I would like to leave this city This old town don’t smell too pretty and I can feel the warning signs running around my mind And when I leave this island I’ll book myself into a soul asylum Cause I can feel the warning signs running around my mind
Before anyone claims I am being an elitist, let me point out that I spent most of my childhood in a rural farm community in Central Wisconsin, and I have lived for many years in manufactured housing. It can be quite nice, as today’s featured property demonstrates.
Manufactured housing has been given a bad rap for years. It is relatively inexpensive — which means it has cheap fixtures and finishes — and it is generally associated with the lowest rung on the property ladder.
Many people falsely consider them unsafe. It is standard practice in the media to drive straight to a mobile home park after a big storm because they believe they are likely to find damage there. With modern standards for tie-downs, manufactures homes are as capable of withstanding storms as site-built.
No matter how nice a property is, people still have a stigma for manufactured housing — which is a shame because even site-built housing is manufactured these days; it is just manufactured on site.
It wouldn’t surprise me if this property really is worth $332,000 in today’s market. Everyone wants to retire here, right?
The Manufactured Home Business of Yesteryear
My mentor was a seasoned real estate developer in Florida who made a fortune developing manufactured housing communities in the center of the state. Back when these communities were popular, the way developer’s made money was through site rent — it was a cash-cow business.
The developer would put in a small amenity package and sell tightly-packed mobile homes for cost. The development itself was a breakeven proposition, but once you got hundreds of people to park their manufactured homes on your site, you could slowly bring up the rents and drain all the equity out of the properties. The park could be kept for cashflow or sold for enormous valuations.
There are many mobile homes in Central Florida that have little or no resale value because rental rates barely cover site rent on the home. You see the same problem with some of the small condos in Laguna Woods, and of course, with the North Korea Towers.
Asking Price: $332,000
Income Requirement: $83,000 Downpayment Needed: $66,400
Beds: 2 Baths: 2 Sq. Ft.: 1,670 $/Sq. Ft.: $199 Lot Size: 4,000 Sq. Ft. Property Type: Single Family Residence Style: Carriage House Stories: 1 View: Greenbelt Year Built: 1979 Community: Northwood County: Orange MLS#: P699300 Source: SoCalMLS Status: Active On Redfin: 21 day
Beautifully Updated Manufactured Home With Great Interior Tract Greenbelt Location In The Highly Sought After 55+ Resident Owned Community ‘The Groves’. Large 2BR/2BA Flowing Floor plan w/Aprox. 1670 Sq/Ft. Updated Fully Appointed Kitchen w/ Custom Cabinets, Solid Surface Counters & Stainless Appliances. Lrg Family Room Opens to Private Side & Front Patio Areas Perfect For Entertaining Family & Friends. Lrg Formal Lvng Rm / Dining Rm w/ Custom Built-Ins. New Windows, Doors, Flooring, Remodeled Baths – No Detail Missed – Shows Like New. Attached 2 Car Garage. Great Association Amenities. Close To Everything Location. Put This One At The Top Of your Show List You Will Not Be Disappointed!!!
I don’t have any mortgage or sales data for you. You don’t think grandma spent the home, do you?
That’s what you get for pretending the danger’s not real. Meek and obedient you follow the leader Down well trodden corridors into the valley of steel. What a surprise! A look of terminal shock in your eyes. Now things are really what they seem. No, this is not a bad dream.
Asking Price: $345,000 Income Requirement: $86,250 Downpayment Needed: $69,000 Purchase Price: $282,500 Purchase Date: 4/16/2003 Address: 40 BRIARWOOD #81 Irvine, CA 92604 Beds: 2 Baths: 2 Sq. Ft.: 1,125 $/Sq. Ft.: $307 Lot Size: – Property Type: Condominium Style: Other Stories: 2 Floor: 1 Year Built: 1978 Community: Woodbridge County: Orange MLS#: S587624 Source: SoCalMLS Status: Active On Redfin: 4 days 2BD, 1.5 TOWNHOUSE IN WOODBRIDGE. INSIDE THE LOOP LOCATION. FIREPLACE IN NICE SIZE LIVING ROOM. KITCHEN INCLUDES WOOD FLOORS, INSIDE LAUNDRY ROOM. TWO LARGE BEDROOMS, ONE WITH A WALK IN CLOSET AND THE OTHER WITH MIRRORED DOORS. GREAT PATIO FOR ENTERTAINING. TWO CARPORTS DIRECTLY BEHIND UNIT. WALKING TRAIL TO NORTH LAKE. CLOSE TO EASTSHORE ELEMENTARY SCHOOL AND FIRWOOD PARK AND POOL.
Good morning, The Worm, Your Honour, The Crown will plainly show, The prisoner who now stands before you, Was caught red-handed showing feelings. Showing feelings of an almost human nature. This will not do. Call the schoolmaster! I always said he’d come to no good, In the end, Your Honour. If they’d let me have my way, I could have flayed him into shape. But my hands were tied.The bleeding hearts and artists, Let him get away with murder. Let me hammer him today. Crazy.
I want to tell you a story ‘Bout a little man if I can. A gnome named Grimble Gromble. And little gnomes stay in their homes, Eating, sleeping, drinking their wine.
He wore a scarlet tunic, A blue-green hood, it looked quite good. He had a big adventure Amidst the grass, fresh air at last. Wining, dining, biding his time…
Some properties are so special and unique that they must have value well beyond cashflow standards. Today, I am featuring one of the most unusual properties in Irvine: the Grimble Gromble Gnome Home (say that three times very fast).
The property description says the owners spent over $300,000 on upgrades. When a property is over-improved, it is a condition know as super-adequacy. Most improvements add value, but even the best ones only add about 70% of their cost to the value. As people over-improve, the additional value added falls off quickly.
Of course, by definition an improvement must improve the property. Some items people “improve” their properties with are undesirable and instead of adding value, it actually diminishes it. Today’s featured property is a case study in how to turn a super-adequacy into a value defeating fail.
Let’s start our tour with the most interesting feature on the property — the oubliette.
What you would do with your own secret hiding place? Hopefully, nobody is keeping any Egyptian slaves there.
Maybe this can be a home for bizarre rituals.
You will have a pair of knights to stand guard.
A heavily armed pair of knights…
The current owner has some interesting art…
Equus? Perhaps the owner believes Obama is riding to his rescue.
This 2005 construction has that patina of age. Note where the plaster is breaking from the wall and exposing the underlying brick…
The children “sea” the house differently than their parents…
This exquisite home is located in Woodbury community. Over 300,000
worth of upgrades, Semi custom touches throughout the home with extreme
detail. Travertine floors with hardwood insets, Granite stairways,
custom Iron rails, Brick veneer arch ways, distress wood beams, with
designer hand painted walls with distress detail, Custom doorways and
doors. Stainless steel appliances, sub zero, granite counter tops, open
wine closet, Customs built-ins throughout. This home is great for
outdoor entertaining with tranquil fountains, built in BBQ and
Fireplace.
That is a good description. I don’t know if I could write a good description for this home.
Even though these owners bought near the peak, their property has appreciated over the last 4 years. If they sell it for its asking price, they stand to make nearly $200,000 after commissions.
I am trying to figure the likely buyer profile for this property. Who would this property really appeal to?
I suppose if the Munsters and the Addams family are not interested, I know another family that can adapt to Southern California…
And so concludes another week at the Irvine Housing Blog, chronicling the Irvine home market since September of 2006.
What Lenders and Our Government Don’t Want You to Know
The Big Lie of 2009
Brace For Impact
I couldn’t decide on a headline…
With a little data and some complex analysis, it is possible to get an accurate picture of the shadow inventory in Orange County. Today, we will explore this catastrophe in the making.
and I am not frightened of dying, any time will do, i Dont mind. why should I be frightened of dying? Theres no reason for it, youve gotta go sometime. i never said I was frightened of dying.
The inventory coming to our market is going to cause a catastrophic collapse of house prices. It will pound them back to the stone ages and wash away any illusions of equity.
Are you frightened? As Yoda would say, “You will be… YOU WILL BE.” I will ask you again at the end of the post.
Some say the world will end in fire, Some say in ice. From what I’ve tasted of desire I hold with those who favor fire. But if it had to perish twice, I think I know enough of hate To say that for destruction ice Is also great And would suffice.
Robert Frost
In order to discuss Shadow Inventory, we must define it. Shadow Inventory is the total of Preforeclosure Inventory, REO and some other sources. Preforeclosure Inventory includes all mortgages currently 60 days or more behind on their payments that are likely to become foreclosures but not yet REO. To understand these distinctions, review the foreclosure timeline below.
When a mortgage holder gets 60 days behind, they become part of the preforeclosure inventory. Once a property is in preforeclosure inventory, there are two possible outcomes: (1) cure or (2) foreclosure.
Curing the deficiency involves one of three possible methods: (1) selling the house — something that doesn’t happen often when the owner is underwater — (2) paying off the deficiency in cash, and (3) loan modification. The first method used to be the most common, but now with so few mortgage holders with any equity, very few people are curing by a sale.
Few people ever pay off a deficiency in cash because if they had cash, they probably would not be in default.
There should be only five or six months between missing the second payment and a property being auctioned as foreclosure. Properties are not supposed to be warehoused as preforeclosure inventory, but with the various foreclosure moratoria, there is now a significant backlog of homes held in limbo. Preforeclosure inventory is market pergatory.
If there is any headline from the mainstream media you should take note of, it is the extraordinarily high delinquency rate. It is central to the calculation of Shadow Inventory, and it is the tsunami many here have been waiting for.
The rest of the analysis is built around this calculation.
Cure Rate
When a mortgage holder gets behind on payments, they often “cure” the deficiency — well, at least they used to. The cure rate in early 2007 was 45%; It recently fell to 6.6%.The cure rate is the ratio of the number of loans cured divided by the number of delinquent loans in the system. It is a measure of the percentage of loans each month that leave Shadow Inventory. It is a direct measurement of one of the methods of exiting the system — the other being foreclosure. When a property goes delinquent, what isn’t cured is a foreclosure.
Cure rates are very low right now because there is so much shadow inventory in the system that has no chance of curing. This makes the denominator of the calculation larger than it should be (Loans Cured / Total Delinquent) because delinquent loans are not becoming REO on time. There are about 15,000 loans in Preforeclosure Inventory that should be REO but due to foreclosure moratoria and other policies, Shadow Inventory (Preforeclosure Inventory plus REO) has been growing. This is consistent with anecdotal reports I have heard.
Shadow Inventory Calculation
With a little more math, you can calculate the the number of these defaults that are going to become REO.
OC Homes Currently
Delinquent
46,268
Cure Rate
6.6%
Mortgages
Brought Current
3,054
Properties Heading to REO
43,214
Note the above calculation determines how many will become REO. To calculate our current Shadow Inventory, the future REO must be shifted six months to allow for processing time. Our current Shadow Inventory is sourced from the projected REOs of six months ago — a time when delinquency rates were lower and cure rates were higher. Six months from now, things will be much, much worse.
I am projecting the delinquency rate to peak at 16% in the second quarter of 2010 about the same time unemployment peaks. It will remain elevated for some time as the lingering effects of unemployment take their toll. Shadow inventory will peak in December of 2010. With the ARM resets coming, peaking in 2010 requires massive capitulation (defaulting before the reset). Orange County may not capitulate on schedule, but the statistics suggest capitulation is already occurring.
Shadow inventory is not the peak of foreclosures, it is the peak of the supply of properties in the foreclosure pipeline. How and when these properties are moved through the foreclosure process is anyone’s guess. When the crisis is finally over, a whopping 40% of all properties with mortgages in Orange County will go through foreclosure. It is the 175,000 pound pig moving through the snake, or the equity tsunami building building strength; you pick the analogy. It is bad.
This is the number I am least sure of in this analysis due to the assumptions in the calculation. It should take 10 months for a property to go from being 60 days delinquent to an REO sale in the marketplace (360 – 60 = 300 = 10 months). Lately it has been taking much longer. To calculate the REO total, I have added every 12th month together to avoid double counting. I am assuming it takes on average 12 months to go through the system. If it only takes 10 months, then the total REO number is larger than 175,000, and if it takes 18 months, it is about 33% smaller.
The next step is to calculate REO Inventory and Preforeclosure Inventory. Graphrix was kind enough to obtain data on REO inventory and sales since January of 2007. With that data and the calculations above, the table below was generated.
REO Inventory and Preforeclosure Inventory
REO inventory is not mysterious; it is the sum of all properties that have entered the system minus those that have been removed through final sale to its new owner. When you run the calculation, you discover that REOs have been building up in the system for quite some time (I started with zero in January of 2007 which isn’t accurate. In short, my number is understated.)
If you know Shadow Inventory, and if you know REO inventory, everything left over is Preforeclosure Inventory. Below are a table and charts parsing this data.
The chart above shows the increase in REOs and REO sales over the last two and one-half years. Lenders have been consistently behind in processing REO causing a buildup in the system.
In 2009, lenders became more serious about selling its REO, and REO inventory has been holding steady at about 6,000 units all year. For the last year, foreclosures have been selling at the rate of about 800 a month in Orange County. This sales rate keeps prices stable, but it is too low to satisfy demand. This rate could increase some without hurting prices too much, but it will take a significant increase in REO sales to work off the inventory on its way.
The stabilization of REO inventory should be a good sign for the market; however, stabilization occurred by falling behind on the foreclosure process and by creating an enormous Preforeclosure Inventory.
How do we clear the market?
There are so many houses that must go through foreclosure, it is hard to imagine how to dispose of all of them. I tried to create a projection where nearly 100% of a normal sales volume were REOs to see how quickly they can be pushed through the system. I recognize this is not realistic, but it is the best-case scenario for clearing out the inventory problem.
Even with this aggressive scenario, the foreclosures still haven’t fully worked through the system by the end of 2013. Realistically, this problem will be with us until 2017. Lingering effects will last much longer.
The good news is that kool aid should be fully purged from the system by then….
{book6}
This is the part of The Great Housing Bubble that still makes me
angry. The powers-that-be know how big this problem is, and yet our
policies and our public relations are all geared toward getting knife
catchers to jump into the equity meat grinder. They know they are
encouraging others to take on the losses the lenders cannot absorb, and they do not care how that impacts you.
Your Government is complicit with the Federal Reserve in an effort to make you pay for their mistakes.
CHARMING 2 STORY HOME IN THE MOST DESIRABLE AREA WITH AWARD WINNING
IRVINE SCHOOL DIST. FRIENDLY NEIGHBORHOOD WITH TREE-LINED STREETS AND
COMMUNITY POOL AND SPA. VERY CLEAN AND WELL-KEPT. LAMINATED WOOD
FLOORING THROUGHOUT DOWNSTAIR. FAMILY ROOM WITH FIREPLACE & CEILING
FAN. LARGE KITCHEN FEATURES GRANITE COUNTERTOP, UPGRADED CABINETS,
BREAKFAST BAR AND EATING NOOK AREA, GAS COOKTOP AND CENTER ISLAND WITH
DUAL SINKS. MASTER SUITE OFFERS A SEPARATE TUB, SHOWER AND WALK-IN
CLOSET. RECESSED LIGHT THROUGOUT. CONVENIENT UPSTAIRS LAUNDRY ROOM WITH
GAS DRYER HOOKUP, UTILITY SINK AND FOLDING TABLE. 2 CAR ATTACHED GARAGE
WITH ROLL-UP DOOR AND A DIRECT ACCESS TO THE BACKYARD. CONVENIENT
LOCATION NEAR SHOPPING, ENTERTAINMENT AND FREEWAYS. READY FOR IMMEDIATE
OCCUPANCY.
THROUGOUT?
ALL CAPS IS PAINFUL TO READ.
Today’s featured property is another 2003 rollback.
Are you frightened?
Consider the following very carefully:
I know many of you reading this are active in this market right now. If
you are not prepared to be underwater on your purchase for 7-10 years,
you should consider waiting another year or two for the clearing
process to take prices down to fundamental valuations. I will be.
Remember when you were young, you shone like the sun. Shine on you crazy diamond. … Come on you target for faraway laughter, come on you stranger, you legend, you martyr, and shine! You reached for the secret too soon, you cried for the moon. … Come on you raver, you seer of visions, come on you painter, you piper, you prisoner, and shine!
Some people get worked up about property flippers and some do not. Some flippers improve properties and make money through creating value (I am talking about real improvements, not pergraniteel).
Personally, I think flippers who buy properties, do nothing to them, and offer them for sale at higher prices are leaches sucking the value from the housing market. Every penny of profit those flippers make comes at the expense of a normal family that might have save money buying a house. I have reserved a small measure of schadenfreude for these idiots as the market crushes the money out of them.
Yesterday, when I wrote about short sales, I talked about the flippers who are buying at auction. Those flippers are at least providing market liquidity, so there is some value in the service they provide. Flipping an auction property is a profit opportunity even in a declining market because the strategy obtains real estate for under current market value (like today’s featured property).
People who flip in the open market simply rely on increasing prices to make money. Now that our bear market rally is in full motion, flippers are trying their luck again….
It makes me all tingly inside to think about how much some of these flippers are going to lose. And this time, it will be their equity rather than funny-money from the bank.
Are you happy to see flippers active in our market again?
Equity Seller. This is not a REO or short sale. Corporate Owned. Turn-key home. Bring your pre-approved buyers and close fast. Great
oppurtunity to get into Landing II, which is one of the most sought
after neighborhoods in Woodbridge. Woodbridge has been named The best
place in America to Raise a Family by Parent’s Magazine and the #1
Planned Community in the Country. Private Cul de Sac location, great
for families. Recent upgrades include casement windows, travetine
flooring,distressed Spanish Hickory hardwood flooring,entertainment
center in family room,custom built child’s bedroom with bunkbed and
cabinets (must see!),plantation shutters,above ground spa (sold in ‘as
is’ condition) recessed lighting,new carpet throughout, new interior
paint. Exterior will be painted prior to close of Escrow.
Corporate Owned? Yes, the corporation you formed to flip properties….
oppurtunity?
Take a good look at this sales price history. This is a mid-range property in one of the most desirable neighborhoods in Irvine that declined in value during a 6 year period.
Date
Event
Price
Aug 24, 2009
Listed
$875,000
Jul 27, 2009
Sold
$690,000
Jul 14, 2003
Sold
$722,500
If this property sells for its current asking price, the flipper stands to make $132,500 after a 6% commission. Not a bad deal if you can get it.
BTW, I have a major analysis post on Shadow Inventory coming out tomorrow. Here is a teaser statistic for you: 175,000 Orange County homes will go through foreclosure between 2007 and 2013. That is 40% of the housing stock with a mortgage. I will show you all the calculations tomorrow…
I want to tell you a story
and I am not frightened of dying, any time will do, i
Remember when you were young, you shone like the sun.
