A recent article in the LA Times expresses opinions of the fates of several key cities where the housing bubble fully burst.

Irvine Home Address … 97 STREAMWOOD Irvine, CA 92620

Resale Home Price …… $209,900

I know you feel these are the worst of times

I do believe it's true

When people lock their doors and hide inside

Rumor has it it's the end of Paradise

But I know, if the world just passed us by

Our memories of yesterday will last a lifetime

We'll take the best, forget the rest

And someday we'll find these are the best of times

These are the best of times

Styx — The Best of Times

When the housing bubble burst, it was the worst of time for loan owners and speculators, and it was the best of times for buyers and cashflow investors. Some cities and regions have dropped precipitously, and to the degree these areas were dependent upon homebuilding and construction is the degree to which they are suffering today. Some of these cities will come back. Some will not.

Housing bust creates new kind of declining city

A study says cities where home prices have fallen the most — including Riverside, San Bernardino and Fresno — could suffer long-term deterioration similar to that of the Rust Belt.

January 06, 2011 — By Alejandro Lazo, Los Angeles Times

In the Inland Empire and other former home-building hot spots, the housing bust has created a new kind of declining city, different from the nation's traditional rusting centers of industry, that could languish for years.

Although the causes of the decline in these metropolitan areas are distinct from the loss of employment from shrinking manufacturing and industry in some of the nation's old industrial powerhouses, these areas could experience fates similar to places such as Cleveland and Detroit, with neighborhoods experiencing high rates of vacancies for a very long time, according to a study to be released Thursday.

“Some neighborhoods are going to suffer tremendously or are never going to come back or come back very, very slowly,” said James R. Follain, senior fellow at the Rockefeller Institute of Government and author of the study published by the Research Institute for Housing America, a division of the Mortgage Bankers Assn.

I wrote about this same phenomenon in Ireland last May: Ghost Estates: Twenty Percent of Ireland’s Houses Are Vacant.

The long-term health of any housing market linked to the local economy. In areas where jobs are scarce and low paying, prices are low. California witnessed wage growth in excess of national norms for many years. This wage growth stimulated household formation and new home construction, and it made house prices go up faster than in other areas of the country. As a result, California home owners believe their house prices are destined to always rise faster than prices anywhere else.

Potential candidates for long-term decline named by the study are the areas hit hardest by the drop in home prices in recent years. They include several inland California metropolitan areas that grew rapidly during the boom, including Stockton, Modesto, Fresno, Riverside and San Bernardino. Las Vegas and Miami also made the list.

Las Vegas house prices will take forever to get back to the peak. Prices there are currently far below fundamental valuations, and some houses in some neighborhoods will need to triple in value to regain their 2006 stature.

Far from being a problem, the low house prices will be a huge boom to the city as workers can take lower paying jobs and live more comfortably than their counterparts in other areas. Timing does matter (a great old read).

A traditional city in decline is one that has suffered a sustained population drop, leaving behind empty houses, apartment buildings, offices and storefronts. Cleveland and Detroit, for instance, suffered from the erosion of manufacturing and the loss of residents, who left in search of jobs.

Instead of eroding a particular industry, however, the housing bust left a glut of homes because of overbuilding and the foreclosure crisis. Follain argues that the future of these cities is threatened in similar ways to that of Rust Belt cities.

“Long-vacant neighborhoods are going to develop, and we can imagine what can happen,” he said, including potentially higher crime and lower property taxes.

In California, some coastal cities already are seeing a housing market recovery. But inland areas that were built on optimistic assumptions of continued population growth and ever-climbing home values are facing a much more difficult recovery.

Any coastal market recovery is an illusion. The coastal markets are still going to get their comeuppance. Every market was subject to optimistic assumptions about house prices. Some markets have crashed and are nearing recovery whereas some markets have not crashed yet.

Celia Chen, a housing economist with Moody's Economy.com, predicts that a full recovery in parts of California, Nevada, Arizona and Florida won't occur until 2030.

“The housing boom elevated home prices in a number of areas far, far above what can be supported by the economic fundamentals, and so prices have fallen significantly, and they will remain below their previous peaks easily for a decade, or even two decades,” Chen said.

Yes, since house prices had no real reason to be so high in 2006, it probably will take until 2030 in some markets for sustained economic growth to bring wages in line with 2006 house prices.

Some experts contend that foreclosures, which have pierced neighborhoods of all income levels throughout the country, are quickly turning developments on the outskirts of metropolitan areas into the nation's newest slums. Complicating any recovery for these beaten-down areas is the difficulty in predicting which neighborhoods will fare worst. That uncertainty could lead to increasing skepticism by buyers and lenders looking to make loans on homes in these areas.

“If you are looking at this from the perspective of a home buyer or a lender, it is one thing to say you are in a market where home prices may drop 10% or 20%.” said Michael Fratantoni, vice president of research and economics with the mortgage bankers group. “That is different from the idea that 80% to 90% of the value could evaporate. That changes the whole nature of the business.”

Changes the whole nature of the business? You mean, there is risk in lending on real estate? Is there risk in buying real estate too?

Many foolishly believed that the very real risks markets face did not exist. Real estate only goes up. You can always refinance. Interest rates always go down. Both borrowers and lenders need to understand this reality if these transactions are going to occur in a stable environment. If nobody believes they have any risk, they behave in ways that inflates bubbles.

Still, the future of these regions remains a point of contention. Economist John Husing argues that the inland regions of California don't have a long-term problem.

“What has driven the Inland Empire economy is, for the last 30 years, simply the fact that the rest of Southern California is completely out of dirt,” Husing said. “Right now the price differential between coastal counties and inland counties is $100,000. People will ultimately respond to that.”

Yes, the substitution effect will stimulate demand in Riverside County and drag Orange County prices lower.

The development of industrial facilities to handle cargo from Southern California's ports will also continue inland because they require lots of space, said Husing, principal of Economics & Politics Inc. in Redlands. Such development, he said, will create jobs for workers who will need housing.

alejandro.lazo@latimes.com

Has the low end appreciated since early 2009?

Housing markets crumble from the bottom up, but they also stabilize from the bottom up too. The people who buy the bottom of the housing ladder at the bottom of the market have equity they can take with them to bid up prices in the next rung of the property ladder. This unit is the bottom of the Irvine property ladder — which actually says a lot for Irvine. If this is the worst Irvine has to offer, things are pretty good here.T

The owner of today's featured property paid $188,000 on 5/18/2009. He is asking enough to pay the realtor plus make 5% or at least give himself some room to negotiate.

Of course, this brilliant plan requires a willing buyer to play along. Is someone going to step forward and pay a higher price for this unit today?

Irvine Home Address … 97 STREAMWOOD Irvine, CA 92620

Resale Home Price … $209,900

Home Purchase Price … $188,000

Home Purchase Date …. 5/18/09

Net Gain (Loss) ………. $9,306

Percent Change ………. 5.0%

Annual Appreciation … 6.3%

Cost of Ownership

————————————————-

$209,900 ………. Asking Price

$7,347 ………. 3.5% Down FHA Financing

4.79% …………… Mortgage Interest Rate

$202,554 ………. 30-Year Mortgage

$42,429 ………. Income Requirement

$1,062 ………. Monthly Mortgage Payment

$182 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$35 ………. Homeowners Insurance

$242 ………. Homeowners Association Fees

============================================

$1,520 ………. Monthly Cash Outlays

-$99 ………. Tax Savings (% of Interest and Property Tax)

-$253 ………. Equity Hidden in Payment

$13 ………. Lost Income to Down Payment (net of taxes)

$26 ………. Maintenance and Replacement Reserves

============================================

$1,208 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,099 ………. Furnishing and Move In @1%

$2,099 ………. Closing Costs @1%

$2,026 ………… Interest Points @1% of Loan

$7,347 ………. Down Payment

============================================

$13,570 ………. Total Cash Costs

$18,500 ………… Emergency Cash Reserves

============================================

$32,070 ………. Total Savings Needed

Property Details for 97 STREAMWOOD Irvine, CA 92620

——————————————————————————

Beds: 1

Baths: 1 bath

Home size: 639 sq ft

($328 / sq ft)

Lot Size: 690 sq ft

Year Built: 1977

Days on Market: 2

Listing Updated: 40555

MLS Number: S643991

Property Type: Condominium, Residential

Community: Northwood

Tract: Is

——————————————————————————

Charming and Peaceful lower end unit, 1 Bedroom, 1 Bath, with Beautiful views from Dining, Kitchen, and Bedroom. The sounds of the creek right outside your windows. Spacious Patio. North facing unit across from laundry and assigned carport with storage. New carpeting and light maple wood laminate floors. Freshly painted. Community Pool, spa, BBq's, tennis courts. Close to award winning schools. Walk to stores and shopping center.

Foreclosures are expected to increase as banks begin to process the backlog of both visible (NOD, REO, MLS) and shadow inventory.

Irvine Home Address … 6 DELAMESA Irvine, CA 92620

Resale Home Price …… $530,000

Livin' simple and trying to get by

But honey, prices have shot through the sky

So I fixed up the basement with

What I was a-workin' with

Stocked it full of jelly jars

And heavy equipment

We're in the basement…

10-20-30 million dollars

Ready to be spent

B-52s — Legal Tender

Ben Bernanke is intent on printing out way out of our economic slump if necessary. As Bernanke continues printing money and giving it to banks at zero percent interest, our banks are beginning to return to health. Some banks are healthy enough to begin taking the necessary write downs on their residential real estate loans.

U.S. Foreclosure Filings May Jump 20% in 2011 as Crisis Peaks

By Dan Levy and Prashant Gopal – Jan 13, 2011 8:04 AM PT

The number of U.S. homes receiving a foreclosure filing will climb about 20 percent in 2011, reaching a peak for the housing crisis, as unemployment remains high and banks resume seizures after a slowdown, RealtyTrac Inc. said.

“We will peak in foreclosures and probably bottom out in pricing, and that’s what we need to do in order to begin the recovery,” Rick Sharga, RealtyTrac’s senior vice president, said in an interview at Bloomberg headquarters in New York. “But it’s probably not going to feel good in the process.”

The Promissory Note and Mortgage are complicated series of promises lenders and borrowers make to each other in the loan transaction. Regardless of how borrowers perform, they are going to become emotionally attached to their properties.

If borrowers do not perform to the specifications of the repayment agreement, they generally sell, but they can simply squat and wait until foreclosure. More and more loan owners are choosing to do that.

A record 2.87 million properties got notices of default, auction or repossession in 2010, a 2 percent gain from a year earlier, the Irvine, California-based data seller said today in a report. The number climbed even after a plunge in filings in the last part of the year — including a 26 percent drop in December — as lenders came under scrutiny for their practices.

Foreclosures have weighed down U.S. housing prices as the nation’s unemployment rate is stuck at more than 9 percent. Home values may rise 0.6 percent for the year, the first annual jump since 2006, according to Fannie Mae, the largest U.S. mortgage buyer. They have fallen as much as 33 percent since peaking in 2006, based on the S&P/Case-Shiller Index of 20 cities.

Banks seized more than 1 million homes in 2010, according to RealtyTrac. That was up 14 percent from a year earlier and the most since the company began reports in 2005.

About 3 million homes have been repossessed since the housing boom ended in 2006, Sharga said. That number could balloon to about 6 million by 2013, when the housing market may “absorb the bulk of distressed properties,” he said.

With sales well off historic norms and near 10% unemployment, who is going to step forward and buy all the distressed inventory over the next 3 years? This is going to linger on for a very long time.

Foreclosure Pipeline

“What makes this almost inevitable is the fact there are 5 million seriously delinquent loans not yet in foreclosure,” Sharga said. “They’ve got to eventually get in the pipeline unless the homeowners cure the defaults.”

I think many believe the invisible hand of the market is somehow going to make all these problems go away. These delinquent borrowers are either going to be given free houses as squatters, or they will be foreclosed on. Cure rates are very low because the debts are so large, and the employment and wage picture is so weak. Low cure rates will persist.

The foreclosure crisis is the biggest threat to U.S. economic growth, according to Mark Zandi, chief economist for Moody’s Analytics Inc. in West Chester, Pennsylvania. Lender delays in processing defaults may prolong a decline in home prices, he said in an interview this week.

As many as 250,000 foreclosure filings that would have occurred at the end of 2010 were delayed by the ongoing probe into lender practices, according to RealtyTrac. Those proceedings will be pushed into this year, resulting in an “ugly” first quarter, Sharga said.

Attorney General Probe

Attorneys general in all 50 states are investigating whether banks and loan servicers used faulty documents and signatures on loan documents, a process that has come to be known as robo-signing. Companies including JPMorgan Chase & Co., Bank of America Corp. and Ally Financial Inc. halted some repossessions as they reviewed their procedures.

Foreclosure filings in December totaled 257,747, the lowest monthly tally since June 2008. The number fell 2 percent from November and 26 percent from a year earlier, the biggest annual decline in RealtyTrac records.

In Florida, among the states most affected by delays because the courts oversee foreclosures, filings plunged 54 percent from a year earlier to the lowest level since July 2007.

Total U.S. filings in the fourth quarter fell 8 percent from a year earlier to 799,064. The tally for the three-month period was the lowest since the fourth quarter of 2008.

Nevada had the highest U.S. foreclosure rate in 2010 for the fourth consecutive year, with more than 9 percent of the state’s households receiving a filing.

I will be busy.

Arizona was second at 5.7 percent and Florida third at 5.5 percent.

California’s rate was 4.1 percent, Utah’s was 3.4 percent and Georgia’s was 3.3 percent. Michigan, Idaho, Illinois and Colorado rounded out the top 10.

Five States

Five states accounted for 51 percent of the U.S. filing total, with almost 1.5 million. California led with 546,669, down almost 14 percent;

Less filings in California almost certainly means larger shadow inventory. Unemployment remains very high, and as the high prices attest, the debts here are enormous. California is not over the hump.

Florida was second at 485,286, down 6 percent; and Arizona was third at 155,878, down 4 percent.

Illinois ranked fourth at 151,304 and Michigan was fifth at 135,874, both down about 15 percent from 2009.

Georgia, Texas, Ohio, Nevada and New Jersey also ranked among the top 10, said RealtyTrac, which sells data from counties representing 90 percent of the U.S. population.

To contact the reporters on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net; Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

Over 1 million Americans seen losing homes in 2011

After a record 1 million home foreclosures in 2010, this year is likely to be even worse

Janna Herron, AP Real Estate Writer, On Thursday January 13, 2011, 3:21 pm EST

NEW YORK (AP) — The bleakest year in the foreclosure crisis has only just begun.

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in.

“2011 is going to be the peak,” said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year.

I don't know. Two Thousand Eleven might be the peak of foreclosures, but some markets will take much longer to clear out, and some will process quicker. I suspect we may see a peak in foreclosures, but the for-sale inventory may not peak for a year or two after that as we process the backlog.

Banks will undoubtedly be selling into the upwelling of the new recovery. IMO, the recovery will be weak because people will continue to pay down debt, and no HELOC money will be made available because there has been no appreciation to create any free money. The lack of mortgage equity withdrawal will be a drag on the economy An unpleasant side effect of government meddling falsely propping up prices and delaying the bottom.

The blistering pace of foreclosures this year will top 2010, when a record 1 million homes were lost, RealtyTrac said Thursday.

One in every 45 U.S. households received a foreclosure filing last year, a record 2.9 million of them. That's up 1.67 percent from 2009.

On Thursday, Freddie Mac reported that fixed mortgage rates dipped this week for the second straight time, extending a sliver of hope for some home owners.

A sliver of false hope? Interesting that this news story actually states they are giving the hopeless something to cling on to. Denial must be the driver of investment related reporting.

The average rate on the 30-year mortgage dropped to 4.71 percent from 4.77 percent the previous week. The rate on the 15-year loan, a popular refinance choice, slipped to 4.08 percent from 4.13 percent.

But both are a half-point higher than the lows they reached in November. The 30-year loan rate hit a 40-year low of 4.17 percent and the 15-year mortgage rate fell to 3.57 percent, the lowest level on records starting in 1991.

The dip has led more borrowers to apply for a refinance, but would-be buyers remain hesitant, according to Wednesday's mortgage indexes from the Mortgage Bankers Association. It will take more than low mortgage rates to jumpstart a housing market plagued by high unemployment, falling prices, tighter credit standards.

The glut of foreclosures has compounded the problem and while the pace moderated in the final months of 2010, that isn't expected to last.

Foreclosures are expected to remain elevated throughout the year, pushing home prices down another 5 percent nationally before finally bottoming out.

The number of homes that received at least one foreclosure-related filing in December was the lowest monthly total in 30 months. Total notices fell 1.8 percent from November and 26.3 percent from December 2009, RealtyTrac said.

Banks temporarily halted actions against borrowers severely behind on their payments after allegations of improper eviction surfaced in September.

Are you starting to suspect that banks will either invent or embrace any story that allows them to delay foreclosure?

However, most banks have since resumed foreclosures and the first quarter will likely bear that out, Sharga said.

The pain likely will be the most acute in states that have already suffered the worst. For the most part, it will be states that saw the biggest housing booms: Nevada, Arizona, Florida and California. They will be joined by states hit hardest by the economic downturn, including Michigan and Illinois.

And on Wednesday, Illinois lawmakers approved a 66 percent income-tax increase in a desperate bid to end the state's crippling budget crisis.

I hope Jerry Brown isn't getting any ideas….

More than half of the country's foreclosure activity came out of five states in 2010: California, Florida, Arizona, Illinois and Michigan. Together, these states recorded almost 1.5 million households receiving a filing, despite year-over-year decreases in California, Florida and Arizona.

Nevada posted the highest foreclosure rate in 2010 for the fourth straight year, despite a 5 percent decline in activity from the year before. One in every 11 households received a foreclosure filing last year in the state. In December, foreclosure activity increased 18 percent from November with a 71 percent spike in bank repossessions.

Arizona and California also showed sharp December increases in the number of homes that banks reclaimed, at 52 percent and 47 percent, respectively. Arizona, along with Florida, finished the year at No. 2 and No. 3 for the highest foreclosure rates.

One in every 17 Arizona households got a foreclosure filing last year, while one in 18 received a notice in Florida.

California, Utah, Georgia, Michigan, Idaho, Illinois and Colorado rounded out the top ten states with the highest foreclosure rates.

RealtyTrac tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.

As more shadow inventory is brought into the light, prices will remain under pressure. It doesn't look like a vibrant economy is coming to save the market. Even if a rebound were robust, it wouldn't save many of the indebted anyway. Like those who got Option ARMs with 1% teaser rates.

Selecting Pay-Option default

The Option ARM, also known as the pay-option ARM, allowed a borrower to select a payment: (1) the fully amortized payment they could not afford, (2) the interest-only payment they probably could not afford, and (3) the teaser rate payment they could afford as long as the teaser rate was offered in perpetuity.

• The owner of today's featured property paid $433,000 on 12/10/2003. He used a $411,350 first mortgage and a $21,650 down payment.
• On 9/8/2005 he refinanced with a $508,000 Option ARM with a 1% teaser rate, and he obtained a $50,800 HELOC.
• On 5/17/2006 he enlarged the HELOC to $85,800.
• Total property debt is $593,800 plus negative amortization on a 1% teaser rate.
• Total mortgage equity withdrawal is $182,450.

He isn't in default, but he can't pay off the mortgage, so this is a short sale.

Irvine Home Address … 6 DELAMESA Irvine, CA 92620

Resale Home Price … $530,000

Home Purchase Price … $433,000

Home Purchase Date …. 12/10/03

Net Gain (Loss) ………. $65,200

Percent Change ………. 15.1%

Annual Appreciation … 2.8%

Cost of Ownership

————————————————-

$530,000 ………. Asking Price

$106,000 ………. 20% Down Conventional

4.79% …………… Mortgage Interest Rate

$424,000 ………. 30-Year Mortgage

$107,133 ………. Income Requirement

$2,222 ………. Monthly Mortgage Payment

$459 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$88 ………. Homeowners Insurance

$81 ………. Homeowners Association Fees

============================================

$2,851 ………. Monthly Cash Outlays

-$377 ………. Tax Savings (% of Interest and Property Tax)

-$530 ………. Equity Hidden in Payment

$194 ………. Lost Income to Down Payment (net of taxes)

$66 ………. Maintenance and Replacement Reserves

============================================

$2,205 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,300 ………. Furnishing and Move In @1%

$5,300 ………. Closing Costs @1%

$4,240 ………… Interest Points @1% of Loan

$106,000 ………. Down Payment

============================================

$120,840 ………. Total Cash Costs

$33,700 ………… Emergency Cash Reserves

============================================

$154,540 ………. Total Savings Needed

Property Details for 6 DELAMESA Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 2 baths

Home size: 1,325 sq ft

($400 / sq ft)

Lot Size: 4,365 sq ft

Year Built: 1977

Days on Market: 3

Listing Updated: 40554

MLS Number: P765471

Property Type: Single Family, Residential

Community: Northwood

Tract: Ps

——————————————————————————

Great opportunity to own a Charming house in Park Paseo. open airy and bright floor plan with laminated wood floors and High ceiling. Walking distance to Award Winning Santiago Hills Elementary School & Northwood High School. Large yard with patio. Association ammenties are pools, Tennis, Spa, clubhouse, Tot Lots, BBQ's. Walk to Shopping, parks & trails. Low Tax Rate, No Mello Roos, Association Dues $81/month. DON'T MISS THIS CHANCE!!!

ammenties?

Jack Guynn, Atlanta federal reserve bank President, expressed concerns about the housing bubble in 2004 and presented evidence in 2005. Alan Greenspan did nothing.

Irvine Home Address … 68 WOODLEAF Irvine, CA 92614

Resale Home Price …… $270,000

I tried to warn you somehow

You had your way

Now you must pay

I'm glad that you're sorry now

Connie Francis — Who's Sorry Now?

As Alan Greenspan guided the economy into the abyss, some voices both inside and outside the inner sanctum warned Greenspan of impending disaster. I wonder if Greenspan is sorry he didn't listen?

There were many people who saw the housing bubble for what it was. Many readers of this blog chose not to buy when others lost their senses. Though they may lack the resources of professional economists at the federal reserve, but many people inside and outside the industry pointed to problems that culminated with the housing bubble.

Few insiders with positions of power and influence saw the housing bubble. One notable exception is Jack Guynn, former president of the Atlanta federal reserve bank (not Fred Guynn the actor that played Herman Munster.)

Atlanta Fed's Former President Jack Guynn Is The Original Housing Crash Prophet

Tyler Durden on 05/02/2010

As we were perusing the just declassified full 2004 FOMC transcripts, our attention was caught by two specific things in the December 14 uber-grouthink session. First, the original housing prophet is not Hoenig, not Lacker, and certainly no other Fed member: it is former Atlanta Fed president Jack Guynn, who prudently got out of dodge on October 1, 2006. Guynn was the first to point out, in the long ago days of 2004, that Fed policy could be leading to a massive housing bubble. Good thing the Maestro was more concerned about his misplaced dentures than to listen to voices of reason at the Eccles building. Yet speaking of the Maestro, we catch an amusing anecdote, in which it becomes obvious that none other than the Fed Chairman looks at the CFTC's Commitment of Traders reports to get an indication as to what may or may not happen to the relative strength of the dollar. When one considers this fact, and juxtaposes it with observation that the Fed runs the formerly free world, does it imminently follow that the people in charge are not brilliantly scheming and conspiratorial, but merely very, very, very dumb?

Here's Guynn:

The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy, which has been in place for some time. Those developments and the risks associated with the run-up in house prices probably deserve further study and thought as we decide how to posture policy.

I continue to be comfortable with the policy path we’re on. And barring some surprise, I judge that we still have a considerable way to go to get back to a more neutral stance. My concern is that, with a real fed funds rate that continues to be near zero, we could unintentionally be encouraging further imbalances in both the inflation environment and in the international sector. I hope we will not try to signal that we may soon pause in our removal of policy accommodation. Thank you, Mr. Chairman.

So much for further study and thought. While we can't fault Greenspan, the man was like 500 years old at this time, we wonder what vice-Chairman Geithner was doing when presented with these words of caution – aside from reading the tax code of the US from cover to cover of course.

The 2005 transcripts have just been released.

The FOMC Debates the Housing Bubble in 2005

by CalculatedRisk on 1/14/2011 04:05:00 PM

The Federal Reserve just released the transcripts of the FOMC meetings in 2005. This will take some reading, but the June meeting was focused on housing. From then Atlanta Fed President Jack Guynn:

[T]there is the housing situation, which we talked about for a long time yesterday afternoon. As I’ve been reporting for several meetings, some of our markets, especially those in coastal areas of South Florida and the Florida panhandle, are experiencing a level of building activity and price increases that are clearly, in my view, unsustainable. Nearly every major Florida city now has experienced increases in the double-digit range, and some, like Miami, Palm Beach, Sarasota, and West Palm, have been reporting increases in housing prices on a year-over-year basis of between 25 and 30 percent. While our discussion yesterday did not seem to indicate a consensus on a national housing bubble, based on past experience I’m reasonably comfortable characterizing the housing feeding frenzy in some of our markets as being a bubble or a near bubble. For example, the number of major projects planned or under construction in Miami now totals 114, most of which are high-rise developments. That includes 61,000 condo units—eight times the number that were built in the last decade—and a total of 100,000 new parking spaces. I know we don’t have any process for introducing exhibits into the record, but I’d like to pass Dave Stockton this pictorial of the new projects in Miami, so that he can continue to worry a little bit along with me. [Laughter] My supervision and regulation staff thinks this is an accident waiting to happen in our area. And while the local market excesses probably do not represent systemic national risk, the shakeouts could have serious regional consequences. My bank supervision staff points out that housing-related credit risks to our bank lenders are not so much from defaults on permanent mortgage financing that we talked about yesterday, but rather from lending for land acquisition, development, and construction. The ugly picture we have seen before—and that they think we may very likely see again before long—goes something like this: the drying up of sales of new units; the painful decision of developers to go ahead and complete the construction of additional units to make them saleable, further depressing the market; and speculators who had hoped to see big capital gains walking away or defaulting on their contracts, giving their properties back to the lender. Perhaps it’s because of where I sit, but I am less comforted than some of my colleagues about the housing situation. … CHAIRMAN GREENSPAN. Let’s take a break for coffee.

Here are the presentation materials for the June meeting with plenty of graphs on housing.

Jack Guynn strongly suspected there was a housing bubble in 2004. He sets a team of researchers on the problem, and the results showed there was clearly a problem. He correctly foresaw the collapse of the high-rise markets in Miami, Las Vegas, and Orange County. What did Greenspan do? Nothing.

For those with historic interest on the housing bubble, the complete text of the Great Housing Bubble is available on as a PDF on the right sidebar, and the online version is available by clicking on the bookshelf below or in our library.

Ponzi Squatter

Living as a Ponzi was common during the housing bubble. Those that flamed out are squatting in their broken ATM machines.

• The owner of today's featured property paid $207,500 on 3/15/2002. He used a $186,542 first mortgage and a $20,958 down payment.
• On 7/29/2003, he obtained a $55,400 stand-alone second.
• On 12/3/2004 he refinanced with a $290,000 Option ARM with a 1% teaser rate.
• On 9/16/2005 he obtained a $40,000 stand-alone second.
• On 11/1/2007 he refinanced with a $360,000 first mortgage. It looks like he paid for about a year.

  

Foreclosure Record

Recording Date: 02/10/2010

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 07/22/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/17/2009

Document Type: Notice of Default

Total mortgage equity withdrawal is $173,458. That plus two years of either squatting or rent skimming is this owners compensation for a ruined credit score. I think the borrower got the better end of the deal.

Irvine Home Address … 68 WOODLEAF Irvine, CA 92614

Resale Home Price … $270,000

Home Purchase Price … $207,500

Home Purchase Date …. 3/15/02

Net Gain (Loss) ………. $46,300

Percent Change ………. 22.3%

Annual Appreciation … 2.9%

Cost of Ownership

————————————————-

$270,000 ………. Asking Price

$9,450 ………. 3.5% Down FHA Financing

4.79% …………… Mortgage Interest Rate

$260,550 ………. 30-Year Mortgage

$54,577 ………. Income Requirement

$1,365 ………. Monthly Mortgage Payment

$234 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$45 ………. Homeowners Insurance

$414 ………. Homeowners Association Fees

============================================

$2,058 ………. Monthly Cash Outlays

-$127 ………. Tax Savings (% of Interest and Property Tax)

-$325 ………. Equity Hidden in Payment

$17 ………. Lost Income to Down Payment (net of taxes)

$34 ………. Maintenance and Replacement Reserves

============================================

$1,657 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,700 ………. Furnishing and Move In @1%

$2,700 ………. Closing Costs @1%

$2,606 ………… Interest Points @1% of Loan

$9,450 ………. Down Payment

============================================

$17,456 ………. Total Cash Costs

$25,300 ………… Emergency Cash Reserves

============================================

$42,756 ………. Total Savings Needed

Property Details for 68 WOODLEAF Irvine, CA 92614

——————————————————————————

Beds: 2

Baths: 1 bath

Home size: 1,060 sq ft

($255 / sq ft)

Lot Size: n/a

Year Built: 1983

Days on Market: 7

Listing Updated: 40553

MLS Number: P765314

Property Type: Condominium, Residential

Community: Woodbridge

Tract: Ad

——————————————————————————

Very lovely condo in Woodbridge area. Down stairs home with enclosed patio and storage. Light and Bright end unit. Master bedromm with walk in colset. A larege community park, play ground and swimming pool with spa.

bedromm? colset? larege?

Enjoy your holiday!

New faces in the political landscape will decide the fate of Fannie Mae and Freddie Mac.

Irvine Home Address … 24 BULL Run Irvine, CA 92620

Resale Home Price …… $749,900

The Broken clock is a comfort

It helps me sleep tonight

Maybe it can stop tomorrow

From stealing all my time

And I am here still waiting

Though I still have my doubts

I am damaged at best

Like you've already figured out

Lifehouse — Broken

Back in 2009, I posed the question: Who will fix the System? The balance of power in Washington shifted in the last election. A new debate over the future of the GSEs and the housing market is just beginning. Let's take a fresh look at the gentlemen who will be deciding the fate of the housing market.

Obviously, those guys didn't get it done. Who's next?

Factbox: Key players in the debate on housing finance

Wed Jan 5, 2011 4:31pm EST — Reporting by Corbett B. Daly; Editing by Leslie Adler

{To avoid giving you pages of italics to read, the remainder is from the article}

(Reuters) – The Obama administration is set to unveil its proposal for an overhauled system of U.S. housing finance by the end of this month.

The administration's plan will just be a starting point. Congress is expected to debate the issue thoroughly before making changes to the current system, centered around ailing mortgage finance giants Fannie Mae and Freddie Mac.

Differing views on the merits of the current system among Republican and Democrats suggest the debate will be lively.

The following is a list of some of the key players in the debate:

U.S. Treasury Secretary Timothy Geithner:

Geithner, a former president of the New York Federal Reserve Bank, played a key role orchestrating bank bailouts during the financial crisis

He also was instrumental in the administration's push for sweeping Wall Street reforms last year, which did not address Fannie Mae and Freddie Mac. The mortgage finance companies have received more than $150 billion in direct taxpayer support since being placed in a government conservatorship in 2008.

At an event on the future of housing finance last August, Geithner sketched out some basic tenets of the administration's likely approach, but offered no details.

“It is not tenable to leave in place the system we have today. We will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support,” he said.

“I believe there is a strong case to be made for a carefully designed guarantee in a reformed system with the objective of providing a measure of stability in access to mortgage finance even in future economic downturns.”

Treasury Undersecretary Jeffrey Goldstein:

Goldstein is a former private equity executive tasked with being the administration's liaison to Wall Street. Goldstein has kept a low profile since taking office in 2010, though housing finance reform is expected to be a key component of his portfolio. In a July blog post on the White House website, Goldstein stressed “the vital importance” of the housing market to “our country's future,” but steered clear of any specifics.

Federal Housing Administration Commissioner David Stevens:

Stevens is a former executive with Long and Foster, the largest independently held residential real estate company in the United States, and has worked in top positions at Wells Fargo and Freddie Mac. Stevens is credited with shoring up the finances of the FHA by hiring the agency's first chief risk officer and tightening lending standards. Loans backed by the FHA account for close to 20 percent of new mortgage originations. Stevens wants to reduce the FHA's role in the mortgage market from those elevated levels.

Treasury counselor Gene Sperling

Sperling is currently a counselor to Geithner, but is in the running to be named as President Barack Obama's chief White House economic adviser, a post he held in the 1990s under President Bill Clinton. Sperling is known as a capable coordinator for economic policy. He spent a significant amount of his time at Treasury on initiatives aimed at boosting small business lending, though the programs had limited success.

House Financial Services Committee Chairman Spencer Bachus:

The soft-spoken Alabama Republican is quite a change, in both style and substance, from his predecessor, the outspoken liberal Barney Frank. Bachus believes the United States needs to be weaned from its reliance on government funding of mortgages. “What we now have is an addiction to government funding of mortgages,” Bachus told Reuters late last year. He has also said the two firms should be in “liquidation,” not “conservatorship.”

House Republican Conference Chairman Jeb Hensarling:

Hensarling, from Texas, is a conservative Republican who has been a vocal critic not only of Fannie Mae and Freddie Mac, but of any government support for the U.S. housing market. He holds the No. 4 Republican leadership post in the House of Representatives.

“Fannie and Freddie were not born of a competitive marketplace, but in a government laboratory. They were allowed to exploit their implicit government guarantee to take on enormous risks. These two entities expose the taxpayer to unlimited risk and will likely end up receiving the mother of all bailouts,” Hensarling said in a statement on his website.

Rep. Scott Garrett, chairman of the House Financial Services subcommittee on capital markets and government-sponsored enterprises:

Garrett, a New Jersey conservative Republican, this year takes the helm of the subcommittee responsible for oversight of Fannie Mae and Freddie Mac. He wants to wind down the firms within two years, a more radical position than even many of his Republican colleagues hold.

Senate Banking Committee Chairman Tim Johnson:

The Democratic lawyer from bank-friendly South Dakota is more conservative than his predecessor, Christopher Dodd, who retired last year. Johnson underwent brain surgery in 2006 and came away healthy, but with impeded speech. He has recovered and was present through the all-night talks leading to passage of the Dodd-Frank revamp of Wall Street regulation. Johnson is expected to take a go-slow approach to Fannie Mae and Freddie Mac, holding a number of hearings to gain a thorough understanding of their complexity before putting forth any specific Senate proposals. Keywords: USA HOUSING/PLAYERS

Senate Banking Committee top Republican Richard Shelby:

Another conservative Republican, Shelby has been a vocal critic of Fannie Mae and Freddie Mac. Late last year, he blocked Obama's pick to be the regulator of the two government-sponsored enterprises. Shelby accused the nominee, North Carolina's commissioner of banks, Joseph Smith, of being a “tool” of the Obama administration who would throw government money at the mortgage market and send the bill to taxpayers.

Fannie, Freddie acting regulator Edward DeMarco:

DeMarco is a career civil servant who has been acting director of the Federal Housing Finance Agency since August 2009. He had been expected to be replaced by Smith, but with the nomination blocked, he could stay in the acting role for some time. DeMarco is very focused on limiting taxpayer losses from Fannie Mae and Freddie Mac and has the power to exert substantial influence over how the two firms conduct their business.

House Financial Services Committee top Democrat Barney Frank:

Frank, a key architect of the financial regulation law that bears his name, lost the gavel of the House Financial Services Committee when Republicans took control of the House. However, as the panel's top Democrat on the key House committee responsible for Fannie Mae and Freddie Mac, he is likely to still wield considerable influence. He is a key ally of the Obama administration.

Frank has said the GSEs should be “abolished” in “current form” and a new housing finance system should be created. At the same time, he has stressed the importance of developing a new system before shutting the two firms down. “You can't really tear down the old jail until you've built the new one,” he has said.

{End of article}

I know this stuff is a bit wonkish, but it is good information to know. We will see these guys pontificate in debates over the next 18 months on the fate of the GSEs. Don't underestimate the importance of the GSEs to the housing market. Most middle-class mortgages are GSE insured. High wage earners often borrow from a jumbo loan lender because their loans exceed the $729,750 loan limit at the GSEs and FHA.

Whatever happens to the GSEs matters to Irvine.

If they are dismantled, and if the home mortgage interest deduction is scaled back, the cost of borrowing will rise and the amounts borrowed will go down. That will put continued pressures on pricing. House price increases require greater borrowing, and with interest rates and other costs working against borrowing, house prices will likely stagnate for a very long time as these subsidies unwind.

Japan had more than 20 years of real estate deflation. What if we had 20 years of real estate stagnation?

Don't worry. We will probably print enough money to create all kinds of inflation including wage inflation. That will put house prices back on a steady upward march in 2 to 5 years. Hopefully, in order to save house prices, you aren't paying $14 per gallon for gas and gold is selling for $3,200 an ounce. My guess is Bernanke will error on the side of over-printing.

It was a great bull run

I do feel a hint of jealousy when I see homeowners like today's. They bought at the bottom of the last real estate recession on 7/31/1997 and paid $283,000 for this house. They borrowed $226,400. A few months later they borrowed $28,000 of their equity, probably to do some necessary renovations. On 9/10/2001 they had $247,000 in debt in a new first mortgage. The refinanced two more times, but the final mortgage is for $238,500 which puts them near their entry point.

They did not borrow anything extra when given plenty of opportunities.

Great job.

I can't give them an A because their mortgage balance is larger than when they started. I am giving them a B instead of a C because I believe the increase was a modest renovation cost. After their mortgage increased initially, it went downward to where it is now.

When they sell this house at bubblish prices, they stand to get a check from escrow for nearly $450,000.

Wouldn't that be a cool check to cash?

These owners obtained significant wealth advantage from fortuitous timing in the housing market. They missed the peak for maximum sale, but with their diligence to pay down the mortgage and the huge run up in prices, they get the pot of gold.

We have seen plenty go the other way….

They passed on all temptations and diligently paid down their mortgage at a time when everyone else was seeking ways to maximize borrowing to obtain free money to spend.

How did they do it?

Irvine Home Address … 24 BULL Run Irvine, CA 92620

Resale Home Price … $749,900

Home Purchase Price … $255,000

Home Purchase Date …. 9/10/1993

Net Gain (Loss) ………. $449,906

Percent Change ………. 176.4%

Annual Appreciation … 6.2%

Cost of Ownership

————————————————-

$749,900 ………. Asking Price

$149,980 ………. 20% Down Conventional

4.86% …………… Mortgage Interest Rate

$599,920 ………. 30-Year Mortgage

$152,809 ………. Income Requirement

$3,169 ………. Monthly Mortgage Payment

$650 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$125 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

============================================

$3,944 ………. Monthly Cash Outlays

-$770 ………. Tax Savings (% of Interest and Property Tax)

-$740 ………. Equity Hidden in Payment

$280 ………. Lost Income to Down Payment (net of taxes)

$94 ………. Maintenance and Replacement Reserves

============================================

$2,808 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$7,499 ………. Furnishing and Move In @1%

$7,499 ………. Closing Costs @1%

$5,999 ………… Interest Points @1% of Loan

$149,980 ………. Down Payment

============================================

$170,977 ………. Total Cash Costs

$43,000 ………… Emergency Cash Reserves

============================================

$213,977 ………. Total Savings Needed

Property Details for 24 BULL Run Irvine, CA 92620

——————————————————————————

Beds: 4

Baths: 1 full 2 part baths

Home size: 2,190 sq ft

($342 / sq ft)

Lot Size: 5,400 sq ft

Year Built: 1979

Days on Market: 7

Listing Updated: 40546

MLS Number: S642830

Property Type: Single Family, Residential

Community: Northwood

Tract: Ch

——————————————————————————

AWESOME REMODEL….NO STONE LEFT UNTURNED! Walk into this home and feel the rich, warm welcome! Remodel just completed includes gourmet kitchen with granite counters, rich, dark wood cabinetry, gas cooktop, electric oven, microwave/convection oven and roll out center island. All baths have been remodeled with granite counters, new sinks, faucets, lighting, etc. Walk behind wet bar in family room for entertaining features granite counter too. Great floorplan with breakfast nook and large family room off of kitchen. Rich wood and tile floors, chair rails, crown molding, wainscotting, custom paint and more. Master bedroom has walls of bookshelves and storage space with walk in closet, master bathroom with granite counters, double sinks and more. Very private backyard with tons of color, potting shed, patio area AND secluded spa with sitting area. All of this and Northwood High School too!!!

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter