One of the first new communities in Irvine to start showing stress as prices weakened was Northwood II. I first profiled the abundance of listings in this small neighborhood back in March of 2007 in the post Bamboozled. I have also featured this neighborhood in Is fear gripping the market?
In the first post, Bamboozled, I had this little chart:
“Real estate always goes up, or so buyers are bamboozled into
believing by realtors. It only takes a few nervous neighbors to drive
down property values in an entire neighborhood. Comps are set at the
fringes where the transactions take place.”
Remember when prices used to look like that? Pay careful attention to that last listing as it is also today’s featured property.
{book}
In the second post from September of 2007, I had this observation:
“Another neighborhood showing increased listings and more racing to find the bottom is Northwood II.
Like all the new neighborhoods in Irvine, this one is populated by
specuvestors who are starting to realize they made a terrible mistake.
The homes priced in the $750K to $950K range, so these are not the
small condos we are seeing struggle everywhere else. This is the first
sign of fear spreading from the low-end of the market to the move-up
SFD market.”
So what is going on there now?
Today, there is 1 bank owned property, 4 scheduled auctions, and 5 in pre-foreclosure. There are also 15 homes offered for sale on Redfin (some of which are also one of the aforementioned categories). This is not a big neighborhood, and there has already been a lot of turnover from original owners selling out.
Perhaps it is just my perception, but I always saw this neighborhood as being full of speculators and flippers. I feel sadder for many of the young families that bought into Woodbury who were just starting out. The homes in Northwood II are generally larger, move-up homes. So for all the speculators and flippers who are getting burned, I proffer my phony boo hoo for you.
While we are taking a trip down memory lane, I came across this post from 2007. It is a letter to the editor at the OC Register from a realtor who just lost over $100,000 on a flip in Irvine. For people who want to understand why I often do not have the best opinion of realtors, you need to read what this guy wrote. Besides, in historical context, it is hilarious.
Move in condition home with over $100,000 in upgrades. Great cul-de-sac
location with full driveway. Custom granite counters in kitchen with
stainless steel appliances. Plantation shutters, built-in entertainment
center. Fourth room/loft is currently used as a gym on the second
floor.Additional office space on the second floor. Cozy fireplace in
living room. Hardwood floors. This gorgeous home is located in the
gated community of Northwood II. Association offers pool, spa, BBQ.
Home is located in the with in walking distance of shopping and
restaurants. Located in the Northwood high school district.
Move in condition? As opposed to trashed out in foreclosure…
This property was purchased on 11/16/2004 for $950,000. The owner used a $758,450 Option ARM first mortgage with a 3.94% teaser rate and a $191,550 downpayment. The guy first tried to sell this place in early 2007 when he was asking $1,049,900. Notice the extra $900 on the end? That is my greed indicator. Notice his current price doesn’t have this $900 added to it. That is a sign of capitulation.
If this property sells for its current asking price, and if a 6% commission is paid, the total loss would be $216,800. In all likelihood this is a short sale. The $191,550 downpayment is gone.
This property is being offered for 18% off its 2004 purchase price. It was new in 2004.
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
In my ongoing, yet unintentional, campaign to obtain realtor hate mail, I would like to quiz you today. MalibuRenter conceived of this post, and he did all of the research — basically, he wrote it, and I got to add the snarky comments. Get something to write on and record your answers to the following questions, the complete questions and answers are below the fold:
1. Looking at the long history of US home prices adjusted for inflation (1890 to 2008), how long has it historically taken for US home prices to double (for the same type and size of house in the same location)? ___5-10 years, ___10-20 years, ___20-50 years, ___51-80 years
2. Adjusted for inflation, had real estate prices ever declined nationally before 2007? ___yes, ___no.
3. Can the value of a home drop so much that it has to be given away in order to find a new owner?
4. What portion of US homeowners take the mortgage interest deduction? ___under 30%, ___30-40%, __40-50%, __50-60%, __60-70%, ___over 70%
5. Assume a couple purchases a home at the US median home price of $200,000 (as of 3rd quarter 2008), puts 10% down, and gets a $180,000 30 year fixed rate loan at 6% interest. Assume they are in the 25% tax bracket. If they have no other itemized deductions, about how much is the mortgage interest deduction worth to them? ___$12,000 ___$10,800 ___$3,000 ___$2,592 ___Zero.
6. If overall inflation is 3% per year (with similar rates of inflation for home prices, maintenance, and property taxes), buying a house with a fixed rate mortgage means that the cost of living in that house will ____ stay the same for 30 years, ____rise by 1-3% per year, _____rise by 3%+ per year?
7. Through 12/31/05 (near the peak of the housing bubble), which investment had the highest return over the past 100 years? ____stocks (Dow/S&P 500), ____high grade bonds, ____ single family homes
8. Do children of renters and homeowners living in adjacent homes/condos typically attend different public schools? ___yes, no
9. If a stockbroker or investment advisor knowingly made misleading statements about historic returns on an investment to a potential investor, what would happen?
10. If a realtor (or the National Association of Realtors) made misleading statements about real estate, what would happen?
11. Which of the following groups files for bankruptcy most often, and is most likely to lose a home through foreclosure? ___Single men, ___Single women, ___Couples with no children, ___ Couples with children
12. If you have a 30 year fixed rate loan at 6% interest, how much of the principal will you have paid off after 15 years? __under 25%, __25-35%, __35-45%, __45-55%, __over 55%.
13. Does taking a home equity loan or refinancing for a higher amount make it more likely you will be foreclosed on? __ Yes, __No
14. In 2007, CA had 13.2 million houses, condos, and apartments. How many people in CA had real estate licenses? ___under 100,000; ___200,000-300,000; ___300,000-400,000; ___400,000-500,000; ___500,000-600,000; ___over 600,000.
I’m having fun I think I’m dumb Or Maybe just happy
For those of you who do not want to relive your school test nightmares, I have a property for you to look at.
HIGHLY UPGRADED CARPET, WOODFLOORS, WIDE WINDOW BLINDS, DRAPES, GARAGE
CABINETS, TUSCAN-STYLE KITCHEN COUNTER TOPS, BLACK APPLIANCES,
STAINLESS STEEL REFRIGERATOR(included), CUSTOM CABINETS, A/C, LARGE TWO
CAR GARAGE. STACK WASHER/DRYER(included). LOTS OF STORAGE. COMPUTER
INTERNET OFFICE AREA. MICROWAVE OVEN. TWO PATIO DECKS. NEWPORT COAST
SHOPPING.BEACH COUPLE MILES AWAY. OWNER MOVING OUT OF AREA(MOTIVATED).
Owner is motivated? After 959 days on the market, I don’t feel a big sense of urgency here.
This property was purchased on 7/22/2004 for $495,000. The owner used a $320,000 first mortgage, and a $175,000 downpayment.
Check out this listing price history. At one time this woman was asking $804,995. LOL! She probably deserved that $310,000 profit after owning it for two years.
Date
Event
Price
Appreciation
Source
Jan 19, 2009
Price Changed
$609,950
—
SoCalMLS #P518047
Jan 06, 2009
Price Changed
$675,000
—
SoCalMLS #P518047
Jan 03, 2008
Price Changed
$714,000
—
SoCalMLS #P518047
Apr 14, 2007
Price Changed
$748,900
—
SoCalMLS #P518047
Feb 11, 2007
Price Changed
$794,900
—
SoCalMLS #P518047
Jun 05, 2006
Listed
$804,995
—
SoCalMLS #P518047
This property is still grossly overpriced even after all these reductions. Most Irvine neighborhoods are at or below 2004 pricing, but this property is supposed to be 25% higher? Oh yea, it is Turtle Ridge…
{book}
Are You Smarter Than a Real Estate Agent?
1. Looking at the long history of US home prices adjusted for inflation (1890 to 2008), how long has it historically taken for US home prices to double (for the same type and size of house in the same location)? ___5-10 years, ___10-20 years, ___20-50 years, ___51-80 years
A. 51-80 years. From 1890 to 2000 this had never occurred, even if you purchased at the bottom and sold at the top. In 2001 home prices adjusted for inflation were twice as high as 1921, the first time a doubling had occurred. The shortest period of time for prices to double was from 1949 to 2006, 57 years.
2. Adjusted for inflation, had real estate prices ever declined nationally before 2007? ___yes, ___no.
A: Yes, prices drop about as often as they rise. When adjusted for inflation, home prices have dropped slightly more often than they have risen. This is true from 1890 to 2008 (52% of the years prices dropped after adjusting for inflation), from the end of WWII to 2008 (51% of the years prices dropped), from 1980 to 2008 (48% of the years prices dropped). The chart below shows inflation-adjusted single family home prices in the US (From Robert Shiller http://www.econ.yale.edu/~shiller/data/Fig2-1.xls ).
3. Can the value of a home drop so much that it has to be given away in order to find a new owner?
A. Yes. There are currently numerous examples in Detroit and Cleveland, and an assortment of others in places like Indianapolis. When prices drop below several thousand dollars, the current owner is very likely paying out more than the purchase price for a real estate commission, title search and title insurance, and documents fees.
4. What portion of US homeowners take the mortgage interest deduction? ___under 30%, ___30-40%, __40-50%, __50-60%, __60-70%, ___over 70%
A. 40-50%. Approximately 43% of homeowners take the mortgage interest deduction.
In 2007 there were 75.6 million owner occupied homes. Owner occupied homes were 68% of all households. Only 29% of tax filers itemized and took the mortgage interest deduction. 26.7 million (35%) of homeowners have no mortgage. 48.9 million (65% of homeowners) have mortgages. 42% of homeowners have mortages and take the mortgage interest deduction. Sources: Number of owner-occupied homes, 2007 American Housing Survey Table 1A. Number of owner-occupied homes with and without mortgages, 2007 American Housing Survey Table 2-19. Portion of tax returns with mortgage interest deduction from IRS Publication 1304 (2006), tables 1.1 and 2.1.
Note that many people who take the mortgage interest deduction don’t get to deduct the full interest cost. If you have no other deductions, the first $11,400 of mortgage interest doesn’t exceed the standard deduction.
5. Assume a couple purchases a home at the US median home price of $200,000 (as of 3rd quarter 2008), puts 10% down, and gets a $180,000 30 year fixed rate loan at 6% interest. Assume they are in the 25% tax bracket. If they have no other itemized deductions, about how much is the mortgage interest deduction worth to them? ___$12,000 ___$10,800 ___$3,000 ___$2,592 ___Zero.
A. Zero, zip, nada, zilch, absolutely nothing, a nullity. For 2009, the standard deduction for a married couple is $11,400. For a $180,000 loan at 6% interest, the interest is about $10,740 per year. Thus, there is no benefit for this couple to itemize and take the mortgage interest deduction.
Even if the couple had bought a more expensive house and taken the mortgage interest deduction, the interest would drop every year, and the standard deduction likely rises in future years. Thus, the value of the mortgage interest deduction drops every year the loan is outstanding.
6. If overall inflation is 3% per year (with similar rates of inflation for home prices, maintenance, and property taxes), buying a house with a fixed rate mortgage means that the cost of living in that house will ____ stay the same for 30 years, ____rise by 1-3% per year, _____rise by 3%+ per year?
A. Rise by 1-3% per year. Because the costs of maintenance, insurance, and property taxes all rise over time, having a fixed rate loan is only a partial hedge against inflation. The portion of the mortgage payment which is interest drops each year, and the standard deduction rises. For people who take the mortgage interest deduction, the aftertax mortgage payment rises slowly over time, even with a fixed rate mortgage.
7. Through 12/31/05 (near the peak of the housing bubble), which investment had the highest return over the past 100 years? ____stocks (Dow/S&P 500), ____high grade bonds, ____ single family homes
A. Stocks 6.7%, Bonds 2.6%, Single family homes 0.7%. Those are real numbers adjusted for inflation. Since they are all measured over the same time periods, without adjusting for inflation, stocks would still have outperformed bonds, and both would have outperformed houses. Sources: Real rates of returns for stocks and bonds Prof Jeremy Siegel, Wharton School, http://archives2.sifma.org/boca2005/pdf/JeremySiegel.pdf . Real returns on homes prices, from Robert Shiller, Yale University, http://www.econ.yale.edu/~shiller/data/Fig2-1.xls .
8. Do children of renters and homeowners living in adjacent homes/condos typically attend different public schools? ___yes, no
A. They all attend the same public schools. Parents don’t need to buy in a good school district in order to have their children attend school there.
9. If a stockbroker or investment advisor knowingly made misleading statements about historic returns on an investment to a potential investor, what would happen?
A. He would be subject to discipline, fines, revocation of his license, and under certain circumstances criminal prosecution. Rule 10b-5 of the Federal Securities Act of 1934 Employment of Manipulative and Deceptive Devices states:
“It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, a. To employ any device, scheme, or artifice to defraud, b. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or c. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.”
There are many similar state law provisions.
10. If a realtor (or the National Association of Realtors) made misleading statements about real estate, what would happen?
A. If recent experience is any guide, they would be ignored or mocked, but would not encounter any sanctions. Real estate itself is not classified as a security, and the Federal government does not regulate misrepresentation regarding investment returns on real estate.
An extremely public example of a questionable or misleading claim is a National Association of Realtors ad which first aired in 2008. It claims “On average, the value of a home nearly doubles every 10 years”, https://www.youtube.com/watch?v=AyZpNIyVKQk . The Wall Street Journal skewered this claim, and another investment return calculation from the National Assoc of Realtors at http://blogs.wsj.com/developments/2008/01/29/nar-campaign-touts-real-estate-as-a-great-investment/ . Here is an excerpt: “It’s a “very misleading statement,” said James R. Webb, director of the Center for Real Estate Brokerage and Markets at Cleveland State University and a professor of finance. Mr. Webb noted that housing-price appreciation rates vary across the U.S. and that “the rates for appreciation that we saw in the past few years were artificial due to the fact that we gave a zillion people mortgages who shouldn’t have gotten them. If we hadn’t given those people the mortgages, those rates of appreciation wouldn’t have happened.” It’s best to view a house as a home – not as an investment he stressed, adding, “You shouldn’t buy a house if you don’t need a house. You should buy a house because you want to live in it, not because it’s a good investment. People have become seduced by the idea that a house is a good investment.” We also phoned Chris Mayer, the director of the Milstein Center for Real Estate at Columbia Business School. About NAR’s down payment/stock market comparison, Mr. Mayer said, “That’s insane. If one of my students made that calculation, I would fail them.” NAR’s calculation leaves out several important variables, such as closing costs, how much money goes into maintaining a property, brokers’ fees, property taxes and “the risk of using 95% leverage – in the example NAR puts forth, the buyer only puts down 5% of the home’s cost and borrows the rest, he explained.”
11. Which of the following groups files for bankruptcy most often, and is most likely to lose a home through foreclosure? ___Single men, ___Single women, ___Couples with no children, ___ Couples with children
A. Couples with children are the most likely to file bankruptcy, and the most likely to be foreclosed on. “The families in the worst financial trouble are not the usual suspects. They are not the very young, tempted by the freedom of their first cr
edit cards. They are not the elderly trapped by failing bodies and declining savings accounts. And they are not a random assortment of Americans who lack the self-control to keep their spending in check. Rather, the people who consistently rank the in the worst financial trouble are united by one surprising characteristic. They are parents with children at home.” The Growing Threat to Middle Class Families, Elizabeth Warren, Harvard Law School, http://www.nacba.org/files/new_in_debate/GrowingThreatMiddleClassFamilies.pdf .
12. If you have a 30 year fixed rate loan at 6% interest, how much of the principal will you have paid off after 15 years? __under 25%, __25-35%, __35-45%, __45-55%, __over 55%.
A. 25-35%. At the end of 15 years, at 6% you would have paid off 29.4% of principal. At 5% interest, you would have paid off 32.5%. At 7% interest you would have paid off 26.6%.
13. Does taking a home equity loan or refinancing for a higher amount make it more likely you will be foreclosed on? __ Yes, __No
A. Yes, because you now have higher monthly payments, and the total outstanding loans are larger. This makes it more likely you will have difficulty making payments due to job loss, divorce, or serious medical problems. It also makes it more likely that you cannot sell the house for at least the loan value.
14. In 2007, CA had 13.2 million houses, condos, and apartments. How many people in CA had real estate licenses? ___under 100,000; ___200,000-300,000; ___300,000-400,000; ___400,000-500,000; ___500,000-600,000; ___over 600,000.
I’m not like them But I can pretend The sun is gone, But I have a light The day is done, I’m having fun I think I’m dumb Or maybe just happy
Think I’m just happy (x3)
My heart is broke But I have some glue Help me inhale And mend it with you We’ll float around And hang out on clouds Then we’ll come down And have a hangover
Have a hangover (x3)
Skin the sun Fall asleep Wish away soul is cheap Lesson learned Wish me luck Soothe the burn Wake me up
I’m not like them But I can pretend The sun is gone, But I have a light the day is done, I’m having fun I think I’m dumb Or Maybe just happy
Long as I remember the rain been comin’ down. Clouds of myst’ry pouring confusion on the ground.
The difference in asking prices between those who must sell their properties and those who do not is pretty remarkable. When I wrote about the ARM Problem, I laid out the case for destruction of pricing at the high end. Basically, the low end has been wiped out because this is where subprime was concentrated, and the high end is in a low-volume holding pattern waiting for the Alt-A and Option ARM resets to wipe them out. There have been some feeble attempts to make light of this problem, but I have not seen any compelling reason to believe these resets will not flatten the market. In fact, the mainstream media is starting to pick up on the fact that there is a Growing Foreclosure Crisis. I wrote the post, When Not If, to more clearly illustrate the ARM problem and show how it will impact one particular property. It will be one of many.
What I want to show today is just how devastating must-sell inventory is to a housing market. We have already seen the low end get blasted, but how significant are the discounts on high end properties when they become distressed? To illustrate I have two properties to view today. One is a distressed sale asking $1,073,100 and the other is a non-distressed homeowner asking $1,599,900. I don’t see many differences between these properties, but I will let you decide if one of them deserves a 50% premium over the other.
WOW! Spectacular location with no homes behind-quiet interior location
with huge lot. POTENTIAL 6 BEDROOMS, 4.5 BATHS, POOL, SPA, BBQ, COVERED
LOGGIA, OUTDOOR FIREPLACE. SOARING CATHEDRAL ceiling living room, guest
suite and office downstairs, 4 bedrooms upstairs, master with retreat –
SUPER CLEAN – planatation shuttres, granite, Hunter Douglas blinds,
ITALIAN TILE floors, almost 9,000 square feet lot – ENJOY THREE
SWIMMING POOLS – less than 200 yards to AWARD WINNING elementary and
high schools.
WOW! the CAPS LOCK goes ON AND off.
Super clean? So what?
shuttres?
One sign of the lack of distress (or perhaps greed) is the extra $900 in the price tag. This guy was only willing to leave $100 on the table when dropping the price below $1,600,000. I suppose he could have priced it like gas and asked for $999.99 and 9/10.
Eleven years of ownership, and this guy thinks his property has tripled in value, and he deserves to make $1,000,000. Why not hang on for 33 years and make $3,000,000?
Beautiful 5 bedroom 4.5 bath home located in the prestigious Cristal
Community. Great cul-de-sac location with no neighbors behind. House
includes a large family room, living room, and gourmet kitchen with
breakfast nook. Rear yard includes a built-in barbeque area; excellent
for entertaining.
BTW, this is a 2003 Rollback at the high end.
Date
Event
Price
Appreciation
Source
Jan 16, 2009
Listed
$1,073,100
—
SoCalMLS #S560186
Sep 22, 2008
Sold
$1,118,000
-0.5%/yr
Public Records
Jul 15, 2003
Sold
$1,150,000
16.5%/yr
Public Records
Aug 05, 1998
Sold
$541,000
—
Public Records
These properties are very similar. The more expensive one has a bigger yard, a pool and one additional bedroom, but it is closer to Culver. The sizes are identical. The less expensive one is on the end of a cul de sac.
Each of these properties has plusses and minuses, and people can construct rational arguments why each one commands a premium over the other. I can’t come up with a good argument why one of them is 50% more expensive than the other… except that one is a distressed sale and one is not.
These distressed sales are going to greatly reduce prices. They already are.
{book}
Who`ll Stop The Rain
Long as I remember the rain been comin’ down. Clouds of myst’ry pouring confusion on the ground. Good men through the ages, try’n’ to find the sun, and I wonder, still I wonder, who’ll stop the rain.
I went down Virgina seekin’ shelter from the storm. Caught up in the fable, I watched the tower grow. Five years plans and new deals, wrapped in golden chains, and I wonder, still I wonder, who’ll stop the rain.
Heard the singers playin’ how we cheered for more. The crowd had rushed together, trying’ to keep warm. Still the rain kept pourin’, fallin’ in my ears, and I wonder, still I wonder who’ll stop the rain.
Touch what you can’t have While i have what you can’t touch for now My friend, all of this will turn to ash
Cash-strapped homedebtors going through a foreclosure often look for ways to get a few dollars out of the property before they give it back to the lender. One common way is to strip down the property and sell everything of value.
When I was in school, I had the privilege of helping a man named Frank Little as he retooled his architecture practice. He did a great deal of research on the tax code and the distinctions between what is personal property and what is a fixture of real estate. In architectural design, it is possible to create construction drawings to have what would ordinarily be classified as a fixture (part of the real estate) be classified as personal property. There are major tax advantages to this classification as you can greatly accelerate the depreciation. In working with Frank, I gained some knowledge of the grey areas between real estate and personal property.
The distinction between fixtures and personal property becomes very important when one is facing foreclosure. The personal property is yours, and you can do what you want with it. However the fixtures are real estate, and as such, they are part of the lender’s collateral. If you remove and sell fixtures, you are potentially stealing from the lender and reducing the value of the collateral.
Most people going through foreclosure could care less about the lender’s collateral. In fact, some people intentionally trash the place simply out of spite. In the weekend open thread, I mentioned a property in Beaumont (35756 Trevino Beaumont, CA92223: $492,000 new in 2006, asking $122,850 today. That is a property just over 2 years old (December 2006 to January 2009) selling at a 75% discount.) This property is selling for such a steep discount because the previous owners stripped the house before they left.
I mention all this because a reader sent me a Craigslist ad where a guy facing foreclosure is offering to sell everything in the house, including the fixtures. Here is the ad:
“My $1.5 Million dollar house was built last year and I just lost my job
after 10 years of service and can’t pay $10,000 a month. I pray to GOD
to the other families who are in the same position.
I will list the New prices so make your BEST OFFER.
LIST OF NEW PRICES, MAKE YOUR BEST OFFER. ############
40 White flush 6 inch Can lights $145 each obo
3 white Stairway lights $620 total obo
10 J-Boxes $185 each obo
Greyfox Intercom System Package, Master station, 3 interior sub stations, 1 exterior $2,640 obo
Central Vacuum System with accessory kit Dirt Devil pro series 690 12w x 39tall $2,840 obo
15 universal outlets $275 each obo
KITCHEN CABINETS total $12,650 obo some sizes 23.75w x 52.75single,
30w x30 tall double, 30w x25 double, 2) 36w x12.5 drawers, 33w x 10
drawer, 30w x5 drawer and more in Island etc.
20 about Kitchen Knobs polished nickel $950 total obo
Kitchen Island cabinets $1,435 obo
Undertone Undermount stainless steel Sink Kohler k3356, 29.5w x 34.5 with garbage disposal $980 obo
(SOLD) Wolf Stainless Steel 30” x 50 tall double over with professional handles $3,045 obo
(SOLD) Thermador Stainless Dishwasher with professional handles 23w x 34.5 tall $1,020 obo
(SOLD) Thermador Stainless built-in Microwave with trim kit $490 obo
(SOLD) Wolf stainless 36” Gas cooktop 5 burners $1,790 obo
KitchenAid wine cooler stainless 24” separate climate for red and white holds 48 bottles $1,570 obo
Sub Zero FRIGERATOR with ice and water 42w x 84tall $10,845 obo
Bathroom tub enclosure clear glass doors 58wx 62tall $540 obo
Bathroom stand up shower enclosure clear glass door $540 obo
Framed Mirror master bath 74w x 45 $1,235 obo
Framed Mirror guest bath 30w x 42 $620 obo
WHITE SHUTTERS 20 WINDOWS 4 1/2 inch blades double and single
49w x60tall double, 19 w x36.5 tall single, (3) 37w x 42tall, (3) 25w x 60tall, 24 3/4w x48 3/4tall
(6) 36.5 x 60 3/4 double, $400 each obo
5 Mirrored medicine cabinets 16w x 26 tall $400 obo
2 Mansfield toilets $400 each obo
2 Bathroom towel racks polished nickel $60 obo
4 Bathroom lights with 3 hanging glass bells $100 obo
13 DOORS with fancy double molding (3) 29 3/4w x 79, (5) 31 3/4 x 79, 29.5w x 79, 27 3/4 x 79,
32w x 79 mirrored on each side $250 obo
Bradford White hydrojet energy saver 50 gallon defender safety system WATER HEATER $400 obo
Looking over his list, I don’t see much there that would qualify as personal property. Nearly everything there is part of the lender’s collateral. If you don’t believe me, read the definition of “fixture” and tell me what you think.I have left off the name and phone number, but I have left the link to the Craigslist ad so that you know it is for real.
Is this stealing? Technically, the guy still owns the house and all the fixtures therein. There are probably provisions in the mortgage that prevents the sale of fixtures after a default, but who would enforce it? If you purchased this stuff, are you stealing? Does the technical definition matter? Is this right or wrong?
Let’s assume that technically this is not stealing because the guy owns the house. Is it OK for you to buy the stuff and screw the lender?
Let’s assume that this man is stealing from the lender. Are you participating in a crime by buying his stolen goods?
Would your ignorance to the crime make it OK? Most people who respond to a Craigslist ad like this are not going to know or understand the nuances of personal property law as it pertains to imminent foreclosures. Most would not care.
Would you buy from this guy?
So digest your consequences The Serpent’s venom runs inside of you Your lust, desire will blind your senses Whirlwinds of disaster for you
{book}
Today’s featured property is NOT the one mentioned in the Craigslist ad. The only reason it is not is because the owner has not decided to strip it down… yet.
City Lights, City, Greenbelt, Hills, Mountain, Panoramic, Valley
Area:
Quail Hill
County:
Orange
MLS#:
S537000
Source:
SoCalMLS
Status:
Active
On Redfin:
214 days
Unsold in 90+ days
Desirable SINGLE STORY near new single family RESIDENCE ONE siding to
GREENBELT in community of VICARA in QUAIL HILL, Irvine on a top,
SINGLE-LOADED ST. with 180 degree PANORAMIC VIEWS of mountains, valley,
city lights, and sunsets; 3BRs + OFFICE + MEDIA ROOM, 2.5BAs with 2-CAR
ATT.GAR + STORAGE. Over 150K in UPGRADES incl Gourmet Kitchen
w/stainless steel appl.+ Blt-in wine cooler;granite ctertops
thruout,custom stone,custom hardwood flring thruout;easy maintenance
landscaping front & back;Honeywell digital A/C system w/
micro-filtration built-in. gar. fits 2 cars+computer station w/internet
& phone line+storage. Soft water system thruout. Monitored alarm
system;inside laundry rm w/sink. Lots of cabinet space. Central vacuum
in garage. Outdr speakers in back yard. Courtyd w/fountain/blt-in BBQ
w/sink, burner & granite countertps,fire pit/blt-in
speakers,&French drs out from dining rm & bedrm.Award-winning
Alderwood Basics+ Elem.+nationally-ranked University HS;resort-style
amenities.
Intermittent CAPS LOCK.
flring? rm? drs? incl? Outdr? thruout? Can’t find room for a few more letters (throughout)?
VICARA in QUAIL HILL. Am I the only one who reads “Viagra” every time “Vicara” is mentioned? Viva Vicara…
This property was purchased near the peak on 6/28/2006 for $1,891,000. The owner used a $1,511,200 first mortgage, and a $379,800 downpayment. Wow, that must suck. This guy is losing all of his money.
If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $387,940. Since this almost exactly matches the owners downpayment, you have to suspect the price will get pretty sticky right where it is. This listing price history is agony in motion:
Date
Event
Price
Appreciation
Source
Dec 11, 2008
Price Changed
$1,599,000
—
SoCalMLS #S537000
Dec 06, 2008
Price Changed
$1,659,000
—
SoCalMLS #S537000
Nov 10, 2008
Price Changed
$1,699,000
—
SoCalMLS #S537000
Nov 05, 2008
Price Changed
$1,729,000
—
SoCalMLS #S537000
Sep 09, 2008
Price Changed
$1,799,000
—
SoCalMLS #S537000
Aug 07, 2008
Price Changed
$1,890,000
—
SoCalMLS #S537000
Jun 19, 2008
Listed
$1,989,000
—
SoCalMLS #S537000
Jun 28, 2006
Sold
$1,891,000
—
Public Records
Each price drop comes right out of this guys downpayment. For his sake, I hope he sells it before it becomes a short sale. It doesn’t look very promising.
{book}
Men of the Earth You have soiled you’re so foul With lips of infected sullen You will indulge yourself
So digest your consequences The Serpent’s venom runs inside of you Your lust, desire will blind your senses Whirlwinds of disaster for you (for you)
Remove yourself And take your breath away Rebuild yourself Before you fall away
And i will lift you from the bottom And my hope will fade away I must pick you up So you can survive the day
Touch what you can’t have While i have what you can’t touch for now My friend, all of this will turn to ash
Let me tell you how it will be, There’s one for you, nineteen for me, ‘Cos I’m the Taxman,
Tax policy and its relationship to housing is a big topic. This post will not be a comprehensive treatise on the subject. I will look at several areas of tax policy and see what incentives they create and how changes in these areas would impact housing prices. This includes three broad areas: ownership taxes and subsidies, debt subsidies, and appreciation taxes.
Ownership taxes and subsidies include property taxes, special tax levies, and the impact of proposition 13.
Debt subsidies include the home mortgage interest deduction and its relationship to the personal exemption.
Appreciation taxes are capital gains and income taxes from the profitable sale of residential real estate.
Ownership Taxes and Subsidies
Property taxes have long been a source of local government tax revenues. Real property cannot be moved out of a government’s jurisdiction, and values can be estimated by an appraisal, so it is a convenient item to tax. In most states, local governments add up the cost of running the government and divide by the total property value in the jurisdiction to establish a millage tax rate. California is forced to do things differently by Proposition 13 which effectively limits the appraised value and total tax revenue from real property. Local governments are forced to find revenue from other sources. Proposition 13 limits the tax rate to 1% of purchase price with a small inflation multiplier allowing yearly increases.
Proposition 13 tends to limit move-up trading because it requires owners to increase their property tax bill, sometimes dramatically. There are basis transfers and ways around this problem for certain people who qualify, but there is a documented tendency among California home owners to stay in their homes because they end up trapped there by the tax savings. This Wikipedia article has a good discussion of the impact of Proposition 13.
Many people who bought at the peak are seeing property tax relief as prices fall. Most do not realize that their property tax bills will rise with appraised values until they hit their purchase price. They are not locked in to the new lower tax basis. New buyers who enter at lower prices are. For instance, say a peak buyer paid $1,000,000 in 2006. In 2011, his tax basis has been reduced to $500,000 with the surrounding property values. A 2011 buyer who pays $500,000 also shares this $500,000 tax basis. However, as property values rise back to $1,000,000, the peak buyer is going to be reassessed every year until his cap is hit at $1,000,000 plus annual allowed increases. The buyer at $500,000 will not face these same increases in property tax. Timing Does Matter.
Proposition 13 opponents point to the deterioration of California’s public schools since its passage as a big reason it should be repealed. However, since our property prices are so volatile, repealing proposition 13 is very unlikely. If we could reduce volatility in the housing market, the impact of Proposition 13 would be negligible, and there would be no need to repeal or reform it. That being said, there is one reform I believe would bring some fairness to this tax. Right now, the yearly allowed increases are less than wage and price inflation. If the escalator in Proposition 13 were tied to the Consumer Price Index, much of the subsidy given to long-term homeowners would be reduced, and tax revenues would better match inflation.
Mello Roos taxes are paid to service and retire development bonds taken out by the original land developer. These taxes come out of a potential buyers money available for a payment, so Mello Roos depress housing prices. One good strategy is to buy in a neighborhood where Mello Roos payments are about to end. The other potential buyers bidding on these properties will all be limited in their loan amounts by the Mello Roos payments, so imminent expiration will not have much impact on pricing. However, your future buyer will not face these payments, and when they do expire, you will see an increase in property value.
Debt Subsidies
Debt subsidies, in particular the home mortgage interest deduction, are seen as a great benefit to home ownership. The benefit is widely overestimated and misunderstood.
First, people fail to understand that to obtain a debt subsidy, you must have debt. You must be making an interest payment on this debt in order to qualify, and you get to reduce your tax burden by a small percentage of the interest amount. In short, you are paying a dollar to save a quarter. There are people who actually seek to maximize their interest payments in order to increase this subsidy. This is really, really foolish. Anyone out there who believes it is a good idea to spend $1 to receive $0.25 in return, please send me as much money as you wish, and I promise to send back 25% of it.
Realtors try to con people with the “throwing your money away on rent” argument. Homeowners buy into the fallacy. Interest is the rent on money. You throw away money on interest just like you throw it away on rent. In fact, people who overpay for housing throw away more money on interest than renters do to obtain the same property, even after the tax subsidy. The only argument one can make for paying extra interest is if you are receiving a return on that investment through property appreciation. We all see how that is turning out.
The main reason the benefits of the home mortgage interest deduction are overestimated is because people forget they must give up the standard deduction in order to obtain it. This is one area where tax policy can have hidden and indirect impact on housing. Changes in the standard deduction greatly impact the benefit of the home mortgage interest deduction. As the standard deduction is increased, the positive impact of the HMID is decreased. In fact, if the standard deduction were doubled, the average American holding a $150,000 mortgage probably would not bother itemizing to obtain the HMID because it would be of no tax benefit at all. This would certainly simplify people’s tax returns. A higher standard deduction is also a boon to renters who do not have the option of obtaining the HMID.
When we set up the RentVsOwnulator, we put in a 25% tax benefit from the HMID. Some people have commented that this is too small a number. It is not. Several people have run the calculations both with and without the HMID, and the net difference is only 25% even at the highest tax brackets. Basically, if you want to figure out your real tax benefit, take your highest marginal tax rate and subtract 10%. That will be a much closer estimate to reality. This reduction is caused by losing the standard deduction.
{book}
Another facet to the HMID is the cap level. Currently mortgages up to $1,000,000 are eligible for the deduction. Does anyone think this is right? Do you realize you as a taxpayer are subsidizing $1,000,000 mortgages? When the GSEs were set up, they established a conforming loan limit. The reason they did this is because they are mandated to subsidize mid and low income housing. Why is the limit on the HMID any higher than the conforming loan limit from the GSEs? Why are we subsidizing high income borrowers?
If we were to reduce the HMID cap level to $500,000 and adjust it by the CPI going forward, we are still subsidizing relatively high income borrowers ($500,000 is still almost triple the median home price in the US). A reduction in this cap would have the same impact as the lower GSE conforming limit is having: it would lower prices at the high end by eliminating the subsidies.
IMO, the government has no place in subsidizing house prices that are well above the median. One can argue that the government should not be subsidizing anything in housing, but the low and middle income subsidies are here to stay. If we raise the standard deduction and lower the HMID caps, we can greatly reduce the impact of the HMID and the cost we pay for it as taxpayers. This would have the effect of lowering prices on more expensive homes, but it would help stabilize the lower end of the market. That is what the market needs right now.
In a post last week, we examined a proposal from John Burns to subsidize housing further by temporarily doubling the HMID. The problem I have with this is the same one I have with all temporary subsidies: how do you end them? Anyone who buys under temporary terms will be hurt when the subsidies are removed. This will cause everyone involved to lobby Congress to make them permanent. Permanently increasing housing subsidies will only make the problem worse at taxpayer expense. In the short term, the Burns’ proposal probably would help stabilize the housing market. If it were not capped it would be a huge tax break for people with large mortgages. It might even ignite another unsustainable rally and postpone the crash temporarily. None of this benefits the housing market long term.
Appreciation Taxes
Should five per cent appear too small, Be thankful I don’t take it all.
A couple of weeks ago, I was contacted by an author named Bill McKim. He has written a pamphlet titled The Financial Crisis of 2008. In it he makes one simple, yet far-reaching proposal that would eliminate volatility in California’s residential real estate market: Tax capital gains due to irrational exuberance at a 100% rate. I must admit, that certainly would do it.
Our current system of calculating and enforcing taxes on property appreciation are a big part of the problem, and reform here is necessary. In short, gains on the sale of a primary residence are largely untaxed (there are complicated rules I will not go into here). There is no other asset class that receives such a generous government subsidy. If you sell most any other asset class for a profit, and you will be paying either personal income taxes or capital gains taxes depending on how long you owned the asset. With housing, most people either qualify for the tax break, or they claim they do and don’t get caught.
For most very long-term homeowners, much of the gain they recognize when they sell their houses is due to inflation. Taxing capital gains caused by inflation actually hurts the long term homeowner. A homeowner who sells after 30 years may not see any gain in value beyond inflation. The money returned to them has the same buying power as when it was put in to the asset. For the government to take a percentage of this inflation-induced gain is to rob the long-term homeowner of buying power. This is a valid reason not to tax capital gains on housing.
Unfortunately, when the Congress looked for a method of overcoming the tax problem of capital gains on long-term home ownership, the method they chose was deeply flawed. They simply put in a large tax break without regard to ownership period. It becomes a huge tax break for property flippers. Rather than benefiting long-term homeowners and encouraging that behavior, the government ends up encouraging frequent property turnover.
The solution to this tax problem is simple. Adjust the purchase price tax basis by the Consumer Price Index. Long-term homeowners would see a significant adjustment in the tax basis of their home while flippers would not.
The next issue is how much to tax the gain itself. Bill McKim proposes that the government should take it all. This would remove all incentive to buy for appreciation, and it would stop irrational exuberance in its tracks. That is probably not a tax policy that would ever get implemented. However, the idea is sound. Once the basis is adjusted for inflation, the tax rate on gains will greatly impact buyers and sellers. The higher the tax rate on capital gains, the less people will seek them, and the lower the market price volatility will be.
Another way to encourage long-term home ownership is to provide a lower capital gains tax rate only to long-term homeowners. For instance, a person who buys and sells a property and holds it for less than 3 years could be taxed at higher personal income tax rates. People who hold a property for more than 3 years would be taxed at lower capital gains tax rates. This would greatly inhibit the mindless flipping done by people who do not improve property.
{book}
Tax policy is complicated, and its impact on housing is important. The tax policies of The Great Housing Bubble contributed to its inflation, and there are many proposals to use tax policy to ease its deflation. There are some proposals I believe would be helpful, and some that would not. Now is a good time to take a hard look at the incentives these tax policies create and ask ourselves if the subsidies we provide as a society are providing us with the benefits we seek.
Today’s featured property is a small apartment condo. It is also a 2003 rollback (almost).
Great buy in North Woods.! Light and Bright Home with Vaulted Ceilings,
Wood Laminate Flooring and Lots of Storage. Step Down Living Room with
Fireplace. Large Private, Fenced Back patio. Amenities include Enclosed
Laundry, Walk-In Closet and Skylight. Association Pool and Spa. Close
to award winning schools, Beautiful Parks, shopping and the freeway.
Low Tax, No Mello Roos!
I have never seen a period followed by an exclamation point before. Very creative.
As you might have guessed, this property was bought by a flipper with 100% financing. It was purchased on 5/18/2006 for $450,000. The owner used a $360,000 first mortgage, a $90,000 second mortgage and a $0 downpayment. The bank took back the property on 11/12/2008 for $320,000. If this property sells for its asking price, and if a 6% commission is paid, the total loss to the lender will be $135,100.
This property is being offered for 26% off its peak purchase price. IMO, that is not near enough to sell it…
This property is almost a 2003 rollback. By the time it sells, it almost certainly will be.
{book}
1,2,3,4,1,2
Let me tell you how it will be, There’s one for you, nineteen for me, ‘Cos I’m the Taxman, Yeah, I’m the Taxman. Should five per cent appear too small, Be thankful I don’t take it all. ‘Cos I’m the Taxman, Yeah yeah, I’m the Taxman.
(If you drive a car car), I’ll tax the street, (If you try to sit sit), I’ll tax your seat, (If you get too cold cold), I’ll tax the heat, (If you take a walk walk), I’ll tax your feet. Taxman.
‘Cos I’m the Taxman, Yeah, I’m the Taxman. Don’t ask me what I want it for (Ah Ah! Mister Wilson!) If you don’t want to pay some more (Ah Ah! Mister Heath!), ‘Cos I’m the Taxman, Yeeeah, I’m the Taxman.
Now my advice for those who die, (Taxman!) Declare the pennies on your eyes, (Taxman!) ‘Cos I’m the Taxman, Yeah, I’m the Taxman. And you’re working for no-one but me, (Taxman).
Today, there is 1 bank owned property, 4 scheduled auctions, and 5 in pre-foreclosure. There are also 15 homes offered for sale on Redfin (some of which are also one of the aforementioned categories). This is not a big neighborhood, and there has already been a lot of turnover from original owners selling out.
Unsold in 90+ days
I’m not like them
Who`ll Stop The Rain
Men of the Earth
