in a recent report, the federal reserve measured the median wealth loss in California households at 27.7%. The Illusions of wealth are shattered.
Irvine Home Address … 13 HAWTHORN Irvine, CA 92612
Resale Home Price …… $419,000
World turns black and white
Pictures in an empty room
Your value starts fallin' down
Better change your tune
Yeah, you reach for the golden ring
Reach for the sky
Van Halen — Dreams
Most people during the bubble bought a house as an investment. The fantasy was perfect: the better and more expensive the house, the more free money the house provides as it goes up in value forever. Just by purchasing real estate and using the largest loan available, everyone was enabled to be or do whatever they desired with abundant debt.
Much of the wealth created during the bubble was an accounting trick. Prices were temporarily and unsustainably elevated, and the wealth created was ephemeral and illusory.
People can't lose what they never had. Only the lingering attachment to an old dream remains to torment the kool aid intoxicated.
Californians' wealth took one of the biggest hits in the recession
In California and other Western states, 67.5% of households saw their net worth fall, compared with 62.5% in the U.S. overall. The median decline in the West was 27%, well above the 18.1% national median..jpg)
March 24, 2011 — By Jim Puzzanghera, Los Angeles Times
The federal government has for the first time detailed the sharp drop in wealth that the Great Recession caused American households — and it shows that families in California and other Western states took the biggest and broadest hits by far.
The average net worth of U.S. households — the value of their homes, stocks and all other assets — fell 20% to $481,000 by mid-2009 from $598,000 in mid-2007, according to a Federal Reserve survey released Thursday.
In the Western states, 67.5% of households saw their wealth drop, compared with 62.5% for the nation overall. The median decline in wealth for households in the West was 27.7%, well above the 18.1% national median and nearly triple the 9.5% decrease for families in the Northeast.
While it's widely known that the recession slammed household wealth and that the housing market in the West took some of the hardest hits, the unusual Fed survey attempted to quantify the damage.
The central bank does a broad consumer finance survey of about 4,000 households every three years. But to gauge the effect of the recession, the Fed in mid-2009 began re-interviewing the same households it had surveyed in 2007.
The new data compare the state of those households just before the recession officially hit in December 2007 with how they were faring in the second half of 2009, after the recession technically ended and the economy began growing again.
Although about two-thirds of households saw their wealth fall, “a sizable fraction of households experienced gains in wealth, while some families' financial situation changed little,” the Fed said in its 37-page report, titled “Surveying the Aftermath of the Storm: Changes in Family Finances from 2007 to 2009.”
The banksters and above median home price squatters have done well as everyone else's wealth went negative.
Although overall wealth declined nationally, well-off families — those in the top quarter of net worth — saw their overall wealth increase by about 27%.
Still, the recession hit most households hard, leading to families in all income brackets to cut back spending so they would have “greater precautionary savings.“
That decline in spending “may act in some ways as a brake on reviving the economy in the short run,” the report said.
jim.puzzanghera@latimes.com
Frugality and savings accompany every recession. Some economists complain as if savings is a problem. Recessions end when people save, and that savings is loaned by banks into the economy. There is always a lag between when the money is saved and when it permeates the economy. The federal reserve seems to exist only to prevent the natural healing mechanisms of the market from working properly.
The credit bubble, the housing bubble, and illusions of wealth
The chart below illustrates the credit bubble that took our already burgeoning housing bubble and made it into an uber-bubble. For a more detailed analysis, please read the weekend post, Are large down payments supporting high-end home pricing?
Prices have stabilized along with aggregate loan balances at a level manipulated by government policy and federal reserve policy.
Note the average loan balance at the peak is very near current pricing. Banks are eager to hold prices at this level because any significant price decline would trigger strategic default as more and more owners submerge beneath their mortgage obligations. The loan balances are so large here that a cascade of strategic default similar to Las Vegas would cost lenders billions of dollars.
The false bottom of 2009 is most durable at the bottom of the market. Irvine has already double-dipped, and other premium communities in Orange County are facing similar circumstances.
What does the housing recession really look like?
At the peak, most cities in Orange County were trading at more than $400/SF. The Irvine premium was low by historic standards relative to surrounding cities. The crash has witnessed significant expansion of premiums between the highest value cities and the lowest value ones.
The current resale 311/SF is the lowest in seven and a half years. Anyone who bought since late 2003 and still owns is financially behind anyone who rented instead. When you factor in transaction costs, the additional cost of ownership (they paid more than rental parity in 2003), and the loss of buying power due to monetary inflation, and the money-pit of home ownership becomes apparent.
This spreading out of values could be attributed to savvy buyers recognizing a premium. I imagine the savvy buyers of the bear rally would embrace that idea.
In reality, the high end simply hasn't deflated yet. The distressed inventory is being withheld from the market, and the few buyers who are active are being forced to come up with huge down payments in order to transact.
Any way you slice it, the local housing market is facing significant headwinds, and with maximum foreclosure rates and a huge overhead supply, things will get worse before they get better.
Anyone want to guess where the HELOC money went?
The decor and staging are rather unique. Did you notice they didn't bother to hide the bong above?
Actually, it looks like this is a college rental. The owner is listed as having an Idaho address.
- The property was purchased on 10/21/1997 for $190,000. The owner used a $133,000 first mortgage and a $57,000 down payment.
- On 7/9/2001 they refinanced with a $310,000 first mortgage. Perhaps they took the $170,000 of mortgage equity withdrawal and bought the property in Idaho cash? I don't have a clue.
- On 6/28/2004 they returned to the ATM and obtained a $382,525 first mortgage. They were just issued a NOD.
Foreclosure Record
Recording Date: 02/28/2011
Document Type: Notice of Default
They may not have paid the mortgage in a while considering this is listed as a short sale at $419,000. With renters in this place, it produces some income that could have gone toward making payments. Do you think they stopped charging the renters when they stopped paying the mortgage?
Irvine House Address … 13 HAWTHORN Irvine, CA 92612 
Resale House Price …… $419,000
House Purchase Price … $190,000
House Purchase Date …. 10/21/1997
Net Gain (Loss) ………. $203,860
Percent Change ………. 107.3%
Annual Appreciation … 5.9%
Cost of House Ownership
————————————————-
$419,000 ………. Asking Price
$14,665 ………. 3.5% Down FHA Financing
4.84% …………… Mortgage Interest Rate
$404,335 ………. 30-Year Mortgage
$85,185 ………. Income Requirement
$2,131 ………. Monthly Mortgage Payment
$363 ………. Property Tax (@1.04%)
$0 ………. Special Taxes and Levies (Mello Roos)
$87 ………. Homeowners Insurance (@ 0.25%)
$209 ………. Homeowners Association Fees
============================================ 
$2,791 ………. Monthly Cash Outlays
-$349 ………. Tax Savings (% of Interest and Property Tax)
-$500 ………. Equity Hidden in Payment (Amortization)
$27 ………. Lost Income to Down Payment (net of taxes)
$52 ………. Maintenance and Replacement Reserves
============================================
$2,021 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,190 ………. Furnishing and Move In @1%
$4,190 ………. Closing Costs @1%
$4,043 ………… Interest Points @1% of Loan
$14,665 ………. Down Payment
============================================
$27,088 ………. Total Cash Costs
$30,900 ………… Emergency Cash Reserves
============================================
$57,988 ………. Total Savings Needed
Property Details for 13 HAWTHORN Irvine, CA 92612
——————————————————————————
Beds: 3
Baths: 2
Sq. Ft.: 1539
$272/SF
Property Type: Residential, Condominium
Style: One Level, Contemporary
Year Built: 1974
Community: 0
County: Orange
MLS#: S643461
Source: SoCalMLS
Status: Active
On Redfin: 86 days
——————————————————————————
Single level home with no one above or below. Home is at the end of a cul de sac with an oversized driveway and a two car attached garage with direct access to the house. There are three large bedrooms and one has a secluded small patio/atrium. There is a large patio off the living area with plenty of room to entertain. The kitchen has an eat-in area and plenty of counter and cabinet space. This lovely home is surrounded by greenbelts and this family community has two pools, a club house, lots of walking trails and tot lots for the little ones to play in. Walking distance to Irvines award winning schools (Uni High is also very close), stores and parks. Also close to the 405 and 5 and toll roads.
You really need to think about this in what certain households lost. Many lost nearly their entire net worth – younger families or families with most of their wealth tied up in their home. And for those with $1M mortgages on homes worth $500k, the only thing keeping their net worth from going negative is foreclosure. Looking at averages in terms of this clouds the damage that has really been done. (You can do the same thing with unemployment – most people have been unaffected, however the impact is severe).
You need to normalize your curve for different cities (easier said than done). It’s interesting that Santa Ana had the same $/sqft as Irvine at the bubble, but is now 33% or so lower. That could mean that Irvine still has room to fall, or it could mean that Santa Ana bubbled further than Irvine, and thus had more room to fall.
You only lose when you are forced to sell–going up or going negative is only a matter of paper until you realize those gains or losses. The illusion of wealth was never real unless you sold and banked profit.
“those in the top quarter of net worth — saw their overall wealth increase by about 27%.”
Isn’t that what PR keeps saying? I imagine that current buyers in irvine are part of that 27%. Maybe irvine was more middle class during 90s but don’t think that’s the case any more.
What would be interesting to see is avg income of irvine buyers in last 2 years.
Determining the income of buyers in Irvine over the last 2 years is extremely easy to do. The banks have qualified thier incomes and kept them to normal debt to income ratios by historic standards. You can easily caclulate the minimum income for any irvine buyer knowing the down payment and price.
This idea that savers dry up is always humorous to me. Savers are always being replenished. Someone buys and there is someone else who has been saving to buy a house for the last 2, 3, or 5 years. There is a constant flow.
“This idea that savers dry up is always humorous to me. Savers are always being replenished.”
The rate at which savers are being replenished does not match the rate at which the market consumes them. If they were, both down payments and transaction volumes would be rising. The further you go up the property ladder the lower the volumes get relative to historic norms. That is the surest sign that new savers are not stepping up to replace the previous borrower.
Ok that’s funny. Like it or not, Irvine is a middle class city through and through.
Nostalgia, it ain’t what it used to be.
So true, the current buyers and inhabitants of Irvine have brought down the status of the community, but even the undesirable have to live somewhere.
Maybe if this purging process would be allowed to continue, the current group of Ponzis can be replaced.
Or does a city’s status improved once the posers take over?
I was just pressing PR’s buttons. Actually I think Irvine is a nice place and a nice class of people.
The posers are pervasive. We have our share.
I would love to meet one of these ponzis, the only people I know and associate with in irvine have very high paying jobs and put down at least 50% cash. I would shake one such ponzis hand and say thanks for playing.
Please name their companies in Irvine.
Do they hire for “very high paying jobs”?
I’ve worked in Irvine since 1986. The new so called “middle-class” must include large down payment or all cash buyers. If middle-class is household incomes of $100,000+, then yea, Irvine is a middle-class city.
It *used* to allow ordinary middle class earners to buy and raise a family in Irvine…that is no more. The middle-class in Irvine went out at about the same rate Bren could bulldoze all existing Orange trees from the face of Orange County…well done Mr. Bren, well done. Let’s change our name to Cement Streams, CA 92619 or maybe, just maybe, have the name “Corporate Jizz USA”
The rental premium of Irvine compared to surrounding cities hasn’t increased from what it was before the bubble. If Irvine is no longer middle-class, apparently IAC and all the other landlords here never got the memo.
Go to Redfin.com, type in an Irvine zipcode, then click on a random listing. Scroll to the bottom of the listing for a demographics link.
For instance, for 92603 Median income is $173,208
There is a nice income disribution graph there as well.
http://www5.onboardnavigator.com/1.5/WebContent/OBWC_report.aspx?&AID=386-b385f004f6c7&CD_SID=CO001&RTID=1&RID=27090&Frame=0&Height=600&Width=650&AgentEmail;=&AgentID;=&SearchID=1&LSID=6&STEXT=92603&STYPE=3&STEXTOPT;=&STYPEOPT=-1&STEXTOPT2;=&STYPEOPT2=-1&ITID=-1&SITID=-1&PassBackValues;=&NHood;=&Market;=&TaxID;=&County5;=&PropertyType=-1&TransactionType=-1
Quit providing facts as plain as day. They’d rather look at that chart or the down payment chart and then live in never never land.
Quit providing facts as plain as day. On the highest median zip code in Irvine. PR would rather look at that than the fact that all zip codes combined in Irvine has a median of around $98,000. PR would rather ignore the fact that this zip code represents around 17,000 of 200,000 population of Irvine, or less than 10%, concentrated in the highest income zip code of the city. He would rather ignore the statistical insignificance of this representation.
Dude that’s the entire 92603 zip code with over 6400 households and 86% population growth since year 2000.
There are very high paying jobs, plenty of them, deal with it.
“There are very high paying jobs, plenty of them, deal with it.”
Has anyone ever said otherwise?
Never mind trying to address the points that people who disagree with you actually make. It’s so much easier to pretend they believe in things that are obviously false, and then wrap yourself in a smug sense of superiority when you point out that falsity.
PR just got bitch slapped there. But, but, but…Irvine has high paying jobs. Keep telling yourself that bud. Everybody wants to live in Irvine because it’s so special.
It is special to PR. He once told me that Atherton is **nothing** compared to Irvine.
Screw Larry…we got Donald here.
Caught this 60 min bit last night about the housing market, and how folks are finding out banks don’t have the proper paper work to foreclose/evict them. So banks are forging the paper work, and home owners are selfishly trying to use this mess up as a way to stay in there homes, further slowing down the recovery.
http://www.cbsnews.com/video/watch/?id=7361572n&tag=contentBody;storyMediaBox
This is comical to me, why in the hell would you think you get to stay once the bank gets around to saying ok you’ve squatted enough? It’s obvious they stopped paying long ago, so guess what, you don’t get to stay. I don’t give a shit if someone didn’t do there job and file the right paper somewhere all old school 1940’s style. It’s 2011, why do we really need this one meaningless dated lame step, and better yet why would a court anywhere give this stall tactic any merit what so ever?
I have a property I am waiting to take possession of because the squatters are gaming the system. So far the courts haven’t given much merit to any of these cases, but it doesn’t have to. Just by filing the suit forces a lender to respond which takes time. This situation has spawned an entire industry of attorneys who will take the equivalent of one months rent to get delinquent loan owners three months worth of squatting. It’s a win-win for the attorney and the squatter. The lender, or in my case the flipper, get to pay the price of owning a non-productive asset.
Kevin: you’re missing the point.
In many states, the original paperwork needs to be available to prove ownership in court cases as that is how the law is written.
In addition, officers of the court (lawyers and notaries) are held accountable for their claims.
A lot of judges won’t wave away instances of fraud – they will investigate and prosecute. To them the behavior you mentioned is a deadly serious matter, which is why the banks stopped foreclosures recently to get their ducks in a row.
I lived in a similar type of house when I was a university student, and it had been rented by other students for years before I came, and for some years after I left. We didn’t trash the house, but so many years of college-age renters doing a very uneven job of maintenance, cleaning and general up-keep took a toll. Whoever buys that place better count on a good-sized sum for repairs, replacement and remodeling.
Does anyone find it interesting that Irvine is one of the top 4 down payments and the other 3 are beach cities?
What premium does Irvine have since it’s not on the ocean? 99 Ranch-front property?
Another telling point of data on the graph is how high Santa Ana went per square foot during the bubble, at one point even higher than Irvine. So while everyone thinks Irvine is the epicenter of HELOC abuse, 0% down and liar loans… maybe they should be commenting on the SantaAnaHousingBlog.
It looks like the 4 indexes IR is using are relatively equidistant to each other, do we expect them to approach the same variance as they had in previous years?
Does anyone actually believe Irvine will be within $75/sf of Santa Ana?
A small request: Can we put one of the other premium OC cities on those graphs, like Newport or Laguna?
I don’t find it that interesting because down payments in Irvine have been a fact of life forever and I’ve been saying it endlessly. Does he deserve a medal for admitting, sure why not.
It will be interesting when Irvine has a 3.5% median down payment in year never never land.
I notice you carefully avoided comment on the weekend post where your endlessly repeated nonsense was debunked by the actual data.
Down payments in Irvine are currently at or near their historic average. There is no huge influx of cash buyers causing down payment levels to be higher than normal. Further, down payments in Irvine are not higher than beach communities, nor is is much higher than surrounding inland communities. Further, the only reason down payments are so high in those communities is because prices are too high, as evidenced by the extremely low transaction volumes at the high end.
I didn’t even read it, but you did an excellent job
Inventing my oppinion right there, thanks. Facts ate facts, high down payments continue in Irvine. Can’t wait till your theory of savers drying up and 3.5% down payment dominate Irvine comes to fruition.
“Down payments in Irvine are currently at or near their historic average. There is no huge influx of cash buyers causing down payment levels to be higher than normal.”
Are we looking at the same graphs? The blue line representing Irvine seems to have a higher average in the last 3 years than it did in the previous 5.
“Further, down payments in Irvine are not higher than beach communities, nor is is much higher than surrounding inland communities.”
But why are they so high for not being a beach community? And I do think 37% is much higher than 20%, 10% and 3.5% of surrounding cities.
I see I will have to create some additional graphs.
I only put a few cities in the OC on the graph because any more, and the lines become unreadable.
The beach towns have had higher down payments since 1988, and I suspect for much longer. It used to be the destination of high wage earners who also were thrifty and saved money. During the bubble these communities were opened up to anyone who could convince a lender to give them $1M+.
Irvine down payments are above the Orange County median, but Irvine does not stand out like the beach towns, and it isn’t consistently above many other nice OC communities, particularly from South County.
As for the charts, I didn’t show the full history back to 1988 because the information gets lost in the lines. During the first 5 years of the graph, you can see down payments dropping. This is characteristic of a rally. The down payment compression came from a combination of exotic financing and people with less savings entering the buyer pool.
After loan balances abruptly fell 20% in late 2007, transaction volumes fell off significantly, and the only people who could buy were the few who had lots of cash. Prices have been falling as the people with cash buy their properties and more supply comes on the market. Without rising loan balances, the only way to liquidate inventory is to push prices lower and take buyers with smaller and smaller down payemnts. That is why down payments are compressing back to historic norms.
Irvine has maintained a 22.8% down payment average since 1988. Our current reading of 26.4% is 3.5% over (about 15% higher) the long-term average, and this percentage has been declining steadily from a peak of 32.1% in November of 2008 when prices were falling at their peak rate.
With the low transaction volumes, there is little hope of down payments beginning to rise. In fact, as sales pick up, I would expect to see down payment percentages drop back below 20%. Down payments in Irvine were below 20% from 1993 to 2000, and during the bubble rally in 2005 and 2006.
I have a typo as well… I meant “27%”, not “37%”.
Unless more lenders offer sub-20% loans, I don’t see the percentages dropping below 20% again. The sub-primes are gone and since 3.5% FHA financing in Irvine is in the minority, 20% or higher is going to keep that line above the benchmark.
I would be interested to see what it was in more non-FCB areas like Ladera Ranch.
“A small request: Can we put one of the other premium OC cities on those graphs, like Newport or Laguna?”
When I first created the chart, I had the beach towns on there, but the $/SF in those cities is off-the-charts ridiculous. They make Irvine look affordable.
“Does anyone actually believe Irvine will be within $75/sf of Santa Ana?”
Irvine was within $75/SF of Santa Ana up through the peak of the bubble. I think you have the question exactly backward. The real question is will Irvine and Santa Ana permanently sustain a spread greater than $75/SF? I would say that isn’t very likely.
Irvine water finances get ‘AAA’ grade
http://irvinehomes.ocregister.com/2011/04/04/irvine-water-district-gets-aaa-grade/16217/
Great, we’re back to believing the ratings agencies again… How short people’s memories are, even the media. Shame, shame…
disclaimer: Irvine may very well deserve a AAA, the commentary was to point out that we still regard the agencies’ as credible despite the debacle we just went through.
The problem with the beach areas is that have become an investor’s haven. They buy these properties as fast as they come on the market and either rent them up or fix them up and resale them. I have bid on three of them of late and ran into this problem.
The investors are all cash buyers and will buy the property in any condition.
Irvine is suburbia where families should live. The beach area’s one with views are rentals for the most part. For example-
http://www.vacationrentals.com/vacation-rentals/Laguna-Beach-California.html
Is there a way to automatically subscribe to comments in new articles (without actually leaving a comment)?
We have an RSS feed for the comments: http://feeds2.feedburner.com/IrvineHousingBlogComments
Let me know if that works for you.
Thank you Zovall!! Perfect!
Too much emphasis on income. How about the people who relocate(sell their old home to buy another) for job purposes, and personal non financial reasons? Not everybody is a first time home buyer who used to rent.
Yes, I know about the changing demographics in Irvine, like in the rest of SoCal.