We have a new discount record here in Irvine at 59% off. The low end continues to get crushed.
Asking Price: $125,000
Tonight is the night. We will be gathering from 6:30 to 10:00. I look forward to seeing all of you there!
Hey listen here,
Now I got mortgages on homes
I got stiffness in my bones
Ain’t no beauty queens in this locality.
Fat Bottomed Girls — Queen
Ugly, cramped, dingy, old condos are an acquired taste. If you learn to like them, you can save much money on your housing bills — either that, or you will be locked in your prison for years.
The low end of the market must find a bottom before there will be any price stability in residential real estate. Until the low end finds a bottom and begins appreciating, there is no move-up market because first-time homebuyers — the people who buy these properties — have no accumulated equity to help finance a move-up purchase.
In an appreciating market, prices are pushed up from the bottom. Subprime lending and Option ARM loans inflated condo values a great deal, and the equity this created pushed up home values for all market strata. The process also works in reverse. When the low end falls, it pulls down prices of the other market strata because people will substitute by sacrificing some quality for significant price savings.
The low end will eventually find a bottom. Units like those featured today will bottom about 25% below rental parity. At those price levels, cashflow investors will find the prices attractive, and they will buy and hold the properties as true investments.
The fools out there buying these properties as quick flips are going to be very disappointed because these properties will not strongly appreciate anytime soon. When the high end crashes, the substitution effect will work in reverse as people abandon these low end properties in favor of more desirable properties at lower prices. That phenomenon will occur as the mid to high end prices stabilize.
The bottoming process takes much longer than most realize as nothing happens quickly in real estate. Many seem to think our real estate market will but in a “V” bottom and everyone will be priced out again. That is not going to happen. The sequence goes like this: (1) low end stability, (2) mid to high end crash, (3) renewed low end weakness and slight decline, (4) mid to high end stability, (5) low end stability and appreciation, (6) mid to high end appreciation. When appreciation finally returns, it will not be “rapid”; tepid is a better word. It isn’t until we reach stages four and five in my list that the move-up market functions again. I doubt we get there before 2013.
Many real estate bloggers — me included — have ripped apart Gary Watts’s economic forecasts. Well, he must have been reading our stuff because in Gary_Watts_2009_Economic_Outlook.pdf he actually gets it right:
A Final Perspective
The recession has gone on so long and has been so crippling that any small piece of
economic data that comes out favorably leads one to think that things are finally going to
get better. Unfortunately, this is not so!
Housing has low prices and extremely low mortgage rates. This should have been enough
to turn us around. However, when you balance this against shrinking access to credit,
instability of American workers to receive higher wages and crippling unemployment, the
outlook is not good.
The current increase in foreclosures is beginning to look very similar to what occurred in
early 2007. The difference is that we were reaching a peak in housing prices. This time
around, we have no price buffer for the next onslaught of foreclosures.
Although the low-end of the market is fairly strong, in the past they took their equity and
“moved-up” to the next pricing tier. These sellers are leaving their homes with nothing
and therefore the next pricing tier (over $500,000) has no support coming.
Pent-up demand will soon wane, investor purchases will begin to decline and inventory
will grow. This will put a new round of pressure on an already price-declined market. To
add to the housing woes, the Treasury is issuing a lot of money. The market is beginning
to wonder who is going to buy all these notes and bonds. This will force interest rates
upwards, putting more pressure on our already weak housing market.
Mr. Watts just took his first step toward regaining his credibility. The rest of the report is not bad. There are no “green shoots” or other suggestions that we might be at the bottom. Perhaps everyone will develop a case of selective amnesia, and he can regain is standing as an economic forecaster. Too bad that pesky internet keeps such good records….
Asking Price: $125,000
Income Requirement: $31,250
Downpayment Needed: $25,000
Purchase Price: $305,000
Purchase Date: 3/15/2006
|On Redfin:||1 day|
Is a “Lowe Unit” the new realtor code word for being a fixer?
This property was a 100% financing deal near the peak in 2006. The owner paid $305,000 and used a $244,000 GSE insured first mortgage and a $61,000 second mortgage. The US taxpayers are eating much of the loss on this one.
Recording Date: 05/20/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2008000239587
Recording Date: 02/04/2008
Document Type: Notice of Default
Document #: 2008000051876
The owner quit making payments on this property in late 2007, and it was purchased at auction on 06/19/2008. Now, one year later, it has finally left our shadow inventory. Are you starting to see how much shadow inventory is out there? What was the loan servicer doing with this property for the last year? How big of a loss are the taxpayers really taking on this property considering no payment have been made since 2007?
What a mess.
If this property sells for its current asking price, and if a 6% commission is paid, the total loss you and I are covering will be $187,500. But actually, it is much worse than that. This loan was insured by the GSEs which means some investor somewhere has been receiving payments from the GSEs while the loan was delinquent; therefore, we need to add in the sum of the payments the GSEs made on their insurance policy to the total loss, and this property may need to be discounted further in order to sell.
The original loan the GSEs insured was $244,000; this property may be a total loss.
Asking Price: $169,000
Income Requirement: $42,250
Downpayment Needed: $33,800
Purchase Price: $290,000
Purchase Date: 1/23/2006
|View:||Lake Front, Lake|
|On Redfin:||6 days|
trickling waters and watch the ducks swim by from your livingroom &
private deck overlooking this beautiful water feature. Upgraded end
unit. The cozy kitchen has a bar seating area and features, grey
granite countertops, stainless steel sink, free standing gas range
w/hood, G.E. Profile dishwasher & newer disposal. Adjacent is a
closeted stackable washer/dryer. Neutral designer paint and carpet,tile
entry. Bedroom has an included wardrobe for additional storage and
custom window coverings; granite counter top in bathroom. Unit has
central air & heat. Lake Condos have two community pools, spa, gym,
basketball court, tennis court, playground and clubhouse. Great complex
near Irvine Valley College.
That is a well-written description. It is a little cheesy with the “trickling waters” and duck watching, but I think she pulled it off.
The kitchen is definitely “cozy.” Do you think realtors would describe an 8′ x 10′ prison cell as “cozy” too?
This property was also a 100% financing deal from the peak. At least the GSEs did not insure this one and cause the taxpayers to eat the bill. The loans on this property were issued by IndyMac… Oh no! We are going to pay for this one too.
BTW, someone in our forums spotted the most interesting home in Orange County.