Monthly Archives: December 2009

2009 Residential Real Estate Stories in Review

What do you think was the biggest real estate story of 2009?

Irvine Home Address … 240 LEMON Grv Irvine, CA 92618
Resale Home Price …… $274,900

{book1}

Should auld acquaintance be forgot,
and never brought to mind?
Should auld acquaintance be forgot
and days of auld lang syne?

For auld lang syne, my dear,
For auld lang syne,
We’ll take a cup o’ kindness yet
For auld lang syne

Auld Lang Syne — Robert Burns

Since today is the final day of 2009, and the final day of this decade, I want to examine the biggest residential real estate news stories of 2009, and recap the biggest news story of the decade, the Great Housing Bubble.

Prices Didn’t Go Down (much)

Depending on where you were, prices began to stabilize in 2009, and the mainstream media saturated us with bottom calling. Don’t be confused, the decline in house values continues despite spin. Ordinarily, I would be celebrating market stabilization (contrary to popular belief, I am not a permabear). However, the more interesting stories of 2009 relate to the reasons prices did not go down in 2009 – they should have — and they would have if not for the other major news items.

Shadow Inventory Builds

Shadow Inventory is a problem that stems from the solutions to the core problem of the housing bubble; overpriced homes and the oversized debt that inflated home values. The mountain of Ponzi debt and a deteriorating economy puts borrowers in circumstances where they default, and with government encouragement, including various Bailouts and False Hopes, the defaulting borrowers stay in their houses rent-free until lenders improve their capital ratios, thus helping politicians avoid soup lines and Obamavilles. The solution to the default problem is amend, extend and pretend; the result of the solution to the default problem is Shadow Inventory.

The major story of 2009 is the deferral of all real estate market problems through the creation of Shadow Inventory. Policy makers had many options, and they chose the most politically expedient; they deferred dealing with the reality of defaults by pandering to false hopes, manipulating financial markets, and creating a massive overhang of eventually-to-be-for-sale homes.

In Shadow Inventory Orange County, I defined Shadow Inventory; (it) is the total of Preforeclosure Inventory, REO and some other sources.
Preforeclosure Inventory includes all mortgages currently 60 days or
more behind on their payments that are likely to become foreclosures
but not yet REO.” Currently, this Foreclosure backlog is estimated at 1.7M, and the problem is getting worse since Serious U.S. mortgage delinquencies up 20 percent. This is important because a glut of shadow properties could hurt housing prices.

Borrowers are defaulting in large numbers

I don’t think anyone denies that California notices of default hit record. The default rate was 10.7% in September, but it is projected to hit 14% by the end of the year, and foreclosures for “seriously delinquent loans” topped 1 million in Q3. There is no way, short of ignoring data, to think we do not have a shadow nventory problem because homedebtors are making their payments. The only question is what to do about it. The current solution is to attempt loan modification programs… endlessly….

Loan Modification Programs Fail

In SI OC, I noted, “Despite rumors to the contrary, loan modification programs have been completely ineffective. Very few people actually get the modifications, and most of those people re-default and end up in foreclosure anyway. If these programs were effective, it would show up in high cure rates; 6.6% is not very high.” Results have not improved much for loan modification programs as borrowers with modified loans are falling into trouble. It is so bad that the Treasury Needs a Plan B for Mortgages. If you want the real scoop, someone can explain The Real Reason Mortgage Modifications Fail.

Lenders Are Foreclosing… slowly

With the plethora of moratoria winding down, foreclosures fall, but banks bracing for next big wave. Since it is obvious foreclosures have not kept pace with defaults, at some point, foreclosure rates will increase; Los Angeles-area foreclosure rate increases in October.

The Federal Reserve Buys Agency Paper

The Federal Reserve actually began buying agency debt in late 2008, Fed Buys $5 Billion in Agency Debt, but the program did not take over the mortgage market until mid 2009, and just recently, Treasury has uncapped the support for Fannie and Freddie for the next three years. Of course, the problem with this is that Fannie Mae Losses May Exceed $200Bn.

Without this support according to Geithner: “none … would have survived”. He is wrong, of course, as the only real losers would have been lenders, investors and the people who inflicted this terror upon us, but selling fear has enabled him to secure billions of dollars in aid and direct government bailouts. Not a bad deal — for the bankers.

Payment Affordability Hits Bottom

As I wrote in Low-End Payment Affordability, I believe the cost of ownership on a monthly payment basis has hit bottom for low end properties in Irvine, and in many of the subprime dominated markets like Riverside County. Although I believe prices will fall further, mostly due to inventory issues, payment affordability will get worse as higher interest rates make for smaller loan balances.

Fixed-Rate Mortgage Rates Hit Bottom

Ben Bernanke may have his shortcomings as a central banker, but if his actions speak for his perception of the direction of interest rates, then fixed interest rates have bottomed because Ben Bernanke refinanced his ARM to a fixed-rate mortgage. Why would our central banker convert to fixed if he knows the FED, the organization he runs, is going to push interest rates lower? He wouldn’t. Ben Bernanke himself has called the bottom in fixed-rate interest financing. Others have speculated that the Fed will hike all interest rates — in 2011. I have no idea.

Projected slowly declining prices with overhanging fears of larger drop

No sources with any credibility are predicting price increases for 2010 because California house values are likely to be down in 2010. It isn’t rocket science; Many counties in California are still overpriced. Massively overpriced, and because prices are too high, and financing is getting ever tighter, prices will go down.

Irvine Fire and Ice Scenarios

If the government manipulations are successful, we will see the path of “ice” in my illustration above. People who think we will see 2006 prices by 2013 are delusional. IMO, it is unlikely prices will move higher, particularly in the face of rising interest rates. At any point, we could be facing the “fire” scenario because our house prices are inflated by every historical measure — other than payment affordability. Are you comfortable buying the “ice” scenario?

Should you buy or shouldn’t you buy? That is the question.

When I first wrote about when to buy, my simple rule was to buy
when it was less expensive to own than to rent. This is a good rule,
but when payment affordability is artificially manipulated by FED
policy, the rule needed a caveat; so now I say it is a good time to buy
when it is cheaper to own than to rent, and it is during a period of no
direct government manipulation through tax credits, mortgage interest
rate manipulation, and so on. Until these government props are removed,
and until some time has passed to see the impact foreclosures will have
on inventory, I don’t feel comfortable saying it is a “good” time to
buy in Irvine. The good news is we are approaching the time when the conditions are right.

I would say it is a good time for certain families who are (1) able
to take advantage of tax incentives, (2) they know they are going to
live in the house for a decade or more, and (3) they are paying a price
where a fixed-rate mortgage makes the cost of ownership lower than the
cost of rental. As long as the stars and the moon align, then it is a
“good” time to buy.

As time goes on, The categories of circumstances where buying now is
wise will expand. For now, it is confined to the circumstances I
outline above.

{book4}

Every Sunday for the next 21 weeks, I will repost The Great Housing Bubble in its entirety. I find that the email and post versions are more informative than the book in some ways. The end notes, which few ever read in a book, are at the end of each post. A wealth of information and research is contained in the end notes. Also, the shorter format is more easily digested giving time to review the ideas presented. I hope you enjoy your review of the Great Housing Bubble.

The complete text of The Great Housing Bubble is spread out over 21
blog posts. Every word of it is there, including the end notes with
extra information.

http://www.thegreathousingbubble.com/images/HomePageImage.jpgWelcome to The Great Housing Bubble

What Is a Bubble?

Conservative House Financing – Part 1

Conservative House Financing – Part 2

Conservative House Financing – Part 3

Fundamental Valuation of Houses – Part 1

Fundamental Valuation of Houses – Part 2

Valuation of Lots and Raw Land

The Credit Bubble – Part 1

The Credit Bubble – Part 2

The Housing Bubble – Part 1

The Housing Bubble – Part 2

The Housing Bubble – Part 3

Bubble Market Psychology – Part 1

Bubble Market Psychology – Part 2

Bubble Market Psychology – Part 3

Future House Prices – Part 1

Future House Prices – Part 2

Future House Prices – Part 3

Buying and Selling During a Decline

Preventing the Next Housing Bubble – Part 1

Preventing the Next Housing Bubble – Part 2

Irvine Home Address … 240 LEMON Grv Irvine, CA 92618

Resale Home Price … $274,900

Income Requirement ……. $58,617
Downpayment Needed … $9,622
3.5% Down FHA Financing

Home Purchase Price … $140,000
Home Purchase Date …. 4/30/1992

Net Gain (Loss) ………. $118,406
Percent Change ………. 96.4%
Annual Appreciation … 3.8%

Mortgage Interest Rate ………. 5.26%
Monthly Mortgage Payment … $1,467
Monthly Cash Outlays ………… $1,960
Monthly Cost of Ownership … $1,590

Property Details for 240 LEMON Grv Irvine, CA 92618

Beds 2
Baths 1 full 1 part baths
Size 1,051 sq ft
($262 / sq ft)
Lot Size n/a
Year Built 1983
Days on Market 3
Listing Updated 12/26/2009
MLS Number S599740
Property Type Condominium, Residential
Community Orangetree
Tract Vl

According to the listing agent, this listing is a bank owned (foreclosed) property.

Two bedroom, 2 bath, lower level condo with covered carport. Ceramic tile flooring in living room, dining room, kitchen and hallway. Unit has very private enclosed brick patio area. Good location in complex. Close Spectrum with its shops, theatres, restaurants and specialty shops. Also close to frewways 5 and 405.

Dataquick Writes Realtor Press Release

Yesterday, we looked at some realtor spin from Canada, and today we are
going to see the US version of third-party pseudo news spin and a beautiful Woodbury home.

Irvine Home Address … 35 South TRIPLE LEAF Irvine, CA 92620
Resale Home Price …… $1,269,000

{book1}

Wash away my troubles, wash away my pain
With the rain in Shambala
Wash away my sorrow, wash away my shame
With the rain in Shambala

(chorus)
Ah, ooh, yeah, yeah, yeah, yeah, yeah, yeah

Everyone is helpful, everyone is kind
On the road to Shambala
Everyone is lucky, everyone is so kind
On the road to Shambala

Shambala — Three Dog Night

Do you think we can wish away the housing bubble or ignore its troubles and pain? I too long for the rains of Shambala…

Third-party data providers and other professionals making a living off real estate have learned they get more attention when they pander to their audiences needs. Hence, we get data reports that read like press releases for the NAR.

“Southland home sales and prices up

December 15, 2009

La Jolla, CA—Southern California’s housing market continued its
step-by-step climb up from the January-February bottom as both sales
and prices saw gains last month, a real estate information service
reported.”

Wait a minute. Who said we put in a bottom in January-February? No data shows a bottom in pricing or volume back to early last year, and certainly aggregate data does not, so this is a made up “fact” that lets everyone feel good.

“A total of 19,181 new and resale homes sold in Los Angeles,
Riverside, San Diego, Ventura, San Bernardino and Orange counties last
month. That was down 13.3 percent from October’s 22,132, and up 14.7
percent from 16,720 for November 2008, according to MDA DataQuick of
San Diego.

Sales almost always decline from October to November. The
year-over-year increase was the 17th in a row. In DataQuick’s
statistics, which go back to 1988, the average November had 22,312
sales.”

The two important pieces of information here are separated by obfuscation. The reality of our real estate market is that volumes are 15% below their normal seasonal low; the market is not healthy. The reality of low volume is lost in the press release.

“Sales of newly built homes saw an unexpected jump last month.
A total of 2,039 new homes were sold, the highest of any month so far
this year, and 25.5 percent ahead of 1,625 for November 2008.

Sales have been stoked in recent months by several factors: A
federal tax credit for first-time buyers, which had been set to expire
last month before it was extended and expanded; robust investor
activity, especially inland; super-low mortgage rates; the availability
of government-insured, low-down-payment mortgages for first-time
buyers; and the allure of a potential “deal” on a distressed property.

“This market is still really lopsided. Foreclosures and short
sales are huge factors. There’s still not a lot of discretionary buying
and selling outside the more affordable markets. Anybody who can sit
tight is doing just that. The market won’t fully rebalance itself until
financing becomes available for the higher price ranges,” said John
Walsh, MDA DataQuick president.

Mortgages above $417,000 – formerly the definition of a jumbo
loan – accounted for 15 percent of all home purchase loans, roughly the
same as it has been since June. Those loans made up nearly 40 percent
of purchases before the August 2007 credit crunch hit.”

The market will not
be stable until financing becomes available at the high end;
unfortunately, that is not going to happen. People seem to
believe super low interest rates and lax underwriting standards are
going to return soon; they aren’t. The high end is held up by nothing
but air, and when it deflates, it will send reverberations through the
rest of the market. The high end will not stablize until prices drop,
period.

“Only 4.1 percent of last month’s home purchase loans were
adjustable-rate mortgages. A higher ARM rate is part of a healthy
market. From 2000 through 2005, 47 percent of the Southland home
purchases were financed with an ARM.”

BULLSHIT!!! I get really tired of this kind of nonsense; a higher ARM rate is a sign that people are stretching in an already inflated market. In fact, the primary indicator of the shift from normal financing to Ponzi financing such as interest-only and Option ARMs is an increase in the ARM rate. A healthy market would have a zero ARM rate.

“Foreclosure resales – houses and condos sold in November that
had been foreclosed on in the prior 12 months – made up 39.1 percent of
all Southland resales. That was the lowest since May 2008 when it was
also 39.1 percent. It hit a high of 56.7 percent last February.”

Let me rephrase, “catastrophic numbers of foreclosures continued, but fewer of them sold so prices didn’t go down.” The writing focuses your attention on the fact that the numbers are declining. It makes no mention of the bigger picture problem that defaults foreclosures are piling up faster than we sell them.

“Government-insured FHA financing continued to play a vital
role in the Southland’s housing market. Last month 38.1 percent of all
purchase loans were FHA-insured mortgages, the same as in October and
up from 34.5 percent a year ago. Two years ago FHA accounted for just
2.5 percent of purchase loans.

Absentee buyers purchased 19.1 percent of all homes sold last
month, while buyers who appeared to have paid all cash – meaning there
was no corresponding purchase loan – accounted for 24.4 percent of
sales, based on an analysis of public records.”

There are a large number of cash buyers out there — 24.4% of total sales. (BTW, we now work with a trustee sale buyer if anyone is interested in buying at 15% under resale at auction).

“The median price paid for a home in Southern California was
$285,000 last month. That was up 1.8 percent from $280,000 for the
month before, and the same as November 2008. Last month was the first
since September 2007 that did not see a year-over-year decline in the
median.

Last month’s median was 43.6 percent lower than the peak
Southland median of $505,000 reached during several months in early and
mid 2007.”

Didn’t the headline say prices are up? I guess the fact that they are down 43.6% from the peak isn’t news.

“Because of a sales mix profile still tilted towards lower-cost
foreclosure resales, the median’s fall from its peak overstates the
decline in the value of the typical home. Generally, it appears that
homes in more costly, established neighborhoods have come down in value
by about half as much as homes in many newer, more affordable
neighborhoods in inland growth areas.”

Yes, the high end is yet to be crushed.

“MDA DataQuick, a subsidiary of Vancouver-based MacDonald
Dettwiler and Associates, monitors real estate activity nationwide and
provides information to consumers, educational institutions, public
agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Southland buyers
committed themselves to paying was $1,207 last month, up from $1,196
for October, and down from $1,380 for November a year ago. Adjusted for
inflation, current payments were 45.6 percent below typical payments in
the spring of 1989, the peak of the prior real estate cycle. They were
55.4 percent below the current cycle’s peak in July 2007.

Indicators of market distress continue to move in different
directions. Foreclosure activity remains high by historical standards,
although mortgage default notices have flattened out or trended lower
in many areas. Financing with multiple mortgages is low, down payment
sizes are stable, and non-owner occupied buying is above-average in
some markets, MDA DataQuick reported.

Sales
Volume		 Median
Price
All
homes		 Nov-08 Nov-09 %Chng Nov-08 Nov-09 %Chng
Los
Angeles 		5,037 6,257 24.2% $340,000 $329,000 -3.2%
Orange 2,177 2,528 16.1% $400,000 $432,250 8.1%
Riverside 3,719 3,745 0.7% $220,000 $200,000 -9.1%
San
Bernardino		 2,385 2,751 15.3% $185,250 $160,000 -13.6%
San
Diego 		2,673 3,148 17.8% $305,000 $325,000 6.6%
Ventura 729 752 3.2% $355,000 $365,000 2.8%
SoCal 16,720 19,181 14.7% $285,000 $285,000 0.0%

Source: DQNews.com Media calls: Andrew LePage (916) 456-7157 or John Karevoll
(909) 867-9534

Copyright 2009 DataQuick Information Systems. All rights reserved.”

I wish these guys would stick to the facts in their press releases. The realtors can pay their own copy editors to spin it into nonsense.

Irvine Home Address … 35 South TRIPLE LEAF Irvine, CA 92620

Resale Home Price … $1,269,000

Income Requirement ……. $270,591
Downpayment Needed … $253,800
20% Down Conventional

Home Purchase Price … $1,913,000
Home Purchase Date …. 12/19/2005

Net Gain (Loss) ………. $(720,140)
Percent Change ………. -33.7%
Annual Appreciation … -9.5%

Mortgage Interest Rate ………. 5.26%
Monthly Mortgage Payment … $5,612
Monthly Cash Outlays ………… $7,460
Monthly Cost of Ownership … $5,550

Property Details for 35 South TRIPLE LEAF Irvine, CA 92620

Beds 4
Baths 4 full 2 part baths
Size 4,133 sq ft
($307 / sq ft)
Lot Size n/a
Year Built 2005
Days on Market 8
Listing Updated 12/24/2009
MLS Number P714925
Property Type Single Family, Residential
Community Woodbury
Tract Wdjb

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

Juliet’s Balcony Former Model 2 Home. Over looking beautiful park in front of the house. Entrance to courtyard with soothing waterfall, Juliet iron staircase, library with bookcase on first floor. Highly upgraded kitchen with professional Stainless steel appliances, center island combine in greatroom ambient: dining area and family room. 4 Bedrooms with 4 full baths upstair + Casitas (casitas has 3/4 bathroom) and many features to list… Sale in ‘AS IS’ condition. Refrigerator is not included.

Does anyone remember the drama with 33 Triple Leaf where the owner lost $500,000? Perhaps this street is cursed?

Foreclosure Record
Recording Date: 10/21/2009
Document Type: Notice of Default

Canadian Realtors Ignore Housing Bubble

Realtor disinformation campaigns are not confined to the United States. Canadians have their own Real Estate Association spinning the data.

17 IMPERIAL AISLE Irvine, CA 92606 kitchen

Irvine Home Address … 17 IMPERIAL AISLE Irvine, CA 92606
Resale Home Price …… $410,000

{book1}

Im Sayin Get That Dough
My Brothers Get Some More
Im Searching For That Cash
Everyday That Fills The Flow
Its All About Constructing Different Plans By All Means
Hustle Till You Drop But Your Stack Needs More P
I Wake Up
Whats the First Thing On My Mind
Im Back To My Grind

Money Maker — Imperial Squad

As a somewhat cynical realist, I am suspicious of sources and motivations when I read news stories because big money can spread disinformation and influence public opinion. Realtor associations have a powerful influence. They create their own fictional economic universe and they work diligently to spread the Good Word. Part of their process is to feed press releases to lazy reporters who regurgitate realtor spin and give it the veneer of impartiality.

Bullshit, if separated from its source, smells just as sweet.

As I was researching yesterday’s story on the Canadian Housing Bubble, I came across a piece of realtor spin Canadian style, Fears of Canadian housing bubble dwindle.Big Brother

First, note the title of the piece is written as if it is fact when we know from the numerous stories I linked to yesterday that fears of a Canadian housing bubble are intensifying, not dwindling. The title of this article caught my attention because it was counter to the obvious.

I started getting visions of George Orwell’s character Winston Smith doctoring the historical records creating imagined pasts without fears of housing bubbles. Articles like this one are historical fiction planted in the news archives of the internet to betray future historians to the truth of the era; a dastardly deed Big Brother would deviously bemoan: PAST IS FUTURE.

To the article:

“A surge in new listings in November helped ease a chronic supply
shortage and temper prices from a month earlier, easing fears of a
bubble in the making even, though the rebound in the market continued
unabated.”

The author shows skill to shove so much nonsense into a single sentence (but not as many Ss). What “chronic supply shortage?” What proof do you have of this? When and where is this mentioned? This is an example of stating what you want to be true as if it is truth when in fact, it is a combination of wishful thinking and seeding one’s own argument. If you reject this premise — which I do, since it is false — then the rest of this argument falls apart.

“That’s what economists were looking for because a steady string of
monthly price increases could inflate an asset bubble and lead to a
severe correction when interest rates eventually rise. For the past
several months, prices have been rising month-over-month, with
double-digit percentage increases posted year-over-year.”

Economists are not looking for the set of conditions the author describes in the first sentence as confirmation that there is no housing bubble. He made this up. The reason economists were looking — the steady stream of price increases indicative of a bubble — that is still a concern, and the authors feeble idea of new listings easing a chronic shortage does nothing to abate fears of a housing bubble. All it does do is show that sellers are coming out in large numbers to take advantage to foolish buyers who think prices are going to the moon.

“Listings in November increased by 5 per cent compared with October, the
largest one-month gain in two years, the Canadian Real Estate
Association said Tuesday. The increase is a sign of consumer
confidence, and signals a return to normalcy in what has been an
extremely volatile market. More inventory ultimately means lower
prices. The average national price in November declined by 1.1 per cent
from October to $337,231, although that was still up sharply from the
depressed levels 12 months ago.”

Another treasure trove. Blah, blah, blah, consumer confidence, return to normalcy; do you see the template the author was working from? My favorite in this piece comes at the end of the above section when the author mentions that prices are up sharply from 12 months ago — the primary concern of everyone looking for a housing bubble. Note the author added the qualifier “from depressed levels” to insinuate that current prices are not inflated because, due to some magic, prices 12 months ago were “depressed.” Bullshit.

“New listings are helping to balance the market and are letting a
little bit of air out of the tires,” said Gregory Klump, chief
economist at the Canadian Real Estate Association. “We are starting to
see affordability eat into demand.”

Notice the realtorspeak, instead of the obvious, “prices are too high,” the author goes for the negative, “affordability eat into demand.” Affordability is portrayed as this evil dragon that devours market demand, a beast to be slain, preferably through toxic financing and large doses of kool aid.

… While Peter Aceto welcomes a moderation in prices, the chief
executive officer of ING Direct worries buyers are purchasing homes
they won’t be able to afford when interest rates move higher. He has
advised his employees to run clients through different scenarios to
make sure they realize how much more their payments would be under
historically average circumstances.

For example, a five-year variable rate mortgage at 2.25 per cent on
$300,000 would carry a monthly payment of about $1,300, assuming a
25-year amortization period. A move to 5 per cent would boost the
payment to $1,750. It’s a 34-per-cent increase, something many family
budgets wouldn’t be able to accommodate.

Exactly why housing bubbles are a huge problem. People become reliant on ever increasing house prices and declining borrowing costs to fuel and finance consumer spending. When house prices and interest rates go the other way, it is shattering to those dependent upon borrowing to sustain their lifestyles.

“I understand how people get caught up in a hot market, but they are
doing some odd things that really worry me,” he said. “You see multiple
offers, and houses going for 20 per cent above asking. Those aren’t
normal things, and the high level of confidence out there really does
make me scratch my head a little.”

It should make this guy do a little more than scratch his head; perhaps he could blog anonymously for a while and try to warn people….

The Bank of Canada had a similar warning for consumers last week.

A Royal LePage survey of real estate brokers shows Canadian home
buyers are also wary, although most don’t believe a large price
correction is imminent in 2010. The main concern among buyers,
according to the 1,200 brokers who participated in the survey, is
economic instability. They also worry about whether they’ll be able to
get the price they want for their house should they sell.

“People worry when they see the kind of volatility we’ve been
through,” Royal LePage chief executive officer Phil Soper said. “Abrupt
changes in either direction cause concern, but as we edge toward
normalcy in the market and everything levels back out those concerns
should start to ease.”

I am not surprised a survey of buyers showed they did not believe a price correction is imminent in 2010. A survey of buyers anywhere would reveal that sentiment, so what? Most buyers are naive, and with everyone feeding them a steady diet of propaganda disguised as news, it should not be surprising everyone thinks house prices are going to rise quickly, and that they should buy now or be priced out forever.

17 IMPERIAL AISLE Irvine, CA 92606 kitchen

Irvine Home Address … 17 IMPERIAL AISLE Irvine, CA 92606

Resale Home Price … $410,000

Income Requirement ……. $87,425
Downpayment Needed … $14,350
3.5% Down FHA Financing

Home Purchase Price … $306,500
Home Purchase Date …. 11/25/2009

Net Gain (Loss) ………. $78,900
Percent Change ………. 33.8%
Annual Appreciation … 187.9%

Mortgage Interest Rate ………. 5.26%
Monthly Mortgage Payment … $2,187
Monthly Cash Outlays ………… $2,870
Monthly Cost of Ownership … $2,160

Property Details for 17 IMPERIAL AISLE Irvine, CA 92606

Beds 2
Baths 1 full 1 part baths
Size 1,075 sq ft
($381 / sq ft)
Lot Size n/a
Year Built 1993
Days on Market 5
Listing Updated 12/22/2009
MLS Number S599611
Property Type Condominium, Residential
Community Westpark
Tract Cb

Corte Bella gated community. Mediterranean style with fountains & statues. Newly installed carpet & blinds. Plantation shutters. Custom crown moldings & base. Upgraded wood floor & granite counters in Kitchen. Walk-in closet with Mirrored wardrobe. Walking distance to community park & Colonel Bill Barber Memorial Park. Ready move-in condition.

The Sweet Smell of Dung — An Irish Jig

US Exports Housing Bubble to Canada

The Canadians missed out on the Great Housing Bubble, but they are inflating one in the aftermath. O Canada!

2 NEVADA Irvine, CA 92606 kitchen

Irvine Home Address … 2 NEVADA Irvine, CA 92606
Resale Home Price …… $749,000

{book1}

O Canada!

Our home and native land!
True patriot love in all thy sons command.

With glowing hearts we see thee rise,
The True North strong and free!

From far and wide,
O Canada, we stand on guard for thee.

God keep our land glorious and free!
O Canada, we stand on guard for thee.

O Canada, we stand on guard for thee.

O Canada — Théodore Robitaille

Over the last few weeks, I have been watching a growing body of newspaper reports that express a concern that Canada is inflating a real estate bubble. They are, and the local media has every right to be concerned and sound the alarm. Watching the response of legislators and realtors (coming tomorrow), the similarities between the two situations become apparent. Let’s hope they stop the process before the bubble gets very damaging to their housing market and economy.

What if the Housing Bubble never happened?

When I wrote the post, the History of Fundamental Value, I created the chart below to illustrate the impact Federal Reserve Policy is having on prices and affordability and provide a conceptual foundation for the FED’s reasoning when it comes to housing and the economy.

Comparison of home prices and value - Irvine California - 1997-2009

Obviously, the Federal Reserve is focused on lowering mortgage interest rates to soften the deflation of the housing bubble, but what impact would these policies be having on our real estate market if we didn’t have a housing bubble? To answer that question, we need to look at a housing market not impacted by mortgage policies of the United States, but still dependent upon the United States for capital flows and interest rate policy; Canada is the obvious choice.

The Canadian Housing Bubble

Prior to 2009, there was little talk about a real estate bubble in Canada because there wasn’t one. Prices in Canada have stayed relatively close to cashflow value for many years. Despite their over-reliance on adjustable-rate mortgages, their market has been a model of stability — at least it was until the implementation of new interest rate policies of the United States, a policy required by our own housing bubble (“It (expanding FHA) was
an effort to keep prices from falling too fast. That’s a policy.” — Barney Frank).

When the Federal Reserve in the United States lowered interest rates, it caused affordability to increase about 20%.

Cashflow Value increased 20% in 2009

We also know what will happen when the Federal Reserve allows interest rates, particularly mortgage interest rates, to rise back to the level of the market; affordability will fall, and so will prices.

This is what Canada is facing, Canada housing market still ablaze in November:

OTTAWA, Dec 15 (Reuters) – Sales of existing homes in
Canada jumped 73 percent in November from a year earlier to
just below the record high for the month, the Canadian Real
Estate Association said on Tuesday.

The robust figures were in stark contrast to those for the
overall economy, which is still struggling to pull out of
recession. [You think?]

“The report suggests that the Canadian housing market
remains on fire as the combination of low mortgage rates and
still favorable buying conditions continues to spur buying
activity,” said Millan Mulraine, economics strategist at TD
Securities.

The central bank’s promise to keep its benchmark interest
rate at rock bottom at least until mid-2010, combined with
renewed consumer confidence, has fueled a house-buying spree in
Canada that has surpassed all expectations and raised fears of
a housing bubble that could explode when rates rise again.

The real estate market slumped during the recession but
escaped a U.S.-style meltdown. In fact, in some regions demand
and prices merely eased from soaring heights seen before the
downturn, a correction that some economists think was overdue.

Existing home sales rose 5 percent in the first 11 months
of this year compared with the same period of 2008, but were
below levels for that period in each of the three preceding
years.

Year-over-year gains were biggest in British Columbia and
Ontario at 165 percent and 77 percent, respectively.

The average national price in November rose 19 percent from
a year earlier to C$337,231 ($318,142). Year-to-date, the
average price was up 4.4 percent from the same period of 2008.

More housing supply was coming on to the market, CREA said,
as sellers were lured back by the strong demand and price
hikes. Listings rose 5 percent in November from October, the
biggest monthly jump since January 2008.

Even so, the strong uptake meant that inventories continued
to be drawn down from year-earlier levels for the seventh
straight month.

($1=$1.06 Canadian)

How much more obvious can this situation be? Interest rates create a 20% increase in affordability, and during the depths of a deep recession, Canadians managed to make house prices go up 20%. Hmmm… I think cause and effect would indicate that prices have bubbled to match interest rates, and they will go back down when interest rates go up.

{book3}

Some in Canada see the problem, “However, there was some concern about the unexpected and
unsustainable nature of the two main sources of growth – utilities and
housing sales – even as Ottawa warned this week of an overheating
property market and recent real estate data shows the property buying
spree continued in November. “Neither a cold winter nor a hot
real estate market is a sustainable source of economic growth,” Erin
Weir, an economist with the United Steelworkers, wrote in a note.” There are many in California who would argue that you can sustain an economy solely on increasing real estate prices, particularly with HELOC access to the appreciation.

The fears Canadians feel about their housing market are well founded — not that the politicians will say so…

Canada Denies Housing Bubble

Is it the responsibility of politicians everywhere to deny the obvious and foster dreams of Bailouts and False Hopes? They seem to excel in this area, Canada minister sees no housing bubble at present:

“If we see — which we have not seen — but if we see clear
evidence of an upward bubble, particularly with respect to
insured mortgages, then we have some tools available which
we’ve used before and we can use again,” he said in his Ottawa
office.

We have tools. LOL! I feel totally secure knowing the government has a tool like this guy in charge of finances.

Flaherty said it was not surprising to see substantial
activity in the mortgage and housing markets given low interest
rates and the fact that people had held back on big investments
during the recession.

He said he was not as concerned about housing prices so
much as the ability of Canadians to service their debt.

“I’m more concerned about affordability (of mortgages) and
people not being lulled into a false sense of security, taking
out relatively low interest-rate mortgages, when we all know
that the mortgages rates have only one way to go over time —
and that’s up,” he said.

Sorry to break the news to you Mr. Finance Minister, but you have inflated a housing bubble, and it will cause problems in your country as it did in ours. At least I give you high marks for choosing to do nothing about it. Perhaps the stooges in charge of our housing market can learn from you and do nothing further.

2 NEVADA Irvine, CA 92606 kitchen

Irvine Home Address … 2 NEVADA Irvine, CA 92606

Resale Home Price … $749,000

Income Requirement ……. $159,711
Downpayment Needed … $149,800
20% Down Conventional

Home Purchase Price … $710,000
Home Purchase Date …. 7/10/2003

Net Gain (Loss) ………. $(5,940)
Percent Change ………. 5.5%
Annual Appreciation … 0.8%

Mortgage Interest Rate ………. 5.26%
Monthly Mortgage Payment … $3,313
Monthly Cash Outlays ………… $4,300
Monthly Cost of Ownership … $3,270

Property Details for 2 NEVADA Irvine, CA 92606

Beds 4
Baths 2 full 1 part baths
Size 2,900 sq ft
($258 / sq ft)
Lot Size n/a
Year Built 1999
Days on Market 6
Listing Updated 12/23/2009
MLS Number 12132953
Property Type Single Family, Residential
Community Irvine
Tract Cb

GREAT HOME IN GATED HARVARD SQUARE. VERY OPEN & DESIRABLE FLOOR PLAN HOME LOCATED ON A QUIET CUL-DE-SAC STREET. LARGE KITCHEN WITH ISLAND ADJACENT TO OVERSIZED FAMILY ROOM. GOOD SIZE YARD.

ALL CAPS. Little info.

These owners appear to be attempting a breakeven exit, and with today’s interest rates, they will probably get their wish. There is a $568,000 first mortgage, and a $190,000 HELOC opened a year later. If they took out the HELOC and extracted their downpayment, they have little to lose other than their credit score… Oops, that is already trashed…

Foreclosure Record
Recording Date: 07/09/2009
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)

Foreclosure Record
Recording Date: 03/30/2009
Document Type: Notice of Default

Las Vegas’s Housing Bubble

Since I was writing today about exported housing bubbles, I want to remind you that we have the textbook case of an exported housing bubble in nearby Nevada. Loose financing explains much, but California equity locusts made this happen…

Hard Landing Las Vegas

What will Canada’s housing bubble look like?

IHB News 12-26-2009

Happy Boxing Day!

5322 PLUM TREE Irvine, CA 92612 kitchen

Irvine Home Address … 5322 PLUM TREE Irvine, CA 92612
Resale Home Price …… $520,000

{book1}

Take it all down, Christmas is over
But do not despair, but rather be glad
We had a good year, now let’s have another
Remembering all the good times that we had
Oh no more lights glistening
No more carols to sing
But Christmas, it makes way for spring
Though hearts of man are bitter in weather
As cold as the snow that falls from above
But just for one day we all came together
We showed the whole world that we know how to love
Oh no more lights glistening
No more carols to sing
But Christmas, it makes way for spring
Oh no more lights glistening
No more carols to sing
Christmas, it makes way for spring
Oh remember that Christmas, it makes way for spring

Boxing Day — Relient K

I want to thank my wife for the inspiration of today’s post.

From Wikipedia:

The name [Boxing Day] derives from the tradition of giving seasonal gifts, on the
day after Christmas, to less wealthy people and social inferiors, which
was later extended to various workpeople such as labourers and servants.

The traditional recorded celebration of Boxing Day has long included
giving money and other gifts to charitable institutions, the needy and
people in service positions. The European tradition has been dated to
the Middle Ages, but the exact origin is unknown and there are some
claims that it goes back to the late Roman/early christian era.

In the United Kingdom it certainly became a custom of the nineteenth
century Victorians for tradesmen to collect their ‘Christmas boxes’ or
gifts in return for good and reliable service throughout the year on
the day after Christmas. [1].

The establishment of Boxing Day as a defined public Holiday under
the legislation that created the UK’s Bank Holidays started the
separation of ‘Boxing Day’ from the ‘Feast of St Stephen’ and today it
is almost entirely a secular holiday with a tradition of shopping and
post Christmas sales starting.

Christmas Day is usually spent quietly with the family (my son was thrilled to spend all day in pajamas). According to my British sources, Boxing Day is the day to get outside, whatever the weather. Watch sport. Play sport. Have fun!

Housing Bubble News from Patrick.net

2010: Another year, another crisis (blogs.reuters.com)
Housing May Stay Shaky Without U.S. Aid (online.wsj.com)
Despite modified loans, many houseowners lag again (miamiherald.com)
Watchdog needed to prevent financial collapse (heraldtribune.com)
Small-business bankruptcies rise 81% in California (latimes.com)
Serious U.S. mortgage delinquencies up 20 percent (finance.yahoo.com)
Borrowers with modified loans falling into trouble (finance.yahoo.com)
U.S. property faces long road to recovery (reuters.com)
Foreclosures for “seriously delinquent loans” topped 1 million in Q3 (latimes.com)
Spend or save — what’s an American supposed to do? (latimes.com)
With rates so low, where should your cash go? (msnbc.msn.com)
Top 10 Outrageous Predictions for 2010 (cnbc.com)
More houses are poised to hit the market (latimes.com)
Glut of shadow properties could hurt housing prices (tennessean.com)
Foreclosure backlog estimated at 1.7M (news.yahoo.com)
My Half-Baked Bubble (nytimes.com)
Realtors Try Used-Car Salesman Tactics (minyanville.com)

5322 PLUM TREE Irvine, CA 92612 kitchen

Irvine Home Address … 5322 PLUM TREE Irvine, CA 92612

Resale Home Price … $520,000

Income Requirement ……. $108,654
Downpayment Needed … $104,000
20% Down Conventional

Home Purchase Price … $212,000
Home Purchase Date …. 5/14/1998

Net Gain (Loss) ………. $276,800
Percent Change ………. 145.3%
Annual Appreciation … 7.8%

Mortgage Interest Rate ………. 5.08%
Monthly Mortgage Payment … $2,254
Monthly Cash Outlays ………… $2,960
Monthly Cost of Ownership … $2,390

Property Details for 5322 PLUM TREE Irvine, CA 92612

Beds 3
Baths 1 full 1 part baths
Size 1,372 sq ft
($379 / sq ft)
Lot Size 1,500 sq ft
Year Built 1974
Days on Market 1
Listing Updated 12/16/2009
MLS Number S599118
Property Type Single Family, Residential
Community University Park
Tract Tr

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

***Short Sale in process with a professional short sale negotiator***Upgraded University Park Home With Remodeled Kitchen, Recessed Lights, French Doors, Skylights And Much More. Bright And Open Floor Plan Featuring Large Living Room With Fireplace, Sunny Kitchen With A Bay Window, Two Large Private Patios. Tract Is Like No Other With Huge Parks, Lots Of Trees, Private Driveways, Assoc Maintained Front Lawns And Landscaping, Pools/spas/clubhouse.

***Short Sale in process with a professional short sale negotiator*** LOL! People are carving out niches as professionals with respect to short sales. Does anyone remember 3 years ago when nobody knew what a short sale was?