Many are celebrating the end of the real estate bust. But what about all those delinquent borrowers? Isn't that still a problem?
Irvine Home Address … 19 BENNINGTON Irvine, CA 92620
Resale Home Price …… $632,400
{book1}
I will creep
Into your thoughts
Like a bad debt
That you can't pay
Take the easy way
And give in
Morrissey — The More You Ignore Me, The Closer I Get
Many buyers today believe that the variety of government props to the market have saved the day and house prices have resumed their steady, upward climb. The changing mix of sales has certainly propped up the median price. The cost per square foot — which is a better indication of what people are getting for their money — has not changed much. Since early 2009 when the Federal Reserve started buying mortgages to lower interest rates, prices have stabilized. They bounced last spring and pulled back during the winter, and it looks to be repeating the cycle this year.
In 2009, pricing was held up at very low transaction volumes. In 2010, the volume is picking up a little, but inventory is creeping up as well. Can this spring rally can hold as we push through 800 properties for sale?
The bottom line is that prices will hold up as long as inventory is not released too quickly. It can be absorbed by the depleted buyer pool, at least that is the advice economists are giving banks.
Foreclosure Glut: Is 'Shadow Inventory' Really a Threat?
Millions of New Foreclosures Will Stifle, Not Crush Housing Market, Say Economists
Every once in a while, the term "shadow inventory" makes it into the business headlines. Invariably, stories warn of a looming flood of foreclosures that will drag the housing market down as soon as homeowners begin to feel optimistic again.
But what is shadow inventory — and is it really such a big threat?
Different experts have different definitions. Some only include homes that have already been repossessed by banks and are awaiting distressed sales. Others include those whose owners are long-overdue on mortgage payments, while others still count homes whose owners would like to sell but are waiting for conditions to improve.
8 Million More Foreclosures May Be Waiting
"The definition of shadow inventory has gotten out of control," says Rick Sharga, senior vice president at RealtyTrac, an online market for distressed homes.
As a result, estimates of homes in the shadows vary widely between 2 million and 8 million. By comparison, approximately 5.5 million homes are expected to change hands this year, of which about a third are in some kind of distress.
High estimates usually include include repossessed homes that have not yet been listed for sale, homes that have been moved from the delinquent bucket and into foreclosure, and homes that are more than 60 days delinquent.
"Theoretically you could say up to 7 million homes are in the pipeline, but not all of them will go into the market and if even if they do, not all of them will hit at once," says Sharga. Given the current pace of sales, Sharga believes shadow inventory could be cleared by the end of 2013, at which point the housing market can begin a real recovery.
RealtyTrac's president is saying no recovery until 2013. If by recovery he means we break out of this bottoming formation, his estimation is as good as any. It will vary market to market. 
Shadow Inventory Can Be Lethal
The problem with shadow inventory is that it does not simply represent additional supply. It's supply of the worst kind: distressed homes that are often in hard-hit regions, often in a state of disrepair. Homes in foreclosure have more power to drag down real estate prices and keep them depressed for years to come.
"If you can buy a cheap foreclosed home next door to a normal home, many people will choose to buy the discounted home," says Celia Chen, housing analyst at Moody's Economy.com. She estimates that 4.6 million homes are currently waiting in the shadows, almost a whole year's worth of housing supply.
Months of supply on its own doesn't sound so bad. Unfortunately, this inventory is still growing and it is being sold at a rate that will not clear it for many years, at the rate of current sales, it will take 60 months just to clear Irvine, and it is one of the better markets.
Shadow Inventory Stuck In Limbo
Like many other analysts, Chen believes we still have a long way to go before real estate prices begin recovering. Some expect a recovery to begin in the middle of next year, others don't see it coming for several more years.
There are many reasons that shadow inventory is so difficult to gauge.
For one thing, financial institutions that own distressed mortgages are not saying exactly how many homes they hold. Firms have generally been releasing their supply of distressed homes slowly into the market for fear of crushing prices.
Another problem is that nobody knows exactly how many homes will make it out of the government's "Home Affordable Modification Program." Chen estimates that only 45 percent of the 1.2 million loans that are aiming for a modification will actually succeed, while the rest will likely end up in foreclosure.
While these numbers certainly are cause for concern, the good news is that this shadow inventory is unlikely to cause a shock to the system similar to the initial crash.
That last sentence was pure emotional comfort with little basis in fact or history. For prices to remain firm, and unstable cartel of banking interests must keep them that way. 
No Nuclear Event in Housing
"Much as during the arms building between the U.S. and the Soviet Union, neither one ever launched a nuclear attack for fear of causing complete destruction," says RealtyTrac's Sharga. "You're not going to see a nuclear event happen in the housing market either."
There will not be a nuclear event if the banks continue withholding inventory and allowing people to squat. That is the price paid by the banks and ultimately the taxpayer. The collapse of the cartel may not be nuclear, but it could certainly drive prices down.
Esmael Adibi, economics professor at Chapman University says shadow inventory is actually a good thing because it means that financial institutions – primarily lenders and investors who own the delinquent mortgages – are holding on to the inventory instead of dumping it into the market.
A good thing? I have heard Dr. Adibi speak before, and I could picture him saying that. First, this is good for whom exactly? Banks? They must love having a bazillion delinquent loans? Buyers who have to pay higher prices? Dr. Adibi sits on the board of at least one bank, and they do listen to his advice. Look for the banks he advises to sit on their REO and be the last to liquidate. This is his endorsement of widespread squatting.
Adibi says financial institutions are not only holding on to their inventory in order to avoid crushing the market, but also because they believe they might get a better deal once prices have recovered slightly.
"Can you imagine if all those homes ended up in the market now?" he says. "Things would be much worse."
Yes, I can imagine that pretty well, and "much worse" is a matter of perspective. A conspiracy to keep prices elevated and keeping families priced out of them is not my idea of "much better." Notice also that he said they are holding out for better deals. This is cartel behavior, but what happens when some of the members of the cartel want to get out quicker? What about those banks whose business plan is not to hold this inventory until prices come back?
Prices are about as good as they are going to get for banks for quite some time. Low interest rates make reasonable payments on huge loans. Look at today's property. A $632,400 property only costs the owner a little over $2,500 a month to own. The payment is no longer the problem; the amount financed is staggering. As long as payment affordability is reasonable, people will buy homes. If the banks can prevent too many of them from entering the market, prices will not fall.
What about the 3,600 distressed properties in Irvine?
I recently wrote that Nearly 500 Properties Are Currently Scheduled for Foreclosure Auction In Irvine. There are about 900 properties in the foreclosure pipeline about about 2,700 in shadow inventory. Last month we sold 228 properties, and this is the prime selling season. In any market where distressed inventory has exceeded 50%, prices have cratered, so if we chipped away at the 3,600 number with about 120 sales a month, it will take 30 months to clear out the garbage — assuming we don't add any more to it.
How common are the Ponzis? Is the number of truly distressed debtors only 3,600 in Irvine. Based on the sample we encounter here daily on the blog, I estimate the number to be higher. Of all the people you know, what percentage are Ponzis? Is it less than 10% or more like half? The more common the Ponzis, the greater the likelihood of a protracted real estate bust. Too many people took on too much debt so they could pretend and look rich. There is far less wealth here than commonly believed. People here are very good at faking it.
Used, abused, and left for garbage
- The owners of today's featured property drained it like their neighbors. The property was purchased on 7/31/1991 for $309,000. The owners financing is unknown but they probably put 20% down and financed $247,200.
- My records pick up with a $100,000 HELOC on 7/16/2002.
- On 4/26/2004 they refinanced the first mortgage for $275,000, so the owners were conservative up to then.
-
On 5/11/2004 they opened a $100,000 HELOC.
- On 4/15/2005 they refinanced with a $589,600 first mortgage.
- On 12/12/2005 they opened a $139,000 HELOC.
- On 8/20/2007 they refinanced with a $630,000 first mortgage and a $125,000 HELOC.
- Total property debt is $755,000.
- Total mortgage equity withdrawal is $507,800 if they maxed out the HELOC.
- Total squatting time is at least 18 months.
Foreclosure Record
Recording Date: 07/20/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 04/14/2009
Document Type: Notice of Default
Foreclosure Record
Recording Date: 04/13/2010
Document Type: Notice of Sale (aka Notice of Trustee's Sale)
I want to call your attention to the last two notices. Note that the NOT was refiled one day before the 1 year period was up. This is evidence of the bank doing nothing to stop the squatting.
Irvine Home Address … 19 BENNINGTON Irvine, CA 92620 
Resale Home Price … $632,400
Home Purchase Price … $309,000
Home Purchase Date …. 7/31/1990
Net Gain (Loss) ………. $285,456
Percent Change ………. 104.7%
Annual Appreciation … 3.6%
Cost of Ownership
————————————————-
$632,400 ………. Asking Price
$126,480 ………. 20% Down Conventional
4.91% …………… Mortgage Interest Rate
$505,920 ………. 30-Year Mortgage
$129,606 ………. Income Requirement
$2,688 ………. Monthly Mortgage Payment
$548 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$53 ………. Homeowners Insurance
$0 ………. Homeowners Association Fees
============================================
$3,289 ………. Monthly Cash Outlays
-$458 ………. Tax Savings (% of Interest and Property Tax)
-$618 ………. Equity Hidden in Payment
$240 ………. Lost Income to Down Payment (net of taxes)
$79 ………. Maintenance and Replacement Reserves
============================================
$2,531 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,324 ………. Furnishing and Move In @1%
$6,324 ………. Closing Costs @1%
$5,059 ………… Interest Points @1% of Loan
$126,480 ………. Down Payment
============================================
$144,187 ………. Total Cash Costs
$38,800 ………… Emergency Cash Reserves
============================================
$182,987 ………. Total Savings Needed
Property Details for 19 BENNINGTON Irvine, CA 92620
——————————————————————————
Beds: 4
Baths: 2 full 1 part baths
Home size: 2,503 sq ft
($253 / sq ft)
Lot Size: 6,215 sq ft
Year Built: 1979
Days on Market: 3
Listing Updated: 40331
MLS Number: S619509
Property Type: Single Family, Residential
Community: Northwood
Tract: Md
——————————————————————————
Great opportunity to buy in Northwood. Good floorplan, living room, family, dining room, 2 fireplaces, inside laundry and large backyard. No HOA or Mello Roos. Desirable school district.
Although they certainly deserve to be crucified like all the other HELOC-abusing idiots, I do find this one kind of sad. They made their mortgage payments for twelve years – must have paid down the loan by $80,000 or so, which would leave them with only $250k or so in the bank. They then proceeded to withdraw and squander twice the amount of their original debt. Amazing.
Some loan broker must have told them “you are foolish for letting your equity sit in this house”. Presumably they resisted temptation for a long time, until, finally…
So, the shadow inventory. Isn’t this really a giant game of chicken? The banks are, in an OPEC like-fashion, trying to maintain the alleged value of the ROEs on their books by keeping the market prices high. In any other industry that would be called ‘market manipulation’ and would be illegal, but our government is encouraging it. The problem with any cartel is that eventually, somebody starts cheating, a la Hugo Chavez. Once the gates open, everyone may start to panic, dumping the REO owned on the market, causing a 2008-style market panic. No, Victoria, there is no Santa Claus, and we may not be out of the woods yet.
I’d love to see what they spent their HELOC money on, because they surely didn’t use it to update and improve that house. It wouldn’t have taken much too dramatically improve the appearance of this place.
The garage door clashes with the house. The kitchen looks tire and outdated-all it would have taken to perk it up was a decent color paint, and perhaps refinishing the cabinets and putting in another counter top.
The place in its entirety looks sad and frumpy.
I so agree with you.
As a buyer, I cannot tell you how many properties we have viewed only to come away with the same perspective as you: what did the owners do to the place with all the money extracted?
About 3 years ago the Los Angeles Times had a feature story on newly unemployed professionals who were using equity extracts from their home to be their “salary” so-to-speak. That would be living expenses plus the extras that a person or family would normally enjoy as an employed professional: vacations, luxury cars, medical and dental treatments, fine shopping and better grocery stores such as shopping at Gelsons.
Unfortunately, these owners failed to cut back on their lifestyle. The NYT came out with a similar article focusing on folks on the other side of the nation.
On the day that story appeared on the ‘net, I went out and purchased a hard-copy of the paper so that I could better view the graphics and photos.
So I am going to assume that is the case for many of the properties we’ve looked at.
~Misstrial
Happy Froth Day!
Hoist a beer from one of San Diego’s many fine local craft breweries, because today is National Froth Day! So says the OC Register’s Jon Lansner, who is commemorating the five-year anniversary of the day that Alan Greenspan conjured up that harmless-sounding euphemism for what was in fact a record-breaking and (eventually) economy-crushing speculative housing bubble.
Lansner’s write-up cites the full quote in question and even includes a chart.
I will acknowledge that Greenspan’s turn of the phrase is both mock-worthy and a thematically appropriate excuse to drink beer. But in fairness to The Maestro (cough), at least he acknowledged pockets of real estate overpricing, even if he vastly underestimated their scope. (For example, does the entire world count as a “pocket?”).
The current head of the Federal Reserve, in comparison, was apparently even less punched in. One Ben Bernanke issued the following proclamation on October 20, 2005 — over four months after the original Froth Day and more or less at the tippy-top of the bubble, at least here in San Diego:
“Although speculative activity has increased in some areas, at a national level these [house] price increases largely reflect strong economic fundamentals, including robust growth in jobs and incomes, low mortgage rates, steady rates of household formation, and factors that limit the expansion of housing supply in some areas.”
Ouch. This quote used to be archived at the White House Council of Economic Advisors website, but for reasons I can’t possibly imagine, it has since been removed. Fortunately a quick Googling will reveal that it is legit.
So the guy who is in charge of our entire monetary system was oblivious to history’s greatest housing bubble all the way up to its very peak. Whatever pithy name Mr. Lansner comes up with for the national holiday on October 20, I would suggest that we’ll need something stronger than beer.
— RICH TOSCANO
Yesterday was froth day.
The degree of speculative homebuying is in my mind the #1 driver of the bubble. I think if you required > 30% down for any non owner-occupied home, you would have crushed a lot of the bubbliest markets. Then tag property tax values to re-appraisals for cash-out refis or helocs. A big part of the problem was people using cash-out refi & heloc to become property barons.
We also need a fundamental restructuring of how mortgage-backed securities are rated. No rating agency would give a newly formed corporation a AAA rating. GE is AAA because they’ve been profitable for > 100 years! Have MBS’s be like a corporation. The more seasoned the corp with a history of solidity, you get the AAA. Really the MBS market is going to slow dramatically because no one will be refinancing, and a huge amount of sales activity has been pulled forward by either foreclosure sales or other incentives. There are just not going to be a lot of new mortgages written over the next 2 or 3 years.
It would be nice to hear what a mortgage broker has to say about this (cough cough, SGIP, ahem). Is it survival of the fittest? Do the best and brightest stay in business? How do you compete for new business when the demand has slowed to a trickle?
I also wonder how they have been competing. Almost everything gets sold to the GSE’s, so how much margin is available for them to play with?
My mortgage contact mentioned that after the low rates of 2003 and the refi boom, that only a small fraction of their mortgage book was pre-2003. I would imagine that you’ve now got the low very recent vintages and then 2003’s. Not much else.
Indeed, we refi’d in 2003 and then last year again.
The drop in rates from ’03 to last year was more than 1%.
So, I figure that anyone that wanted to refinance and has equity and income has done so by now.
Cough… cough… is that some sort of Bat Signal for SGIP? 🙂 Thanks for the shout out.
For refinances, the pool of available transactions that actually will make sense is still fairly large. The three issues that are holding back most refinancers: Anyone from 2001 on likely had “reduced documentation” and thus in our “full doc” world, very few people can qualify for their new loan. Second reason is the obvious one: equity. Even at 125% loan to value with unlimited combined loan to value options for Agency loans, we’re consistantly running into 150-200% LTV refi clients. It’s a rough call to follow up on when you can’t help someone who could really use some measure of assistance. The third issue is the jumbo borrower. Unfortunately there’s plenty of help for those douchbags who took out Option ARMS. Everyone wants out of those loans. If your loan though was a jumbo and you had anything other than an OO, your hosed. Banks don’t want anything to do with you. What’s rough is that these are the very people you should help. A $300,000 short sale on a $400,000 note is easy to do. Rack up 4 or 5 $900,000 short sales on $1.75m leveraged and you’re going to be in trouble and fast.
For purchase loans it’s still pretty hard to get a loan, but not impossible. The smart money however is waiting for prices to fall. We saw a spike in business in November and April, but crickets in June relative to what is the norm for “the selling season”. To use another metaphor, the slow selling we’re seeing now is a canary in a coal mine and this one is “pineing for the fijords”
My .02c
Bank seizures hit a record high for the second consecutive month.
The number of U.S. homes in some stage of the process drops to 322,920, with California accounting for 22% of them, RealtyTrac says. Bank seizures hit a record high for the second consecutive month.
Foreclosure activity in the U.S. continued to level off in May with the number of homes caught up in some stage of the process falling 3% from April, a real estate firm said.
A total of 322,920 properties received some kind of foreclosure filing last month — either default notices, scheduled auctions or bank repossessions — a 3% drop from April and an increase of less than 1% from May 2009, according to RealtyTrac in Irvine.
One in every 400 properties in the country received a filing last month.
While the overall number of U.S. filings was down, and the number of households entering the first stage of the process fell 7% from April, the pace of homes exiting foreclosure and being seized by banks hit a record high in May for the second consecutive month, RealtyTrac said.
The increase in repossessions suggests that lenders are beginning to work through a backlog of properties that developed after many foreclosures were frozen last year by national and regional moratoriums. In addition, the Obama administration pressured lenders to work with defaulting homeowners.
“Lenders appear to be ramping up the pace of completing those forestalled foreclosures,” RealtyTrac Chief Executive James J. Saccacio said.
The Golden State continued to be a hotbed of foreclosure activity, accounting for 22% of the national tally with 72,030 properties receiving a filing in May. That was an increase of 3% in May from April but a drop of 22% from May 2009.
California had the fourth highest rate after Nevada, Arizona and Florida. Just 10 states accounted for 70% of the nation’s foreclosure activity, RealtyTrac said, with Georgia, Idaho, Illinois, Utah and Maryland also in the top 10.
Among metropolitan areas, Las Vegas had the highest foreclosure rate, followed by the Northern California cities of Merced and Modesto, though all three cities posted declines in their foreclosure rates last month, RealtyTrac said.
alejandro.lazo@latimes.com
3000 Irvine Homes in shadow inventory? Scary, that sounds like a catastrophic year and a half of robust home sales, selling like Woodbury TIC hot cakes.
It’s sad that I find comfort in the fact that homes just like mine are selling in Woodbury right now for the same price I paid. It shouldn’t matter to me. This is just a snapshot in time, and everything points toward continued decline. But I’ll admit, it makes me feel less idiotic…
Planet Reality,
You don’t have to keep putting that “i” in your name…we all know.
jajajajajajajaaja (laughing in spanish)
can we compile all these Planet Realty posts and review them in 1-2 years?
PR does have some valid points but has somehow clouded his/her thinking with bullishness… or perhaps enjoys ruffling the bears’ feathers.
Kudo’s Tyler. I’ll give him this though..at least he has a better play on words than most realtors.
That name is “lite and brite” to me.
“Irvine home prices haven’t crashed yet, so therefore they never will.”
Planet Reality logs in almost every day to repeat some variation of the above statement. As if saying it over and over again will make it a valid argument.
These few foreclosures should finish off the tiny class of unworthy owners in Irvine. High-class families of impeccable morals and taste, banks accounts flush with cash, wait just outside the city limits, checkbooks at the ready.
What we’re witnessing is the expulsion of the last bunch of weaklings and riff-raff from Irvine. From this point, it will be mathematically and philosophically impossible for Irvine home prices to decline. A chain reaction of gracious living, convenience, good taste, and economic invincibility will now cause the ascension of Irvine to a higher place, among the great cities of history.
Our great-great-great-grandchildren will marvel at the historic events soon to unfold in Irvine.
When I read your comment, I thought it was Planet Reality being sincere, but then I noticed his was the comment above and you were being facetious.
The requirements for being facetious are that you can’t be anywhere close to the truth. While a funny and well written post it’s is not far enough away from the truth to qualify as facetious.
You are even more entertaining than HydroCabron. You come here each day to spout some Pollyana nonsense like your comment above. When other commenters tell you they no longer read your “blah, blah, blah,” you are undeterred. I couldn’t pay someone to come here and be more ridiculous and liven up the comments. Is the Irvine Company paying you?
Just for the record, The Irvine Company is planning to build and sell about 800 homes. Simple math (3,600/800) would suggest that is 4 year’s sales. But ignoring that, this shadow inventory will be competition to TIC, and as someone who works in the building industry, I can tell you that builders and developers are concerned about this issue. When the shadow inventory is washed through the resale market, it will hinder new home sales and either push prices down or stop them from appreciating. The sheer volume is troubling because it will take a very long time to move all of them through the system.
Forgive my dose of Reality, Planet Reality, but your daily nonsense is getting old.
Well then, good luck to you and your lucrative business. Maybe I’ll check in next year to make fun of you and the higher Irvine prices.
IR,
I read your blog every day, but rarely post.
Today, I am swayed to commend PlanetReality. His/her comments are usually well written and polite. (IMHO).
And this despite critical and sometimes hostile reactions from disagreeing posters.
Finally, as you say, PR’s posts can be entertaining even if one does not agree with his/her view.
After all, you welcome divergent views on the blog lest we all become the moo-ing herd!
adeptic smells like a realtard.
and how is your 10 year treasury going to all time low trade working for you PR? Give us periodic updates on it.
I wonder about your sense of smell (and taste).
FYI, I’m a mixed signal IC design engineer.
Cheers.
PR’s comments are cogent, polite, well thought out and almost always wrong. I read as many of PR’s comments as I can find. He is the perfect contrarian indicator for me. When PR says that he thinks the re market will continue to decline, I will get serious about buying.
I second that. PR reminds me of CapitalismWorks before the latter’s seeing of the light. I’d be bummed if PR stopped posting, because his comments always entertain me–mostly because he is so intelligently wrong. It’s like listening to Paul Pierce predicting that the Celtics wouldn’t be coming back to L.A. after game 2 (if he’s “right”, it’s for the completely wrong reason).
Hmm.. I wonder if I know you. Broadcom/conexant?
PR’s comments are polite LOL
Yes, indeed! Some folks have short and brain damaged memories around here.
Just go back to last Friday and review all of the polite observations regarding IrvineRenter’s exclusive property.
PR is bull parading around as a bear and gets his jollies by agitating anonymously. Each observation is hot air and a regurgitation of yesterday’s pile of verbal diarrea.
It’s fun watching him go after to rub up on IrvineRenter’s goat from time to time, but seriously, the same love notes every single day? PR is secretly in some kind of manly infatuation love with IrvineRenter. I think he wants you to chase after him IrvineRenter – show him that you care and can express your feelings.
The sad thing is, IrvineRenter would probably be more lucrative (more commission checks) if he were full of hot air like the rest of the realtor population.
From a free market perspective, IrvineRenter is gaining followers by giving realistic advise while forgoing the “quick buck”. People appreciate that and in time, referrals and repeat clients will be plentiful for IR while many blowhard realtors go back to selling used cars.
PR is the Jim Cramer of the IRB. As Awgee says the perfect contrarian.
As I’ve never seen PR and Cramer in the same room at the same time, perhaps I’m on to something.
My .02c
Soylent Green Is People.
Much to your chagrin Paul Pierce is coming back to LA. I’m drinking one for the green tonight in honor of frothy day while waiting for these home prices to come down.
I just hope we’re not waiting as long as the Clippers are to win a championship.
Much to my chagrin? Hardly. I actually prefer the Lakers celebrating on their home court, while Paula “Wheelchair” Pierce looks on sadly.
Amen-Ra! (for those religilous, Amen came from Egypt tyvm)
I’ve worked in Irvine since 1986, and I 100% agee with HydroCabron’s post. I’ve seen it year after year after year after year. Irvine Co.’s plan is to push the beggar class completely out of Irvine. They have already eradicated the beggar smoking habit by making it illegal to even smoke outside Irvine’s cookie cutter sh1tty same o same o stores and markets.
I work in Irvine and I would never live there. Way too many chinese…way too many foreigners, way too much yuppie, DINK, metrosexuals, snobby “I’m beeter than you look at my business shirt and BMW!)
Irvine at one time was a wonderful wonderful place to raise your children and live in. Remember when Orange County actually has oranges and not cement and corporate greed on every strip mall or corner?
It’s nothing more than a Matrix controlled corporate sh1thole, a regular slice of pie for the compassionate loving community known as Irvine. Not. I wish I would have voted for a freaking AIRPORT. Irvine sucks an A.
@AZDave:
You sound jealous… maybe you should post one of your “famous” images so IR doesn’t forget about you.
@irvine_home_owner:
You sound obsessed… maybe you should take some time off from the internets.
Swiller, there are many places in CA and USA where I would not like to live for various reasons, but when you compare Irvine to many places in USA, it’s not bad, although relatively more expensive. Relatively speaking, schools are pretty good, safe and clean, and the weather is pretty good compared to other parts of CA. FYI, I lived in various parts of the East coast, as well as in Hawaii.
I find there are too many dogs in Irvine, and I generally like dogs, unless they bark loud and often — and live next door. Now, I have to say that I can think of many other places I rather be once my kids grow up and move out of our home.
Having a city controlled by TIC has advantages and disadvantages. Can’t expect everyone to like Irvine, but considering everything, Irvine is not a bad place to live if you have kids. Now, for me, there is no way I would commute to let’s say LA every day and live in Irvine. I wonder what is the percentage of Irvine residents commuting to LA?
You write “last month we sold 228 properties”. Is that the total Irvine sales or the sales for your company?
I know in the past 6 or so months there have been five sales of million dollar (or close to it) houses in my area of 92614. 3 are on the street right across from Meadow Park School (they are all next to each other, the latest had a for sale sign one day and the next it said “in escrow”) and the other 2 are around the corner on Whispering Wind. There are plenty of people with money who buy in Irvine.
228 properties is the total sold in Irvine last month according to the MLS. This does not include trustee sales.
Plenty is a relative term. The sales volumes in the jumbo price ranges is below historic norms.
irvinerealtorsite.com only has MLS up to April and he hasn’t done the loan info yet so we can see the average downs in Irvine.
But I counted $1mil+ homes sold for April and it was 26 or so. Sounds like a lot to me, and that’s not counting the $850k+ homes or the new home sales from Woodbury.
I think the number of distressed in Irvine is actually closer to 5% than OC’s 8.4%.
Since we are throwing around numbers… when 10% of Irvine’s sales are over $1mil… does that mean anything?
Come across any 2008 buyers with trouble making their payments yet?
I have. Many 2008-2010 newbies had their breath taken away once the moving trucks left their stuff in the garage of their nice new home. They had zero idea of what the actual cost of a home might be. Haven’t seen any first payment defaults, but every so often I get a call from a client saying “um… what can we do to lower my payment”… when their rates started in the 5’s to 4pct range.
My .02c
Soylent Green Is People.
5 homes sales in 6 months is plenty?
less than 1 sale/month is plenty?
i know a guy that bought a $13M house in hawaii a few months ago. there’s plenty of people like him! the luxury RE market is booming!
My comments were about 5 houses on 2 streets only. Not all of Irvine.
For those who believe that interest rates and incomes are the gold standard for purchasing a home, there’s a nice link published 3 days ago in the Comments WSJ blog on real estate. The creator (not me) invites visits: http://www.homeflator.com
The article discusses a Fed staff paper on “effective” vs “real” home ownership rates. The paper states,”Absent any increase in home prices, it would take at least five years for 90% of borrowers who are underwater today return to a 94% loan-to-value.
There is a huge number for a place like Irvine. Something must be done to avoid this situation !
Banks Face Short-Sale Fraud as Home ‘Flopping’ Schemes Spread
http://www.bloomberg.com/apps/news?pid=20601109&sid=avevHVg0VvHs&pos=10
Could someone explain to me… wouldn’t it make more sense for banks to foreclose, kick out the squatters and put these houses up for rent? That way they would have some money coming in while they wait for prices to rebound to where it’s worth selling. There are management companies that will handle all the logistics of renting, for a fee, so it’s not as if the banks would even have to handle that themselves. Why do they not try this?
In a few cases, banks are doing this recently. I believe there used to be laws banning or limiting the practice, but those have recently been repealed.
Once the banks take back the property they may need to take a balance sheet hit. Certainly the seconds/helocs do, but I’m thinking the first position can only pretend they have a full value property sitting on their books if they bid full price at the auction.
Also, flooding the rental market would reduce rents which has some negative feedback consequences for house prices.
True about reducing rents, but this would be mitigated by the fact that many of the ex-squatters would have to become renters. Supply of rental properties would go up, but so would demand.
Another advantage of foreclosing quickly and then renting houses out is that this practice would lessen the attractiveness of strategic default. A lot of the strategic defaulters know that they will get a year or more of free rent, and that’s part of their calculation in favor of default. If they knew that they would be out of the house promptly and paying rent elsewhere, defaulting would be that much less lucrative.
lots of reasons:
1. FC means work and people complaining to their congressman, newspapers, etc.
2. FC means either selling or renting — no more mark to fantansy.
3. Being a landlord means:
a. Formula to estimate market price
b. Renters calling to fix things — work ! Squatters don’t call the banks to fix the house.
c. Time and attention from their core business.
d. Reoccuring expenses for maintance (esp. for mgt company) vs. unusual expense/one time expenses for the books. These fees tend to be high.
4. Need time to convert to the defective non-performing loans to good non-performing loans. Takes govt intervention and maintaining high prices.
IMHO #2 and #4 are the most significant reasons.
Say you bought a 300k home in June 2000. Rates were at 8%. 20% down. 21k/yr cost of the loan. June 2003, rates are at 5.25%. Makes sense to refi? New appraisal is at 450k. Keeping your payment the same, you’re looking at a $320k loan – $80k cash out, payments the same.
How often did that go towards the dp of some 2nd home?
It’s not so much the low rates that caused problems, but the reduction in rates. I think the action I outlined is what most people did – at a minimum.
Refis & inflated sales pumped a lot of money into the system. Refis will most likely be gone for a while. 5% rates don’t spur you to refi if your rate is already 5%. I would be surprised if mortgage rates went lower, either by a reduced spread or lower 10yr yields, but that would spur refi – there is some lower bound though.
I think that the banks are in some cases waiting to foreclose because they think that housing prices will recover soon. Since interest rates, inflation, and returns on most traditional investments are all near zero, their cost to wait is minimal. If house prices go up 10% in a year, they make a 10% return on their investment letting the home “owner” squat for another year. It’s simple economics.
I’ve formed the opinion that purposely allowing squatting is setting the stage for a much larger bank problem down the road. Specifically, as more and more people realize they can squat, it adds yet another powerful (perverse) incentive to walk away. There are already a laundry list of reasons to walk away (the best of which is a “screw those banks” attitude), so this only makes it easier. I believe this is the reason the normal path for a bank is to foreclose quickly in order to make it clear that not paying leads to “the boot”. Take that off the table, and you’ve just removed a huge barrier to walk-away behavior.
I also believe that once walk-away behavior takes hold, it will snowball. Clearly as more and more people do it, the moral chains get removed reducing it a purely business decision. And as the costs of foreclosure keep getting reduced (GSE’s allowing these people to buy again quickly, eliminating tax penalties for debt, outlawing judgments against debtors, etc.) that scale keeps tipping more and more towards walking leading to a vicious cycle (more foreclosures, reduced prices). The only way to attempt to stop it would be to undo all the policies that make it easy to walk away (increasing the penalties, foreclosing asap) and even then you will never restore the moral obligation.
It seems clear the banks greatly fear the walking away phenomenon. Yet the politicians and the banks have made a contract with the devil by allowing the squatting (as well as all their other policies to “help the home owner”). It’s only a matter of time as to when that contract will really start to show its ugly side.
I think this observation is spot-on. There were many legitimate borrowers, either people with real money or people with money from the sale of a home bought before the frenzy, however there was a huge number of bums who bought homes they couldn’t afford – barely able to stomach interest payments, hoping they could flip them for a profit or just not knowing any better.
The same people who bought homes they couldn’t afford (teaser rates, Option ARMs, etc.) will be losing these homes. These are the squatters, and there are lots of them. I’d guess there are less of them in Irvine than the IE, however it’s still a huge problem to the market overall.
kind of like the sticker I see on a lot of lifted trucks – DGAF. Eventually, people “Dont Give A F@ck”.
Not sure if if will snowball per se, but the tide will definitely swell as this false recovery fades.
Again, another craptacular house for a ridiculous price. Where in the world are the brains of the prospective buyers for this home? A this rate of appreciation we are in for a world of hurt when we get another down turn (which is inevitable now). Does anyone think that what we are doing and have done sustainable?
Irvine’s a safe haven, man! LQQK! It’s 2010 and we’re back at peak pricing – Irvine has nowhere to go but UP! Buy now or be priced out forever. Irvine is special.
It’s 2,500+ sq ft, in Irvine, a house, with no Mello Roos or HOA fees. Add those up, and you get the list price. In fact, the autocomps seem to indicate that they will probably get significantly more than the list price. I’ll bet, when sold, the sale price will have a 7 as the first digit, not a 6.
Don’t like it? Buy a house outside Irvine, or rent. But there’s certainly enough demand for this type of propetry at the list price or higher.
Yes, there was even a significant demand for tulips or Pets.com stock but that doesn’t make it smart or right. Like my father always said, you can’t underestimate the stupidity of people.
The irony is is that our gov’t is actively facilitating stupidity my dime, my children’s dime and my children’s children’s dime.
You can thank us any time you’d like.
First, don’t go PR!
Ok, having said that:
Here are the ponzi details about this property’s street (the first number is the address on Bennington, and the second is the original loan amount of the current loan):
1 $ Sold 2009
2 $ 644,000
3 $ Sold 2009
4 $ 200,000
5 $ 180,000
6 $ 185,000
7 $ 322,700
8 $ 91,000
9 $ 215,881
10 $ 402,600
11 $ 280,000
12 $ 170,000
13 $ REO
14 $ 300,000
15 $ 0
16 $ 308,000
17 $ 0
18 $ Sold 2010
19 $ REO
20 $ 60,175
21 $ 100,000
22 $ Sold 2010
23 $ 203,000
24 $ 396,000
25 $ 250,000
26 $ 133,200
27 $ 250,000
28 $ 275,000
29 $ 125,000
30 $ 247,000
31 $ 200,001
32 $ 156,834
33 $ 240,000
35 $ 669,500
37 $ 301,000
39 $ 150,000
41 $ 187,000
43 $ 150,000
45 $ 194,500
46 $ 142,500
47 $ 270,000
48 $ 0
49 $ 92,000
50 $ 372,000
51 $ 235,000
52 $ 0
53 $ 85,918
55 $ 539,800
57 $ 260,000
59 $ 288,000
61 $ 276,000
63 $ 200,000
64 $ 200,000
65 $ 294,500
66 $ 350,000
67 $ 360,000
68 $ 650,000
69 $ 263,000
71 $ 200,000
tenmagnet,
I thought you might find this interesting: 24 Pismo Beach went at auction today for $1,147,500.01. The guy who bought it looked quite happy.
I wish I had more time to go into this but 3600 is almost meaningless to me now.
How many of those end up on the MLS? Can someone go back in time the last 3 years and figure out what percentage of “distressed” properties ended up as a below comp sale? As opposed to a money-making flip. Or how many ended up as a mod or the owner by some miracle getting current?
The difference between premium areas like Irvine is that there are buyers willing to pay more so the “pain” of REOs isn’t that bad. When there is a market willing to pay the price, the impact of foreclosures are softened. Isn’t this why the IHB has a Trustee Sale Service? Because they know that Irvine homes will get a more premium price compared to something in the Inland Empire?
It’s also why banks can hold and trickle out inventory… unless all 3600 hit the Irvine market at the same time, that number might as well be 36,000.
Until Shadow Inventory becomes REAL inventory… we’re stuck in time.
Is the featured property’s owner ill responsible or a great investor maximizing his profits at all cost?
Cash from house loans: $755,000
Purchase price: ($305,000)
Remaining cash balance:$450,000 (cash PROFIT)
Plus squatter’s benefit of at least 18 MONTH FREE RENT — Worth a least $50,000. If the squatting can be extended to 2 years the more the merrier.
He got $500,000 profit out of this house. His best option looks like FC and not a regular sale.
Regular sale means that he will need to payback the loan.
Your, your childrens’ and grandchildrens’ tax dollars at work.
theres a lot of company offerings real estate properties. A wide variety of smaller services — try Googling “foreclosure listings” — has emerged in recent years to connect distressed properties with potential buyers. Almost all involve fees that can run hundreds of dollars.
Esmael Adibi is a quack.
This guy teaches our future citizens.
Nice Post, HydroCarbon!
The main reason the banking cartel is holding together is that they’re not just postponing foreclosures to prop up home prices, they’re doing it to avoid being forced to recognize the losses they’ve racked up with their reckless lending.
You write … only 3600 distressed properties in Irvine.
In Salinas Valley and San Joaquin Valley, 87% Of pending sales are distressed; there, shadow inventory is said to be massive.
I believe the high level of distressed sales in California’s central valley comes from the scourge of subprime and no-documentation loans.
From newspaper accounts I have read over the years, one simply walked in to WaMu or any one of a number of lenders and easily obtained a loan with little, and in most cases no income documentation.
The genesis of the bubble and today’s shadow inventory and squatting and was greed; greed of the toxic mortgage lenders to originate loans; greed of the borrowers as they applied for no-documentation, stated-income loans, greed of debtors for mortgage equity withdrawal to live a surrealistic lifestyle with cosmetic surgery, Botox injections and breast implants as well as to lease automobiles, greed of Wall Street to issue CDOs world-wide at leverage of 30 or 40 to one, greed of owing a second home, and greed of flippers to buy-improve-and-sell properties. It is astounding that many flippers obtained multiple no-documentation loans in Arizona and in Florida. A large part of the bubble came from Option-Arms and Alt-A loans.
I get a kick out of those who buy the line that banks will magically be able to hold up home prices by holding back inventory forever and ever. The beautiful thing about the economy is that it always tells the truth, even if government or private industry manipulation try to prevent it.
There WILL be a day of reckoning. The market will double down and force the hand of the manipulators. House prices will go to their fair market value. Just think about what will happen at some point…
Strategic default has already gained mainstream mindshare. This will escalate the problem to levels unbearable for banks because it has become so commonly accepted that the volume of strategic defaults will become completely overwhelming.
And banks have created this problem themselves by rewarding those who decide not to make house payments by allowing them to remain in the home rent free for up to 2 years. There are consequences to that choice rewarding bad behavior will cause bad behavior to grow exponentially.
So banks will have a choice, move foreclosures through the system more quickly to show there is no free lunch or they will be completely crushed as a tipping point occurs of massive defaults, combined with a double dip economy and demand that has been so far pulled forward that there are simply no buyers left. However it happens, it will either happen slowly now as inventory is carefully increased or it will happen during a complete collapse as the tipping point forces EVERYBODY’S hand.
I know one thing for sure. Those waiting for fundamentals to rule the market again will be the only winners coming out of this thing.
Nick