Short Shorts — The Royal Teens
Why are people selling for a loss? Nobody wants to lose money when they sell their house. Many of the sellers we have seen to date put no money down, so they were not losing any money, only their credit score. Lately, I have been seeing more and more sellers who have lost some of their own money. So why are they selling? In the crash of the early 90s many people submerged beneath the debt on their homes. They were unable to sell, and the few that had to sell due to job loss, divorce or other circumstances created the foreclosure problems of the early 90s. However, for as bad as the foreclosures were then, we have already quadrupled the previous peak, and the problem is only getting worse.
I suppose the easy answer to why people are selling is that the owners cannot afford the payments. Many probably still believe real estate is a great investment and all the other kool aid nonsense they believed when they bought the property. Unfortunately, they were unable to hang on long enough to enjoy the benefits of their great purchase. The ones who have capitulated already are the lucky ones in many ways. The disaster is over for them. Now they can go back to living within their means in a rental, and the crushing debt service payments are a distant memory. The owners who have not capitulated yet, the ones who have the means to hang on longer, they are the ones for whom this price collapse will be a major disaster.
Bear markets are self fueling. Once a price decline gains momentum, the “weak hands” are shaken out, and as they are, they sell and drive prices even lower. This puts a new series of owners in distress and creates a downward spiral. The only thing that stops a bear market like this one is capitulation among owners who give up waiting for prices to come back to breakeven, or a new influx of buyers.
Larger numbers of buyers will not enter the market until prices are affordable. This isn’t because it is financially prudent or because people started reading this blog. Once a vicious price decline gets underway, the tightening of credit prevents many buyers from committing financial suicide. Whereas lenders were willing to give anyone $600,000 a few years ago, now they are only willing to give $300,000 to a select few with good jobs and solid credit ratings. The realtor spin about “pent up demand” is complete bull$hit. There is probably a lot of pent up desire for housing, but demand is measured in dollars, and there is a major lack of demand with the absence of lender funds, and a large and growing “pent up supply” of REOs.
I have mentioned a number of times that I believe this fall and winter will see another major leg down in the market. The economic recession will be in full swing. When times are tough and jobs are uncertain, it is not a time when people commit to large purchases like houses. Also, it is becoming increasingly obvious there is strong downward momentum in prices. This is prompting many to put off purchases because prices will be lower later. As the foreclosure problem worsens and more and more loans begin resetting to higher payments, supply will continue to enter the market.
Usually there is a strong seasonal component to inventory. This year we did not get a big inventory spike in the summer. Perhaps it is our “inverted year” and we will see ballooning inventories this fall and winter. There are many REOs that are not listed yet, and these will hit the market eventually. The lenders would have been better served selling them this summer when there was some volume. Now many of these will hit in the fall and winter when few buyers are around. Since this is must-sell inventory, it will push prices lower.
We live in interesting times…
Asking Price: $430,000
Income Requirement: $107,500
Downpayment Needed: $86,000
Monthly Equity Burn: $3,583
Purchase Price: $536,000
Purchase Date: 5/25/2006
Address: 308 Quail Ridge, Irvine, CA 92603
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 1,450 |
| $/Sq. Ft.: | $297 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Mediterranean |
| Year Built: | 2006 |
| Stories: | 2 Levels |
| Area: | Quail Hill |
| County: | Orange |
| MLS#: | P609489 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 274 days |
 Unsold in 90+ days
|
|
This is a Short Sale. We have begun the process with the seller and the
bank to get your clients in as quickly as possilbe! Bring Offers for
this Highly Upgraded Desireable open floor plan with Hardwood floors,
Gourmet Kitchen, Stainless Appliances, Breakfast Counter & Formal
Dining. THIS HOME WAS UPGRADED AT THE PURCHASE AND STILL SHOWS NEW!!!
Two Car Garage with Direct Access. Enjoy Award Winning Quail Hill
schools and resort style amenities. Minutes away from shopping,
entertainment, restaurants, Irvine Sprectrum, Business area, Hospitals,
Freeways and the Beach!!! Bring your fussiest buyer. Friendly cat not
included…
Unnecessary Capital Letters… Check.
Three exclamation points… Check.
CAPS LOCK PROBLEM… Check.
Spelling errors… Check. (possilbe, Desireable, Sprectrum)
Gourmet Kitchen… Check.
Lame attempt at humor… Check. (Friendly cat not
included…)
Bogus Clichés… Check. (Highly Upgraded)
This realtor earns an “A” for realtorese.
[adsense-ir}
So what do people do when they actually put a little money down? They start with an asking price that gets their money back.
Listing Price History
| Date | Price |
| Nov 10, 2007 | $565,000 |
| May 25, 2008 | $500,000 |
| Jul 07, 2008 | $450,000 |
| Jul 15, 2008 | $430,000 |
Six months of denial, then two big price drops followed by more market chasing. The asking price is only 20% off the peak, so they will likely have to discount this another 5% to 10% to attract a knife catcher. This will likely bottom between $290,000 and $320,000. It is only two bedrooms, so it may go lower. Only time will tell. Our seller originally paid $536,000 on 5/25/2006. She used a $428,400 first mortgage, a $80,300 HELOC and a $27,300 downpayment. There is no other activity, so the seller is at least out her $27,300 downpayment. It is possible that the HELOC was not tapped for the downpayment, but at some point along the way, it probably was. If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $131,800.
.
Ooh man, dig that crazy chick.
Who wears short shorts
We wear short shorts
They’re such short shorts
We like short shorts
Who wears short shorts
We wear short shorts.
Who wears short shorts
We wear short shorts
They’re such short shorts
We like short shorts
Who wears short shorts
We wear short shorts.
Short Shorts — The Royal Teen
Good thing it was upgraded at the purchase – I would hate for someone to have to live in an non-refurbished condo. Not a bad looking complex, but I suppose knowing little about the town layout I am going to read about how bad it is in the further comments.
actually quail hill is considered one of the higher end areas of irvine – I had to double check that I read it right because I was expecting this to be in el camino or something….
A quite nice complex. But get ready for the massive “special assessments” to keep it up. Since it is new, EVERYONE who bought here is deep, deep underwater. The smart ones will default. And that means default on their property taxes AND association fees (who is going to pay their association fees when the property is going back to the lender?)
Thus, the association fee revenue that was based on 95% of the units paying will now have to be covered by the 30% that are not going to default. And that means special assessments and rising dues. Better factor those massive cash outflows into your purchase decision.
The new housing bill will prevent this. The lender by law will have to pay the HOA’s.
That still leaves a year or more of limbo as the defaulting owner stops paying before the bank even forecloses. The bank then has to get with the program, get an asset manager up to speed and then bring the accounts current.
Oh, and expect negotiation. The HOA plays hard ball, the bank says f-it and liquidates for 50 cents on the dollar. Woohoo! won’t that make the HOA happy.
Not to mention that the HOA started at $300/mo and HOAs only go up. I wonder what it will be 10 years from now? $1000? $1300?
Many owners who can afford the payments are trying to get out because they see, belatedly, that they would have high payments and no capital gains for a very long time.
For those who bought long enough ago, or put a lot of money down, they might get out without a short sale. Unfortunately for the owners, denial, inertia, and chasing the market down has meant larger losses.
When an owner says “No, that offer is too low. I’m not going to lose $100,000”, they are right. They are either going to lose even more as the market declines, sit around a really long time waiting for the market to rise above current levels, or they will end up with a short sale or foreclosure.
“There is probably a lot of pent up desire for housing, but demand is measured in dollars, … “
Thank you.
Agreed, this is definitely the quote of the week.
It is a decent starter unit. For someone who is paying $2000 rent for a similar quarter, $320k is a reasonable buy to stay for a few years.
Except that the person renting for $2000 a month doesn’t run the risk of losing $100K when they move out in 2 years.
No picture?
I’m so old I remember when Short Shorts was a hit.
Any chance of working in Love Potion Number 9?
I closed my eyes, I held my breathe, I took a
drink.
More exotic than Kool Aide.
click on the redfin link liz…there are a few pics of the property.
got told again yesterday by someone that ‘it was such a great time to buy’ – feel like I hear this every day from someone. It does seem that the people who say it most are people who own a home that they bought before the bubble – it is almost like they haven’t ever really taken the time to think how much their monthly payments would be if they had to buy a house at current prices.
When has a Realtard ever said, “No, no, it’s too expensive right now. Don’t buy now — just wait because you will be able buy the exact same thing in 12 months for $200,000 less?”
D.C. not Irvine, and he’s just saying “don’t give in to the hype” but, still he deserves some credit:
Frankly MLS Blog
He also has his own wiki real estate search engine that allows realtors to post more pictures and has useful search functions. He used to give out t-shirts back in 2005, “I bought a house in the bubble of 05…”
LOL! What realator would say “don’t buy”?
It’s ALWAYS “a great time to buy” in Realtard Land!
In my original post I actually wasn’t talking about realtors – don’t ever talk to them anymore. I was talking about regular people – just shows how most people really don’t really have a clue about what is happening here..
>>Also, it is becoming increasingly obvious there is strong downward momentum in prices. This is prompting many to put off purchases because prices will be lower later.<< And don't forget that in high cost places like California, some folks might be waiting for some of those "jumbo conforming" loans to become straight up conforming loans come Jan. 1, courtesy of the Housing Bill. At this point, it look like it could save you a full point on financing if your loan amount is at or below $625K.
I don’t see a big spread today between the “conforming” and “jumbo-conforming” rates. My credit union (Wescom) actually uses the same rate for both.
I’m also a member of Wescom, (at one time the Telephone Employees Credit Union). We wondered why Wescom stopped offering short term CD’s and after running accross Bankrate.com it all made sense. You might want to check it out.
I would actually wait to see that happen and higher limit disappear. Once gone, pressure on home prices will accelerate in the upper end of the market and we will get another cycle going. For those waiting, its better to pay higher interest as interest can be writted off, better yet, save those extra $$ for another 12-18 months and you can put down a substantial downpayment. Its a win-win for those waiting, downpayment money growing and home prices falling. Interest rates dont bother me.
a thumb up really
Just being underwater isn’t enough of a reason to walk away. What type of first did this person have? I am guessing some sort of adjustable which is driving the need to move.
Both my parents and inlaws were under water in the mid 90s but neither needed to move because of conservative financing. I think you overstate the stress of being underwater. I have friends who know their house floorplan is going for 25% less but they are in a 30 year fixed and their income always supported the payment. Yah it sucks but its no reason to panic and sell. They bought a big enough house to raise a family and live there for the long haul.
So what you are saying is, why lose money when you can lose more money?
If you owned a stock, for 600K and you knew for sure it was going down 25% in the next couple of years, would you sell and buy it back at a discount or would you just hang on?
Not to mention the carrying cost of owning a house is much higher than owning a stock.
That logic just does not make any sense to me.
I think for many people there will be so many other things going on in their lives that the process of moving will be too overwhelming a thought for them – which I completely understand as I am currently paying a premium for rent because the process of moving again is just too much to handle – kids, health, age, etc. all make moving really difficult.
Unfortunately, hindsight is always 20/20 and many may wish they had put the effort into moving.
With stock, I can sell it at a loss and I am done. With housing, I need to always have a roof over my head. This isn’t an investment property or vacation home, this is their primary residence. If they sell because the market *might* fall another 25%, they still need to find a place to live in and take the hit on credit which would affect their ability to buy back at a later time.
Setting aside the emotional sides of moving into a rental, it actually is financially meaningful to stay in the house. Their monthly payments on this house is about $3000 total. That includes the deductions, property tax, premium insurance and warranty extensions, etc. They probably can rent a similar house for $2300 a month. So lets look at 2 situations with the assumption that the house will be worth its 2004 price in 10 years.
Scenario 1 – stay in house:
$360,000 – this isn’t exact as their deduction will reduce as you progress into the loan. But its a good rough idea of their outlay.
Scenario 2 – rent:
$276,000 – rent alone. Yes rents might go down a bit but they also might go up in a 10 year span so I just left at the current amount.
$30,000 – 6% commission for selling
$10,000 – moving costs – in 10 years, I am assuming they will have to move twice at the mimimum and each move will cost a family about $5000.
$316,000 total – this doesnt include any loss of rental deposits, negative effect of bad credit on other debts such as student loans, etc
Net difference between scenario 1 and 2 is under $50,000. That doesn’t seem like it is worth it to me. Instead, I would stay in the house and raise my family.
What I find funny is that when prices were going up and people were flipping houses left and right, most of us hated the speculators and felt that houses weren’t stock but actually places to live in. Yet on the way down, you are advocating treating the house like stock and putting a stop loss.
No I am not saying that at all. Most people that bought during the bubble bought it for the percieved appreciation. They moved into the house so they can just as easily move out.
Money is money weather you gain it by an investment or you save it by SELLING an asset.
Your scenerios are not realistic but even at that, are you telling me that you wouldnt move for 50K?
It’s good to be you.
“Most people that bought during the bubble bought it for the percieved appreciation.”
I guess we are arguing about different groups of people. I am talking about young couples who bought houses in 2003-2005 who bought to raise a family. The types of people I am talking about put 20% down and took 30 year fixed and are now having kids and filling up their houses with babies.
And quite frankly, 50K is nothing over a 10 year span. That is less than $500 a month and is sadly how much my wife and I spend on gas per month!
“…What I find funny is that when prices were going up and people were flipping houses left and right, most of us hated the speculators and felt that houses weren’t stock but actually places to live in. Yet on the way down, you are advocating treating the house like stock and putting a stop loss…”
Great point! What’s also funny is, the same person who thinks a potential $50K loss on a home over years is grave, probably wouldn’t think twice about financing a $30K car (5 years @ 6.5%) which also costs their net worth $50K+.
No one said it was grave.
Apparantly 50K still remains 50K in your scenerio.
In mine, 50K has compounding interest and turns into alot more money 35 years down the road when you retire.
So you are taking the stance that if someone PAID you 50K to move, you wouldnt do it?
My parents were basically offered a couple hundred thousand by the market. Their house purchased for 270k in ’94 went to over 1m at peak. They could have sold and rented for a few years and bought a similar house for 700k (maybe even less). Did they or the majority of people in their shoes take the money and sell? No. They have memories there and are old but not old enough to walk away from it. Also, their prop tax is super low and it didn’t make sense to walk away with the hope that they can pocket the money.
Basically, I wouldn’t move for 50k unless you were somehow able to gauantee that I would get my same house and everything else would be same or better in terms of prop tax rates and interest.
“…In mine, 50K has compounding interest and turns into alot more money 35 years down the road when you retire…”
Yes, but you can say this about everything. Every time you spend a dollar, you’re forgoing the future net worth growth of that dollar for pleasure today. You have to balance your future with your present.
e.g. Many commenters here have resisted paying inflated prices for Irvine homes. The rent savings they’ll have realized by renting in Irvine over the course of many years will be huge. But that rent savings would be even bigger if they’d rented in a less-desirable area of OC. Imagine the savings if you’d lived with your parents rent-free during the bubble!
All of these choices require balancing today with tomorrow.
Tell me about it….I want free housing!
rkp, I agree, but I’ve been trying to pinpoint the percentage of loss the would be the breaking point. e.g. Economists thought that $80 oil would ’cause consumers to cut back driving and purchase fewer tanks (err, sorry SUVs), but it took $130+ oil.
For bubble buyers with fixed affordable mortgages, I don’t think 25% will cause many to walk away, but what loss would? I think when you near a 50% decline you may see a deluge of these buyers running away from their mortgages.
It would be intersting to see how many people with a downpayment and fixed mortgage actively walked away from their houses in the 90s. I doubt many did and hence, I dont think many will now. I just dont see it even at a 50% loss. People who have invested money into the house and were planning on living there for 15+ years aren’t going to walk away in masses.
Now dont get me wrong, I know a ton of mortgages that have 0 down or are on ARMs. These will be easier to walk away from due to lack of ability to pay.
That doesn’t make sense to me, if you’re talking about fixed mortgage buyers.
Once they lose their downpayment (20%) why would they walk away if the house is worth even less, if they are able to sustain payments?
For those with downpayments, if they’re going to walk away, they should walk away now when they still have equity to pull out.
Once the market drops and they lose their equity, they might as well stay in the house for the long haul, since they have a fixed mortgage and don’t have to worry about their monthly payment jumping around.
Am I missing something here?
BHC – we are on same page. I don’t think majority of people will actively walk away unless their is a catalyst such as an ARM reset or they never really could afford the place and were just betting on appreciation.
I think for some it may be. I posed the question to my wife:
If we bought at 750k in 06, and we could move down the block (stay in the same tract!) for 500k – would a quarter million dollars be worth a foreclosure mark on our credit?
And with all these classes on how to walk away and have it only scar you for a couple-few years.. so we’d just hold off on big purchases (cars) till it got washed from our credit score and be 250k better off!
my morals can be bought, how about yours? 🙂
Good point but how exactly would you go and buy the $500K house while the books show you carrying a $750K house thats falling in value? If you plan on buying the $500K house after walking away from the $750K one, who exactly will lend you the money with a big foreclosure scar?
You say “a quarter million dollars” like it’s a lot of money, and it is; but remember that in order to afford a $750K home your household should be earning $300K. And then $250K isn’t so large, relatively speaking.
To have to make $107K a year to MINIMALLY afford this place and still be stretched to buy food, transport, clothes, medical, insurance, and other common needs,is an insult.
And you really can’t afford it at $107K a year, not if you want to save money, accumulate a healthy cash reserve, fund your retirment account, and enjoy a little extravagence such as dinner at a nice restaurant once in a while.
I repeat, 2.5X your income ought to be the max loan-to-income ratio, and only if you have little other debt. It should be 2X your income if you have the normal load of 2 cars and 3 credit cards. Additionally, mounting fuel costs are driving up the costs of living and home ownership.
If we ever return to sensible lending standards in this country, prices will plunge another 50% from their lowest current levels- and maybe that needs to happen.
I (heart) Laura.
This would all be avoided with Full Doc 28/36.
The MBS meltdown – avoided with Full Doc 28/36.
The SIV meltdown – avoided with Full Doc 28/36.
The CDS meltdown – avoided with Full Doc 28/36.
The Foreclosure meltdown – avoided with Full Doc 28/36.
The Auction Rate meltdown – avoided with Full Doc 28/36.
Anybody want to guess what the new rage in lending is going to be?
In China, they require 80% downpayment on 2nd home and 30% down on first home. I think we will get to full 20% down on primary residence. 2nd residence would be anything that manipulators would want it to be, to keep speculators out, 2nd home bar should be raised to 50%. This would guarantee banks that there wont be much loss going forward.
I agree. You have to control what you can, and that’s you. You can’t control the direction of the market. You can’t control your landlord. But you can control how much you mortgage your future. 2.5x household income should be the standard.
By “…normal load of 2 cars and 3 credit cards…” I assume your talking about the “typical American?” I would hope nobody visiting IHB would have credit card debt, let alone car loans?
Hey! we have a car loan (1 car loan, put 15% down on a civic hybrid when my Saturn died) The idea of raiding our down-payment fund to just pay the darn thing off is a constant temptation, but we’re earning more in interest income on the savings than we’re paying out, and it would take a long time to build that amount back up, and we might want to buy a house before the loan is done.
Student loan debt too. We’re paying it down aggressively, but it’s still there.
It’s not just credit card debt, it’s credit card payments. If you make $100K a year but burn up $2000 a month on a credit card which you pay off every month, your ability to service that 28% front end DTI is going to be shot without a serious lifestyle change.
Huh?? Are you saying that if you have no revolving credit card debt, but pay all your normal expenses through a credit card (e.g. in order to earn rewards points, as I do), you’ll be penalized?
That was not the way I understood things to work — I thought it was only the revolving debt that counted against you.
If it is true, then it wouldn’t require “a serious lifestyle change” to fix this, just a switch to debit cards, right?
And you mention the 28% front-end DTI, but the front-end doesn’t include other debts like credit cards — that’s the 36% back-end, yes?
No, they’re not saying you’ll be penalized. I think their point is that if you’re charging $2000 a month on consumer goods, you’re spending too much.
The bubble wasn’t just in housing; it was also in goods that people really didn’t need and dinners out that, especially given our rapidly expanding waistlines, people didn’t need.
I think they’re simply saying that if you spend too much, a 28/36 ratio isn’t right for you. If ramen is your favorite dish, you could carry a 31/40 debt with no problem.
I feel the same way. Every month my husband and I think about paying off our car loan. However, we bought a Toyota with 0% financing for 3 years. The payment is high but only 12 more to go.
Thats what I got, but I got 0% for 4-years from Toyota, I am down two, two more to go. By the time I buy my home, I would be starting my 4th year of payments. Plan to buy next fall to Spring 2010 or later depending on economic conditions and my financial stability with job.
There were times during the DC property boom when I wondered if we were being chumps for only being levered to 2.5x income (all in a 30-year-fixed at 5.75%). Everyone we knew was buying new vehicles, second houses, etc. But now I’m glad I have the peace of mind…and a house that’s 3 blocks from the Metro. (These days that provides quite a good support for property values!)
Imagine — a person with an average income will certainly be able to afford this condo when it drops to $130,000. By then, “next to the freeway in Irvine” will have the same ring to it as “a communte from Victorville.”
“The asking price is only 20% off the peak, so they will likely have to discount this another 5% to 10% to attract a knife catcher. This will likely bottom between $290,000 and $320,000. It is only two bedrooms, so it may go lower.”.
I find condo prices in Irvine stunning. This place isn’t worth more than 250k – yet it is listed at an eye popping $430k. Just goes to show, we have a very, very long way to go…
I think home prices may have hit bottom…
http://www.detnews.com/apps/pbcs.dll/article?AID=/20080813/METRO/808130360/&imw=Y
That used to be a nice house too. Damn shame.
If the city and state agreed to forgo property tax on it, I’d do it. Otherwise…I’m about to spend a buck on a candy bar and I think the candy bar might be the better investment.
“The company hired to manage the home and sell it, the Bearing Group, boarded up the home only to find the boards stolen and used to board up another abandoned home nearby”
Imagine that. The neighbor could have avoided possible criminal charges by paying $1 for the house and then taking the boards.
If you disassemble one home, I wonder how many others you could board up with the materials.
LOL: “The agent did say that the buyer agreed to pay the full list price of $1, and planned to pay cash.”
The graph at the lead of today’s entry is truly amazing. It puts a different spin on the bubble mantra of “a new paradigm in housing”.
It is a different world we live in, with eatery chains collapsing one by one (bennigan’s, now uno chicago grill) now that their indebted diners no longer have the bubble money to wine and dine themselves. it’s ramen noodles in lonely apartments for them, and they deserve it. they are still living in the US with privileges unimaginable for the rest of the world, those whining ex-‘owners’ with their boomer sense of entitlement.
i wonder if others saw the sf comical article a few days ago about the brother and sister who lost their elderly parents’ house in san francisco by taking out all its equity and blowing it all. now all four have lost the house, and the parents, who have dementia, have to go into some ‘assisted-care’ dismal facility. if only there was jail for children who cost their parents a house paid for by decades of toil.
Sounds like this one:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/08/09/MNUN123MP1.DTL
News Flash
Calculated risk yesterday picked up an article that CA foreclosures are dipping because BofA is boggled down in absorbing Countrywide implying that BofA has a bunch of Countrywide foreclosures that are being delayed in hitting the market.
That’s cool….an article that confirms all of our suspicions. Just serves to convince us of our prescience. Comeuppance is a-coming for us!
Just thought I would share. I read an interesting survey the other day about anticipated rentals due to foreclosures on homeowners. The survey showed that the anticipated rate of rentals was not what was expected, people are not renting! So where did they go? Perhaps they are leaving the state like the last housing bubble we had. A lot of people moved to Oregon and Washington, thus drove up home prices there. Does someone have info on this? I know for a fact that in my apt complex there are now 8 vacancies, over the last 10 years there has never been this many vancant.
I think they’re going is into existing housing. The vacancy rate of housing during the bubble was quite high, due to flippers and other “investors.”
Plus, you have to figure some people are moving back in with their parents, that some parents can’t afford to rent an apartment for their college-age child, etc.
$430,000 for a 2/2 condo in Irvine? HA!
“Friendly cat not included” is the same thing as saying, “Pet stains on the carpet are included”. It is beyond me why I see pictures of homes on the MLS where Sparky and Fluffy are included in the picture. Due to allergies, fleas, and stains – this is a turn-off to many buyers. Wake up, realtards!
Actually, I see it as an opportunity in this market. The house that had cats is the house that I won’t buy without an allowance for new carpet and paint. Thus, for the same cost, I’d get a place with the carpet and paint I like, all because of my allergies!
Perfect for the millionaire divorcee crazy cat lady to park her 64 cats!
Just a word of warning to all the potential knife catchers out there: condos are way too overbuilt right now, and many more are coming on-line soon. At the bottom of the last real estate colapse, condos were priced dirt cheap (five figures) and they still were not selling. It took many years for condos to start selling again, even after houses were moving.
IrvineRenter – “There are many REOs that are not listed yet, and these will hit the market eventually. The lenders would have been better served selling them this summer when there was some volume. Now many of these will hit in the fall and winter when few buyers are around. Since this is must-sell inventory, it will push prices lower.”
I have to respectfully disagree with your statement. I posted to Ipoplaya about 2 weeks ago the following:
——
“Back during the Savings and Loan crisis most of the REO’s never hit the public resale market. They were packaged in lots of 10, 50, 100 or more and sold to investment groups, funds and individuals. One group, out of London, that I was aware of bought 150 homes in one package in Texas and then rented them all out on lease with options for the tenants to buy. By buying a package of properties they were able to buy them at a huge discount to the then market price. I didn’t have the money to invest with them back then, but I’ve spoken to one of the partners of that group, and they are preparing to do the same thing again now. They don’t care if property prices are going to fall because they expect to be able to buy groups of properties at 30 to 50% discount below current market levels. They will then rent them out and give the tenants an option to buy at the current market levels which will represent significant profit to the investors.
There was interesting article today about the same thing happening with investors buying mortgages at a discount. http://www.msnbc.msn.com/id/25939227/
“Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar.””
——
Here is another article from a couple of days ago that is right on target:
“LOST SOVEREIGNITY
OIL-RICH FUND EYEING FORECLOSED US HOMES
By TERI BUHL
August 10, 2008
There’s a new land grab starting in America.
Foreign money, which up to now has focused its attention on investing in iconic commercial real estate – like Barneys New York and the Chrysler Building – is now moving to scoop up tens of thousands of discounted foreclosed homes across the country.”
http://www.nypost.com/seven/08102008/business/lost_sovereignity_123879.htm
Bottom line is that the banks aren’t going to put all these REO’s on the market and drive prices down causing even more foreclosures. They are going to sell them in bulk and have them effectively taken out of inventory.
“Bottom line is that the banks aren’t going to put all these REO’s on the market and drive prices down causing even more foreclosures. They are going to sell them in bulk and have them effectively taken out of inventory.”
This may happen with some properties, but we are talking about thousands of properties. There are 1,300 per day in Calfornia right now. Where are these houses going? Unless these investors are going to bulldoze them, they will ultimately be added to inventory. I suppose some investment group could come and buy 60,000 houses and set up an enormous management group to collect rents from all the foreclosed homeowners and rent the houses back to them.
I think you are taking an example of something that might work for the right price points with the right investment group on a few homes, but there is no way this is going to fix the entire housing market foreclosure problem. Besides, do you know how steep the discount would need to be to make this feasible? I consult with developers, and I can tell you they are very, very cheap buyers. The banks are better off foreclosing and selling in the open market than taking a huge haircut from a vulture fund.
You overestimate how much the lenders care about resale values. They only care about getting their money back. If they really cared about resale values, they would simply hold all the available inventory out of the market and try to create some scarcity. Of course, bank regulators would have something to say about that.
The only reason they would even consider a bulk sale to a vulture fund is because they were overwhelmed by the numbers and they believed they would take just as big a haircut if they kept and processed these homes. Given the huge numbers of foreclosures, this is at least possible, but it seems more likely that a vulture fund would simply process these and resell them rather than bring rental management into the equation. It is simply too expensive for large numbers of residential homes. It is one thing to manage a couple of dozen tenants in a large commercial center, and it is another to manage a couple of thousand tenants in rental homes.
Perhaps you should pitch the idea to the Irvine Company. If they really believed in the market here, and if they wanted to support it, they have the capital to buy every REO in Irvine and manage them as rentals until the market firms up.
Wouldn’t that still erode prices, albeit indirectly?
Add 1000 homes to the rental market, and rental rates go down. Rental rates go down, and house prices follow eventually (I know I wouldn’t really care about buying if rents were 50% lower). Perhaps not as much as if you flood the housing market with 1000 “must sell” units, but still.
Am I missing something?
I do think lenders care a great deal about resale values. If they dump all of the REO’s into the resale market place I think we all agree that prices are going to take a further huge hit. If that happens then the lenders have a much greater percentage of their borrowers who are under water. If they sell the REO’s in bulk now, they still take the bigger hit, but those sales don’t become comps and don’t have the same effect on the resale market and don’t cause the same stress on their other borrowers.
Also, I think we are talking about a lot more than a few homes. If you read that second article http://www.nypost.com/seven/08102008/business/lost_sovereignity_123879.htm you’ll see that just the one sovereign fund alone has allocated $29 billion to purchasing REO properties. What does that equal to? 80,000 to 150.000 homes, or even more depending how big a discount they get buying them in bulk. You get 5 of these sovereign funds doing the same thing and all of sudden you are taking 400,000 to 750,000 or more REO homes out of inventory and putting them into long term investors hands.
The article also talks about how “The Abu Dhabi Investment Authority is expected to announce next month what type of US distressed assets they will be investing in and real estate is at the top of the list, according to a report in Financial Times last week..” Abu Dhabi is the largest sovereign fund, so if a much smaller fund is committing $29 billion, then Abu Dhabi could easily take 300,000 to 400,000 REO’s off the market themselves.
All I know is that the last time this happened, and yes I agree it was on a much smaller scale back then, all the great REO deals I was waiting for never became available to me as an individual and I don’t think this time will be any different.
“Nobody wants to lose money when they sell their house. Many of the sellers we have seen to date put no money down, so they were not losing any money, only their credit score.”
While the above statement is true with regards to foreclosures, it’s not necessarily true with short sales. Right now, it’s up to the lender to determine how to report the short sale. Some lenders are reporting short sales as “settled” meaning they agreed to accept an amount less than what was owed, while some are reporting them as “paid”. A “settled” account on a credit report will impact a credit score negatively, however a paid status will simply appear as though the mortgage was paid. In other words, some consumers who put no money down may not lose anything (other than their home).
“Some lenders are reporting short sales as “settled” meaning they agreed to accept an amount less than what was owed, while some are reporting them as “paid”. A “settled” account on a credit report will impact a credit score negatively, however a paid status will simply appear as though the mortgage was paid. In other words, some consumers who put no money down may not lose anything (other than their home).”
I find it very hard to believe that a lender would report a short sale as “paid” when in fact they were not paid.
How would it benefit the lender?
“How would it benefit the lender?”
Receiving extra proceeds, perhaps?
However, that seems to go against the spirit of the credit rating process. However, I know that creditors often don’t report 30 days past due unless the account is actually 60 days past due.
Maybe for borrowers who are paying part of the difference between loan value and market value, the lender thinks it’s reasonable to report the debt paid to the credit bureau.
In some situations, you may have lender on a first loan report it as paid and the second lender report it as settled or charged off account(depending on the amounts paid on each loan). In other situations, it may be possible for a consumer and lender to agree that no negative information will be reported as part of the negotiation, especially if the consumer agreed to pay back a portion of the outstanding amount. Lastly, since many lenders did not see the flurry of short sales in the past and rarely dealt with them (particularly the smaller lenders), I suspect they were reporting loans as paid out of ignorance. There was no standard set for reporting as there was with foreclosures.
No more “No Down Payment”. As part of the housing bailout act the builders can no longer pick up the buyers downpayment at closing. There was an interesting article in the news about how DR Horton and Lennar are screaming about this since they have provided the downpayments for about 25% of their buyers. Of course the buyers who use this service don’t realize that there is no free lunch and the “free downpayment” is just being added to the price of the home…
Huh, never realized that “short shorts” tune didn’t begin life as a Nair jingle. 🙂
“If you dare wear short shorts / Nair for short shorts”
I was starting to think I was the only one who remembered those commercials.
that chart says it all.
brutal.