This is an open invitation to representatives of the Irvine Company to come to the IHB. We want you to be part of our community.
We know you guys read the blog and the forums, and some of you even participate without revealing who you are. It is time the elephant quit hiding in the room. Come out and join us.
Your customers want to know you. They want to know what you are doing and why you are doing it. It affects your customers; it affects us.
We are your customers. We buy your houses, rent your apartments and shop at your shopping centers. When you set out to create a great community, you did it for us. We know what we like and what we don’t like, and here we talk about it.
This is an opportunity for you. Come to the blog and our forums and participate. Identify yourselves as who you are. Don’t try to disguise that you may have a bias or you will eventually get caught and it will be worse. If you speak the truth with authenticity, people will accept that you may be biased, but your information is good and truthful. People are here for good information.
We talk about what you do, and we speculate because we have no other sources of information. If you are not participating in our conversations, or if we do not know who you are, you cannot correct bad information when it gets presented. It is one thing to be damned for who you are, but it is another to be damned for who you are not. Talk to us. Give us good information, and we will be a happier community.
We also provide you a great mechanism for getting feedback directly from your customers and your potential customers. You can go pay for market data and studies, or you could ask questions directly to your customers for free in our forums. People will respond. Sometimes we get so bored that we start silly threads that are the online version of chit chat. If you give us something to talk about, it will be welcomed.
I am sincere in this invitation. No tricks. No agenda. Just an invitation for you to come join our community and make it better.
I also invite each member of our community to be open to anyone from The Irvine Company who identifies themselves on the blog or the forums. Call the BS, but embrace the truth.
If you want to contact us. I can be reached at irvinerenter@irvinehousingblog.com and Zovall can be reached at zovall@irvinehousingblog.com. We look forward to hearing from you.
Shake your money maker Like somebody boutta pay you Don’t worry about them haters Keep your nose up in the air You know I got it If you want it, come get it Stand next to this money
Real estate is a money maker. Don’t listen to those haters at the IHB. BUY NOW!!!
In the past couple of weeks, we have had a couple of new posters
from beach communities remind us of how much kool aid is still in the
market. The Irvine bulls have been quiet for a while now, and although
the used house salesmen are calling the bottom, we all know prices have
not bottomed yet. As long as interest rates are artifically low,
unemployment is very high, and default rates continue to set new
records, there isn’t much chance of prices stabilizing.
The last bastions of kool aid denial are the beach communities.
Perhaps prices there will defy the downward pull of nearby communities.
Perhaps not. Personally, I think prices there are going to crash very, very hard. We will see.
There is a legitimate financial reason to buy a home: it saves you money versus renting. I have written often about rental parity and waiting to buy when it is cheaper to own than to rent. We are seeing this in neighborhoods all around Orange County, largely due to the artificial affordability in the form of 5% interest rates orchestrated by the Federal Reserve.
However, the primary financial reason people in California buy homes has nothing to do with rental parity or saving money; it is all about speculating on appreciation. Perhaps the collapse of real estate prices and the resulting foreclosures and bankruptcies will change people’s attitudes. With the strength of the kool aid in California, it will take a long and painful collapse to change people’s minds. (For anyone who needs a refresher on the difference between cashflow investment and speculation on appreciation, please read Speculation or Investment?)
STUNNINGLY BEAUTIFUL home: reflects a bit of Hawaiian Style with a
relaxed elegance. Rich hardwood flooring, custom painting tastefully
done, a mixture of plantation shutters and vertical blinds, crown
molding throughout. LARGE GUEST SUITE ON FIRST FLOOR, suitable as a
second master bedroom. Every bedroom has its own full bath. SUMPTOUS
MASTER BEDROOM AND BATH. Double sink vanities with limestone counters ,
polished stone flooring, travertine shower stall with custom tile.
Media niche in master bedroom. UPSTAIRS MEDIA CENTER AND SECOND FAMILY
ROOM. Custom built-in cabinet center holds a large flat panel TV.
EXTRAORDINARY BACK YARD: AN OUTDOOR KITCHEN: large covered grill,
double burners, storage, icemaker, FRIG. supports two umbrellas, a bit
of BBQ Heaven. TWO KITCHENS: INSIDE AND OUTSIDE. Across from one of
Woodbury’s beautiful private parks with pools and a tot lot.
Stunning!!!
Intermittent CAPS LOCK
What? Two kitchens, and neither of them is gourmet?
These are the kind of owners I feel bad for. They purchased right at the peak on 6/21/2006 for $1,545,000. They used a $1,235,700 first mortgage and a $309,300 downpayment. They did not use conventional financing, and I imagine they cannot afford the payment on anything other than the ARM they used. Now that they cannot refinance and the market has gone south, they are being compelled to sell at a loss. If this property sells for its current asking price — 22% off — and if a 6% commission is paid, the total loss on the property will be $417,940. Their $309,300 downpayment is lost, and their credit will be trashed.
That sucks.
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
Back in February of this year, I wrote a post titled The Financial Implications of Short-Sales and Foreclosures. It links to a post written by an attorney on what happens to those who cannot or will not sustain their mortgage payments. To paraphrase the attorney, when people are in these circumstances, they break down into one of four groups:
Those who still owe the bank much money;
Those who have a big income tax bill with no cash to pay it;
Those who owe the bank much money and have a big tax bill
Those who owe the bank nothing and who do not have a tax bill.
Everyone wants to be the last case. Many end up as the third case.
Very few research the implications in advance. Since most people do not have any other options, it really does not matter because it does nothing to change their decision.
Even fewer take any initiative to do the right thing. Legally, it is the duty of the debtor and taxpayer to determine if they have any liability and pay it. Realistically, everyone will “keep their head down” and hope they do not get any letters from the bank or the IRS. No letter, no liability. The amount of tax cheating is enormous.
Most of the properties I profile would be the third case from above that owe the bank and the IRS because they were recourse loan refinances, and many were not primary residences. How many people do you think are going to pay either the bank or the IRS? Not many, IMO.
I know one person who walked away from a 100% financing deal on an investment property in Corona. His tax advisor told him not to pay taxes on the shortfall because he listed it as him primary residence on the loan application. That is one hard-working lie. He used it to qualify for an interest rate he did not deserve (owner-occupied housing gets a better rate), and he is using the same lie to dodge a tax bill. He isn’t the only one.
So what do we do about this problem as a society? If we hold all these debtors liable to the banks and to the IRS, we keep them in a financial hole for a very long time, or we force them into bankruptcy. The societal effect will be diminished economic growth because so much disposable income will be diverted from consumer spending to debt service. However, if we just let these people slide, the moral hazard will be huge. If people see no consequences come from this behavior, they will repeat it. The societal effect will be endless Ponzi Schemes and periodic economic near-depressions as the financing collapses.
No matter what we do, the winners and losers will be determined by caprice. Those who owe either the lender or the IRS and get away without paying will be unjustly rewarded. Those who do the right thing will be punished. There will be no pattern of reward or punishment for behavior good or bad. It is a dysfunctional system, and nobody knows how to fix it.
What is your solution? Let ’em slide? Crush ’em with debt?
!!Attention All Buyers and Agents!! This is the home that you have been
waiting for. Where else are you going to find a home in IRVINE that is
in a gated community, that has 4 bedrooms, 2.5 bathrooms, 2,700 sq ft
with a 2 car attached garage, on a Cul-D-Sac for this price. RIGHT
HERE!!! This great Ashford Place home will not be on the market long so
HURRY and get one of the best deal in Orange County.
Multiple exclamation points, ALL CAPS, HURRY — all standard realtorspeak is present.
This property was purchased on 12/14/1999 for $404,000. The owners used a $322,850 first mortgage, a $80,700 second mortgage, and a $450 downpayment.
On 7/3/2001 they refinanced the second mortgage for $170,000.
On 9/14/2004 they opened a $280,000 HELOC.
Total property debt is $772,580 assuming they maxed out the HELOC.
Total mortgage equity withdrawal is $369,030 including their $450 downpayment.
If this property sells for its current asking price, the lender will recoup all of their money and make $26,420 after a 6% commission. I don’t think anyone believes that is going to happen. Check out the listing price history:
Date
Event
Price
Jul 06, 2009
Price Changed
$850,000
Jul 06, 2009
Listed
$580,000
Mar 20, 2009
Sold
$640,000
Dec 14, 1999
Sold
$404,000
They listed this property for $580,000, then changed their mind and listed it for $850,000. Perhaps this was a transposition error, or perhaps it was a Freudian Slip where the lender put down what the property is really worth…
We have a political system where the two parties have carved up the state into Gerrymandered districts that ensures the political parties maintain their numbers in our Legislature. Each party has learned to pander to special interest groups that turn out to keep their representatives in power. These legislators respond by paying off their special interests with state revenues making the special interest group even more powerful. Therefore, we have a deeply entrenched system of special interest payoffs from our State Government.
During times of economic expansion, money flows into state coffers at an increasing rate; however, the special interest competition for this money means it is spent even before it arrives. Since no special interest group is willing to accept a cut in its allocation, during times of economic distress when tax revenues fall, the entire State ceases to function, and politicians are faced with some very daunting decisions.
Right now, all over California, representatives are meeting with their special interest groups and explaining to them that they must accept a big cut to balance the budget. Nobody wants to hear it. However, since we cannot borrow our way out of this problem, the cuts are going to happen, it is just a matter of who gets cut and by how much. Some California legislators may lose their jobs over this.
Of course, none of this would be a problem if we had a stable housing market. The economic expansion we experienced since the millennium was caused almost entirely by HELOC spending. Since with was ephemeral, and since this spending is not coming back, we have to go back to a level of government services the populace can actually afford.
Exceptional home is Impeccable and highly customized home sits at the
end of a cul-de-sac on approx 10,500 flat entertainer s lot! Every
attention to detail and quality has been addressed by the owners.
Making your way through the unique custom lead glass door through the
impressive entry and Foyer with hand painted walls you will find plenty
of room to entertain your guests. Formal dining room with French doors
that lead to a waterfall. Gourmet oversized kitchen with a Butler’s
pantry and a large Granite countertop island. Tile imported from Italy,
6 burner stove, and stainless steel appliances. French doors lead to
private backyard with 2 Waterfalls, Built-in BBQ with refrigerator.
Lots of room for entertaining. Master Bedroom has French doors leading
to the backyard by the waterfalls. Watch TV from your sunken Jacuzzi
tub in the Master Bedroom, separate shower with Marble. Recessed
lighting and crown molding throughout.
Everyone in Irvine is an entertainer — at least when they are not working 80 hours a week to pay their oversized mortgages.
The owner of today’s featured property must have entertained a bit because she did manage to spend her home.
The property was purchased for $716,500 on 3/19/2003. The owner used a $500,000 first mortgage, a $144,400 second mortgage, and a $72,100 downpayment.
On 7/28/2004 she refinanced with a $750,000 first mortgage.
On 7/11/2005 she refinanced with a $850,000 first mortgage.
On 8/23/2006 she took out a stand-alone second for $91,000.
On 11/16/2007 she refinanced with a $952,000 first mortgage.
Total property debt is $952,000.
Total mortgage equity withdrawal is $307,600.
If this property sells for its current asking price, the lender stands to lose $59,094 after a 6% commission. Not a big loss considering how stupid this loan was.
HELOC abuse is endlessly entertaining, isn’t it?
The California economy is enduring the loss of all the HELOC spending from spendthrifts like today’s featured property owner. This money is not coming back any time soon. No wonder our State is in such dire financial straits.
There’re secrets in this life That I can’t hide Somewhere in this darkness There’s a light that I can’t find Maybe it’s too far away… Or maybe I’m just blind…
Is there a light at the end of this tunnel? The green shoots meme is dying, the housing market continues to show weakness, and more supply is coming. Maybe the end is too far away, or maybe I just can’t see it.
We are navigating uncharted waters in our housing market. Never before has there been such efforts to manipulate prices by our Federal Government and the Federal Reserve. The artificially low interest rates have caused debt to be far more affordable, and it has allowed homebuyers to bid higher than they otherwise could with conventional loan terms. The result of this manipulation is that many properties outside of Irvine have already reached rental parity. Does that make it a good time to buy? I don’t think so.
Last month, we saw a sudden spike in interest rates caused by a selloff in 10-year Treasury Notes. There are a number of reasons why this happened, but one of the main causes was the belief among investors that they could find superior returns elsewhere. This will be a big problem with house prices going forward. Let me explain why.
Interest rates are low because Treasury Bills and Notes are the only safe haven during a time of economic contraction. When there are no competing investment opportunities that provide better yields, investors will flock to the safest investment that pays them something. It is better to make very little than it is to lose money. However, the moment the economy starts to recover, there will be many investment opportunities that will pay better than the 3% investors are accepting in 10-year Treasury Notes. The flow of money out of Treasuries and into competing investments will drive up yields on Treasuries and in the process drive up interest rates on home mortgages.
There is no way to prevent this flow of money out of Treasuries and into better yielding opportunities. Even if the Federal Reserve where to buy the Treasuries itself by printing money, the resulting increase in money supply would cause inflation which would cause investors to dump long-term Treasuries as well. In short, once the economy improves, interest rates will go up, and house prices will continue to go down.
Many people who are underwater on their mortgages or who view prices as being “depressed” are waiting for the economy to improve with the assumption that an improved economy will result in improved house prices. It will not work that way. An improving economy will result in higher interest rates and continued pressure on house prices.
We are witnessing the deflation of a massive, worldwide credit bubble. The effect has been most dramatic in real estate because much of the money flow during the credit bubble went into real estate. Everyone is waiting for the return of all this leverage in the hope that the bubble will reinflate. This leverage is not coming back; nor should it.
There is a meme floating around in the financial media that lending is a confidence game, and if lenders would just start lending again, asset prices would stabilize and everything would be back to normal. This is nonsense. Lending is not a confidence game. Lenders are actually quite confident that they will not be repaid if they loan money to people who cannot service the debt and pay back the principal. No amount of “confidence” can change the basic math. Insolvent borrowers do not repay debt, and loaning them money to sustain a Ponzi Scheme does not work; in fact, it just creates larger losses later. In case you didn’t notice, later is now.
ENJOY RESORT LIKE LIVING IN THIS SPACIOUS CONDO LOCATED INSIDE
PRESTIGIOUS & PRIVATE GATED NORTHPARK. FEATURES AMONG OTHERS ARE
LARGE LIVING ROOM WITH A MEDIA NICHE, FORMAL DINING AREA, BRIGHT
KITCHEN WITH CERAMIC TILE COUNTER TOPS, OAK CABINETRY & QUALITY
BUILT-IN APPLIANCES, BALCONY TO RELAX & BBQ, MASTER BEDROOM WITH
WALK-IN CLOSET & DUAL VANITIES, UPSTAIRS LAUNDRY, DECORATOR’S
PAINT, 2 CAR GARAGE WITH EXTRA STORAGE, CLOSE TO COMMUNITY POOL &
SPA, CONDO IS 3RD BLDG ON THE LEFT.
ALL CAPS
DECORATOR’S
PAINT? Yikes!
This property was purchased on 11/6/2003 for $379,000. The owner used a $279,000 first mortgage and a $100,000 downpayment. This owner did not refinance or HELOC his investment (he lives somewhere else). Despite a 2003 purchase date, he is offering it for $40,000 less than he paid, and he is hoping to get out with a little of his downpayment. I think this is a wise move, but few in his circumstances are doing the same. Maybe a little IHB publicity will help him out.
STUNNINGLY BEAUTIFUL home: reflects a bit of Hawaiian Style with a
Of course, none of this would be a problem if we had a stable housing market. The economic expansion we experienced since the millennium was caused almost entirely by 
