Three weeks ago in the open thread of 6-28-2008, I suggested that maybe oil would top and the market would bottom. It is too early to tell if this weeks market action saw both of those occurences, but both of these markets have certainly put in a short-term top and bottom. Only time will tell if it lasts longer. Calculated Risk had an interesting post this week on the economy. In it, he suggests that the difference between a moderate recession and a severe recession is going to be the price of oil. If the price of oil drops, inflation will subside, the FED can keep interest rates lower for longer, and the recession will not be as severe. I think he is right. I also think this is what the stock market is betting on. As long as oil does not rally to new highs and stay at elevated levels, the stock market will probably rally — this isn’t investment advice, just an observation… BTW, I also believe the bullish action of the last few days in financials and homebuilders was short covering and both of these groups will make fresh lows — but I could easily be wrong…
There is no particular theme for the music today, I was just in the mood for Paul McCartney.
What are your observations of the housing market? Are there any interesting properties you are watching? Tell us what you see.
Filtering out the bad that holds us back… Take hold of what is true to your hunger A hunger that will not go away Plans for tomorrow, they will remain
I have a parable for you today:
A weary traveler was on a
quest to satisfy his deepest longings and desires. He traveled from
place to place, but no matter where he went or what he tried, nothing
would quite satisfy him. One day, exhausted from his search, he
happened to sit beneath a magical wish-fulfilling tree. He thought to
himself, “Perhaps it is not so good to desire so much. It has not
brought me any lasting satisfaction, but I am tired, and I could use
something to eat and drink…” No sooner had he thought this when
delicious food and drink appeared for him to enjoy. “Wow,” he
exclaimed, “this is fantastic, but it would be nice to have someone to
share this bounty with.” As soon as the thought occurred, a companion
appeared to enjoy the feast. His desires replete for the moment, he
thought to himself, “This is very strange. Everywhere I have traveled I
have wanted and found no satisfaction, and here at this tree, I can
have anything I desire. I wonder if there is something magic in this
tree? I wonder if it is inhabited by some spirit? I wonder if it is a
goblin that will consume me?” And, as soon he had this thought, a goblin
appeared, and consumed him.
HELOCs enabled people to satisfy
their hunger for vacations, consumer goods and the like and live well
beyond their means. This went on for an astonishingly long time. Many
of these people became accustomed to living off the extra “income”
coming from their houses. Like the goblin in the parable, the magic
wish-fulfilling house consumed them, and now they have lost their
house, their credit and themselves.
Elegantly upgraded two level condo featuring hard wood flooring
throughout the first level, Custom paint, Crown molding throughout,
Designer Carpet, Plantation Shutters throughout! Sparkling kitchen with
crisp white cabinetry, Stainless Steel appliances and sit-up bar.
Spacious Master Suite features dual closets w/mirrored wardrobe. Built
in Tech Center with storage. 2nd Bedroom upgraded with Raised paneling.
Enjoy the beautiful Quail Hill area with Award Winning Schools, Resort
styles pools, Parks, Tennis and Private Fitness Center. Convenient to
shopping and the Spectrum Entertainment Center!
I can understand the desire to add colorful adjectives to a description, but this one goes overboard. What exactly is “crisp white cabinetry?”
This is another sad story of HELOC abuse:
The property was purchased for $343,000 on 6/27/2003 with a $68,750 downpayment and a $274,250 first mortgage with a 4.37% interest rate. I bet she wishes she still had that loan.
On 8/23/2004 she opened a HELOC for $100,000
On 8/3/2005 she opened a HELOC for $150,000 and probably paid off the first one.
On 1/11/2006 she refinances for $462,000 with an Option ARM with a 1% teaser rate. Brilliant move…
On 1/11/2006 she opens a $60,000 HELOC
On 5/4/2006 she takes out a stand-alone second for $130,000 and likely paid off the HELOC.
Total property debt $592,000 plus any negative amortization.
Total Mortgage Equity Withdrawal of $317,750 including her downpayment. Not a bad take for a small condo.
If this property sells for its asking price (which isn’t likely given its WTF price) the total loss for the lender will be $136,100 after a 6% commission. 123Loan LLC and Clarion Mortgage Capital are the bagholders.
I must admit, it is hard to feel too sad for her plight given the amount of consumer spending she was able to enjoy from her magic wish-fulfilling condo, but in the end, fulfilling those desires has cost her the place she called home, and that is sad.
.
The journey begins with curiosity And envolves into soul-felt questions On the stones that we walk And choose to make our path Sometimes never knowing Other times knowing too much
Filtering out the bad that holds us back… Take hold of what is true to your hunger A hunger that will not go away Plans for tomorrow, they will remain
Won’t you join me on the perennial quest Reaching into the dark, retrieving light Search for answers on the perennial quest Where dreams are followed, and time is a test
No time for mental crutches The maker has moved on I will take it raw and be on my way
Those that stood beside me I’m glad you understand Behind these written words I share the simple plan To hang on to the way that we feel
From rivers of sorrow To oceans deep with hope I have travelled them Now, there is no turning back The limit, the sky I ask my questions Why? What today? When tomorrow?
Filtering out the bad that holds us back… Take hold of what is true to your hunger A hunger that will not go away Plans for tomorrow, they will remain Perennial Quest — Death
Whenever I hear the Beatles song, Penny Lane, I think of Irvine. An idyllic little world of perfectly manicured landscapes, and perfect little houses beneath the blue suburban skies. I have written before about the English neighborhood in Northwood that is a particular favorite of mine. If there is a “Penny Lane” environment in Irvine, you will find it here. Today’s featured property is located in this little enclave, and it now the private Hell of Washington Mutual.
Absolutely stunning! Cottage-style exterior with a contemporary,
upgraded interior. Hardwood flooring throughout both the upstairs and
the downstairs, stainless steel kitchen with 5-burner range and granite
counters. Two master suites with upgraded bathrooms and walk-in closets
plus a loft perfect for a home media room or home office. Outside the
Dutch-style front door is a huge and private wrap-around yard freshly
landscaped. No homes looking down or into this location and no common
walls (this is a completely detached home) to worry about noisy
neighbors. Serene rolling hills view from the patio and from the
bedroom windows. Security system and a large, 2-car attached and
completely finished garage.
Absolutely stunning… how stupid the lenders were during the bubble.
Today we get both HELOC abuse and 100% financing. The property was purchased a little after the peak for peak pricing. The owner used 100% financing, and in early 2007 they managed to get a HELOC for $69,000 over the value of their second mortgage. They made $69,000 for simply signing some papers. They put no money into the transaction and took out $69,000 six months later. I have to say, if lenders are this stupid, they are getting what they deserve. Washington Mutual made all three loans. For the record, if this property sells for its asking price, and if a 6% commission is paid, the total loss for Washington Mutual will be $244,940.
I have yet to move my banking from Washington Mutual. It is too much of a bother, and I am under the insured limit on all my accounts. I do hope they don’t go under, but if they were this stupid with their underwriting, they will reap what they sow.
.
In Penny Lane there is a barber showing photographs Of every head he’s had the pleasure to have known, And all the people that come and go Stop and say hello.
On the corner is a banker with a motorcar, The little children laugh at him behind his back. And the banker never wears a mac In the pouring rain, very strange.
Penny Lane is in my ears and in my eyes. There beneath the blue suburban skies I sit, and meanwhile back
In Penny Lane there is a fireman with an hourglass And in his pocket is a portrait of the Queen. He likes to keep his fire engine clean, It’s a clean machine.
Penny Lane is in my ears and in my eyes. A four of fish and finger pies In summer, meanwhile back
Behind the shelter in the middle of the roundabout A pretty nurse is selling poppies from a tray And though she feels as if she’s in a play She is anyway.
In Penny Lane the barber shaves another customer, We see the banker sitting waiting for a trim. And then the fireman rushes in From the pouring rain, very strange.
Penny Lane is in my ears and in my eyes. There beneath the blue suburban skies I sit, and meanwhile back. Penny Lane is in my ears and in my eyes. There beneath the blue suburban skies, Penny Lane.
Each new low sale or asking price lowers neighborhood values. As I discussed in Financing in a Declining Market, everything within a 1 mile radius of a low asking price becomes very difficult to finance. All of the short sales we have been seeing advertised do nothing for the would-be seller, as they rarely result in a sale; however, they do serve to obliterate the neighborhood comps as these low asking prices sit on the market. In fact, I would say that attempted short sales are doing more damage to the market right now than foreclosures because the foreclosures simply disappear into the black hole of lender holdings whereas short sales stand out in the market signaling a new lower pricing level. Today’s featured property is a nearly new property in Northwood II asking $240/SF. It is an astonishingly low price in today’s market.
There are no pictures on the MLS, but the pictures below are of the identical property at 39 Secret Garden offered by a neighbor for $240,800 more (WTF?) Let’s just say this neighbor can’t be very happy about this short sale.
Elegant&luxurious 4 bedroom detached town home,very bright
interior,spacious living space(2,492 sq.ft)built in2004,$120,000
upgraded option when purchased, This is a short sale property!
Is this the bottom for pricing in this neighborhood? I doubt it. It isn’t very likely we will see the bottom of resale pricing anywhere in 2008. The bulk of the problem with foreclosures is ahead of us, not behind us. No matter how low prices get in 2008, they will go lower. Seeing this price levels in 2008 is rather surprising. It foretells of a significant downside overshoot of fundamentals, in my opinion, but we will see.
Many of the buyers in this neighborhood used 20% downpayments. I heard rumor that it was a requirement of the builder. Not to worry, they promptly withdrew their equity with a HELOC, so they will not lose any money. In fact, if they fully tapped their $250,000 HELOC with Washington Mutual, they stand to make money on the deal. If the HELOC is fully tapped, the total mortgage debt is $901,200. If this property sells for its asking price, the total loss to the lenders will be $338,140. Washington Mutual will eat $250,000 and America’s Wholesale Lender will lose the rest.
As for the rest of the neighborhood, the financing environment just got a lot more challenging. I doubt the sellers at 26 Shadowplay will be getting any tearful send offs by the neighbors…
.
To the centre of the city where all roads meet, waiting for you To the depths of the ocean where all hopes sank, searching for you Moving through the silence without motion, waiting for you In a room with a window in the corner I found truth
In the shadowplay acting out your own death, knowing no more As the assassins all grouped in four lines, dancing on the floor And with cold steel, odour on their bodies made a move to connect I could only stare in disbelief as the crowds all left
I did everything, everything I wanted to I let them use you for their own ends To the centre of the city in the night, waiting for you To the centre of the city in the night, waiting for you
Do you remember the predictions post from January 1st. Well, we saw our first major bank failure this week as IndyMac bit the dust. With all of the Alt-A crap on their balance sheet, this shouldn’t be terribly surprising. The only thing that surprises me is the fact that most of the Alt-A loans have not reset yet. The toxic waste they own is going to get much more toxic.
The toxic waste is even starting to poison Freddie Mac and Fannie Mae. The GSEs will be saved, and it is the mechanizm for getting the American Taxpayer on the hook for the housing debacle. I can’t say I am too surprised about that one either…
The journey begins with curiosity
In Penny Lane there is a barber showing photographs
To the centre of the city where all roads meet, waiting for you