The Irvine company sold less than 100 homes per month in 2010, but they are opening two new developments in 2011, the Villages of Stonegate and Laguna Altura.

Irvine Home Address … 3131 MICHELSON #405 Irvine, CA 92612

Resale Home Price …… $300,000

And I wanna believe you,

When you tell me that it'll be ok,

yeah I try to believe you,

But I don't

Avril Lavigne — Tomorrow

I don't talk about what the Irvine Company does much, mostly because they spend so much money putting out the word that my coverage isn't necessary or important. Plus, everything they write is marinated with cool aid, and reading hype gets old quickly. I try to believe them, but i don't. However, since everyone is interested in what the behemoth is up to, I thought I should report on their latest activities.

Irvine Co. reports sale of 1,200 homes

February 17th, 2011, 5:47 pm — posted by Jeff Collins

Just over a year ago, the Irvine Co. tested the waters with a tentative homebuilding project in its Woodbury developments, setting a modest goal of selling 700 units in two years.

But demand for the homes — featuring revamped designs for homes in the highly rated Irvine school district — went wildly beyond the company’s expectations.

This week, the Irvine Co. reported that it has signed 1,234 buyers since the debut of the 2010 New Home Collection 13 months ago. That includes units both in the original seven-project New Home Collection and in an additional five programs in Woodbury and nearby Stonegate East that were added later.

“Although the housing market may not have turned nationally, it has unquestionably returned in Irvine,” said Dan Young, president of Irvine Co. Community Development, the Irvine Co.’s homebuilding arm.

Studying historical trends, Irvine Co. officials determined that the “inventory” of homes for sale had hit a low, meaning that Irvine was poised for a rebound. But they were careful from the start to say that conclusion didn’t necessarily apply to other parts of the housing market.

About 10,000 people turned out for the project’s grand opening in January 2010, with homes selling more than twice as fast as originally expected.

Fortunately, they set low expectations.

“The incredible sales and rising prices at Woodbury in Irvine were the national new home story of the year,” Irvine-based housing consultant John Burns told the Register.

Consultant Mark Boud of Real Estate Economics, quoted in an Irvine Co. news release, agreed:

“In terms of price and absorption, the Irvine Co. introduced the most successful new home developments in the United States last year. Access to major employment, shopping and service centers … and access to some of the highest quality schools in California draw a wide market audience.”

Mark must have signed a big new contract.

596 new homes coming to Laguna Canyon Road

February 20th, 2011, 1:00 am by Jeff Collins

The Irvine Co. has broken ground on the first of 596 homes it plans to build in a gated housing development on hillsides overlooking Laguna Canyon Road, the company has announced.

The sales office and model homes for the new Laguna Altura project — formerly called Laguna Crossing — are scheduled to open on May 14, said Dan Young, the Irvine Co.’s homebuilding chief.

Along with Stonegate in north Irvine, Laguna Altura is part of the developer’s 1,250-home “Irvine Pacific Collection.”

Unlike the majority of Irvine Co. homes built last year, this latest initiative will be built entirely by the Irvine Co.’s revived homebuilding brand, Irvine Pacific Homes.

The project will consist entirely of single-family homes, with prices ranging from the low $600,000s to more than $1 million. The development includes:

• Siena: Homes from 1,618 to 1,788 square feet, with prices starting in the low $600,000s.
• San Remo: Homes from 1,881 to 2,094 square feet, with prices starting in the low $700,000s.
• Cortona: Homes from 2,380 to 2,962 square feet, with prices starting in the low $900,000s.
• Toscana: Homes from 2,806 to 3,133 square feet, with prices starting at more than $1 million.

Young said that all the homes in the Irvine Pacific Collection have new designs that incorporate innovations used in the 2010 models, such as replacing formal dining rooms with “great rooms,” and providing plenty of storage for items purchased from big-box stores like Costco or Wal-Mart.

However, four of the projects — San Mateo and San Marcos in Stonegate, and Siena and San Remo in Laguna Altura — are detached versions of attached homes that the Irvine Co. is building in a separate ongoing development called Stonegate East.

“People loved them, but said they would be willing to pay more if they were detached,” Young said.

As with the new Stonegate development, buyers will be able to pick out options for their home such as carpeting, cabinets and countertops at a new design center in Woodbury. And lenders will be embedded from Wells Fargo and Bank of America to help buyers apply for loans if they choose.

Irvine Co. plans to build 2,600 new homes

The real estate firm is opening two new developments in the spring.

By Kristen Schott — Published: February 18, 2011 11:03 AM

The Irvine Co. is moving forward with plans for two new developments that, when complete, will boast nearly 2,600 properties and could create some 8,000 jobs. Stonegate in north Irvine and Laguna Altura, off Laguna Canyon Road, are being developed by the company's Irvine Pacific affiliate and are touted as the two largest villages to come to O.C. since Portola Springs opened in July 2006.

The project capitalizes on the success the Irvine Co. has seen in recent months; the firm's New Home Collection has sold 1,234 homes since it debuted in January of last year – landing it among the most successful developments in the U.S. in 2010, in terms of price and absorption, said Mark Boud, principal of Real Estate Economics.

“Access to major employment, shopping and service centers, combined with outstanding community design and recreational amenities, and access to some of the highest quality schools in California draw a wide market audience,” said Boud. “The Villages of Irvine are ideally situated to take advantage of strong new-home demand and little competitive supply in Central Orange County.”

Part of the Irvine Pacific Collection, the Village of Stonegate is located on Irvine Boulevard between Sand Canyon and Jeffrey Road. The project will feature 2,000 homes in four neighborhoods – Santa Clara, San Mateo, San Marcos and Maricopa. Prices will range from the mid-$300,000s to the high-$700,000s. Laguna Altura will feature 596 homes in four communities – Siena, San Remo, Cortona and Toscana. These residences will start in the low-$600,000s up to the low-$1 millions.

“The Irvine Pacific Collection provides homebuyers with an array of new-home opportunities, whether they are looking to purchase their first home or take advantage of the opportunity to move up to a larger residence,” said Daniel Young, president of Irvine Co. Community Development.

Much like the New Home Collection, Stonegate and Laguna Altura will feature designs aimed at representing a “'way of life' that is uniquely attuned to the hopes, dreams, needs and goals of today's homebuyer in Irvine,” he said.

The properties, which include a mix of townhomes and single-family residences, will include designs such as a large central area – known as the Great Room – that blends the family and dining rooms and opens to the kitchen, as well as an indoor-outdoor space dubbed the California Room. In addition, the homes will be designed and built with materials, appliances and energy systems that exceed California building requirements, according to the Irvine Co.

“The Villages of Stonegate and Laguna Altura are just the latest examples of the bold leadership demonstrated by the Irvine Co.,” said Lucy Dunn, president and CEO of the Orange County Business Council. “Last year they truly implemented their own ‘local stimulus package’ and literally jump-started our construction economy by bringing much-needed jobs to our county. Their leadership and unprecedented success convinced other developers to get off the sidelines and restart construction in our county and that means more jobs too. The Irvine Co. ignored the naysayers a year ago, and the results have been simply astounding.”

O.C. homebuilding to run 62% below average

February 18th, 2011, 10:58 am — posted by Jon Lansner

The latest economic outlook from Los Angeles Economic Development Corp. sees Orange County homebuilding rising 13% this year to 3,600 units — then notes the building uptick is “still a very low number.”

SOCAL HOUSING PERMITS

Year	LA	OC	Inland Empire	Ventura	SoCal
1990	25,045	11,979	28,840	2,612	68,476
1991	16,195	6,569	16,191	2,194	41,149
1992	11,907	5,943	15,444	1,720	35,014
1993	7,259	6,410	13,151	1,372	28,192
1994	7,621	12,544	13,016	2,464	35,645
1995	8,405	8,300	10,899	2,166	29,770
1996	8,607	10,207	12,513	2,353	33,680
1997	10,424	12,251	15,377	2,316	40,368
1998	11,692	10,101	18,606	3,182	43,581
1999	14,383	12,348	21,651	4,442	52,824
2000	17,071	12,367	21,990	3,971	55,399
2001	18,253	8,646	27,541	3,446	57,886
2002	19,364	12,020	33,280	2,507	67,171
2003	21,313	9,311	43,001	3,635	77,260
2004	26,935	9,322	52,696	2,603	91,556
2005	25,647	7,206	50,818	4,516	88,187
2006	26,348	8,371	39,083	2,461	76,263
2007	20,363	7,072	20,457	1,847	49,739
1990-2007 average	16,491	9,498	25,253	2,767	55,528
2008	13,704	3,159	9,101	842	26,806
2009	5,653	2,200	6,685	404	14,942
2010 estimate	7,465	3,180	6,269	592	17,506
2011 forecast	8,490	3,600	6,900	660	19,650
2011 outlook vs. ’90-07 average	-49%	-62%	-73%	-76%	-65%
2012 forecast	13,055	5,600	11,025	1,000	30,680

How low? As you can see in the chart at right, that 2011 estimate for Orange County residential building permits to be filed by local developers may run 62% below the 1990-2007 average pace of Orange County home construction! (We’re not alone. If LAEDC is correct with its outlook, the 5-county SoCal region’s housing construction will run 65% below average this year.)

As part of the real estate and homebuilding industry, I am thrilled that the Irvine Company is building homes. However, as I have stated on many occasions, the shills who trumpet the blistering sales rates are talking nonsense. We are emerging of historic lows, and the year-over-year percentage increases sound great, but building 62% less homes in 2011 than we have on average for the last 30 years is hardly a runaway bull rally or a new construction boom.

At least the Irvine Company didn't embrace the mid-rise residential tower idea. That product isn't living up to its expectations.

North Korea Towers

Prices in the North Korea Towers are in the bottoming process. Clearing prices are generally in the $300,000s.

Closest homes similar to 3131 MICHELSON #405, which sold within the past six months:

	$480,000 3131 MICHELSON #1101 Sold on Nov 22, 2010		0 miles 2 bd / 2 ba 1,520 Sq. Ft.
	$336,500 3131 MICHELSON Dr #508 Sold on Nov 08, 2010		0 miles 2 bd / 2 ba 1,275 Sq. Ft.
	$373,500 3131 MICHELSON Dr #1102 Sold on Dec 17, 2010		0 miles 2 bd / 2 ba 1,367 Sq. Ft.
	$420,000 3131 MICHELSON #1205 Sold on Dec 30, 2010		0 miles 2 bd / 2 ba 1,506 Sq. Ft.
	$420,000 3131 MICHELSON Dr #1505 Sold on Sep 17, 2010		0 miles 2 bd / 2 ba 1,367 Sq. Ft.
	$402,000 3131 MICHELSON #1507 Sold on Dec 07, 2010		0 miles 2 bd / 2 ba 1,295 Sq. Ft.
	$450,000 3131 MICHELSON #1003 Sold on Nov 12, 2010		0 miles 2 bd / 2 ba 1,580 Sq. Ft.
	$380,000 3131 Michelson Dr #703 Sold on Dec 17, 2010		0 miles – bd / – ba – Sq. Ft.
	$438,000 3131 MICHELSON Dr #603 Sold on Sep 23, 2010		0 miles 2 bd / 2.75 ba 1,583 Sq. Ft.
	$285,900 3141 MICHELSON Dr #302 Sold on Jan 25, 2011		0.09 miles 2 bd / 2 ba 1,276 Sq. Ft.

As you will see with today's featured property, the cost of financing and the price itself has finally dropped enough to put these units at rental parity. Of course, prices would need to drop another 30% to entice a cashflow investor. As it stands, these units are being purchased by cash investors who are speculating these prices will rise in the future. I think the investment is foolish.

These units used to have a $1,100 per month HOA, almost nobody in these buildings are paying their mortgages or their HOA dues. The HOA is likely severely underfunded and facing future assessments. I could be wrong, but I would need to see detailed financials on the HOA before considering buying here.

These units never made any sense. This is not a walkable area. You won't walk out your front door and frolic about the neighborhood. These towers have nothing to attract an urbanite.

Did you see that last property that sold for $285,900? Ouch!

Irvine Home Address … 3131 MICHELSON #405 Irvine, CA 92612

Resale Home Price … $300,000

Home Purchase Price … $685,500

Home Purchase Date …. 1/19/2006

Net Gain (Loss) ………. $(403,500)

Percent Change ………. -58.9%

Annual Appreciation … -15.4%

Cost of Ownership

————————————————-

$300,000 ………. Asking Price

$10,500 ………. 3.5% Down FHA Financing

5.02% …………… Mortgage Interest Rate

$289,500 ………. 30-Year Mortgage

$62,259 ………. Income Requirement

$1,558 ………. Monthly Mortgage Payment

$260 ………. Property Tax

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

$50 ………. Homeowners Insurance

$860 ………. Homeowners Association Fees

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

$2,728 ………. Monthly Cash Outlays

-$147 ………. Tax Savings (% of Interest and Property Tax)

-$347 ………. Equity Hidden in Payment

$21 ………. Lost Income to Down Payment (net of taxes)

$38 ………. Maintenance and Replacement Reserves

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

$2,292 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,000 ………. Furnishing and Move In @1%

$3,000 ………. Closing Costs @1%

$2,895 ………… Interest Points @1% of Loan

$10,500 ………. Down Payment

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

$19,395 ………. Total Cash Costs

$35,100 ………… Emergency Cash Reserves

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

$54,495 ………. Total Savings Needed

Property Details for 3131 MICHELSON #405 Irvine, CA 92612

——————————————————————————

Beds: 2

Baths: 2

Sq. Ft.: 1367

$219/SF

Property Type: Residential, Condominium

Style: One Level, Contemporary, Modern, High or Mid-Rise Condo

View: Faces West

Year Built: 2006

Community: Airport Area

County: Orange

MLS#: S609111

Source: SoCalMLS

Status: Backup Offers Accepted

On Redfin: 344 days

——————————————————————————

Best Value Available at the Marquee! Adorable condo on the 2nd residence level with garden views. Located in Park Place Center with loads of great restaurants, coffee shops, market and easy access to the 405 freeway. This condo doesn't have a view, but is located in the West tower away from the freeway. This condo has finest in modern appointments including wall-to-wall floor to ceiling windows, hardwood floors, granite counters, european cabinetry, travertine tile, built in closets, stainless steel appliances & more. This is a great value and one of the lowest prices in this community.

Cash buyers are stabilizing the Las Vegas housing market. Whether they are saving it or exploiting it depends on your point of view.

Home Address … 622 WOOD ROSE CT, HENDERSON, 89015

Resale Home Price …… $124,900

if the illusion is real

let them give you a ride

if they got thunder appeal

let them be on your side

The Cars — Let the Good Times Roll

The bottom of the cycle is always dominated by cash buyers. Cash is king. Cash buyers stabilize a market when lenders are unwilling to loan. The cost of cash is higher than the cost of debt, so prices must fall to attract cash investors. As today's featured property shows, if you lower prices to the mid 90s levels, cash buyers are enticed to the strong cashflow and potential for appreciation when the market reverts back to the mean.

Cash Buyers Now Rule Vegas Housing Market

Foreclosures, Short Sales Account For Most Transactions

POSTED: 1:34 pm PST February 8, 2011

UPDATED: 12:04 am PST February 9, 2011

LAS VEGAS — Thanks to tighter lending standards, coupled with a massive inventory of foreclosures and short sales, the majority of homes sold in southern Nevada are being purchased with cash, according to the Greater Las Vegas Association of Realtors.

The agency reported that 51 percent of transactions involved cash buyers in January, as investors sought to take advantage of low prices.

“It's a combination of things,” corporate broker Forrest Barbee said. “We've got a lot of foreign investors. Foreign investors can't get loans. Canadian investors, Asian investors. A lot of cash coming in from there.”

Barbee contends that even though half of the homes being sold are to investors, it's a good thing.

“These are real investors putting good tenants in properties,” Barbee said. “They're also putting money in the property and spending money on appliances, drywall, paint or whatever.”

I know i am doing my part to employ construction workers and buy housing related products.

According to the GLVAR, the median price of a single-family house sold last month was $125,000, down 5.3 percent from $132,000 in December. The average listed price was $157,081. The median price of condominiums that sold last month was $64,900, up 4.7 percent from the month before.

The total number of homes sold dropped 19.7 percent in January. Last month 3,214 houses were sold, down from 4,007 in December.

Bank-owned homes continued to dominate sales, representing 48.8 percent of transactions, while 26.6 percent were short sales, the GLVAR said.

Lenders control 75% of the transactions in Las Vegas, and they indirectly control most of the other 25% as most of the equity sales are flippers like me who got their property at an auction called by a lender.

While both figures are proof that families still struggle to pay their mortgages, the agency claimed the increase in cash buyers is a positive sign.

“Cash buyers are still purchasing thousands of local homes that might otherwise sit vacant,” said GLVAR President Paul Bell.

A house with no occupant is a completely wasting asset. It produces no benefit and deteriorates with disuse.

But some homeowners disagree, saying that their neighborhoods are becoming more transient.

Dawn Lane, owner of the Professional Realty Group, said people who want to buy a home in Las Vegas to live in are getting priced out of the market.

“They have an opportunity to buy a home and when they go to put an offer in, you've got investors purchasing the home for cash,” Lane said. “What's a better deal for the bank? Let's take the cash and run.”

And although Lane said it's great homes are being sold, the investors could end up hurting Las Vegas in the end.

“If we're trying to build neighborhoods up again, don't we want solid families or people invested in our community who wants an opportunity to live in Las Vegas and grow?”

But Barbee, the broker, said homeowners can still buy a home through restricted government programs.

And for your amusement…

Poll: Do You Plan To Buy A Home In The Next Year?

A property purchased by a cash investor

Below is a property purchased by a cash investor in Henderson just southeast of Las Vegas. As you can see, it is selling for just over its 1996 purchase price. If houses double in price every 15-20 years, this property should be selling for $180,000 to $200,000. That's how far these properties have overshot to the downside.

Home Address … 622 WOOD ROSE CT, HENDERSON, 89015

Resale Home Price … $124,900

Home Purchase Price … $110,000

Home Purchase Date …. 7/9/1996

Net Gain (Loss) ………. $7,406

Percent Change ………. 6.7%

Annual Appreciation … 0.9%

Cost of Ownership

————————————————-

$121,900 ………. Asking Price

$4,267 ………. 3.5% Down FHA Financing

5.00% …………… Mortgage Interest Rate

$117,634 ………. 30-Year Mortgage

$25,241 ………. Income Requirement

$631 ………. Monthly Mortgage Payment

$106 ………. Property Tax

$10 ………. Homeowners Insurance

$280 ………. Homeowners Association Fees

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

$1,027 ………. Monthly Cash Outlays

-$60 ………. Tax Savings (% of Interest and Property Tax)

-$141 ………. Equity Hidden in Payment

$8 ………. Lost Income to Down Payment (net of taxes)

$15 ………. Maintenance and Replacement Reserves

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

$850 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$1,219 ………. Furnishing and Move In @1%

$1,219 ………. Closing Costs @1%

$1,176 ………… Interest Points @1% of Loan

$4,267 ………. Down Payment

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

$7,881 ………. Total Cash Costs

$13,000 ………… Emergency Cash Reserves

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

$20,881 ………. Total Savings Needed

Property Details for 622 WOOD ROSE CT, HENDERSON, 89015

——————————————————————————

Beds: 3

Baths: 2 F

Home size: 1299

Lot Size: 00.13

Year Built: 1996

——————————————————————————

MOVE IN READY – NOT a Short Sale or REO! Seller responds quickly. Newly rehabbed 1-Story home with 3 bedrooms and 2 bathrooms. Kitchen has white cabinets with a breakfast nook. Back-yard is fully landscaped with desert landscaping. Home is not far from schools, shopping and freeway access.

This property was a complete cosmetic do over. We replaced or repainted everything in this house. Unfortunately, we don't have any of the before pictures. It was a mess.

Jacki has been working on her artistic architectural photography. This master bath shot turned out well.

Rental property investment performance

Asking Price	$118,900
All Cash Purchase Financial Analysis
Net Income	$7,185
Capitalization Rate = Net Income / Total Cost	6.0%
Mortgage Purchase Financial Analysis	15-Year	30-Year
Mortgage Interest Rate	4.3%	5.0%
Actual Monthly Cashflow	$0	$88
Cashflow after Financing	$3,774	$3,486
Initial Capital Investment (down payment)	$39,577	$23,780
Cash-On-Cash Return = Cashflow / Investment	9.5%	14.7%

Rental Income	Terms	Calculations
Gross Rent		$1,150
Vacancy and Collection Loss	5.0%	$58
Monthly Rental Income		$1,093
Operating Expenses	Terms	Calculations
Property Tax	2.67%	$264
Homeowners Insurance	0.50%	$50
Maintenance and Replacement Reserves	0.50%	$50
Homeowners Association Fees	$15	$15
Property Management Fees (% of Gross Rent)	10.0%	$115
Monthly Cash Expenses		$494
Net Operating Income		$599
Monthly Payment (based on maximum loan)		$511
Actual Monthly Cashflow (assuming impounds)		$88
Interest Expense		$396
Total P&L After Expenses and Debt (loan amortization plus excess)		$202
Financing	Terms	Calculations
Comparable Value Full Asking Price (buy it now)	$118,900
Maximum Allowable Loan (with available terms)	80.0%	$95,120
Maximum Cashflow-Positive Loan (30-year amort.)	93.8%	$111,534
Maximum Loan (lesser of two limits)		$95,120
Investor Capital (remaining after cash-out loan)		$23,780
Comparable Resales	Resale Date	Amount
910 DODEE CT — 3 bed 3 bath 1623 SF — 1996 List: $122000	8/9/10	$126,000
628 HOLLY BUSH CT — 3 bed 2 bath 1540 SF — 1997 List: $119900	7/1/10	$115,000
882 COZY VALLEY ST — 3 bed 2 bath 1389 SF — 1997 List: $105000	5/6/10	$105,000
884 COZY VALLEY ST — 3 bed 2 bath 1299 SF — 1997 List: $124900	8/31/10	$123,000
620 E WOOD ROSE CT — 3 bed 2 bath 1299 SF — 1996 List: $109000	4/27/10	$109,000
	Lease Date	Amount
501 GARDENIA BLOSSOM ST — 2 bed 3 bath 1179 SF — 1997 List: $1050	10/21/10	$1,050
500 FRAGRANT ORCHARD ST — 2 bed 3 bath 1179 SF — 1997 List: $1000	9/3/10	$1,000
593 FOX CHASE ST — 3 bed 2 bath 1547 SF — 1998 List: $1250	10/6/10	$1,250
969 MEDINA DE LEON AV — 3 bed 3 bath 1485 SF — 2005 List: $1150	10/21/10	$1,150
643 BONSAI TREE LN — 3 bed 2 bath 1303 SF — 1998 List: $1195	10/5/10	$1,195
1036 STEPPE EAGLE AV — 3 bed 3 bath 1370 SF — 2003 List: $1099	7/19/10	$1,099
531 SCENIC TERRA DR — 3 bed 2 bath 1425 SF — 1997 List: $995	7/16/10	$995

If you are interested in this property contact nancylicata@ppglasvegas.com or Jackie@ffglasvegas.com.

Houses are the one commodity everyone wants to go up in price. Far from being a benefit, house price inflation is a drag on economic growth.

Irvine Home Address … 14 CARTIER AISLE Irvine, CA 92620

Resale Home Price …… $350,000

In every possible way.

And oh, my dreams, it's never quite as it seems,

Never quite as it seems.

Cranberries — Dreams

For readers of this blog, the editorial that follows will not cover new ground. For the wider readership in California, what follows is pure sacrilege.

Bursting our bubble

Why do we continue to think that rising home prices are a good thing?

By Michael Kinsley — February 15, 2011

If President Obama could ask for one gift from the economy — one statistic that turns unexpectedly rosy — what would it be? If Americans in general could choose one change in their financial situation, what would they choose?

I suppose Obama would choose a decline in the unemployment rate. But a close second for Obama, and quite possibly first on the list of other Americans, would be a rebound in house prices. Although we all recognize now that real estate was a classic bubble, bubbles are wonderful fun. It's the burst that hurts. In the good old days — before 2007 — following the prices for which houses in your neighborhood were selling and then recalculating your own net worth was a national sport. Even the experts who correctly predicted a price decline or collapse generally delivered that prediction as bad news.

The first eighteen months of writing for this blog, I needed to do it anonymously for fear of repercussion for delivering my good news that house prices were going to go down.

The assumption is that ever-rising house prices are good, and that a decline in house prices is bad. Ordinarily we cheer when the price of an essential (product goes down, and complain when it goes up. Take oil, for example. We like it when the price of gasoline goes down and are unhappy when it goes up. But with homeownership, it's the other way around.

I wouldn't attempt to argue that the current mess of the real estate market — the irresponsible lending, the home loans underwater, the brutal foreclosures, the ramification for the economy in general — add up to a good thing. But before we start dreaming of a return to the days when ever-rising real estate prices were considered a constitutional right, let's think this through a bit. Why do we want home prices to go up?

I remember when I first started writing for the blog, some of the bulls accused me of talking down the market so i could profit from its demise. When I replied that I wanted prices to go down and stay down because it's better to spend less on housing, people responded to me as if I were insane.

The simple fact is people want higher house prices because they want the financial gain of owning an appreciating asset. Nothing more.

In very general terms (with plenty of exceptions and variations) the housing market affects three different groups. There are those trying to break in — generally young people searching for their first home. There are those in the middle, who want to trade up from a smaller house to a bigger one. And there are longtime homeowners, “empty nesters” who are approaching or already enjoying retirement and want to downsize or get out of the market completely.

How are each of these groups affected by rising house prices? The first group surely doesn't benefit. During the big housing bubble, stories about young couples watching helplessly as the American dream of homeownership passed out of their reach were a newspaper staple. As prices come down, more people can afford to buy a house. That's a good thing, isn't it?

I used to be surprised at how affordable housing advocates went silent when house prices started to go down. They should have been cheering, but I wonder if the loss of their cause or their livelihood prompted them to think high house prices aren't so bad after all. It does create a need for affordable housing advocates.

Then there are the people who want to trade one house for another. Mostly they are hoping to trade up — to a larger house for an expanding family, or a nicer neighborhood. These people are in the same situation as the first-time buyers. Obviously all house prices don't go up and down in unison. They are affected by neighborhood, by region of the country, and by changing fashions and tastes in home design. But on average the house you want to buy should have gone up or down in price by something like the same percentage as the house you want to sell. And if you're trading up, that means rising prices should hurt you just as they hurt the first-time home buyer.

The move up market is an illusion. Unless a homeowner gets a raise, saves prodigiously, or obtains a non-real estate windfall, there isn't any opportunity to move up. Gaining $100,000 in appreciation doesn't get a homeowner any closer to buying the move-up house that also went up $100,000 or more in value.

The only people who clearly benefit from rising home prices are those who are selling their last house or downsizing. This is the same group that benefited most from the previous run-up in prices — that is, typically, older people who have lived in the same house for years. Most of these people enjoyed the enormous past run-up in prices. In 1970, the median price of a house was $25,000. In 2006, at the top of the bubble, it was about $240,000. Even adjusted for inflation, that means home prices more than doubled during the period.

Do We Owe Baby Boomers Their Imagined Home Equity for Retirement? They seem to think so.

These homeowners are mostly not underwater. That is, the value of their houses is more than the remaining balance on their mortgages. In fact, they could still sell their houses at a profit even in the current market.

I don't think Mr. Kinsley realizes how many of these long-term homeowners spent their houses.

Whatever figure you may have stored in your head about the “value” of your house (removing this figure to polish and admire it when home prices are rising; leaving it to gather dust in some dresser drawer of your unconscious when they aren't), a house is worth only what someone will pay for it. That number has two components: one is the value of occupancy — that is, the privilege of living in the house, mowing the lawn, calling the plumber and so on. This should roughly equal what the house would rent for. The other component is the investment value — how much you think the price of the house will go up when you sell it.

Do you think he reads IHB? Rental parity was not a concept people wrote or talked about much prior to the housing bubble. He probably reads Dean Baker, an economist who writes frequently about rental parity and called the housing bubble.

Any investment value greater than zero (or zero plus inflation) is suspicious because it depends on the greater-fool theory.

Yes, that is a Ponzi scheme.

There is no physical reason why a house should become more valuable at all. It is not growing like a crop. It is not producing anything that you can turn around and sell, like a factory. It just sits there.

One of the many reasons our economy is suffering right now is because we diverted resources to housing that gained us nothing. If we had overbuilt factories, at least we could get some productive use from the factory. Houses are pure consumption. They produce nothing once built, except perhaps for the need for more stuff for the house.

It becomes more valuable because people believe that it will become more valuable. Worse, since the general assumption that it will become more valuable is already reflected in the price you paid, you need a buyer who believes that it will become more valuable even faster than the general consensus.

The larger issue in all this is the wisdom of encouraging homeownership — even if you don't get carried away with it as we did in 2007 to 2009, practically forcing mortgages on people at gunpoint. About two-thirds of Americans do live in homes that they own (along with the bank). There is no way all of them could cash out and collect that number in their heads — how much is their house worth? — even now that it's 30% or 40% lower than it was before. And it's hard to see why people should want that number to resume its relentless rise back up and beyond.

The fact that people are underwater is exactly why so many need and want house prices to go up.

Housing has been identified by an entire generation as a fountain of free money. Many people in California are going to consume hundreds of thousands of dollars more than they earned due to owning HELOC producing California real estate. It is so embedded in our culture that only a multi-decade housing recession would purge the kool aid. That won't happen as long as the kool aid intoxicated have anything to say about the matter.

A little too much Ponzi

The owner of today's featured property paid $207,500 back on 5/30/1990 near the peak of the previous housing bubble. He held on through the previous decline, and he only had a $158,400 first mortgage on 5/20/1999.

On 4/18/2003 he refinanced with a $276,000 first mortgage he is now delinquent on. On 2/25/2004 he borrows $120,000 from someone with the same surname. The shortfall on the delinquency on the first mortgage will come out of proceeds available to pay the second; therefore, this is a short sale.

Foreclosure Record

Recording Date: 10/08/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 07/07/2010

Document Type: Notice of Default

If this is a relative holding the second mortgage, the short sale process is as easy or as complicated as that mortgage holder makes it. They should be motivated to settle. The servicer on the first mortgage in default is adding about 1.5% to principal balance each month which eats into the second mortgage recovery.

Irvine Home Address … 14 CARTIER AISLE Irvine, CA 92620

Resale Home Price … $350,000

Home Purchase Price … $207,500

Home Purchase Date …. 5/30/1990

Net Gain (Loss) ………. $121,500

Percent Change ………. 58.6%

Annual Appreciation … 2.5%

Cost of Ownership

————————————————-

$350,000 ………. Asking Price

$12,250 ………. 3.5% Down FHA Financing

5.02% …………… Mortgage Interest Rate

$337,750 ………. 30-Year Mortgage

$72,636 ………. Income Requirement

$1,817 ………. Monthly Mortgage Payment

$303 ………. Property Tax

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

$58 ………. Homeowners Insurance

$140 ………. Homeowners Association Fees

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

$2,319 ………. Monthly Cash Outlays

-$300 ………. Tax Savings (% of Interest and Property Tax)

-$404 ………. Equity Hidden in Payment

$24 ………. Lost Income to Down Payment (net of taxes)

$44 ………. Maintenance and Replacement Reserves

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

$1,682 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,500 ………. Furnishing and Move In @1%

$3,500 ………. Closing Costs @1%

$3,378 ………… Interest Points @1% of Loan

$12,250 ………. Down Payment

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

$22,628 ………. Total Cash Costs

$25,700 ………… Emergency Cash Reserves

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

$48,328 ………. Total Savings Needed

Property Details for 14 CARTIER AISLE Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 1424

$246/SF

Lot Size: –

Property Type: Residential, Condominium

Style: One Level, Mediterranean

Year Built: 1989

Community: Northwood

County: Orange

MLS#: P769891

Source: SoCalMLS

Status: ActiveThis listing is for sale and the sellers are accepting offers.

On Redfin: 1 day

——————————————————————————

The Lowest price in Northwood Villa community! No Mello Roos! Conviniently located near Trabuco Grove shopping center, Heritage Library, and Heritage Park. Private small backyard with wood deck. Direct 1 car garage plus extra 1 deattached cover car garage that can be used as storage. Located in award winning Irvine Unified School District. Great location and investment potential.

Conviniently? deattached?

Thank you for reading the Irvine Housing Blog.

Astutely observing the housing market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

The GSEs have strayed from their original mission, and now they are being used to support bloated house prices. They should be dissolved and their function turned over to private lenders.

Irvine Home Address … 2 GLENOAKS Irvine, CA 92618

Resale Home Price …… $815,000

Time Has Frozen Still What's Left to Be

Hear Nothing

Say Nothing

Cannot Face the Fact I Think for Me

No Guarantee

Metallica — Dyers Eve

Should the government provide loan guarantees to subsidize home ownership? The arguments in favor of government subsidies all come down to putting people into homes they cannot afford in a free market. The theory is that homeowners care more for their properties and community and are less likely to cause social unrest. There is no real evidence to support this idea, but expanding home ownership has been the cornerstone of government policy since before the Great Depression. The arguments against are summarized below.

Ten Arguments Against a Government Guarantee for Housing Finance

By ANTHONY RANDAZZO From the Reason Foundation — February 9, 2011

There is a growing belief among mortgage investors, industry groups and some policymakers in Washington that some type of explicit government guarantees for mortgage lending will be necessary to undergird a new housing finance system in America. Yet whether by the sale of insurance on mortgage-backed securities or a public utility model replacing Fannie Mae and Freddie Mac with new government-sponsored enterprises, this would be a tragic mistake, repeating the errors of history, and putting taxpayers and the housing industry itself at risk. This policy summary offers ten arguments for why there should be no government role—explicit or implicit—in guaranteeing housing finance.

1. Government guarantees always underprice risk. All federal guarantees underprice risk in order to provide a subsidy for lending. That is their purpose. And taxpayers will be exposed to losses in the future, as those risks materialize.

This simple truth is inescapable, yet proponents deny this fact.

2. Guarantees eventually create instability. Guarantees failed to prevent the savings-and-loan crisis and subprime crisis. In fact, they contributed to the cause of both by distorting the market.

When people believe they have no risk, they behave in foolish ways. Why wouldn't people take out a $600,000 loan to speculate on real estate if they have no money in the deal. It's like getting the free spin or free bet at a Las Vegas casino.

3. Guarantees inflate housing prices by distorting the allocation of capital investments. The artificially increased capital flow will make mortgages cheaper, boosting demand for housing and pushing up prices, ultimately creating another bubble.

It was private loan guarantees known as credit default swaps that caused so much money to flow into real estate and inflate The Great Housing Bubble.

4. Guarantees degrade underwriting standards over time. Historically, a primary justification for guarantees has been to increase the availability of finance to politically important groups with higher credit risks. It is inevitable that this will continue to happen, requiring the government to lower underwriting standards, and resulting in more risky mortgages.

Actually, the FHA has proven remarkably resistant to lowering its lending standards prior to the collapse of the bubble. The FHA has been around long enough to be a subprime lender — a role it has been forced into since 2008.

5. Guarantees are not necessary to ensure capitalization of the housing market. As has begun already, the jumbo market will evolve and practically any credit-worthy potential homebuyer will be able to get a mortgage in a fully private system.

Guarantees ensure more capital enters the housing market, but the secondary mortgage market is evolved enough now to exist without the GSEs to facilitate them.

6. Guarantees are not necessary for homeownership growth. Other nations have substantially higher homeownership rates in spite of having far less government interference in their housing markets.

Canada has no counterpart to the GSEs, they have no home mortgage interest deduction, and they have a higher home ownership rate than the United States. They either have better borrowers or better government policy.

7. Guarantees drive mortgage investment in unsafe markets. As long as there is a government guarantee covering financial institutions, investors and lenders will look to the government's credit, not the credit of institutions and loan applicants themselves.

This is the problem at the core of all loan insurance.

8. Guarantees are not necessary to preserve the “To Be Announced” market for selling mortgage-backed securities. If needed, a TBA market could easily develop with originators hedging against any short-term interest-rate risks in the private sector.

There is no guarantee the private sector could not provide assuming the risk can be quantified and valued.

9. Guarantees are not needed to prevent “vicious circles” that drive down prices. Mild price movements in the housing market are necessary to keep balance in the market. Keeping prices artificially high reduces housing demand and prolongs recovery. The most common threat of default as prices decline is from borrowers who have little equity in their homes—because they borrowed at high loan-to-value ratios—seeing the value of their homes drop below what they owe. Guarantees support these high-credit-risk borrowers.

Guarantees are not necessary to prevent a downward spiral in home prices because without guarantees, house prices would never become so elevated above fundamental valuations to cause worry about a downward spiral. The current downward spiral in real estate prices has required loan guarantees because prices were so elevated that the repricing of risk would have cut prices in half if not for the guarantees.

10. Even a limited guarantee on just mortgage-backed securities targeted at protecting against the tail risk will slowly distort credit allocation and investment standards, ultimately destabilizing the market and forcing the need to rely on the guarantee.

The FHA experience argues against this last point, but going forward, if we don't do something with the GSEs, reckless behavior will almost certainly take over because the government is backing all the losses. We know what we must do.

The End of Fannie Mae

Treasury wants the company phased out but punts on how to do it.

FEBRUARY 14, 2011

It's enough to make you believe in miracles: The Obama Administration is now on record as saying that Fannie Mae and Freddie Mac should go out of business. It took a global financial panic and $140 billion in taxpayer losses, but on Friday there it was in black-and-white in the U.S. Treasury's report to Congress on reforming the mortgage market: The Administration will “ultimately . . . wind down both institutions.”

This marks a break with decades of bipartisan support and protection for the two government-sponsored giants of mortgage finance. Fannie Mae has its roots in the Roosevelt Administration, and a phalanx of bankers, mortgage lenders, homebuilders and Realtors worked together to keep the companies growing and federal mortgage subsidies flowing. Now even some Democrats—though not yet those on Capitol Hill—admit their business model was a catastrophe waiting to happen.

This is a Wall Street Journal editorial, so the right-wing political posturing pervades the article. However, their point is true: it took a complete catastrophe for politicians to admit failure.

Under the Administration's proposals, Fan and Fred wind down over five to seven years. The two mortgage giants would, in effect, gradually price themselves out of the mortgage finance market by raising guarantee prices and down payment requirements, while lowering the size of the mortgages they could securitize and guarantee. This sounds like a plausible set of first steps to lure private capital back into the mortgage market, where some 92% of all new mortgages are currently underwritten or guaranteed by the government.

That is an excellent idea for phasing out these monsters. If you take away their margins, competitors will slowly emerge and take up the slack.

The $5 trillion question, however, is what would replace Fan and Fred. And here the Obama Administration has punted, offering the “pros and cons” of three broad proposals without endorsing any one of them.

Door No. 1 is the best of the lot by our lights. Under this option, federal guarantees would be limited to Federal Housing Administration (FHA) loans for lower-income buyers and VA assistance for veterans and farm programs—each a narrowly targeted market segment. A Treasury official says this would reduce the taxpayer backstop over time to about 10% to 15% of the mortgage market.

The Administration puts the case for federal withdrawal from the broader housing market in compelling terms: “The strength of this option is that it would minimize distortions in capital allocation across sectors, reduce moral hazard in mortgage lending and drastically reduce direct taxpayer exposure to private lenders' losses.” Bravo.

Treasury points to other benefits: “With less incentive to invest in housing, more capital will flow into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets. Risk throughout the system may also be reduced, as private actors will not be as inclined to take on excessive risk without the assurance of a government guarantee behind them. And finally, direct taxpayer risk exposure to private losses in the mortgage market would be limited to the loans guaranteed by FHA and other narrowly targeted government loan programs: no longer would taxpayers be at direct risk for guarantees covering most of the nation's mortgages.”

Those two paragraphs more or less sum up 20 years of Journal editorials on housing.

The political right must be ecstatic. They are getting everything they have every wanted with housing. Those two paragraphs from a government report summarize the situation better than I can.

So what's not to like? The Administration says this option could reduce access to credit for some home buyers, and that it would leave the government without the tools to intervene in a future crisis. As for the credit point, other countries have high rates of home ownership with far less government support. If the government stands aside, it would open the way for alternative forms of finance, such as covered bonds, that now can't compete in the U.S. because of government favoritism for the 30-year mortgage model. This would open options for borrowers by increasing the diversity of financing.

As for a future crisis, government intervention is less likely to be needed if the market isn't distorted by government subsidies in the first place.

Amen. Just as affordability products make prices unaffordable, subsidies create the market need for future supports and subsidies.

Behind Door No. 2 is a rump Fan or Fred, one that would stay small in “normal” times but stand ready to step in with Uncle Sam's firepower in a future housing-finance crisis. But as the Administration acknowledges, it would be difficult both to stay small and retain the capacity to go large when needed. We'd add that the political pressure to expand any federal mortgage-lending program would be too great for lawmakers to resist. Within a generation, the winding down of Fan and Fred would be unwound.

Can the GSEs Exist Outside of Government Conservatorship? No. they can't. If they try to keep it around, it will become a political Hydra. Each time we cut off its head, two more will grow in its place.

But the greatest danger lies behind Door No. 3, which looks like Fannie in a new suit. Under this last option, the Administration envisages a group of tightly regulated, well-capitalized private mortgage insurers whose policies would be backstopped by government reinsurance. The government would charge premiums for this insurance, “which would be used to cover future claims and recoup losses to protect taxpayers.” This reintroduces the lethal mix of private profit and public risk by other means.

The problem with Fan and Fred from the beginning was not—despite the Administration's claims—that the profit motive corrupted their benign goals. Rather, the political influence and financial power of the housing lobby ensured that the companies operated outside the normal rules of politics and financial discipline. Thanks to an implicit government guarantee, the market never put any limit on their growth, even as their liabilities climbed into the trillions. Few politicians had the nerve to challenge a housing lobby that would attack them for opposing home ownership. The same political flaws would afflict a future reinsurer and its coterie of putatively private insurers.

The power of the housing lobby is implicit even in the Treasury's refusal to pick a preferred reform. As with entitlement reform, the Administration is leaving the hard work to House Republicans, who will bear the brunt of the political blowback. A reasonable GOP fear is that the Administration, whatever its rhetoric now, will pounce with a veto when it's politically advantageous—in, say, 2012.

Our view is that there should be no federal housing guarantee. If Congress wants to subsidize housing for the poor, it ought to do so explicitly through annual appropriations. One lesson—perhaps the most important—of the financial crisis is that broad policy favors for housing hurt every American by misallocating capital and credit. The feds created incentives to pour money into McMansions we didn't need while robbing scarce capital from manufacturing, biotech and other uses that might have created better jobs and led to a more balanced and faster growing economy.

We realize this is political heresy, but it is the beginning of wisdom in getting government out of the mortgage market. We're glad to see the Administration concede this rhetorically, even if it lacks the courage to embrace its logical policy conclusions.

The conservatives are right on this issue. The GSEs need to be dismantled. The FHA can stay in its current form and continue to provide the emergency backstop market protection it always has. The GSEs are redundant, and their current form of private ownership with public guarantees on the losses is dangerous.

Walking away from $400,000

Today's featured property is not for sale. It is a recent closing in Oak Creek that sold at a loss of about $180,000 after commissions. At first glance this doesn't seem like a big loss, but when you factor in the $200,000 or more this owner spent on upgrades, this house turned into a money pit.

With current financing conditions, this property would cost about $3,500 per month to own. Would it rent for that? If I could afford it, I would pay $3,500 a month to live there. I wouild be delighted to show a deal like this and say I bought it. (I didn't.) Those buyers are as happy as anyone can be that just paid $815,000 for a beautiful tract home in a nice but somewhat noisy neighborhood. I could see spending many happy hours in that pool. I love this house. Isn't the three-car garage cool? 😉

This is perhaps the nicest property I have seen transact at a price I thought was at rental parity.

Irvine Home Address … 2 GLENOAKS Irvine, CA 92618

Resale Home Price … $815,000

Home Purchase Price … $945,000

Home Purchase Date …. 6/19/06

Net Gain (Loss) ………. $(178,900)

Percent Change ………. -18.9%

Annual Appreciation … -3.2%

Cost of Ownership

————————————————-

$815,000 ………. Asking Price

$163,000 ………. 20% Down Conventional

5.02% …………… Mortgage Interest Rate

$652,000 ………. 30-Year Mortgage

$169,138 ………. Income Requirement

$3,508 ………. Monthly Mortgage Payment

$706 ………. Property Tax

$252 ………. Special Taxes and Levies (Mello Roos)

$136 ………. Homeowners Insurance

$136 ………. Homeowners Association Fees

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

$4,738 ………. Monthly Cash Outlays

-$858 ………. Tax Savings (% of Interest and Property Tax)

-$781 ………. Equity Hidden in Payment

$319 ………. Lost Income to Down Payment (net of taxes)

$102 ………. Maintenance and Replacement Reserves

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

$3,520 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,150 ………. Furnishing and Move In @1%

$8,150 ………. Closing Costs @1%

$6,520 ………… Interest Points @1% of Loan

$163,000 ………. Down Payment

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

$185,820 ………. Total Cash Costs

$53,900 ………… Emergency Cash Reserves

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

$239,720 ………. Total Savings Needed

Property Details for 2 GLENOAKS Irvine, CA 92618

——————————————————————————

Beds: 4

Baths: 3

Sq. Ft.: 2273

$359/SF

Lot Size: 6,130 Sq. Ft.

Property Type: Residential, Single Family

Style: Two Level, Traditional

View: Pool, Faces Northwest

Year Built: 2000

Community: Oak Creek

County: Orange

MLS#: S633860

Source: SoCalMLS

Status: This home is sold and off the market.

——————————————————————————

Huge corner lot with magnificent custom salt water PRIVATE POOL & oversized 8-person SPA and waterfall. Volcano-blower with FOUNTAIN effect in shallow-end. Flagstone decking, raised patio and Slate-tiled BBQ area. GOURMET KITCHEN with Solid Cherry-Wood cabinets, including pull-outs & easy-touch drawers. High-end STAINLESS STEEL APPLIANCES. Tumbled travertine backsplash with imported tile inlay. SLAB GRANITE COUNTERS. Upgrades galore. Dark HARDWOOD FLOORS in living room, family room, upstairs hallway and Bull Nose stairs. Custom stone fireplace. Custom built-in entertainment center. Decorator paint. Recessed lighting. Luxurious ITALIAN TUMBLED TRAVERTINE SPA SHOWER, huge tub, custom mosaic tile accents, dual sinks. OVERSIZED WALK-IN CLOSET. Shoe closet holds 80 pairs of shoes! Convenient upstairs laundry. 3-CAR GARAGE with storage cabinets. YOU WILL LOVE THIS HOUSE! Really close to the many association amenities, elementary school, upscale shops & restaurants!

Like many good proposals for reforming mortgage finance, lowering the loan limits insured by the GSEs and FHA likely will not happen because it will lower house prices.

Irvine Home Address … 5732 SIERRA CASA Rd Irvine, CA 92603

Resale Home Price …… $1,999,900

The grass was greener

The light was brighter

With friends surrounded

The nights of wonder

Looking beyond the embers of bridges glowing behind us

To a glimpse of how green it was on the other side

Steps taken forwards but sleepwalking back again

Dragged by the force of some inner tide

At a higher altitude with flag unfurled

We reached the dizzy heights of that dreamed up world

Pink Floyd — High Hopes

During the housing bubble rally, the grass was greener and the light was brighter. At higher prices with boundless hope, we reached the dizzying heights of real estate wealth, a dreamworld of unlimited appreciation and personal spending power.

Currently our housing market is completely supported by and dependent on government loan guarantees. By offering to assume all risk of loss, the federal government though the GSEs and the FHA is underwriting loans at historically low interest rates. This caused money to flow into mortgage lending at a time when proper risk management was to flee. This kept some of the air in the housing bubble which allowed the government to get control of the market's descent. The question is how do we move forward?

What do we do with a housing market completely hooked on government juice?

Treasury report advocates slashing GSE jumbo loan ceiling

The bursting of the housing bubble forced the GSEs and the FHA to start making loans to upper middle class borrowers who shouldn't require subsidies. Transitioning the housing market back to a private system with the free market determining interest rates will take a long time, and it will not be painless.

Lower loan limits would severely impact markets like Irvine

I wish I knew where this debate on mortgage finance reform is going. I suspect they will talk a lot, the rhetoric may get heated, but in the end they will do little or nothing now preferring to kick the can down the road to another crisis.

However, if they do lower the jumbo conforming limit from $729,750 to $417,000 or below, the meat of the Irvine market would suddenly have to pay jumbo rates. We would be among the first markets in the country to experience the transition from public to private financing. Jumbo rates are somewhere between half-a-point and one point higher than conforming rates. If future buyers are facing higher interest rates, their hopefully higher incomes will not be leveraged as much, and the loan balance will not be larger.

Markets where jumbo conforming loans ($417,000 to $729,750) are prevalent, the market impact will be the most noticeable. If you combine that with the possibility that loans that large will no longer be tax deductible, and borrowing huge sums to take a position in real estate doesn't seem quite so appealing. Future take-out buyers will not be so leveraged.

$30,000 plus 15 years equals $1,700,900?

The owners of today's featured property paid only $299,000 for this corner lot back in 1996. These owners used a $269,000 first mortgage and a $30,000 down payment. It looks like they tore down what was there and built a new home on the lot. Apparently, it was quite the upgrade because now they think this property is worth many times what they paid for it.

They refinanced on 2/2/2003 for $412,000 which likely paid for the upgrade and renovation. The description says this owner is an architect. If so, he is starving right now, and the 4/27/2010 refinance for $578,000 probably went to pay the bills. This isn't the only architect i know trying to sell their house because they aren't making any money. Very sad.

So this starving architect is selling his dream home. It may be sad to lose a dream home, but if we walks away with over a million dollars, he shouldn't cry very long.

Irvine Home Address … 5732 SIERRA CASA Rd Irvine, CA 92603

Resale Home Price … $1,999,900

Home Purchase Price … $299,000

Home Purchase Date …. 2/20/96

Net Gain (Loss) ………. $1,580,906

Percent Change ………. 528.7%

Annual Appreciation … 12.9%

Cost of Ownership

————————————————-

$1,999,900 ………. Asking Price

$399,980 ………. 20% Down Conventional

4.99% …………… Mortgage Interest Rate

$1,599,920 ………. 30-Year Mortgage

$413,628 ………. Income Requirement

$8,579 ………. Monthly Mortgage Payment

$1733 ………. Property Tax

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

$333 ………. Homeowners Insurance

$125 ………. Homeowners Association Fees

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

$10,771 ………. Monthly Cash Outlays

-$1650 ………. Tax Savings (% of Interest and Property Tax)

-$1926 ………. Equity Hidden in Payment

$776 ………. Lost Income to Down Payment (net of taxes)

$250 ………. Maintenance and Replacement Reserves

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

$8,220 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$19,999 ………. Furnishing and Move In @1%

$19,999 ………. Closing Costs @1%

$15,999 ………… Interest Points @1% of Loan

$399,980 ………. Down Payment

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

$455,977 ………. Total Cash Costs

$126,000 ………… Emergency Cash Reserves

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

$581,977 ………. Total Savings Needed

Property Details for 5732 SIERRA CASA Rd Irvine, CA 92603

——————————————————————————

Beds: 5

Baths: 5

Sq. Ft.: 5403

$370/SF

Lot Size: 10,160 Sq. Ft.

Property Type: Residential, Single Family

Style: Two Level, Contemporary, Mediterranean, Modern, Tuscan

View: City Lights, Hills, Mountain, Panoramic, Yes

Year Built: 2008

Community: Turtle Rock

County: Orange

MLS#: S646188

Source: SoCalMLS

Status: ActiveThis listing is for sale and the sellers are accepting offers.

——————————————————————————

Stop! You have never seen anything like this magnificent custom home with a unique floorplan that offers the ultimate in privacy, a flexible floorplan, outstanding outdoor entertaining areas built with remarkable finishes. This trend setting home, designed by the owner/architect, offers a huge (1,049 SF) home office with conference room which could also be a separate apartment or in law suite. In addition, the layout offers 2 master suites on the first floor, 2 view retreats, a welcoming 459 sq. ft. outdoor veranda with fireplace and 12' wood beamed ceiling, a huge (813 sq. ft) upstairs wing dedicated to entertaining while capturing the fabulous sunsets, city lights, snow capped mountains and surrounding hillsides. At the heart of the home is the kitchen with exquisite custom mahogany cabinetry designed by renowned Ziething Cabinets w/ gorgeous granite counters and top of the line stainless steel appliances. Over 2,300 sq. ft of travertine stone flooring throughout.