How lucky can one guy be; I kissed her and she kissed me Like the fella once said, Ain’t that a kick in the head? The room was completely black I hugged her and she hugged back. Like the sailor said, quote, “Ain’t that a hole in the boat?” My head keeps spinning; I go to sleep and keep grinning; If this is just the beginning, My life’s gonna be beautiful. I’ve sun- shine enough to spread; It’s like the fella said, “Tell me quick Ain’t love like a kick in the head?”
Ain’t that a hole in the boat? When the boat (property) is underwater, it is dangerous to have a gaping hole either because the property has negative cashflow, or the ARM is about to explode. The reset is a kick in the head many have endured and many more know is coming.
With the impending doom of underwater owners, many are walking away before the resets hit. The negative impact of mortgage resets is being pulled forward into 2009 and 2010. This is market capitulation and the only way to clear out this bad debt once and for all.
Capitulation is painful; it is subordinating your will to the Will of the Market; it is the collapse of entitlement; it is the abandonment of dreams.
Beds 1 Baths 1 bath Size 934 sq ft ($284 / sq ft) Lot Size n/a Year Built 1994 Days on Market 3 Listing Updated 10/27/2009 MLS Number S594166 Property Type Condominium, Residential Community Airport Area Tract Met
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Gorgeous 1 Bedroom Plus A Den/Office (could Be Bedroom), Neutral Beige Tones with Upgraded Carpet, Granite Counters In Kitchen & Bath with Tumbled Stone. Master Bedroom Has a Walk-In Closet with Built-Ins. Master Bath Has Walk-In Shower with Rain-Glass and a Large Separate Tub. Den Has Direct Bath Access for Guests. Crown Moulding in Living Room, 9 Foot Ceilings, Updated Fixtures, Lighting and Window Treatments. Refrigerator and Stacked Washer/Dryer Stay. Light and Bright with View of Trees. Set Back from the Street with a Large Private Balcony you can Access from Living Room or Master Bedroom. Two Deeded Parking Spaces. Beautiful Tropical Pool and Spa Area, Gym and Entertainment Room. 24-Hour Guard-Gated Entry. Great for the Corporate and Urban Lifestyle. Walk to John Wayne Airport, The Irvine Museum, and San Joaquin Wildlife Sanctuary. Drive to Balboa Island and Newport Beach in Minutes.
Why Is This In Title Case?
Urban Lifestyle. Walk to… Not in Irvine, not yet…
I don’t have the property records on this property, but it isn’t the only property for sale under duress in this complex:
Taxes and opportunity costs impact the financial life of owners in ways that have nothing to do with the property. Today we will examine these two features more carefully.
My strength slips away Soon I must fall Victim of fortune My sources grow small Life slips away As demons come forth Death takes my hand And captures my soul
Over the last four days we looked at the four main variables that determine home price:
borrower income,
allowable debt-to-income ratios,
interest rates, and
downpayment requirements.
Today we are looking at tax implications and opportunity costs because these number will give you a more accurate measure of the impact home ownership will have on the owner’s financial life.
Taxes
Owning real estate has two significant tax benefits: (1) favorable capital gains tax exemptions and (2) income tax benefit through the home mortgage interest deduction (HMID). Be forewarned that this is not an exhaustive treatise on every permutation in the tax code. I am going to look at the general case the most people will find themselves in.
Capital Gains Taxes
If you own a home more than two years, you can ignore the gains on the first $250,000 or $500,000 if your married. If you don’t make more than $250,000 or $500,000 on the sale — which most people don’t — then you don’t pay any capital gains taxes. It is a tremendous tax advantage that favors capital gains and appreciation.
The reason we have a large deduction or excluded amount is because years ago when there was no exclusion, long-term homeowners would be punished with capital gains taxes when they sold a principal residence when most of that gain was due to inflation. Without a method of adjusting the purchase price basis for inflation (like using the CPI), owners are being taxed on the profits created by inflation. They are getting less than their money back when you consider money’s purchasing power.
Personally, I think it would be a good idea to link the property basis to inflation. An exclusion can be created by linking the basis for the capital gains to the Consumer Price Index, and the tax can be levied on any overage. For instance. If someone purchased a home for $100,000 when the CPI was at 100, then later the property was sold for $300,000 when the CPI was at 200, the tax would be levied on only half the profit:
Adjusted Basis = Original Price times new CPI divided by old CPI Adjusted Basis = $100,000 * 200 / 100 = $200,000.
$300,000 Resale Price $200,000 Adjusted Basis $100,000 Profit subject to Capital gains tax.
This gets around the issue of inflation taxing while taxing irrational exuberance. It will never happen.
The big tax break for capital gains is what makes life as a mid-term flipper possible. There were many people during the bubble who bought with intention of flipping in two years when their gains would not be taxed. Of course, this tax strategy took second place to the pandemonium of the crazy market rally.
Favorable capital gains tax treatment is really a tax-free retirement savings account Uncle Sam worked into the system to benefit homeowners. If you own a property long enough to have capital gains, and the sale of that home represents a significant portion of family savings (which is usually does), the capital gains tax benefit can have significant financial impact on your financial life in retirement.
Income Taxes and the Home Mortgage Interest Deduction
The tax code allows wage earners the ability to give up the Standard Deduction and write off Home Mortgage Interest against their income on Schedule A. If the taxpayer is already itemizing deductions for expenses not related to home mortgage interest, then the taxpayer recieves the full benefit of this deduction.
The deduction is simple. Lenders issue a form 1098 telling a borrower how much interest they paid during the year, and this is put in the tax forms as a deductible interest expense. It does phase out for loans over $1,000,000, and there are exclusions from the deduction, but for most borrowers this is a significant benefit of ownership.
The root of this very popular deduction comes from the need to give owner-occupants the same tax advantages landlords have. Why should landlords get to deduct interest expense and owner-occupants can’t? Whether or not this is justification for the deduction, I don’t know. I do know that it will not be going away any time soon.
Calculating the true tax benefit of owning versus renting
The income tax benefit is calculated in the IHB Fundamental Value Report based on a simple estimation that most buyers will be getting a tax benefit at about 10% lower than their highest marginal tax rate. We base our estimate on two factors: (1) not all of the interest deduction would have been taxed at the highest marginal rate and (2) the loss of the Standard Deduction reduces the value of the home mortgage interest deduction. Anecdotally, when people expert in tax matters have run scenarios with tax software, the 10% reduction in effective tax savings has proven a useful estimate.
Let’s look in more detail as to why this effect happens. Assume a borrower has $50,000 in mortgage interest during a tax year, and this borrower makes about $150,000. For this borrower, the portion over $137,050 is taxed at 28%, and the amount between $67,900 and $137,050 is taxed at 25%, the gross tax savings would be about $12,888 for an effective marginal tax rate of 25.5%. This is the impact of crossing marginal tax rate lines.
Also, to be more accurate, we must subtract the negative impact of giving up the Standard Deduction of $11,400 for a family. If borrowers have $50,000 in deductible interest, but they have to give up $11,400 in tax benefit to get it, the net tax write off is $38,600. Crunching the numbers shows the tax savings is $10,038 instead of the $12,888 people thought they are getting. This reduction in tax benefit due to giving up the Standard Deduction.
When you combine these two effects, a good guide is to take 10% off the borrower’s highest marginal tax rate.
Opportunity Cost
When a buyer puts money into real estate and takes ownership, it changes their financial life. Money for a downpayment had to come out of some other asset even if this is only a savings account or CDs. The place where the money used to be parked either paid interest or provided some return. The interest, dividends or positive change in value of the competing asset is an opportunity cost the buyer must consider.
For instance, a buyer could choose to rent and park their money in a 2-year CD and earn about 2.25%. When someone goes to buy a house, they will take money out of CDs and put it into real estate where it earns nothing — unless prices appreciate. However, when considering the purchase from a cashflow basis, owning the asset can provide a cash return if your cost ownership is less than the cost of renting the same unit. This return is independent of appreciation and provides the only reasonable financial reason to own when prices are flat or declining.
Calculating Opportunity Cost
Projecting future costs is more an art than a science. Trying to estimate the opportunity costs of an average investor over the life of a 30-year mortgage is a guess at best. However, since this opportunity cost is real, there are useful theoretical models for providing an estimate to use in decision making.
Interest rates on savings are tethered to mortgage interest rates as all debt and deposit instruments are tied together in the web of risk and return in the debt market. The loosely correlated relationship between mortgage debt and reliable savings returns like medium-term Certificates of Deposit is the basis for estimating opportunity cost.
When mortgage interest rates are very high, the demand for money is high, and lenders will be paying high CD rates to try to supply the demand for money through loans. The inverse is also true. When lenders do not need money to loan, interest rates fall, and lenders do not need to pay borrowers much for money. Plus, in a deflationary environment the lender has no reliable customers to loan the money to anyway.
This direct relationship between mortgage interest rates and CD rates — irrespective of how loosely correlated they may be — is the basis of my calculation. I make the following assumptions:
CD Rates will never fall below 1%.
As mortgage rates go up, CD rates will go up 66% as fast.
When I put in different test numbers, the stretching spreads this formula creates does re-create the same phenomenon that happens in the real world when inflation expectation is added into the market’s thinking.
We have the ability to override our default settings and put in whatever inputs you believe most accurately reflects your financial situation in our reports.
Beds 3 Baths 2 baths Size 1,816 sq ft ($273 / sq ft) Lot Size n/a Year Built 1980 Days on Market 84 Listing Updated 10/11/2009 MLS Number S584100 Property Type Condominium, Residential Community Woodbridge Tract We
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Spacious single level home with formal dining and living room. Open kitchen with a large breakfast nook. Great private yard. Two car garage with indoor laundry. Located in the heart of Irvine in the woodlbridge village that offers, two lakes, pools, and tennis courts.
This short sale was purchased on 12/9/2004 for $555,500. The speculator used a $400,000 first mortgage, a $125,000 second mortgage, and a $30,500 downpayment. On 12/30/2005 he opened a HELOC for $208,000. Total property debt is $608,000. Total mortgage equity withdrawal is $$83,000 including his downpayment.
I don’t know what hoops people are being asked to jump through to get loan modifications, but this owner has dutifully stopped making payments and listed the property for sale.
Foreclosure Record Recording Date: 07/15/2009 Document Type: Notice of Default Document #: 2009000378012
I hope you have enjoyed the week of analysis posts here at the IHB. I may not be so ambitious next week. I over did it.
Thank you for reading the Irvine Housing Blog: astutely observing
the Irvine home market and combating California Kool-Aid since
September 2006.
I asked our resident HOA expert to write a few words about HOA issues for today’s post. The author has served on the board of his large HOA for 16 years,
worked for one of the largest HOA management companies, and was also on
the Fountain Valley City Council for six years. Lately he’s been
working to expose the scandal behind the sale of the Orange County
Fairgrounds with this link. He’ll be responding to comments.
Do you remember the good old days before the ghost town? We danced and sang as the music played in any boomtown This town (town) is coming like a ghost town Why must the youth fight against themselves? Government leaving the youth on the shelf This place (town) is coming like a ghost town No job to be found in this country Can’t go on no more The people getting angry
High HOA fees can make a ghost town out of a good neighborhood. This cost is unique among our cost estimates because there is a high degree of uncertainty about the future of HOA fees — and worse yet, the possibility of assessments — that are not in a point-in-time analysis like the IHB Property Valuation Report.
Today is part 4 in the ongoing series on Ownership Cost:
Over the last three days we looked at the four main variables that determine home price:
borrower income,
allowable debt-to-income ratios,
interest rates, and
downpayment requirements.
Today we are looking at homeowners associations because this expense (1) reduces your payment to the lender, (2) reduces the
amount you can borrow and bid, and thereby (3) reduces the value of real
estate. People can persuasively argue that HOAs add more value than they cost, and I believe this is true, but that value is reflected in market comps. When you examine the details of cashflow, HOAs are a cost, nothing more.
The following is the words of our guest author OC Progressive.
Avoiding the toxic condo association
As the housing crisis continues, some condo associations can
be dominos lined up to fall.
This is not to say that you should avoid any
property with
a Homeowners Association, and in large swathes of Orange County,
it’s very hard to have a property that doesn’t have an HOA. As a best
example, let’s
look at my large scale HOA in Fountain Valley. This is a master
recreation association which
maintains 20 acres of parks, three pools, and some buildings in a forty
year
old neighborhood with 1,048 homes. The association runs a swim team,
picnics,
kids’ events at holidays, and doesn’t get involved in telling people
what color
to paint their homes. The city maintains the streets, street
lighting, sweeps the streets, writes parking tickets, and has code
enforcement officers to keep properties maintained.
Properties don’t turn over very quickly here, but we’re
still seeing the results of the borrowing binge. Our assessments over 90 days
past due have tripled in the last year, and the money we will write off as
uncollectible could be in the $10,000 range next year, versus less than $1,000
last year. It doesn’t make the directors happy, but our budget is over $750,000
a year, our capital reserves are fully funded at close to $500,000 and we have
operating funds in the bank of over 100,000.
So a ten-fold increase in uncollectible assessments is a
blip on our balance sheet. A couple more years like this and we might have to
raise assessments another dollar or two a quarter.
Los Condos Diablo
Let’s take the reverse of this scenario, with a condo
association somewhere in South
County we’ll call Los Condos
Diablo. It’s a 200 unit association where everything is a common asset – not just
the land, but the sidewalks, streets, street lights, the roofs and walls of
every building, the trash enclosures, stairways, patios and decks.
Builders threw the place up quickly and there have been
serious ongoing maintenance problems which have been handled with band-aid type
repairs. The board of directors has been very reluctant to raise assessments,
so the reserves are funded at around 20% . Emergency safety repairs, collapsing
stairways, remediating mold problems from roof leaks, and other expensive problems
keep preventing them from catching up on maintenance. Exterior second story
decks that should have had a new surface coating, new paint and gutters now needs to
be torn down and completely rebuilt.
So instead of being like my HOA, where we are current on all
of our maintenance and have $600 in the bank for each homeowner, Los Condos Diablo
has net deferred maintenance liabilities of $5,000 a unit, and is struggling to
pay their bills every month. Because so many structural elements have been
compromised, to bring this set of buildings to good condition would take over a
million in reconstruction, money they don’t have and can’t save or borrow.
And here’s the kicker for that condo association. They were
upside down on their maintenance before people started defaulting on their
loans, and people are defaulting like crazy. These were entry level condos, and
when prices started rising, lots of folks cashed out and moved up. Over half
the units turned over close to the peak, and probably two thirds of them are
underwater.
When someone loses a job or just gives up, they stop paying
their HOA fees. The HOA starts adding penalties, filing liens, sending notices,
and running up legal costs. Ultimately, some day, the bank forecloses and the
property changes hands. At that point all of the past due assessments get
written off. The bank is only responsible for payingfrom the date they assume title. Worst of
all, a management firm or collection firm might now be owed late fees and legal
fees that were assessed.
With assessments of$250 per month past due for 18 months, plus another $500 in fees the
condo association is out $5,000 that they need to collect somehow from the rest
of the owners. If ten percent of the 200 units go belly up, the remaining 180
owners each now has another $555.00 apiece in debt that they share with the
remaining owners.
Now let’s add another kicker. The Directors of the Condo
Association, volunteers who have stepped up out of civic duty, see all of this
coming and can see it getting worse and worse. Their neighbors rise up in anger
when they try to raise assessments, cursing and threatening recall. Instead of continuing to take abuse from their
neighbors, they resign or sell out and move on, leaving the community without a
board of directors. The management company tries to hold a new election, and
nobody volunteers. They send a letter to all the owners, resigning their
contract.
So the State Department of Real Estate ….. Oh wait, there
isn’t any agency with responsibility to pick up the slack for a failed condo
association. What happens next is anybody’s guess, but it will most likely
involve lawyers and the Superior Court, adding another layer of debt to each
owner.
So if you think you’re getting a bargain in a low-end bank
owned condo, you might in fact also be buying a big liability that you will
have to pay for somewhere down the line.
Never, ever make an offer on a condo without getting a copy
of the last year’s budget, and seeing the state mandated disclosure from the
reserve study. If you can’t get it, walk away. WALK AWAY, and if an agent tells
you it’s not important, he’s either a fool or a scoundrel.
Reserve Studies
A reserve study is a document that is updated every year as
required by state law. It’s fairly complex, yet also pretty simple.
We know
that woodwork on buildings needs to be painted every four years and stucco
every eight years. We know the pool needs re-plastering every twelve years. We
know that the life on the flat roof is around fifteen years, and that the
playground equipment should be replaced after every fifteen years. So an
analyst assigns a cost and a life to each major component of an association.
Then they figure out how much the association should be saving for each
component, and plug it all into a big spreadsheet. That shows how much should
be available every year for major maintenance and replacement items, and how
much the association should be setting aside so that money is available. The
idea is that the level of assessments remains very stable as long as the
association doesn’t have to pay for several major components all at once from their
monthly assessments.
There’s a big catch. The state requires that you do a study,
disclose the results, and have a plan if there’s a deficiency, but the
association doesn’t actually have to appropriate the money, and most fall
short.
So a smart buyer has to look at the summary of the reserve
study has to be mailed with the budget, and the calculation that is required by
state law.
Here’s what it looks like for a fully-funded reserve from my
own association.
Based on the method of calculation in paragraph(4) of subdivision (b) of Section 1365.2.5,
the estimated amount required in the
reserve fund at the end of the current year is 452,933 based in whole or in
part on the last reserve study or update prepared by Advance Reserve Solutions,
Inc. as of January 1,2008. The projected
reserve fund cash balance at the end of the current fiscal year is $433,225,
resulting in reserves being 96% funded at this date, The current deficiency in
the reserve fund represents $18.81 per ownership unit.
This is a source of pride. For every one of the 1048 units, there is $413.38
in funds dedicated to replace everything. That money is set aside in separate
accounts that can’t be used for operating expenses, and there’s an annual
contribution to maintain the counts at close to the ideal level.
Let’s say you have another association, where the
association hasn’t funded their reserves. That line might show reserves funded
at 50% and a deficiency in the reserve fund of $1153.41 per unit. Is that bad?
Not necessarily. But you better budget for your HOA assessments to increase by
20% per year, which is the maximum allowed by state law without a vote of the
members.
Although it’s improbable, even an association with reserves
funded at 10% might be financially solid if they have just completed re-roofing
every building and replacing every piece of deteriorating wood work.
Where does the red flag go up, where you should just steer
clear of a condo?
As a rule of thumb, less is more, but bigger is better. The
fewer parts of the individual units that are maintained by the association, the
less likely you are to face significant issues from underfunded reserves and
deferred maintenance. And also, the larger the association, the more likely you
are to have professional management, and the more units you have to divide
fixed annual costs like the corporation filing fees, d&o insurance policy,
cost of the reserve study, et cetera.
Before you start looking, find a real estate agent to represent you who
understands what you’re talking about, and knows that you’re going to need a
copy of the last budget before you make an offer. Just as there are HOA’s where
you’re actually getting a valuable share in cash assets as part of your
purchase, there are professionals out there who will help you gather the
information you need to make a good decision.
Then use some common sense and use your eyes.
Look at the numbers in the budget and the reserve study.How long would it take the association to
catch up on under-funded reserves?How
much is the deficit in relation to the value of the unit and the current
monthly payment? Underfunded reserves are frequently associated with
dysfunctional condo politics, deferred maintenance and serious rates of
delinquencies. Politics? Yes, some associations have repeated recall elections,
with warring factions wasting money on attorneys while their finances fail, or
they have idiots elected to their boards who are more interested in the
neighbor’s dogs than preserving and protecting assets.
So if the numbers don’t look good, they may in fact be far, far worse.
Also, look for signs of deferred maintenance – rust on
wrought iron fences, peeling paint and dry rot, missing roof tiles, cracks in
asphalt are the most obvious, but with a sharp eye you can look at the edges where
the decks meet stucco, where the eaves meet the roof and see if these most
vulnerable areas look as if they’re tightly sealed and well-maintained.
Whatever you do, steer clear ofLos Condos Diablos, the nightmare association
where everything is going wrong. At its worst, it’s broke, internally at war,
and unable to find a way out of the hole that its owners have been excavating
for years. Every dollar you put into a part of a failing condo association is at
risk.
[end of quote]
HOA Analysis Service
The author of today’s post has been in contact with me via email for quite some time. He is contemplating offering HOA analysis as a service, and I told him it is a great idea. IMO, getting an HOA analysis is just as important as getting a home inspection.
Both HOA analysis and home inspection are insurance against unknown expenses you may face in the future if you acquire property. A cracked foundation can cost you tens of thousands of dollars — an underfunded HOA can cost you even more. Both are equally important.
Unfortunately, to my knowledge, nobody is providing HOA analysis as a service. The documents are hard to get (HOAs are not keen to display their dirty laundry), and the initial review is time consuming, but such a service would cost no more than a home inspection, and perhaps even less.
In a post-Great Housing Bubble era, we will see a financial wasteland on HOA balance sheets. Many have always been underfunded, but even strong HOAs will suffer when the payments stop coming. Most readers of the Irvine Housing Blog will buy in a community with an HOA. Without this service, it will be a crapshoot whether or not you find a stable and well-funded HOA.
If any readers care to comment on whether or not you consider this service to be valuable, perhaps we can convince the author to offer this service to everyone. I think it would be great.
Beds 3 Baths 1 full 2 part baths Size 2,187 sq ft ($278 / sq ft) Lot Size n/a Year Built 1986 Days on Market 4 Listing Updated 10/20/2009 MLS Number S593399 Property Type Condominium, Residential Community Woodbridge Tract Ge
According to the listing agent, this listing is a bank owned (foreclosed) property.
Two story end unit with 3 bedrooms and 2.5 baths. Large Living Room with vaulted ceilings and fireplace. Formal Dining Room and breakfast nook plus Family Room with another fireplace! Master suite has separate tub and shower. Upstairs laundry. Mirrored wardrobe doors in all bedrooms. Large sideyard with lots of hardscape and a fireplace.
This property was a peak purchase with an Option ARM. The owners held out a bit longer than most because they had some of their own money in the deal.
The property was purchased on 10/18/2006 for $710,000. The owners used a $568,000 Option ARM with a 1% teaser rate, a $71,000 second mortgage, and a $71,000 downpayment. The gave up in late 2008…
Foreclosure Record Recording Date: 05/28/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000272123
Foreclosure Record Recording Date: 02/26/2009 Document Type: Notice of Default Document #: 2009000091143
The auction price is 26% below the original purchase price. The lender is trying to recoup a bit more with this asking price. Given the state of our market, they will probably get it.
The conditions of the market cause sellers to change their motivations when pricing properties. The ones that do not need to sell, generally do not. Our market is almost exclusively motivated sellers.
Cross off the names Of all who died here, And I’ll become the sacred faith you lost. I’m thinking… Every second changes everything In my life. Every second changes everything – The panic will see me through.
Sellers are feeling the upper hand in the market locally due to the lack of available inventory. Motivation is suffering and WTF listing prices are springing up like greedy weeds. Buyers are beginning to panic — hopefully, the IHB readership is calm during this storm. You are not priced out forever.
The third column represents seller motivation. As their motivation increases, they just want to get rid of the property, and they lower their price until they do so. Today, we are going to look at two properties purchased by knife catchers in early 2007. One of them has accepted his fate as a knife catcher and priced the property to sell; the other has not.
Beds 3 Baths 2 full 1 part baths Size 1,900 sq ft ($447 / sq ft) Lot Size 3,988 sq ft Year Built 1997 Days on Market 5 Listing Updated 10/11/2009 MLS Number S592398 Property Type Single Family, Residential Community Northwood Tract Trem
SHOWS LIKE MODEL Private community in a quiet area within Northwood. Living Room w/ textured hardwood floors & vaulted ceilings w/ plenty of natural light. Travertine throughout the kitchen w/ whisper-quiet BOSCH dishwasher & enjoy the spacious Family room w/ cozy fireplace- watch a movie w/ a built-in space saving entertainment area; The garage has cabinets, shelves, and overhead storage; Best schools in the Nation; Olympic-size pool and largest Neighborhood park in Irvine just steps away!
Do you think this property has appreciated since late 2007? This seller is following the typical pattern: (1) price to breakeven, (2) price to preserve some equity, (3) price to avoid short sale, (4) give up.
The owner of our second featured property is more motivated — or he has given up — the results are the same; lower prices.
Beds 2 Baths 2 baths Size 1,112 sq ft ($341 / sq ft) Lot Size n/a Year Built 2004 Days on Market 2 Listing Updated 10/14/2009 MLS Number S592734 Property Type Condominium, Residential Community Quail Hill Tract Ambr
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Quiet upper end unit with no one above or below. Centrally located close to Irvine Spectrum. Resort style amenities including association pool, tennis courts, gym and parks.
The family losing this place at least tried to be responsible. They overpaid, but they put some money down, and when they refinanced in 2007, they did not take out much equity. They still had some of their own money in the property when prices when south.
{book2}
Maybe some sellers just need a little more motivation….
People are afraid to face the hard landing, so we prompt our officials to endlessly support the market to avoid an uncertain fate. Which is better? crashing hard? or landing soft?
I felt all flushed with fever, embarrassed by the crowd, I felt he found my letters and read each one out loud. I prayed that he would finish but he just kept right on …
Strumming my pain with his fingers, Singing my life with his words, Killing me softly with his song, Killing me softly with his song, Telling my whole life with his words, Killing me softly with his song …
The mess in our housing and financial markets are slowly draining the life out of us. The powers-that-be are killing us softly with their endless song and dance. Our government and the Federal Reserve want to engineer the fabled “soft landing.” So how would we measure their success?
A soft landing for the FED would be a slow and controlled decline of
house prices to levels sustainable by local incomes and free-market
financing conditions. The reason they will let it drop is to shorten
the time they have to support the market. The reason the Federal Reserve does not want to let it crash hard… they do not want their member banks to lose any more money. Wait, perhaps you thought it was because the US Government cares about you and your home prices… victim of the spin machine.
The FED’s mechanism for making the soft landing happen is the control of mortgage interest rates through direct purchase of agency paper. If the government insures it and the FED buys it, they could theoretically completely support the US housing market. There is no limit to the size of the Federal Reserve’s balance sheet. I doubt it would come to that.
The mechanism for recycling bad debt is (1) for the GSEs and the FHA to encase it in a new 30-year fixed loan at very low interest rates and (2) have the Federal Reserve buy that paper and hold it through maturity. The FED would not care about its actual value, it is merely stockpiling the detritus from the housing bubble… A toxic mortgage enema… The Federal Reserve’s Yucca Mountain… It will fester on the FEDs balance sheet — a pestilence contained in a paper sarcophagus where nobody looks and nobody cares.
{book4}
Soft Landing?
Payments are now affordable with conventional financing on most
properties, particularly those outside of Irvine. This is just a fact. The Federal Reserve has accomplished its primary market objective — stabilize prices through creating affordability. I believe prices will continue to fall for a number of other reasons, but payment affordability is no longer driving the price decline.
Now that we have reached payment affordability, how stable is that
affordability? and what happens if the system collapses?
You get Las Vegas.
Hard Landing?
Above is the Las Vegas S&P Case-Shiller Index with the conceptual stages of a bubble superimposed on it. Las Vegas landed hard; I am bullish on Las Vegas real estate. As you can see,
the despair stage can go on for a while and prices can remain depressed
and even fall further, but in my opinion, you have much greater
downside risk in Orange County than you do in Las Vegas.
Soft Landing? or Hard Crash?
The most common metaphor for a soft or a hard landing is removing a
band-aid quickly or slowly. You get the idea, but it doesn’t convey the
emotional trauma of an economic recession. The soft landing — to
continue the medical metaphor — is like a series painful bruises and
abrasions. It isn’t life threatening, but there is nothing pleasant
about daily pounding and skin scraping.
The hard crash is like a violent faceplant that is both humiliating and extremely painful — for a short period of
time, but then it is over, and you can move on with your life.
In many ways, the hard crash is better. Which would you prefer?
{book2}
Good Photo Presentation?
It is easy to make fun of the poor quality of marketing display on listings in the MLS because so many of them are so bad. Today, I want to compliment the photo presentation of this listing. The first photo on the listing display is not the drab front elevation, it is the best interior photo of the group. This presentation is much more eye-catching in a positive way. That’s the good…. Using the fisheye lens and distorting reality… that is not so good.
Beds 2 Baths 2 baths Size 1,598 sq ft Lot Size n/a Year Built 2004 Days on Market 6 Listing Updated 10/15/2009 MLS Number L31191 Property Type Condominium, Residential Community Turtle Ridge Tract Whgl
According to the listing agent, this listing may be a pre-foreclosure or short sale.
BEAUTIFUL HIGHLY UP GRADED SHORT SALE! Spacious 2 Bedroom and Den, Soring ceiling with lots of windows and light! Gorgeous hardwood floors,upgraded carpets in carpeted areas, upgraded tile in entry, MaBa, Laundry, Guest Bath. Upgraded cabinets & cabinet hardware throughout. Granite kitchen counter tops, upgraded tile backsplash & stainless appliances. Remote controlled shades in upper windows. Doorbell hookup to phone line. Master bedroom closets by California Closets, mirrored doors. Frosted glass/wood windows sliders in Master Bedroom. Silhouette brand window treatments. UV window tint on patio door and stairway windows. Phone trunk in Master Bedroom closet wired with wireless router & ethernet for jacks. Keypad entry at garage exterior, Epoxy garage floors. Park across street has Tennis, Basketball, etc. Near Beach, Newport Beach: Fashion Island, Corporate Plaza. Newport Coast Plaza. Orange County Airport, Freeways. Beautiful area! A must see home!
The pictures were good, but the description still needs work….
Master Bedroom closet wired with wireless router & ethernet for jacks? Is there a big demand for that?
This property was purchased on 12/2/2004 for $636,000. The owners used a $508,712 first mortgage and a $127,288 downpayment.
They did not waste much time before starting on the HELOC gravy train ride.
On 11/14/2006 they refinanced with a $652,000 Option ARM and a $81,410 HELOC.
Total property debt $733,410 plus negative amortization.
Total mortgage equity withdrawal is $224,698 which includes their downpayment.
The gave up early this year…
Foreclosure Record Recording Date: 07/16/2009 Document Type: Notice of Default Document #: 2009000379425
Irvine Company News
For those interested in what the Irvine Company is doing, you may have seen the story on Sunday, Irvine Co. bets on homebuyer sensibility. Below are links to the support materials also released by the Irvine Company.
How lucky can one guy be;
Ain’t that a hole in the boat? When the boat (property) is underwater, it is dangerous to have a gaping hole either because the property has negative cashflow, or the ARM is about to explode. The reset is a kick in the head many have endured and many more know is coming. 
Today we are looking at tax implications and opportunity costs because these number will give you a more accurate measure of the impact home ownership will have on the owner’s financial life.
The reason we have a large deduction or excluded amount is because years ago when there was no exclusion, long-term homeowners would be punished with capital gains taxes when they sold a principal residence when most of that gain was due to inflation. Without a method of adjusting the purchase price basis for inflation (like using the CPI), owners are being taxed on the profits created by inflation. They are getting less than their money back when you consider money’s purchasing power.
$300,000 Resale Price
The tax code allows wage earners the ability to give up the Standard Deduction and write off 
Let’s look in more detail as to why this effect happens. Assume a borrower has $50,000 in mortgage interest during a tax year, and this borrower makes about $150,000. For this borrower, the portion over $137,050 is taxed at 28%, and the amount between $67,900 and $137,050 is taxed at 25%, the gross tax savings would be about $12,888 for an effective marginal tax rate of 25.5%. This is the impact of crossing marginal tax rate lines.
For instance, a buyer could choose to rent and park their money in a 
When mortgage interest rates are very high, the demand for money is high, and lenders will be paying high CD rates to try to supply the demand for money through loans. The inverse is also true. When lenders do not need money to loan, interest rates fall, and lenders do not need to pay borrowers much for money. Plus, in a deflationary environment the lender has no reliable customers to loan the money to anyway.
As the housing crisis continues, some condo associations can
Builders threw the place up quickly and there have been
Now let’s add another kicker. The Directors of the Condo
This is a source of pride. 
