The decline in house prices is pickup up speed. The market will find a bottom when sellers holding out for higher prices capitulate and sell in despair.
House prices are falling again—and the decline is accelerating.
Today’s big housing numbers comes from the Case-Shiller home price indexes. The indexes, which measure how prices have changed over the previous three months, show prices falling in every major metropolitan area (except, weirdly, Detroit). The 20-city average declined 3.3 percent from a year ago, and 1.1 percent from the previous three-month average.
This is the seventh successive month of widespread price declines.
The housing recovery began to stall last spring, after the government’s home-buyer tax credit expired. The three-month moving average of the Case-Shiller 20-city index showed that gains in home pricing slowing to a crawl in early summer and actually reversing in July and August. By September, it was clear that home prices were going into a serious decline.
The November numbers (which are actually the three-month average of September, October and November) showed a 1 percent decline over the previous month. Prices kept dropping by 1 percent in December and January.
February’s data shows that the decline is actually accelerating a bit.
This is the opposite of a recovery—it’s a crash building steam.
We’ve become almost passé about home price declines. A 3.3 percent year-over-year decline doesn’t seem all that shocking anymore. But prior to the recent housing crash, such a steep decline was unheard of.
I predicted that prices would fall between 2% and 5% this year. The consensus estimates are finally catching up to me. My detractors have inaccurately labled me as bearish. I do believe prices are going to fall, particularly locally, but I am only bearish when and where conditions suggest real estate is overpriced and likely to fall in value.
I am very bullish on Las Vegas real estate, despite the fact prices will continue to fall there. When cashflow becomes very positive, as it has in Las Vegas, the benefits of ownership outweigh the short-term loss in value. With low interest rates, even if prices fall further, it is entirely possible that the cost of ownership may actually go up when interest rates rise.
In Las Vegas, real estate is hated by everyone who owns. Prices are at 15-year lows and still falling. Most owners are underwater on their mortgages, and being a recourse state, they can't just walk away from their obligations.
Everyone in Las Vegas who owns wishes they didn't. The market is experiencing widespread despair. These are the best possible conditions to acquire good cashflow properties with a potential for future rebound.
Neither housing nor employment show any sign of recovery. Nearly four years after the collapse of Countrywide, the nation’s biggest subprime lender, housing is still going down.
How far will it go? A. Gary Shilling says it will take another 20% drop in housing prices to bring them in line with their historical trend. Housing usually rises with the economy. Not more. Not less. To get back on track with the economy now, house prices have to go down.
What about over-shoot? Yes, that’s a risk too. Bubble markets don’t tend to go back to “normal” levels right away. Instead, they tend to go below normal.
Whether or not Mr. Shilling is correct with regards to Orange County, the harsh decline in prices with downside overshoot has certainly occurred in Las Vegas and a number of other subprime markets.
At first, homeowners think it is just a temporary break in an upward trend. They hold on, hoping to catch another move to the upside. Then, they gradually resign themselves to a long slump, but still believe that “you can’t go wrong on real estate, not over the long term.” Then, housing prices continue to sink. More homeowners give up. Some sell. Some default. More foreclosures depress prices even further.
The double dip is causing many real estate bulls to finally see their error in judgment. Bulls waited for three long years of serious declines to reach the illusory bottom of 2009. Now that prices are falling and gaining downside momentum, loan owners who less than a year ago thought they might be back above water soon are now faced with the reality of several more years waiting for a recovery that may never come.
The peak in foreclosures is not expected until March of 2012. When it comes – five years after the crisis began – most homeowners will be ready to throw in the towel. “Housing may go up in the long run,” they’ll say to each other, “but this downturn could last longer than I do.”
Prices are likely to drop below their historical trend. Homeowners will tell their children: “Don’t bother to buy a house. Rent. Housing is a losing proposition. It never goes up.” Then, with housing prices perhaps 25% to 40% lower than they are today, the market will have found its bottom.
When? Housing markets move slowly. It could happen by 2015, maybe 2020.
2003 rollback
Many people who bought in 2002 and 2003 believed they were buying in a normal market. In reality, they were buying into a housing bubble. Jon Lansner at the OC Register began talking about the housing bubble in 2002. Despite his early call, he was correct in his analysis. House prices were too high in 2002 and 2003 relative to incomes and historic norms. He can't be faulted for failing to anticipate just how stupid borrowers and lenders would become.
Few in real estate were seriously concerned about prices being too high in 2003. Few believed it was possible for prices to go down. Obviously, the bulls were wrong — not just a little wrong, but completely and totally wrong on all counts.
The owners of today's featured property bought on 12/23/2003, and they are paying the price for buying into the housing bubble frenzy. After nearly seven and one half years of ownership, they are going to sell for a loss.
They were conservative in their mortgage management, not that they are being rewarded for their prudence. They borrowed most of the money using a $188,000 first mortgage, a $35,250 second mortgage, and a $11,750 down payment. Despite the insanity which followed, they did not add to their mortgage, and if they get their current asking price, this will not be a short sale.
These owners did not find the pot of gold in California real estate, but through prudent management of their mortgage, they will escape with a small loss and their credit still intact.
EQUITY SELLER. This beautiful 1 bedroom, 1 bath condo is located in picturesque Lakepines. This home features high smooth ceilings, warm paint and carpet colors, walk in closet, private washer/dryer hookups and a spacious fenced patio. Association amenities include 2 pools, a spa and tennis court. Great square footage and floor plan. No one above or below. No Mello Roos.
Most stories on the Irvine Company are planted in the media as advertisements disguised as news. Today we learn how to properly read and interpret these stories.
When the National Association of realtors issues a press release, they always spin the data like a Pollyanna. Their rosy projections are intended to cajole buyers into action whether or not that action is good for the buyer. Their actions are completely self serving.
realtors have bullshit and spin down to a formula. Barry Ritholtz, a blogger who is as disdainful of the NAr as I am, has decoded the pattern of self-serving nonsense realtors serve up with every press release.
Pardon our belated look at Existing Home Sales (but we’ve been busy).
For this post, we will look at our favorite chart — Existing Home Sales (NSA) — and also teach you how to read a National Association of Realtors news release.
Our favorite chart, courtesy of Calculated Risk, is below. It shows the Existing Home Sales BEFORE they get seasonably adjusted. The pattern you see is the home sales pattern — bottoming in December January, and peaking in June/July/August. Note the ongoing weakness — until the tax credit kicked in. Now, in 2011, we see more signs of weakness.
As to the National Association of Realtors, there is a small secret to reading their news release: You need to ignore every other paragraph. It typically looks like this:
Data data data Data data data Data data data Data data data Data data data Data data data Data data data Data data data Data data data Data data data Data data data
Data data data Data data data Data data data Data data data Data data data Data data data Data data data Data data data Data data data Data data data Data data data
The secret is to focus on the data, and ignore the spin.
For example:
Sales of existing-home sales rose in March, continuing an uneven recovery that began after sales bottomed last July, according to the National Association of Realtors.
Lawrence Yun, NAR chief economist, expects the improving sales pattern to continue. “Existing-home sales have risen in six of the past eight months, so we’re clearly on a recovery path,” he said. “With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain – primarily because some buyers are finding it too difficult to obtain a mortgage. For those fortunate enough to qualify for financing, monthly mortgage payments as a percent of income have been at record lows.”
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 3.7 percent to a seasonally adjusted annual rate of 5.10 million in March from an upwardly revised 4.92 million in February, but are 6.3 percent below the 5.44 million pace in March 2010. Sales were at elevated levels from March through June of 2010 in response to the home buyer tax credit.
NAR’s housing affordability index shows the typical monthly mortgage principal and interest payment for the purchase of a median-priced existing home is only 13 percent of gross household income, the lowest since records began in 1970.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.84 percent in March, down from 4.95 percent in February; the rate was 4.97 percent in March 2010. Data from Freddie Mac and Fannie Mae show requirements to obtain conventional mortgages have been tightened, with the average credit score rising to about 760 in the current market from nearly 720 in 2007; for FHA loans the average credit score is around 700, up from just over 630 in 2007.
“Although home sales are coming back without a federal stimulus, sales would be notably stronger if mortgage lending would return to the normal, safe standards that were in place a decade ago – before the loose lending practices that created the unprecedented boom and bust cycle,” Yun explained.
OK, I cheated — I moved a paragraph to make this funnier. But the idea is that you look at the data and ignore whatever it is they are spinning about it.
Barry is right on, as usual. With his preamble, let's take a detailed look at how the Irvine Company operates.
The specifics of data, spin and bullshit
For greater clarity, we need to define some terms before we analyze an Irvine Company press release.
Data: Factual statements that present statistics or some measurable phenomenon. Presenting data is ostensibly the reason for a real estate press release. However, the real intention is to spin the data or otherwise manipulate the interpretation.
Spin: The offered interpretation of data that forwards the agenda of the organization issuing the press release. Spin is usually a plausible interpretation that is most often taken out of context, knowingly, by the authors.
Bullshit: An interpretation of data that is either not factual, or the data itself is not factual, or an interpretation that is not plausible based on the data. Bullshit is an obvious lie an organization passes off to a gullible public in hopes that nobody catches on.
The color coding of text above will be used to help decipher the nonsense that follows.
Veteran Southern California real estate analyst G.U. Krueger adds his commentary on the housing market to this blog in a spot we call “Thursday Morning Quarterback.” Here’s his latest installment. …
The Irvine Company sold 1,350 new homes in its North Irvine communities since January 2010.
The truth is from January 2010 to February 2011, the Irvine Company closed on 642 home sales, not the 1,350 number they keep repeating.
Despite some signs of slowing, the projects are still running between 4 and 8 sales per month.
Four to eight sales per month? That is terrible. Nice spin sandwiched between some negative data points.
If sales don't pick up, they will either slow production, or they will start offering incentives to close deals. I doubt they would lower prices, particularly after creating their own bottom by selling under market properties in 2009. They will maintain prices by providing necessary incentives until that doesn't work any more.
How come, they are doing so well, when new home builders elsewhere are faltering?
Here's our Top 10 list why that is:
10. Irvine is an economic powerhouse in its own right.In 2009 its businesses employed 209,000 people. Its top three industries were Manufacturing (14%); Professional, Scientific, and Technical Services (12%); and Health Care (8%). These are well paying jobs.
9. Also, Orange County jobs are growing again since March 2010 and it is the above mentioned industries, which are partially driving the recovery. Ultimately it is all about good jobs.
8. Key socio-economic indicators are stellar.The State’s Academic Performance Index averages a whopping 931 for Irvine, one of the best city performances in California.And its violent crime rate is low. Both indicators add to the value proposition of the community.
The facts presented above are very good reasons to live in Irvine. Notice the author had to punch-up the facts with spin.
7. About 50% of Irvine’s employees live within a 20-mile radius, a captive audience which spread the “water cooler buzz” about the Northern Irvine community throughout the OC.
The fact at the beginning of the sentence is meaningless, and the bullshit that follows it is silly.
6. Irvine is an ethnically diverse city – 50% Caucasian, 39% Asian, and 9% Latinos.There is your secret weapon, and the Developer leveraged it with deliberation. Check out the Irvine Company’s website, which touts its new homes in English, Korean, Chinese, and Spanish. Smart.
That point was a mixture of fact, spin, and ass-kissing bullshit.
5. New housing supply is tight in Irvineas one would expect in a “closer in” location with great jobs. Essentially, no new homes were started in 3 yearsand what new home competition there is currently, consists mostly of product based on the design palette of the housing bubble.
The reason new home supply is tight in Irvine is because the Irvine Company is a monopoly that controls the production of all new homes in Irvine. It has nothing to do with location. Also, there is no new home competition in Irvine, and there is very little competition in Orange County. Rancho Mission Viejo is waiting to see what the Irvine Company does, and the small builders are not active on infill sites because prices are not stable and sales volumes are low. The Irvine Company is proud of their new floorplans, but competitors are not building bubble era designs.
BTW, I find it interesting that they acknowledged a housing bubble in their press release.
4. Existing home inventory is tight.In March 2011, the resale inventory was 4.5 months in Irvineand overall vacancies were just 5.9% of its housing stock, well below the State’s 8.1% and the Nation’s 11.4%. Shadow supply is under control. Foreclosures and defaults are rising, but they are relatively low and the rise is likely to be temporary. The delinquency pipeline is dropping. For example, in September 2010, 30-day delinquencies for non-agency mortgages were down 30% in Irvine to 113 from 159 a year earlier.
It's difficult to sort through the facts, spin and bullshit above. First, the existing inventory is not tight. The months on the market continues to rise as inventory is growing faster than sales. I like how he spun the data with qualifying words.
The manipulation of the vacancy data is spin that borders on bullshit. Vacancies are elevated over historic norms everywhere because we overbuilt homes during the bubble. We have a glut of empty homes in most communities. Many of these homes are held in shadow inventory which is not under control. He notes foreclosures and defaults are rising, but they he lapses into total bullshit about it being low and temporary.
At least the press release finishes well.
3. The new homes in North Irvine are in a nice and established master plan with parks, retail, and other amenities. No mere promise here, but a realized vision. The developer kept tight control of the neighborhood. There was no contagion effect from busted new home tract sites.
This is another strength of the Irvine Company. They do deliver a top-notch product.
2. Extensive consumer research compelled the Developer to insist on fresh, new housing product. Their design palette trades formal dining areas for kitchen-linked ‘great rooms’. They also create more indoor-outdoor living spaces, taking advantage of one of the best climates in the world. This design “turn” became real because of the ueber-element of money. The developer was in total financial and design control and hired builders best suited for the new paradigm.
The Irvine Company has done a nice job with the new floorplans. Although, the idea that floorplans can be fresh or innovative is on par with the idea that finance can innovate. Floorplans change over time, but they don't advance. The good floorplans of the 70s are just as useful and desirable today as they were when they were the innovation of their time.
1. The ultimate reason of success in the northern Irvine new home projects, however, is “the pride, respect, and dignity of everybody involved”, according to Larry Webb from The New Home Company. Often public builders are just engineering homes instead of designing them and, worse, they are obsessed with the financial wizardry that keeps Wall Street happy. What was done in North Irvine was a much needed refocus on building and designing homes to meet the desires of changing consumer tastes, kind of a provocation these days in the building industry?
Focusing on the details of the floorplan is a great thing. It becomes much easier to do when you are selling a small fraction of what you used to sell.
The spinmeisters at the Irvine Company are going to have to raise their game. The standard of bullshit they were able to pass off in the past will not longer get past the scrutiny of me and the IHB. It's obvious the Orange County Register, who is desperate for advertising money, is not going to tell the truth.
Despite better-than-expected new home sales in March, a Wells Fargo economist said builders will continue to struggle until the foreclosure wave begins to recede.
The Census Bureau reported new home sales increased 11% in March. But they remain at “an extremely depressed level,” said Wells economist Anika Khan. Builders dropped inventories of new homes to 183,000 units, the lowest level since 1967. Khan attributed the monthly increase from slow sales in February to harsh weather that month.
Khan points out builders are pressured by the ever-widening price gap between new homes and foreclosures. The median price of an existing home is $159,600, roughly 25% below new home prices of about $213,800. In California, median prices for traditional home sales are 88% higher than previously foreclosed homes, according to the California Association of Realtors.
I see this price gap in Las Vegas in particular. It is so inexpensive to own a home in Las Vegas that many people are opting to buy new rather than save 25% and buy a resale simply because they can easily afford the new home. New homes sell for near rental parity there even though you can find a comparable product less than 5 years old selling for 25% less. Unfortunately, as resale prices continue to decline, this gap is getting stretched, and the substitution effect is taking sales from the builders. Those circumstances won't change in Las Vegas any time soon.
“The large price gap will continue to make it difficult for builders to compete,” Khan said. “Unfortunately, the gap will likely remain until the pace of foreclosures moderates.”
In a separate report released earlier in April, Khan said builders have “little incentive” to ramp-up building activity with foreclosures and short sales taking up such a large percentage of the market.
Housing starts rose 7.2% in March to a pace of 549,000 units. Khan projects starts to increase to a 620,000-unit pace in 2011, an increase of 5.9% from the year before.
“Single-family starts remain at extremely depressed levels and any recovery will be long and arduous due to the oversupply of existing homes on the market and the increasing amount of distressed transactions,” Khan said.
The reality for new home sales isn't good.
A flip gone bad
Today's featured property was originally purchased by a Ponzi in 2003. She HELOCed and refinanced herself into oblivion terminating with an Option ARM in 2006. She quit paying in mid 2009, and was promptly foreclosed on.
Foreclosure Record
Recording Date: 12/23/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 09/18/2009
Document Type: Notice of Default
At the foreclosure auction in January of 2010, the property was purchased for $258,000. After overpaying at auction, the flippers plowed more money into the property and put it for sale.
Property History for 203 BRIARWOOD
Date
Event
Price
Apr 28, 2011
Price Changed
$259,000
Apr 06, 2011
Listed (Active)
$269,000
Apr 04, 2011
– Delisted (Cancelled)
—
Apr 02, 2011
– Price Changed
*
Mar 26, 2011
– Price Changed
*
Mar 24, 2011
– Price Changed
*
Mar 18, 2011
– Price Changed
*
Mar 05, 2011
– Price Changed
*
Feb 24, 2011
– Price Changed
*
Feb 09, 2011
– Price Changed
*
Jan 15, 2011
– Price Changed
*
Dec 14, 2010
– Price Changed
*
Nov 23, 2010
– Price Changed
*
Nov 18, 2010
– Price Changed
*
Sep 07, 2010
– Price Changed
*
Jul 23, 2010
– Price Changed
*
Jun 30, 2010
– Price Changed
*
Jun 22, 2010
– Price Changed
*
Jun 07, 2010
– Price Changed
*
May 20, 2010
– Listed (Active)
*
May 19, 2010
– Delisted (Cancelled)
—
May 01, 2010
– Relisted (Active)
—
May 01, 2010
– Pending (Backup Offers Accepted)
—
Mar 20, 2010
– Price Changed
*
Mar 15, 2010
– Price Changed
*
Feb 23, 2010
– Price Changed
*
Feb 22, 2010
– Price Changed
*
Feb 12, 2010
– Price Changed
*
Feb 03, 2010
– Listed (Active)
*
Jan 27, 2010
Sold (Public Records)
This home was sold at a foreclosed.
$258,000
It looks like they managed to get the property in escrow just as the tax credit was expiring. Then it fell out of escrow.
It's never a good thing when a property falls out of escrow, but when it falls out at the top of the market, it turns out even worse for the flipper.
They relisted the property almost a year ago, and they have been chasing the market down ever since.
Greed kept them in the hunt past the prime selling season, and by the time they realized they needed to cut their price to get out of the property, it was too late. Now they are looking at a $30,000 loss after their renovation and carrying costs.
Private end unit overlooking greenbelt in beautiful, peaceful neighborhood of Irvine. This unit has been renovated with new paint throughout, new carpet, new baseboards around all rooms and brand new kitchen appliances. Tile entry opens to spacious living room. There is also a separate room for laundry. Walking distance to parks, North Lake, schools and association pool.
The problems associated with the inflation and deflation of a housing bubble are universal. Many countries in Europe experienced a housing bubble in parallel to ours in the United States. Just like us, they have witnessed utter collapse of the low end, lenders permitting squatting at the high end, and rumors of foreign cash buyers coming to save the day.
Back in March I wrote Ireland’s housing bubble: like ours, only worse. And back in December I commented on how Spain shows how to keep house prices inflated. Both of those countries inflated enormous housing bubbles that caused a massive mis-allocation of resources and the construction of 20 years worth of housing product, much of which may be abandoned. Circumstances aren't quite as bad in Great Britain, but the fallout there is very similar to our experience here in California.
By Jeremy Warner, Assistant Editor 6:00AM BST 21 Apr 2011
An apartment on London's Hyde Park recently changed hands at an astonishing £136m.
Even the row of terraced houses in North West London where I live has managed to put the housing crash behind it; these relatively modest late Victorian properties again sell at record prices.
Yet stray beyond London and the South East, and you see an altogether different picture, one that goes largely unrecorded by the established indices for measuring the UK housing market – Halifax, Nationwide, Rightmove and so on.
The prime areas of London, similar to our coastal communities, continue to trade at or near the height of the bubble (when they sell at all). The subprime areas like Riverside County have been knocked back 60%, and they show no signs of improvement. There is a parallel between Great Britain's experience and our own.
To see this “other” housing market, I've been to Newcastle and its surrounding areas in the North East, the region that gave birth to the folly of Northern Rock.
Like all property markets, prices in the region are highly calibrated. There remain sizeable pockets of prosperity, where values, though still significantly off, have held up reasonably well. As in many parts of London, it's easy to imagine from these relatively well to do districts that there never was much of a housing crash.
It's impossible for me to say what is causing Britain's high end to hold firm. Ours is held up by shadow inventory, low transaction volumes, and large down payments. The same is likely true in Great Britain.
Unfortunately, they are more the exception than the rule. Little more than a stone's throw from these posher areas lies a tale of catastrophic decline and value destruction to match the very worst the sub-prime crisis has managed to produce in the US. Tens of thousands of houses in the North East alone will have fallen in value by 30-60pc since the peak, and by the look of it, still have further to go.
Many can neither be sold nor let. You've heard about Britain's chronic shortage of housing stock, one of the factors which allegedly underpins the value of domestic property in the UK. Well, there's little sign of it here in Newcastle and the rest of the North East. Row upon row of properties that used to house workers in the region's once proud industrial tradition of shipbuilding, coal and steel lie half boarded up or otherwise derelict.
Does that conjure up images in your mind of some of the high desert communities in California?
Yet believe it or not, these very same houses and flats were until three years ago as much a part of the British property bubble as everywhere else – perhaps more so in some cases.
Over a seven year period, prices for a typical two to three bed house or flat were chased all the way up from the low teens to well in excess of £60,000. New build subject to mortgage fraud would fetch £125,000 or more. Today you'd be lucky to get half. Prices are fast regressing all the way back to where they came from before the bubble began.
Just like California's bubble, prices went up 250% in a very short period of time, and crashed nearly back to their starting point.
Typical of this phenomenon is Benwell, located on the hillside that tumbles down to the Tyne in Newcastle's West end. A scene of grim degradation, it stands as a lasting reminder of the policy failures and illusory prosperity of Brown's Britain. Pumped up on a sea of credit, make work public expenditure and benefit payments, prices rocketed from 2000 onwards.
Many of these investors will already be in substantial negative equity, but still they refuse to adjust their price expectations to the all too dire reality. So they hold on in the hope they can find the tenants to pay the mortgage and that prices will eventually recover. Denial is the order of the day.
Sound familiar?
London is always first in and out of any housing market downturn. The trend then ripples out from the capital, with regions such as the North East lagging London by a year or two. If that relationship holds, then you would indeed expect prices in the regions soon to be chasing London higher again. Regrettably, it's more than likely broken. Even if the banks were prepared to fund another rip-roaring property boom – they are still scarcely in any condition to do so – the fundamentals in regions such as the North East are most unlikely to support it.
Our banks aren't limited like Britain's banks are. With the direct government backing of mortgage-backed securities and the ability to sell them to investors, we are fully capable of inflating another housing bubble. That's one of the reasons the debate over the qualified residential mortgage in Washington is so important. If we get that legislation wrong, we will inflate another housing bubble at taxpayer expense.
Highly dependent on public sector employment and handouts – which are being severely cut – there appears nothing to stop the free fall in prices. Ever optimistic, one estate agent in Blyth, on the coast south of Newcastle, insists that with the advent of the prime Easter selling season, things are picking up. Buy-to-let investors from London are back, he says, in part because low interest rates are driving them into riskier assets in the search for income and capital gain. “They know a bargain when they see one”, he says, pointing to the recent sale of a property at half its bubble peak. In the real world, prices have in fact taken a further lurch downwards.
realtor bullshit also appears to be universal.
A little further south still, at Dean Bank, Ferryhill, it's the same depressing scene of boarded up housing and decline. Even the warm spring sunshine fails to make a dent in the oppressiveness of it all. A woman is grilling meat on a disposable barbecue in her front door porch. “I've been in this town a long time. It always was s*** and it still is. But my mortgage broker is a good man. He'll look after me”, she says, generously offering a sausage sandwich. Somehow I doubt it.
Talk about misplaced trust. Yikes!
But let's not single out the North East. To a greater or lesser extent, you find much the same story around all the major regional cities of Northern England. It's still the same rubbish property with the same down at heel tenants, but in the past ten years the prices have been up like a rocket and now they are falling back down again like a spent stick.
It's hard to know what's going to rescue districts like these. With the anaesthetic of abundant credit and public money now largely gone, many areas of Britain are simply returning to the way they were before the New Labour boom began. It's as if it never happened at all.
It's hard to say what will happen to many of our subprime areas. There was no reason for prices to go up in many of these areas, so there is no reason to believe prices will recover in many of them. How long will it take prices to come back in Fresno. Forever is my guess.
George Osborne's hoped for private sector recovery threatens entirely to bypass areas like these. For the North East, the somewhat underwhelming programme of supply side reforms he announced in the Budget is unlikely to make any significant difference. Better education and training may lift things in time, but it all costs money, which is in short supply. Eventually, incomes might slip to levels that make the region competitive with emerging markets, but that's hardly an outcome to aspire to.
Everywhere's hurting right now, yet few places are hurting more than the North East. The collapse in low end property prices is only one outward sign of it. Public policy must focus like a lazer on these forgotten badlands, or risk permanently entrenching an ever more divided society.
Public policy is failing to address many downtrodden areas in California as well. Of course, with the wide range of very serious problems facing California, it isn't likely that much money or attention is going to be focused on the problems in rural areas. Most will be left to rot.
Just a little Ponzi
If there is a proper way to utilize the stupidity of lenders, it is demonstrated by the owner of today's featured property. He bought the property with a minimal down payment, he refinanced to get his money back out of the deal, then he left it alone to see what happened. By withdrawing his down payment, he eliminated his risk of loss, and by keeping the mortgage equity withdrawal to a minimum, he kept his cost of ownership as low as possible. He still gamed the system and left the bank to eat the losses, but he did it in the wisest way possible. His only real loss is his credit score.
This property was purchased for $436,000 on 8/23/2003. The current asking price makes this a 2003 rollback.
The owner used a $391,964 first mortgage, and a $44,036 down payment at purchase. On 11/4/2004 he refinanced with a $462,500 first mortgage and a $60,500 HELOC.
He didn't even manage to steal $100,000 from the lender. He is a lightweight by Irvine standards.
Lovely two story Home with elegant exterior stonework. Recessed lighting, Tiled flooring through out, Kitchen with Corian countertop Ceiling Fan Plantation Shutters, Upstairs Laundry hook-up, Roman tub and Dural sink in master bath, Walk-in closet. Fabulous amenities include assoc park. Close to school, shopping centers, Freeway 5 and Toll Road 261.
In an appauling display of collective victimhood, a recent rally of loan owners and formerly owning renters came together to bond over their victim status.
Whenever someone does not want to take responsibility for their own actions, they claim victim status. Our society is rife with this nonsense. Each time we bail out one group or another, we enable and encourage victim thinking. People portray themselves as a victims, and if a critical mass accepts these people are victims, then political pressure mounts to give them money. Perhaps I should start a taxpaying renter victim group to see if we can garner some government gold?
Published: Wednesday, April 20, 2011 10:23 p.m. MDT — By Amanda Verzello, Deseret News
SALT LAKE CITY — Utah is fourth in the nation in home foreclosures, and it's mostly the mortgage industry's fault.
Well, I do agree that lenders are more culpable than borrowers. But just because lenders are more responsible doesn't relieve borrowers of all responsibility for their actions.
That was the message voiced by politicians and activists Wednesday at a rally on Capitol Hill organized by the Utah Foreclosure Crisis Coalition.
Foreclosure prevention workbook? This is asinine. Do we really need a workbook to tell people to pay their mortgage? Wouldn't making their mortgage payment be the best form of foreclosure prevention? Are people so thick that they need this explained to them?
I could write a much shorter workbook. It would only be one page. The text would read, “Don't buy a house you cannot afford.”
“They are not perpetrators,” said Sen. Ben McAdams, D-Salt Lake, of the thousands of Utah homeowners who have recently gone through foreclosure. “They are victims.”
What about the HELOC abusers who irresponsibly borrowed and spent their homes? What about the borrowers who strategically default? Are they victims, or are the banks their victims?
A report recently released by Irvine, Calif.-based RealtyTrac indicated that foreclosures were filed for one in every 98 Utah households during the first three months of this year.
Some people borrowed more than they should have, McAdams said, but they're in the minority.
Oh, really? Responsible borrowers are not losing their homes. The people who are losing their homes are those who over borrowed. Those who borrowed prudently and lost their homes due to a job loss are the minority.
“By and large I don't think that's the average person being foreclosed upon,” he said. “The person who's losing their home today is somebody who lost their job because of the financial crisis.”
McAdams said he thinks the mortgage industry—with its “predatory” lenders—should be more heavily regulated, but that lawmakers can't do it all.
“This is not an easy problem to deal with,” he said. “What's needed, though, is leadership.”
When victims have no rational policy they can get behind, they fall back on the nebulous, “we need leadership” bullshit to rally support.
One way distressed homeowners can find help is by meeting with a counselor whose services are provided free of charge through at least 11 organizations approved by the Department of Housing and Urban Development.
AAA Fair Credit Foundation counselor Ryan Carver said 94 percent of the homeowners who seek counseling from his organization are able to avoid foreclosure and that other centers should boast similar success rates.
Afton January, foreclosure prevention coordinator for Utah Housing Coalition, said counselors can help homeowners make “the wisest decision for them” when facing the possibility of foreclosure.
In the real world, strategic default is the wisest decision for most loan owners. Somehow, I doubt that reality is part of the foreclosure prevention counseling.
But due to federal budget cuts, the counselors may not be around for long.
“Our funding runs out in June,” she said. “Some of our agencies have already seen these effects.”
So that's why this rally is being put on. A group of bureaucrats implementing a bad idea are rallying support from the victims they are enabling so they can keep fostering the victim mentality. I hope their budget gets cut to zero.
The housing counselors have saved the state a lot of money—approximately $147 million between 2009 and 2010—which is why the lack of funding so unfortunate, said Linda Walker, housing supervisor for Salt Lake Community Action Program.
WTF is this woman talking about? How have they saved anyone any money? Perhaps the banks are thrilled they got a few more payments out of a select group of loan owners, but I don't see how spending money on foreclosure prevention saves the state anything.
Nearly all the speakers at the rally said foreclosures don't just affect the people who lose their home, they affect whole communities because of consequences such as a decrease in property maintenance and an increase in crime.
“We are all victims of the housing crisis,” McAdams said.
e-mail: averzello@desnews.com
Yes, we are all victims of the housing crisis. A true victim is someone who through no fault of their own has to endure hardship resulting from the actions of others. People hit by drunk drivers are victims. A false victim is someone who suffers due to their own bad decisions. Alcoholics and drug addicts fall in the false victim category. Loan owners are responsible for the outcomes of their choices. They signed loan papers, and they failed to meet their obligations.
Unfortunately, there is one group of true victims in the housing mess: renting taxpayers. Those of us that didn't participate are being victimized by dumbass programs like these that take taxpayer dollars and squander it. We did nothing to warrant our money being stolen by the government and given to loan owners. We are the victims here.
The ATM got cut off
Ponzi schemes go on as long as lenders provide more borrowed money. And as we all witnessed during the bubble, lenders will often take this to an extreme. Instead of pulling back in 2004 when prices were already far too high, lenders came up with the Option ARM as an “innovation” in finance that allowed them to push prices even higher.
Borrowers became adept at obtaining and spending this money, and many became dependent upon that income to support their entitlements. The owner of today's featured property is one such Ponzi borrower.
The property was purchased on 7/2/2002 for $300,000. The owner used a $285,000 first mortgage and a $15,000 down payment.
On 5/2/2003 the house was refinanced for $289,000.
On 8/9/2005 a new $400,000 first mortgage was underwritten.
On 21/11/2006 this property was encumbered with a $417,000 first mortgage and a $70,500 HELOC.
Total property debt is $487,500.
Total mortgage equity withdrawal is $202,500.
Total squatting has been for at least 17 months.
Foreclosure Record
Recording Date: 09/08/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 05/06/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 02/05/2010
Document Type: Notice of Default
Do you ever wonder if I will run out of these? I suppose once they all lose their houses to foreclosure, I will see a few less Ponzis. Or maybe not.
great location! walking distance to Irvine High and shopping area. at a quiet cul-de-sac. the owner has upgraded it with new paint and laminate flooring in living room and hall way a couple of years ago. kitchen is bright and is adjacent to the backyard. the den can be altered into a bedroom since there is closet in it.
The limit on the size of the loan the GSEs will insure falls from $729,750 to $625,500 on October 1, 2011. The increased mortgage costs coupled with large inventories will lower house prices in that range and above.
Irvine borrowers like big loans, perhaps not with the same zeal as Sir Mix-A-Lot likes big butts, but borrowers here do like big loans. The cost of those loans is going up. This should be good news for squatters. If the banks are willing to wait until prices come back, delinquent mortgage squatters should get several more years of free housing.
By Linda Stern — WASHINGTON — Wed Apr 20, 2011 5:52pm EDT
(Reuters) – Bethany and Karl Schreiber are hunting for a nice big house in the pricey Washington, D.C., suburbs and they are facing a deadline: In just a few months their third child will be born, and the tiny two-bedroom they've been inhabiting will officially get too small.
So the story begins with a sympathetic couple who's burgeoning entitlements demand larger housing, reality be damned.
But there's a second deadline looming for them as well. Beginning on October 1, the government will dial back on the size of mortgages it guarantees in high-cost areas like San Francisco, New York and Washington.
After that, the maximum loan amount that Fannie Mae and Freddie Mac will back is scheduled to drop from $729,750 to $625,500. And that may make mortgages more expensive or harder to get for buyers like the Schreibers, who are shopping in the $700,000 range and would prefer to make a downpayment of 10 percent or less.
And Irvine. This change strikes at the heart of the Irvine single-family detached market. Many Irvine properties have loans between $729,750 and $625,500. Every buyer contemplating a loan in that range will face an interest rate half a percent higher. As a result, buyers will either need to come up with 10% more income to afford the same mortgage, or the loan they will qualify for will be 10% smaller. Since most Irvine borrowers are maxed out, loan balances in this price range will likely decline by 10%, and the houses they were intended to finance will similarly drop in price.
A lower conforming loan limit will seriously erode the upper-middle tier of the Irvine market. The already precarious high end will see continued pricing pressure as lenders continue to deflate loan balances.
“If we wait a year, we may not be able to afford as big a house,” Bethany said in an interview. “Rates and housing prices are probably going to go up.”
Either these people have been brainwashed by their realtor, or they don't understand the problems with supply which are more likely to see motivated sellers pushing prices down. In the long run, house prices will go up, but it may be a while.
The Schreibers concede their timing is mainly inspired by their own family circumstances. But others may be motivated to act now because of reduced government-backed loan assistance, housing experts say. Those programs were put in force as part of the stimulus package after the housing collapse.
“For people planning on exiting the market altogether (such as retirees), that is a compelling proposition,” says Stan Humphries, chief economist at Zillow. Home sellers may have to be patient to get the price they want. The curbs on government-backed loans could, at the margin, reduce the available pool of buyers, he said.
With prices going down, sellers will have to be patient, very patient. Many accepted facts of real estate become untrue when prices decline.
MILLION-DOLLAR DWELLINGS
Anybody who wants a government-backed mortgage for a $1-million home after October 1 may have to come up with a $370,000 downpayment instead of $270,000, says Rob Chrisman, an independent mortgage banking consultant from San Rafael, California.
It won't be quite that dramatic, but the already strained down payment levels on high end properties may get stretched once again. Sales volumes will fall from their already anemic levels.
The deadline will mean most to upper-middle-class buyers and sellers in costly real estate markets where $1 million buys a nice house, but not a mansion.
To be sure, that part of the market is picking up. Real estate agents operating in tonier neighborhoods are reporting brisker business this spring than in recent years.
Sotheby's, which specializes in luxury homes, reports sales making double-digit gains for the first quarter of this year over last year. The National Association of Realtors reported that the sale of homes over $1 million were up 5.1 percent in March over the same month last year.
More spin and bullshit.
“We are seeing a normal recovery,” said Jed Smith, managing director of quantitative research. “I'm sure somebody will accelerate their activity (because of the expected drop in government-backed loan limits), but I doubt you'll see a lot of acceleration because of that.”
“That really isn't on anybody's radar,” agreed Linda Chaletzky, the Schreiber's agent, and a specialist on Washington's tonier suburbs. “But things are hopping.”
She said she is not worried about the loan clampdown,
“The mortgage industry will find a way around it, because they will have to. If they don't, they will go out of business,” Chaletzky said. She expects private mortgage lenders to step in and fill that space when the government backs down.
The level of ignorance among industry professionals is truly astounding. Financial innovation is an oxymoron. The industry doesn't have to find a way around anything. Underwriting stable 30-year fixed-rate mortgages can supply all the money the housing market needs to provide everyone who can afford to own the opportunity.
What puts mortgage lenders out of business is underwriting stupid loans to people who can't or won't pay them back. Unfortunately, that is usually the result of financial innovation. That plus a large government bailout.
BIG MORTGAGES
It was only in recent years that the loan limits went so high. Mortgages that are too big to be sold to Fannie and Freddie are termed jumbo loans and are backed privately. Until 2008, all home loans over $418,000 were considered jumbo loans. In that year, a stimulus-focused Congress twice raised the limit on loans the government would back in high cost areas, first to $625,500 permanently, and then to $729,750, temporarily.
Since then, Fannie and Freddie have backed an increasing share of that market. In 2010, so-called “jumbo conforming” loans, those over $417,000 and government-backed, made up 6.73 percent of loan originations, according to CoreLogic.
That top temporary limit was extended twice, but is expected to expire at the end of September.
It's an outrage this limit was ever extended above $417,000. Private lending market made incredibly irresponsible jumbo loans, and in order to bail out the banks, we needed to increase this limit to have the federal government guarantee the loans underwritten during the decline. It was the only way to shift much of the losses from private industry to the public sector.
When that happens, lenders who want to make loans over $625,500 will have to hold onto the mortgage themselves or find private investors to buy them. And while an active and hungry secondary market for these jumbo loans has yet to materialize in the post-crash world, there's some evidence that lenders are preparing to move into that space and pick up any slack that the government leaves.
“There's plenty of money out there,” said Steve Hopps, chairman of the California Mortgage Bankers Association.
Private lenders are preparing to step in, according to Guy Cecala of Inside Mortgage Finance, a research firm. In the last quarter of 2010, private lenders originated more loans over $417,000 (the traditional jumbo market) than did government agencies, he said.
Nice spin. He has compared apples to oranges and made the situation sound better. The fact is that government backing on loans over $417,000 is limited to a few high-price areas like Irvine, and it is capped at $729,750. The everything else market should be larger, much larger.
The lower loan limits will leave about $10 billion more in loans for private lenders to handle, reckons Cecala, and he expects lenders to go after the market aggressively.
Lenders are eager to throw away more money to support a declining market, right? Give me a break.
BIGGER DOWN PAYMENTS
Investors like the fact that jumbo loans tend to be safer and more profitable than smaller ones. The privately-backed mortgages require bigger downpayments (currently about 30 percent of the home's value, instead of the 20 percent more typical in less expensive loans), which adds security.
Also adding to their allure, the loans carry higher interest payments; the spread between the so-called conforming loans backed by Freddie and Fannie and jumbo loans is running about 0.5 percentage points higher, said Cecala. Furthermore, a higher proportion of jumbo loans are made on a variable rate basis, which is less of burden for holders, Cecala said.
Going still higher in the homes market, there will be less impact from the shrinking jumbo. Many buyers of multi-million dollar homes do all-cash deals and are relying on cash more than ever before, according to Stan Smith, a real estate agent who works in Beverly Hills area.
The biggest impact might be limited to that space and those neighborhoods occupied by people like the Schreibers — folks who see themselves as middle class but in very expensive areas.
“I see borrowers, if they want that kind of loan, paying a little more,” says Chrisman. “But it's not going to be a life changing event for a couple of orthopedic surgeons in Beverly Hills.”
(Reporting by Linda Stern; Editing by Richard Satran)
If the entire housing market were composed of orthopedic surgeons, then local house prices might not fall. Since that isn't the case, the upper-middle-class borrower is going to be impacted by the increased costs, loan balances will go down, and prices will go down with them. This fall and winter should see the end of any spring rally and another leg down in pricing for above-median properties.
It was a bear rally, not the bottom
Apparently, the owner of today's featured property did not see the recent post on the IHB demonstrating the double-dip in local home prices. This owner believes the resale value of this house has appreciated 15% while the market has gone down.
It delusional enough when sellers price their underwater properties at breakeven, but this owner actually believes profits are available. Recent comps paint a different picture.
Each seller usually tries to indulge their fantasies of what their house is worth.The ones that sell their properties are the ones who abandon their dreams and take what the market will bear. The rest hold their properties forever waiting for the profit they are entitled to.
Gorgeous 2 bedroom, plus den in beautiful gated community of Canyon s Edge in Turtle Ridge. This premium location is surrounded by rolling hills. This totally detached home is beautifully upgraded with custom cabinetry, dark wood flooring, and large marble kitchen. Den can be a 3rd bedroom or 2nd master on ground floor. Formal dining room, family room with fireplace and master bedroom with retreat, walk in closet, large bathroom with huge tub. Very private and custom designed yard with built in BBQ with refrigerator. A Fabulous fireplace with a separate lounge area with fountain. This elegant home has wonderful trails. Just minutes to beach and easy access to 73 & 405. Built in 2003 with over 2330 sq. feet. Located within the Irvine Unified School District.
I predicted that prices would fall between 2% and 5% this year. The consensus estimates are finally catching up to me. My detractors have inaccurately labled me as bearish. I do believe prices are going to fall, particularly locally, but I am only bearish when and where conditions suggest real estate is overpriced and likely to fall in value.
The double dip is causing many real estate bulls to finally see their error in judgment. Bulls waited for three long years of serious declines to reach the illusory bottom of 2009. Now that prices are falling and gaining downside momentum, loan owners who less than a year ago thought they might be back above water soon are now faced with the reality of several more years waiting for a recovery that may never come.
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