Right now there are more houses in some stage of foreclosure than there are current listings of properties for sale. The lifting of foreclosure moratoria is causing a spike in default notices. The second wave is building.
The owner of today’s featured property recently cut the price $100,000 in an effort to move it before the wave hits.
Asking Price: $499,999
Address: 26 Longshore #31, Irvine, CA 92614
{book}
See my profile of Oak Creek at Irvine Homes blog.
We’re Ready — Boston
We’re ready now
Catchin’ a wave to ride on
Steady now
headin’ where we decide on
And I know that there’s something that’s just out of sight
It is conventional wisdom in the housing blog community (and the OC Register) that a giant wave of foreclosures is coming later this year, but what facts do we have that support this thesis? Today, we take a look at the available data and show this wave in its formative stage.
Foreclosure is a four step process: (1) the borrower quits making payments, (2) the lender issues of Notice of Default, (3) the lender issues a notice of Trustee Sale, and (4) the foreclosure auction occurs on the courthouse steps. Steps 1, 2 and 3 are separated by 90 days each. At any time during this period, either the borrower can get current with their payments, or the borrower and lender can agree to a loan modification. If either contingency occurs, the foreclosure process is aborted.
California passed SB1137 to force lenders to try harder to reach borrowers in default and work out a loan modification plan. Also, the GSEs and many large banks were on voluntary or mandated foreclosure moratoria. This caused a dramatic decline in Notices of Default (step 2). Unfortunately, as I noted Moritorium on Defaults Announced, stopping lenders from issuing notices does nothing to prevent borrowers from actually defaulting (step 1). Borrowers everywhere stopped making payments, and lenders merely stopped issuing notices about it.
The hope of foreclosure moratoria is that additional time will allow lenders to work out the bad loans and avoid the foreclosure process. Unfortunately, it did not work. First, very few borrowers even try to work out the loan with the lenders, and many who try fail to reach an agreement. Second, most who have agreed to a loan modification end up defaulting again; the redefault rate is running at about 50%. And third, financially it is in a borrower’s best interest to give up the house in foreclosure, so the only thing keeping them in the loan and in the home is their sense of morality concerning the payment and their attachment to their properties.
By far the best writing on this subject is coming from Mark Hanson, aka Mr. Mortgage. He has access to all the mortgage and foreclosure data, and he does a great job analyzing it.
His graphs and charts show exactly what we would expect to find; a temporary decline in defaults while loan modifications are attempted followed by a dramatic increase once the moratoria are lifted. This is statewide data in California, but it doesn’t tell us much about Irvine.
We all know what has happened to pricing in less desirable communities dominated by subprime lending. The initial wave of foreclosures wiped these areas out. Prices in many areas are down 50% to 70%. The decline in these areas did not occur because they were less desirable (a conceit common among high-end property owners); the decline occurred there first because their loans reset first.
The loans in Irvine are due to reset over the next 3 years as very little of it was subprime. If you put the default chart together with the reset chart, it would suggest that the new wave of defaults would be the tapering off of subprime and an increase in other ARMs–a problem being exacerbated by a bad economy and high unemployment. Is there any evidence that the new spike of defaults is due to mid-
to high-end properties starting to default? On the map of Irvine below, the green dots with a “P” on them are “preforeclosures” otherwise known as Notices of Default.
There are always more Notices of Default (“P”) than there are Notices of Trustee Sales (“A”) because some defaults are cured through payment or modification, and the foreclosure process is avoided; however, the ratio is currently quite high due to the spike in Notices of Default. There are currently 72 bank-owned properties, 196 scheduled for auction, and 416 in preforeclosure.
According to our inventory tracker, there are about 675 homes for sale in Irvine. According to Foreclosure Radar, there are 684 properties in some stage of the foreclosure process. That means there are more homes in the process than there currently are for sale in the market. Several of the distressed properties are already listed, so there is some double counting (most of these properties are not currently on the MLS), but a large number of houses in Irvine are going to be hitting the market, and they will be sold.
So which neighborhoods are showing the most stress right now? Let’s take a tour of Irvine and see…
I have already profiled many Northpark homes along the 261 corridor. Many homes here have already gone through the foreclosure process and ended up in the hands of new owners. Many of the new owners from 2007 and 2008 may default themselves as they fall further underwater. This area may see multiple waves of foreclosures. One thing I found interesting was the relative lack of foreclosures in the part of Northwood northeast of Irvine Boulevard. With the exception of the Lakes condos and the condos on Timberwood, there has been little foreclosure activity here. It doesn’t appear there is much coming soon either.
It is no surprise that Northwood II and Woodbury are getting hammered. They are new communities and most of the homeowners are underwater. There is a small group of condos near Culver and the 5 that also is seeing a great deal of foreclosure activity. The Lakes condos appear to be letting up a bit on their foreclosures. Many properties there have already gone REO, and perhaps the worst is over for this complex. The rest of Northwood, College Park and El Camino Real all show moderate foreclosure activity, mostly at the low- to mid- price range.
I was surprised at two things when looking at this map: (1) the lack of foreclosures in Culverdale and Columbus Grove, and (2) the plethora of distressed properties outside the loop in Woodbridge. We have already seem many foreclosures in Culverdale and Columbus Grove, so this is either a lull in the storm, or the worst may be behind these neighborhoods. I suspect more foreclosures are to come in Columbus Grove because all the homeowners there overpaid.
The worst area in Irvine for distressed properties is Orangetree. If you sort the listings on Redfin for either Price or $/SF, the properties in Orangetree will all be at the top of the list. The entire neighborhood is a foreclosure war zone, and it will get worse.
The area of Oak Creek adjacent to the commercial center is dominated by three-story condos. This neighborhood is showing significant distress. Expect the distress to appear next in the SFD condos on Alevera Street, the 6-pack clusters in the Cobblestone community, and the condos across from Royal Oak Park. It is working its way up the housing ladder.
Quail hill is also getting clobbered as one would expect of the new neighborhoods. It is particularly bad in the grid-like area above the commercial center, and in the nicer homes around the loop near the elementary school. I cannot explain why this neighborhood in particular is so bad. There are some of the less expensive three-story condos, but the nicer properties on Canopy are a real surprise. Also note the auctions scheduled for the high-end stuff up the hill and over into Shady Canyon. Those are $1M+ properties going to auction.
It is no surprise–at least not to me–that Turtle Ridge is seeing many times the foreclosures of Turtle Rock. Many of these are new properties purchased at WTF prices by over-leveraged pretenders.
So there you have it; the new neighborhoods and the older low-end neighborhoods are seeing the worst of the foreclosure crisis–for now. This is where the REO will be this fall and winter. This doesn’t mean the other areas in Irvine will not be impacted. The bad economy, high unemployment and recasting ARMs will take their toll in other areas, but right now, the areas outlined above are where the action will be in the near term.
Asking Price: $499,999
Income Requirement: $125,000
Downpayment Needed: $100,000
Monthly Equity Burn: $4,166
Purchase Price: $304,000
Purchase Date: 3/31/2000
Address: 26 Longshore #31, Irvine, CA 92614
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 1,947 |
| $/Sq. Ft.: | $257 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Townhouse |
| Stories: | 3+ |
| Floor: | 1 |
| Year Built: | 1983 |
| Community: | Woodbridge |
| County: | Orange |
| MLS#: | S566368 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 69 days |
and a FULL RETREAT off the master suite – it’s almost like four
bedrooms! Located in one of Irvine’s most sought-after neighborhoods,
this outstanding tri-level floorplan features soaring vaulted ceilings
+ modern design lines. Upgrades include wall treatments, plantation
shutters, recessed lighting & more! Open & bright chefs’
kitchen offers wrap-around countertops, built-in range and breakfast
nook. HUGE master suite boasts vaulted ceilings, romantic fireplace,
private bath and walk-in closet + 3rd level laundry – very convenient!
Comfortable entertainers’ patio + garden area. Association amenities
include pool & spa + dazzling grounds encompassing pond with water
feature as well as surrounding parks and greenbelts. Short walk to
award-winning schools. Easy access to fabulous shopping, entertainment
& restaurants. WOW!
it’s almost like four
bedrooms! If it were 4 bedrooms, nearly 2000 SF, on the water feature and under $500,000, I would be offering on it.
I am so excited over this new trend toward “chef’s kitchens.” Do you think the IHB had anything to do with losing the “gourmet kitchen” label?
This seller is showing true motivation. It appears they want to get out while there is still some bubble equity left. Soon it will be gone. If this place sells for its current asking price, and if a 6% commission is paid, the owners stand to make $166,000; although they did HELOC a little out, so they will net about $120,000.
IMO, this is a smart move. The wave is coming.
{book6}
We’re ready now
Catchin’ a wave to ride on
Steady now
headin’ where we decide on
And I know that there’s something that’s just out of sight
And I feel like we’re trying to do something right
Come on make it if we hold on tight
Hold on tight
We’re Ready! C’mon We’re ready
We’re ready
We’re Ready — Boston
