Author Archives: IrvineRenter

History of Fundamental Value

Why do I believe there are market fundamentals? And how do I calculate these numbers? Today we will look at the history of Irvine median home prices, IHB Current Cashflow Value, IHB Fundamental Value from 1975 to present.

31 DEER Crk Irvine, CA 92604 kitchen

Irvine Home Address … 31 DEER Crk Irvine, CA 92604
Resale Home Price …… $699,000

Block Party 11-9-2009

{book1}
No Kool Aid Irvine Housing Blog

If you wake up and don’t want to smile,
If it takes just a little while,
Open your eyes and look at the day,
You’ll see things in a different way.

Don’t stop, thinking about tomorrow,
Don’t stop, it’ll soon be here,
It’ll be, better than before,
Yesterday’s gone, yesterday’s gone.

Why not think about times to come,
And not about the things that you’ve done,
If your life was bad to you,
Just think what tomorrow will do.

Don’t Stop — Fleetwood Mac

Why do we spend so much energy thinking about tomorrow’s house prices? Well, Timing Does Matter.

I have felt an angst about how current cashflow value suggests prices are in a stable range when we know that real fundamental value is significantly lower. Also, Shevy recently challenged me with feedback he has been receiving about our reports. When we are showing people IHB Current Cashflow Value, we have been calling it IHB Fundamental Value. People were upset that perhaps we were taking advantage of interest rate manipulation by the FED to suggest prices were a good value. Shevy was upset with me because he said it is not who we are, and he felt our reports were not accurately reflecting our opinion of Fundamental Value. He was right.

In today’s post, I am going to fix this problem by parsing terms of value, and I will demonstrate the power of these analytical tools by examining the long history of home prices and fundamental value since 1975. Also, I will show two updated pages of our IHB Reports.

{book4}

IHB Value

To better understand the distinctions in value I am making today, I need to clean up and define some terms for you.

Base Payment is current rent (or 31% of income) minus expenses of ownership. Base Payment is the amount of debt service available to repay a loan.

IHB Current Cashflow Value is the value of the property derived from Base Payment applying current interest rates.

IHB Fundamental Value is the value of the property derived from Base Payment applying a long term average of interest rates. The number I am using is 8.99%, the average interest rate since 1971.

For instance, (31 Deer Creek — IHB Fundamental Value Report for Owner Occupant.pdf) if the current rent (IHB reports use comparable leases from the MLS) is $2,850, the Base Payment yields a IHB Current Cashflow Value of $690,000 and IHB Fundamental Value of $516,300. The difference between the value at a 5% interest rate and a 9% interest rate is remarkable.

History of Home Price and Value

The long history of home prices and values is a harmonic dance with the measures tethered in an ever more volatile relationship. It begins in the mid 1970s during a rough time for the economy, but a stable time for the relationship between Median Home Price, IHB Current Cashflow Value and IHB Fundamental Value.

Irvine, California, has endured three real estate bubbles since
1975. The first occurred from 1978 to 1981 when prices skyrocketed in an
inflationary spiral. As usual, lenders were willing to fuel the fire.
Prices stabilized briefly in the mid 80s before taking flight again.
Valuations declined below Current cashflow value and bottomed at
Fundamental Value in the late 90s. The fact that prices bottomed here for so long suggests there is durable market support at this price level.

Besides the statistical accuracy of Fundamental Value, I favor it because
there is concrete reasoning for this level to be so strong — owning is
less expensive than renting on a stable cashflow basis. There is an
identifiable microeconomic event creating the macroeconomic effect we are looking for — bottoming activity.

(There is much information in the notes on the charts below, so examine them carefully.)

In 1978, inflation was running 14% per year. Lets say you borrowed
with an astronomical 60% debt-to-income ratio. That first year, you
would be eating Rice-a-Roni, but since you would be getting a 10% raise
next year, and the year after that, and so on, your debt-to-income
ratio is falling rapidly. By 1982 your income is 50% higher, and your
DTI is now down to a very manageable 30%. This was the inflation
calculus of yesteryear.

This big inflation hurdle explains why so many people think it is
wise to really stretch to get into that first house. Back in 1978, that
stretch meant three to five years of pain because inflation bailed
everyone out. Now, if you stretch like that, you have 20 years or more
of indentured servitude waiting for you. Just ask some Japanese
landowners from their bubble how much fun that is. All those people
working years to clean up the mess a number of foolish bankers made 30
years ago. We are traveling the same road.

The market bottomed after the first bubble from 1985 to 1987 when prices traded below both the Current Cashflow Value and the Fundamental Value. Prices took flight again in the summer of 1987, and they went up about 50% by summer of 1990 when prices became very high relative to cashflow measures. This rally was almost entirely psychological. People feared being priced out. The market bottom again from 1994 to 1999, while prices traded below Current Cashflow Value and at Fundamental Value for several years. Is that our future?

In examining these charts, I noticed something interesting that does have value for today’s market. From 1975 to 1999, market pricing fell below current cashflow value on three different occasions — just as it is doing today. The first time was 1985, and the intersection occurred while pricing was also below fundamental valuation. The time of crossover represented a bend in market direction; in 1985 it went from flat to up.

When prices went cashflow positive again in 1992, the market was heading downward steeply, and once it became less expensive to own, the rate of price decline slowed just as it has in today’s market. The market did not bottom in 1992 because prices were still elevated from fundamentals. Interest rates went up in 1994 bringing cashflow value down again. When cashflow value went positive again later that year, the market bottomed and began creeping higher. No real estate recovery has begun with rapid appreciation.

Prices matched Fundamental Value very closely from 1994 to 1999, then conditions changed, and we inflated The Great Housing Bubble.

Comparison of home prices and value - Irvine California - 1997-2009

The precipitating factor for the housing bubble was the lowering of interest rates to combat the 2000-2001 recession. As interest rates went down, prices went up to match the new financing available. This increase in prices was rapid enough to excite irrational exuberance and already inflated prices went much higher. Lenders enabled the next push higher by eliminating loan qualification standards and peddling Option ARMs far and wide. The rest can be read in our library.

What is interesting for today is the current relationship between prices, Current Cashflow Value and Fundamental Value. We are at a price level that nearly matches Current Cashflow Value of $561,837 but is well elevated from the Fundamental Value of $375,885 — which is the bottoming value I am most recently credited with predicting. The current market pricing intersecting with Cashflow Value is what has
caused prices to fall more slowly or even tick up a bit this summer. As long as the Federal Reserve continues to backstop interest rates and keeps current cashflow values high, prices will hold at current levels pending the timing and quantity of future inventory processing and release.

Will the FED ease off and give us a protracted decline in a very wide “U” shape typical of housing market bottoms? Will inflation force the FED to allow interest rates to go higher? These are titanic forces beyond my ability to comprehend much less foresee. For now, it looks like a protracted “U” shape bottom perhaps at price levels above previous fundamental valuations. I will revise my projections as more data comes in.

Hedging is no fun. It was easier when the market gave unambiguous bearish signals….

IHB Fundamental Value Reports Revisited

With that lengthy preamble, I introduce a new page to our report and a new front cover.

31 Deer Creek -- IHB Fundamental Value Report for Owner Occupant-1

Notice at the bottom in our summary area, we now have the Current Cashflow Value and the IHB Fundamental Value. My concern is that the report is becoming a mess of confusing numbers, but for those with that want to get into the financial details, it is all there including…

31 Deer Creek -- IHB Fundamental Value Report for Owner Occupant-5

We have also added two new sections taking up a full page to show the impact interest rates will have on resale value and a comparison of FHA versus conventional financing as these are the most commonly requested scenarios. People are generally surprised that it is more expensive to own through FHA. Equity is cheaper than debt, so borrowing 96.5% is maximizing your expensive interest costs to minimize your inexpensive opportunity costs.

31 Deer Creek — IHB Fundamental Value Report for Owner Occupant.pdf

31 DEER Crk Irvine, CA 92604 kitchen

Irvine Home Address … 31 DEER Crk Irvine, CA 92604

Resale Home Price … $699,000

Income Requirement ……. $131,598
Downpayment Needed … $139,800

Home Purchase Price … $266,500
Home Purchase Date …. 11/25/1997

Net Gain (Loss) ………. $390,560
Percent Change ………. 162.3%
Annual Appreciation … 13.2%

Mortgage Interest Rate ………. 5.20%
Monthly Mortgage Payment … $3,071
Monthly Cash Outlays ………… $3,780
Monthly Cost of Ownership … $2,810

Property Details for 31 DEER Crk Irvine, CA 92604

Beds 4
Baths 1 full 1 part baths
Size 2,125 sq ft
($329 / sq ft)
Lot Size 5,400 sq ft
Year Built 1976
Days on Market 211
Listing Updated 11/4/2009
MLS Number S570571
Property Type Single Family, Residential
Community El Camino Real
Tract Dc

MODEL PERFECT FAMILY HOME WITH CUSTOM FEATURES AND UPGRADES THROUGHOUT. CUL-DE-SAC LOCATION WITH PRIVACY AND SPACE. NEW PAINT, CROWN MOLDING, WOOD FLOORS, NEW DUAL-PANE WINDOWS, NEW SOLID DOORS, NEW MASTER BATH, BRAND NEW SECOND BATH, NEW FRONT PORCH, NEW GARAGE DOOR AND OPENER. CORIAN KITCHEN COUNTERS AND MAPLE CABINETS. LARGE 15X30 STORAGE AREA ABOVE GARAGE WITH PULL-DOWN LADDER. THIS HOME HAS OVER $150K IN UPGRADES AND IS READY TO MOVE IN TO AND ENJOY!

I hope you find these enhancements to our reports, and I hope the
interesting look at the history of home prices and values gives you
insights into how this will all play out. The collective wisdom of the
IHB community will come to the correct answer. I am in awe of power of
astute observations to widen and deepen the conversation. So where do
you think prices are heading? Are fundamental values still a market
bedrock?

I want to invite you to our IHB Block Party from
6:30-10:00 tonight at JT Schmids at the District.

Block Party 11-9-2009

IHB: Property Valuation Reports

IHB Property Valuation Reports

Over the first few years of writing for the IHB, I outlined a number of property valuation principals based on the property’s rental cashflow. Pulling together all the financial information about a property into a single report allows buyers to make informed purchases and allows sellers to establish a pricing strategy that will allow them to sell for the best possible price.

The IHB Property Valuation Report is six pages of calculations and notes. It sounds intimidating at first, but once you go through the information it contains, you will not want to buy or sell real estate without this report.

Cover Sheet

The report cover sheet contains summary information; it has some pictures, the address, and a few defining characteristics to identify the property. The first piece of summary data is the asking price, and this is followed by the Comparable Value, the Likely Transaction Price, and the IHB Fundamental Value.

When we prepare a Brokers Opinion of Value, we include what we believe to be the most Likely Transaction Price based on recent comparable sales and the trend of the market. This is our best guess at what the final sales price of this property will be.

The IHB Fundamental Value is based on the rental comps with some subjective adjustment based on a property’s desirability. Since market information is always changing, the report is time sensitive, and it is dated for reference.

IHB Owner-Occupant Brokers Opinion of Value.pdf

IHB Owner-Occupant Brokers Opinion of Value 1

Cost of Ownership and Acquisition

The second page of the report is full of of data and calculations. It looks daunting at first, but it is arranged to provide six (6) data points critical to understanding a property purchase:

Monthly Payment

Monthly Cash Outlays

Monthly Cost of Ownership

Monthly Ownership Gain (loss)

Total Cash Costs

Total Savings Needed

The first three items on the list look superficially similar, but they all provide slightly different information. The monthly payment is the check you will write each month to your lender; pretty basic. We assume conventional 30-year mortgages in our calculations because it is the stable financing of long-term homeowners.

The monthly cash outlays is the total amount of all checks a homeowner will need to write each month to be current on payments, including property taxes, insurance, HOA fees and other expenses. This amount is often much larger than most people realize. Some will try to reduce their monthly cash outlays by deferring property taxes to a lump sum payment every six months, but the expense is still there, and this total can eat up a significant portion of someone’s take-home pay. I recommend using an impound account to pay property taxes to avoid the last-minute scramble.

The monthly cost of ownership is a more accurate accounting of the true cost of owning property. There are many items which add to or subtract from the actual cost of ownership such as (1) income tax savings, (2) equity hidden in the payment, (3) lost income on the downpayment money, and (4) maintenance and replacement reserves.

Once the full cost of ownership is properly calculated, this figure can be compared to the cost of a comparable rental. Any cost savings or ownership premium is reflected here. As mentioned previously, blue chip properties often carry an ownership premium whereas undesirable properties generally demonstrate significant positive cashflow.

The final area of concern is having the cash available to close the deal. The downpayment is an easy expense to identify, but it is not the only cash a buyer will need to obtain the property. Buyers have to budget moving and furnishing expenses, closing costs and interest points (if any) to accurately assess their cash needs. Also, it is not a good idea to spend all your cash on a house and leave no emergency reserves. The spreadsheet estimates 6 months net salary based on the financing qualifications for the loan amount. The total cash costs plus emergency reserves equal the total amount of liquid savings needed to close the transaction.

IHB Owner-Occupant Brokers Opinion of Value 2

Estimates of Value

The third page looks at values and sets the stage for negotiation. It is composed of three sections:

Comparative Sales Value and Negotiating Range

Cashflow Value and IHB Fundamental Value

Asking Price and Value Ranges (chart)

In Negotiating for Real Estate, I outlined the negotiation process and described how the top and bottom of the negotiation range is established. The Comp Range is a measure of the highest and lowest prices of recent comparable sales. The Comparable Sales Value is a blend of the mean and the median of comps used to establish value. By blending the two values, it recognizes outliers without putting too much emphasis on them.

In a stable market, properties may trade at a premium or discount to rental parity based on their desirability as owner-occupied housing. The most desirable “blue chip” properties trade at a 10% premium to rental parity, and transitory rental properties trade as low as 25% below rental parity. When the IHB prepares a Brokers Opinion of Value, we subjectively rate the property based on its owner-occupant desirability, and we adjust the cashflow value of based on our market experience. The resulting value is a theoretical basis for a property’s minimum value in the open market. When prices begin to fall, they generally do not stop until all properties in a market reach their fundamental value.

The chart showing asking prices and value ranges displays all the numbers in an intuitive format and shows the relationships between the numbers. For instance, in the chart below, the negotiating range and the comp range is significantly above a property’s current cashflow value. A buyer wanting to pay cashflow value will not obtain this property as market comps reflect a large ownership premium.

Comparable Sales, Comparable Rentals and concept notes

Page four of the report has the raw data on comparable sales and comparable rentals used to generate the report. This important raw data eliminates much confusion and debate over current valuations. The sections on Comparable Sales Value and Likely Transaction Price and Cashflow Value and IHB Fundamental Value generates the most questions and confusion, so a more detailed explanation of these concepts is included.

Report notes

In an effort to explain many of the concepts and calculations in the report, we have included a line-by-line series of notes detailing any assumptions.

Ignorance is …

George Orwell in 1984 wrote, “Ignorance is Strength” to describe how power is maintained by the few through the ignorance of the many. Those who are responsible for helping people buy and sell homes have preyed on the ignorance of buyers for generations to maintain their strength. They see little reason to change.

Thomas Gray in “Ode on a Distant Prospect of Eton College” wrote the line, “Ignorance is Bliss” to illustrate that ignorance to a problem creates happiness—while the ignorance lasts. This bliss may be welcome at times when the problem is intractable, but ignorance that prevents people from taking appropriate action does not lead to bliss, it leads to pain.

Ignorance is Pain. Ignorance to the housing market can lead to foreclosure and bankruptcy. There is nothing noble or romantic about ignorance to the value of real estate. I have no need to exaggerate the importance of getting this decision right.

I used the tools encapsulated in this report to avoid buying during The Great Housing Bubble. I have shared my methodology with you, and now, the IHB set up to work with you to apply these techniques to your personal situation.

Informed Decisions

I want people to make informed decisions. Based on these reports, some people will wait, some people will look elsewhere, and some people will buy anyway. We do not attempt to persuade; most people are self-motivated when it comes to real estate, and when contemplating such a large purchase, pressure just makes the process stressful.

In time the numbers will say “yes.” I will know when the time is right because my analysis will tell me. Now, the same information is available to you.

Thank you again for allowing us the opportunity to present ourselves to you in this manner. We look forward to working with you.

Sincerely,

Larry Roberts

When you are ready to buy or sell a home, we are here to serve you.

sales@idealhomebrokers.com

IHB News 11-7-2009

Is everyone ready for the our block party on Monday night?

3 PRIMAVERA Irvine, CA 92614 inside

Irvine Home Address … 3 PRIMAVERA Irvine, CA 92614
Resale Home Price …… $839,900

{book1}

We sit and we sigh
And nothing gets done
So right, so clued-up
We just get old

And all the while
Been torn asunder

Bloc Party — Compliments

IHB News

I want to invite everyone to our next IHB Block Party from
6:30-10:00 on Monday, November 9, 2009, at JT Schmids at the District.

Block Party 11-9-2009

I have updated our library. You can now find all the analysis posts in one place.

Housing Bubble News

Why the Commercial Real Estate Collapse Could Be a Good Thing

The Big Money – Jonathan Weber – ‎Nov 3, 2009‎

There’s plenty of evidence that the same forces—namely, easy credit—that led to the residential real estate bubble also fed significant overbuilding in …

This Commercial Real Estate Collapse Is Way Different Than The One In The 90s The Business Insider

Has The Housing Bubble Burst Completely? Real Estate News | BiggerPockets.com (blog)

Economic Double Bubble, Toil and Trouble New West

Sorry, Folks: Goldman Sachs Was Not “Secretly” Short Housing During The Bubble …

The Business Insider – ‎Nov 1, 2009‎

In reaction to a study published by two academics in the Wall Street Journal that purported to show there was no housing bubble, Hatzius authored a note …

McClatchy Digs Into Goldman Sachs’ Dealings In Subprime Mortgages NPR

Report: Goldman bet against own products United Press International

Goldman Eyes Tax Credits Fannie Mae Doesn’t Need New York Times

Daily Walk of Shame: The Fed

Motley Fool – Alyce Lomax – ‎Nov 3, 2009‎

Just as Internet and telecom stocks started tanking, the housing bubble began to take off. The housing market mayhem was just as crazy and speculative as …

Fed’s Path to Higher Interest Rates Begins to Take Shape Wall Street Journal

From Patrick.net

Get Serious About Selling Your House: Lower The Price (nytimes.com)

L.A.-area agents holding open mansions (latimes.com)

Fannie Mae offers borrowers rental option instead of foreclosure (news.yahoo.com)

Lobbyists Defeat America: Homedebtor Tax Credit Extension (housingwire.com)

3 PRIMAVERA Irvine, CA 92614 inside

Irvine Home Address … 3 PRIMAVERA Irvine, CA 92614

Resale Home Price … $839,900

Income Requirement ……. $156,351
Downpayment Needed … $167,980

Home Purchase Price … $601,285
Home Purchase Date …. 6/19/2009

Net Gain (Loss) ………. $188,221
Percent Change ………. 39.7%
Annual Appreciation … 39.7%

Monthly Mortgage Payment … $3,648
Monthly Cash Outlays ………… $4,720
Monthly Cost of Ownership … $3,540

Redfin Property Details for 3 PRIMAVERA Irvine, CA 92614

Beds 4
Baths 2 full 1 part baths
Size 2,144 sq ft
($392 / sq ft)
Lot Size 4,012 sq ft
Year Built 1987
Days on Market 3
Listing Updated 10/28/2009
MLS Number S594048
Property Type Single Family, Residential
Community Westpark
Tract Br

Gorgeous home in the highly sought after and desirable neighborhood of Westpark. Spacious, bright, and airy floor plan. One bedroom downstairs. Addition to the house plus architectural details by prominent architect. Gorgeous and luxurious with travertine flooring on first floor, oak hardwood in master bedroom and granite counter tops throughout. Tastefully remodeled, turn-key and ready to move in. All within steps from association pool and tennis courts. University High School district. Low association fee.

Revealed

Today we have a property emerging from shadow inventory. Also, I want to invite everyone to our next IHB Block Party from 6:30-10:00 on Monday, November 9, 2009, at JT Schmids at the District.

13 CHRISTAMON EAST Irvine, CA 92620 front

Irvine Home Address … 13 CHRISTAMON EAST Irvine, CA 92620
Resale Home Price …… $714,800

{book1}

Oh let the sun beat down upon my face
With stars to fill my dream.
I am a traveler of both time and space
To be where I have been.

To sit with elders of a gentle race
This world has seldom seen.
They talk of days for which they sit and wait
When all will be revealed.

Kashmir — Led Zeppelin

All will be revealed in time. It is fun to speculate on where prices will go and when they will get there. I have an educated guess as to where real estate market prices are going, and I stand behind my analysis and predictions.

I have a few guidelines and an understanding of market relationships that has proven successful in the past. I was posting on this blog as either a commenter or a writer since late 2006. I was bearish then, and drawing on the collective wisdom of the bubble blog community, I began expounding a bearish point of view.

It was easy to be bearish in 2006. An analysis based on conventional financing showed the market pricing was ridiculous, and when you connected the dots between ARM resets, the credit crunch, foreclosures and lower prices, it was rational to be bearish. People caught up in the emotional frenzy, and those that counted on the stability of Option ARM financing — which was most people — were bullish. Kool-aid intoxication has an enormous appeal.

It has only been over the last year that signs have been at all ambiguous. The Federal Reserve’s unprecedented manipulation of the mortgage market has certainly created some mixed signals.

Payment affordability in Irvine is actually reasonable. If you look over the hill at Riverside County, payment affordability is very high, but this is accomplished through market manipulation. How do you forecast the impact of this? How long will this go on? This is no longer a market event, it is a political one.

The price drop of the early 90s must have been much more difficult to predict, particularly the 94-97 stage. The market was choppy and signals were mixed during this period much like the next three years will be.

Over time, a fuller picture of the inventory problem will come out. The degree of market overhang will vary by location, and there may be isolated pockets where high pricing at very low volumes is maintained. Will Irvine emerge unscathed? I doubt it.

13 CHRISTAMON EAST Irvine, CA 92620 front

Irvine Home Address … 13 CHRISTAMON EAST Irvine, CA 92620

Resale Home Price … $714,800

Income Requirement ……. $133,063
Downpayment Needed … $142,960

Home Purchase Price … $603,457
Home Purchase Date …. 7/29/2008

Net Gain (Loss) ………. $68,455
Percent Change ………. 18.5%
Annual Appreciation … 12.8%

Monthly Mortgage Payment … $3,105
Monthly Cash Outlays ………… $4,030
Monthly Cost of Ownership … $3,030

Redfin Property Details for 13 CHRISTAMON EAST Irvine, CA 92620

Beds 4
Baths 2 full 1 part baths
Size 2,474 sq ft
($289 / sq ft)
Lot Size 5,661 sq ft
Year Built 1979
Days on Market 4
Listing Updated 11/4/2009
MLS Number S594917
Property Type Single Family, Residential
Community Northwood
Tract Pp

According to the listing agent, this listing is a bank owned (foreclosed) property.

Open floor plan with new carpet and paint throughout the home gives the home a fresh feel. Spacious and airy kitchen with eating area. Formal dining room adjacent to the living room. Fireplace in the family room. Huge bonus room upstairs great for office or play room. Inside Laudry, Large yard great for entertaining. Cul-de-Sac street. Seller will be replacing the roof in the month of November. Great Value on this REO Home. All Bedroom upstairs. House to be tented and new roof to be installed. Offers will be reviewed after work is done.

The property was purchased back in 2003 for less than $500,000. After some refinances and general HELOC abuse, he managed to pull out over $200,000. Then his Option ARM blew up…

Foreclosure Record
Recording Date: 05/05/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)

Foreclosure Record
Recording Date: 02/19/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)

Foreclosure Record
Recording Date: 01/28/2008
Document Type: Notice of Default

Foreclosure Record
Recording Date: 11/09/2007
Document Type: Notice of Default

Foreclosure Record
Recording Date: 07/20/2007
Document Type: Notice of Rescission

Foreclosure Record
Recording Date: 07/09/2007
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)

Foreclosure Record
Recording Date: 04/02/2007
Document Type: Notice of Default

This guy defaulted before I started writing for this blog. He dragged out the process and it finally went back to the bank — over a year ago.

Do you see where shadow inventory comes from? Is this owner the exception or the rule?

Irvine Housing Blog No Kool Aid

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

Have a great weekend,

Irvine Renter

😉

The Market Sleeps

The market is entering a restful period waiting for the arrival of shadow inventory.

8 NEW SEASON Irvine, CA 92602 kitchen

Irvine Home Address … 8 NEW SEASON Irvine, CA 92602
Resale Home Price …… $375,000

Block Party 11-9-2009

{book1}

Near the village the peaceful village
The lion sleeps tonight
Near the village the quiet village
The lion sleeps tonight

Hush my darling don’t fear my darling
The lion sleeps tonight
Hush my darling don’t fear my darling
The lion sleeps tonight

The Lion Sleeps Tonight — The Tokens

The market is entering its winter hibernation. Transaction volumes are falling as part of the usual seasonal pattern; however, I suspect this winter will be a little different than the norm. We are entering the winter on below normal volume despite the apparent increase off last years record lows. There are a number of buyers who did not complete their purchases during the main buying season, so we will have some left-over demand from the summer to keep up volumes over the winter.

The circumstances today will persist indefinitely or until new supply shocks the system:

limited supply

unsatisfied demand

very low interest rates

high payment affordability

inflated prices

below normal volumes

huge overhang of foreclosure supply

high unemployment that is getting worse

The first four conditions are very bullish, but the last four are not. I am of the opinion that the negatives outweigh the positives and prices will continue to fall. Being bullish is not always a good thing….

BTW, I was emailed a press release from our Attorney General, Edmund G. Brown. Apparently he is quite worried about ARM resets,

“Homeowners with Pay Option ARMs are sitting on ticking time bombs that
the lending industry has the power to defuse,” Brown said. “Unless
these banks and loan servicers act quickly, hundreds of thousands of
mortgages will reset across the state, creating a new wave of
foreclosures.”

8 NEW SEASON Irvine, CA 92602 kitchen

Irvine Home Address … 8 NEW SEASON Irvine, CA 92602

Resale Home Price … $375,000

Income Requirement ……. $69,808
Downpayment Needed … $75,000

Home Purchase Price … $530,500
Home Purchase Date …. 3/20/2006

Net Gain (Loss) ………. $(178,000)
Percent Change ………. -29.3%
Annual Appreciation … -8.3%

Monthly Mortgage Payment … $1,629
Monthly Cash Outlays ………… $2,160
Monthly Cost of Ownership … $1,630

Redfin Property Details for 8 NEW SEASON Irvine, CA 92602

Beds 2
Baths 2 full 1 part baths
Size 1,187 sq ft
($316 / sq ft)
Lot Size n/a
Year Built 2005
Days on Market 2
Listing Updated 10/28/2009
MLS Number S594319
Property Type Condominium, Residential
Community Northwood
Tract Tamr

According to the listing agent, this listing may be a pre-foreclosure or short sale.

YOU WILL LOVE this sophisticated, split-level townhome, from the CUSTOM flagstone entry, stairs, and patio, to the INVITING interior with GORGEOUS marble flooring, crown molding, plantation shutters, recessed lighting, custom in-ceiling speakers for home-theatre surround-sound, stainless steel appliances, in-home laundry, attached 2-car garage, AND TWO master suites. NO ONE ABOVE OR BELOW….does NOT BACK to I-5 or Culver Drive. Just a block from Lower Peters Canyon Park, and steps to Tamarisk Community Pool, Spa, tennis courts, & BBQ. Close to Tustin Marketplace! ALL THREE Tustin schools are CALIFORNIA DISTINGUISHED SCHOOLS, scoring very high on API. This is your chance to live in a very DESIREABLE, NEWER neighborhood, built in 2005-2006. You MUST see this beautiful home!

WHY did the agent USE random CAPITALIZATION?

This was not the best speculative effort of 2006 from the lender’s perspective, but the buyer used 100% financing and even managed to get some HELOC money despite buying very near the peak.

The property was purchased on 3/20/2006 for $530,500. The owner used a $424,300 first mortgage, a $106,050 HELOC and a $150 downpayment (it technically was not 100% financing).

On 12/5/2006 he refinanced the first mortgage for $464,000 and took out another HELOC for $78,000.

On 4/5/2007 he managed to increase the HELOC to $116,000.

Total property debt is $580,000.

Total mortgage equity withdrawal is $49,500.

Not a bad take considering how bad the timing was. Do you think this owner is sitting in his rental plotting his return to HELOC riches?