Ancestral Call

My rural roots

My roots run deep in the rural farm community of Friendship, Wisconsin. My fraternal family line can be traced back to Thomas Roberts, a Welshman born in 1831. Thomas arrived with two bothers in New York, but sadly, he became separated from them and never saw them again. Thomas immigrated to Adams County, Wisconsin where he started a family which still boasts many local residents. Although my name is Welsh, the women who married Roberts men for the next several generations were of Scandinavian descent. I am a mutt of the American melting pot.

Many Scandinavians, Germans and Poles were drawn to central Wisconsin. The climate was something they were used to, so adapting to the new way of life was a bit easier for them than most. I grew up with four seasons, although the winters are particularly long and cold. Like everyone else, I adapted to the climate, but I never really grew to like it. The first snow in the fall is exciting, and sitting in front of a cozy fireplace while a blizzard rages outside is a special experience outsiders don’t fully understand. However, the fortieth snowfall of the season in April and hard freezes in May are experiences I’d rather forget. It’s a wonderful place to visit, but I don’t miss living there.

The Castellated Mounds

In the last ice age, much of Wisconsin was covered by glaciers. Adams County was actually the bottom of a large glacial lake which left behind a flat pile of sand which slowly drains to the adjacent Wisconsin River. The marshlands are drained by a series of small creeks and dotted with a mixture of pine trees, maples, and oaks. The landscape is relatively uniform except for the unusual castellated mounds which spring up across the county.

These mounds are characterized by exposed sandstone rock outcroppings elevated above the treeline providing views of the surrounding countryside. Just as Ayers Rock arises from the Aboriginal outback, these mounds have long been a spiritual magnet for local peoples dating back to the Native American Tribe of Roche a Cri who inhabited this area. These earliest inhabitants carved hieroglyphs depicting the key events of daily life. Growing up, I explored many of these mounds, and I discovered carvings from settlers dating back to the nineteenth century.

These mounds draw me in as they have others for centuries. When I approach I feel like I am entering holy ground, seeing Gaia, naked and exposed. These rocks feel ancient and unchanging surrounded by an ephemeral environment of fire-prone forests, lakes, and marshland.

Whenever I go back to Wisconsin to visit my home town, I go climb these rocks. For me it’s a religious pilgrimage.

Agrarian Rural Life

Central Wisconsin is far enough south that the growing season permits salable produce. Fifty miles further north, and timber is the only harvest. My ancestors were farmers making a living from the land. It was a arduous yet uncomplicated life. They grew crops, ate what they needed, and sold the rest to obtain a few niceties. They knew their neighbors, and they banded together to share seldom-used farm equipment, protected what they had from outsiders, and enjoyed a beer or two at the local tavern. A close-knit community developed.

The local economy was based on crop production, and trade revolved around the mills which sprung up along the various creeks which crisscrossed the land.

Servicing an agrarian economy took merchants. My great-great-grandfather Rufus Roberts was one of these entrepreneurs. He started the Monroe Center Store in 1898 and ran it at the turn of the twentieth century.

Rufus Roberts sold the school district a lot for the first elementary school in the area. He also took over the local sorghum mill and operated it for several years. At one point, Rufus bought the old county courthouse, moved it on rollers by horseback to a new location, and converted it to four apartments. As a community leader, he began the forth of July parade in Monroe Center and fostered it’s growth over the years that followed.

Rufus and Tilly, my great-great-grandparents (seated) were the parents of William Roberts (second from left) who married Elizabeth Carleson.

William and Elizabeth had five boys: Roger (my grandfather, now 94, on the left), Alva, John, Otto, and Claude.

William and Elizabeth acquired the prime farmland just outside the farm community of Friendship, Wisconsin. This farm is still worked by the Roberts family today.

Adams County, Wisconsin, is the land of my forefathers. Many of their decedents still live there. I try to go back every year to catch up with family and friends and find myself all over again. I get very nostalgic, and it serves to ground me in what’s real. Some part of me will always call it home.

Adams-Friendship, Wisconsin

Friendship, Wisconsin, is a farm community of about 700 people. has been the county seat of Adams County since 1848. When the railroad came to the area, local landowners demanded too much money, so the railroad moved the station two miles to the south, and the city of Adams sprung up in the gap between the station and the village of Friendship. The city of Adams is home to less than 2,000 people, and the entire county has less than 20,000. Needless to say, it’s rather rural.

Rural communities don’t change much. The building facades change periodically as businesses come and go, but for the most part, those towns are the same today as they were forty years ago when I was a child. In all likelihood, these cities will be same for the rest of my life. I take great comfort in that. The sameness of my home town is something I can count on. No matter what else changes in my life, my connection to the past will always remain. These towns will always be familiar.

Roger Roberts

My grandfather, Roger Roberts, grew up in Monroe Center. World War II started when he was in his early twenties, so he enlisted in the US Army Airborne. While in basic training in El Paso, Texas, he became severely dehydrated on a long march and his kidneys failed. He was sent to the hospital to recover. While in the hospital his unit was sent to France where it was decimated on D-Day. If my grandfather had not had kidney failure on the long march, he would have gone to battle and died on D-Day with the rest of his unit. I try not to think about the crazy way Fate intervenes in life.

My grandfather became a Sergeant in the Army and ran the kitchen cooking for over 180 men each day. His most harrowing experience was during the Battle of the Bulge when his 101st Airborne unit was overrun in Luxembourg by German Panzers sixty-eight years ago this week. He survived, thankfully, or I wouldn’t be here to tell the story.

Roger returned home in 1946 after two years abroad. He married Edna Paulson, my grandmother, and they had three children, Larry (my father), Judy, and Kenny. He worked with his two brothers in their local salvage business for most of his working life. He’s 94 years old and still doing well.

Leo Wilda

My mother’s father, Leo Wilda, settled in Adams, Wisconsin, and spent his entire adult life there. He married Margaret Wilda and had five children: Pat, LuVerna, Audrey (my mother), Mary, and Mike.

My grandfather always had a deep connection to the land. He liked to farm and grow his own vegetables. I remember he would start his tomatoes under grow lights indoors to get a couple of weeks head start on the growing season. He maintained his own garden plot until late in life. He also maintained the grounds at the local cemetery, and he maintained the local 9-hole golf course, all part-time. If the sun was shining, he was probably outside. Leo Wilda passed away in 2000 at the age of 83.

There is a lot to admire about both my grandfathers. When I think about my mother’s father, I always deeply respected his connection to nature, and I enjoyed his quirky sense of humor.

It’s the Circle of Life

And it moves us all

Through despair and hope

Through faith and love

Till we find our place

On the path unwinding

In the Circle

The Circle of Life

Ancestral Call

When I think about community, I remember what it was like growing up in a rural area with family and friends. Kinship and shared values bound us together. Prospering in an inhospitable climate required people to come together for mutual benefit. There is a sense of shared sacrifice and creating something greater than oneself for the benefit of others. It’s one of the feelings I enjoy about blogging and providing information for the greater good.

I am a small town the child of two families with deep local roots and a love for the area. Both sets of grandparents and much of my extended family lived within a few miles of one another. It was a unique environment. I was part of a community of elders who helped guide me in the formative years of my life. I had every advantage a strong family could offer. It was a wonderful way to start out life.

Over the next three days, I am going to write more about my life growing up in this environment. These are the experiences that shaped and defined my beliefs and my outlook on life. Thank you for allowing me to share this with you.

Housing price bottom delayed to at least 2013

The following headlines suggest the market will not bottom in 2012:

I am not the only market observer who has come to this conclusion.

Home Address … 90 LEHIGH AISLE #58 Irvine, CA 92612

Asking Price ……. $449,000

Real estate recovery in limbo until 2013, experts say

By Martha C. White — December 23, 2011

This year was supposed to be the bottom for the housing market and 2012 was supposed to mark the turnaround.

Really? Is that on the authority of realtors who call the bottom every year? Nobody with any credibility was calling the bottom in 2012, and anyone who did no longer has any credibility.

In reality, even the improvements sound like bad news, and some forecasters are saying we'll have another year of gloom before the clouds break.

Yes, the forecasters who have a clue what's really going on are looking at the buildup of inventory, weak sales, increasing delinquencies and forecasting continued falling prices.

“It's unlikely prices will rise next year in most markets,” said Jed Kolko, chief economist at real estate information site Trulia. “By that measure most local markets will not recover next year, but prices are only one measure of how the housing market is doing.”

While it's true that price recovery is only one measure of the health of the housing market, it is the only one most loan owners care about. Sales volumes will likely increase in 2012, but that is going to come from investors buying low-priced houses.

American home values are likely to shed $681 billion this year, according to Zillow. That's better than the $1.1 trillion lost in 2010, but hardly worth breaking out the bubbly.

In a nutshell, that's the problem with the housing market today. Even the good news is relative, and a true recovery is still at least a few quarters away.

[T]he unabsorbed pool of housing supply, dragging levels of consumer confidence, high unemployment and negative equity will continue to put downward pressure on the housing market, pushing our expectation for a potential recovery into late 2012 or early 2013,” Stan Humphries, chief economist at real estate research company Zillow Inc., said in a statement.

Data company CoreLogic estimates there is a “shadow inventory” of 1.6 million homes, which is the biggest drag on prices.

Basically, supply of motivated sellers is going to overwhelm the weakened demand. No matter how you describe it, aggressive supply meeting weak demand results in lower prices.

“Foreclosures lead to very motivated sellers, which will have a destabilizing effect on prices,” said Nicolas Retsinas, professor of real estate at Harvard Business School. The sluggish pace of foreclosures — hampered by the robo-signing scandal, ongoing investigations and litigation — have stalled the movement of those homes back into the market.

None of the market props or processing delays have helped the market bottom. In fact, these circumstances have done nothing other than delay the bottom.

Data on the number of sales is more promising.

In November, sales of single-family homes hit a seven-month high. Sales rose 1.6 percent for the month, and 9.8 percent over the past 12 months.

But these figures are climbing back from abysmal depths; the National Association of Realtors thjs week lowered its figures on the number of homes sold between 2007 and 2010 by nearly 3 million, down to 17.7 million.

The silver lining in the NAr revisions is that sales comparisons now look better. Volume is improving which is to be expected with lower prices. Further increases in sales volumes are required to clear out the supply.

“With a highly leveraged housing bust, you haven't seen that increase in residential investment in spite of low interest rates,” said Ted Gayer, a senior fellow at Brookings Institution.

Slack demand for existing homes also means fewer buyers for new homes. Home building has traditionally been the tow truck that pulls the economy out of the mud, but with so many empty houses and so few people moving into them, that's not the case this time around.

With an entire industry sitting on the sidelines, our economy continues to suffer. Employment in homebuilding and related industries is not improving much.

“It's not a demand problem,” Gayer said. “When you have such a huge excess supply it doesn't really get at the problem.”

Even though interest rates are at record lows, a tight credit market is keeping people who do want to buy on the sidelines, said Retsinas. Lower rates of household formation — fewer immigrants and more adult children still living with their parents — also quash demand.

The tight credit meme is consistently reported incorrectly. While it's true that people who want to buy can't, it's only the people who want to buy who aren't qualified that are being denied. They should be denied credit. They won't pay it back. We have credit standards to establish who will repay loans, not to see who wants a home.

Despite these headwinds, there are glimmers of hope.

Have you noticed that hope only comes in glimmers? The light at the end of the tunnel is not very clear or bright.

Kolko said an uptick in multifamily construction and remodeling, while not as strong as the traditional home building engine, will still provide construction-sector jobs in the near term. Longer term, more multifamily dwellings on the market will alleviate the increase in rents happening now, potentially giving people more breathing room to save for a home purchase in the future.

I can assure you, the people developing multifamily right now are not anticipating a weakening in rents. Further, weakening rents will keep more buyers on the sidelines because it impacts rental parity. Without the pressure of increasing rent, many potential buyers will simply wait and continue to rent.

And a few parts of the country might catch a break next year. Kolko said California's Silicon Valley, along with much of Texas and New England, are starting to recover due to their employment levels or because the housing bubble wasn't as pronounced there in the first place. The rest of us will just have to hope for better luck in '13.

The housing bubble was not as pronounced in California's Silicon Valley? LOL! Failure to deflate is not a sign that prices didn't bubble.

The housing market will likely not bottom in 2012. Fall 2012 or the winter of 2013 perhaps, but the spring rally of 2012 — if we get one — will not mark the bottom of the housing bust.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 90 LEHIGH AISLE #58 Irvine, CA 92612

Asking Price ……. $449,000

Beds: 2

Baths: 2

Sq. Ft.: 1682

$267/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

View: Tree Top

Year Built: 1988

Community: University Town Center

County: Orange

MLS#: S653494

Source: CRMLS

On Redfin: 270 days

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If you favor contemporary design, are creative & imaginative, then you will fall in love with the open, airy atmosphere that this modern 2BR/2BA + loft/office/guest/game room provides. You will appreciate the modern, angular lines in this centrally located townhome & will enjoy highlighting your artwork, sculptures & furnishings within this unique space. The living, dining, & kichen areas are open and can accomodate both intimate & large gatherings. The loft skylights have retractable shades to provide as much sunlight & /or shade as the occasion calls for(as a guest room or game room). The oversized master bedroom w/ large picture windows views out to treetops & greenery below bringing the outside in. The spacious junior bedroom can accomodate a queensize bed if needed. There are doors out to a large covered balcony from both the living & secondary bedroom areas for al fresco dining or a quiet moment after a day's work. Walk to Trader Joe's, the Farmer's Market, the Cinema, shops & eateries

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Proprietary commentary and analysis

Asking Price ……. $449,000

Purchase Price … $224,000

Purchase Date …. 7/22/1994

Net Gain (Loss) ………. $198,060

Percent Change ………. 88.4%

Annual Appreciation … 3.9%

Cost of Home Ownership

————————————————-

$449,000 ………. Asking Price

$15,715 ………. 3.5% Down FHA Financing

4.02% …………… Mortgage Interest Rate

$433,285 ………. 30-Year Mortgage

$135,001 ………. Income Requirement

$2,074 ………. Monthly Mortgage Payment

$389 ………. Property Tax (@1.04%)

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

$94 ………. Homeowners Insurance (@ 0.25%)

$498 ………. Private Mortgage Insurance

$433 ………. Homeowners Association Fees

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

$3,488 ………. Monthly Cash Outlays

-$322 ………. Tax Savings (% of Interest and Property Tax)

-$622 ………. Equity Hidden in Payment (Amortization)

$22 ………. Lost Income to Down Payment (net of taxes)

$76 ………. Maintenance and Replacement Reserves

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

$2,641 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$4,490 ………. Furnishing and Move In @1%

$4,490 ………. Closing Costs @1%

$4,333 ………. Interest Points

$15,715 ………. Down Payment

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

$29,028 ………. Total Cash Costs

$40,400 ………… Emergency Cash Reserves

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

$69,428 ………. Total Savings Needed

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Personal writing

I have written my last real estate post for the Irvine Housing Blog. My last four posts will not focus on real estate. If reading about my feelings of community and experiences growing up interests you, please stop by over the next four days. If not, it was a pleasure serving you over the last five years. I hope to see you on my new blog the OC Housing News.

Strategic default is the banker's stigma of convenience

Bankers foster the idea that strategic default on a primary residence is immoral. Bankers want borrowers to continue to repay loans even when it is not in the borrower's best financial interest to do so. I and many others have argued borrowers have a greater moral duty to do what's in the best financial interest of their family. Obviously, bankers disagree.

Home Address … 1229 ABELIA Irvine, CA 92606

Asking Price ……. $319,900

In reality, this isn't a moral issue at all. It's all about money. Bankers want to make money, and making moral arguments is a stigma of convenience. If they were on the other side of the transaction, they would make the opposite point. I know this because they were on the opposite side recently, and they did make the opposite choice. The mortgage banker's association defaulted on the loan on their own headquarters! So much for the greater moral duty to keep their word and their written agreements.

Living By Default

by December 19, 2011

We normally say that a company “went bankrupt,” implying that it had no choice. But when, recently, American Airlines filed for bankruptcy, it did so deliberately. The airline had four billion dollars in the bank and could have kept paying its bills. But it has been losing money for a while, and its board decided that it was foolish to keep throwing good money after bad. Declaring bankruptcy will trim American’s debt load and allow it to break its union contracts, so that it can slim down and cut costs.

American wasn’t stigmatized for the move. Instead, analysts hailed it as “very smart.” It is now generally accepted that when it’s economically irrational for a company to keep paying its debts it will try to renegotiate them or, failing that, default. For creditors, that’s just the price of business. But when it comes to another set of borrowers the norms are very different. The bursting of the housing bubble has left millions of homeowners across the country owing more than their homes are worth. In some areas, well over half of mortgages are underwater, many so deeply that people owe forty or fifty per cent more than the value of their homes. In other words, a good percentage of Americans are in much the same position as American Airlines: they can still pay their debts, but doing so is like setting a pile of money on fire every month.

It is exactly the same as lighting money on fire. It's gone. It isn't coming back. For underwater borrowers who are paying more each month than a comparable rental, they are losing the difference each month from the family's economic vitality. And for what?

These people have no hope of ever making a return on their investment in their homes. So for many of them the rational solution would be a “strategic default”—walking away from the mortgage and letting the bank take the house. Yet the vast majority of underwater borrowers keep faithfully paying their mortgages; studies suggest that perhaps only a quarter of all foreclosures are strategic. Given how much housing prices have fallen, the question is why more people aren’t just walking away.

Part of the answer is practical. Defaulting (even in so-called non-recourse states) is still a lot of trouble, and to most people it’s scary.

Most borrowers believe this, but the truth is Strategic default consequences are minor and likely to decrease.

In addition, homeowners are slow to recognize how much the value of their homes has dropped, and have inflated expectations of how much it will rise in the future.

Hope springs eternal. I suspect this is most people, particularly here in California. Houses have fallen in value much more than most homeowners realize or are willing to admit, and of the few who realize it, many of them also believe prices will come back quickly once the market bottoms. The market bottom is proving elusive, and appreciation will be much more tepid than loan owners expect once the bottom is in place.

The biggest hurdle, though, is social: while companies get called “very smart” for restructuring their contracts, there’s a real stigma attached to defaulting on your mortgage. According to one study, eighty-one per cent of Americans think it’s immoral not to pay your mortgage when you can, and the idea of default is shaped by what Brent White, a law professor at the University of Arizona, calls a discourse of “shame, guilt, and fear.” When the housing bubble burst, the banking industry was terrified by the possibility that homeowners might walk away en masse, since that would have stuck lenders with large losses and a huge number of marked-down homes. So strategic default was portrayed as the act of dishonorable deadbeats. David Walker, of the Peterson Foundation, waxed nostalgic about debtors’ prisons, and John Courson, the head of the Mortgage Bankers Association, argued that defaulters were sending the wrong message “to their family and their kids and their friends.”

Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.

This is more than just a public relations problem for bankers. This strikes to the heart of the lie they are perpetrating on the American people. When bankers say it is immoral to default, they don't really believe it. Their actions speak much louder than their words ever will.

When it comes to debt, then, the corporate attitude is do as I say, not as I do. And, while homeowners are cautioned to think of more than the bottom line, banks, naturally, have done business in coldly rational terms. They could have helped keep people in their homes by writing down mortgages (the equivalent of the restructuring that American Airlines’ debt holders will now be confronting). And there are plenty of useful ideas out there for how banks could do this without taxpayer subsidies and without rewarding the irresponsible. For instance, Eric Posner and Luigi Zingales, of the University of Chicago, suggest that, in exchange for writing down mortgages in hard-hit areas, lenders would take an ownership stake in a house, getting a percentage of the capital gain when it was eventually sold. Lenders, though, have avoided such schemes and haven’t done mortgage modifications on any meaningful scale. It’s their right to act in their own interest, but it makes it awfully hard to take seriously complaints about homeowners’ lack of social responsibility.

Of course, many borrowers made bad decisions and acted irresponsibly. But so did lenders—by handing out too much money and not requiring sensible down payments. So far, banks have been partially insulated from the consequences of those bad decisions, because Americans have been so obliging about paying off overinflated mortgages. Strategic defaults would help distribute the pain more evenly and, if they became more common, would force lenders to be more responsible in the future. It’s also possible that a wave of strategic defaults—a De-Occupy Your House movement—would get banks to take mortgage modification more seriously, which would be all for the better. The truth is that banks have been relying on homeowners to do the right thing. It might be time for homeowners to do the smart thing instead.

Underwater borrowers who are paying more each month than a comparable rental have a choice to make. Either accept the arguments of bankers, keep paying the mortgage, and flush the money down the toilet; or they can do what's best for their family and tell the bankers to shove that mortgage up their a$$.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 1229 ABELIA Irvine, CA 92606

Asking Price ……. $319,900

Beds: 1

Baths: 2

Sq. Ft.: 1310

$244/SF

Property Type: Residential, Condominium

Style: 3+ Levels, Contemporary

Year Built: 2006

Community: Columbus Grove

County: Orange

MLS#: P806493

Source: CRMLS

Status: Active

On Redfin: 5 days

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A charming 1 Bedroom, 1.5 Bathroom Townhome in Irvine. On the second floor of this home you will find the 1.5 bath, living room, kitchen and den/office. On the third floor you will find the large master bedroom with wood like flooring, spacious master bathroom and walk in closet. This home features a balcony on the second floor and an attached 1 car garage.

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Proprietary commentary and analysis

Asking Price ……. $319,900

Purchase Price … $222,500

Purchase Date …. 11/10/1997

Net Gain (Loss) ………. $78,206

Percent Change ………. 35.1%

Annual Appreciation … 2.6%

Cost of Home Ownership

————————————————-

$319,900 ………. Asking Price

$11,197 ………. 3.5% Down FHA Financing

4.02% …………… Mortgage Interest Rate

$308,704 ………. 30-Year Mortgage

$90,242 ………. Income Requirement

$1,477 ………. Monthly Mortgage Payment

$277 ………. Property Tax (@1.04%)

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

$67 ………. Homeowners Insurance (@ 0.25%)

$355 ………. Private Mortgage Insurance

$155 ………. Homeowners Association Fees

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

$2,331 ………. Monthly Cash Outlays

-$229 ………. Tax Savings (% of Interest and Property Tax)

-$443 ………. Equity Hidden in Payment (Amortization)

$16 ………. Lost Income to Down Payment (net of taxes)

$60 ………. Maintenance and Replacement Reserves

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

$1,734 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$3,199 ………. Furnishing and Move In @1%

$3,199 ………. Closing Costs @1%

$3,087 ………. Interest Points

$11,197 ………. Down Payment

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

$20,682 ………. Total Cash Costs

$26,500 ………… Emergency Cash Reserves

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

$47,182 ………. Total Savings Needed

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Increasing borrowing costs will lower house prices

Borrowing costs are likely to increase in 2012 for a variety of loans. The lower conforming limit will push many borrowers to either the FHA or the jumbo market where borrowing costs are higher. The FHA may also raise its borrowing costs again to cover the inevitable losses from the ongoing decline in home prices. Further, the new rules on conforming mortgages will push up costs on loans which do not conform.

Home Address … 44 BLUE HERON Irvine, CA 92603

Asking Price ……. $13,900,000

The result of higher borrowing costs will be greater pressure on home prices. If borrowing costs go up, affordability declines, and it's only affordability which will put a floor beneath home prices.

New rules would raise mortgage costs

By JEFF COLLINS / THE ORANGE COUNTY REGISTER — December 16, 2011

Cameron Findlay is the chief economist at LendingTree.com, working out of the Charlotte firm’s Irvine office. responsible for risk management, hedge strategy and analytics. He is the firm’s principal representative in Washington, D.C., involved in mortgage industry reform. We asked him for his take on the mortgage market these days …

Us: What’s going on with the current mortgage market?

Cameron: There is a battle ensuing between Fannie Mae and Freddie Mac vs. the Federal Housing Administration in terms of market share.

Just take loan limits as an example. For Fannie and Freddie loans, the local loan limit is set at $625,500. For FHA loans, those limits are actually $729,750.

The translation for high-cost regions like Orange County, the government is committed to reducing the number of Fannie and Freddie loans, and the volume we expect will be diverted to FHA as consumers look to secure higher loan limit loans. In short, there is confusion for both lenders and borrowers which inhibits the loan origination process and increases cost.

The reduction in Fannie and Freddie loan limits from $729,750 to $625,500 on Oct. 1 was particularly significant because 28 percent of the homes impacted nationally are located right here in California.

I don't believe this is competition or confusion. The government wants to pull back from its subsidies to stop from losing even more money, by leaving the option open to use FHA financing, they can provide some support for the more expensive homes, but at a higher borrowing cost. This should encourage private lending in the jumbo loan market to enter this space.

FHA loans with their insurance premium of 1.15% is more expensive than a competing jumbo loan. Of course, the jumbo loan will require 20% down and the FHA loan only requires 3.5% down, so many will chose FHA loans anyway because they won't have another choice.

Whatever choice the borrower makes, it will carry a higher cost which will reduce the size of the available mortgage. Smaller mortgages make for lower prices.

Us: What’s the outlook for mortgages in 2012?

Cameron: Qualification will continue to play a central role in the first half of the year when regulators are expected to release the definition of a “Qualified Residential Mortgage.”

The cost of borrowing may rise as much as 1.25 percent for those who do not qualify for a QRM. Clearly this would be detrimental to existing home prices and reduce the market’s ability to clear existing inventory.

That is only half true. It is detrimental to existing home prices, but it doesn't reduce the market's ability to clear the inventory. Lower prices will do that.

Being an election year, there may not be much new policy agreed to. We expect policies already in place to be central to election results. This may drive government intervention to further stimulate improvement or at least stability in housing.

I agree that legislation in an election year is not likely, particularly since the two parties can't agree on much. But given the perceived need in Washington to support home prices, something may emerge from Washington which further distorts the market.

Us: UCLA forecast that these historically low rates will last two more years? Do you agree? How long do you think they’ll last?

Cameron: Mortgage rates have bottomed out despite additional monetary easing from the Federal Reserve. Any additional efforts by the Fed to stimulate mortgage rates lower will have only a marginal improvement on increasing the number of borrowers who are eligible for a loan or refinance.

We expect low rates to prevail for less than 24 months, by which time it is expected regulatory influence will begin to push rates higher. The increased transparency any private label investment in mortgages would require implicates a risk premium that will be passed onto borrowers.

That's a reasonable assessment. Over the next 18 to 24 months, interest rates will likely remain low. Just when it looks like prices have found a bottom, higher interest rates will reduce affordability and stop any meaningful appreciation.

People say that mortgages were too easy to get in the boom, and now they’re too hard. Has the pendulum swung too far?

The pendulum for qualification was previously built on the concept of creative and unstable loan. Existing loan types today are primarily Fannie, Freddie or FHA-qualified loan types, meaning lenders are very cautious about qualifying a borrower.

For sustainable, long-term growth, you need a solid foundation. Today, the market, in collaboration with government oversight, is still clearing the rubble and defining that foundation.

In other words, no, the standards are not too tight.

Standards are finally reasonable again. Only if lenders get stupid, take on excessive risk, or innovate again will we see stupid loan standards and possibly another bubble.

The concern we have expressed is the constant market shock of changing rules will result in adverse market condition premiums that will be passed onto borrowers in the form of higher rates.

Us: How long will this tight-money climate last?

Cameron: The “tight-money climate” will remain in place until private label investment deems mortgages are a risk-worthy investment, which cannot happen as long as the government is buying all of the supply at a market premium to synthetically suppress mortgage rates.

Exactly. The entire mortgage market today is government backed. Private lenders are unwilling to loan at the interest rates backed by government loan guarantees, so we have a completely artificial government-backed interest rate sustaining current pricing.

The government is fully aware that consumption (which is about 70 percent of GDP) is driven by confidence, and without support for housing initiatives, this will risk reducing growth targets not only for mortgages but the broader economy.

Clearly, underlying this issue is the labor market. Jobs creation will be central to any improvement. Focus will need to be on both the cyclical unemployment rate and the structural unemployment concerns that takes into account the skills loss that results in lower-paying jobs and reduced income.

Job creation and household formation are essential to the recovery of the housing market. We need qualified borrowers taking on plain-vanilla debt to absorb the homes being vacated by toxic mortgage holders.

Us: Who’s getting these historically low interest rates, the rich, or cash-strapped homeowners who need them the most?

Cameron: Qualification has mainly been restricted by loan to value or FICO score constraints vs. a focus on debt to income, or higher-income households. Access to credit is being restricted by the loss of equity and home devaluation over the past five years.

The recent Home Affordable Refinance Program 2.0 program was designed specifically to focus on high loan-to-value borrowers. Although it is expected to help, it will still only assist less than 10 percent of the market.

He didn't answer the question about who benefits, so I will. The primary beneficiaries of the low interest rates are prudent borrowers who were able to refinance, and new buyers purchasing in areas like Las Vegas where prices are well below rental parity.

The people who have not benefited from the low rates are the buyers who paid much more than rental parity to take advantage of the low rates. Those knife catchers have watched the values continue to decline despite the bargain rate they got.

The other group that has not benefited are the deeply underwater who did not strategically default because they got a loan modification or took advantage of the new GSE program allowing deeply underwater borrowers to refinance. This group believes they've been helped, but they have merely extended their pain.

The bottom line is that increased borrowing cost is going to continue to put pressure on home prices. With the additional inventory coming next year from B of A and other lenders, I expect prices to continue to decline.

Did Shady Canyon appreciate 35% since 2008?

The owner of today’s featured property believes his property has appreciated 35% since early 2008 when he bought. The rest of the market has declined about 20% since then. Is it reasonable to think this house went the other way?

Some say the rich get richer, but only if a greater fool comes along to pay a lot more for an already overpriced house.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 44 BLUE HERON Irvine, CA 92603

Asking Price ……. $13,900,000

Beds: 5

Baths: 8

Sq. Ft.: 11441

$1215/SF

Property Type: Residential, Single Family

Style: 3+ Levels, Farm House, Mediterranean

View: Canyon, City Lights, City, Golf Course, Mountain, Panoramic

Year Built: 2006

Community: Turtle Rock

County: Orange

MLS#: U11003550

Source: CRMLS

On Redfin: 127 days

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This Shady Canyon custom home resides upon one of the community s most desirable elevated lots and captures breathtaking panoramas of the canyon, golf course, and mountains in the distance. Its preferred siting affords wonderful privacy throughout the residence and its grounds. Extraordinary design and materials have been brought together, creating the substance and distinction that are the hallmark of this home. Throughout the spacious interiors, the carefully selected finishes contribute to a feeling of quality, warmth and comfort. Impressive, yet eminently livable, no other home offers such a unique combination of setting, space, views and privacy. The house is complemented by nearly an acre of amazing gardens, terraces, multiple outdoor living areas, and an outdoor kitchen facilities ideal for entertaining or enjoying the exceptional views and tranquil setting.

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Proprietary commentary and analysis

Asking Price ……. $13,900,000

Purchase Price … $10,250,000

Purchase Date …. 4/8/2008

Net Gain (Loss) ………. $2,816,000

Percent Change ………. 27.5%

Annual Appreciation … 8.2%

Cost of Home Ownership

————————————————-

$13,900,000 ………. Asking Price

$2,780,000 ………. 20% Down Conventional

4.02% …………… Mortgage Interest Rate

$11,120,000 ………. 30-Year Mortgage

$2,685,524 ………. Income Requirement

$53,217 ………. Monthly Mortgage Payment

$12047 ………. Property Tax (@1.04%)

$667 ………. Special Taxes and Levies (Mello Roos)

$2896 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$550 ………. Homeowners Association Fees

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

$69,376 ………. Monthly Cash Outlays

-$4311 ………. Tax Savings (% of Interest and Property Tax)

-$15965 ………. Equity Hidden in Payment (Amortization)

$3892 ………. Lost Income to Down Payment (net of taxes)

$1758 ………. Maintenance and Replacement Reserves

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

$54,750 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$139,000 ………. Furnishing and Move In @1%

$139,000 ………. Closing Costs @1%

$111,200 ………. Interest Points

$2,780,000 ………. Down Payment

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

$3,169,200 ………. Total Cash Costs

$839,200 ………… Emergency Cash Reserves

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

$4,008,400 ………. Total Savings Needed

——————————————————————————————————————————————————-

Home prices across OC continue to plummet

Prices across most of Orange County continue to decline. The OC Register reports prices have hit a near three-year low. My own analysis of the MLS data shows Irvine teetering on the brink of taking out the 2009 low and setting a new eight-year record low.

Home Address … 8 KANSAS Irvine, CA 92606

Asking Price ……. $639,000

O.C. home prices hit 31-month low

December 13th, 2011, 9:39 am

Orange County’s home pricing got hit with autmun’s chill, as builders had a record-worst sales month.

DataQuick reported this morning that 2,297 residence sold in November. That is up 1.8% from a year ago. That gain came at a price. Literally.

Median selling price was $400,000 — the lowest since April 2009 and off 8.0% in a year. Orange County’s median first hit $400,000 in May 2003.

Anyone who has been reading my writing is not surprised by these numbers. Ever since the spring rally fizzled out in May, I have been predicting a big drop in the fall and winter. When December's numbers are posted, they should be even worse.

By the slice:

  • 1,495 single-family residences sold last month. That is up 6% from a year ago.
  • 664 condos sold last month. That is up 8% from a year ago.

Increasing sales and decreasing prices means the decline is accelerating. The sales volumes are still well below historic norms, but the fact that volume is increasing is a good sign for those waiting for lender capitulation as a sign of a market bottom.

  • Builders had 138 new-home sales last month. That is down 42% from a year ago. It was the slowest November for developers in DataQuick records that date to 1988.

And more analysis …

  • $400,000 median selling price is 38% below June 2007′s peak of $645,000.
  • Current price is 11.1% below 2010′s peak (May and July) of $450,000; 2% below end of 2010′s median ($410,000.)
  • The most recent median is 8% above the cyclical low hit in January 2009 at $370,000 — so the median has recouped 11% of the $275,000 price drop from the peak.
  • Compared to cyclical low, single-family house median is 10% higher ($418,250 in January 2009); condo median is 1% higher ($252,000 in March 2009.) Builder prices for new homes are 35% above June 2009′s $424,000 bottom.

See the follow up post below reminding everyone of how the low of the median in 2009 was an illusion created by the changing mix of houses sold.

  • The median selling price of a single-family home is 37% less than their peak pricing (June ’07). Condos sell 46% below their peak in March 2006. Builder prices for new homes are 34% below their February ’05 top.
  • Single-family homes were 80% more expensive than condos in this period vs. 71% a year ago. From 1988-2010, the average house/condo gap was 57%.
  • Builder’s new homes sales were 6% of all residences sold in the period vs. 10% a year ago. From 1988-2010, builders did 14% of the Orange County homeselling.

These are dismal numbers. There is no way the bulls can convincingly spin this. Prices will fall through January or February, then we will see the start of the season uptick for next year's spring rally. Expect the usual suspects to call the bottom.

Just as a reminder, the median is not the best measure of price performance:

It seems like there may still me a few people who do not understand that the median low is not necessarily and most often not the absolute low of any statistic. The 2009 Orange County median low for residential home prices was not the low for home prices as can be evidenced by anyone who has been actively been watching home prices for the last few years. Anyone that is, who is not a moron.

From Wikipedia: In probability theory and statistics, a median is described as the numerical value separating the higher half of a sample, a population, or a probability distribution, from the lower half. The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one. If there is an even number of observations, then there is no single middle value; the median is then usually defined to be the mean of the two middle values.

Here are two lists which provide examples of median prices using a sample of ten prices each:

Sale Prices Sale Prices
$200,000 $200,000
$200,000 $250,000
$225,000 $300,000
$225,000 $400,000
$250,000 $500,000
$250,000 $600,000
$500,000 $700,000
$1,000,000 $800,000
$1,500,000 $900,000
$2,000,000 $1,000,000

The median of the first list is $250,000 while the mean is $635,000.

The median of the second list is $550,000, more than the median of the first list, while the mean is less than the mean of the first; only $465,000.

Although they show opposite results, neither the median nor the mean are flawed, but both are limited by their definition and the data set applied.

The Orange County Median Low in 2009 was not the low for home prices and anybody who has been watching home prices for the last few years can attest to the same. The Orange County median reached a low in 2009 because of the mix of homes being sold. 2009 had an unusually large percentage of distressed sales of lower end homes purchased in 2005/2006 or refied in 2005/2006 by subprime borrowers with 2/1 and 3/1 Option Arm mortgages. The mortgages recast in 2006 to 2008 and these subprime borrowers had little to no reserves with which to make their larger recast payment, and the resulting distressed sales occurred relatively quickly compared to present default times. Of course, none of this is news to anyone who has been paying attention or is not denying the facts.

After 2009, the mix of homes being sold changed with 3/1, 5/1, and 7/1 Option Arm mortgages recasting on Alt-A and prime borrowers with more reserves and larger incomes from which to delay a distressed sale on more expensive homes. This is most easily evidenced by the longer and longer times to foreclosure from default initialization, but Coto Housing Blog readers can probably deduce this from their own observation.

Home prices did not rise as is claimed by the delusional and the logically challenged, (read moron), but rather the rise in the median price reflected a greater percentage of more expensive homes sold. A trend in any price or metric cannot be accurately determined by observing only one statistic to the exclusion of others.

I have also written about this issue in the past:

2003 Rollback

The owners of today's featured property paid the current asking price over eight years ago. Eight years: no appreciation.

Apparently, they were not paying down their mortgage because it is also listed as a short sale.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 8 KANSAS Irvine, CA 92606

Asking Price ……. $639,000

Beds: 5

Baths: 3

Sq. Ft.: 2200

$290/SF

Property Type: Residential, Single Family

Style: Two Level, Contemporary

Year Built: 1999

Community: Walnut

County: Orange

MLS#: P804843

Source: CRMLS

Status: Active

On Redfin: 19 days

——————————————————————————

One of the popular Plan 3 home situated in a gated community of Harvard Square. One br. one full bath dn stairs. 2.5 Car garage. Property comes with additional side yard & beautiful landscaping. Pergo wood floor, Oak cabinets, plantation wood shutters, Berber carpet and tiles. Close to FW 5 & 261. Short sale.

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Proprietary commentary and analysis

Asking Price ……. $639,000

Purchase Price … $639,000

Purchase Date …. 9/4/2003

Net Gain (Loss) ………. ($38,340)

Percent Change ………. -6.0%

Annual Appreciation … -0.0%

Cost of Home Ownership

————————————————-

$639,000 ………. Asking Price

$127,800 ………. 20% Down Conventional

4.02% …………… Mortgage Interest Rate

$511,200 ………. 30-Year Mortgage

$126,014 ………. Income Requirement

$2,446 ………. Monthly Mortgage Payment

$554 ………. Property Tax (@1.04%)

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

$133 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$122 ………. Homeowners Association Fees

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

$3,255 ………. Monthly Cash Outlays

-$397 ………. Tax Savings (% of Interest and Property Tax)

-$734 ………. Equity Hidden in Payment (Amortization)

$179 ………. Lost Income to Down Payment (net of taxes)

$100 ………. Maintenance and Replacement Reserves

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

$2,404 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,390 ………. Furnishing and Move In @1%

$6,390 ………. Closing Costs @1%

$5,112 ………. Interest Points

$127,800 ………. Down Payment

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

$145,692 ………. Total Cash Costs

$36,800 ………… Emergency Cash Reserves

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

$182,492 ………. Total Savings Needed

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