The conditions of the market cause sellers to change their motivations when pricing properties. The ones that do not need to sell, generally do not. Our market is almost exclusively motivated sellers.
Irvine Home Address … 47 Straw Flower Irvine, CA 92620
Resale Home Price …… $850,000
{book1}
Cross off the names
Of all who died here,
And I’ll become the sacred faith you lost.
I’m thinking…
Every second changes everything
In my life.
Every second changes everything –
The panic will see me through.
The Panic — Strata
Sellers are feeling the upper hand in the market locally due to the lack of available inventory. Motivation is suffering and WTF listing prices are springing up like greedy weeds. Buyers are beginning to panic — hopefully, the IHB readership is calm during this storm. You are not priced out forever.
When I wrote Negotiating for Real Estate, I included a graph showing basic negotiating concepts:
The third column represents seller motivation. As their motivation increases, they just want to get rid of the property, and they lower their price until they do so. Today, we are going to look at two properties purchased by knife catchers in early 2007. One of them has accepted his fate as a knife catcher and priced the property to sell; the other has not.
Irvine Home Address … 47 Straw Flower Irvine, CA 92620
Resale Home Price … $850,000
Income Requirement ……. $156,445
Downpayment Needed … $170,000
Home Purchase Price … $810,000
Home Purchase Date …. 8/2/2007
Net Gain (Loss) ………. $(11,000)
Percent Change ………. 4.9%
Annual Appreciation … 2.4%
Monthly Mortgage Payment … $3,650
Monthly Cash Outlays ………… $4,760
Monthly Cost of Ownership … $3,560
Redfin Property Details for 47 Straw Flower Irvine, CA 92620
Beds 3
Baths 2 full 1 part baths
Size 1,900 sq ft
($447 / sq ft)
Lot Size 3,988 sq ft
Year Built 1997
Days on Market 5
Listing Updated 10/11/2009
MLS Number S592398
Property Type Single Family, Residential
Community Northwood
Tract Trem
SHOWS LIKE MODEL Private community in a quiet area within Northwood. Living Room w/ textured hardwood floors & vaulted ceilings w/ plenty of natural light. Travertine throughout the kitchen w/ whisper-quiet BOSCH dishwasher & enjoy the spacious Family room w/ cozy fireplace- watch a movie w/ a built-in space saving entertainment area; The garage has cabinets, shelves, and overhead storage; Best schools in the Nation; Olympic-size pool and largest Neighborhood park in Irvine just steps away!
Do you think this property has appreciated since late 2007? This seller is following the typical pattern: (1) price to breakeven, (2) price to preserve some equity, (3) price to avoid short sale, (4) give up.
The owner of our second featured property is more motivated — or he has given up — the results are the same; lower prices.
BTW, is it snowing in that kitchen?
Irvine Home Address … 412 Quail Rdg Irvine, CA 92603
Resale Home Price … $379,000
Income Requirement ……. $69,756
Downpayment Needed … $75,800
Home Purchase Price … $490,000
Home Purchase Date …. 3/1/2007
Net Gain (Loss) ………. $(133,740)
Percent Change ………. -22.7%
Annual Appreciation … -12.1%
Monthly Mortgage Payment … $1,628
Monthly Cash Outlays ………… $2,310
Monthly Cost of Ownership … $1,770
Redfin Property Details for 412 Quail Rdg Irvine, CA 92603
Beds 2
Baths 2 baths
Size 1,112 sq ft
($341 / sq ft)
Lot Size n/a
Year Built 2004
Days on Market 2
Listing Updated 10/14/2009
MLS Number S592734
Property Type Condominium, Residential
Community Quail Hill
Tract Ambr
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Quiet upper end unit with no one above or below. Centrally located close to Irvine Spectrum. Resort style amenities including association pool, tennis courts, gym and parks.
The family losing this place at least tried to be responsible. They overpaid, but they put some money down, and when they refinanced in 2007, they did not take out much equity. They still had some of their own money in the property when prices when south.
{book2}
Maybe some sellers just need a little more motivation….
Housing prices forecast to fall in 2010 — and could keep falling for years
Fiserv, a financial information and analysis firm, is forecasting that national median home prices will fall 11.3 percent by summer 2010. The recent surge in home sales and new homes under construction have launched a feeding frenzy in the hardest hit Sunbelt and California markets as investors believe “the bottom is in.” The Fiserv forecast — and the fundamentals of supply and demand — are throwing cold water on that confident enthusiasm.
Foreclosures are still rising as defaults rise in prime mortgages, which were once viewed as immune to the high defaults hitting subprime loans. As I have reported here before, the foreclosure pipeline — not just homes that have been foreclosed, but those in default — is bulging.
Banks are holding foreclosed and distressed properties off the market, hoping to sell them in a stronger economy. This stock of homes is called the “shadow inventory” because lenders have numerous ways to hide how many loans are in arrears and how many homes are foreclosed but not listed on the market.
While many of the investors buying discounted homes are paying all cash, many marginally qualified buyers are purchasing homes with little or no money down and loan-to-income ratios which require 50 percent of their net income go to pay the mortgage.
The Federal government is pumping up the housing market with unprecedented giveaways like the $8,000 new home buyer credit, –but unfortunately it appears the program is riddled with fraud and abuse. Some 100,000 of the 350,000 credit issued are being investigated by the IRS.
All of these data points suggest some pernicious drivers of the bubble haven’t changed in the three years since the housing bubble popped. The Federal government is still underwriting low-down loans to people who are at risk of losing the home if their income falls even marginally, and abuse and fraud have simply moved to another corner of the market.
The market’s recent meteoric rise is giving many banks and prospective home sellers and buyers false hope. This article below puts some perspective on that and what to expect from the economy as a whole — an interesting holistic view.
http://www.hussmanfunds.com/wmc/wmc091019.htm
But… 8 in 10 realtors believe housing prices will be higher a year from now. TV told me so!
I have been told the same thing here in OC as well as in Colorado.
Article had no new information to indicate why house prices should fall.
Every justification for a decline in housing price is a rehash of what’s already been reported in the news.
Sorry just how I see it.
Some believe that the Housing Bubble 2.0 is here!
http://www.businessinsider.com/20-year-old-buys-home-with-183000-fha-loan-and-just-35-down-2009-10?ref=patrick.net
Quite a depressing little story.
I wonder what they bought with all their housing ATM cash? Maybe one of these:
http://www.peopleofwalmart.com/?p=5533
“I bought my house for $155,000. And now, after all the fixing, after all the remodeling, my house is worth $255,000. So just within a month period, I made a $100,000,” she tells Market Place’s Scott Jagow.
As far as we can tell, this is just mark-to-imagination valuation.”
Mark-to-imagination valuation! I like it; sounds like a Tom Waits lyric.
Ah man, there’s nothing like a hot cup of coffee and Full Metal Jacket in the morning to get me ready for the day. I don’t like the name Lawrence. From now on you’re Private Pyle! 😆
Yes the bubble is over. Developer please please build more new houses in OC and Irvine. Build before it’s too late. Buy before it’s too late.
With over 25% of the house buying credit being investigated, say 10% are found guilt or made a plea bargin. What happens to them and the house purchase? Give them more money to maintain the house and loan?
Serious good news for Cali renters fence-sitters today:
http://www.calculatedriskblog.com/2009/10/apartment-rents-plunge-in-west.html
I swear rents being as ridiculously high as they are in Irvine (relative to everywhere I’ve ever lived) is the only remaining excuse to buy a house. (gotta get on that amoritization train sooner rather than later). Given that interest rates could stay this low for another year, (or only up 35 basis points by CR’s calculation), falling rents are the best hope for falling prices sooner rather than later in Irvine.
Congrats Irvine, sanity may be coming sooner than you think!
Someone else has noticed that this summer/fall real estate rally might not be grounded in the fundamentals.
From the WSJ, today. Fair use extract:
Waiting for the Next McMansion to Drop
Despite some tentative signs of recovery, the U.S. housing market remains vulnerable to further price drops—especially in areas where large numbers of mortgages are headed toward foreclosure over the next few years.
The Wall Street Journal’s quarterly survey of housing-market data in 28 major metro areas shows sharp drops in the number of homes listed for sale across the country. But the potential supply of homes is far larger because banks are likely to acquire significant numbers of foreclosed homes in some areas, notably Las Vegas, Atlanta, Detroit, Phoenix, Miami and other parts of Florida, and Sacramento, Calif., over the next few years.
Sales of those homes may depress prices further. By contrast, metro areas with relatively low foreclosure and mortgage-delinquency rates include Boston, Denver, Minneapolis, San Francisco, Seattle, Raleigh, N.C., and Portland, Ore., making them less vulnerable.
The supply of foreclosed homes listed for sale has dwindled largely because of government-mandated efforts to save as many borrowers as possible from losing their homes. That campaign has gummed up the foreclosure process, slowing the flow of houses into bank ownership—but only temporarily.
Over the next few years, housing analysts believe, millions of other homes are heading for bank ownership, but no one can say how long that will take or when a sudden torrent of bank-owned properties may swamp certain local markets.
Nearly 27% of first-lien home mortgages are at least 30 days overdue or in foreclosure in the Miami-Fort Lauderdale area, according to research firm LPS Applied Analytics in Denver. The rate is 23% in Las Vegas, but about 8% in Denver and Seattle. The national average is 12.4%, up from 5.2% at the end of 2006.
“The number of people receiving paychecks will drive the demand for houses and apartments,” Jay Brinkmann, chief economist for the Mortgage Bankers Association, said Tuesday in testimony to the Senate Banking Committee, “and the recovery will begin when unemployment stops rising.”
For now, the market seems to be stabilizing, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. But if the job market gets much worse and mortgage rates rise sharply, “that could be the tipping point” for another drop in prices.
Mark Zandi, chief economist at Moody’s Economy.com, predicts that average national home prices will bottom out in next year’s third quarter, assuming that employment begins growing again in mid-2010. But prices in some metro areas still have a long way to fall, he believes. Prices in the second quarter of 2010 will be down about 30% from a year earlier in Miami, 27% in Orlando, Fla., 24% in Las Vegas and 23% in Phoenix, Moody’s Economy.com forecasts.
Foreclosures and short sales (in which a home is offered for less than the mortgage balance) dominate the markets in some metro areas. Satish M. Mansukhani, a market strategist in New York, estimates that such “distressed” homes account for 79% of home listings in the Detroit area and 75% in Las Vegas, but just 16% in Houston and 7% in Boston.
One big question is how much more the federal government will do to prop up housing. Congress is debating whether to extend the tax credit for home buyers beyond Nov. 30. Meanwhile, the Federal Reserve is phasing out its massive purchases of mortgage-backed securities and plans to conclude the program by the end of March. Those purchases have helped keep interest rates on 30-year fixed-rate mortgages around 5%. Mr. Zandi says mortgage rates are likely to rise as much as one percentage point after the Fed ends that support. Analysts at Barclays Capital in New York forecast mortgage rates will be slightly over 6% by the end of March.
High-Priced Home Glut
While supplies of moderately priced homes have shrunk, there is still a glut of high-priced houses in many areas, suggesting that prices on those properties may fall sharply as more owners default. In Sacramento, there are enough homes on the market at $600,000 and above to last more than 15 months at the recent rate of sales, compared with just 1.5 months for homes priced at $300,000 and below, according to Lyon Real Estate.
Home sellers will also face tougher competition from landlords, who generally have been cutting rents in the past year. The national apartment-vacancy rate in the third quarter was 7.8%, the highest in 23 years, according to Reis Inc., a New York research firm. It predicts “a few more quarters of distress, lower rents and higher vacancies.”