House prices volatility, both up and down, results from residential real estate appraisers using the comparative sales approach without considering a properties potential rental income.

Irvine Home Address … 14 ROCKY Gln #22 Irvine, CA 92603

Resale Home Price …… $450,000

Of our elaborate plans, the end


Of everything that stands, the end

The Doors — The End

Most people would agree that preventing financial bubbles is preferable to cleaning up the mess in the aftermath. The ups and downs of housing prices must end. The housing bubble shattered the dreams and aspirations of a generation. Some of the wealth lost was an illusion, but those who lost their family homes lost something tangible and real.

Great Britain is trying to recover from its fourth housing bubble in the last 40 years. That rivals California's three bubbles during that span. They too are looking for answers to prevent bubble number five from wiping out their wealth and their economy.

'Cap mortgages at 90% of value' to prevent bubble

Price stability should be government priority

Bloomberg — June 3, 2011

London: UK lenders should cap mortgages at 90 per cent of the property's value and no more than three-and-a-half times a household's annual income to prevent another housing bubble, the Institute for Public Policy Research said.

In The Great Housing Bubble, I proposed capping lending at a 90% loan-to-value ratio just as this group has done. I like the idea:

There are a number of reasons why high combined-loan-to-value lending is a bad idea: (1) it promotes speculation by shifting the risk to the lender, (2) it encourages predatory borrowing where borrowers “put” the property to a lender, (3) it promotes a high default rate because borrowers are not personally invested in the property, (4) it discourages saving as it becomes unnecessary, and (5) it artificially inflates prices as it eliminates a barrier to market entry. This last reason is one of the arguments used to get rid of downpayment requirements. The consequences of this folly became readily apparent once prices started to fall.

Also in The Great Housing Bubble, I explored capping the loan-to-income ratio, and I found the approach lacking:

Another proposed solution is to regulate the loan-to-income ratio of the borrower. When 30-year fixed-rate mortgages first came out, mortgage debt was limited to two and one-half times a borrower’s yearly income. It was an artificial limit that made sense when interest rates were higher and people were accustomed to putting less money toward housing payments. A legislative cap on the loan-to-income ratio would prevent future housing bubbles, if it was enforced. This would not work for the same reason lenders went away from the two-and-one-half-times-income standard years ago: it does not reflect changes in borrowing power due to changes in interest rates. This idea of regulating loan-to-income ratios is actually an evolution of the idea of regulating interest rates. If the total loan-to-income ratio is limited, very low interest rates do not cause dramatic price increases, but since low interest rates were not really the cause of the bubble, limiting the loan-to-income ratio is not addressing the real cause of the bubble. Plus, there are ways to get around a cap on home loan borrowing by obtaining other loans not secured by real estate. It would be relatively easy for a borrower to obtain bridge financing to acquire a property and then obtain a HELOC to pay off the bridge financing. In the end, the borrower would have borrowed more than the cap amount thus rendering any cap meaningless. To close the various loopholes, more regulations would be required, and a regulatory nightmare would ensue.

Back to the article:

The UK's “addiction to house-price inflation” is damaging the economy and the Conservative-led coalition government should make price stability a priority, the London- based advisory group said in a report.

“Britain has suffered four housing bubbles in the last 40 years, each of which contributed to major economic and social problems,” Nick Pearce, a director at the IPPR, said in the statement. “We need tougher mortgage-market regulation from the FSA, especially caps on loan-to-value and loan-to-income ratios.”

The Financial Services Authority regulates UK mortgage providers and other lenders. House prices tripled in the ten years through 2006, rising by 12 per cent a year, IPPR said. Mortgage lending is 81 per cent of GDP in the UK compared with 73 per cent in the US.

No deposit

The average loan for a first-time buyer was 3.15 times annual household income in March, IPPR spokesman Richard Darlington said by e-mail. In 2007, when the UK's real estate market peaked, 28 per cent of all advanced mortgages had loan-to- income ratios of 3.5 or more. First-time buyers regularly took out mortgages of 100 per cent of the property's value.

Great Britain was doing the same stupid things we were in the United States.

… Fall in demand

Mortgage applications in the US fell for the first time in five weeks as refinancing cooled.

The Mortgage Bankers Association's index of loan applications dropped 4 per cent in the week ended May 27. The group's refinancing index declined 5.7 per cent and the purchase gauge was unchanged.

Falling home prices are keeping more buyers on the sidelines while making it harder for homeowners to refinance current mortgages. Unemployment at 9 per cent and the prospect of more foreclosures in the pipeline mean housing will take time to recover.

“Nobody wants to buy an asset they think will go down in value,” Neil Dutta, an economist at Bank of America Merrill Lynch in New York, said before the report.

Capping lending and tethering it to a reasonable and affordable percentage of borrower income is essential to prevent future housing bubbles, but the problem is more complex because capping a loan at 90% value requires understanding what value is. Our current approach to residential property valuation relies exclusively on comparative sales, and it is a flawed system.

The income approach appraisal

When lenders underwrite investment property loans, they have an appraiser establish fair-market rents, and they generally consider between 65% and 75% of that income toward qualification for the loan. In places were properties are trading 25% or more below rental parity, the net income of the property will cover the payment, taxes, and insurance. These are low risk loans for lenders that provide them higher interest rates.

If applied to a typical residential real estate transaction, an income approach appraisal would reveal which properties generate sufficient cashflow to cover the loan in the event the lender had to take the property back. If lenders had the income information to compare to comparable sales, they would quickly see which properties are inflated in price and are thereby the riskier loans.

Loans on properties in Orange County with a negative cashflow should require larger down payments and more borrower income and assets. In contrast, a Las Vegas property with a positive cashflow would require smaller down payments and no other collateral to cover the loan. In the event of foreclosure, a lender could rent out the cashflow positive property and receive their desired income stream which effectively mitigates their risk. Lenders take on more risk than they realize when they loan on cashflow negative properties.

I wrote about income approach appraisals in The Great Housing Bubble:

There is one potential market-based solution that would require no government regulation or intervention that would prevent future bubbles from being created with borrowed capital: change the method of appraisal for residential real estate from valuations based exclusively on the comparative-sales approach to a valuation derived from the lesser of the income approach and the comparative-sales approach. … In the current lending system, the income approach is widely ignored.

… When the fallout from the Great Housing Bubble is evaluated, it is clear that the comparative-sales approach simply enables irrational exuberance because the past foolish behavior of buyers becomes the basis for future valuations allowing other buyers to continue bidding up prices with lender and investor money. Prices collapsed in the Great Housing Bubble because prices became greatly detached from their fundamental valuation of income and rent. This occurred because the comparative-sales approach enables prices to rise based on the irrational exuberance of buyers. If lenders would have limited their lending based on the income approach, and if they would not have loaned money beyond what the rental cashflow from the property could have produced, any price bubble would have to have been built with buyer equity, and lender and investor funds would not have been put at risk. There is no way to prevent future bubbles, and the commensurate imperilment of our financial system, as long as the comparative-sales approach is the exclusive basis of appraisals for residential real estate.

When I wrote those words, the deflation of the housing bubble had not overshot to the downside in any market. My focus above was on preventing prices from going up too much, but this approach can also address problems we are seeing in markets like Las Vegas where prices have gone down too much.

In a declining market, lenders are cautious because nobody knows what anything is worth, and if lenders underwrite big loans that subsequently go underwater, borrowers walk away from their debts and leave lenders holding collateral worth less than their loan balance. As a consequence, lenders want to be conservative, so they rely on appraisers to keep values comfortably within range of recent comps, no matter how low those comps may be.

There comes a point when recent comps are so low that a property is undervalued based on its potential for cashflow, but since lenders don't use the income approach when evaluating residential real estate, they are not aware of these key price support levels and they approve short sales and REO resales at very low prices. An example comes from a recent community I saw in Las Vegas:

I discovered this neighborhood while looking at another auction property nearby. The property of interest is in a cluster product neighborhood in a nice part of Henderson, Nevada. All the properties were built in 2005 and sold new in the mid 200s.

The list of comparables below are all in the cluster neighborhood, and they are arranged in descending order of closing dates. Take a careful look at the sales price in the column second from the right.

The properties in the above list would all rent for about $1,000 to $1,100. The properties that sold in the $110,000 to $115,000 range represented good cashflow investments yielding 8% or more. In an environment of 1% CD rates and 4.5% mortgage interest rates, an 8% yield is fantastic. The resale value of this neighborhood did not need a 40% reduction to attract buyers. Lenders should never have approved those sales.

If the lender had merely rented their property out instead of dumping it for 40% under comps, the cashflow from the rental would have been nearly double the cashflow from the subsequent loan on the property. A lender in Las Vegas trying to finance its own REO would be well served by renting the property instead. Lenders can get $450 per month in a loan payment if they sell it and underwrite the new loan, or they can net about $750 a month on the rental if they keep it.

Of course, banks aren't REITs, and they don't want to own property long term, but in the short term, they would be much better off renting property. The could dispose these assets through a special home investment trust. An entity receiving the positive cashflow from the millions of rentals would have significant value, and it would provide better asset recovery than lenders are getting now.

Sell with new debt or keep as rental?

For example, B of A and other major banks try to sell their REO to people who take out loans from them. B of A gets capital out of a non-productive asset and converts it to loan payments. They can hold this new loan on their balance sheets or they can sell it in the secondary market. With Bernanke giving them free money, most banks are keeping the best loans for themselves.

However, instead of converting this non-performing asset to a performing stream of income by selling the property and underwriting a loan, the bank could retain ownership and rent the property. Banks would get more value from these properties by selling off the shares of a cashflow property REIT than they will by underwriting loans with much smaller cashflow.

If lenders also looked at cashflow values in terms of rental yields, they could see when they are selling undervalued properties and chose to rent those out instead. The amend, extend, pretend policy they are using to prop up prices in some markets is an attempt to hold on to what they believe to be undervalued assets. But since they are not looking at cashflow, they have no idea which markets have undervalued properties and which ones are overvalued.

In Las Vegas, some version of amend, extend, pretend is the best course of action for lenders because they can rent the properties and obtain better cashflow than if they sold them and put new debt on them. In Orange County, most properties are still reselling for more than rental parity, so lenders cannot rent them out for better cashflow than selling them and putting on new debt.

If lenders were basing their decisions on rental cashflow value — something they could do if they were obtaining appraisals using the income approach — they would quickly realize (1) they are selling properties they should be holding, and (2) they are holding properties they should be selling.

In a recent article, Dean Baker pointed out the foolishness of current government policies toward housing:

As far as the housing market, a little clearer thought would get policy to distinguish between markets where the bubble is still deflating (e.g. Seattle, Los Angeles, Boston) and markets where prices are likely overshooting on the low side (e.g. Los Vegas and Phoenix). It might make sense to have policies to boost prices in the latter set of cities. It makes no sense to have policies to boost prices in the former.

Mr. Baker proposes the right-to-rent as a public policy to address this problem. I believe income approach appraisals would give lenders better valuation tools so they could make better decisions concerning property liquidations on a market by market basis. Any lender looking at rental parity would liquidate their holdings where prices were inflated and hold properties where prices have overshot to the downside. Currently, that is the opposite of what lenders are doing, and their failure to understand valuation is going to cost them billions of dollars while the liquidations go forward over the next several years.

Large down payment lost

The owner of today's featured property paid $645,000 using a $417,000 first mortgage and a $228,000 down payment. He obtained a $100,900 HELOC on 1/15/2008, but there is no indication he used it. If this property sells for its current asking price, the owner will get a check for $6,000 of his remaining equity. That's $228,000 put in and $6,000 coming out. This was probably not the real estate investment this owner was looking for.

Irvine House Address … 14 ROCKY Gln #22 Irvine, CA 92603

Resale House Price …… $450,000

House Purchase Price … $645,000

House Purchase Date …. 4/16/2007

Net Gain (Loss) ………. ($222,000)

Percent Change ………. -34.4%

Annual Appreciation … -8.6%

Cost of House Ownership

————————————————-

$450,000 ………. Asking Price

$15,750 ………. 3.5% Down FHA Financing

4.54% …………… Mortgage Interest Rate

$434,250 ………. 30-Year Mortgage

$94,741 ………. Income Requirement

$2,211 ………. Monthly Mortgage Payment

$390 ………. Property Tax (@1.04%)

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

$94 ………. Homeowners Insurance (@ 0.25%)

$499 ………. Private Mortgage Insurance

$497 ………. Homeowners Association Fees

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

$3,691 ………. Monthly Cash Outlays

-$356 ………. Tax Savings (% of Interest and Property Tax)

-$568 ………. Equity Hidden in Payment (Amortization)

$27 ………. Lost Income to Down Payment (net of taxes)

$76 ………. Maintenance and Replacement Reserves

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

$2,870 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,500 ………. Furnishing and Move In @1%

$4,500 ………. Closing Costs @1%

$4,342 ………… Interest Points @1% of Loan

$15,750 ………. Down Payment

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

$29,092 ………. Total Cash Costs

$43,900 ………… Emergency Cash Reserves

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

$72,992 ………. Total Savings Needed

Property Details for 14 ROCKY Gln #22 Irvine, CA 92603

——————————————————————————

Beds: 2

Baths: 2

Sq. Ft.: 1600

$281/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

View: Trees/Woods

Year Built: 1978

Community: Turtle Rock

County: Orange

MLS#: P779770

Source: SoCalMLS

Status: Active

——————————————————————————

BEAUTIFUL OPEN, LIGHT AND BRIGHT HOME ON A CUL DE SAC WITH A GREAT VIEW. TWO MASTER SUITES, ONE WITH AN ATTACHED OFFICE OR RETREAT AREA. FRENCH DOORS, PLANTATION SHUTTERS, UPGRADED KITCHEN, HARDWOOD FLOORS DOWNSTAIRS. SKYLIGHTS, CUSTOM PAINT. PATIO AND BALCONY OVERLOOK A LANDSCAPE OF TREES AND NATURAL HABITAT. ASSOSIATION POOL, SPA, TOT LOT, SPORTS FIELD, AND ENDLESS WALKING TRAILS. AWARD WINNING SCHOOLS, CLOSE TO UCI, SHOPPING, AND THE FRWYS. PLEASE PARK IN VISITOR PARKING. THANK YOU. PROPERTY CAN BE SHOWN NOW. CALL AGENT 2HRS AHEAD TO SET THE APPOINTMENT. THE HOUSE HAS SOME HOLES IN THE WALLS, BUT THEY WILL BE REPAIRED BY THE ASSOCIATION.

ASSOSIATION?

BTW, you may find this interesting: Realtors go after blogger who says they lie. Freedom of speech?

Eighty percent of North Las Vegas loan owners are underwater and unable to relocate to find a better job.

Home Address … 6388 BRIANNA PEAK Ct Las Vegas, NV 89142

Resale Home Price …… $95,900

Life springs eternal

On a gaudy neon street

Not that I care at all

I spent the best part of my losing streak

In an Army Jeep

For what I can't recall

Oh I'm banging on my TV set

And I check the odds

And I place my bet

I pour a drink

And I pull the blinds

And I wonder what I'll find

Sheryl Crow — Leaving Las Vegas

Many people leave Las Vegas broke. Most of them lost their money in games of chance, but the latest casualties of Las Vegas were ordinary home owners who bought homes.

Unlike many markets where only the most indebted late buyers and HELOC abusers have been washed out by falling prices, in Las Vegas, prices have fallen so low that ordinary buyers from before the bubble who paid down their mortgage find themselves deeply underwater, unable to move, and hopeless. Those owners are the true victims of the housing bubble because they didn't do anything foolish. They happened to buy in the wrong place at the wrong time purely by chance.

Now these ordinary citizens are trapped in their underwater homes unable to move to seek employment elsewhere. Las Vegas is the only desert where people routinely drown.

Leaving North Las Vegas no option for many 'underwater' homeowners

In parts of North Las Vegas, more than 80% of homeowners owe more on their mortgages than their homes are worth. Staying is expensive, but many can't afford to move.

By Ashley Powers and Alejandro Lazo, Los Angeles Times — May 31, 2011

Reporting from North Las Vegas, Nev.— Charles Mills can barely afford to stay here. But he also can't afford to move.

That's why the 44-year-old heavy-equipment operator was preparing to leave his wife and young daughter here and go where he could find work — the Oklahoma oil fields. Mills has a mortgage to pay, even if its size pains him.

He purchased his house in 2006 for $308,500. Current value: $105,797.

“We talked about it: What can we do with the house?” Mills said. “Nobody's going to buy it. Nobody's going to rent it. If we walk away, my credit's shot. We're stuck.”

You can see why these people feel helpless. What's unfortunate is that this family isn't considering strategic default. Is his credit score really worth $200,000?

Think about this rationally. How long will it take for the value of a North Las Vegas house that currently sells for $105,000 to appreciate to $308,500? Realistically, it won't happen in the next 25 years.

It will take at least three years and probably closer to five before the housing stock turns over at the new lower values. Most people will default or short sale and move on with their lives. The constant pressure of all this distressed inventory is going to keep prices near $100,000 for quite a while.

Then after the inventory pressure abates, there will likely be a period of rebound appreciation, but at best that only will restore the market to its long-term trendline. Let's say that brings the price back up to $150,000 seven to ten years from now. At that point, prices still have to double which will take another 15 to 20 years with a 3% rate of appreciation.

For owners in that circumstance, they would be far better served by strategically defaulting, waiting the ever-shortening required waiting period to get a new loan, and repurchase. That is by far the shortest path to having home equity again.

In some parts of North Las Vegas, more than 80% of homeowners have plunged “underwater,” meaning they owe more on their mortgages than their properties are worth — a stunning concentration of aborted plans and upended lives.

Mobility in search of new opportunity has long been a cornerstone of the American economy, much the way homeownership has long offered a path to firmer financial footing. But the housing bust has left tens of thousands of homeowners across Nevada essentially trapped.

They're considered the new normal here. They turn down higher-paying jobs elsewhere because they can't move. They tidy the yards of houses left vacant by foreclosure. They realize it's unlikely their children will receive tidy inheritances from the sale of their suburban homes.

Look at what the crash has done to homeowner expectations in Las Vegas. They don't believe they will have any equity in their lifetimes to pass on to their children. Compare that to the droves of kool aid intoxicated fools who believe they will be cashing HELOC checks soon from the double-digit appreciation sure to follow this brief correction.

Orange County will not become as desperate as Las Vegas, but we have a long way to go before the market psychology has changed enough to signal we are near the bottom.

When they look about their neighborhood, they question things they never questioned before. Are dead plants a sign that someone forgot to water? Or did the water get turned off? Does a garage sale mean more neighbors are about to bail?

“We don't even walk around our own neighborhood anymore,” Mills said. “Why? To say hi to strangers?”

Elsewhere on Midnight Breeze Street are Steve and Gay Shoaff, who once talked of selling their house and retiring somewhere pretty. Gay, 57, even toured a place in Wyoming.

But the Shoaffs have been living mostly off savings since the construction industry sputtered. Steve, 60, worked as a drywall taper and foreman.

“I'd say, 'Gay, we're going to become millionaires on this house,' ” Steve recalled one day as he and his wife unwound in the backyard they'd spent thousands of dollars sprucing up. Gay mustered a smile.

I give this man credit for the courage to admit his kool aid intoxication.

Their $187,980 home is now assessed at $99,220.

“This house won't be worth what we paid on it until after we die,” she said.

Some economists would agree, predicting that a full recovery in parts of the West's “foreclosure belt” — California, Nevada and Arizona — won't occur until at least 2030.

They are right. It will take longer than they have to live for prices to come back.

Nationwide, 23.1% of homeowners with mortgages are underwater. No state is more underwater than arid Nevada, with about two-thirds of borrowers holding such mortgages, according to CoreLogic, a Santa Ana research firm.

Some economists argue that, in a way, these homeowners are worse off financially than those who lost their houses through foreclosure and were forced to move on. Those borrowers often were able to live rent-free for years because of the snail's pace of foreclosure proceedings.

The people who bail and take their medicine are far better off than the people trapped in their homes. That's why strategic default is so common in Las Vegas. It's the wise thing to do.

Meanwhile, their underwater neighbors poured money into mortgages, not savings or investments. They couldn't chase higher-paying work. Homeowners with negative equity are at least a third less mobile than other homeowners, according to a recent study in the Journal of Urban Economics.

I feel sad for those who emptied their savings accounts and retirement accounts to pay mortgages. The poured their money down a rat hole, and now they are trapped in it.

But abandoning their homes was an option that appeared too dicey. “Walking away, it does wreck your credit history for a while and you can't get another mortgage for seven years,” said Richard Green, director of the USC Lusk Center for Real Estate. Defaulting also makes it harder to rent an apartment. “The other thing is, there is also some sense of obligation to repay your bills,” he said.

I'm sure the mortgage industry likes to see those comments from “experts” on these matters. Too bad it is totally inaccurate. The GSEs are letting people get new loans two years after a foreclosure. Further, the ramifications for people's credit scores, ability to get a lease or a job is hugely exaggerated. Plus, the whole notion of moral obligation to repay debts has been washed away. Mr. Green is wrong on every point.

Indeed, some North Las Vegas residents would rather forge a community here. Some feel blessed to have held on to their homes when so many people lost theirs.

… Mills, who was lured here from Los Banos, Calif., in 2006 by good-paying work and cheap housing, started seeing more neighbors padding around during the day, suggesting they had lost their jobs. Suddenly, they would vanish — sometimes after ripping out their toilets and sinks.

A family who lived near Mills, whose little boy played with his daughter, recently moved after his secretary mom and construction worker dad were laid off.

“I told my wife we don't have friends anymore. They all move away,” he said.

Actually, most of them moved into a rental in the same neighborhood. Unless they can't afford a rental, most who strategically default will rent a place in the same school district so their children can maintain friendships and they can keep their same social circle. In Las Vegas where unemployment is very high, particularly in construction, the neighborhoods are becoming much more fragmented.

Mills' wife, Maria, was let go by the entertainment department of a casino. He bounced from job to job, sometimes trucking cooking oil around Utah and Nevada, sometimes juggling security and janitorial work.

Determined to hang on to their four-bedroom house, he and his wife returned two new Nissans. “The cars, those are toys. Those are material things,” Mills said. “This is home.”

They waded through a mound of paperwork — and instructions to temporarily stop paying their mortgage — to cut their $1,600 monthly payment to about $900. The total amount they owe, however, remains the same.

The got a loan modification that essentially turns their mortgage into an Option ARM. They are staying in their underwater house, but have they really benefited from the arrangement?

James R. Follain, a senior fellow at the State University of New York's Rockefeller Institute of Government, argued in a recent study that former home-building hot spots, such as Las Vegas and California's Inland Empire, may crumble in the manner of Rust Belt manufacturing towns.

“There is a different mechanism leading to a similar outcome,” Follain said. “It was built on this upbeat set of assumptions about the future of house price growth, of population growth.”

That scenario is more likely to play out in Riverside County than in Las Vegas. Las Vegas has the gaming industry as a core economic driver. Riverside County has cheap houses and an economy based on providing cheap houses. What will bring back the economy there?

So last month, while Mills was gearing up for Oklahoma, the Shoaffs tried to keep their neighborhood from looking like so many in the Las Vegas Valley, the ones marred by one decaying home after another.

Drive down Midnight Breeze, and you'll spot few obvious signs of the real estate bust: no bank-owned signs, no broken windows, no doors jammed with unclaimed pizza fliers. That's partly because Gay busies herself yanking weeds from yards and ripping foreclosure notices from garage doors so the vacant homes won't tempt vandals.

This woman is tearing legal notices off neighboring properties. Sounds like a new foreclosure defense: the owners didn't receive notice because a neighbor tore it down.

On a recent evening, however, the Shoaffs took a walk through the neighborhood. In a backyard a few blocks away, someone had shoved over a foosball table, smashed a computer, tossed around stuffed animals and ruined the hot tub with what appeared to be white paint.

Gay's face fell. This house was likely another foreclosure casualty, its owner long gone.

The Shoaffs aren't going anywhere.

ashley.powers@latimes.com

alejandro.lazo@latimes.com

Picking up the pieces

The housing market in Las Vegas is a disaster. The enormous imbalance of supply and demand has pushed prices back to the mid 1990s.

I now make a living recycling the debris left over from the housing crash. Most of the homes I buy now are empty, and like this one I purchased in April, they are modest single-family homes selling near the median. These are the quickest and easiest to prepare and sell.

Between March 2 and April 23, I bought ten houses. Of those ten, this is the only one not in escrow or closed.

I will have about $80,000 into this property, and if it sells for its current asking price, my fund will make about $10,000. In all likelihood, I will have to negotiate a lower price or offer to pay the closing costs of an FHA buyer, but it will likely be a good flip like the other nine.

House Address … 6388 BRIANNA PEAK Ct Las Vegas, NV 89142

Resale House Price …… $95,900

House Purchase Price … $69,000

House Purchase Date …. 4/12/2011

Cost of House Ownership

————————————————-

$95,900 ………. Asking Price

$3,357 ………. 3.5% Down FHA Financing

4.54% …………… Mortgage Interest Rate

$92,544 ………. 30-Year Mortgage

$20,190 ………. Income Requirement

$471 ………. Monthly Mortgage Payment

$83 ………. Property Tax (@1.04%)

$20 ………. Homeowners Insurance (@ 0.25%)

$106 ………. Private Mortgage Insurance

$94 ………. Homeowners Association Fees

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

$775 ………. Monthly Cash Outlays

$0 ………. Tax Savings (% of Interest and Property Tax)

-$121 ………. Equity Hidden in Payment (Amortization)

$6 ………. Lost Income to Down Payment (net of taxes)

$32 ………. Maintenance and Replacement Reserves

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

$691 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$959 ………. Furnishing and Move In @1%

$959 ………. Closing Costs @1%

$925 ………… Interest Points @1% of Loan

$3,357 ………. Down Payment

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

$6,200 ………. Total Cash Costs

$10,500 ………… Emergency Cash Reserves

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

$16,700 ………. Total Savings Needed

Property Details for 6388 BRIANNA PEAK Ct Las Vegas, NV 89142

——————————————————————————

Beds: 4

Baths: 2

Sq. Ft.: 1673

$057/SF

Property Type: Single Family Residential, Detached

View: Strip

Year Built: 2000

County: 0

MLS#: 1146598

Source: GLVAR

Status: Exclusive Right

On Redfin: 21 days

——————————————————————————

Not SS or REO. Great 4 bedroom house. Freshly painted. Carpets will be professionally cleaned. Very nice covered stucco patio with ceiling fans and electrically wired. Home boast a nice array of ceramic tile, hardwood floors and carpet. Appliances, including refrigerator to be installed by 05/20/11. Great strip view from front yard. Home is located on a great cul-de-sac street.

Have a great weekend,

Irvine Renter

Despite the best house price payment affordability on record, housing demand and mortgage demand is near record lows.

Irvine Home Address … 2 SOLANA Irvine, CA 92612

Resale Home Price …… $465,000

Get on up when you're down

Baby, take a good look around

I know it's not much, but it's okay

Keep on moving anyway

Five — Keep on Movin'

Despite gargantuan efforts by government policy makers and the federal reserve to prop up the US housing market, low prices in many markets, and low interest rates, buyer demand is still very low. The reason is simple, the buyer pool is depleted, and many who would ordinarily be in the market for housing are unable to qualify for the loan necessary for them to purchase.

Tighter lending standards are often blamed, but it is both a combination of higher lending standards and fewer people who meet those standards because they have credit or savings problems due to unemployment, short sale, or foreclosure. The only fix to this problem is time. People need to go back to work, pay their bills, save money, and wait for their credit score to improve. Until all of those things happen, mortgage demand will remain low, and sales will suffer.

House Affordability in U.S. Rises to Record Levels, Tight Financing Still Constrains Sales

Posted by Michael Gerrity 05/25/11 10:27 AM EST

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) report released this week, nationwide housing affordability during the first quarter of 2011 rose to its highest level in the more than 20 years it has been measured.

The HOI indicated that 74.6 percent of all new and existing homes sold in the first quarter of 2011 were affordable to families earning the national median income of $64,400. This eclipsed the previous high of 73.9 percent set during the fourth quarter of 2010 and marked the ninth consecutive quarter that the index has been above 70 percent. Until 2009, the HOI rarely topped 65 percent and never reached 70 percent.

Low interest rates are making houses in most markets in the US very affordable on a payment basis. Of course, prices in many markets are still too high, but the ability to obtain extremely cheap debt is making the large mortgage balances manageable.

Despite how inexpensive it is to borrow money right now, nobody seems to be doing it.

Mortgage originations down 35% in first quarter

by KERRI PANCHUK — Tuesday, May 31st, 2011, 3:08 pm

Mortgage originations in the first quarter fell 35% to $325 billion, breaking three consecutive periods of growth and threatening to plunge the market back to 2000 levels, according to a report from Inside Mortgage Finance.

The first-quarter drop is the worst experienced since the onset of the recession when mortgage originations plummeted 31.5%, according to a new research report from Federal Reserve Bank of Cleveland researchers Yuliya Demyanyk and Matthew Koepke.

The same report cites Mortgage Bankers Association projections which estimates mortgage originations could fall to $1.05 trillion in 2011, the lowest level in 11 years.

The report blames a decline in refinancings for the dip in originations. Since refinancings generally contribute to higher origination activity, a drop-off in that segment negatively impacts originations as a whole.

The Cleveland Fed Bank report concludes that the only way around declining activity in the refinance segment would be to generate more activity in new home originations—a development the report doesn't foresee when considering the current lull in home starts and the state of the overall housing market.

Write to Kerri Panchuk.

With a long and deep recession at the conclusion of a massive borrowing binge my US consumers, very few people qualify for mortgages. Since interest rates have been low for a long time now, everyone who can refinance already has. As the Cleveland Fed noted, the prospects for increasing new home originations isn't very promising.

Americans Shun Cheapest Homes in 40 Years as Ownership Fades

By Kathleen M. Howley — April 19, 2011, 9:12 AM EDT

April 19 (Bloomberg) — Victoria Pauli signed a one-year lease last week to stay in her rental home in Fair Oaks, California. She had considered buying in the area, where property prices have slumped 57 percent since a 2005 peak.

In the end, she decided it wasn’t worth it.

“I know people who have watched their home values get cut in half, and I know people who are losing their homes,” said Pauli, 31, who works as a property manager for a real estate company. “It’s part of the American dream to want to own your own home, and I used to feel that way, but now I tell myself: Be careful what you wish for.”

Those are the kind of statements that bring out my contrarian instincts. In markets down more than 50% from the peak, prices are generally much lower than rental parity. People in those markets are paying a premium to rent to avoid what they fear is downside risk. Most of the decline has already occurred, and saving money versus renting is a strong inducement to purchase a home. People in beaten down markets are reacting in fear when they should be seizing opportunity.

In markets like Irvine where prices are off by about 25% and most properties are still trading above rental parity, renters still save money, and the likelihood of further declines is higher. An attitude of wait-and-see is appropriate particularly since the financial incentive favors renting rather than owning.

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

After five years of falling prices, I am amazed that 64% of respondents still perceive a house as a safe investment. What would it take for those people to say it's unsafe?

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”

Worse Than Depression

Historically, homes have been a safer investment than equities. During 2008, the worst year of the housing crisis, the median U.S. home price declined 15 percent, compared with a more than 38 percent plunge in the Standard & Poor’s 500 Index.

Americans stay in their homes for a median of eight years, according to the National Association of Realtors in Chicago. Someone who bought a home in 2002 and sold in 2010 saw a 4.8 percent increase in value, based on the annualized median price measured by the group. The average annual gain in the past 20 years was 4.2 percent.

There is another NAr statistic that serves their purposes now, but in years to come, it will not. Wait until we have the 2006 to 2014 comparison. That one will be brutal.

Falling prices have made real estate the best buy in at least four decades. Housing affordability reached a record in December, according to National Association of Realtors data that go back to 1970. The group bases its gauge on property prices, mortgage rates and the median U.S. income.

Despite the fact that much of the NAr data is manipulated bullshit, housing affordability is near its record high, particularly in markets like Las Vegas where you have the unique combination of prices from 15 years ago and very low interest rates.

The median U.S. home price tumbled 32 percent from a 2006 peak to a nine-year low in February, data from the Realtors show. The retreat surpassed the 27 percent drop seen in the first five years of the Great Depression, according to Stan Humphries, chief economist of Zillow Inc., a Seattle-based real estate information company.

For real historical accuracy, the big plunge in real estate prices occurred prior to the Great Depression during the severe recession of the 1910s. They fell again during the mid 20s when the Florida land boom went bust. And during the Great Depression, many people lost their homes in foreclosure, but prices were already beaten down from the turmoil of the two decades preceding. The Robert Shiller chart shows the decline of the 1910's clearly.

Ironically, it was financial innovation of a sort that propelled prices back to their historic trendlines after World War II. What was that innovation? The widespread use of the 30-year fixed rate mortgage with a 20% down payment. Prior to that most loans were interest-only with a 50% down payment requirement. If the real estate community is complaining about 5% down payments, imagine what would happen to the housing market if 50% down became the norm.

Not Risk-Free

“If we’ve learned anything from this mess, it’s that housing is not a risk-free investment,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York. “Everyone knows someone underwater in their mortgage or struggling to sell a home.”

About 11 million U.S. homes were worth less than their mortgages at the end of 2010, according to CoreLogic Inc., a Santa Ana, California-based real estate information company. An additional 2.4 million borrowers had less than five percent equity, meaning they’ll be underwater with even slight price declines, according to the March 8 report. The two categories add up to 28 percent of residences with mortgages.

Nearly one in three. It reminds me of the speech they give incoming freshmen in college. Look at the person sitting to your left and to your right. One of those people will not graduate. Well, any homeowner who isn't underwater need only look at his neighbor to the left or neighbor to the right to see someone who is underwater.

… Improving Employment

“We expect that purchase activity will pick up slowly as the improvement in the job market eventually leads to greater willingness to buy,” the mortgage bankers group said.

Willingness isn't the problem: meeting the qualification standards is. The unemployed must find work, then they must maintain it for two years before someone will give them a loan. And that assumes they didn't wipe out their reserves while they were unemployed and damage their credit.

Borrowing costs are at historic lows. The average U.S. rate for a 30-year fixed mortgage was 4.69 percent last year, the lowest in annual data going back to 1972, according to mortgage financier Freddie Mac, based in McLean, Virginia. The rate in March was 4.84 percent, the company said.

By 2012’s fourth quarter, the average fixed rate may rise to 6 percent, according to the Mortgage Bankers Association.

I've been predicting higher interest rates for quite some time, but the lack of demand and ongoing mortgage debt deflation is forcing rates downward.

I have been contemplating the meaning of the chart above. As long as mortgage debt levels are elevated about collateral value, banks have two options: (1) write off the debt to reduce it to the value of the housing stock, or (2) make debt so inexpensive that people can afford to keep their bad debt alive. Obviously lenders are choosing the latter. It's the approach the Japanese took since the early 90s, and housing has been deflating there ever since.

Since lenders are trying to minimize their losses on paper, they are offering debt at super low prices. They can underwrite loans at low rates as long as the federal government guarantees it all and investors don't find a better place to park their money. Right now, competing investments with more risk are not attractive to investors, so they are putting their money into 4.5% loans. Investors will probably stop doing that once there are more economic opportunities. I thought the October 2010 selloff was a sign that the economy was mending and interest rates would keep rising. So far, that has not been the case.

“If you can jump through the hoops to get a mortgage, and there will be hoops, then this is an amazing time to purchase real estate,” said Robert Stein, a senior economist at First Trust Portfolios LP in Wheaton, Illinois, and the former head of the Treasury Department’s Office of Economic Policy. “There are going to be a lot of people kicking themselves a few years from now because they didn’t take advantage of the low prices and the low mortgage rates.”

Tighter Lending

Cheap financing hasn’t done enough to boost home sales in part because lenders are being more selective with applicants, according to Federal Reserve Chairman Ben Bernanke. Fed policy makers have described the housing market as “depressed” in statements following their last eight meetings.

More selective with applicants! LOL! You mean banks aren't loaning home to anyone with a pulse? Shocking!

“Although mortgage rates are low and house prices have reached more affordable levels, many potential homebuyers are still finding mortgages difficult to obtain and remain concerned about possible further declines in home values,” Bernanke said in Congressional testimony last month.

The share of banks reporting tighter mortgage standards in the first quarter rose to 16 percent, the highest since 1991, according to the Fed’s Senior Loan Officer Survey.

Standards are tightening and will continue to tighten until houses are affordable under conservative lending metrics. Bankers don't become aggressive until they stop losing money. The credit cycle exacerbates the economic cycle by making booms larger and busts worse.

Federal regulators are proposing rules that may make lending even more stringent, including a requirement that banks and bond issuers keep a stake in home loans they securitize if the mortgage borrowers have imperfect credit and down payments of less than 20 percent. Borrowers who don’t meet the criteria would pay higher rates to compensate lenders for risk.

Fannie Phase-Out

As mortgage requirements rise, rates could follow as Congress and the Obama administration consider phasing out government-controlled Fannie Mae and Freddie Mac. The companies hold federal charters mandating they increase the availability of mortgages through securitization. In Fannie Mae’s case, that order goes back to the Great Depression, when it was created as part of President Franklin D. Roosevelt’s New Deal.

“There are a lot of unsettled policy issues on the table right now that, if they’re not handled right, could further set back the housing market,” said Richard DeKaser, an economist at Parthenon Group in Boston. “Fannie and Freddie have historically lowered interest rates, and eliminating them will increase the cost of home ownership.”

I'm not sure if that is an argument to keep them or eliminate them. I think he was trying to make the case for keeping them around, but providing artificial props to the housing market with risk to the US taxpayer is a bad idea, and the GSEs should go away.

Lowest in Decade

The U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade, according to the Census Department. The rate probably will retreat another percentage point by 2013, according to Meyer, of Bank of America Merrill Lynch, and Lea, the finance professor. That would put it back to a 1997 level.

“People will still aspire to own their own homes,” Lea said. “They’ll just be a lot more practical about it.”

Pauli, the California renter, said she has no such aspirations, at least for now. She pays $1,500 a month for her three-bedroom, single-family home with a two-car garage, granite kitchen countertops and stainless-steel appliances. Her neighbors who bought before the housing crash typically have mortgage payments of about $2,800 a month, Pauli said.

“I don’t see myself purchasing, even with all the great prices I see,” Pauli said. “Going to bed every night worrying about your home value doesn’t sound like a good time to me.”

And Pauli will continue to feel that way until owning becomes less expensive than renting. Rental parity is a tipping point, and once prices fall below that level, fence sitters get off the fence and buy properties. The specter of price declines is less powerful than the desire to lower monthly housing costs, except for those people with a short ownership tenure.

Not a short sale… yet

A property owned for the last 15 years by one family would not ordinarily be a short sale candidate. With the $169,000 sales price and a $152,100 first mortgage, it is reasonable to believe their mortgage balance should be less than $100,000.

Of course, this is Irvine, California, so their loan balance is over $100,000; in fact, the last mortgage on the property was for $399,000. Instead of having $300,000+ in equity, these owners have limited ability to lower their price before they will be a short sale statistic.

When a HELOC abuser makes a sale for a $268,100 profit and only gets a $26,810 check at closing, how do they feel? Does it cross their mind that they pissed away a quarter million dollars? Any regrets?

Irvine House Address … 2 SOLANA Irvine, CA 92612

Resale House Price …… $465,000

House Purchase Price … $169,000

House Purchase Date …. 10/1/1996

Net Gain (Loss) ………. $268,100

Percent Change ………. 158.6%

Annual Appreciation … 6.9%

Cost of House Ownership

————————————————-

$465,000 ………. Asking Price

$16,275 ………. 3.5% Down FHA Financing

4.54% …………… Mortgage Interest Rate

$448,725 ………. 30-Year Mortgage

$97,899 ………. Income Requirement

$2,284 ………. Monthly Mortgage Payment

$403 ………. Property Tax (@1.04%)

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

$97 ………. Homeowners Insurance (@ 0.25%)

$516 ………. Private Mortgage Insurance

$384 ………. Homeowners Association Fees

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

$3,684 ………. Monthly Cash Outlays

-$368 ………. Tax Savings (% of Interest and Property Tax)

-$587 ………. Equity Hidden in Payment (Amortization)

$27 ………. Lost Income to Down Payment (net of taxes)

$78 ………. Maintenance and Replacement Reserves

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

$2,836 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,650 ………. Furnishing and Move In @1%

$4,650 ………. Closing Costs @1%

$4,487 ………… Interest Points @1% of Loan

$16,275 ………. Down Payment

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

$30,062 ………. Total Cash Costs

$43,400 ………… Emergency Cash Reserves

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

$73,462 ………. Total Savings Needed

Property Details for 2 SOLANA Irvine, CA 92612

——————————————————————————

Beds: 2

Baths: 2

Sq. Ft.: 1404

$331/SF

Property Type: Residential, Condominium

Style: One Level

View: City Lights, Park/Green Belt, Trees/Woods

Year Built: 1975

Community: Rancho San Joaquin

County: Orange

MLS#: S659422

Source: SoCalMLS

Status: Active

——————————————————————————

Location!Location! Enjoy warm southern sun exposure, amazing golf course views, magnificent large old trees and endless golf course lawns. Charming home in the prestigious golf course community of Rancho San Joaquin. Premium private corner, ground location on the Green Belt single story home boasting amazing views and a very light spacious open floor plan. Two spacious Master Bedroom Suites. Two patios to enjoy while entertaining and relaxing. Enjoy a quiet Community Pool and Spa, inside washer and dryer and detached two car garage. Close to Mason Park, Shops, Restaurants, UCI, University High and much much more. Award Winning School District! Washer, Dryer and Refrigerator included. STANDARD SALE! A MUST SEE!

The S&P Case-Shiller home price indices have confirmed a double-dip in home prices. The bear rally has failed.

Irvine Home Address … 14 LONGSHORE #77 Irvine, CA 92614

Resale Home Price …… $730,000

Need a shave

Cut myself need a new blade

Something's gone wrong again

And again and again and again again and

Something's gone wrong again

Something's gone wrong again

The Buzzcocks — Something's Gone Wrong Again

The bulls were wrong — again. Eventually they will be right. Like a broken clock that is accurate twice a day, the perma-bulls will have their day. But their day is not today.

Home prices: 'Double-dip' confirmed

Les Christie, On Tuesday May 31, 2011, 10:43 am EDT

Home prices hit another new low in the first quarter, down 5.1% from a year ago to levels not reached since 2002.

It was the third straight quarterly drop for the S&P/Case-Shiller national home price index, which was released Tuesday. Prices are now down 32.7% from their peak set five years ago.

“Home prices continue on their downward spiral with no relief in sight,” said David Blitzer, spokesman for Standard and Poor's.

The index covers 80% of the housing market, and this month's report confirmed “a double-dip in home prices across much of the nation,” said Blitzer.

The housing market went through a brief recovery period starting in mid-2009, recovering nearly 5% of earlier losses. After homebuyer tax credits expired last April, the slump resumed.

The only reason people had for believing the crash would not resume was wishful thinking. We can debate whether or not the transfer of trash from lenders to the government was necessary (that is the only thing the tax credit buying accomplished), but a steep decline in prices back to historic norms for price-to-rent and price-to-income was inevitable. With the associated strategic default, a depleted buyer pool, and huge stockpiles of REO, the bust is likely to have a long tail and many years before normal, income-induced appreciation takes over.

A separate S&P/Case-Shiller index covering 20 major cities also dropped during March, the index's eighth straight monthly decline. 10 dirt-cheap housing markets

Falling nominal prices only tell part of the story. On an inflation-adjusted basis, the declines have been far worse.

Of the 20 cities, only Washington has posted a home-price gain: 4.3% over the past 12 months.

Minneapolis homes lost the most value over that period, with prices falling 10%.

Other big losers include Phoenix (- 8.4%), Chicago (- 7.6%) and Portland, Ore. (- 7.6%)

Don't forget Las Vegas where prices have declined 12% since last March. The nation's best housing bargains keep getting better.

Prices continue to be hammered by foreclosures with high numbers of repossessed homes flooding the market.

Many repossessed properties are in poor condition and sell at a big discount to conventionally sold homes, driving down overall values.

It is demonstrably true that foreclosures are often in very bad shape. Check out this one I saw go through the Las Vegas auction site yesterday.

The hole in the wall to the right is where they went digging for copper pipe. That may also explain why they jackhammered a hole beneath the sink. The cabinets and counters were too old to have any value, so they left them behind.

Despite the evidence of beaten up foreclosures, it isn't their poor condition that is lowering prices, the lender's willingness to liquidate at very low prices is driving prices lower.

Falling home prices have a devastating impact on new home construction, according to Pat Newport, a housing market analyst for IHS Global Insight.

“They are a key reason why builders aren't building new homes, even in the fastest growing states, like Texas,” he said. “Existing homes are selling for so much less, the builders can't compete.”

That is not accurate. Builders are successfully building and selling homes in Las Vegas and obtaining a 25% premium for their efforts. They aren't building in large numbers like before the crash, but they are successfully exploiting the market niche that wants new and is willing to pay for it.

Normally, new-home construction is an important contributor to the economic recovery. Not so this time, according to Mike Larson, an analyst with Weiss Research.

“Housing has been an albatross for the economy as opposed to an engine powering it,” he said.

If residential development had come back as it has in the past, the current recovery would be much stronger. There's be much more robust hiring of construction workers, building materials manufacturers and drivers and deliverymen to bring the products to site.

Newport pointed out that when developers build a new home for $300,000 it adds $300,000 to the economy, as measured by GDP. An existing-home sale just adds 5% or 6% in broker's commission.

“As a component of the GDP,” said Larson, “housing has been out to lunch.”

Unfortunately, it continues to be a drag on the economy. Until lenders capitulate and dispose of their REO, builders will be facing competition, and they will always be unsure of the stability of prices. Under those circumstances, it is problematic to value and acquire property, set up a production run, and believe the houses can be sold on the other side.

The Irvine Company took that risk, and now they have many unsold homes, and they don't know what to do to kick start sales. Given the weak buyer demand, there isn't much they can do. There is a shortage of qualified buyers at price points at which they want to build and sell.

The national numbers are interesting, but the local data is what matters, right?

L.A./O.C. home prices down 8th straight month

May 31st, 2011, 9:38 am by Jon Lansner

Home values in Los Angeles and Orange counties fell for the 8th consecutive month in March, by the math of the S&P/Case-Shiller indexes as Standard & Poor’s analysts state that the national housing market is officially in a “double dip.”

S&P found locally:

• L.A./O.C. prices were down 0.29% from February to March after falling 0.96% the previous month. March’s dip was the smallest decline since September.
• L.A./O.C. prices were down — on a year-to-year basis – 1.66% in March. It was the fourth consecutive year-over-year drop but down from the 2.07% annual rate of decline seen in February.
• L.A./O.C. prices have fallen 4.8% since last July’s recent peak and 38.8% from the historic high of September 2006.
• The first time L.A./O.C. prices hit the current level was October 2003.

Nationally, S&P found:

• U.S. National Home Price Index declined 4.2% in the first quarter after 3.6% dip in fourth quarter to hit new recession low.
• National home prices are back to their mid-2002 levels.
• In March, 19 of 20 large markets covered by S&P/Case-Shiller are down in a year. DC only gainer.
• 18 of 20 markets feel February to March. DC and Seattle, only gainers.
• Minneapolis posted a 10.0% annual decline, the first market to be in double-digit losses March 2010 (Las Vegas, down 12%.)
• S&P’s David Blitzer: “This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. … The rebound in prices seen in 2009 and 2010 was largely due to the first-time home buyers tax credit. Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession. Further, while last year saw signs of an economic recovery, the most recent data do not point to renewed gains.”

Patrick Newport, IHS Global Insight economist:

House prices are dropping at a steady clip nearly everywhere. Unfortunately, given that over a quarter of all mortgages are under water, according to zillow.com, and that 12.3% (or 6.3 million) of homeowners with mortgages were either delinquent or in foreclosure at the end of the first quarter, according to the latest Mortgage Bankers Association’s National Delinquency Survey, further declines in prices are etched in stone. Going forward, our view is that weak demand, foreclosures, and a glut of homes for sale should translate into at least another 5% drop in the Case-Shiller composite indices.

So when will prices stop declining? The price to rent ratio gives some indication that we are within 10% of the bottom, depending on how much markets overshoot to the downside.

Another foreign cash buyer bailing on Irvine

Periodically someone in the astute observations will point to the army of foreign cash buyers who will save prices in Irvine. I have pointed out many such buyers are dumb money buying into markets based on narrative rather than valuation. At least some of these buyers are wise enough to cut their losses when they realize prices are going south.

The owner paid cash two years ago when the market was beginning its bear rally. Based on his asking price, he estimates the house has declined in value rather than appreciated. Since he owns the property free-and-clear, this is not a short-sale price set too low in order to generate interest. He is willing to sell this property for a $72,800 loss after commissions. That wasn't supposed to happen to buyers over the last two years, right?

Irvine House Address … 14 LONGSHORE #77 Irvine, CA 92614

Resale House Price …… $730,000

House Purchase Price … $759,000

House Purchase Date …. 6/26/2009

Net Gain (Loss) ………. ($72,800)

Percent Change ………. -9.6%

Annual Appreciation … -1.9%

Cost of House Ownership

————————————————-

$730,000 ………. Asking Price

$146,000 ………. 20% Down Conventional

4.54% …………… Mortgage Interest Rate

$584,000 ………. 30-Year Mortgage

$127,412 ………. Income Requirement

$2,973 ………. Monthly Mortgage Payment

$633 ………. Property Tax (@1.04%)

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

$152 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$277 ………. Homeowners Association Fees

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

$4,035 ………. Monthly Cash Outlays

-$497 ………. Tax Savings (% of Interest and Property Tax)

-$763 ………. Equity Hidden in Payment (Amortization)

$247 ………. Lost Income to Down Payment (net of taxes)

$111 ………. Maintenance and Replacement Reserves

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

$3,132 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$7,300 ………. Furnishing and Move In @1%

$7,300 ………. Closing Costs @1%

$5,840 ………… Interest Points @1% of Loan

$146,000 ………. Down Payment

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

$166,440 ………. Total Cash Costs

$48,000 ………… Emergency Cash Reserves

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

$214,440 ………. Total Savings Needed

Property Details for 14 LONGSHORE #77 Irvine, CA 92614

——————————————————————————

Beds: 3

Baths: 3

Sq. Ft.: 2614

$279/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1983

Community: 0

County: Orange

MLS#: U11000211

Source: SoCalMLS

Status: Active

——————————————————————————

Timeless elegance and contemporary flair infuses this spacious two-story townhome with a rare ambiance of peace, quiet and privacy. Located just steps from the Village of Woodbridge's picturesque south lake and a large community swimming pool, the custom-caliber residence measures approximately 2,614 square feet and is host to three spacious bedrooms–each with its own balcony–and two and one-half bathrooms, plus an attached two-car garage. Plush custom carpeting and handsome tile flooring accent grand living areas that reveal two hand-crafted fireplace surrounds, airy volume ceilings, vast window expanses that invite natural light, and recessed and track lighting in select locations. Overlooking a large, lushly landscaped atrium, the generously proportioned L-shape kitchen displays granite countertops, light wood cabinetry, deluxe appliances, built-in dining nook, and oversized atrium windows. Purchase price includes all furniture.

Is leaving the furniture behind a sign of bailing?

Timeless elegance and contemporary flair infuses this spacious two-story townhome with a rare ambiance of peace, quiet and privacy.

Somebody has been practicing their flowery writing with superfluous adjectives.