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.

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.

This weekend's post is a detailed look at the median price, median loan, and median down payment in Irvine and nearby cities in Orange County, California.

Irvine Home Address … 63 WOODLEAF Irvine, CA 92614

Resale Home Price …… $325,000

I want to be a star, I'm going to have a car

And you'll have to admit, I'll be rich as shit

I'll just sit and grin, the money will roll right in

I would give you some, if you only would have treated me nice

You'll wish that you did, you'll feel pretty stupid

I'll just sit and grin, the money will roll right in

Nirvana — The Money Will Roll Right In

All-cash home sales hit record highs

All-cash home buying is surging across the United States, including in Orange County, as lenders tighten mortgage standards, middle-class buyers are sidelined and investors see opportunity.

Nationwide, cash buyers grabbed 33 percent of all used homes sold in February, the National Association of Realtors reported March 21. The figures, based on agent reporting, do not include foreclosure auctions on courthouse steps, which are usually cash-only.

In Orange County and California real estate, DataQuick Information Systems reports similar trends based on county recordings that do not show any purchase loan.

Cash-only sales have more than doubled in Orange County, from a monthly average of 10.4 percent in the past 23 years to a monthly average of 24 percent in the past 12 months, DataQuick statistics show. In January, all-cash sales hit 28.3 percent in the county – the highest for any month since DataQuick started tracking the figure in 1988.

That is a very large percentage of homes. It would be interesting to see the breakdown of that by cost. I know from what I witness in Las Vegas that most of the all-cash transactions are investors buying properties for less than $100,000. I suspect the bulk of the all-cash sales in Orange County are also at the very bottom of the price ladder.

PHOTOS OF O.C. HOMES BOUGHT WITH CASH

In Irvine, 31.6 percent of the 393 homes sold so far this year were paid for in cash, real estate broker Cathy Haney said. The average sales price of the all-cash deals this year was $657,854, while the median price for all the Irvine homes sold was $535,000, she said.

That sounds like a lot, but historically about a third of all homes are owned with no mortgage anyway. What would be really interesting would be to see the total number of all-cash purchases and percentages over time. Unfortunately, I don't have that data. I have heard anecdotally from someone inside TIC that they did sell nearly 1/3 of their product to all-cash buyers. That amounts to about 200 closed sales last year.

Across California, mortgage-less home purchases have doubled from an average 14.7 percent in the past 23 years to 28.3 percent in the past 12 months, according to DataQuick. Cash deals hit 32.9 percent in February, the highest for any month since at least 1988.

“You're seeing an increase in cash deals at both ends of the price distribution curve,” said Sam Khater, chief economist for CoreLogic Inc., a real estate information company. “You're seeing it in the hardest hit areas, where investors are coming in and picking up low-priced properties. And you're seeing higher cash activity at the upper end as well.”

The “lion's share” of all-cash purchases nationwide are from investors, according to Walter Molony, a spokesman for National Association of Realtors. Real estate investors seek rental income, long-term appreciation or a quick profit.

Vito Antoci, a full-time real estate investor from Newport Beach, recently bought an ocean view home at 1006 White Sail Way in Corona del Mar for $1.45 million in cash. He is spending another $500,000 in cash to expand and renovate the house, and said he will sell the home within six months for $2.5 million to $2.89 million to earn at least a half-million dollars in profit.

Kudos to him if he can pull that off. I'm glad it's not my deal. He may find selling that one is harder than he thinks.

“When you buy with cash, you get the best deals,” Antoci said. “Sellers don't want to deal with the bureaucracy of banks.”

Antoci, who owns Varm Development, saw a nonlocal realtor putting the for-sale sign into the ground as he drove the streets looking for homes to buy. The sellers were asking $1.8 million. He made an offer and it was accepted that same day. It never hit the market, and escrow closed in a week.

“It was a quick, intriguing cash offer, and they took it,” he said.

Cash is always king.

Carl Alford, a retiring owner of a dry-cleaning product business, recently paid cash for two homes in Irvine that he is renting out for income.

“Stocks and bonds are a gamble, and banks certainly aren't paying anything on money,” he said. “You can earn more in real state, and I like something you can touch, feel and correct.”

He has cash earning about 4% in Irvine real estate, and that is better than the stock market that nearly doubled in the last two years? I like cashflow properties, but there are places where you get more bang for the buck.

Alford recently sold a home in Fontana and carried the mortgage note himself, he said, meaning the buyers are paying him monthly payments.

Investors are also using cash – either their own or from alternative resources – to gain an advantage over buyers using a mortgage in nabbing bank-owned properties, which are plentiful these days and usually less expensive than other homes. Foreclosures in January accounted for 37 percent of all home sales nationwide, 25 percent in Orange County and 54 percent in California.

Traditional lenders often reject mortgage applications for foreclosed properties because the homes need a lot of work, appraisals come in below the accepted price or deals just take too long to close, said Thomas Popik, research director for Campbell Communications Inc., which conducts national surveys of real estate brokers.

Some flippers don't even have to improve a foreclosure.

I think I mentioned something about that recently….

“You buy the house at a discount with cash, then you flip it almost immediately to the first-time homebuyer who's using a mortgage, simply because they were not able to buy at the foreclosure sale,” said Oliver Chang, a housing-market analyst with investment bank Morgan Stanley.

About half of all home purchases were paid for in cash in Miami, Las Vegas and Phoenix, Chang said.

HIGH-END MARKET

In the local, million-dollar-plus home market, buyers are choosing to use their own money to purchase their principal residence, says Chris Valli of luxury real estate brokerage Surterre Properties.

Why? Banks are asking intrusive, exhaustive questions of anyone trying to get financing for a home above $729,000, Valli said. Fannie Mae and Freddie Mac won't insure mortgages over $729,750. Buyers feel it is just less of a hassle to pay for the home with their own money, Valli said. The buyers also want to negotiate a better deal on the property by showing they can close escrow without a third party lender, he added.

All those advantages are real if you have the cash. This guy makes it sound like every buyer has that freedom, and they don't. He does paint an accurate and sobering picture of the jumbo market.

“It puts the seller more at ease and gives them a little more assurance,” Valli said. He recently sold an estate in the $7 million range in Irvine's Shady Canyon community for all cash. Another home in Shady Canyon recently sold for $4.3 million in cash.

Chris Crocker, a Coldwell Banker broker in Corona del Mar, says the wealthy are looking at waterfront dream homes priced 40 percent below the peak as a safe venue to out their money in for the next few years while also having some fun. The cash buyers he or his colleagues have worked with are looking to buy second or third homes as a place to dock their yachts and their money on the West Coast.

There's a general perception that the market has bottomed out on prices, Crocker said.

There is a general perceptions that realtors will call the bottom at every opportunity.

CREDIT CRUNCH

Tighter underwriting in general for mortgage loans is also a factor in the percentage increase of cash-only deals among all sales.

Lenders are requiring higher down payments and higher credit scores.

The median down payment for all home purchases with a mortgage rose to 22 percent last year in at least nine major U.S. cities, according to a survey by Zillow.com. That's up from 4 percent in late 2006, when the housing bubble began to burst. During the housing boom, buyers could purchase a home with little or no money down.

The weighted average FICO score for a home purchased with a Fannie Mae mortgage was 762 last year, up from 716 in 2006, the mortgage finance company reported.

The tighter underwriting is sidelining many would-be middle-class buyers, especially first-time buyers, from purchasing a home – even though prices are relatively low because of all the foreclosures.

“The average Joe can't take advantage because he simply cannot get the credit to buy,” said Paul Dales, senior U.S. economist for consulting firm Capital Economics.

People became spoiled by an era of cheap credit and unfettered access. Those days are gone.

The banks who fueled the housing bubble with lax mortgage underwriting are now being too restrictive, said Molony, the realtor association spokesman.

“Lenders have only been willing to lend to the cream of the crop in terms of credit scores,” he said. “As a result, you're seeing a depressed level of traditional buyers.”

Bloomberg News and The Associated Press contributed to this report.

Contact the writer: bmartinez@ocregister.com or 714-796-7955

What does the data show?

When I first graphed the data on median loan amount, I was shocked by the obvious credit bubble that emerged from the data.

The current median loan amount has been steady at around $400,000 since late 2007. This line of support is about what a median income family could support with 5% interest rates. With the lack of jumbo financing, and with loan qualification being based on real incomes and amortizing loans, there isn't much upward pressure on loan balances. Lenders are providing enough air for support, but not enough to reinflate the bubble.

Their strategy to date has been to withhold inventory from the market and sell small numbers of high-end properties to the few buyers with cash. They are trying to drain a large reservoir with a tiny hose. At the current rate of liquidation, prices won't go down, but banks will own high-end properties for decades.

One of the ways this disparity shows up is in down payments. In areas where liquidations are proceeding at full speed, prices have been pushed down to the point that FHA buyers with 3.5% down become nearly half the housing market, hence the down payment percentages near 3.5% in Santa Ana and most of California.

Is this a sign of heavy cash buyers recognizing value and bidding up precious high-end properties? Perhaps, but there is an alternate explanation.

There are only so many frugal savers who have accumulated two or three years salary as liquid savings. Once those few people buy, buyers with smaller and smaller down payments get their opportunities. If there is limited supply, many buyers are left unsatisfied because they can't get property. These buyers are unable to increase their bids because they must qualify for a loan, and supplement with a down payment. Borrowers can't lie and make stuff up anymore to get around affordability.

Lenders know they have a problem, but they believe people will start making enough money to support the pricing on their books from 2006. It isn't going to happen. For now, they are content to withhold inventory from high-end markets and see what happens. As a result, there is very limited product that actually sells, and those go to the few buyers with lots of cash.

If we were seeing large down payments and normal to high transaction volumes, then the increased down payments would be indicative of increased buyer interest among those with cash. But since the transaction volumes are more than 30% below normal and near all-time lows, what we are seeing is the few available buyers paying what is asked with what resources they have. That isn't buying pressure that pushes up prices, that is restricted supply that forces the few buyers to reach for the sky.

The future of large down payment markets

The surest sign of liquidation of inventory is diminishing down payments. Low down payments characterize both market rallies and market bottoms. Moderate to high down payments are common to stable markets. Down payments where the highest after the credit crunch that signaled the collapse of the housing bubble.

To increase transaction volumes properties must be pushed down to buyers with smaller and smaller down payments. The buyer pool with 3.5% saved is much larger than the buyer pool with 20% down.

During the liquidation of high-end shadow inventory, if down payments are likely to compress, then either loan balances need to get larger, or prices are going to fall.

Orange County Asking Prices

I still think prices are going down, particularly at the high end. Here in Irvine, with loan balances holding at $400,000, the median will probably drop below $500,000, but unless loan balances decrease due to higher interest rates, the down payment compression won't get so severe as to push the median below $480,000.

More Ponzis flushed from loan ownership

Today's featured Ponzis put in $8,000 and took out $192,000. Not a bad ratio. They will want to own again.

• The owners of this weekend's featured property paid $240,000 on 6/21/2001. They used a $232,703 first mortgage, and a $7,297 down payment.
• On 10/22/2002 they refinanced with a $250,750 first mortgage. At least they waited a little over a year before getting their first nearly $20,000.
• On 7/16/2003 they obtained a $27,000 HELOC.
• On 3/24/2004 they refinanced with a $348,500 first mortgage.
• On 12/28/2004 they obtained a $40,000 HELOC.
• On 7/20/2005 they refinanced with a $384,000 Option ARM and got a $48,000 HELOC.
• Total property debt is $432,000.
• Total mortgage equity withdrawal is $192,000.
• They just received their NOD.

Foreclosure Record

Recording Date: 02/08/2011

Document Type: Notice of Default

Irvine House Address … 63 WOODLEAF Irvine, CA 92614

Resale House Price …… $325,000

House Purchase Price … $240,000

House Purchase Date …. 6/21/2001

Net Gain (Loss) ………. $65,500

Percent Change ………. 27.3%

Annual Appreciation … 3.0%

Cost of House Ownership

————————————————-

$325,000 ………. Asking Price

$11,375 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$313,625 ………. 30-Year Mortgage

$66,074 ………. Income Requirement

$1,653 ………. Monthly Mortgage Payment

$282 ………. Property Tax (@1.04%)

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

$68 ………. Homeowners Insurance (@ 0.25%)

$364 ………. Homeowners Association Fees

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

$2,366 ………. Monthly Cash Outlays

-$155 ………. Tax Savings (% of Interest and Property Tax)

-$388 ………. Equity Hidden in Payment (Amortization)

$21 ………. Lost Income to Down Payment (net of taxes)

$41 ………. Maintenance and Replacement Reserves

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

$1,885 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,250 ………. Furnishing and Move In @1%

$3,250 ………. Closing Costs @1%

$3,136 ………… Interest Points @1% of Loan

$11,375 ………. Down Payment

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

$21,011 ………. Total Cash Costs

$28,900 ………… Emergency Cash Reserves

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

$49,911 ………. Total Savings Needed

Property Details for 63 WOODLEAF Irvine, CA 92614

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 1267

$257/SF

Property Type: Residential, Condominium

Style: One Level, Contemporary

View: Peek-A-Boo

Year Built: 1983

Community: Woodbridge

County: Orange

MLS#: P773002

Source: SoCalMLS

Status: Active

——————————————————————————

Gorgeous conner upper unit. 3bed/2bath, cozy fireplace. Recessed lighting, granite countertops in kitchen. Master bedroom is separaed from other 2 bedrooms and inside laundry room. Newly done in bathrooms, master bath has double sink. Travertine flooring in kitchen, dining room and master bathroom. Double pane windows and custom paint. Home is close to pool, lake shopping and schools.

conner? separaed?