Through me the way to the city of woe,
Through me the way to everlasting pain,
Through me the way among the lost.
Justice moved my maker on high.
Divine power made me,
Wisdom supreme, and primal love.
Before me nothing was but things eternal,
And eternal i endure.
Abandon all hope, you who enter here.
Dante Alighieri — Divine Comedy
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Housing market bulls must abandon all hope. We are witnessing a collapse of house prices not seen since the Great Depression. There are no signs of bottoming or even a slowing of the decline at this point in time. The secondary mortgage market is in shambles; despite the best efforts of the Federal Reserve, mortgage interest rates are rising; credit is tightening; sales volumes are anemic; if it were not for the persistent talk of government bailouts, there would be no hope at all.
We need hope. Hope is as essential as food or water. Presidential candidate, Barack Obama wrote about “Hope in the face of difficulty. Hope in the face of uncertainty. The audacity of hope!” We all want a bright and hopeful future, and for people renting and saving their money, the collapse of house prices is reason to hope; however, for those who speculated on real estate; for those who are overextended on their mortgage obligations needing to refinance; for those who are depending on their home equity for a comfortable retirement; for those people, the market reality is pretty bleak, and denial and hope is all they have left.
During the Great Depression, the last time the nation witnessed house price declines on the scale we are seeing now, America turned to a new president for hope. Franklin Roosevelt gave radio addresses known as “fireside chats.” He used these chats to outline his policy programs (many of which made the depression worse,) but the primary service President Roosevelt provided the nation was the dispensing of hope. There was not much the President or anyone else could do about the problems of the Great Depression, just as there is not much anyone can do about the Great Housing Bubble. Franklin Roosevelt’s chats during the Great Depression and Ronald Reagan’s speeches during the worst of the recession of the early 1980s gave Americans comfort and hope. If we are in a deep recession at election time (which seems likely,) our next President will be called on to do the same. The election will become less about issues and intellectual competence and more about inspiration and emotional comfort. People vote for emotional reasons; people want to believe in their leaders and be inspired by them. When Barack Obama wrote “The Audacity of Hope,” he hoped to inspire a generation with his words. Given the sorry state of our national economy, Americans may turn to this man, not because he is the best qualified to be President, but because is the best at dispensing hope.
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Asking Price: $399,900
Income Requirement: $99,975
Downpayment Needed: $79,980
Monthly Equity Burn: $3,332
Purchase Price: $470,000
Purchase Date: 9/8/2004
Address: 1608 Terra Bella, Irvine, CA 92602
| Beds: | 2 |
| Baths: | 3 |
| Sq. Ft.: | 1,146 |
| $/Sq. Ft.: | $349 |
| Lot Size: | – |
| Type: | Condominium |
| Style: | Mediterranean |
| Year Built: | 2000 |
| Stories: | Two Levels |
| Area: | Northpark |
| County: | Orange |
| MLS#: | S516093 |
| Status: | Active |
| On Redfin: | 86 days |
Great corner unit with private balcony above garage. Spacious and large living room. Custom paint, Berber carpet, & paneled flooring. No one above or below with only one shared wall. Parks and all recreation just steps away. 2-car tandem garage with lots of storage.
Love those tandem garages…not!
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Look at this rollback — 15% off a 2004 price. If this isn’t hell for homeowners, I don’t know what is. Price declines of this magnitude certainly cannot be inspiring much hope.
This unit was purchased in September of 2004 by a flipper using 100% financing through Accredited Home Lenders. The loan was sold off to a CDO managed by the Bank of New York Trust Company. Our flipper walked away, and the property went into foreclosure on July 12, 2007. The trustees paid $457,854, and they have been trying to sell it ever since. Apparently the trustees are not skilled at disposing real estate because we are 8 months later and this property has seen two listings and six price reductions.
Date Price
Original List $535,000
Jul 03, 2007 $519,000
Sep 27, 2007 $499,000
Sep 28, 2007 $495,000
New Listing
Dec 25, 2007 $469,900
Jan 23, 2008 $460,500
Feb 15, 2008 $439,900
Mar 20, 2008 $399,900
It is difficult to say exactly how much the CDO will lose on the deal. The trustees managing the CDO have likely been accumulating unpaid interest and fees associated with this property and added this to their basis. In other words, they probably have upwards of $550,000 tied up in the property that collateralized the original $470,000 loan. Let’s assume they have a $535,000 basis based on their original asking price back in July of 2007, although it is likely much higher. If the trustees gets their asking price the total loss to the CDO bond holders will be $159,094 after a 6% commission.
Remember, this is on a 2004 purchase. When the lenders start losing this kind of money on loans they made in 2004, imagine the losses they will take on loans made later at higher prices. What is going to happen when all the 2004, 2005, 2006 and 2007 buyers — who are currently underwater — start walking away from their properties? This is what the people who manage our economy fear most, and it is probably what is going to happen. The losses to the lenders and to those holding their toxic waste are going to be staggering.
Prepare yourself for financial Armageddon.
That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’
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Razors edge
Outlines the dead
Incisions in my head
Anticipation the stimulation
To kill the exhilaration
Close your eyes
Look deep in your soul
Step outside yourself
And let your mind go
Frozen eyes stare deep in your mind as you die
Close your eyes
And forget your name
Step outside yourself
And let your thoughts drain
As you go insane… [go] insane
Inert flesh
A bloody tomb
A decorated splatter brightens the room
An execution a sadist ritual
Mad intervals of mind residuals
Close your eyes
Look deep in your soul
Step outside yourself
And let your mind go
Frozen eyes stare deep in your mind as you die
Seasons In The Abyss — Slayer
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