Short People — Randy Newman
Short sellers got no reason to hope. They got little houses, little pets, they go round borrowing great big debts. They got little kitchens, little stoves, granite counters; they are selling in droves. Don’t want no short sales, don’t want no short sales round here.
Today’s featured property is a typical 100% financing deal gone bad. There are two types of distressed properties that have caused the 20%+ declines we have seen in the last year: 100% financing deals and HELOC abusers. We have profiled many of each type. They have set the stage for the next wave of foreclosures when all the ARMs begin to explode. We haven’t begun to see the fallout from that problem yet.
Asking Price: $780,000
Income Requirement: $195,000
Downpayment Needed: $156,000
Monthly Equity Burn: $6,500
Purchase Price: $960,000
Purchase Date: 5/19/2006
Address: 26 Midsummer #1, Irvine, CA 92620
| Beds: | 4 |
| Baths: | 4 |
| Sq. Ft.: | 2,386 |
| $/Sq. Ft.: | $327 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Year Built: | 2005 |
| Stories: | 2 Levels |
| View: | Mountain |
| Area: | Northwood |
| County: | Orange |
| MLS#: | P627112 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 47 days |
CONTAINS MANY UPGRADED FEATURES, HARDWOOD FLOORS,PLANTATION SHUTTERS,
FRENCH DOORS,CUSTOM PAINT,EPOXY FLOOR IN GARAGE,STAINLESS STEEL
APPLIANCES WITH DOUBLE OVEN,GRANITE COUNTER TOPS,CENTRAL AIR, COZY
FIREPLACE, 4 LARGE ROOMS PLUS LOFT. ASSOCIATION HAS JR. OLYMPIC POOL,
SPA AND CLUBHOUSE. CONVENIENTLY LOCATED NEAR IRVINE SPECTRUM, SHOPPING
AND DINING. WITHIN IRVINE UNIFIED SCHOOL DISTRICT
HARDWOOD FLOORS, ckeck.
STAINLESS STEEL
APPLIANCES, check.
GRANITE COUNTER TOPS, check.
Pergraniteel.
.
.
This seller demonstrates very poor market timing. This property was purchased very near the peak with 100% financing. It has been a cashflow drain, and with the market heading south, the owner is bailing out. What a surprise. If this seller gets full asking price, the lender who is going to eat the loss will lose $226,800 after a 6% commission.
Have you gotten bored of $250,000 loses? They are so common now that you forget what $250,000 could buy, and what it really means. We are documenting about $1,000,000 a week in losses here in Irvine, and that is only because we run 5 posts a week. There is actually much more being lost in the market each day, and that is just in our little piece of America. Is it any wonder the banks are taking multi-billion dollar write offs?
.
Short People got no reason
Short People got no reason
Short People got no reason
To live
They got little hands
And little eyes
And they walk around
Tellin’ great big lies
They got little noses
And tiny little teeth
They wear platform shoes
On their nasty little feet
Well, I don’t want no Short People
Don’t want no Short People
Don’t want no Short People
Round here
Short People are just the same
As you and I
(A Fool Such As I)
All men are brothers
Until the day they die
(It’s A Wonderful World)
Short People got nobody
Short People got nobody
Short People got nobody
To love
They got little baby legs
And they stand so low
You got to pick ’em up
Just to say hello
They got little cars
That go beep, beep, beep
They got little voices
Goin’ peep, peep, peep
They got grubby little fingers
And dirty little minds
They’re gonna get you every time
Well, I don’t want no Short People
Don’t want no Short People
Don’t want no Short People
‘Round here
Short People — Randy Newman
4 pictures? 2 of the outside?? Hmm….
And what on earth is a 3/4 bath? A 1/4 bath I’m guessing is just a sink, so maybe it’s like a hotel with a sink outside and the toilet and shower inside but they’re counting those as two separate bathrooms to get to a total of 4….
(okay so I’m just commenting so I can get everyone else’s comments emailed to me all day…)
Cara,
A half bathroom is a toilet and sink. A full bath is a toilet, sink, shower AND tub.
3/4 bath= toilet, sink and shower OR tub.
What if a house has two 3/4 baths? Is the house advertised as having 1-1/2 baths?
Good point. I guess I had never thought past the 2.5 bathroom point (literally two full and one half baths). Of course any more than that is too much overt consumerism for my blood.
3/4 bath has a shower, no tub.
I think Redfin has been having issues with its bathroom count lately. I doubt this has 4 bathrooms.
Guess AZDavidPhx thinks he’s so clever with the cut-n-paste photo of the day. Move along folks, nothing interesting to see here.
I happen to enjoy AZDavidPhx’s photo posts.
Rock on AZDavidPhx. How about a Phoenix Suns-related photo next time, to commemorate their traditional annual playoffs flameout???
Look for 50% off this place in a couple years.
It will surely become worth less than what this sucker paid the original builder.
I guess when people are lining up at 5AM in the morning to buy condos – the builders can’t help but jack up the prices and milk these morons and their mortgage masters for every penny they can.
This profile is shocking in so many ways. 960k with 100% financing. I totally agree we will see another 50% off this place. It will bottom out about 380k with will be a good 65% off its peak price. I think it is very safe to say we will never see this kind of financial recklessness again.
“I think it is very safe to say we will never see this kind of financial recklessness again.”
I hope you are right. Institutional memory is short, and greed springs eternal…
I disagree. These things seem to run in 20 year cycles, while our involvement in pointless quagmire wars runs in 30 year cycles.
I’m thinking even less than 380K. Condos are bought by the younger crowd who are more likely to not have the same earning power as their elders who would be spending 380K on a fully detached house.
Patrick.net linked a really good eye-opener today:
http://mrmortgage.ml-implode.com/2008/04/29/how-much-house-can-you-afford-are-you-sure/?ref=patrick.net
Let’s be realistic folks. $380K is below 2001 pricing. I believe this is a detached condo meaning that it doesnt share any walls. The only reason it is listed as a condo is becuase it has no yard.
This place would sell in a minute if it was listed at $700K. I think these kinds of properties will go for $550K at the bottom. Remember, it is quite large at nearly 2400 sq ft.
This place would sell in a minute if it was listed at $700K
I never claimed otherwise.
This place is surely going to be anti-flipped along the way to the bottom, rkp.
I think these kinds of properties will go for $550K at the bottom
Not without “creative financing” they will not be. You are talking about a 4700.00 monthly payment on a condo that requires 140K yearly income to qualify.
Keep going.
Whoa there RKP. Condo for $700k? I don’t think so. We lived in a condo w/ no yard until the baby came along. Then our priorities changed and changed a lot. Pergraniteel – who gives a crap. We need a yard for the little one.
So, what singletons are going to want/be able to pay $700k for something they are going to have to sell when the baby/babies come along? Large condos are a joke — no family WANTS to live there.
Condos should be 2-bed/2-bath starters that are perfect for singles, young families and retired people. Who needs 2,400 sf if you fall into these three categories?
This is $350k – $400k. Very, very upper end starter condo or retired move-down.
I see what you guys are saying. You both make good points but I think outside of this property being zoned a condo, it is an SFR for all given purposes.
Maybe its because I grew up near Santa Monica but the idea of not having a yard doesn’t bother me. Many beach houses or houses near the beach fill up the lot and don’t have a yard. This condo is like that. Its an SFR but has no real yard.
I have many friends who live in “condos” like this and they don’t see it as a starter home. A lot of communities that have this type of product have shared parks and shared community centers.
Trust me guys, I would love to see this place drop down to the $300s so that I can buy a nice real SFR for $400s but I just dont see that happening.
They have to come down, rkp – it is only a matter of time and how long the government interferes with the free market.
People simply cannot afford at even today’s levels. There is no reason that people should have to sacrifice their first born to live in a house.
Buster,
Agreed.
$350k – $400k??? Are you kidding? Less than $150/sq ft? What is that, like 1995 pricing? C’mon folks, it’s going down but talking out of your a$$ like that is just as bad as someone coming here saying this place is *worth* $900k. Agree with the voices of reason in rkp and tonye that this is easily $550k – $600k at the bottom. I am quite sure there are a LOT of working families in Irvine who would be just fine with a 2,400 sq ft townhouse/condo. Not everyone is looking for a back 40 to take care of after working 50-60 hours a week…
Your household incomes are not going to support those prices. Sorry, CK. Get ready for re-education.
I think that AZDavidPhx is failing to realize is that this is not a starter home. Ergo buyers of this home will typically bring in a bunch of equity to the purchase, so hence their income does not need to support a purchase with 100% or even 80% financing. While this blog highlights those that overextended and speculated, the majority of homeowners that did not purchase in 2004-8 are flush with old equity, and they will apply that to this home.
Here we go back to AZDavid household incomes anaylsis. I cannot and won’t speak to anyone else’s household incomes, but I can tell you my household income would support $550-$600k very nicely — and I’d be just fine with something like this for my family. I doubt I’m the only one around here in that situation, but since you are likely tell me I am, I guess it is fact.
Steve –
The biggest downer is that it’s a CONDO.
These are going to be pummelled much worse than your detached homes.
Ergo buyers of this home will typically bring in a bunch of equity
If this is your assumption then I think you are assuming that a buyer of this condo will be able to actually get a bunch of equity out of a previous house sale. In a depreciating market, this will be difficult.
I can tell you my household income would support $550-$600k very nicely
Then I am assuming that your household income is in the 150K range and that you have 120K cash on hand to put down.
Congratulations on all of your success; you are earning well above the Irvine median income. If this condo is considered the dreamhouse of someone earning 150K then so be it.
AZDavid,
Yes and yes. And we are hardly in the elite crowd in that bracket. I even own TWO Honda’s —what’s that say about my social status?
I know you have mountains of government data that says otherwise, but it seems to me that household incomes of $150k – $200k are more common that you might think. Lots of dual income professional households these parts.
here’s another irvine stat – i’m single and make $69,680/year. after taxes, insurance, and 401K i bring home $2200 a month. i realized along time ago that housing here was overinflated and that i would never be able to afford to buy a home.
it’s great that there are so many irvinites that bring home high salaries, but unlike pop’s i will never be able to plop down, i think he said, $700,000 on a place and another $100,000 to remodel and think “nothing of it”.
Anela –
That’s a pretty good salary. Certainly you should be able to afford a place to live on that.
The Charlatans are going to try to keep up the facade as long as they can hold out. They are going to make claims that most people earn 150K to 200K. They are full of it. They don’t know because everyone is lying for each other to keep up appearances.
Prices will come down the meet the median income sooner or later. It’s only a matter of time.
AZ — Do you have any clue what you are talking about? Charlatans? Dude, I don’t know you or anyone else out here for that matter. I’ve got no reason to exaggerate my income. $173k on the 2007 W2 for me and the wife. And that is nothing special here. You can believe me or not — but a professional degreed couple in Southern California has NO trouble clearing $150k. Go to any job board and look at the salaries advertised. Then multiply that x2 for household. Keep in mind that professionals tend to marry professionals. Not too many $100k guys married to the girl sitting at the security guard desk.
Yeah, we know you its hard to comprehend on your $22k income over there in Phoenix (remember, that was figured out when you pounded your chest that your same job paid $6k more in OC than Phoenix. Any doofus working in a Finance or HR department of a multi region firm knows that about a 25-30% salary differential from Phx to OC is pretty standard. So if $6k is a 25-30% premium for YOUR job, then you make about $22k, dude).
Are you sure about that?
$69k/year is about $5,800/month.
I make $55k/year and after I contribute 5% to my 401k, my take-home is about 73%.
Your take home is only 38%???
You are only taking home 38% of your weekly pay????
oops – made an error: $2,400 take home, and $400 to savings account each month. i refuse to touch the money in my savings account, it’s not large amount but just having a small amount is comforting. in my yoot i cashed out my 401k and am now overcompensating – 15%.
according to CK–>but a professional degreed couple in Southern California has NO trouble clearing $150k.,
the highest 10% of earners in the US live in Irvine specifically, forget about NY, Boston, SF, Newport, Laguna Beach and these other pretender cities.. Actually contrary to popular belief, not many households make more than 150k in Irvine, and of those that do, they tend to be homeowners already for the most part. if some one has proof that the median household pulls in 150 k in Irvine please share 🙂
Median income in Irvine for a *household* is below $100k, and that’s it. $140/sqf is not outrageous actually, it’s still high compared to many other cities. Under $100/sqf is very typical.
Median income in California in 2003-2005 was $51,647. In 2001-2003: $51,977. 1998-2000: $51,045. (http://data.iowadatacenter.org/datatables/UnitedStates/usstincomehhmedian19862005.pdf)
And without more up-to-date statistics we can assume that the incomes haven’t probably risen significantly since due to the economic climate we’re in. So what is that? 1% increase in income?
Why then would 2008 prices be any different from 1998 prices? And 1995 prices aren’t far off from that, maybe at most another percentage point or so.
So if something sold for $140/sqf in 1995, that should have increased mere few percentage points considering people’s ability to afford the houses. So the right 2008 price would be something like $148/sqf at best.
Sure Irvine has been developing a LOT since 1995, but But I don’t think it has become the most sought after destination in the U.S. to warrant such huge leaps in prices.
CK –
You might be surprised by salaries in other parts of the country. I’ll go so far as to say that I am not receiving any economic stimulus check as the government considers me too well off.
That puts me in the same earning category as many of the people in Irvine – yet I spend a fraction of my paycheck on housing as people in Irvine do.
Can you see how ridiculous this looks to someone living in Phoenix with comparable earning power to many in Irvine while you go off foaming at the mouth dismissing people from outside your state as jealous low-wage earning buffoons?
It doesn’t make sense to say that anyone *should* be able to own something. Imagine me saying that I *should* be able to own a Lexus. Afterall, it is just a nicer Toyota. That doesnt sound right and neither does it to say that the median income should be able to buy a 2400 sq ft place regardless if it is a condo or not.
One has to figure what the median property type is and then figure if the median income of *buyers* can support it. That is, take out the college students, the retirees, etc and do a real analysis on the area.
Personally, I see tons more condos and townhomes in Irvine than other areas. I went to school in the valley and it was just a sea of houses but Irvine isn’t like that. There are tons of older communities that have a good share of condos. Hence, the median property here might be a 1400-1500 sq ft condos which will go for $250K-$300K at the bottom which would be supported by the $90K median easily.
AZDave,
Just curious, what field are you in that provides you such wealth and allows you the time to blog?
I hate when people comment on one’s amount of posting. When I do go into my office, I notice tons of employees wasting time chit chatting about nonsense or going out for a smoke etc. This is my distraction. Some days, I visit IHB 20 times in the day but each time is less than that a 2 minute visit.
I see AZ posting a ton but the total time is probably less than half of what my coworkers spend in going to starbucks together at 10am everyday.
Take that back…I can’t in good faith defend AZ in any way possible 🙂
Imagine me saying that I *should* be able to own a Lexus.
rkp – come on. You have to do better than create your own straw man and whack it around like that.
Yes, I think that people working on school teacher, police officer, etc salaries should be able to find affordable housing. I know that point of view is highly offensive to some people but the fact of the matter is that affordable housing is just plain GOOD for the economy.
School teachers? Police officers? How about college professors, public defenders, senior programmers, engineers, and the like? I write from the professorial angle knowing that the California universities have great difficulty hiring because of housing costs. I have a kid making way over 100K a year (not married, unfortunately), who has always rented. When I lived in Palo Alto a few years ago, I rented a room from a lovely elderly couple who lived on one of the nicest streets in the old part of town, about a mile south of downtown, maybe 3 blocks east of El Camino. The gentleman had been a high school teacher. Of course all of his neighbors were dot-com gazillionaires with Lexuses, 700-series BMWs, Range Rovers, and the like parked in the driveways of their 3 and 4 million dollar homes. I have to agree with AZDave — Arizona solidarity, but also because we really need to have reasonable communities where decent people have decent housing. The other possibility is that we are moving in the direction of Europe, where it is actually quite rare to own a home and most people rent, and California is just well along on this curve.
There are affordable housing in So Cal. Santa Ana, Compton, East LA, Inglewood,…..
Need I go further?
Gazillionaires tend to live in Atherton and hook up with Larry E.
Again, why should anyone have the right to live in any neighborhood. You don’t need to go to a bad part of town to find a deal. Aliso Viejo, Lake Forest, Tustin, Costa Mesa, Garden Grove, etc all have houses that are much more affordable that Irvine.
I am not saying that Irvine is something amazing but for whatever reason, there is more demand and prices are higher here. But you can be 20 minutes away and get much more affordable housing so its really not a big deal.
AZ — that’s great, and I’m certainly not mad at you if you are in the $75k+ bracket as you infer. Pardon me for suggesting otherwise. It just would seem, however, if you are making that kind of money in Phoenix, why is it so incredulous to you that people in the Irvine home buying demographic probably take in $150k+ per household. By home buying demographic, I mean mid-career folks in the 30-45 age bracket. Many if not most in that demo are likely to have dual incomes. We can debate the merits of dual incomes all day, but its 2008 and that’s the way it is.
So, if you are making $75k+ in Phoenix, why is it so hard for you to believe there are likely many households in Irvine bringing in $150k?? Does not seem like a big stretch. Heck, a big player like you could be in that bracket, too. All you need to do is marry the girl who sits in the cubicle across from you.
People often refer to the year/pricing as if these figures are set in stone. The market clearing price unrelated to the past. QLogic (QLGC) used to trade at $89/share in al the way back in 1999! Now its at $16 and change. Why should houses be any different.
The market clearing price of houses is a result of supply and demand. That’s all.
2.9% of all U.S. homes are VACANT (the highest in the 55 year history of the statistic, and presumably EVER). No renter, just some poor S.O.B. paying a monthly carrying cost waiting for someone to come along and put them out of their misery! Read: HUGE Supply
But wait there is more… The supply of homes for sale will continue to increase at the wave of foreclosures continue. At 12% price declines over the last year somewhere around 1,000,000 home owners are underwater in their homes. If that price decline continues another 10% down during the remainder of 2008 (which seems very likely), then 14,000,000 homeowners will be underwater in their homes. This is a DOOMSDAY scenario for supply, as each of these owners must decide whether to continue to carry asset for which they overpayed or excercise their Put-Option and walk away. Recent data would indicate that increasing numbers are doing the latter.
We’re not done. The availability of credit, even to the most credit worthy borrowers is now severly limited the ability and/or willingness of bank to lend. Read: Demand will continue to evaporate, and not because people don’t WANT to buy but because they the CANNOT buy.
That is your most bearish assessment to date (and quite accurate.) Welcome to the Dark Side 😉
I was hoping you wouldn’t notice! I suppose -4.2% month-over-month price declines, a whole series of charts with vertical lines (prices and sales going down, supply and forclosures going up), is a reality that is impossible to ignore.
Haha that’s funny, because I was going to say the EXACT same thing. I think CW wins the most drastic switch from bull to bear award.
His post was 100% accurate
Welcome CW :cheese:
Thanks. I always considered myself a bear, but just had a hard time integrating the full measure of pain into my forecasts. I believe incentive caused bias (I as selling my home) played a part.
CW – the problem comparing housing to stocks is that we all need a place to live but none of us need to own stock. I am paying $2000 per month to rent a 2b/2b and if a SFH house falls to the point where I could pay the same to own it, why would I stay in my rental? Hence, there is a natural bottom on housing.
And I do realize that rents can go down as well but its the same arguement. If I commute 30 minutes to save some $$$ and rents fall, I will move closer. Basically, houses might fall to nothing in the outlining areas like Riverside but an area near jobs will eventually bottom out.
Actually, I don’t think it will go so low. It is a good sized detached condo with 4 bedrooms and It’s got two working bathrooms with an extra power room ( three effective toilets). Of course, the claim of 4baths is a complete joke!!!
This kind of property will do a family of four very nicely. It’s not a McMansion but it’s well sizedand it would not require a family to “move up” like the 2 and 3 bedroom condos.
My gut feeling is that will settle north of $250 per square foot which puts it around 500K. With a 100K downpayment and a 30 year fixed this would be a $2500/month payment which is quite doable.
OTOH, why would anyone pay $900K for this is really nuts, eh?
Looks like a race to the bottom with 51 Bombay, listed at $760,000 and the mirror image of #26. Short sale, currently “Backup Offers Accepted”; looks like somebody made an offer, wonder for how much? Will the bank bite? or will this go REO?
Ah, the suspense…
“They have set the stage for the next wave of foreclosures when all the ARMs begin to explode.”
Did you mean Option ARM? After seeing that map of misery you posted a few weeks ago California looks like it is going to be a dreadful place come 2010. Those owners are severely underwater and just do not know it yet. We will probably need to call the Option ARM crew Running Away or something of the sort – they will leave much faster than the Walk Away crowd. One look at the balance when the loan recasts and they will head straight for the door. And who could blame them…
It isn’t just Option ARMs, it is all adjustable rate mortgages including interest-only and negative amortization. Most of these loans will reset to higher payments, and few of the borrowers will be able to refinance.
If the fed keeps lowering rates, is there any chance that some of of these loans will reset to lower payments?
It doesn’t look like it. Long-term rates are rising due to inflation concerns brought about by the FEDs lowering of interest rates. There may be some people with 1 year ARMs who may be able to lower their rates, but that is only a temporary fix. Plus, since many will be either underwater or unable to meet the LTV standards, they will not be eligible for refinance.
Even if rates fall, no one will loan more than the house is worth so the only way these guys get to refinance is by bringing cash to the table. Problem is that most don’t have that kind of cash.
Is that accurate? A colleague of mine has an adjustable rate mortgage on a second home. It just reset and the rate went down a hair. I don’t know if it was initially a 1, 2 or 3 year teaser rate, but it did reset lower. Maybe he’s the exception? He’s ipop-like in his financial savvy, so I wouldn’t doubt it.
Short-term rates have been dropping with the rate cuts, but long-term rates have been rising. If all the people with ARMs manage to refinance with short-term rates, it just delays the inevitable.
How does it work if they don’t refi? Could the reset rate on the same old loan be close to or lower than the teaser rate?
If it was a fully amortized (full principle) loan then their payment could be lower after the reset.
Many of the ARMs are interest only during their teaser rate, so at the end of a say 5 year fixed portion of their ARM, they suddenly have to pay 30 years of principle in only 25 years. In that case their payment will most certainly go up, even higher than a regular 30 year fixed, even if their rate ends up dropping some.
I don’t believe that is how these “creative financing” “products” work.
Check out this link:
http://www.bubbleinfo.com/option-arms-how-they-work/2006/9/20/explanation-of-how-option-arms-work.html
Good explanation except the example margin of 2.8 is extrememly low. Brokers were getting paid on the back end depending on how high of a margin they could sell the borrower on…most of the time a borrower would get a margin between 3.5-4.5 even though they qualified for a margin of 2.5, the broker would get the difference in points paid to them by the lender as a ” thanks for ripping the borrower off with this high rate, we love you and will reward you for it” The other thing is most neg-am’s that would allow a initially high LTV would cap out at 110-115%, I believe the 125% neg-ams were harder to get, as in they had stricter LTV limitations. Option arms are very complex and there are many different options to them, that is why we see a very large window of when they will recast….then foreclose.
This one should be under the heading, Midsummer Night(mare).
It does have to be a nightmare for the seller. In the spring of 2006, we just had witnessed the largest multi-year increase in real estate prices ever. I can see where it might come as a surprise (and not a good surprise) to buy in that environment only to see prices drop 20% in two years with no end in sight.
I am guessing the next wave of delinquent borrowers will not be leaving their homes until the sherrif shows up. It seems to me that just about now, the home debtors are reading about and figuring out that they can live in their homes rent and mortgage free if they just do nothing, including not moving. I think the walk aways will slow down and the squatters will increase.
Did you see this one?
http://bubbletracking.blogspot.com/2008/05/flat-or-declining-inventory-what-gives.html
Distressed homeowners are not even trying to sell, they are just running out the clock.
Eviction Day in OC video
http://www.ocregister.com/video/index.php?bcpid=1127694947&bclid=1125901233&bctid=1529567237
The Orange County Sheriff was indicted for corruption and graft and is under trial, likely going to jail.
So, it may be a good idea for delinquent homeowners to wait for the sheriff because it may be quite a few years and by then they maybe able to take a loan. 😉
In regards to AzDavid flaming cash picture…..
This money was not really torched and destroyed.
Huge bank losses are often discussed here…..but someone else benefited hugely here and I’m not talking about all the commission fees in transactions.
Someone who sold at the peak and stayed out of the market reaped a huge benefit and would be sitting on all that cash in AzDavid flaming cash picture. In addition all the HELOC money that was spent on goods propped up the economy and directly benefited many people that were not associated with housing. (whether it’s China or someone else who was smart with their money; many people who post here and rent for example)
No doubt the house of cards is falling apart. A fraction of our population is distressed and depressed and our economy is in turmoil.
Saying the cash was burned is really incorrect in my oppinion….. sure a lot of it was sent to China and elsewhere for consumer goods….. but this cash changed hands……. the rich are getting richer in this country.
If someone did an analsyis on what happened to all this money I would be interested. Every billion a bank writes down went into someones pocket….. a billion here a billion there, right?
“Every billion a bank writes down went into someones pocket”
Not necessarily. The money the banks are losing was created out of thin air. That is how fractional reserve banking works. When created money is collateralized by an asset which is declining in value, the lender is unable to “zero out” the account when they foreclose. This causes money to disappear from existence — the definition of deflation.
I would argue the money was “zero-ed out” on the opposite sides of the transactions…… whether it’s the peak seller, bottom seeking buyer, or HELOC benefactor……
I agree with your point in regards to fractional banking…….. I don’t think this cash has been destroyed…. I think the cash generating engine of the ponzi scheme has been destroyed.
I would be interested to see how this money was dispersed…. both internationally and domesitcally.
I agree that they create money out of thin air, but I definitely had some cash show up in my pockets when I sold out in 2006. The homedebtor that bought my place was just foreclosed on and the home is back on the market at a greatly reduced cost. The bank is open to a short sale to recoup the first mortgage it looks like.
Yes, you did have some cash showing up in your pocket if you sold in 2006. However, most folks don’t like carrying around such a load (contrary to what they may say) and are/were eager to dump their “winnings” in an equally inflated house asset, which is now deflating. Just ask the braggard, Sui Generis, who posted his triumph many months ago on this blog. How’s the investment Sui?
If one cashed out and is now renting, then they played the game right.
Well said. This is one the reasons the FED is pumping as much money into the system as possible. M2 and M3 (M3 is no longer published because it has exploded in growth recently) are measures of the money supply.
Increases in the money supply lead to inflation. If there is enough inflation, the price of all assets will rise in nominal terms. Theoretically, the FED can inflate the housing mess away.
If somebody bought at the peak and is now in deep doo-doo, like today’s feature, then the money went to the person who sold this house at the peak. (Except they probably just traded up and are in the same boat but with a $2M house.) So, the person holding today’s money would be the last person in the chain who cashed out of the So Cal housing market. Or, it could be somebody who traded up and makes enough money that they are able to keep up with their payments, so the cash they made is just equity in their current property.
If a property is short-selling due to HELOC, then the money-holders would be General Motors and/or Mercedes and/or Home Depot and/or Sears, etc.
Wow, you’re talking about me then. Sold Haverhill 92602 back in ’06, Larkridge 92618 back in ’05, and is currently a *renter*.
(Except they probably just traded up and are in the same boat but with a $2M house.)
Yeah, I traded up alright. High yield bond fund boning 8% return, Ginnie Mae with guarantee dividends and Aussie dollar with 5.7% return. Poor me.
It’s funny, mav, when you started your post with “AzDavid” and “flaming”, I thought you were going to comment on why some guy in Phoenix flames away with more posts on an Irvine housing blog than all the locals combined…
The housing bubble is not an “Irvine only” problem, skek.
It may have originated there, but the monster has become so large that even people in Phoenix feel it and want to know WTF.
And apparently those people in Phoenix feel that makes them an authority on what a condo they’ve never seen in an area of Irvine they aren’t familiar with is worth, and drives them to post 25 times a day about it. Just sayin, bud. But your pictures are cute.
I generally think, oh azdavid with your “this condo is only worth 100,000.” but his points today about median income seem…strangely compelling! what could the mechanism be, really, whereby a median income remains insufficient to buy the median home product, year after year, in a serious recession? the mighty force of past zestimates? he’s got a point, nu?
Well, given the amount of Real Estate “intelligence” I’ve seen in Irvine, I’d say just about anyone has the authority to price a home.
gee sorry, didn’t know this was a ‘locals only’ blog. I would submit that the Phoenix RE market was just like the SoCal market, minus the multiplier effects of the ‘keep-up-with-the-Joneses-at-all-costs’ SoCal ethos, the higher cost-of-living and the already-inflated housing costs.
IOW, Phoenicians were somewhat less insane than their SoCal home-buying cousins.
IOW, Phoenicians were somewhat less insane than their SoCal home-buying cousins.
Not that much less!
Google “Phoenix Flippers In Touble”
AZ had a huge influx of specuvestors from California.
Many speculators using their California housing refi lotto winnings to purchase “investment” homes in Phoenix. I suspect this phenomenon was also happening in Vegas/Miami too.
Others just plain left California and moved to AZ where you could buy a nice McMansion for what you could sell a CA crap-shack for.
Many of the Phoenix locals quit their jobs at call centers, bars, etc and became real-estate agents and made easy money for a little while.
We had our own form of insanity in the form of the 30K Millionaires.
Now, Phoenix is tanking just like OC.
No, not a locals only blog, renato. Just an ongoing debate with AzDavid who likes to correct the people who live, work and buy homes here as to what our properties are “really” worth based on what they might be worth in Phoenix.
Skek – this place might be able to get 275K in Phoenix. The 350K is taking your local inflated market into account.
I assume you are joking and trying to bait me, but if you are serious, David, we’ve been through this before.
Is every house in Orange County worth 125% of the equivalent property in Phoenix? Can you tell us what the school district is like for this property? How’s the shopping nearby? The traffic? What’s the parking situation like? How about crime? Are there good jobs in the area? Is there a microclimate that makes it more or less desirable? How’s the local government in providing services? What are your options for health care? What about social opportunities? Is it a good family neighborhood?
People push back on your predictions because you have no way of knowing what you are talking about.
It’s not that complicated, Skek.
Just look at the incomes versus housing costs for Irvine.
We don’t even have to talk about Phoenix at all. You are the one that keeps talking about Phoenix – I never mention it unless asked.
Just look at the incomes for the people who live in Irvine and you can easily see that the median income would not be able to afford this condo at 550K. This condo seems “OK” but certainly not anything super-fancy that would make me think that it is only worthy of the upper echelon of incomes.
Now you can be like CK and put out all that smoke and mirrors about all the college students lowering the average income or whatever excuse suits your fancy.
Fact of the matter is that your median income will not afford this condo at 550K without help from “creative financing” “products”.
I may be just another dumbass desert dweller so feel free to look down your superior OC nose at me as well, but I did live there during the height of the RE bubble. Thank goodness I didn’t make the decision to sell my Phx home and move there.
In my experience, salaries are simply not so much higher in California that one can as easily afford a $500k property which would sell for $300K or $350K in Phoenix, given roughly equal schools, location, etc. A good school is a good school whether it’s in California or Arizona. California does have the beach and a milder climate, plus a more diverse economy; however this doesn’t always justify the higher premium for CA RE. If you’re living over an hour away from the beach, do you really want to pay a premium for that? It’s not like you can see the ocean from your condo in Santa Ana. The cost of living is significantly higher in California too.
Also in my experience, a LOT of people in California live on credit to a much greater degree than Arizona. Keeping up with the Joneses and conspicuous consumption is a virtual religion there. The cycle of boom-and-bust seems to always be much more pronounced in California than in Arizona. I was stunned how many people had ads on Craig’s List, looking for someone to rent out a bedroom to just to help them make that dreaded monthly mortgage nut.
Basically, I think you folks in California – even when the market is somewhat sanely priced – are paying a premium because people just want to live in California, even if it’s out in (yecch) Corona or Pomona. I’m not so sure it’s all it’s cracked up to be, and again I’ll say that the salary differential really doesn’t seem to be so great such that a degreed professional in Arizona is gong to be able to afford the same lifestyle in California.
I’m not sure if that’s the same POV that David is putting forth, but that’s my 2 cents. I certainly won’t mind telling anyone who tries to shove their air of California superiority down my Arizona throat, where they can shove it instead. I’ve lived out there; it really ain’t all that, unless you’re lucky enough to be living on or within sight of the beach. There’s some things I liked a lot about my time out there – like hiking out by Silverado or Black Star Canyon – but a lot of things I thought were friggin’ absurd or intolerable.
Just to clarify….
The median income numbers reflect both homeowners AND renters. You can’t simply use the median income for the county and use that to justify home prices. You need to look at the median income of the actual homeowners themselves. That said, homeowners are still way over-leveraged.
Nice post, r€nato.
You hit the nail on the head.
The salaries are higher on average BUT NOT THAT MUCH HIGHER.
Certainly not high enough to justify the ridiculous costs of renting and buying a house.
You see all these people on here clawing with all their might trying to justify the stupidity in their own minds about how it is totally cool to depend upon a 2 income household to make the monthly mortgage payment. WTF kind of stupid financial planning is that? How can anyone with the intelligence needed to earn a college degree think this?
They tell themselves that it is worth the extra money because they live on sacred land that is so much better than any place else on earth.
And then there is the collective groupthink where everyone believes everyone else is wealthy so they all play rich and act the role “Oh yea, I could afford that NO PROBLEM. Just need to put a kidney on ebay, go to the bloodbank, sell some rocks” blah blah.
This money was not really torched and destroyed.
I’d hedge my bet that today’s seller would not agree with you.
Someone who sold at the peak and stayed out of the market reaped a huge benefit and would be sitting on all that cash in AzDavid flaming cash picture
Only if they put that money in the bank and became renters. The vast majority put their bubbly cash right back into more real-estate.
If someone did an analsyis on what happened to all this money I would be interested.
Real-estate, cars, vacations. Our country’s savings rate is now below 0% I believe. We consume more than we produce. Not too difficult to connect the dots on where all the money went. Just look around at all the toys people are driving around town, all the nice clothes and jewelry everyone is wearing….
This bubbly wealth is vanishing. Suppose I sell my house for a million dollars. I split that million 4 ways for down payments on 4 houses. The market tanks, all 4 of my houses are forclosed. My million bucks is gone. Each of the people I gave 250K to then put theirs down on another house which subsequently loses half of its value. Half of their 125K is now gone. The people they bought the houses from do the same.
It all vanishes eventually. It’s just the Ponzi undoing itself. Working in reverse. The bubbly “equity” is burning away.
see my response to IR:
for every loser there is a winner
the destruction of the cash generating engine is far more damaging than burning the cash
for every loser there is a winner
There are no winners on the way down. Only losers.
you think?…. i’ve done pretty well with SRS and SKF
on a larger time horizon, the peak seller and bottom buyer would similarly disagree with you… both winners
Notice that I did not explicitly say “peak seller” or “bottom buyer”.
I said “on the way down” which implies that it is too late to be a peak seller and too early to be a bottom buyer.
The “winner” on the way down is the new buyer who doesn’t have to mortgage their life for a condo.
When the “winner” in your scenario tries to sell in 2 years – they quickly become a “loser” at the closing table as their steal of a deal has further depreciated and put them underwater.
to add to AZD, more people borrowed money on the way up than should have normally happened, so in reverse, alot more people will get screwed on the way down.
In other words, money was created on the way up, moved around near the peak, will no where to be found my the masses on the way down. 🙂
Exactly, mmg.
Enter “Cash is king” phase.
Very few people have the cash on hand to afford the 900K condo whose price depended on every expanding debt leverage. The market will not bear such prices and has to come back down to levels that are more in sync with income.
All that bubble money gets washed along the way as the knife catchers trade up or spend their bubbly profits.
Thank you.
There is always opportunity AZDave.
It just may look a little different than it did before. Those who have downsized or liquidated outright have “won” over the last two years, wouldn’t you say?
The pessimist feels that the wind is always against him.
The optimist hopes that the winds will change.
The realist adjusts the sails and makes the best of it.
There is always opportunity AZDave.
This is Kool Aid speak. Sounds good on the surface, but has no real substance because it overly generic and borderline churchy.
Nice try. We all know that “opportunity” is a NAR code-word for “knife-catcher”.
Those who have downsized or liquidated outright have “won” over the last two years, wouldn’t you say?
During the bubble – for every winner, there was another winner as everyone continued up the cliff extending themselves further than the previous fool.
Then we come to the peak. The last wave of winners sells to the first wave of losers (bag holders). This is where we have gone off the cliff.
We then begin the trek back down the mountain where the previous wave of losers sells to another wave of losers (who think they are getting a deal) who sells to another wave of losers until we finally hit the bottom. The knife catcher phase.
The pessimist feels that the wind is always against him.
Cliche
The optimist hopes that the winds will change.
Cliche
The realist adjusts the sails and makes the best of it.
Let’s drop the Jedi mind tricks, IrvineRealtor. Please, point us all to some of these great opportunities that you are seeing. If you try to make the classic argument that a price is good today because it is less than it was 1 month ago (while ignoring the depreciating market) then I will promptly horse-laugh you.
You are really annoying AZ- IrvineRealtor made a good point and here you are bashing him because he has realtor in his handle. I dont see jedi mind tricks or anything like that.
Regardless of the situation, there is always money to be made. I have a friend who worked at CW creating the MBS products and now left that world to work at a company that packages foreclosures. I never thought my friend could find another high paying job so quickly with the MBS market getting destroyed but they did.
Regardless of the situation, there is always money to be made.
True. But, I would say that there is definitely a lot more money to be made when your economy is not in a recession.
AZDave –
Sell now or forever be priced IN… 😆
“Hey dad, how’d we get so rich?”
“Well, first I helped create a disease which made a lot of people deathly sick and after a while I starting selling caskets!”
“Wow, cool! I guess I can grow up to be an a-hole too and I don’t have to worry about you looking down on me!”
Indeed.
The realtors sure did enjoy “helping” and stroking the egos of all those folks buying 900K condos during the party and stirring up bidding wars between competitive debtors.
Now, they “help” all of the banks find knife-catchers on the foreclosed properties and tell us what a wonderful time it is buy a foreclosed house.
Helping society one commission at a time.
rkp – What do you mean by “packages foreclosures”?
gotta go with IR on this one, Dave. As I noted elsewhere in this thread, there are always opportunities to make money; it’s just that the stupid money made by stupid people doesn’t come so easily in a down economy. The smart people who didn’t spend every dollar they made in the boom times, will have capital to work with and can, for example, short-sell stocks, or buy up RE at or near bottom prices and stick it out until it appreciates again.
Or, clean up at garage sales where desperate homeowners are hawking all the consumer goodies they bought with their HELOC money, just so they can make the mortgage next month.
It is most definitely not a cliche, but if you want, you go ahead and think that…
Awgee – this is what I meant: http://www.housingwire.com/2007/03/30/impac-goes-after-scratch-and-dent-business/
The money is destroyed. It just hasn’t been pulled out of our 401K retirement plans yet.
Yes, the money is dissapearing, because of the manner it was created. The banks lend money they do not have. They create it when they make the loan. Money in a fiat currency fractional reserve banking system is not money. It is debt. And when the collateral decrease in value, the “money”, debt, dissappears. This is not a matter of opinion. These are the facts of fractional reserve banking.
my point is not around whether a greenback is worth less today than it was yesterday
tell the guy who sold a house in 2006 and sat on the cash that the money dissapeared….. it may be worth less…. then again that same guy might have taken the cash and put it in something else
the money gets funnelled somewhere, i think it just depends on whether you look at it from 5000 feet in Ben’s helicopter or 30,000 feet from a private jet
Let’s talk about the guy who buys a house in 1990 for 100K. In 2006 he cash-out refi’s for 600K and buys 400K worth of granite counter tops, Hummer H2, and goes to Aruba for a month.
The market tanks. His house is now worth 200K. He owes around 400K that he cannot pay back. He jingle mails the bank.
The bank re-sells the house for 200K and has to eat the 400K that the deadbeat couldn’t pay back.
What happened to that 400K? It is gone. Poof. Like a moth to the flame.
this is my last post…. as this is getting to be a monumental waste of time
the $400K went somewhere….. just ask the guys who built the H2 or the cabana boy in Aruba who was getting huge tips….. etc etc…..
you could track every dollar, there are definitely winners in this and i’m not talking the 6% commissions……..
ask the guy in his private jet flying from Bangkok to Dubai today
does the instability caused by this ponzi scheme now creat huge havoc? hells yeah… but there are even winners in the chaos now…….
i would argue anyone who can keep their job over the next 5 years and get raises over inflation is a HUGE HUGE winner
Mav, I understand what you are trying to say.
The problem with your argument is that all these winners that you are talking about received money that originated from a pile of I.O.U’s (or debt as some people refer to it).
That is the krux of the entire problem. You and I would be in complete agreement if the money originated from debt-free spenders.
The money that fueled the economy never existed. It was all based upon people promising to pay in the future. A promise that was not kept.
However, the money was just created out of thin air using debt. That is why everything is burning away now that the debt engine money spigot has run dry.
Don’t forget the the day-laborers who installed the granite counter tops and their remittances they sent home to build a new house in Chiapas.
Don’t forget the bonuses made by the mortgage brokers who refinanced the home that were spent on some good quality Colombian cocaine.
Don’t forget the creation of the thousands of slave jobs to serve the nouveau riche
But they weren’t paid with IOUs. They were paid with cash. The hotel in Aruba received cash. The kitchen contractors were paid in cash. The Hummer dealer received cash. (And by cash, I mean either directly, through VISA or through the bank that financed the purchase.) But none of them took an IOU that was dependent on the original HELOC being paid off. Discretionary spending is typically a good thing for the economy (although not at the expense of negative savings rate, to which you alluded). The more times a dollar changes hands, the better off we all are. I agree with one of the commenters above — the money is not disappearing, the engine for creating the money has disappeared.
Maybe what you are saying is that there is paper wealth that is disappearing — primarily in the form of bank write-offs and declining property values. Americans as a whole are less wealthy, but not because money is vanishing from the system.
It doesn’t matter where the money came from. The cabana boy still won because he pocketed some actual cash that he actually earned that he may not have otherwise earned if not for the IOU that the homedebtor now has.
Everybody gets paid cash.
The bank now has 400K less to loan to the next guy. POOF!
Credit crunch!
may have gone to CHINA 🙂
if banks are writing down $$, then it is disappearing from some one’s account(s). that is why FED will try to avoid run on the banks, as too much money vaporizes from the system.
It’s not how many times the money changes hands. That sounds like a Ponzi scheme. The key is how productive you are in providing goods and services. Capital expenditures are suppose to make you more productive. To the extent that all this money was not put to increasing productivity, it’s just a big ponzi scheme.
The consumer driven economy is about providing profits to corporations that then invest in becoming more productive so that they can sell more. A savings based economy is about lowering the cost of money for corporations so that they can borrow money to invest in lowering the cost of production, so they can sell more. The key is that at some point the money needs to be get to an industry that increases the overall productivity of the nation.
The HELOC money that was spent on Flat Panel TV’s, foreign cars, imported stone, vacations overseas, etc… does nothing to make the USA more competitive. To the extent that the USA is not becoming more competitive means that foreign wages become a more attractive substitute for US wages.
The HELOC money that was spent on Flat Panel TV’s, foreign cars, imported stone, vacations overseas, etc… does nothing to make the USA more competitive. To the extent that the USA is not becoming more competitive means that foreign wages become a more attractive substitute for US wages.
Gee, do you mean that we can’t really make America stronger by going shopping, as President Bush has repeatedly suggested?
I guess the terrorists have won, after all.
I agree with Mav.
Just like stocks. They trade hands, one person reaps the difference in the transaction.
Either a profit or a loss……
Yes banks loan money they do not have, but those loans that they write are written with CURRENCY.
Just ask all those people that did cash out refis and helocs.
They trade hands, one person reaps the difference in the transaction.
Very good, camsavem.
Now explain when one knife catcher sells to another knife catcher.
Both get to reap a negative difference in the transaction.
mav – I am the guy who sold his house in the summer of 2005 and invested the proceeds and is now waiting for a few more years to buy another property. If that is what you are referring to, you are missing the macro view and do not understand what currency is. There is not always a winner for every loser. It is not a zero sum game. Prices did not go up because there was an increase in productivity and concurrent income. Fiat currency was created out of this air. Do you understand that? That is monetary inflation. There is not a fixed amount of currency. It is not a zero sum game.
ok seriously last post this time……
i agree it’s not a zero sum game if you look at it strictly from a macro US standpoint
if you look at it from a macro global standpoint i think the picture is more foggy
paper is paper and hard assets are hard assets, right?
Even at a global scale it is not a zero sum game. If it was a zero sum game we would all still be hunter gatherers. Why is not a zero sum game? Increases in productivity via capital investment and specialization. Only day traders would see macro economics as a zero sum game.
maybe there is gold on Mars 🙂
awgee,
Just to clarify: You mean to say that monetary inflation occurred during the bubble through the creation of credit and we are now seeing monetary deflation as that credit evaporates. Correct?
Just wondering who here believes we have monetary inflation now and who believes we have monetary deflation. I’m in the deflation camp.
Deflation.
We have credit contraction now, and credit is only one component of the money supply. The money supply is still increasing, even with the present credit contraction, although at a much reduced rate, therefore we are still experiencing monetary inflation. But, the present monetary inflation does not negate the extreme effects of the present credit contraction. Will we experience monetary deflation? Not if the Fed can stop it. So far, the Fed has not been able to stop credit contraction and my guess is the Fed will not be able to stop it.
Awgee, looks like you are correct that we still have inflation. M2 is on the rise – mostly in 2008. I’m surprised. I wonder if this is from people liquidating stocks and bonds and purchasing CD’s.
http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt
Short is such an appropriate title for this post. As in shortsighted.
Good thing IR’s bear has reading glasses, eh? 🙂
Time for a new phrase turn?
This is an ARMs race?
And we have MAD (mutually assured destruction).
The winner (loser?) of this race will be the house that costs the most for both the buyer and the seller.
In 2006 it looked like a sure bet for 1.5 m in a flash….
Oops, in 2008 it looked like a sure bet for 0.5 m in a flash….
“Is it any wonder the banks are taking multi-billion dollar write offs?”
John McCain says these write downs are simply because of mark to market accounting. His solution is to mark to model. I assume since the banks are already marking to model until the loan fails to perform that John means that even the failed loans should remain marked to model. After all, they’re not really losses until you recognize them. I’ve been saying the same thing about cancer research for years. If you just refuse to recognize the cancer you’ll never die from it. Why are my tax dollars being wasted on cancer research? Another government boondoggle.
We are all going to be losers for a while.
Even the financially responsible are going to suffer this year, just not as badly. What do you do if you have no debt? Investments don’t look great.
Real estate? Rrices aren’t low enough yet for positive income investment and I don’t hear anyone on this blog holding out for capital gains.
Shares? A good time to hold and possibly add to decrease your dollar cost average but the short term looks shocking and medium term mediocre. I know shares should be longer term investments but why pay a premium now?
Cash/Treasuries? Returns do not yet reflect the inflationary expectations, and its even worse when you pay tax on your interest earned.
Or how about high risk Junk Bonds? I’m sure there are a lot of companies out there (especially finance companies)who would love some more capital. Its just like Russian roulette except you start with a fully loaded gun and remove only 1 bullet.
The best off are probably those with standard mortgages at fixed rates – they have a nice inflation hedge and those that fixed are probably smart enough to have fixed at a rate they could afford. (Do US fixed rate mortgages allow for periodic capital repayments without prohibitive penalties?
The irresponsibility of the bubble speculators and their lenders is going to hurt us all. At least the financially responsible should have positioned themselves to handle a loss/downturn (or else they aren’t truely financially responsible.
Bananatree
(A financially responsible loser for this year and probably next)
there are ways to make money in investments (securities) in any market, bull or bear, so long as you do your research and don’t limit yourself to buy low sell high. I’ve made money shorting stocks, this is an ideal market for that though of course that’s risky and I’ve only done this sparingly and never with more money than I am willing to lose.
In any economy, there are some stocks which perform better than others. High-tech is actually doing rather well lately. You could have bought AAPL for $120 not so long ago (I did!) and today it closed at exactly $180. Consumer stocks like Procter and Gamble are good bets for a recessionary economy; people still have to buy groceries. Commodities seem risky to me, they could go either way. Currently they are being supported by speculators and growth in China and India. If the financial contagion reaches those countries, however, commodities could plunge. I think there is far more downside in commodities than upside, but nobody can currently predict exactly how much upside is left.
Anyway, my point is that any economy presents opportunities to make money. It’s just that any idiot can make money in a rampaging bull market/boom economy; it takes more smarts and judgement to make money in a bear market/recession.
How do you decide which homes to write about? There has got to be so, so many homes just like the ones you profile in Irvine. You could do a post a day all year long and not come close to running out of examples. Talk about low-hanging fruit!!!!!!!!!!!!!
Actually, I would like to see some posts on what recently closed escrow. It would be interesting to understand what kinds of properties are closing and if it is 2003 or 2004 pricing that is generating the closings.
Also, I would like to see more posts on SFH vs condos.
http://ipoplaya.com
Getting back to the “house”
where is the “hardwood flooring”? all I see is 12″ (not even 18″) tile in the dining room. Who would put tile in a dining room? Shouldn’t that room be a ‘warm feeling’ room?
Why in the world are there only two interior pictures? Is the place trashed?
Since rates are so low is there still the specter of an ARM explosion?
I don’t understand why IR (and the media) focuses on 100% financing as the principal culprit in this housing decline, when it’s more the result of every traditional underwriting guideline being taken to the extreme. Initial payments must lower than the fully-amortized payment is more of a factor in the bust than 100% financing. Singling-out 100% financing as the primary factor in the housing bust is like saying Americans are fat because they lack willpower. Yes, it’s true, but there are many factors.
e.g. Who’s much more likely to default when prices are declining?
1) the prime borrower underwritten to traditional guidelines in a 30-year fixed mortgage at 100% CLTV, or
2) the subprime borrower with a back-end DTI near 50%, a 2/28 ARM with a teaser rate making the initial payments much less than the fully-amortized payment, and 80% LTV.
If your answer is # 2, then 100% financing is only A factor, not THE determining factor in default.
The focus on 100% financing is an unintentional byproduct of the fact that nearly every property I find going to short sale or foreclosure was 100% financing. If there had not been 100% financing, the market would not have dropped so far so fast. When we all look back in retrospect on the collapse, 100% financing will be seen as the precipitating factor. Once the decline got momentum, all the other factors came into play.
Wasn’t there a post one or two days ago where the owner lost 120K down payment?
I think Mark has it a bit backwards. By definition, a prime borrower is one with a (usually sizable) down payment, and would therefore not be using 100% financing. And a borrower who has brought a 20% down payment to the table would have a hard time being classified as a subprime borrower.
Frankly, I think both borrowers in his example are likely to default, and not necessarily ONLY when prices decline. Both borrowers, prime and subprime, have an incentive to walk if they clearly can’t afford their mortgage payment, whether their home values are rising or falling.
No, a prime borrower has been changed to be simply based on credit. 100% does not denote subprime, in fact most 100% deals were done for PRIME borrowers.
No, “prime” usually refers to the credit quality of the borrower. And my “prime” example used “traditional guidelines” as a shortcut for 28%/33% DTIs (among other factors), so this means the mortgage would be affordable.
My point is, if the only deviation from traditional guidelines was 100% LTVs, there would have been a very slight bubble and therefore no crash. Combine 100% LTVs with subprime borrowers, NINJAs, high DTIs, non-fixed even negam loans, and you’ll have inflated prices likely to decline. Isolating 100% financing as the culprit is too simplistic.
I don’t think IR focuses more so on 100% financing, a lot of the post tell the story of someone that refinanced/Heloc there way into near foreclosure. I believe they have close to an equal factor on the bust. People who purchased with 100% financing have no money into the deal and purchased based on the speculation that value would increase, when value decreases, it is easy to walk away, a lot of them never even occupied the home. I would think it would be harder for the people who Heloc’d their way into foreclosure to walk away because they have more of an attachment to their home/neighborhood and most have put a lot of time amd money into their home, even if it was borrowed Heloc money.
Too pessimistics kids. 32 Midsummer has an offer (list price is $859,900) and it’s slightly smaller than this one. Accepting backup offers. The only conclusion I can draw is that Irvine people are slightly more insane than Monterey folks, and brother is that saying something.
For a good laugh do a Trulia search and see what $700k buys you around here. BTW, for those unfamiliar with the area, Seaside is our Little Tijuana. No offense meant to anyone…But trust me, you wouldn’t want to live there.
Monterey-Seaside-Salinas is a joke of an area AFAI am concerned. I can’t believe you people jacked up the housing there just because it’s just a bit more than 1 hour from the South Bay.
It’s like saying that the MSS area should be priced way higher than Tracy because we’re the same distance from the high tech capitol and yet we got the damn coast.
Pathetic.
The car market has so many negative numbers that I am reminded of real estate.
As Gas Costs Soar, Buyers Are Flocking to Small Cars
Short salling for a short living 🙂