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Welcome to The Great Housing Bubble
1. Preface & Introduction
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If you are By accurately predicting the Read
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Thank you again for allowing us the opportunity to present ourselves to you in this manner. We look forward to working with you. Sincerely, Larry Roberts
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When you are ready to buy or sell a house, we are here to serve you.
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I hope you are enjoying your weekend. If you want to catch up on the week’s housing market developments, you can find it here.
Irvine Home Address … 103 VERMILLION Irvine, CA 92603
Resale Home Price …… $729,900
{book1}
End of passion play, crumbling away
I’m your source of self-destruction
Veins that pump with fear,
Sucking darkest clear
Feeding on your deaths’ construction
Taste me and you will see
More is all you need
You’re dedicated to
How I’m killing you
Master of Puppets — Metallica
Nearly 1 in 4 Borrowers Is Underwater (Mish)
Housing threat looms in South Orange County (mortgage.freedomblogging.com)
House Sales Poised to Dip After Tax-Credit Rush (news.yahoo.com)
It’s beginning to look a lot like a ‘W’ (marketwatch.com)
Realtors dead last on list of occupation by prestige (harrisinteractive.com)
Blame the Federal Reserve (youtube.com)
More foreclosures on the way for 2010 (boston.com)
More US house “owners” at risk of losing property they did not pay for anyway (guardian.co.uk)
U.S. Housing Recovery Delayed “to 2010” (as if!) (bloomberg.com)
U.S. Housing: More Houses in Delinquency than for Sale (seekingalpha.com)
Foreclosure, Delinquency Rate Soars (courant.com)
U.S. Mortgage Delinquencies Reach a Record High (nytimes.com)
Hope for Double Dip in Housing (online.wsj.com)
Pain increasing at the VERY high end (finance.yahoo.com)
Irvine Home Address … 103 VERMILLION Irvine, CA 92603
Resale Home Price … $729,900
Income Requirement ……. $134,340 
Downpayment Needed … $145,980
Home Purchase Price … $672,000
Home Purchase Date …. 5/14/2008
Net Gain (Loss) ………. $14,106
Percent Change ………. 8.6%
Annual Appreciation … 5.2%
Mortgage Interest Rate ………. 5.00%
Monthly Mortgage Payment … $3,135
Monthly Cash Outlays ………… $4,350
Monthly Cost of Ownership … $3,320
Property Details for 103 VERMILLION Irvine, CA 92603
Beds 3
Baths 2 full 1 part baths
Size 2,146 sq ft
($340 / sq ft)
Lot Size n/a
Year Built 2003
Days on Market 1
Listing Updated 11/18/2009
MLS Number S596456
Property Type Condominium, Residential
Community Quail Hill
Tract Sand
Great location .. .. ..A nice and open floor plan.. .. .. Light and bright .. .. .. Ready to move in .. .. .. Arched Entry with a gated front Courtyard .. .. .. Third Bedroom is a Den/Office Downstairs, Living Room with Fireplace, Formal Dining Room, Spacious Kitchen with lots of cabinets .. .. .. Master Suite with room for Home Office and an additional Separate Spacious Retreat .. .. .. Inside Laundry Room .. .. .. Cozy backyard .. .. .. Enjoy Resort-like Amenities of Quail Hill including pools, BBQ areas, Sports Courts, GYM , trails and etc
I like using ellipses as they convey the idea that there is more to be said or though about the subject, but the reader must think if for themselves. When I see a grammatically incorrect attempt an ellipses like above, and it conveys that the author cannot sustain a coherent thought, and the reader is floating from one idea the next.. .. .. maybe I should try it.. .. .. maybe people like to think slowly.. .. ..
Today, I am going to tell you a story that makes me thankful for Irvine and all it has to offer.
Irvine Home Address … 127 GREENMOOR 53 Irvine, CA 92614
Resale Home Price …… $299,900
{book1}
I don’t want to rent a house from you
I don’t know how you can expect me to
I ain’t moving ’cause I know my rights
Too many homeless on the streets at night
You own a street and a block of flats
You earn your living like the other rats
You’ve no morality, what do you care
You deal in poverty, you buy despair
I ain’t moving ’till the baliff comes
Landlord — The Police
Back in 2004, I was working as a Senior Planner for Danielian Associates. We were working with URBI, a large Mexican homebuilding company, to plan about 40,000 acres of land they had purchased east of Tijuana. Part of the process was a site visit and tour of their other projects to fully understand the product that we were planning for. I was unprepared for what I saw that day.
To the good, my perception of the URBI organization is that they genuinely wanted to improve the quality of life for the average Mexican family. The houses they were building were entry level in the Tijuana market, so you can imagine the level of opulence. This new home represented a big move up for a typical family.
We started at one of their “cookie cutter” developments. Let’s just say they bring repetition of form to a new level in residential architecture. After seeing one of their neighborhoods, you never complain about Westpark again.
Do you think that grass was Photoshopped in? I can’t imagine it living long with your car parked there… there is no garage in these units.
We went to one of URBI’s subdivisions, and it was well kept and looked much nicer than the old run-down houses we passed driving there. In many ways it was like a drive through the old suburbs of Los Angeles, but one or two notches down.
We toured the model homes, and I was intrigued by a 288 SF detached home they were selling. Imagine a small garage 18′ by 16′. Inside that garage cut out a small bathroom, shower and closet. The smaller area left over is for a bed, and the larger space contains a kitchen wall and a small nook-like space that functioned as your living room, kitchen, dining room, basically every other function of the house occurs there. If you put a chair or a TV in this space, you are done; space filled.
The tiny house I just described… it sells for a premium! Remember, it is detached. Some of their attached product — the very bottom of the entry level — was very tiny and cramped. I remember feeling like a gerbil bedding in a shoebox.
It is easy to be elitist when living in Irvine, but this kind of housing represents a big step of the shanty where these people are moving in from. The pictures below are from Peru, but these shantytowns look like the ones in Tijuana.
I can remember vividly seeing the water trucks delivering fresh water to these stone huts. It was the only drinking or bathing water they were going to get, they had to pay for it in cash to get any, and they had to be there when the truck happened by. At the time, my son had just been in the hospital for dehydration with an illness. He would have died in the Tijuana slums. Realizing that, I became overwhelmed by the death and misery these people endure. I still tear up thinking about it.
I am thankful every day for my life in Irvine, and although I may slam today’s crappy condo like an elitist pig, I know somewhere there is a nice family for whom this property is “arriving” at some magical destination: Irvine.
Irvine Home Address … 127 GREENMOOR 53 Irvine, CA 92614
Resale Home Price … $299,900
Income Requirement ……. $55,198
Downpayment Needed … $10,497
3.5% Down FHA Financing
Home Purchase Price … $460,000
Home Purchase Date …. 5/12/2006
Net Gain (Loss) ………. $(178,094)
Percent Change ………. -34.8%
Annual Appreciation … -11.2%
Mortgage Interest Rate ………. 5.00%
Monthly Mortgage Payment … $1,554
Monthly Cash Outlays ………… $2,230
Monthly Cost of Ownership … $1,810
Property Details for 127 GREENMOOR 53 Irvine, CA 92614
Beds 2
Baths 2 baths
Size 1,056 sq ft
($284 / sq ft)
Lot Size n/a
Year Built 1984
Days on Market 3
Listing Updated 11/16/2009
MLS Number L31423
Property Type Condominium, Townhouse, Residential
Community Woodbridge
Tract Lr
According to the listing agent, this listing is a bank owned (foreclosed) property.
**BANK OWNED** Charming Cape Cod style townhome. Light, bright, and airy. Great open floorplan. Large brick patio in the front yard. Fireplace in the living room. Tile counters.
Look at the financing for this property; someone making $55,198 per year with a little over $10,000 saved up could afford to buy this property. That puts a market property at about 60% of median income in the area. That is good by historical standards. The bottom of the market will stabilize if interest rates stay this low.
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Thank you again for allowing us the opportunity to present ourselves to you in this manner. We look forward to working with you. Sincerely,
Larry Roberts
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When you are ready…
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The following are links to the analysis posts of Irvine Renter:
6-15-2009 — Should Adjustable-Rate Mortgages be Curtailed? — Another look at the problems created by adjustable rate mortgages and their place in the housing market.
6-1-2009 — How Much Cash Do You Really Need to Buy a House? — A review of the cash demands homebuyers face.
5-18-2009 — Irvine's Future REO Inventory — A review of the building wave of foreclosures due to hit the Irvine market.
5-11-2009 — Temporary Affordability and the Third Foreclosure Wave — An analysis of the problem adjustable rate mortgage create for the future of the housing market.
5-4-2009 — Negotiating for Real Estate — An overview of the negotiation process for residential real estate.
4-27-2009 — California Personal Finance: Ponzi Style — The methods of personal finance developed during the housing bubble created an unsustainable lifestyle.
4-20-2009 — Pent-Up Supply — A buildup of inventory at the mid to high end of the housing market signals an upcoming drop in prices.
3-30-2009 — Responsible Homeowners are NOT Losing Their Homes — People who were truly responsible with their borrowing are not losing their homes in the housing price crash.
3-23-2009 — Real Estate's Lost Decade — Rising interest rates could stop appreciation for a full decade.
3-9-2009 — The Market Bottom Is Not a Price Point — The bottom of a real estate market is not a specific price point, but a state of affordability.
3-2-2009 — What Risks Should Borrowers Be Allowed to Take? — Excessive risk caused the rise and fall of the housing bubble. Should some of the riskiest practices be eliminated?
2-12-2009 — The Financial Implications of Short-Sales and Foreclosures — Reference to an attorney's description of the what can happen in short sales and foreclosures depending upon the circumstances of the borrower.
2-9-2009 — The Moral Hazard of Market Supports and HELOC Abuse — Is the government's efforts to support the real estate market going to serve to create the psychology that inflates the next one?
2-2-2009 — Fire and Ice — Is it better for the market to correct quickly or slowly? An analysis of the implications of both methods of market correction.
1-26-2009 — The New Real Estate Sales Business Model — A proposal to change the 6% realtor sales commission model currently popular in the United States.
1-19-2009 — Tax Policy and Housing — A review of the various tax programs and how they impact house prices
1-13-2009 — Unlocking the Housing Market Recovery — A review of a popular proposal for saving the economy and the housing market.
1-12-2009 — Bring Back Paternalism in the Mortgage Market — A plea to re-regulate the mortgage market.
1-5-2009 — Debt-To-Income Ratios: The Forgotten Variable — The impact of debt-to-income ratios on house prices and the housing market.
12-8-2008 — 4.5% Mortgage Interest Rates? — What would happen if mortgage interest rates were dropped to 4.5%.
11-17-2008 — A Free-Market Solution to Prevent Housing Bubbles — From the final chapter of The Great Housing Bubble.
11-13-2008 — Reverse Liar Loans — An example of how bailouts are creating more problems than they are solving.
11-12-2008 — The ARM Problem — Adjustable rate mortgages scheduled to reset from 2009-2011 are the next wave of foreclosures that will flatten the real estate market.
11-11-2008 — The Carrot and The Stick — a look at what is really necessary to make a homeowner bailout program successful.
10-6-2008 — Fundamentals at a Market Bottom — A review of what market conditions prevail at the bottom of the housing cycle.
9-29-2008 — Desire is not Demand — A revealing look at the final myth propagated by realtors during a price decline.
8-25-2008 — I Was Wrong, It’s Worse… — A review of projections of future price drops 18 months later.
8-18-2008 — Affordability Mortgage Products Make Prices Unaffordable — A frank discussion on the problems caused by lender's solutions to the problem of affordability.
8-11-2008 — Timing Does Matter — An analysis dispelling the myths about timing the residential real estate market.
3-31-2008 — Investment Value of Residential Real Estate — An economic analysis of the true investment value of residential real estate.
3-29-2008 — Efficient Markets vs Behavioral Finance — An overview of the two competing theories of market price movements.
3-17-2008 — Bailouts and False Hopes — A cynical look at the psychology of potential bailouts.
3-15-2008 — Mortgage Default Losses — Parsing the distinction between default rates and resulting default losses on residential loans.
3-13-2008 — Floplords — A discussion of the phenomenon of accidental landlords.
3-12-2008 — Mortgages as Options — A look at how borrowers and speculators gamed the system using mortgages as option contracts.
3-11-2008 — Houses and Commodities Trading — An examination of the parallels between commodities markets and the behavior of residential real estate markets.
3-10-2008 — Mortgage Equity Withdrawal — An overview of the role mortgage equity withdrawal played in the recovery following the 2001 recession.
3-8-2008 — How Big Was the Bubble? — A review of statistical measures of price to evaluate just how big the housing bubble really was.
3-4-2008 — Systemic Risk in the Housing Market — The second of a two-part series. This posts examines the failures of structured finance and suggests methods for addressing this failure to prevent future housing bubbles.
3-3-2008 — Structured Finance 101 — The first of a two-part series. This post provides an overview of what structured finance is, and how it was used to during the housing bubble.
2-28-2008 — Affordability — A review of the concept of affordability and what it means for the housing market.
2-25-2008 — The Credit Crunch — A discussion of the causes and implications of the credit crunch.
2-18-2008 — Selling for Less — A look at the changing market environment where buyers are in control of the action.
2-4-2008 — What is Equity? — Looking at the components of homeowner equity and the factors that impact it.
1-28-2008 — Speculation or Investment — Comparing the motivations and activities of two distinct classes of purchasers of real estate. Knowing the difference between speculation and investment can make the difference between making and losing money.
1-14-2008 — Rent Versus Own — A detailed look at the cost of ownership and the various reasons to rent or own a particular property.
1-7-2008 — The Fallacy of Financial Innovation — Shattering the myth of "financial innovation" and reinforcing the use of 30-year, fixed-rate, conventionally amortizing mortgages.
12-3-2007 — What is a Bubble? — The concepts and beliefs that when acted upon by the general public create an asset price bubble.
10-1-2007 — What Caused the Bubble Rally? — A detailed analysis of the conditions the preceded the bubble rally and the causes of its inflation.
9-24-2007 — A Buyer’s Market — A hard-nosed look at negotiating when market conditions change.
9-13-2007 — The Market Bottom — A review of the conditions that formed the last market bottom and why it formed at the price level it did.
9-10-2007 — The California Social Contract — A meditation on the plight of homedebtors written from their perspective.
2007-07-16 — Land Value 101 — A detailed explanation of how raw land is valued when used for residential construction.
2007-06-25 — Houses Should Not Be a Commodity — A discussion of the psychology of commodity market trading and why this is an undesirable element in housing markets.
2007-06-18 — Telling Good Analysis from Bad — An evaluation of Gary Watts Real Estate Outlook for 2007 and a description of the characteristics of a robust market analysis.
2007-06-11 — The Reservoir of Schadenfreude — A whimsical look at the emotional phenomenon of taking pleasure in the misfortune of others.
2007-05-21 — The Day the Market Died — A look at the conditions which led to the bursting of the bubble with analogies to Don McClean's American Pie.
2007-05-14 — The Anatomy of a Credit Bubble — A detailed, mathematical analysis of the impact changing lending standards had on home prices. This is fundamental to understanding of the mechanics of the real estate bubble.
2007-05-07 — Your Buyer’s Loan Terms — The precursor to The Anatomy of a Credit Bubble. It discusses house prices from the perspective of the future buyer of your home. It demonstrates the impact changes in loan terms will have on future buyers and how this will impact the amount your future buyer can bid for your home.
2007-04-30 — Appreciation is Dead — Rapid home price appreciation has become an accepted truism in Southern California. There are many reasons to believe this is not a basic Truth of Life. This post examines the causes of appreciation and explores the reasons why it may all be coming to an end.
2007-04-23 — It’s not the Borrowers; It’s the Loans. — The "subprime containment" meme has been used to quell the fears of investors since the collapse of subprime lending in early 2007. This post examines the spurious nature of the subprime containment idea and explores the implications of the larger problem being hidden from the general public.
2007-04-16 — How Homedebtors Could Avoid Foreclosure — A look at a potential financing mechanism which might be used to assist homeowners who are underwater. It also examines the potential implications of the widespread use of such tools.
2007-04-08 — Southern California’s Cultural Pathology — An exploration of the unique cultural beliefs which made the housing bubble take hold in Southern California. This is a critical post to understanding why the bubble was so pronounced here while in other areas of the country it was not as extreme.
2007-04-02 — How Bad Could Bad Get? — A look at the worst case scenario for our housing market, and why it is not unrealistic.
2007-03-24 — Who is responsible for this mess? — A rant on the difficulty of identifying the party or parties responsible for our current problems.
2007-03-14 — Why the Sub-Prime Meltdown is a Problem — Many have postulated the sub-prime collapse would not impact housing prices in more affluent areas like Irvine. This brief post debunks this idea.
2007-03-11 — Predictions for the Irvine Housing Market — A prediction for the future of housing prices in Irvine based on an analysis of emerging data and trends. This is the capstone post tying together the series of posts from 3-1 to 3-9.
2007-03-09 — What if Prices Dropped to Fundamental Values? — A brief "what if" on the impact a decline to fundamental valuations would have on Orange County housing prices.
2007-03-06 — What is Past is Prologue — A review of the mechanics of the collapse of the last bubble to provide a foundation for the projections of the market action in our current market bubble.
2007-03-05 — How Sub-Prime Lending Created the Housing Bubble — A simple thought experiment to show how a loosening of lending standards helped create a commodities market mentality and inflated the housing bubble.
2007-03-03 — How Inflated are House Prices? — A discussion of the fundamental valuation of housing prices. This post is essential reading to anyone wanting to understand how residential homes should be valued.
2007-03-01 — Financially Conservative Home Financing — A review of available financing terms and a discussion of why the new "innovations" in home financing are disasters in the making.
2007-02-27 — I am IrvineRenter (Inventory Cholesterol) — A brief introductory post and a discussion of the different types of housing inventory and how they impact prices.
I hope you are enjoying your weekend. Today we have another Woodbridge bubble equity seller.
Irvine Home Address … 15 BAYSIDE Irvine, CA 92604
Resale Home Price …… $998,000
{book1}
You got me running going out of my mind
You got me thinking me that I’m wasting my time
Don’t bring me down
No, no, no, no, no, ooh ooh
I’ll tell you once more before I get off the floor
Don’t bring me down
Don’t Bring Me Down — Electric Light Orchestra
The truth of the market brings homeowners down. The illusion painted in the MSM is all about green shoots and the recession is over. It isn’t in Southern California land development.
If residential investment is going to lead us out of recession as it has in past recessions, the properties need to be released by the lenders. As long as we keep these non-performing assets under bank control, nobody is going to spend any money to do anything with these properties; that means no development activity.
I am a land planner. I am the lead of any new land development. I am not aware of more than a handful of private land development projects being planning in the last 18 months. After we chew through the remaining finished and partially finished lots, there will be demand for more tentative tract maps and other planning products. The lead times are long, and nobody is doing this work right now.
It will be interesting to see if the inventory of tentative tract maps approved during the bubble will serve us in two or three years. With the dramatic change in the market, it may not be feasible to build out Riverside County with McMansions on lots over 6,000 SF, which is mostly what is left over from the bubble.
The building industry in Southern California will never be like it was in 2003-2005. With a 90% or more decline in sales, and a commensurate reduction in permits for new construction, there are not very many people left working in the homebuilding industry. Those related industries have suffered to the degree they were dependent upon homebuilding. It will improve from here. If volume increases to half of what it was in 2005, it will represent a 500% increase in sales and construction volume from today’s levels. That will be a feel-good economic story of 2011 or 2012 — 2010 will be better but tough.
SoCal rent costs fall, 1st dip in 14 years (lansner.freedomblogging.com)
Prime Borrowers Are Latest “Victims” Of Their Own Borrowing (huffingtonpost.com)
Mortgage delinquencies hit record high (msnbc.msn.com)
One in 7 U.S. mortgages foreclosing or delinquent (reuters.com)
MBA Forecasts Foreclosures to Peak in 2011 (calculatedriskblog.com)
Walking Away from Mortgage More Common Among Twenty-Somethings (blogs.wsj.com)
Foreclosure, delinquency rates spike amid growing unemployment (washingtonpost.com)
Housing Starts “Green Shoots” Wither On Vine (Mish)
Banks start foreclosure on 2,100 mortgages (mortgage.freedomblogging.com)
FHA-Backed Lending Is a Train Wreck (bloomberg.com)
Cheaper Prices Motivating House Buyers, Not Tax Gift (usnews.com)
Fed May Not Increase Rates Until 2012 (bloomberg.com)
FDIC Real Estate for Sale (fdic.gov)
California Pension Reform – Fun Numbers (californiapensionreform.com)
South Orange County cities see distressed inventory swell (freedomblogging.com)
Irvine condo’s price plunges 50% in three years (irvinehomes.freedomblogging.com)
Housing Bust Next Chapter: 2010, 2011 Face Big Resets In Alt-A, Option ARM (dailymarkets.com)
Irvine Home Address … 15 BAYSIDE Irvine, CA 92604
Resale Home Price … $998,000
Income Requirement ……. $184,942
Downpayment Needed … $199,600
Home Purchase Price … $575,000
Home Purchase Date …. 7/28/2000
Net Gain (Loss) ………. $363,120
Percent Change ………. 73.6%
Annual Appreciation … 5.7%
Mortgage Interest Rate ………. 5.06%
Monthly Mortgage Payment … $4,315
Monthly Cash Outlays ………… $5,340
Monthly Cost of Ownership … $3,940
Property Details for 15 BAYSIDE Irvine, CA 92604
Beds 5
Baths 3 baths
Size 2,967 sq ft
($354 / sq ft)
Lot Size 5,230 sq ft
Year Built 1987
Days on Market 5
Listing Updated 11/9/2009
MLS Number S595398
Property Type Single Family, Residential
Community Woodbridge
Tract Bs
‘PRICED TO SELL’. Beautiful bright and spacious 5 Bedrooms 3 full baths home in Woodbridge area. No Mello Roos. One bedroom downstairs. Tile and laminated hardwood floor throughout downstairs. Newly painted and custom window treatments. Vaulted ceiling in Living and formal dining rooms. Huge bonus/office room upstairs, it can be converted to a Big bedroom. Gourmet Kitchen with brand new BOSCH dishwasher, cooktop and seperated eating area. Great location. Walking distance to award-winning Woodbridge High, Woodbridge Community Park and South lake. Must see to appreciate the great and convenient Woodbridge community.
The property was purchased in 2000 for $575,000. The owner consistently paid down the mortgage, and it appears there was a change of family status and the first mortgage was lowered to less than $300,000. In short, these owners have plenty of equity. Good for them.
