I hope you are enjoying your pre-holiday weekend. Are you finished shopping for the holidays? Spend or save — what’s an American supposed to do?
Irvine Home Address … 41 GILLMAN St Irvine, CA 92612
Resale Home Price …… $510,000
The battled starts adversaries
We bathe in our blood
The worst is yet to come
We’ve reached the covenant
To kill what we have started
Escape the Fate — The Guillotine
When I first started writing for the blog, there was no set format or template for anything, so each post was made from scratch or with a little cut and paste. Over time, with the desire to improve accuracy, deliver more information, and do it quickly (and still have a life), I developed an Excel Spreadsheet I use to create the structure of a post.
Each week I sit down to select properties and write my posts for the week (yes, I batch them). My first task is to look up the average APR on a 30-year fixed-rate mortgage and put it into my template. Each property I evaluate will be using the same interest rate assumption, and as long as the post isn’t delayed too long, the rates are current. I use the average APR instead of the average interest rate because I want to look at the true cost of financing instead of the rate that gets attention.
For each post, I need 6 specific data points plus the data dump from the MLS. The key data points are (1) address, (2) asking price, (3) original purchase price, (4) original purchase date, (5) Mello Roos fees, and (6) HOA Fees. Information below the property details is cut and paste from the IDX so there are no inaccuracies in typing.
The cool part is how much calculation goes on in the background to generate the tables of numbers.
The Income Requirement started out as a simple 25% of purchase price. I wanted to emphasize to people back in 2007 to the fact that house prices bottomed at 4-times income, and if you go back to traditional financing, you need much larger incomes to support the prices at the time. Well, that served its purpose, but to give a more accurate vision of the financing picture, I created a formula that takes traditional underwriting standards to calculate the income it takes to support the asking price at current interest rates. People can judge for themselves if a property is affordable or desirable.
The Downpayment needed used to be a simple 20% of the purchase price. Again, back in 2007, I wanted to emphasize to people who were not accustomed to 20% downpayments that these monsters were coming back, and the sticker prices on houses was going to have to adjust to the fact that nobody has a downpayment (cue FHA). Now, the formula I use is more nuanced; it displays 20% down for any property over $417,000 (a somewhat arbitrary cutoff), and it displays 3.5% down for any property under $417,000. The assumption is that lower priced properties are probably first-time buyers using FHA financing, and their financial picture is different than the 20% down buyer.
I used to get out a hand calculator and type the details of each transaction to calculate the total profit and loss. I am amazed I did not make more mistakes. Now it is in a spreadsheet, and I accurately represent the amount the owner (or lender) netted after sales commissions. A benefit of this is that I can accurately measure the financial performance of the “trade” — since so many are obsessed with making a fortune in real estate, it seems appropriate to see the truth, good or bad.
The calculation of annual appreciation is the most complex of the ones I make. It is really an internal rate of return calculation where I assume the purchase price was spent in period 1, and the proceeds come back later. The calculation is difficult because the holding period for houses can range from a few months to 30 years so getting a stable number of periods that did not crash the calculation was tough. I finally duplicated the formula in three different time periods, and I take the result of the most precise time period that does not return an error… I think this is probably only interesting to Excel buffs, but…
The Mortgage Payment, Monthly Cash Outlays and the Monthly Cost of Ownership are directly from our fundamental value reports. I don’t display it in the post, but my spreadsheet has the complete breakdown of the cost of ownership including the Mello Roos and HOA fees. I investigate those for each property, but I don’t directly post the result. I can if people are interested, but I want to keep the size of the posts manageable and the content relevant.
So that is where we are with the post information and presentation. Sometimes the interesting part of the post is in these numbers, and sometimes it is not. Either way, the data is always available, and I try to make it as accurate as possible.
Housing Bubble News from Patrick.net
Luxury-House Owners in U.S. Walk Away More Than Others (bloomberg.com)
Debtor’s Dilemma: Pay the Mortgage or Walk Away (online.wsj.com)
Shadow inventory looms over housing market (centralvalleybusinesstimes.com)
Federal government is selling lots of houses in South Florida (sun-sentinel.com)
More People Remaining Unemployed Longer (courant.com)
Spend or save — what’s an American supposed to do? (latimes.com)
Banks walk away, while telling you not to! (market-ticker.denninger.net)
Citigroup to stop admitting losses for 30 days (usatoday.com)
More foreclosures on horizon in LV (lvrj.com)
Housing’s Treacherous Path: From 44% Houseownership to 70% (financemymoney.com)
Many counties in California are still overpriced. Massively overpriced. (doctorhousingbubble.com)
Foreclosure buyer demand dips as supply mounts (reuters.com)
Realtor: “All the CRAZIES are out there buying now” (healdsburgbubble.blogspot.com)
Underwater Houseowner Should Have Waited Longer To Buy (online.wsj.com)
The Fed will hike rates — in 2011 (money.cnn.com)
The biggest real estate flops of 2009 (finance.yahoo.com)
Luxury house markets show bigger % price cuts (lansner.freedomblogging.com)
California house values likely to be down in 2010 (nctimes.com)
Nearly 650,000 are long-term jobless in CA (economy.freedomblogging.com)
Another wave of Phoenix-area foreclosures forseen (google.com)
Why a 35% Decline in Housing Values Would Be Good for the Nation (Charles Hugh Smith)
Weathering the Downhill Slope of Recreational Real Estate (nytimes.com)
Fannie Mae Losses May Exceed $200Bn (housingwire.com)
America’s municipal-bond market: State of pay (economist.com)
How buying a house is gambling (seekingalpha.com)
Los Angeles-area foreclosure rate increases in October (latimesblogs.latimes.com)
California housing market will face another bad year in 2010 (doctorhousingbubble.com)
Foreclosures fall, but banks bracing for next big wave (csmonitor.com)
U.S. House rejects mortgage “cramdown” measure (news.yahoo.com)
Goldman Trades Shouldn’t Get U.S. Aid, Volcker Says (bloomberg.com)
Interest Rates Are Low, but Banks Balk at Refinancing (nytimes.com)
There is no “Free Market” Housing Solution (newgeography.com)
Housing Bubble News
Irvine Home Address … 41 GILLMAN St Irvine, CA 92612
Resale Home Price … $510,000
Income Requirement ……. $105,721
Downpayment Needed … $102,000
20% Down Conventional
Home Purchase Price … $265,000
Home Purchase Date …. 8/31/2001
Net Gain (Loss) ………. $214,400
Percent Change ………. 92.5%
Annual Appreciation … 7.5%
Mortgage Interest Rate ………. 5.01%
Monthly Mortgage Payment … $2,193
Monthly Cash Outlays ………… $2,800
Monthly Cost of Ownership … $2,240
Baths 2 baths
Size 1,594 sq ft
($320 / sq ft)
Lot Size 6,608 sq ft
Year Built 1965
Days on Market 85
Listing Updated 12/8/2009
MLS Number S598344
Property Type Single Family, Residential
Community University Park
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Beautiful single level home, 2BD/2BA + den. Nicely upgraded, well maintained, wood flooring throughout. Spacious kitchen. Bright, open floor plan. Fireplace in living room and den. Large lot which includes a spacious back yard and an enclosed front yard. Walking distance from association pools/club house. Conveniently located in University Park, top schools. This unit is a must see unit.
When I first saw this property listed as a short sale, I figured it was a familiar story; Irvine homeowner more than doubles mortgage and ends up walking away. This one is not quite so clear. From my data source, it shows about $310,000 in mortgage debt and about $90,000 in mortgage equity withdrawal. There may be an mortgage or refi that isn’t showing up in my data source to explain why this would be a short sale.