In the past nine years, almost 108,000 more people moved out of Orange County than moved in. Where will the demand for housing come from?

Irvine Home Address … 35 COLUMBUS Irvine, CA 92620

Resale Home Price …… $649,000

All my bags are packed I'm ready to go

I'm standin' here outside your door

I hate to wake you up to say goodbye

But the dawn is breakin' it's early morn

The taxi's waitin' he's blowin' his horn

Already I'm so lonesome I could die

So kiss me and smile for me

Tell me that you'll wait for me

Hold me like you'll never let me go

Cause I'm leavin' on a jet plane

Don't know when I'll be back again

Oh babe, I hate to go

John Denver — Leaving on a Jet Plane

The California Ponzi scheme economy collapsed as the Great Housing Bubble deflated. I have documented over a thousand cases of HELOC abuse here in Irvine, California. Most economists underestimate the economic stimulus of millions of homeowners being given hundreds of thousands of dollars in free money by our banks. Now that this money is gone, Orange County home prices too high for incomes or rents, and Orange County home sales are falling with prices to follow.

These economic woes are prompting families to leave the state. With new household formation near historic lows as we get off the Ponzi juice, there is little tangible demand for housing, and prospects for this demand increasing appear weak.

People keep moving out of O.C.

December 27th, 2010, 3:20 am — posted by Jan Norman

In the past nine years, almost 108,000 more people have moved out of Orange County than moved in, according to newly released data from the state Department of Finance.

The out-migration was higher in 2005 through 2007, which would coincide with the soaring price of Orange County housing. Between 2009 and 2010, 6,475 residents moved out, but the county’s population grew 28,190 because 12,223 people from foreign countries moved in, the Dept. of Finance said.

Since 2000, Orange County’s population has increased 335,882, the Dept. of Finance estimates. That growth comes from residents of other nations, legal and “unauthorized” as the department labels them.

Loren Kaye, president of the California Foundation for Commerce and Education, does the calculations for the whole state in this article for Fox & Hounds Daily. California gained 350,000 residents from 2009 to 2010, he reports but 72,484 more people moved out of state than moved in from other parts of the United States. The gain was from more births than deaths of current residents and foreign immigrants.

The Dept. of Finance based its estimates on driver license address changes, birth and death records, tax return data, Medicare and Medi-Cal enrollment, immigration reports, elementary school enrollments and number of people living in group quarters.

Bill Watkins, director of the Center for Economic Research and Forecasting at California Lutheran University, has a more complete analysis of current Californians moving elsewhere at newgeography.com. Among his negative points:

• The projected $28 billion state budget deficit with shortfalls in excess of $20 billion a year anticipated by the California Legislative Analyst’s Office
• Unemployment that is 30% higher than the national average (12.4% in November)
• California’s credit rating is among the lowest in the U.S.
• California’s loss of 1.3 million manufacturing jobs
• California’s 41st ranking in creating scientific, technical, engineering and math jobs

“In just a couple of decades, California has gone from being America’s economic start, a destination for ambitious people from around the world and abundant with opportunity, to home of some of America’s most depressed communities,” Watkins wrote.

And what's worse is the supposed prosperity of the last couple of decades was built on a foundation of Ponzi borrowing on inflated home prices.

“California isn’t broken,” replied State Treasurer Bill Lockyer and Stephen Levy, director of the Center for Continuing Study of the California Economy, in this Los Angeles Times opinion piece. Among their arguments:

• California’s state government general fund expenditures are $2,246 per person less than 10 years ago.
• The state’s number of businesses per capita “held steady” from 2000 to 2009.
• The state’s share of domestic film industry jobs is 45% in 2010, compared to 44% in 2000.
• Businesses moving to other states accounted for “just 1.7% of California’s job losses” from 1992 to 2006, according to the Public Policy Institute of California. (It did not include data for 2007 to 2010.)
• California’s gross state product grew 27.2% from 1999 to 2009, higher than the U.S. as a whole.

“California no doubt faces serious challenges. But our obstacles are not insurmountable,” Lockyer and Levy wrote. “California has the most diversified economy in the country. It has the most diverse population and the youngest.”

With all these people moving out, who is going to be buying Orange County homes?

Irvine Ponzi of the day

I have my own indicator of when the housing market will recover: the day I can't find a property for sale with HELOC abuse. I have contended for years now that mortgage equity withdrawal and peak buying has created far more debt than borrowers can comfortably pay without continued Ponzi borrowing. Until the Ponzis are wiped out, they will implode a few at a time and continue to put distressed properties on the market.

Most distressed Ponzis are waiting for house prices to come roaring back so they can resume their unconstrained borrowing and profligate spending. That isn't going to happen. The weight of distressed inventory is going to keep the market from appreciating for quite some time.

• Today's featured property was purchased for $494,000 on 12/8/2003. The owner used a $444.600 first mortgage and a $49,400 down payment.
• On 12/23/2004 she refinanced with a $455,000 first mortgage and obtained a $73,312 HELOC.
• On 12/28/2006 she obtained a $572,000 Option ARM with a 2.25% teaser rate.
• On 6/26/2007 she obtained a $123,500 HELOC.
• Total property debt is $695,500 plus negative amortization.
• Total mortgage equity withdrawal is $250,900.
• Total squatting time 11 months so far.

Foreclosure Record

Recording Date: 08/30/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/27/2010

Document Type: Notice of Default

Irvine Home Address … 35 COLUMBUS Irvine, CA 92620

Resale Home Price … $649,000

Home Purchase Price … $494,000

Home Purchase Date …. 12/8/2003

Net Gain (Loss) ………. $116,060

Percent Change ………. 23.5%

Annual Appreciation … 3.8%

Cost of Ownership

————————————————-

$649,000 ………. Asking Price

$129,800 ………. 20% Down Conventional

5.07% …………… Mortgage Interest Rate

$519,200 ………. 30-Year Mortgage

$135,455 ………. Income Requirement

$2,809 ………. Monthly Mortgage Payment

$562 ………. Property Tax

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

$108 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$3,480 ………. Monthly Cash Outlays

-$482 ………. Tax Savings (% of Interest and Property Tax)

-$616 ………. Equity Hidden in Payment

$257 ………. Lost Income to Down Payment (net of taxes)

$81 ………. Maintenance and Replacement Reserves

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

$2,720 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,490 ………. Furnishing and Move In @1%

$6,490 ………. Closing Costs @1%

$5,192 ………… Interest Points @1% of Loan

$129,800 ………. Down Payment

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

$147,972 ………. Total Cash Costs

$41,700 ………… Emergency Cash Reserves

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

$189,672 ………. Total Savings Needed

Property Details for 35 COLUMBUS Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 1 full 1 part baths

Home size: 1,507 sq ft

($431 / sq ft)

Lot Size: 5,000 sq ft

Year Built: 1978

Days on Market: 249

Listing Updated: 40310

MLS Number: P731953

Property Type: Single Family, Residential

Community: Westpark

Tract: Othr

——————————————————————————

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

Short sale. Sale subject to bank approval.

Attorneys have mapped out the longest route from default to vacating the property. Many delinquent borrowers are following this path.

Irvine Home Address … 2 SUNPEAK Irvine, CA 92603

Resale Home Price …… $3,075,000

Tailored suits, chauffered cars

Fine hotels and big cigars

Up for grabs, up for a price

Where the red hot girls keep on dancing through the night

The claim is on you

The sights are on me

So what do you do

That's guaranteed

Hey little girl, you want it all

The furs, the diamonds, the painting on the wall

Come on, come on, love me for the money

Come on, come on, listen to the money talk

AC/DC — Money Talks

A popular method gaming the system for maximum benefit is (1) to quit paying the mortgage, (2) exhaust every procedural remedy made available, and (3) squat in a house for as long as possible. I can see the appeal of no house payment, and I don't know that I wouldn't be gaming the system if I were in those circumstances, but there is doomsday feeling of foreboding and certainty of unpleasant outcome that would make such living untenable for me. It's one thing to rent and feel less rooted as a function of your mobility, but it is horrifying to know your accommodations are temporary and you will be forced to leave at some random time with short notice.

People do decide to stay on enlist the help of specialists, often attorneys, to help them game the system to maximum advantage. From an actual letter written from an attorney to a trustee regarding a property in Las Vegas, Nevada:

Our law firm has been retained by Squatting Debtor to rescind the foreclosure of the property at I8 Your Neighborhood, Anywhere, US.

The names and addresses have been omitted, but the remainder is verbatim text.

As you know, one of the purposes of the required statement in the notice of default is to afford the debtor an opportunity to cure the default and obtain reinstatement of the obligation within three months after the notice of default was recorded as provided in §107.087 of the Nevada Revised Statutes. The subsections of this statute require the listing of a physical address of the property NRS § 107.087 (1)(b)(1). If there is no physical address and the Notices are not property posted and mailed to that address, then the foreclosure is void for lack of due process. Here the homeowner had no notice that his own home was being foreclosed and there is no physical address listed on the recorded Notice of Default, filed April 29, 2009.

April 29th, 2009? This letter is concerning a foreclosure sale in December 2010. If the owner was three months delinquent on his mortgage in April 2009, he hadn't made a payment that year. He hadn't made a mortgage paying since late 2008, perhaps earlier if the bank danced for a while before issuing the notice of default.

Are we to believe that a guy who has not made a mortgage payment in two years is surprised by a foreclosure? This squatter was somehow unaware of his predicament? Has this attorney managed to find an error in the process so egregious that this squatting-former-owner should continue to stay in the property with no payments indefinitely?

In the state of Nevada, the beneficiary or the trustee must comply with certain statutory requirements prior to exercising the power of sale under the deed of trust. According to NRS 107.080 (2)(c)., the power of sale must not be exercised until the beneficiary, the successor in interest of the beneficiary or the trustee first executes and causes to be recorded in the office of the recorder of the county wherein the trust property, or some part thereof, is situated a notice of the breach and of the election to sell or cause to be sold the property to satisfy the obligation.

Due to the error in the Notice of Default, we expect NDSC to rescind the foreclosure sale of this property.

A missing address on a sheet of paper at the recorders office? Really? This guy gets a free house for that? If someone does get a house that way, the cost of serving documents and processing paperwork for routine real estate transactions will go up as every step is double and triple checked for accuracy and completeness.

We understand a third party bought at the auction.

Yes, which means the sale has happened, and there isn't a prayer of getting the house back for the occupants. Foreclosure is the end of the line. It's the river card in a long game of payment poker. Any motions or maneuvers need to be completed before the sale. Bankruptcy attorneys are noted for attending foreclosure auctions with last-minute documents to stop that day's sale. Once the sale happens, it's over. The house is sold, and any old claims to title are wiped clean.

However, if NDSC is not successful in obtaining a rescission of the sale with the cooperation of the 3rd party, then a quiet title action will be in order and we will sue for wrongful foreclosure and wrongful eviction—if it comes to that.

We will be seeking compensatory damages and attorney fees in the action. It is in your best interests to settle this matter by paying the 3rd Party purchaser at the auction the amount of his bid (as provided in your agreement) and rescind the sale.

Time is of the Essence as my client is currently being threatened with forced eviction. If we must bring a claim, it will be brought within the short statutorily allowed period and your expenses will increase exponentially as our reasonable attorney fees are $350 hourly plus $100 hourly for rushed work If our clients are actually evicted,

Threatening with loss of money. If they tie up this property with some spurious quiet title action, it is the attorneys and debtors who should be prepared to pay the expenses of the victorious defendant. Fighting foreclosure is a good way to give the last few dollars you have to an attorney and gain nothing. This will do nothing to slow the wheels of justice through the eviction process.

this would be very bad news in the presses: Homeowner Evicted While Making Trial Payments under HAMP and Trustee Thumbs Nose at Nevada's Foreclosure Statute's Requirements.

Those would be great headlines on the IHB! Does someone, somewhere fear headlines like those so much that they would give this family a free house?

Again, it is in your best interests to rectify this immediately!

Remember, this letter went to the trustee for the sale, not the new owner. So put yourself in the Trustee's shoes and ask yourself what you would do next.

First, you ask yourself if Mr. Badass attorney would go through with his threat to bring quiet title action on the property. The client is a squatter, so they don't have the resources to pay the attorney's bills. Therefore, if Mr. Badass wants to get paid, he must win the case and get awarded his fees by the judge. This will cost Mr. Badass about $25,000 in attorney time to take on a hopeless case with limited prospects for fee recovery.

If I'm the trustee, I don't think a quiet title suit is forthcoming.

Perhaps there is an emotional release in letters like this one. The hopeless debtor facing eviction from what used to be their house needs to feel like someone is protecting them and looking out for them. This emotionally charged letter has the bravado of a knight riding to the rescue of this family in distress. Its all theater, of course, because the guy has no chance to prevail. The debtor bought a badass attorney to cover his back as the he slinks away in shame and squirms into a rental.

The debtor is paying his last dollars to an attorney for emotional support. Is that less expensive than a therapist?

Has it really gone up in value more than 50% over the last 3.5 years?

Today's featured property was purchased for $1,800,000 on 6/15/2007. The owner used a $1,000,000 first mortgage and a $800,000 down payment. No HELOC abuse today, just delusion on a grand scale.

Irvine Home Address … 2 SUNPEAK Irvine, CA 92603

Resale Home Price … $3,075,000

Home Purchase Price … $1,800,000

Home Purchase Date …. 6/15/2007

Net Gain (Loss) ………. $1,090,500

Percent Change ………. 60.6%

Annual Appreciation … 15.0%

Cost of Ownership

————————————————-

$3,075,000 ………. Asking Price

$615,000 ………. 20% Down Conventional

5.07% …………… Mortgage Interest Rate

$2,460,000 ………. 30-Year Mortgage

$641,793 ………. Income Requirement

$13,311 ………. Monthly Mortgage Payment

$2665 ………. Property Tax

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

$513 ………. Homeowners Insurance

$237 ………. Homeowners Association Fees

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

$16,726 ………. Monthly Cash Outlays

-$1929 ………. Tax Savings (% of Interest and Property Tax)

-$2918 ………. Equity Hidden in Payment

$1220 ………. Lost Income to Down Payment (net of taxes)

$384 ………. Maintenance and Replacement Reserves

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

$13,483 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$30,750 ………. Furnishing and Move In @1%

$30,750 ………. Closing Costs @1%

$24,600 ………… Interest Points @1% of Loan

$615,000 ………. Down Payment

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

$701,100 ………. Total Cash Costs

$206,600 ………… Emergency Cash Reserves

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

$907,700 ………. Total Savings Needed

Property Details for 2 SUNPEAK Irvine, CA 92603

——————————————————————————

Beds: 5

Baths: 3 full 1 part baths

Home size: 6,029 sq ft

($510 / sq ft)

Lot Size: 11,267 sq ft

Year Built: 2010

Days on Market: 82

Listing Updated: 40513

MLS Number: S634114

Property Type: Single Family, Residential

Community: Turtle Rock

Tract: Ch

——————————————————————————

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Designed by the renowned architect John Montierth specializing in design for the hospitality industry all over the world? Do I want my custom home designed by a restaurant designer?

the LOWEST COST PER FOOT custom home w/No Mello Roos! It's a bargain, right?

Most economists agree that households will continue to deleverage. Bank of America believes over $1,000,000,000 will come from strategic default.

Irvine Home Address … 65 GRANDVIEW Irvine, CA 92603

Resale Home Price …… $2,320,000

In the town where I was born,

Lived a man who sailed to sea,

And he told us of his life,

In the land of submarines,

So we sailed on to the sun,

Till we found the sea green,

And we lived beneath the waves,

In our yellow submarine,

Beatles — Yellow Submarine

Households likely to deleverage debt with underwater mortgage defaults: Report

by JON PRIOR — Monday, December 20th, 2010, 11:02 am

Bank of America Merrill Lynch analysts said the most likely way households will deleverage roughly $1 trillion in excess debt is through the default of more underwater mortgages.

Home prices in the Standard & Poor's/Case-Shiller 20-city index have dropped 28.6% from the peak in the summer of 2006. This has led to more than 10.8 million homes, or 22.5% of the entire U.S. market in negative equity as of the third quarter, according to the analytics firm CoreLogic. And while that percentage is down from the 50 basis points from the previous quarter, negative equity remains the primary factor holding back a recovery in the housing market and the overall recovery.

Analysts said the collapse in home prices means the asset value supporting Americans' debt is no longer there.

Home values were an illusion created by excessive debt. Americans were offered free money for nothing more than owning a house. This made houses very desirable which prompted more buying and drove prices higher. As prices moved higher, banks were willing to give out more and more free money in order to entice Americans to buy more houses to get more free money.

It was a Ponzi scheme.

The collapse in values is simply a reversion to what prices would have been if we hadn't inflated a massive housing bubble.

“It’s the holidays and talk of deleveraging needs would appear to be sacrilegious or even un-American,” BofAML analysts said. “Most of the deleveraging will come through default of underwater mortgages, although less consumption likely will be part of the equation as well.“

But consumers are not alone. Excess debt is also an issue in municipalities and sovereign nations. Recent increases to interest rates will put more need for the U.S. to begin implement fiscal constraint.

“At a minimum, the vast amounts of excess debt permeating the developed economies will act as a drag on growth for some time,” analysts said.

Of course there will be less consumption. We are no longer giving out hundreds of thousands of dollars of free money to Ponzis. Until we start doing that again, consumer spending will be down. Hopefully, we won't be giving Ponzis billions in tax subsidies and bailouts in the next cycle, but you never know.

An example of necessary deleveraging

Someone bought today's featured property with a great deal of debt. They have so much debt that they can't sell the house for more than the debt owed, and they can't rent it out for enough to cover the payments. This is a money pit. The original buyer is getting nothing out of the property. It doesn't appear as if this property was ever lived in. It looks like a purely speculative play on appreciation without regard to carrying costs.

This leverage has no support. The borrower isn't going to bleed cash every month to support an investment with no current value very long. A borrowers tolerance for negative cashflow is the strength of their kool aid intoxication about prices coming back. What loan owners have is an option position — no current value but potential future value if prices rise — hope and denial are what they cling to.

If prices stay down for a long period of time, distressed borrowers are bleeding cash every month for a reward that never comes. Their option position never gets back in-the-money.

A financial position taken by the herd — many loan owners are underwater clinging to the hope of rising prices — is self defeating. With so many anxious sellers waiting for some magic price point where they get out whole, the herd creates a buffer of overhead supply waiting to be absorbed at higher price points.

Some of the sellers can't wait because the distress is acute. Many of the borrowers who completed HAMP loan modifications still had 65% or greater back-end debt-to-income ratios after the modification. The debt distress will be worse for some than for others, but it will continue to shake out supply until the excess debt — the debt not supportable by incomes — is removed from the system.

I last profiled this property back when the asking price was $2,800,000.

Many nice tract-home neighborhoods became elevated to the $1,000,000 club by borrowed money. People used to sell their homes and port $500,000 in equity to buy a $1,100,000 home. During the housing bubble, they would borrow $2,000,000 with an Option ARM and push prices of homes up to the ridiculous prices we see today. The problem with this is simple: the debt buyers cannot be replaced with equity buyers. Some neighborhoods may survive, but the more debt a neighborhood has, the more it will fall — when lenders finally get around to pushing out the squatters.

• Today's featured property was purchased near the peak on 10/16/2006 for $3,518,000. The owners used a $2,814,167 first mortgage, a $351,771 HELOC, and a $352,062 down payment. Think about that — these people only put about $350K of their own money in a $3.5M purchase.
• On 12/8/2006 they obtained a HELOC for $356,078 to get access to their full down payment.
• On 6/14/2007 they obtained a HELOC for $742,400.
• Total property debt is $3,556,567
• Total squatting time is at least 11 months.

Foreclosure Record

Recording Date: 04/06/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 09/24/2009

Document Type: Notice of Default

Nice back yard….

Irvine Home Address … 65 GRANDVIEW Irvine, CA 92603

Resale Home Price … $2,320,000

Home Purchase Price … $3,518,000

Home Purchase Date …. 10/16/2005

Net Gain (Loss) ………. $(1,337,200)

Percent Change ………. -38.0%

Annual Appreciation … -7.9%

Cost of Ownership

————————————————-

$2,320,000 ………. Asking Price

$464,000 ………. 20% Down Conventional

4.87% …………… Mortgage Interest Rate

$1,856,000 ………. 30-Year Mortgage

$473,294 ………. Income Requirement

$9,816 ………. Monthly Mortgage Payment

$2011 ………. Property Tax

$583 ………. Special Taxes and Levies (Mello Roos)

$387 ………. Homeowners Insurance

$410 ………. Homeowners Association Fees

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

$13,207 ………. Monthly Cash Outlays

-$1699 ………. Tax Savings (% of Interest and Property Tax)

-$2284 ………. Equity Hidden in Payment

$869 ………. Lost Income to Down Payment (net of taxes)

$290 ………. Maintenance and Replacement Reserves

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

$10,382 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$23,200 ………. Furnishing and Move In @1%

$23,200 ………. Closing Costs @1%

$18,560 ………… Interest Points @1% of Loan

$464,000 ………. Down Payment

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

$528,960 ………. Total Cash Costs

$159,100 ………… Emergency Cash Reserves

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

$688,060 ………. Total Savings Needed

Property Details for 65 GRANDVIEW Irvine, CA 92603

——————————————————————————

Beds: 6

Baths: 4 full 3 part baths

Home size: 5,600 sq ft

($414 / sq ft)

Lot Size: 12,683 sq ft

Year Built: 2006

Days on Market: 6

Listing Updated: 40525

MLS Number: P762643

Property Type: Single Family, Residential

Community: Turtle Ridge

Tract: Lacm

——————————————————————————

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

Million $$ Views Luxury Estate – La Cima Model 1X on Single Loaded Street w Ocean/City Lights & Breathtaking Views * Welcome Entry Courtyard adjoints an Open Air Dining Loggia w Fireplace * 6 BR 6.5 BA + Hm Theater + Bonus Rm 4 Car Garage * Main Floor Master Suite * Complete Saparate Living Suite The Casita is a Private Oasis * 2nd Story Private Access to a spacious Living Rm w Open Kitchen * Super Launddry Rm * Lot of Custom upgrades

Launddry? Saparate?

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 2006.

Have a great weekend and a joyous holiday,

Irvine Renter