When Woodbury started selling, few imagined there would ever be properties available for under $300,000. In fact most imagined that there would be no properties under a million by the time it was built out. It hasn’t worked out that way.
Asking Price: $299,000
Address: 37 Regal, Irvine, CA 92620
{book6}
Over the Hills and Far Away — Led Zeppelin
Many times I’ve lied and many times I’ve listened,
many times I’ve wondered how much there is to know.
Many dreams come true and some have silver linings
I live for my dream and a pocketful of gold.
Many of us who watched the housing bubble inflate with horror knew there would be an inevitable crash. We rented; we were “short” real estate when everyone else went “long.” Most of us are still short. I will not exit my short position until it is cheaper to own than it is to rent. At that point, it no longer pays to be short. There will be a silver lining to this disaster. Those of us who wait will have an affordable home, and the economy will improve as well. California’s economy is crippled by all the debt service payments from people’s income going out-of-state. If it costs people less to own their homes, it frees up more money to be spent in our local economy, and everyone benefits.
The housing bubble has been a fascinating study in human nature. We witnessed how the perception of free money causes people to behave in irresponsible ways and take on ridiculous beliefs and attitudes. Now that the bust is upon us, we also get to witness how people adjust to the loss of this free money and all the sad fantasies it created.
There is a morbid fascination with this event. It is something between a Shakespearean Tragedy and a train wreck; it has elements of both. Whatever our reasons for paying attention, it is hard not to watch. I hope everyone has learned lessons about investment, financial management, and the virtue of living a simple life free of attachments because those themes are woven in to all these stories; although, like everyone else, I keep watching because the schadenfreude keeps me wondering, “have we seen every form of idiocy the housing bubble has to offer?” Every week there is something new.
{book2}
Asking Price: $299,000
Income Requirement: $74,750
Downpayment Needed: $59,800
Monthly Equity Burn: $2,491
Purchase Price: $443,500
Purchase Date: 3/27/2006
Address: 37 Regal, Irvine, CA 92620
| Beds: | 1 |
| Baths: | 2 |
| Sq. Ft.: | 1,000 |
| $/Sq. Ft.: | $299 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Mediterranean, Tuscan |
| Year Built: | 2006 |
| Stories: | 1 |
| Floor: | 1 |
| View: | Has View |
| Area: | Woodbury |
| County: | Orange |
| MLS#: | S568652 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 2 days |
single level home. Property features rich hardwood floors, stunning
crown moldings, upgraded kitchen that boasts a spacious breakfast bar
and views of greenbelts from most of the living area, this home is
perfect for the tech savvy and is wired and ready to go! Enjoy
entertaining your guests in the relaxing court yard, take a dip in one
of the many association pool, roast marsh mellows in the fire pit and
end the evening soaking in the association spa. Close to shopping and
award winning schools!! Home Sweet Home! Wheelchair accessible! More
pictures coming soon.
I was going to comment that this is not a bad description, but then the realtor lapsed into excessive exclamation points at the end and blew it.
I need a photoshop expert to tell me if the window in this picture has been altered. Why is there an unusual break in the horizon line? and why does the tree on the right look flat?
At least the bed will protect you from mosquitoes. I think I saw one here in California once. I may be mistaken.
This property was purchased on 3/27/2006 for $443,500. The owner used a $354,600 Option ARM first mortgage with a 1% teaser rate, a $44,000 HELOC, and a $44,900 downpayment. I wonder if she was worried about a deteriorating housing market in August of 2007 when she took out an $83,000 second with Countrywide? She did manage to recover her downpayment with that one.
This certainly looks like a flip, and it has not worked out as planned. The option ARM payments have gone up, and it is probably near its mandatory recast at 110% of original value. I would estimate the actual debt on the property is close to $475,000 based on the negative amortization of the first mortgage, the second mortgage and the missed payments.
If this property sells for asking price, and if a 6% commission is paid, the total loss will be $162,440; although, the actual lender loss will be much higher.
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
🙂
{book7}
Hey, lady, you got the love I need,
Maybe more than enough.
Oh, Darlin’, Darlin’, Darlin’, walk a while with me,
Oh, you got so much, so much, so much.
Many have I loved, and many times been bitten,
many times I’ve gazed along the open road.
Many times I’ve lied and many times I’ve listened,
many times I’ve wondered how much there is to know.
Many dreams come true and some have silver linings
I live for my dream and a pocketful of gold.
Mellow is the mind who knows what he’s been missin’,
many many men can’t see the open road.
Many is a word that only leaves you guessin’,
Guessin’ ’bout a thing you really ought to know.
You really ought to know.
I really ought to know.
Over the Hills and Far Away — Led Zeppelin
I can’t understand why a 1 bedroom condo has 2 bathrooms. Furthermore, it’s only 1 floor.
Like we really need to go pronto!
Exactly what I was going to post. Properties with fewer beds than baths (especially a 1/2 like this one) are really weird. I wouldn’t pay extra for the second bath and treat it like a 1/1 for generating comps. The second bath strikes me as completely useless (and it’s only a half bath anyways-so it should say 1.5 baths, not 2).
The second bath is for the student you rent the living room out to so you can make the payments on your Option ARM after the recast.
Oh, I forgot, the taxpayer is going to pick up the tab. Not sure what that bath is for after all.
I understand it. Depending on the layout, it’s nice to have a half-bath for guests to use, rather than having them traipse through your bathroom.
Of course, I’m saying this is a “nice-to-have” – how much you’re willing to pay for it is another issue.
Agreed. I thought the hallway bathroom in my IAC apartment was just a waste of space when I first moved in, but I have since come to appreciate that guests don’t need to go through my bedroom to get to the bathroom.
Interesting article in today’s NY Times about renters now buying now that prices have fallen enought to own using conventional financing. I’m not sure these markets are quite at rental parity but clearly when we have affordability for the median buyer of the median house we are getting closer to bottom.
**********************************************
While her friends ran up credit card debt and bought show homes beyond their means, Taina Goldman saved for a down payment. She moved back in with her parents, sharing a room with her young daughter, ate in and worked two jobs.
“I don’t live dangerously,” said Ms. Goldman, 42, a nurse. “You can’t live on ‘what if.’ ”
Now, she is reaping the rewards. She and her daughter recently moved into a three-bedroom, two-bathroom ranch-style house, with a pool, after putting 20 percent down and persuading the seller to cover most of her closing costs. She paid $187,000 for a house that sold in July 2006 for $370,000.
Full article link below.
http://www.nytimes.com/2009/04/03/us/03florida.html?hp
Thanks for voting on the gold poll.
One of the reasons that I am looking in S Cal, specifically Irvine, is there is no mosquitoes.
Please tell me you are just joking.
IR obviously didn’t visit Martinez before:
http://www.mercurynews.com/ci_12063063?source=rss
I have never been bitten by a mosquito here, but I have never been to some of the marshy parts of California.
I have lived in several parts of the country, and Southern California has less problem with bugs than any place I have lived. The only bug issue I have ever had here is those tiny ants.
I’ve got 10+ years on photoshop. I don’t think the pic was manipulated. It would take more work to do that. I think it’s because of the glass windows. The one on the right seams a few inches closer to the camera and that “bends” the light enough to create that effect. I would have added more trees.
I lived in Irvine for 5 years and never bothered to close the screen on the patio. SoCal is not bug free, but nearly so.
In SoCal, crawling bugs (ants, roaches) are more a problem than mosquitos or houseflys or bees or other flying bugs, IMHO. And even then, we don’t tend to have Texas-style fire ants.
Last weekend I hiked to the top of Santiago Peak. I think all the mosquito’s in Orange County live on the Holy Jim Trail.
Here in Portola Springs, we’re having an invasion of crane flies (those nasty things that look like daddy long legs but with wings so they can fly) and we also have ants and millipedes everywhere. Too many bugs for me.
I have been bitten by mosquitos here in Irvine – during the summer in the evening I have to be careful outside – however, if I have only been bitten a few times that probably means most people will never ever see one.
My feet got attacked one night while eating outside at the crossroads (barranca and culver). There is that creek behind the restaurants.
Yes, that and near any flood control channels…
George –
Please note that as per Association Rule 61.8(b), mosquitos are hereby banned from Association Property. Offending mosquitos will be fined $50.00 and must appear before the board at the next regularly scheduled meeting.
Now THAT is Irvine!
LOL
LOL! 😆 Awesome.
Are 1% teasers interest only? At that point the loan in no way resembles a mortgage. There should be quantitative experiments or simulations that show how that type of financing affects prices, and how the removal of that hits them on the way down. The interest only amounts to < $300/mo, which won't rent you much.
Actually, when they compute the payment on an Option ARM, they base it on the fully amortized payment, but the payment is still tiny. We have already run the experiment to see what this type of financing does to a housing market: The Great Housing Bubble.
The 1-2% pay rate on these is NOT interest only… It’s actually less than the actually interest due, and the difference between your 1% pay rate and the actual payment is added back to the loan balance each month. Hence the term “neg am” (negative amortization). The loan balance increases over time.
You can make these minimum payment, typically, until one of two things happens (written in the Note):
1. Until the balanced grows to a predtermined amount (110, 115, or 125% of the original loan balance).
Or
2. Until a predetermined date (3 years or 5 years out)
When you reach either milestone, the paymant recasts to a fully amortizing principle & interest payment based on an adjustable rate (like the Treasury Index + 5%… or some variation).
It DOES NOT get any more “toxic” than this folks. Imagine coasting along with your $1300 payment on your $500,000 loan, and your mortgage statement arrives saying the new payment will be $3000/mo.! The banks counted on values increasing to allow people to sell (or be foreclosed on at a profit). Didn’t work out that way.
Or refi at a higher home valuation as prices increase. That creates equity out of thin air.
The banks didn’t plan on any foreclosures at all because the thinking was that prices would always go up so the buyer could always just refi at the higher valuation.
Didn’t exactly work out that way, did it?
“…It DOES NOT get any more “toxic” than this folks…”
“Modguy” – by that screen-name and the option-ARM details, I’m guessing you’re doing loan mods. The vast majority of people doing mods are the same brokers (why don’t we have a rude name for them like “realtards”? – they’re as integral to this bubble as anyone else) who pushed these “toxic” loans on their “clients.”
> why don’t we have a rude name for them like “realtards”?
Loan brokeners? Nah, needs more pizzazz…
Perspective,
I can’t say I didn’t do well during the boom, but I was not a broker. I currently work for a loan servicing company that has bought or inherited lots of loans lately, so we service all sorts of loans – including, unfortunately, a large pool of option arms.
I do recall being in high-level executive meetings (at my previous company) where the CEO himself predicted that the option arm programs were going to end in a series of class-action lawsuits and political outrage. This was 4-5 years ago. I wish I had that on tape because he was right, of course.
Funny thing (ironic?) is that investors paid WAY more for these than almost any other loan – which is why broker’s pushed them on everybody, but they were clearly not moneymakers for the investors… so they paid more upfront to buy them, then almost instantly they were worthless 🙂
see my 2 cents below for my understanding of Option Arms and “their” payments…
Hi Irvine Renter,
I am curious about the income requirement for this condo. I am currently making 85,000 with 1 child and another on the way. $300,000 still seems like a huge commitment. Do you base your requirement on the assumption there are no kids and and no car payments? Financial literacy is not my strong point, though I was smart enough to disregard my wifes advice to jump on the bandwagon and buy somthing we could not afford. I simple man terms cna you describe how this works out? Thanks
If you were to go in for conventional finaning–which you should–they will examine your income and allow you to put 31% of your gross toward housing costs (payment, taxes, insurance, HOA) when determining how much house you can “afford.” Thirty-one percent of gross income is a big chunk, and many people are not willing to spend this much because it does mean giving up many other things.
People in California have become accustomed to spending well over 31% of their gross on housing. Most expected to borrow from their appreciation to make up the difference in their disposable income. Obviously, this is insane, and the ability to do this is not coming back any time soon.
People who owned during the 90s will tell you that owning a home is a significant financial burden. You have to sacrifice in order to own. Over time the burden of ownership lessens as your income increases, but saving money for a downpayment and then putting 31% of your gross toward your housing is a significant financial responsibility.
31% of your gross is insane unless you’re (a) single or (b) married both working and (1) no kids and (2) no other significant expenses.
Of course, if you make 300K or more, then 31% may leave some cash for other things, like the lease on a Honda.
This is one of the reasons why in coastal SoCal households making 200K are not considered rich. The mortage, insurance and taxes (income too!) take a huge chunk of your income. So, if you want to be prudent and fully finance your 401K then you run out of “play” money very quickly.
Heck, we’re at 12% of gross and it still feels like a huge payment every month. (Yes, we’re putting as much into the 401K (bond funds) as the Gov will let us…).
So, it’s Hondas for us. No more Acuras until the kids get out of college. 😛
31% is a CONSERVATIVE figure. Lots of people say one third (33.3%), and lots of people got loans at 40%, 50% or more in the past, and you can still get a loan with 40%+ gross. I make under $40k a year, and I was approved up to $185k on a 3.5% down FHA loan (I’m in Riverside). Factoring in PMI, taxes, etc., that ends up at 44% gross-and this was just two months ago. Imagine how crazy the loans were in 2005 and 2006.
Of course, no way I will buy a $185k property, but I could if I wanted to.
You guys are touching on why the previous homeowner bailout attempts have failed badly. The last bailout only brought DTIs down to 38%. Nobody can handle that.
No kidding. We’re at around 16% renting, with a child, and very comfortable, with money going into savings and retirement each month. I don’t *want* to double that, even if the bank things I can “handle” it. The quality of life equation is most important. We’re renting a very nice townhome, with a yard and garage, in the hills. A house would be better, but not to the tune of 15% gross. That’s the equivalent of a few yearly family vacations, little league, piano lessons, etc etc.
Another amen here: My wife and I both make (barely) 100k, seldom eat out/ travel/ splurge, and ONLY put into my 401k “the minimum contribution required to get the maximum matching funds,” and yet?
our 15% or so housing payment is quite enough, thanks. If we doubled that, well, I suppose we could get by, but it’d mean almost NEVER eating out, traveling, etc. — and is that a lifestyle we want, even if it’s in a bigger, nicer home? No…
I’m in the same situation. Income is roughly the same – I don’t count my wife’s income because it varies so much that it can’t be factored in to my decision to buy a house.
I completely agree with you – $300K is still pushing it for somebody making $85K-100K.
High housing costs are bad for the economy. I wonder why we haven’t heard much about that? If people weren’t spending so much to service their mortgage debt, they would be able to buy more things.
We’re all slaves to the banks.
It’s because of people higher up on the food chain – whoever THEY maybe…
This post is for all those (previous) bears who are tempted to buy a little box like this one, because they think we’re near a bottom.
Many people think that Ponzi financing will come back … even some bears believe it’ll eventually find it’s way back.
Here we have one little condo, and look at the damage ~
If this property sells for asking price, and if a 6% commission is paid, the total loss will be $162,440; although, the actual lender loss will be much higher.
Folks, this is one little tiny spec of space dust in the cosmos. It’s hard for anybody, including the bears, to put their arms around this problem. In the coming months, lenders are gonna experience 7 figure losses as we see this train wreck work it’s way up the food chain.
Thornberg mortgage was one of the prudent super jumbo lenders. They actually did underwrite their risk (at least much more than Citi, WaMu, Countrywide, etc), and yet they were forced into bankruptcy.
I guess what I’m saying is Ponzi scheme lending (free money) ain’t coming back anytime soon. It just ain’t gonna happen. And once you fully understand this, you realize just WTF kinda calamity Orange County is facing. It’s very easy for me to draw a line right back to pre-Y2K pricing.
Throw all the historical, fundamental models out the window, this is going to overshoot to the downside. We are gonna see a generational bottom in real estate, and we are no were near that bottom.
Lee:
Is your base-case assumption still 1997 prices, or is it now worse?
In real inflation adjusted dollars, I think The OC is looking at a generational bottom … 2 1/2 to 3 times average household income. That’s what our parents (previous generation) paid for their OC homes when they bought in the 1970’s. The OC premium is about to be squeezed.
The OC benefited big time from a global, highly leveraged economy. We benefited not only from the REIC, but also from venture capital, business expansion, and equity speculation. Basically, Orange County is really good at moving paper around. Now that’s it’s gone (poof), we have the most to lose.
One more point~
Many people (including bears) say it’s impossible for local real estate values to ever sell at the same income/price ratios as prior generations. I think it will likely happen. Reason being, leverage was what started this detachment in the late 1970’s. As leverage became more sophisticated, the wider the spread between income to prices. That’s gone, and as I pointed out above, it ain’t coming back anytime soon.
Orange County (higher) incomes are the primary and fundamental reason why our real estate values are higher. The quality of life premium does exist, but much less than the REIC wants us to believe. To live in The OC, you have to make major sacrifices, including high housing cost, high taxes, crowds, and traffic. Everything is about trade offs, including where you live. If you’re a medical doctor, you can move to Las Vegas and make about 25% more income, buy a much nicer home, send your kids to private school, BUT, you also have to live with crime, 110 degrees, and less weekend activities.
If the average person in Irvine is making just under 100k you have to ask yourself where did those higher incomes come from? Was it two income earners? Was it the financial and real estate sectors? Is it the medical and lawyer groups? Is it the high pay in government jobs and state workers?
If you look around you will be surprise where the money is really coming from.
some stats on housing—
Orange County, California ranks third on the list of the least affordable metropolitan markets in the nation (National Low Income Housing Coalition)
According to the National Low Income Housing Coalition, the hourly wage necessary to rent an average two-bedroom apartment in Orange County, without exceeding the HUD-recommended 30% of income on housing, is $30.67.
52% of Orange County renters spend more than 30% of income on rent (U.S. Census, American Fact Finder, 2006)
An Orange County minimum wage worker would have to work 153 hours per week to rent a two-bedroom apartment (National Low Income Housing Coalition).
There are approximately 35,065 persons in Orange County who have experienced a homeless episode. Of these, 24,545 are persons in families with children (County of Orange, Housing and Community Services Department 2007 Homeless Needs Assessment).
http://www.kennedycommission.org/
http://www.payscale.com/research/US/City=Irvine/Salary
Per the 2008 Census Bureau, the median income for a household in Irvine was $98,923. That’s per household, not person.
I think income in Irvine is gonna drop significantly in the coming 2-3 years, just like it did after the stock bubble went kaput.
Example, per Melissa Data AGI (non inflation adjusted):
92602 ~ 2000 = $99,408
92602 ~ 2002 = $84,535
92604 ~ 2000 = $66,231
92604 ~ 2002 = $59,670
92606 ~ 2000 = $76,592
92606 ~ 2002 = $65,668
92612 ~ 2000 = $92,476
92612 ~ 2002 = $77,059
92614 ~ 2000 = $78,028
92614 ~ 2002 = $68,815
92620 ~ 2000 = $84,573
92620 ~ 2002 = $74,879
So that’s an average decline of 10-15% during the stock bubble. This time the decline is going to be more … perhaps 20-30% declines.
hey Lee watch what you say, IRVINE IS SPECIAL 😆
1996 prices are my base case assumption, in late 2010 or 2011. If declines slow down some, 2010 might only be 1998 prices.
I always find it sobering when I read your forecast. Someone who didn’t know you might be inclined to dismiss your idea as a rant of an uninformed fool; however, anyone who knows you or who pays attention to your other comments realizes you are extremely well-informed, and your analysis is based on fact and hard data.
How does the very low interest rates factor into this prediction and if they do, is it possible that the Fed/Treasury will just keep doing whatever it takes to keep them low?
Home prices are only mildly related to interest rates. When housing prices are fairly close to equilibrium, interest rates have more effect. When prices are dropping quickly, even zero percent interest will not get astute new buyers into the market if they have to make substantial downpayments. That’s easy to see with an example.
A house is priced at $500,000 today. It would rent for $3000/month. In a year, a potential buyer expects it to sell for $400,000-$450,000. That drop would use up most or all of the buyers downpayment. They would have paid $50-100k for having bought one year too soon. This is without any mortgage interest, or loss of income on their downpayment.
However, repeat the analysis near the bottom. The house is $300,000 and might go to $290,000 before slowly rising. If those are your expectations, buying now to get good interest rates might make sense. This may even currently be the case in Dallas and Charlotte. It’s certainly not the case in OC.
Low interest rates are playing a different role in most locations. It’s keeping banks healthier and more people with ARMs from being foreclosed. For higher priced homes in LA/OC, jumbo financing is a big problem.
Now you’re saying 1996 prices will be around in late 2010 or 2011. How long will those prices stay at those levels?
I don’t have any hard evidence, but my understanding is that prices are likely to remain at that level for many years after that.
We were overleveraged at ratios that were never seen before, and there are massive writeoffs that are getting bigger and bigger. I’d like to say we’ll never see another bubble again because the players involved will have learned their lesson, but I know that’s not the case.
I can’t come up with any reason why prices would quickly rise after 2011. Home prices have a great deal of persistence. If the are dropping, they tend to drop for a while. If they are rising, they tend to keep rising for a while.
I don’t really think mortgage rates would suddenly drop substantially from their current levels. Unless major new oil and gas deposits are discovered in OC, I don’t see tons of new income sources or demand for land.
I certainly hope the recession has ended by 2011, but I don’t expect a big explosion in incomes.
“1996 prices are my base case assumption”
Are these real or nominal prices?
Both would be eye-popping, but nominal more so.
What is to stop late 1990’s nominal prices? Private sector incomes have remained flat for this decade due to globalization/wage arbitrage and fundamentally, home prices are tied to incomes in the absence of an abnormal lending environment.
Speaking of mosquitoes, I’m not a photoshop expert, but it looks to me like the window in the photo you ask about has a screen on only one side and that’s why it looks a bit funny.
I’d like to point out that Mello Roos taxes are attached to this property and the HOA fee/S are about $250 a month. That’s a chunk of change every month, imo. Too high price/square footage – especially if you average in the monthly fees associated with living there every month.
I was too busy to comment on the thread earlier this week on College Park and the absolute thrashing it took here. That’s MY ‘hood and you all were brutal. IMO, it is nicer than the goings on in old/comparable Culverdale, that was also featured this week. Some people don’t need “brand new” to feel good about themselves. Some of us really like the bigger yards, the “big-enough!” living space, the mature landscape, the NO MELLO ROOS and HOA fees under $50/month. We also have competition approved association pools so that our neighborhoods can join and participate in the Irvine Swim League (home of champions like Amanda Beard and Jason Lezack and others…)every summer for recreation and competition.
Not every millionaire drives a Bentley. Some would rather have something that is modest and economical in order to free up cash for other pursuits.
~Just saying
I think the older neighborhoods are just plain nicer. Bigger lots, more substantial homes, less wasted space, more and bigger greanbelts. IMO, the newer neighborhoods are less desirable. I can’t believe that anyone would think the opposite.
Well, at least it’s not $1,200 a month like the North Korean towers.
IR, rental parity moves when rent goes down, IMO it is only good to buy when price meets value where the bottom comes up.
correct me if I am wrong
SideLiner
Your observation is correct. There is one additional layer of complexity to add: desirability. High-end SFDs with longer holding periods will bottom at rental parity or with 10% of it; mid-range, median homes will bottom near rental parity or slightly below depending on desirability factors; low-end condos and other properties nobody wants to live in long term will fall all the way to cashflow investor levels.
All price points are relative to rental rates, so when rental rates go up or down, home values go with them. I know many people here are bearish on rents, and there certainly has been softening, but historically incomes and rents rarely decline by much. This recession may be different, but I would not expect 10%-20% declines in incomes and rents, at least not as measured by aggregate data.
Thank you IR.
FYi))
The signs of housing bottom:
– Your friends stop telling you it is time to invest. No, it is debt not investment, you can not take your debt as investment.
– The mortgage rate goes up to 7% for 30 years fixed loan.
– No one is concerned about housing price no matter it is going up or down, people show no interest.
– Public is saying housing price instead of housing value.
– NRA stops commenting on housing price.
– Media stops mentioning housing value for good or bad.
– Meloroose goes away.
– There are no open house signs around corner.
– Banks offer loans to you if you have savings with the bank, don’t talk to you if you have no savings.
– Agents don’t ask you how much you are going to pay but what house you are looking at and propose several options with detailed history and comp..
– Agents send you detailed reports to the options they give, provide inventory numbers and prices in neighboring cities.
That outside picture is very deceiving. If the condo is one story then it’s the 2 windows on the right of the picture. Not the 2 story with the pretty balcony. Right?
I was wondering about that too – does this place have another condo above it? Inside it looks ok, but are there upstairs neighbors?
If you are not a homeowner, you’re out of the market.
If you have sold a home you don’t own, you’re short the market. This is quite uncommon in real estate.
If you currently own a home, you are long on housing. If you have a mortgage on that house, you have a leveraged long position.
If this was the stock market and you had borrowed to buy stock which declined in value, you could be facing a margin call. The housing market would be anarchy if people who though real estate always went up had to make margin calls when the market value of their homes went below the outstanding loan values.
I would argue that only the homeless are out of the market because they have no housing costs whatsoever. Even renters have housing costs, and this housing cost can be put toward a long position in the housing market; therefore, if you are not “long” housing, you are still paying for a housing position, and you are thereby “short.” This short position is a profitable one when ownership costs exceed rental costs, or when house prices are declining.
I know technically speaking renters are “flat,” but in many ways it acts like a short position.
If you’re living at home rent-free, would that equate to being “in cash”?
“If you’re living at home rent-free, would that equate to being “in cash”?”
It means you have “options” 🙂
Just make sure you wash the dishes after dinner and take out the trash on friday mornings.
That’s what my kids do… ;-D
Analysis from Radar Logic claims that “On average, the 25-MSA composite price for motivated transactions was 36% lower than the composite price for other transactions between January
2008 and January 2009.”
http://www.radarlogic.com/research/RPXMonthlyHousingMarketReportforJanuary2009.pdf
I’m wondering if this strikes anyone else as odd. While I would have no problem at all accepting that REOs sell for less than comparable houses down the street, 36% difference seems too high. Sure, you usually have to put in new grass, and often have to replace appliances and some fixtures. REOs range from pristine never lived in to completely trashed. Still, you have to do a LOT of damage to get rid of 1/3 of the home price. In many areas, the total construction value is only 1/3 of the sale price, the rest is the land. In such areas, you could bulldoze the house, or burn it to the ground, and it would sell for 1/3 less than an untouched home next door.
Perhaps Radar Logic has some sort of sampling problem, like the REOs also are more likely to be in bad neighborhoods, be smaller, etc.
Any thoughts?
I think it probably is a sampling error. Right now, the REOs and short sales have been concentrated at the low end. The few organic sales there are occur at the high end. This would create the odd disparity in the report, assuming they were using median price data.
I would like to see this same analysis based on Case-Shiller data. At least then you would be eliminating some of the problem with sampling across market segments being unequal.
They may have some issues with how they are defining “motivated transactions” as well. Several of the houses I have profiled have egregious HELOC abuse, and they will need to sell, but since the sale would not currently be a short-sale or REO, it would not be defined as “motivated” even though they clearly are.
watching housing price is like watching stock market, seeing all these housing going down makes me feel good that someday I might be able to afford one. $300,000 for a 1 bd room condo is still too much, but its going towards a price where people can eventually afford =)
When government want housing to be affordable, why is that they don’t realize that low price is pretty much the only way to make housing affordable?
That’s exactly my sentiment. It seems sometimes there’s more concern about banks’ book value than actually making housing affordable. Less housing payment means more money for other things which would be the real economic stimulus. Many policy makers just seem to think short term – only.
I think you give too much credit to policy makers in believing that they actually want to “fix” anything.
Did anyone with an IQ over 100 really, truly believe that paying 500K for a 2 bedroom sht hole with no money down and a no documentation loan was a good idea?
Then…..package that sht sandwich into a large group of other “assets” and sell it off as a “Collateralized Debt Obligation” to other brilliant minds on wall street, who then hedged it with “Credit Default Swaps” from the likes of AIG etc….
Please, no one in government or on Wall Street gives a rats ass about the general public and fixing anything. The only thing they care about is their power and stripping us of our money any way they can.
If they did care, they would have let all these companies get flushed down the toilet for their absolute stupidity.
This is America, someone or some company would have come along and filled the needs that these turds left in their wakes. What they have done now by propping up all the criminals and dumb ass mortgage slaves is taken a short term financial disaster and turned it into a possibly a decades long fiasco.
Thank you…..
You said:
“Did anyone with an IQ over 100 really, truly believe that paying 500K for a 2 bedroom sht hole with no money down and a no documentation loan was a good idea?”
I think that depends.
From the point of view of the “buyer” yes this can make a lot of sense, depending on how they contemplate the property: home or pure investment.
From an investor’s perspective this means that you used other’s people money to speculate. If the market goes up, then you make money at very low cost to you.
If, OOTH, the market goes down, you have nothing to lose but your FICO score… which many not be that big of a deal.
So, I think buying a house with no money down and a low teaser rate can be a brilliant financial if you see the property as a rather short term investment. You live in it only to qualify for better loan, insurance and tax rates.
However, if you make this move and treat the property as your long term home then it’s insane.
I wish camsavem was wrong… but I’m afraid he’s dead on right. Most current policy makers truly don’t care about the long term good or the overall best policies for the most amount of people. It’s only what keeps them in power or in control!
Amen brother.
When I was 22 or 23, my best friend and discussed the WTF real estate prices and I told her that 5-10 years from then, she and I would hopefully be buying foreclosures because we wouldn’t be able to afford a home with the specs we wanted otherwise. I made these conclusions based on occassional NPR and mainstream media news that I took in, in between bar outings. I read or heard about the bad ARMs then and I concluded that there was no way in hell that these people were going to save enough money to cover their payments when the loans reset.
Here we are 5-6 years later and I just paid my second mortgage payment on a foreclosure that I just bought in OC (not Irvine) for about 40% less that what it sold for a few years earlier. Sure I could have waited to buy “at the bottom” but I am completely satisified with the bottom trough. I have enough space to grow into for the next 10-15 years.
If a 23-year-old (non-finance/econ) graduate student saw the writing on the wall, the powers that be certainly did. I love my country, but IMO Americans have become entirely too arrogant and the current economic crisis is a glaring example of American arrogance.
Is there any way to edit posts? Please insert the word “I” in the first sentence.
There’s plenty of affordable housing out there. Just not in Irvine or near most major sources of jobs. Out here in Riverside, there are hundreds of three bedroom houses, on good sized lots, with no Mello Roos or HOA fees, for half as much as that 1 bedroom condo-or less.
Ever drive the 91?
I happen to like Riverside. I don’t mind the weather and as an offroad motorcycle enthusiast, it’s relatively close to all my playgrounds! Unfortunately my wife doesn’t share that view.
Heck, I’ve gotten job offers in Palmdale for great work and I’d be making more than what I make now, and I could afford a practically new home in a decent neighborhood located reasonably close to the workplace (no commute, no traffic) but again I couldn’t convince my wife to move there.
Am I reading this right? So if he/she has a 1% Interest only loan. The payment would be $295.50 a month?
How much would a the NegAm payment be then?
“This property was purchased on 3/27/2006 for $443,500. The owner used a $354,600 Option ARM first mortgage with a 1% teaser rate, a $44,000 HELOC, and a $44,900 downpayment.”
The payment on the 1st TD is ~: $1,141 / month.
The payment on the 2nd TD is ~: $266 / month.
The monthly negative on the 1st would depend on what the actual rate is on the note – which would have been about 7% (my assumption). This means the negative interest being added to the loan principle each month is about $927 ($2,068 actual interest – $1,141 payment) difference between and increasing each month as the loan principle increases… Makes sense?
The 1% minimum payment rate would not have been interest only payment at 1%. Need to see the amortization tables Oor use MS Excel) to calculate payment at 1%.
Interest only payment at 7% ~ $2,068.
1% “amortized” payment (mimimum allowable payment): $1,141.
The difference between the two payments above is the negative amorization amount.
Thanks for the reply guys. I have never considered this loan as an option so have never really looked at how it works. I clearly did not know where to apply that 1% teaser rate 🙂
Without HELOCs to tap for vacations, braces for the kids, college tuition, house fixing, cars, boats, etc. people are, at some point, going to tire of putting all of their income into paying off a mortgage. Many people assumed that appreciation (here comes HELOC abuse) and/or an increase in pay was only a few years away, so they went for the most or near the most that they could borrow. Without those HELOCs, the house starts looking like the ball and chain that it is, unless one is not saddled with a huge mortgage (and even then it sometimes can become quite a money pit). The Bernanke/Paulson/Geithners of the world could not care less about “saving” anything but a) their jobs and their OWN house values; and b) Wall Street and the elite/oligarchy running the show’s fraud of stealing from us taxpayers. More time has to pass, but ultimately, I don’t see the bankers/financial elite winning this battle.
I am so surprised people who live in the high HOA and mello roos are not protesting a decrease in these very high rates. You have to wonder if all the homeowners are paying?
Trying to sell your home with such high fees has got to hurt.
And to NoWowway having any kind of home here in Irvine is still considered a wow factor compared to most of the OC.
Don’t sweat the old house people wish they had a shack here.
The last ten years Irvine’s head is so large that bubble has yet to be penetrated to any extent.
You are safe—
Hey just what Woodbury needs, 140 new-build homes on the plot formerly planned to be the phantom Woodbury Middle School:
http://www.woodburyhoa.org/show_file.php?id=20760
Remember when the promise of a community middle school helped seal the deal for parents of children approaching the ages of 11/12. Guess what, you can forget it – your kids will be commuting to Sierra Vista – hope you have someone available every day to drive them back-and-forth as bussing is out of the question.
How will all these new homes affect the 100’s of Woodbury homeowners straining to stay afloat? I have to tell you that the tenor of the conversations at the community park is getting very ugly. I don’t understand why I can’t sell my house for enough to cover my mortgage, isn’t that my right? sigh, I just nod in sympathy, these are not bad people, just people who never understood the financial decisions that they were making.
Does TIC think that they are going to sell these new homes for 700k – $1MM, really? If they price them to sell then all of the current homedebtors are toast.
I wonder how much the Woodbury HOA pays Professional Community Management to run the website.
$$$$$?
Nice thing, but maybe they could drop it and save bucks on the monthly expense. Even the folks at the North Korean Towers run their own web site even though they pay $1200/month on their HOA.
And, hey, I’m sure the good folks at Woodbury must be real happy that they’ll get even more houses in their midst.
Perhaps the Woodbury HOA can buy a few school buses and paint a fancy “W” on them.
How can I concentrate on these astute financial comments when a sexy video of the great Robert Plant is posted. Give a gal a break!!!
Heard a very interesting story on a podcast of public radio’s “Marketplace” yesterday. From http://marketplace.publicradio.org/display/web/2009/04/01/pm_new_staging/:
That’s an april fools joke.
Uh, yes, I know. I didn’t want to give it away in my intro, so as not to spoil the surprise.
It actually did take me in at first when I was listening to the podcast, in part because I wasn’t doing so on April 1st.
Anyhow, I thought it was a pretty funny and astute projection of RE industry bullshit, and the comments posted below it give some interesting examples of things close to that actually happening.