The complete text of The Great Housing Bubble is spread out over 21 blog posts. Every word of it is there, including the end notes with extra information.
So much kool aid… So many properties… When will it all end? I have speculated it will end near rental parity. Based on the inputs for this property, rental parity is around $2,250 a month depending on financing and tax considerations. It is even lower for someone in the highest tax bracket, but the owner-occupant of this property probably would not be. Could this property rent for that? I think that is a bit high, but it might.
End Unit, downstairs with extra large patio. Bank Owned Property. No
one behind the unit so very private area. Living, Dining and Kitchen
have laminate flooring. Needs paint and carpeting so bring your handy
buyers or investors.
You have to put more money into a property you will lose money on. Great deal… Not.
This property is another in our endless series of speculators who milked the mortgage teat and are leaving the lender dry. This property was purchased on 7/8/2004 with a $376,125 first mortgage, a $66,375 second mortgage and a $0 downpayment. The property was refinanced on 8/16/2006 with a $397,500 Option ARM with a 1.75% teaser rate and a $79,000 stand-alone second. Total mortgage equity withdrawal is $34,000. Total debt (peak appraised value) of $476,500. If this property sells for its asking price, the mortgage holders stand to lose $180,400 after a 6% commission.
“In a bold effort to reverse his sagging fortunes after a month of dire economic news, Republican Sen.
John McCain
said Tuesday night that if he is elected president, he will order the
Treasury to buy up Americans’ bad mortgages and renegotiate new loans
that reflect their homes’ diminished value. The economic
crisis has “become so severe that we’re going to have to do something
about home values,” McCain said at the second presidential debate at
Belmont University at Nashville, Tenn. “Is it expensive? Yes,” he said.”
I don’t particularly want to see my tax dollars going to bail out the fools who overpaid for houses while simultaneously crowding me out of the market.
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I have come 500 miles Just to see a halo Come from St. Petersburg Scarlett and me Well I open my eyes I was blind as can be When you give a man luck He must fall in the sea And she wants you To steal and get caught For she loves you For all that you are not When you’re Falling down, falling down When you’re falling down Falling down, falling down
You forget all the roses Don’t come around on Sunday She’s not gonna choose you For standing so tall Go on and take a swig Of that poison and like it
I last profiled a property in the Marquee at Park Place in May of this year. In it, I noted “As you can see, the HOA dues are a value killer. The breakeven value for an owner-occupant is only $321,893 which is nearly 70% off the asking price for this unit. The monthly cashflow drain the owners of these units are experiencing
is remarkable, particularly for the plethora of empty boxes.” Is it possible for prices there to drop all the way to rental parity? Well, today’s featured property is making significant progress…
City Lights, Hills, Park or Green Belt, Pool, Has View
Area:
Airport Area
County:
Orange
MLS#:
S514938
Source:
SoCalMLS
Status:
Backup Offers Accepted
On Redfin:
300 days
Unsold in 90+ days
FORECLOSURE LOOMS…BEAT THE BANK!!! The ‘pied-a-terre’ of the United
States West Coast elite. Prestigious California Riviera High-Rise
Condo. Experience Sunny SoCal’s Newest Luxury Lifestyle. Modern yet
sophisticated 2 bed/2 bath + den/office on the 8th floor with
spectacular views! Truly, a one-of-a-kind combination of location and
convenience with extensive amenities incl: concierge service, billiard
and meeting rooms, pool, spa, fitness center, CCTV bldg surveillance +
much more! Centrally located in the ‘Heart of OC’. HOA dues also
include water and gas service. HOA enforces strict ‘no pet’ policy. NO
Mello-Roos!!!
The ‘pied-a-terre‘ of the United
States West Coast elite? OMG, how full of crap can they be?
Check out this asking price history:
Date
Price
Dec 10, 2007
$1,000,000
Jun 25, 2008
$549,000
Aug 01, 2008
$499,000
Sep 17, 2008
$475,000
That is some serious market chasing. It must have been quite a shock when they dropped their asking price 45% and they found no buyers.
The property records I have do not tell how much these owners paid. They used a $479,200 and a $119,800 HELOC, so assuming this was 100% financing, they probably paid $600,000. On 7/11/2006 they refinanced with a $600,000 first mortgage and opened a $75,000 HELOC, so it looks as if they did manage to “make” $75,000 on the deal. If this property sells for its asking price, and if a 6% commission is paid, the total loss to the lender will be $228,500.
What I find most interesting about this property is the strength of the kool aid in its water system. These people really believed they were going to make $400,000 flipping this property. I know the bubble was crazy, but WTF?
Many of us who have written about this property have speculated that REOs and short sales were going to obliterate the comps here. This is the beginning. In fact, this is the pattern we will see on most high-end properties in Irvine and surrounding communities as the Alt-A and Prime ARMs begin to reset over the next few years. With jumbo loan interest rates increasing rapidly, potential buyers are seeing a significant reduction in their buying power. In fact, an increase in interest rates from 6% to 9% finances 25% less money. With rapidly declining bids, REOs are going to see rapidly declining prices.
Yonder she walked Yonder she walked, hittin one of dream A little tongue in cheek, hot poisonality She bring on the flames, and it’s burning and burning My body’s aching, tossing and turning House is on fire House is on fire This house is on fire And the flame is gonna burn you, you She got me running for shelter Needin’ quarantine She got me red hot and wired Call an emergency She bring on the flames, and it’s burning and burning My body’s aching, tossing and turning House is on fire House is on fire This house is on fire And the flame is gonna burn you, you You got me burning and burning You got me tossing and turning Burn, burn, burn This house is on fire, House is on fire This house is on fire, House is on fire This house is on fire, This house is on fire House is on fire And the flame is gonna burn you, The flame is gonna burn, You’re gonna burn you
Did any of you see the KCET special on Foreclosure Alley? It was well done. It humanizes the whole foreclosure mess we are all in.
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Rise so high, yet so far to fall. A plan of dignity and balance for all. Political breakthrough, euphorias high. More borrowed money, more borrowed time. Backed in a corner, caught up in the race. Means to an end ended in disgrace. Perspective is lost in the spirit of the chase.
Foreclosure of a dream, Those visions never seen, Until all is lost, Personal holocaust. Foreclosure of a dream.
Barren land that once filled a need, Are worthless now, dead without a deed. Slipping away from an iron grip, Natures scales are forced to tip, The heartland cries, loss of all pride. To leave aint believing, so try and be tried. Insufficient funds, insanity and suicide.
Time is running out. Congress is working to pass a massive banking bailout before our economy completely implodes (which it might anyway). They have taken the steaming pile of manure they rejected earlier this week, candy coated it, and resold it to the American people. Of course, a major selloff on Wall Street probably helped sway public opinion as well. After they pass the bill, there will probably be a relief rally on Wall Street celebrating the massive government intervention, and this rally will be touted by all as confirmation that Congress did the right thing.
In the meantime, house price are still falling, and some of our speculators are trying to sell before they go underwater. Today’s featured property found some motivation recently, and he lowered his asking price about 30% to try to move the property. Of course, the original asking price was totally WTF, so he isn’t getting multiple bids over the ask.
4 BDs up plus an office down. Roof, carpet, flooring in BAs, kitchen
appliances & paint all done in the last 2-3 years. Excellent
expansion with corner fieldstone fireplace in ‘great room’. Great yard
for entertaining; extensive use of brick & built-in barbeque
center, lots of fruit trees, no zero lot line, Enjoy the fabulous
amenities of Woodbridge: the best ‘Place in America to Raise a Family’
and the ‘#1 HOA in US’. Irvine: ‘Safest City in America’ ‘top 2% of
schools in CA.’
This property was first offered for sale on 1/10/2008 for $949,000. WTF? Needless to say, it didn’t sell. On 9/11/2008, the price was lowered to $670,000. If this owner has listed it for that in the beginning, it might have sold, but now there are recent comps that have sold for less, so he is still chasing the market down. One would think that a house purchased in 1996 would have plenty of equity, but as we all know, lots of people spent all their equity, and today’s owner did as well. It is difficult to tell exactly how much is owed on the property, but it appears as if a sale at this price will get him out near even.
The property was purchased for $275,000 on 11/20/1996. There was a $192,500 first mortgage and a $82,500 downpayment. Nice start.
On 12/23/1998 the first mortgage was refinanced for $192,000. So far, no kool aid.
On 3/27/2001 he opened a HELOC for $75,000. Yum, tasty kool aid.
On 11/25/2002 he refinanced the first mortgage for $270,000.
On 5/29/2003 he refinanced the first mortgage for $269,000. Trying to be responsible.
On 7/5/2005 he opened a HELOC for $250,000. He is drunk on kool aid now.
On 6/22/2007 he took out a loan for $50,000.
On 10/17/2007 he took out a loan for $75,000.
On 1/24/2008 he opened a HELOC for $350,000. It is difficult to tell from the records which of these loans has survived. There is no way to be sure the $350,000 HELOC was ever used.
Total mortgage debt appears to be $619,000 ($269,000 + $350,000), but it might only be $269,000.
Total mortgage equity withdrawal is either $426,500 or $76,500 depending on how much of the final HELOC was used.
Most of the cases of HELOC abuse I profile here are the extreme ones, but nearly every property I look at has some amount of mortgage equity withdrawal. In fact, I am far more shocked when I come across a homeowner who didn’t take out their equity. It is very rare. Often times when I am reviewing a property that was purchased by someone at the peak, I see HELOC abuse from the previous owner that got away with it. They got lucky that the greater fool came along.
We all saw the evidence of rampant mortgage equity withdrawal during the bubble. How many times did you ask yourself when seeing all the conspicuous consumption, “How can they afford all of that?” The obvious answer is that they couldn’t; they were charging it to the house. Think of all the properties I have profiled where people have taken out $200,000, $400,000 or $800,000 over the last several years. Multiply that by all the people you saw shopping at the Spectrum, and you can see what a massive stimulus mortgage equity withdrawal was to our local economy. This was not the exception, this was the rule. Some have speculated that the Alt-A and prime resets may not be that much of a problem because the people in Irvine make a lot of money and they are sophisticated about managing their debt. This is nonsense. Many, many people are insolvent. They are borrowing from Peter to pay Paul. They are finding other ways to prop up the Ponzi Scheme, but we will witness the great deleveraging. The bills are coming due, and people will not be given more borrowed money to pay for it. The borrow-and-spend lifestyle is over. The financial distress of this deleveraging will eventually force the sales of a great many homes. No, those who have overborrowed will not be able to weather this storm. The excesses of the bubble are coming home — literally.
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.
🙂
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BTW, Halloween is going to suck this year…
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Just in time you’ve found me just in time Before you came my time was running low I was lost the losing dice were tossed My bridges all were crossed nowhere to go Now you hear now I know just where I’m going No more doubt of fear I’ve found my way For love came just in time you’ve found me just in time And changed my lonely nights that lucky day Just in time
Welcome to The Great Housing Bubble
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