Monthly Archives: November 2009

Twiggy

Today we have a beautiful high-end home short selling for a significant loss.

35 TWIGGS Irvine, CA 92620 kitchen

Irvine Home Address … 35 TWIGGS Irvine, CA 92620
Resale Home Price …… $1,250,000

{book1}

You’ve been walking,
You’ve been hiding,
And you look half dead half the time.
Monitoring you, like machines do,
You’ve still got it I’m just keeping an eye.

Headlock — Imogen Heap

This beautiful home sits empty (like the heads of many supermodels or any of the Real Housewives). There are no occupants, nobody paying on the note, and no particular urgency on the part of lenders to change the status quo. The resources poured into this structure are sitting idle. It is a complete waste to society, yet here it is along with hundreds of thousands of properties nationwide.

I recently attended the Building Industry Show. Several of the seminars were very bearish, and there was much discussion about what the banks are going to do with all the defaults. The discussion was interesting because it wasn’t focused on whether or not there is a massive inventory problem coming — everyone accepted that — the discussion focused on what the lenders were going to do about it.

There was much frustration in the room because most industry watchers believe the banks are managing their foreclosure inventory by failing to initiate foreclosure proceedings; in other words, lenders are managing the problem by creating shadow inventory. Whenever there is a problem with a loan: defer. Their entire strategy is to delay dealing with the problem until appreciation bails them out.

There is a big problem with the solution of waiting for appreciation; since the shadow inventory is very large, and the holders of it are competitors in a cartel, there will be a huge incentive for the healthiest banks with the least amount of toxic mortgages to foreclose and take their losses while prices are still inflated. Those sellers that wait for higher prices will find lower prices instead. This will go on until the inventory of toxic mortgages is purged from the system.

Can lenders hold up prices by withholding inventory? Or will the instability of the cartel arrangement break down our current support?

35 TWIGGS Irvine, CA 92620 kitchen

Irvine Home Address … 35 TWIGGS Irvine, CA 92620

Resale Home Price … $1,250,000

Income Requirement ……. $258,825
Downpayment Needed … $250,000
20% Down Conventional

Home Purchase Price … $1,441,000
Home Purchase Date …. 11/8/2005

Net Gain (Loss) ………. $(266,000)
Percent Change ………. -13.3%
Annual Appreciation … -3.3%

Mortgage Interest Rate ………. 5.00%
Monthly Mortgage Payment … $5,368
Monthly Cash Outlays ………… $7,190
Monthly Cost of Ownership … $5,270

Property Details for 35 TWIGGS Irvine, CA 92620

Beds 4
Baths 4 full 1 part baths
Size 3,833 sq ft
($326 / sq ft)
Lot Size 7,166 sq ft
Year Built 2005
Days on Market 8
Listing Updated 11/11/2009
MLS Number S595753
Property Type Single Family, Residential
Community Woodbury
Tract Wdjb

According to the listing agent, this listing may be a pre-foreclosure or short sale.

This Beautiful Juliet’s Balcony Home will Capture the Romantic and Sophisticated Feelings Inspired by those who Embrace the World Around Them. The Entry Features a Custom Made, Cast Iron Gate leading to an Open Courtyard. Entry Foyer leads to Formal Dining Room and Living Room. Living Room French Doors, opens onto a Peaceful Loggia. Gourmet Kitchen with Too Many Upgrades, include Viking Professional Series Stainless Steel Appliances, Dual Ovens, Dishwasher, Center Island with Extra Sink, Euro Designer Cabinets and Granite Coutertops. Kitchen overlooks the Morning Room and Family Room. Tranquil Master Bedroom with Ceiling Fan, includes His and Hers Walk-in Closets. All Other Bedrooms, each have their own Bathrooms. Upgraded Flooring includes Travertine, Distressed Hardwood Floors and Berber Carpets. Details from Plantation Shutters, to the Crown Mouldings, are Spectacular. Professionally Landscaped with Built-in BBQ.

Gourmet Kitchen AwardCapture the Romantic and Sophisticated Feelings Inspired by those who Embrace the World Around Them… Flowery flatulence.

Why Title Case?

This property was purchased on 11/8/2005 for $1,441,000. The owner used a $1,008,650 first mortgage, a $288,000 second mortgage and a $144,350 downpayment. The downpayment is gone, and the second is going to be shorted.

Happy Thanksgiving

Turkey

I want to wish you a happy Thanksgiving Holiday. The IHB will have posts as usual, so if you are looking for your real estate fix, you can find it here.

Enjoy your Holiday weekend.

$3,000,000 Irvine Tract Home?

Do tract homes in Irvine go for more than $3,000,000? Well, they used to…

16 PRAIRIE GRASS Irvine, CA 92603 back

Irvine Home Address … 16 PRAIRIE GRASS Irvine, CA 92603
Resale Home Price …… $2,975,000

{book1}

Soft spoken with a broken jaw
Step outside but not to brawl
Autumn’s sweet we call it fall
I’ll make it to the moon if I have to crawl and

(I’m) With the birds(sharing) I’ll share
(this lonely) This lonely view
(I’m) With the birds(sharing) I’ll share
(this lonely)This lonely view
(I’m) With the birds(sharing) I’ll share
(this lonely)This lonely view

Scar Tissue — Red Hot Chili Peppers

Should “Sycamore Plan Two” and $2,975,000 go together? Can tract homes today really be worth $3,000,000 in Irvine? Owners still think they are worth that much, so many of them are offered for sale; unfortunately, buyers do not agree. Much of our high-end inventory sits there in an overpriced fantasy world hoping for loose financing to save them. It isn’t going to happen.

Can you identify the lot with the most negatives in this picture?

I will give you a hint. It is the only lot that has no view, backs on to the side of a higher property, is not on a corner, and is not pie shaped to give any additional area.

If this home is a $3,000,000 tract home, then the inside must be finished with gold, or every home in this neighborhood is worth more than $3,000,000. Since neither seems likely, since recent comps on Vernal Springs went for $2,400,000, and since the high end is ridiculously inflated, I don’t think this house will sell for $3,000,000. If they lower it to $2,400,000 they might get out before prices go lower.

16 PRAIRIE GRASS Irvine, CA 92603 back

Irvine Home Address … 16 PRAIRIE GRASS Irvine, CA 92603

Resale Home Price … $2,975,000 WTF

Income Requirement ……. $547,558
Downpayment Needed … $595,000
20% Down Conventional

Home Purchase Price … $3,125,000
Home Purchase Date …. 3/13/2006

Net Gain (Loss) ………. $(328,500)
Percent Change ………. -4.8%
Annual Appreciation … -1.3%

Mortgage Interest Rate ………. 5.00%
Monthly Mortgage Payment … $12,776
Monthly Cash Outlays ………… $16,850
Monthly Cost of Ownership … $12,290

Property Details for 16 PRAIRIE GRASS Irvine, CA 92603

Beds 5
Baths 5 full 1 part baths
Size 4,820 sq ft
($617 / sq ft)
Lot Size 15,790 sq ft
Year Built 2004
Days on Market 3
Listing Updated 11/17/2009
MLS Number U9004951
Property Type Single Family, Residential
Community Turtle Rock
Tract Shsm

Exceptional Sycamore Plan Two with Main Floor Master Suite situated in the exclusive residential golf preserve of Shady Canyon. A very functional floor plan with 5 bedrooms, 5.5 bathrooms, including detached guest casita. With Spanish Revival influences of the early 20’s and 30’s, this gracious home creates an authentic sense of a true California style. Amenities include an entry library, wine alcove, formal living room and dining room with cathedral two story ceilings, a chef’s kitchen that opens to the family room and breakfast nook. Nestled in the foothills, this private lot boasts numerous outdoor courtyards, a sparkling pool and spa, built-in-barbeque and inviting outdoor fireplace.

These owners have a $2,000,000 mortgage, but it isn’t likely this will be a short sale. Since there will be no loan modifications at that loan amount, the owners are on their own — which is probably why they are selling.

If you had $3,000,000 to spend on a house, would you spend $3,000,000 for a tract home in Shady Canyon?

Doubling Time

Do houses double in value every 8 years? The rate of appreciation is volatile, but the stable rate of appreciation in Irvine is 4.4%, and it takes houses 16 years to double in price.

6232 SIERRA SIENA Rd Irvine, CA 92603 door

Irvine Home Address … 6232 SIERRA SIENA Rd Irvine, CA 92603
Resale Home Price …… $1,269,000

{book1}

Fly, robin fly
Fly, robin fly
Fly, robin fly
Up, up to the sky

Fly, Robin Fly — Silver Convention

California real estate prices take flight fueled by kool aid intoxication and a firmly held belief that trees really can grow to the sky. The reality is that prices cannot go up faster than incomes without (1) raising debt-to-income ratios and (2) lowering interest rates.

We inflated prices beyond the limits of people’s ability to service debt, so the Federal Reserve has lowered interest rates to compensate. They can’t hold rates down forever.

The discussions about appreciation always come back to the question, “How quickly should house prices appreciate?” Today we are going to explore that question plus a related one, “How long should it take for a house to double in value?” Once we answer the first question, the answer to the second question is applied mathematics.

How Fast to Appreciate

Home prices do not go up by magic. I discussed this at length in Ownership Cost: Income, Payments and House Prices:

“Wage inflation is the slow increase in aggregate wages over time in
a given area. Wage inflation is a driver of price inflation because
workers will use wage increases to bid up the cost of goods and
services they demand. in a housing market, wage growth pushes up prices
as follows:

Assume a worker is earning $100,000 and can borrow $400,000 to bid
on property in today’s market. In one year, if this worker gets a 3%
raise (not this year), he will be making $103,000, and if other terms
do not change, he will be able to borrow $412,000. If he has also
increased his savings, the amount he can bid on real estate has also
increased by 3%.

A property that might sell for $500,000 today can sell for $515,000 in one year and it is no more expensive in terms of its financial impact; debt-to-income, savings impact, time of amortization — the key
variables remain the same. This is “normal” home price appreciation.”

If this is the mechanism at work, then what is the rate of wage inflation, and why do prices in California go up faster than wage inflation?

Wage Inflation

Since 1975, wages have grown by 4.3% annually in Irvine. This is well above the national average of 3.3%. This explains much of the health of our local real estate market and the long-term growth in prices we have witnessed.

Wage inflation has primarily caused the long-term rate of home price appreciation in Irvine to stand at 4.4% — at least that is the rate from 1984-1998, the last period that spans two market bottoms (see below).

Irvine, CA, Projections from Historic Appreciation Rates, 1984-2026

What is your prognosis for long-term wage growth in Irvine? Will we continue to outpace the country by 1% per year indefinitely? Will outsourcing and offshoring cause our wage growth to be below its recent 4.4% rate of growth? Over the long term, wage growth equals home price appreciation.

Declining Interest Rates

One reason we have seen prices rise faster than the general level of inflation and the local level of wage growth is due to the long-term trend of declining interest rates over the last 25 years.

Declining Interest Rates, 1984-2006

Note that I am only looking at interest rates since they stabilized after the inflation fiasco of the 70s. I don’t need to add the drama of the huge interest rate spike of the early 80s to make the point.

Lower interest rates make for larger loans. Part of the 4.4% yearly appreciation rate in Irvine over the last 25 years is due to steadily decreasing interest rates.

Debt-to-Income Ratios

Another reason for price increases greater than wage growth is our ever-increasing debt-to-income ratio. Since the late 1970s, lenders have been testing the limit on the DTIs people can handle before they default. Each time lenders enable borrowers to cross the threshold of 32% DTI (based on market aggregates), the market will continue higher due to irrational exuberance and kool aid intoxication until the music stops.

Take a look at the chart below that graphs the aggregate debt-to-income ratio in Irvine based on the national contact interest rate, Irvine income data and Irvine median home price data. The shaded areas have been added to show some key thresholds.

Irvine debt-to-income ratios 1975-2009

When the government first engineered loan modifications, they tried to modify people to 38% DTIs — which was a big drop for many — but the number is just too high, and borrowers redefaulted at very high rates. The recent rounds of loan mods have been at much lower DTIs.

Each time the aggregate market DTI moves above 32% (1979, 1987, 2003) the market enters its manic rally phase when prices move higher when they should be moving lower (contrast with 1994). Thirty-two percent represents a Ponzi limit in residential lending. Each time lenders develop a loan program to push DTIs higher (interest-only loans, Option ARMs), they simply create a Ponzi Scheme that inevitably collapses. When the market DTIs get down below 32% into the green range, prices stabilize near 28% DTIs — at least when the FED isn’t buying mortgage debt and directly controlling interest rates.

Doubling Time

So back to the original question, “how long should it take for a home to double in price? In Irvine, a home should appreciate at 4.4% per year to match wage growth. At 4.4% growth, a home will double in price in 16 years.

If you buy a home during a period of debt-to-income payment affordability, and sell during a period of very low affordability (time the bubble), you can make significantly more than 4.4% — as today’s 11.5% attests; however, the opposite is also true.

If you buy during a period of very low affordability, you may be at or below water for a very long time. People who bought in 1988, 1989 and 1990 saw no significant appreciation for a decade. What will be the fate of those who bought from 2003-2009? I have profiled many of them….

At 3.3% it takes 22 years for prices to double, at 4.4% it’s 16 years, at 7.2% it’s 10 years.

Many have made the analogy about trees growing to the sky to illustrate the problem of very high or differential appreciation rates. For those of you that like charts and graphs, below I show what prices will be like in 20 years if we step back to 2000 prices as a base (like the chart above) and project forward to 2030.

It is human nature to project short term uptrends to infinity. Californians believe they are capable of producing unlimited appreciation working within limited incomes, limited borrowing and limited savings. Prices occasionally appreciate quickly, and lenders enable unlimited HELOC spending which taxes the limits of homedebtor avarice, pride, lust, envy and gluttony. Wishful thinking enabled by lender greed; the California housing cycle.

6232 SIERRA SIENA Rd Irvine, CA 92603 door

Irvine Home Address … 6232 SIERRA SIENA Rd Irvine, CA 92603

Resale Home Price … $1,269,000

Income Requirement ……. $233,563
Downpayment Needed … $253,800
20% Down Conventional

Home Purchase Price … $429,000
Home Purchase Date …. 4/10/2000

Net Gain (Loss) ………. $763,860
Percent Change ………. 195.8%
Annual Appreciation … 11.5%

Mortgage Interest Rate ………. 5.00%
Monthly Mortgage Payment … $5,450
Monthly Cash Outlays ………… $7,540
Monthly Cost of Ownership … $5,590

Property Details for 6232 SIERRA SIENA Rd Irvine, CA 92603

Beds 4
Baths 0 full 3 part baths
Size 2,550 sq ft
($498 / sq ft)
Lot Size 6,625 sq ft
Year Built 1972
Days on Market 6
Listing Updated 11/18/2009
MLS Number S596070
Property Type Single Family, Residential
Community Turtle Rock
Tract Bm

10+++One of the best ever to come on the market in Turtle Rock Broadmoors! Charming single level custom home completely remodeled with over 750 sq. ft. added in 2008. Looks like it is right out of a magazine! Excellent floorplan with HUGE state of the art kitchen designed by well known designer Lynn Pries. This dream kitchen opens to HUGE family room w/high ceilings….HUGE Bedrooms..4th bedroom currently used as an open office area that can easily be converted. Quality craftsmanship throughout featuring all new windows,french doors, gorgeous wood floors, raised ceilings, remote control skylights, wainscoting, 2 air conditioners, epoxy garage floor, etc. etc. Enjoy relaxing on the darling porch with a custom brick fireplace and white picket fence. Worth your wait to finally buy without building your own. Architectural plans included for future expansion if needed! Sought after neigborhood! Best Irvine Schools: University High and Bonita Canyon Elementary. No Mello Roos & Low assoc.

neigborhood?

This property was purchased on 4/10/2000 for $429,000. The owners used a $130,000 first mortgage and a $299,000 downpayment. They did increase their mortgage debt during the last nine years like everyone else did, but they only took out and spent about $300,000 — which was their original downpayment. They spent their initial equity, but the bubble has enriched them, and if they sell now before the high end collapses, they stand to make about $750,000.

IHB: Explore our Library

Thank you again for allowing us the opportunity to present ourselves to you in this manner. We look forward to working with you.

Sincerely,

Larry Roberts

When you are ready…

sales@idealhomebrokers.com

The following are links to the analysis posts of Irvine Renter:

6-15-2009 — Should Adjustable-Rate Mortgages be Curtailed? — Another look at the problems created by adjustable rate mortgages and their place in the housing market.

6-1-2009 — How Much Cash Do You Really Need to Buy a House? — A review of the cash demands homebuyers face.

5-18-2009 — Irvine's Future REO Inventory — A review of the building wave of foreclosures due to hit the Irvine market.

5-11-2009 — Temporary Affordability and the Third Foreclosure Wave — An analysis of the problem adjustable rate mortgage create for the future of the housing market.

5-4-2009 — Negotiating for Real Estate — An overview of the negotiation process for residential real estate.

4-27-2009 — California Personal Finance: Ponzi Style — The methods of personal finance developed during the housing bubble created an unsustainable lifestyle.

4-20-2009 — Pent-Up Supply — A buildup of inventory at the mid to high end of the housing market signals an upcoming drop in prices.

3-30-2009 — Responsible Homeowners are NOT Losing Their Homes — People who were truly responsible with their borrowing are not losing their homes in the housing price crash.

3-23-2009 — Real Estate's Lost Decade — Rising interest rates could stop appreciation for a full decade.

3-9-2009 — The Market Bottom Is Not a Price Point — The bottom of a real estate market is not a specific price point, but a state of affordability.

3-2-2009 — What Risks Should Borrowers Be Allowed to Take? — Excessive risk caused the rise and fall of the housing bubble. Should some of the riskiest practices be eliminated?

2-12-2009 — The Financial Implications of Short-Sales and Foreclosures — Reference to an attorney's description of the what can happen in short sales and foreclosures depending upon the circumstances of the borrower.

2-9-2009 — The Moral Hazard of Market Supports and HELOC Abuse — Is the government's efforts to support the real estate market going to serve to create the psychology that inflates the next one?

2-2-2009 — Fire and Ice — Is it better for the market to correct quickly or slowly? An analysis of the implications of both methods of market correction.

1-26-2009 — The New Real Estate Sales Business Model — A proposal to change the 6% realtor sales commission model currently popular in the United States.

1-19-2009 — Tax Policy and Housing — A review of the various tax programs and how they impact house prices

1-13-2009 — Unlocking the Housing Market Recovery — A review of a popular proposal for saving the economy and the housing market.

1-12-2009 — Bring Back Paternalism in the Mortgage Market — A plea to re-regulate the mortgage market.

1-5-2009 — Debt-To-Income Ratios: The Forgotten Variable — The impact of debt-to-income ratios on house prices and the housing market.

12-8-2008 — 4.5% Mortgage Interest Rates? — What would happen if mortgage interest rates were dropped to 4.5%.

11-17-2008 — A Free-Market Solution to Prevent Housing Bubbles — From the final chapter of The Great Housing Bubble.

11-13-2008 — Reverse Liar Loans — An example of how bailouts are creating more problems than they are solving.

11-12-2008 — The ARM Problem — Adjustable rate mortgages scheduled to reset from 2009-2011 are the next wave of foreclosures that will flatten the real estate market.

11-11-2008 — The Carrot and The Stick — a look at what is really necessary to make a homeowner bailout program successful.

10-6-2008 — Fundamentals at a Market Bottom — A review of what market conditions prevail at the bottom of the housing cycle.

9-29-2008 — Desire is not Demand — A revealing look at the final myth propagated by realtors during a price decline.

8-25-2008 — I Was Wrong, It’s Worse… — A review of projections of future price drops 18 months later.

8-18-2008 — Affordability Mortgage Products Make Prices Unaffordable — A frank discussion on the problems caused by lender's solutions to the problem of affordability.

8-11-2008 — Timing Does Matter — An analysis dispelling the myths about timing the residential real estate market.

3-31-2008 — Investment Value of Residential Real Estate — An economic analysis of the true investment value of residential real estate.

3-29-2008 — Efficient Markets vs Behavioral Finance — An overview of the two competing theories of market price movements.

3-17-2008 — Bailouts and False Hopes — A cynical look at the psychology of potential bailouts.

3-15-2008 — Mortgage Default Losses — Parsing the distinction between default rates and resulting default losses on residential loans.

3-13-2008 — Floplords — A discussion of the phenomenon of accidental landlords.

3-12-2008 — Mortgages as Options — A look at how borrowers and speculators gamed the system using mortgages as option contracts.

3-11-2008 — Houses and Commodities Trading — An examination of the parallels between commodities markets and the behavior of residential real estate markets.

3-10-2008 — Mortgage Equity Withdrawal — An overview of the role mortgage equity withdrawal played in the recovery following the 2001 recession.

3-8-2008 — How Big Was the Bubble? — A review of statistical measures of price to evaluate just how big the housing bubble really was.

3-4-2008 — Systemic Risk in the Housing Market — The second of a two-part series. This posts examines the failures of structured finance and suggests methods for addressing this failure to prevent future housing bubbles.

3-3-2008 — Structured Finance 101 — The first of a two-part series. This post provides an overview of what structured finance is, and how it was used to during the housing bubble.

2-28-2008 — Affordability — A review of the concept of affordability and what it means for the housing market.

2-25-2008 — The Credit Crunch — A discussion of the causes and implications of the credit crunch.

2-18-2008 — Selling for Less — A look at the changing market environment where buyers are in control of the action.

2-4-2008 — What is Equity? — Looking at the components of homeowner equity and the factors that impact it.

1-28-2008 — Speculation or Investment — Comparing the motivations and activities of two distinct classes of purchasers of real estate. Knowing the difference between speculation and investment can make the difference between making and losing money.

1-14-2008 — Rent Versus Own — A detailed look at the cost of ownership and the various reasons to rent or own a particular property.

1-7-2008 — The Fallacy of Financial Innovation — Shattering the myth of "financial innovation" and reinforcing the use of 30-year, fixed-rate, conventionally amortizing mortgages.

12-3-2007 — What is a Bubble? — The concepts and beliefs that when acted upon by the general public create an asset price bubble.

10-1-2007 — What Caused the Bubble Rally? — A detailed analysis of the conditions the preceded the bubble rally and the causes of its inflation.

9-24-2007 — A Buyer’s Market — A hard-nosed look at negotiating when market conditions change.

9-13-2007 — The Market Bottom — A review of the conditions that formed the last market bottom and why it formed at the price level it did.

9-10-2007 — The California Social Contract — A meditation on the plight of homedebtors written from their perspective.

2007-07-16 — Land Value 101 — A detailed explanation of how raw land is valued when used for residential construction.

2007-06-25 — Houses Should Not Be a Commodity — A discussion of the psychology of commodity market trading and why this is an undesirable element in housing markets.

2007-06-18 — Telling Good Analysis from Bad — An evaluation of Gary Watts Real Estate Outlook for 2007 and a description of the characteristics of a robust market analysis.

2007-06-11 — The Reservoir of Schadenfreude — A whimsical look at the emotional phenomenon of taking pleasure in the misfortune of others.

2007-05-21 — The Day the Market Died — A look at the conditions which led to the bursting of the bubble with analogies to Don McClean's American Pie.

2007-05-14 — The Anatomy of a Credit Bubble — A detailed, mathematical analysis of the impact changing lending standards had on home prices. This is fundamental to understanding of the mechanics of the real estate bubble.

2007-05-07 — Your Buyer’s Loan Terms — The precursor to The Anatomy of a Credit Bubble. It discusses house prices from the perspective of the future buyer of your home. It demonstrates the impact changes in loan terms will have on future buyers and how this will impact the amount your future buyer can bid for your home.

2007-04-30 — Appreciation is Dead — Rapid home price appreciation has become an accepted truism in Southern California. There are many reasons to believe this is not a basic Truth of Life. This post examines the causes of appreciation and explores the reasons why it may all be coming to an end.

2007-04-23 — It’s not the Borrowers; It’s the Loans. — The "subprime containment" meme has been used to quell the fears of investors since the collapse of subprime lending in early 2007. This post examines the spurious nature of the subprime containment idea and explores the implications of the larger problem being hidden from the general public.

2007-04-16 — How Homedebtors Could Avoid Foreclosure — A look at a potential financing mechanism which might be used to assist homeowners who are underwater. It also examines the potential implications of the widespread use of such tools.

2007-04-08 — Southern California’s Cultural Pathology — An exploration of the unique cultural beliefs which made the housing bubble take hold in Southern California. This is a critical post to understanding why the bubble was so pronounced here while in other areas of the country it was not as extreme.

2007-04-02 — How Bad Could Bad Get? — A look at the worst case scenario for our housing market, and why it is not unrealistic.

2007-03-24 — Who is responsible for this mess? — A rant on the difficulty of identifying the party or parties responsible for our current problems.

2007-03-14 — Why the Sub-Prime Meltdown is a Problem — Many have postulated the sub-prime collapse would not impact housing prices in more affluent areas like Irvine. This brief post debunks this idea.

2007-03-11 — Predictions for the Irvine Housing Market — A prediction for the future of housing prices in Irvine based on an analysis of emerging data and trends. This is the capstone post tying together the series of posts from 3-1 to 3-9.

2007-03-09 — What if Prices Dropped to Fundamental Values? — A brief "what if" on the impact a decline to fundamental valuations would have on Orange County housing prices.

2007-03-06 — What is Past is Prologue — A review of the mechanics of the collapse of the last bubble to provide a foundation for the projections of the market action in our current market bubble.

2007-03-05 — How Sub-Prime Lending Created the Housing Bubble — A simple thought experiment to show how a loosening of lending standards helped create a commodities market mentality and inflated the housing bubble.

2007-03-03 — How Inflated are House Prices? — A discussion of the fundamental valuation of housing prices. This post is essential reading to anyone wanting to understand how residential homes should be valued.

2007-03-01 — Financially Conservative Home Financing — A review of available financing terms and a discussion of why the new "innovations" in home financing are disasters in the making.

2007-02-27 — I am IrvineRenter (Inventory Cholesterol) — A brief introductory post and a discussion of the different types of housing inventory and how they impact prices.

IHB News 11-21-2009

I hope you are enjoying your weekend. Today we have another Woodbridge bubble equity seller.

15 BAYSIDE Irvine, CA 92604 kitchen

Irvine Home Address … 15 BAYSIDE Irvine, CA 92604
Resale Home Price …… $998,000

{book1}

You got me running going out of my mind
You got me thinking me that I’m wasting my time

Don’t bring me down
No, no, no, no, no, ooh ooh
I’ll tell you once more before I get off the floor
Don’t bring me down

Don’t Bring Me Down — Electric Light Orchestra

The truth of the market brings homeowners down. The illusion painted in the MSM is all about green shoots and the recession is over. It isn’t in Southern California land development.

If residential investment is going to lead us out of recession as it has in past recessions, the properties need to be released by the lenders. As long as we keep these non-performing assets under bank control, nobody is going to spend any money to do anything with these properties; that means no development activity.

I am a land planner. I am the lead of any new land development. I am not aware of more than a handful of private land development projects being planning in the last 18 months. After we chew through the remaining finished and partially finished lots, there will be demand for more tentative tract maps and other planning products. The lead times are long, and nobody is doing this work right now.

It will be interesting to see if the inventory of tentative tract maps approved during the bubble will serve us in two or three years. With the dramatic change in the market, it may not be feasible to build out Riverside County with McMansions on lots over 6,000 SF, which is mostly what is left over from the bubble.

The building industry in Southern California will never be like it was in 2003-2005. With a 90% or more decline in sales, and a commensurate reduction in permits for new construction, there are not very many people left working in the homebuilding industry. Those related industries have suffered to the degree they were dependent upon homebuilding. It will improve from here. If volume increases to half of what it was in 2005, it will represent a 500% increase in sales and construction volume from today’s levels. That will be a feel-good economic story of 2011 or 2012 — 2010 will be better but tough.

Housing Bubble News from Patrick.net

SoCal rent costs fall, 1st dip in 14 years (lansner.freedomblogging.com)
Prime Borrowers Are Latest “Victims” Of Their Own Borrowing (huffingtonpost.com)
Mortgage delinquencies hit record high (msnbc.msn.com)
One in 7 U.S. mortgages foreclosing or delinquent (reuters.com)
MBA Forecasts Foreclosures to Peak in 2011 (calculatedriskblog.com)
Walking Away from Mortgage More Common Among Twenty-Somethings (blogs.wsj.com)
Foreclosure, delinquency rates spike amid growing unemployment (washingtonpost.com)
Housing Starts “Green Shoots” Wither On Vine (Mish)
Banks start foreclosure on 2,100 mortgages (mortgage.freedomblogging.com)

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15 BAYSIDE Irvine, CA 92604 kitchen

Irvine Home Address … 15 BAYSIDE Irvine, CA 92604

Resale Home Price … $998,000

Income Requirement ……. $184,942
Downpayment Needed … $199,600

Home Purchase Price … $575,000
Home Purchase Date …. 7/28/2000

Net Gain (Loss) ………. $363,120
Percent Change ………. 73.6%
Annual Appreciation … 5.7%

Mortgage Interest Rate ………. 5.06%
Monthly Mortgage Payment … $4,315
Monthly Cash Outlays ………… $5,340
Monthly Cost of Ownership … $3,940

Property Details for 15 BAYSIDE Irvine, CA 92604

Beds 5
Baths 3 baths
Size 2,967 sq ft
($354 / sq ft)
Lot Size 5,230 sq ft
Year Built 1987
Days on Market 5
Listing Updated 11/9/2009
MLS Number S595398
Property Type Single Family, Residential
Community Woodbridge
Tract Bs

‘PRICED TO SELL’. Beautiful bright and spacious 5 Bedrooms 3 full baths home in Woodbridge area. No Mello Roos. One bedroom downstairs. Tile and laminated hardwood floor throughout downstairs. Newly painted and custom window treatments. Vaulted ceiling in Living and formal dining rooms. Huge bonus/office room upstairs, it can be converted to a Big bedroom. Gourmet Kitchen with brand new BOSCH dishwasher, cooktop and seperated eating area. Great location. Walking distance to award-winning Woodbridge High, Woodbridge Community Park and South lake. Must see to appreciate the great and convenient Woodbridge community.

The property was purchased in 2000 for $575,000. The owner consistently paid down the mortgage, and it appears there was a change of family status and the first mortgage was lowered to less than $300,000. In short, these owners have plenty of equity. Good for them.