5x income.

Where’s the landscaping? Where’s the pool? 4 mil?
I guess the original owners ran out of money for a yard and then they get foreclosed on.

I am sorry but the bottom is quite a long ways off. In the age of deleveraging people will simply not have the financial where-with-all to buy homes. Renting, that is leasing of homes, will be a privilege extending by banks to a select group of individuals. 

In my article Seigniorage Fails Causing Banks To Fall Lower Commencing The Mother Of Market Of All Bear Markets ... http://tinyurl.com/4akzrt8 ... I wrote: 

March 1, 2010 is a day that will live in financial infamy as it confirmed the that the seigniorage of the Milton Friedman Free To Choose Currency Regime, which was based upon Quantitative Easing and Quantitative Easing 2, failed on February 22, 2011, when the distressed securities taken in by the Federal Reserve under its TARP Facility traded lower, as is seen in the Fidelity mutual fund FAGIX trading lower.

This resulted in world stocks, ACWI, turning lower.

On March 1, 2011, seigniorage continued to fail, as is seen in FAGIX, continuing to fail, which induced the banks, KBE, to trade 2.1% lower and world stocks, ACWI, to trade 1.4% lower.

We live in a bank centric and also an oil centric world. The world’s leading banker Ben Bernanke, in a semiannual report to Congress, told politicians that commodity price inflation, and oil prices more specifically, could pose a threat to economic growth and price stability if sustained at high levels, while at the same time reassuring markets and politicians that inflation remained low and expectations stable according to Forbes Blog.

Leading the Banks lower were the institutions which rose in value the most during the last two years under Ben Bernanke’s expanding seigniorage. These included Fifth Third Bancorp, FITB, Huntington Bankshares, HBAN, Regional Financial, RF. Bank of America, BAC, Citigroup, C, Wells Fargo, WFC and Sun Trust Banks, STI.

The contraction of seigniorage, that is moneyness, is the root cause of the failure of stock markets worldwide, VT, -1.7%.

The contraction of seigniorage seen in the fall of the distressed securities mutual fund FAGIX means the beginning of the end of credit as it has traditionally been known.

The world did not witness debt deflation on March 1, 2011, as much as it witnessed inflation destruction, which Urban Dictionary defines as the fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies. Companies falling massively to inflation destruction included.

Bruce Krasting reports “Senator Shelby asked Bernanke to explain how he came to the $600b QE2 program. The answer came at minute 32 of this C-SPAN clip. Ben explained that he felt that a monetary ease equivalent to a 75 BP reduction in the Fed Funds rate was in order to avoid deflation. He equated $150-200 billion of QE as being equivalent to a 25BP reduction in short term rates. The justification for QE all along has been that monetary policy is range bound by zero interest rates. QE brings us below “0” in equivalent policy.” The sum of QE 1, QE lite (the top off of QE1) and QE2 is $2.35 trillion. Using Bernanke’s formula you get a range of 4% to 5% as the approximate interest rate consequence of QE. (2.35/.15 or 2.35/.2) That is an extraordinary number. The Fed’ ZIRP policy set interest rates at zero. QE has brought that to -4.5% (average) based on Ben’s numbers.”

The world is passing has passed through an inflection point: the world has passed from the Age of Leverage and into the Age of Deleveraging with the exhaustion of Quantitative Easing and with the failure of yen carry trade investing, as seen in the failure of the Optimized Carry ETN, ICI, on the very day that QE 2 was announced.

The Age of Leverage was characterised by debt expansion, credit liquidity, stability, economic growth and expansion and prosperity … The Age of Deleveraging is characterised by inflation destruction, debt deflation, credit ill-liquidity, instability, economic contraction and austerity.

One impact of the failure of seigniorage and inflation destruction, will be that in the age of deleveraging people will simply not have the financial where-with-all to buy homes. Renting, that is leasing of homes, will be a privilege extending by banks to a select group of individuals.

“this is the ONLY Plan 3 that’s hit the market and worth the wait.”

the word “plan” should NEVER be used with a listing over a million dollars.  only in irvine…

Days on Market - 1068 and counting…

The manager who handles foreclosed properties for this bank should be shown door.

The way we valuate real estate is likely to change as it becomes further apparent that America’s #1 fiscal problem is not medicare, social security, or collective bargaining, but rather America’s never ending investment into propping up real estate.

I don’t like using the term, “it’s different this time”, but in reality it will be different “this time”.  With that said, we really don’t know how valuations of real estate will look like in the next 10-20 years, but I think it’s safe to say valuation will reflect a new economic paradigm.

Ponzi economies only last so long, and it’s apparent that America’s economy will either bust, or be forced to reform into the 21st century, because the old tricks are having less impact.

Just my 2 cents.

“If interest rates remain low while jobs and incomes recover, prices may bottom this spring. However, if interest rates begin a multi-year or multi-decade climb, higher financing costs will be a constant market headwind.”

I agree with this completely, but I really think the jobs (and the related loss state and federal tax revenues) part of the equation should get first billing, especially in California with it’s high SFH home prices and ridiculous state budget situation, which in case anyone forgot, has not improved one iota.

When I look at what Wisconsin’s governor is trying to pull off in Madison and then I glance over at Sacramento, I have to laugh. We are so screwed in California, it’s not funny. I’m thinking to myself “Yeah right, when hell freezes over”.

In my view, those willing to shell out anything between $500K to $700K for a SFH will be so few and far between because high paying jobs ($100K-$150K) are either not easily found anymore , or because confidence in maintaining current high pay employment over the next 6 to 18 months has taken a serious hit. This drag on employment confidence is because even growing companies in successful, expanding, high-tech industries in OC and California are all taking inventory again of their cost basis and making major moves to do achieve more with fewer heads.

Combine this with the federal and state governments tightening their belts in the next fiscal year and 2012-13, fewer dollars for short and long term national projects will affect a lot of businesses nationally and in California over the next 12-36 months.  I don’t think the impact of this is registering with John Q. Public, let alone those who demand to collect real estate commission checks.

Of course I could be wrong, but I just don’t see the all-important jobs variable improving in California any time soon.

Not that the NAR or California Realtors ever gave a damn about jobs in the first place. We all witnessed banks issuing ridiculous amounts of low cost mortgage financing to school bus drivers making only $30K per year.  Are those days over? I hope so.

Most educated people who have a gainful employment right now are:
1.) Elated.

2.)Doing everything they can NOT to lose that job and their insurance.

3.) Finding a second job, if they possibly can.

4.) Implementing further austerity measures with their household budget

5.) Saving money up for an emergency fund (in case they do get shit-canned).

It’s hardly a surprise that buying a home has been put on the back burner for a lot of people under current economic circumstances.

2012-2013 bottom is looking more likely by the day.

I have been saying the same thing since 2005.  the bottom in nominal dollars will be half way through 2012, and years past that in inflation adjusted dollars.

But, I will be happy to change my forecast if anything changes.  So far, nothing has.

We can’t be close to the bottom.

Commenters here said that prices in Irvine would be 40%-50% lower… we’re only at about 25% (in some areas, we aren’t even 15% lower).

Heck… AZDave said 1999 unadjusted prices… that’s over 60% off.

Maybe in 2013?

Except now they rely on two incomes to do it.

A bottom? I can’t hardly see how.

If the bottom you’re describing is based upon continued low or lower interest rates and an improving job market then I fail to see how any excitement for that idea can be generated. Job reports are uninspiring; any improvement is simply because people are falling off the jobless rolls. Interest rates were even lower just a few short months ago and all that happened was that a temporary prop was put under the market; there certainly wasn’t any improvement.

And I fail to see how the rent vs own indicator is a valid indicator whatsoever. My rents have been falling since I moved to my present location in 2007. They stopped falling this year but what’s to say they don’t go lower in the future.

You see the thing is that none of the problems have been solved. Even though home prices have come down the only way prices head up again is if the debt bubble gets blown again. And has the debt bubble from the 2000’s been solved? No way, it’s just been shifted to the taxpayer for the most part or hidden in Level 3 accounting. So where is this additional debt coming from? And what happens when the cash buyers begin to realize that prices aren’t going up.

The way I see it is that we’re simply treading water with just the tip of our nose remaining above. The risk is to the downside and there will be no bottom until that changes.

I don’t see Irvine or other CA costal regions selling for 2X income.  More like it 3 to 4X income.  In the 1980’s a simple condo in the PR of SM was selling for 3X-4X income.  That condo is 5X income now.

NAR, govt are saying the affordability is going down based on the interest cost of borrowership and a relatively short time span.

PR, the top 3%-tile may of doubled their income but the vast majority have only risen less than 5% per year.  For the last 3 years wages have gone down for most folks, especially for those not working.

O.C.’s priciest mansion faces foreclosure

http://lansner.ocregister.com/2011/03/02/o-c-s-priciest-mansion-faces-foreclosure/101563/

There are some positive and negative signs as far as whether 2011 is the bottom. 

On the positive, I recently read an article which pointed out that many buyers are finally realizing that if they suck it up and sell their current house at a loss, they can still move up to their dream house, since that too is selling at a deflated price.  I’m sort of in the current situation myself - my house is worth less than what I bought it for ten years ago, but along the way I avoided HELOC temptation and actually refinanced at 15 years about 3 years in.  As a result I still might be able to pull enough equity out in a sale to make a down payment on a larger home.

On the negative, if the spike in gas prices continues, it will certainly throw a wet blanket over everyone’s parade.  Houses in the exurbs will be hit hardest.  I think it’s no coincidence that the ‘08 housing crash was preceded by a large spike in gas prices.