Helena — My Chemical Romance
Everyone is wondering when the market will bottom and at what price. For prices to stabilize, they must reach levels of affordability where people can make the payments with a reasonable percentage of their income. These levels are almost completely dependant upon income and financing terms. During The Great Housing Bubble, credit was very loose, and people were able to finance huge sums based on both their real and imagined income. The only limits to prices were imposed by people’s dreams and their willingness to lie on loan applications.
Now that the loose financing has resulted in unprecedented default rates and foreclosures, lenders are tightening credit in the hope of not losing even more money. The tightening of credit will continue. This will result in a continued decrease in the amounts lenders are willing to loan which in turn will lower the amounts buyers are able to bid. Prices will continue to fall.
The first signs of market stabilization will be when prices reach levels of affordability commensurate with historical norms. Prices are still far elevated from these levels. When we get to the bottom, prices at the low end of the market will stabilize first. The bottom tier of the market is the foundation of market stability. It is not until these prices stabilize and begin to rise that will people have equity to move up to larger homes. People who are buying more expensive properties today are not taking their equity from less expensive properties to finance a move up. There is little no equity in these low-end properties, and their continued price decline is making an equity transfer to a more expensive property much more difficult. The ongoing erosion of the equity positions of low-end properties coupled with tightening financing is going to continue to put pressure on high-end homes.
Many low-end properties in the most beaten down markets are nearing rental parity. There has been a dramatic increase in sales volumes of low-end properties where prices are at rental parity. Those markets are beginning the price stabilization process. The same is not true of Irvine. Our low-end properties still have further to fall as they have not yet reached rental parity for an owner-occupant. Many of the least desirable will likely fall below rental parity to price levels where investors can generate a positive cashflow. In short, we are nowhere near the bottom.
Today’s featured property is a typical low-end foreclosure in Irvine. The buyers used 100% financing about 1 year before the peak, and with prices plummeting and the cost of ownership being double the cost of a similar rental, the owners stopped making payments and allowed the property to go to auction in foreclosure. It is a familiar story, and it is one we will see more of here in Irvine over the next few years.
Asking Price: $439,900
Income Requirement: $109,975
Downpayment Needed: $87,980
Monthly Equity Burn: $3,665
Purchase Price: $605,000
Purchase Date: 7/29/2005
Address: 1 Helena #22, Irvine, CA 92604
| Beds: | 3 |
| Baths: | 2 |
| Sq. Ft.: | 1,504 |
| $/Sq. Ft.: | $292 |
| Lot Size: | – |
| Property Type: | Single Family |
| Year Built: | 1977 |
| # of Rooms: | 7 |
| County: | Orange |
| Listing #: | 2938155 |
| Source: | Bank-Listed Foreclosures |
| Status: | Bank Owned |
| On Redfin: | 1 day |
I guess I can’t make fun of this description.
This property was purchased on 7/29/2005 for $605,000. The owners used a $484,000 first mortgage, a $121,000 second mortgage, and a $0 downpayment. These owners either could not afford the payments, or they saw little reason to continue making them. The lender bid $484,000 at the foreclosure auction which was the outstanding balance on the first mortgage. This is typical of loss mitigation procedures, although we have been seeing some lenders show a willingness to allow properties to go for less than the amount of the first mortgage. Many lenders feel it is more cost effective to lose a little more at auction than to deal with subsequent property management and sale after a foreclosure.
If this property sells for its asking price, and if a 6% commission is paid, the total loss to the lender will be $191,494.
This property is being offered for 27% off its 2005 sales price.
{book}
Long ago
Just like the hearse you died to get in again
We are so far from you
Burning on just like a match you strike to incinerate
The lives of everyone you knew
And what’s the worst you take (worst you take)
From every heart you break (heart you break)
And like the blade you stain (blade you stain)
Well I’ll be holding on tonight
What’s the worst thing I can say?
Things are better if I stay
So long and goodnight
So long and goodnight
Came a time
When every starfall brought you to tears again
We are the very hurt you sold
And what’s the worst you take (worst you take)
From every heart you break (heart you break)
And like the blade you stain (blade you stain)
Well I’ll be holding on tonight
Helena — My Chemical Romance
It seems like a lot of the profiled properties are bought in 2005-2006.
Have you come across anyone yet who caught an ’07 knife and is now trying to jump ship?
Most of the people who bought in 2007 or 2008 haven’t given up yet. Although, here is a recent one:
https://www.irvinehousingblog.com/blog/i-wanna-be-a-bagholder/
I think that your blog is going to get very interesting toward the end of next year as the ’07 knife catchers begin to panic.
I think that a lot of people are letting themselves get all wrapped up in the election and deluding themselves into thinking that a new president is going to fix everything for them.
After a few months into ’09, all of the Kumbaya for Barack Obama will be over and it will be back to business as usual.
The financial Voodoo that the lenders have been hustling the public with will not be coming back so house prices are not going to stay flat or continue downward.
There are going to be a lot of people forced out of denial, starting in ’09 and continuing for several years.
Correction “are going to stay flat” not “not going to stay flat”
Man AZ you corrected that just in time. Kurtyboy was foaming at the mouth I bet… haha
People who are buying more expensive properties today are not taking their equity from less expensive properties to finance a move up.
Then what are they doing?
I’ve been wanting to ask this question, hopefully there are people reading this who actually know the answer: for those homes selling >600k, what are the financing terms? Are there people making 150k/yr and coming in with a 200k down?
What are the average down payments, and what are the average incomes? I’m very curious about the more expensive homes, not necessarily the <500k stuff.
dafox –
Here are the stats for Irvine for 2008 you’re looking for…
http://www.irvinerealtorsite.com/IrvineDowns.xls
I’m still working on compiling October’s mortgage info.
ah! I was looking for your site the other night. I ended up at ipoplaya’s, but knew there was something I was missing. Thank you!
So the other half of my question: are all those people getting $400k loans actually making $120k? Whats the qualify really look like in the real world?
That answer is above my pay-grade. I get access to the public recordings with about a two-week lag. It does not include income levels, or even interest rates.
Lenders do the best they can to document where the income is coming from but tracking funds is like herding cats, I understand. I don’t think anyone knows what income is the real deal for home purchasers right now, except anecdotally.
Ironically, I see a decent amount of sales volume on homes in the $500k-$600k, even with low equity coming from less expensive homes and/or buyers with large down payments there seems to still be enough demand which is leading to these sales.
Are people caught up in the hype of how much reduction we’ve seen in home prices – therefore they feel compelled to buy now? And if this continues wouldnt the demand prevent pricing from dropping further if buyers are willing to sign contracts at current prices?
Keep in mind that these buyers are then eliminated from the buyer pool. You’re just getting rid of more suckers, leaving only the savy and/or risk-adverse.
Market-wise you may be right, but in the long run, knife-catchers just facilitate the loss process and help avoid utter cliff-diving. In the end it is actually about getting performing loans back on the books, and those are the ones that are feasible to pay back based on incomes.
I would suspect that a signifcant number of current transactions are all cash. The OCR is following 10 foreclosures in HB and one recent sale for a little over $500k was an all cash transaction, businessman bought the home for his relatives (yes trooper, if you get married you have to pay that much to put up your mother-in-law, oh the horror)
Nice data — thank you for compiling that and making it available. I’m a little confused as to what negative downpayment amounts mean, though — the seller paid the downpayment? That’s illegal now, right?
Also, is “CompSell” the realtor commission?
If you bought in the 90’s then there is still plenty of bubble equity available to you right now in your current house. These are your current move-up knife catchers.
Ignorant first time buyers are throwing away their small down payments on bubbly properties in less-desired (more affordable) areas which are enabling the sellers to “move up” into higher priced areas with sizable down payments and catch a knife of their own.
These first time buyers are going to lose all of their down payment as their purchase depreciates. The sellers who are moving up are going to lose more equity and be stuck.
Why? Because interest rates are too low. The government will have to raise them eventually. When they do – the value of the house will drop because first time buyers won’t be able to afford the same loan as the original buyer.
Saying that this will not happen is akin to arguing that gravity is not in effect at all times.
The Pyramid scheme all starts with what the first time buyer is allowed to borrow. It all trickles up from there which is why it is incredibly foolish for a first time to buy right now.
re: rates, this is tricky as crude falls back under $50 – genuine deflation in a world of bernankedollar airdrops is a strange thing.
The lenders I have spoken to have told me that very few of the deals they are doing have been for people who currently own. The wave of knife catchers we are seeing are renters who were “priced out” and now they see the drop in prices as a chance to enter the market.
Furthermore, the lender I talk to regularly said the majority of loans made are FHA…
If you look at IrvineRealtor’s spreadsheet, the majority of the down payments are significant. I find it very hard to believe renters are coming up with that kind of money unless they sold at peak and rented and are buying now.
I agree. I’m guessing it’s long-term owners trading up using equity for substantial downs.
The lender I know has been in the business a long time and works out of LA County. Think that makes a difference?
I, too, noticed that rather high level of down payments. I’ve been wondering if what we’re seeing is people getting out of the stock market and buying a house. After all, stocks go down when people start selling…..
However, I’ll be honest: I have a tough time imagining where people are getting all this money from, unless what we’re seeing is parents taking out 2nd mortgages (at these still decent rates) to give their children substantial down payment funds.
Wow… an SFR at less than $300 / sq ft. While I thought they might get that low eventually, I am still surprised to see it. And the REO’s will lead them.
This one gets a free white noise soundtrack, especially when the 18 wheelers downshift as they slow down for the backups around jamboree.
This property is worth 250.
I’ve never seen a place that close to the freeway.
If I had to drive home to this POS every day, my drinking problem would get a lot worse…
Does the bank not look at their competition
http://www.redfin.com/CA/Irvine/12-Helena-92604/unit-76/home/5473483
12 Helena #76 is larger and is priced at 440k and has been on the market for only 380 days.
Pergraniteel in the kitchen and I bet if you drive a hard bargain you can get the Elvis tapestry.
eh, short sales don’t count.
What’s with the blue sliding glass door? That layout from the pictures confuses me…
Congrats on a truly wierd house find though.
If the short sale has not attracted a buyer at $440k in a year, why doesn’t it ‘count’?
the short sales don’t count part was a joke. Remember when that used to be the common wisdom? That distressed sales didn’t “count” as comps? I know people (not in Irvine) who are still clinging to that mantra, that because they’re an owner not a bank, that they should get an extra 50k.
Just to destroy the joke further by dissecting it even more, the ironic part was meant to be the idea of a bank looking down its nose at the lowly short-sale as not being comparable. However, given that they are exactly the same price perhaps the bank used this precise property to set it’s asking price. (and were too dumb to discount for days on the market)
to Irvine Renter,
I really like your website and admire your efforts in bringing all the analysis and information to the blog.
I noticed that most of the properties listed are the low end of the irvine market (older or condos) I also noticed that the high end of the market has not droped significantly over the last 2 to 3 years since I’ve been looking. I am interested in Turtle Ridge and for large homes the asking prices continue to be significantly higher than they were in 2004 or 2005.
Do you think the dynamics in the higher end are different and do you believe that the prices there will ever drop as much as the lower end of the market has experienced? I am really starting to doubt if that will ever happen?
“I am really starting to doubt if that will ever happen?”
You are not alone. The most desirable markets fall last because this is where knife-catcher activity is the greatest.
The high end was not dominated by subprime loans, so their mortgages haven’t blown up yet. The key word there is “yet.” These owners are still overleveraged with ARMs, and their resets are coming. Buyers can no longer bid the ridiculous prices they are asking, so the properties just sit there. When the foreclosures start there, prices will drop significantly.
Turtle Rock is one of the areas we’ve been looking at and prices have been slow to come down. But they have been coming down…slowly…I’ve seen a noticeable price drop in the condos but SFR are sticky mainly due to what you’ve said…less subprime loans…more longer-term owners and less speculative activity.
Turtle Ridge seemed to have more speculative activity than Turtle Rock so I would expect this area to experience some significant price drops.
the Price per SF in Turtle ridge is in the 600 range for the bigger homes, which I think is crazy, there is not justification for these prices. I agree they will come down, but I am not sure they will hit 300 per SF as other areas like Northpark and the Woodbury?
Great post over at OC Register blog. It reiterates the point I am making in today’s post:
http://lansner.freedomblogging.com/2008/11/06/5th-straight-month-of-discounts-for-oc-higher-price-sellers/5535/
This house has been featured on this blog before. Started off priced at $1,059,000 and now the asking price is $695,000. The guy is just chasing the market down:
http://www.redfin.com/CA/Irvine/337-Tall-Oak-92603/home/5945496
I think one illustration was omitted from the “MOVE UP” diagram, a picture of an apartment should be included as the last “MOVE UP.”
I’ve been following your blog for about a year now. I’ve been hunting for a house since June ’07.
As much as I’m in agreement on falling prices I find myself getting overly excited about some of the current prices. It takes reading your blog to keep me grounded.
I started keeping a file on home prices, logging the date and current MLS listing price. I’ve recently added Redfin and Zillow as sources. This gives me a price history on a piece of property. I never imagined I would be doing it this long.
My list now includes 2782 individual properties located in Laguna Niguel, Laguna Hills, Dana Point, San Clemente, SJCapo and a couple of months ago added Laguna Beach. Of the 2782,
405 have sold, 28 are up for sale again (in some cases an REO may have been confused with a private sale but I try to avoid this), 132 are listed over $1.5m, 222 are listed between $1m and $1.5m, 2 have been reduced to under $1m.
Keep up the interesting blog and your book is well worth the money.
FYI to all who read here. Shadow Statistics have come out with their stats. TRUE inflation is at 13% TRUE unemployment is 15% (will reach 20% soon) during the Great Depression of the 30’s unemployment was 25% Batten down the hatches and cover for safety, we’re in for a bumpy ride.
First post, been reading along for maybe 6 weeks now and enjoy the conversation. I’m way out of my league on this, but it’s been very educational so far. Please don’t make this my last post!
I’m thirty-three, married for three and a half, with a thirteen month old. I’m an engineer, my wife is a teacher. We watched the real estate ship set sail about the time we got engaged, standing sadly at the dock as the passengers bid ‘bon voyage.’
Needless to say, we’re ecstatic at the correction we’re seeing, because that ship has pulled back into the harbor. Now is the time to sit on our savings and resist the urge to jump aboard, but isn’t it difficult? With a growing family the desire is certainly there, to finally set down some roots, with a backyard, a garage, a third bedroom, and some breathing room around us.
Our lease is up next month, for our current two bedroom apartment. We’ve got the option to go month to month (at an increased rate) or we can sign another 9 month lease. If I thought a safe time to buy was less than six months away, I’d feel comfortable going month to month as we wait it out. If I thought it was a year away, I think we could handle another year in these apartments (with a 9 month lease and then monthly). But it really does look longer than that, doesn’t it?
Anyhow, this probably isn’t the forum for advice, but I thought perhaps you’d be interested to hear about some of your “silent” readers.
I am in nearly the exact same place as you. I’m no expert but ask yourself if you intend to live in this home you intend to buy for the next 5-10 years (5 being generous)? Is your job security good? Whatever loan product you use be sure that you aren’t mortgaging your quality of life for your home. My wife and I are in agreement, we will buy when we can safely afford to and only buy what meets our needs for our family and not succumb to the Realtor sales pitches. Be brave. My two cents, I think you’ll have plenty of opportunities to choose from in 9 months.
The market (especially in Irvine) certainly won’t be heading back up anytime soon, so signing another 9 month lease absolutely can’t hurt you.
Unless what you’re asking is whether you should take the opportunity to move now to a more comfortable rental to hunker down and wait for the real bottom. That’s a tougher one. I hate moving, hate it with a passion, and we have way too much stuff, but we just moved this September to wait out the housing market for another 12 months and get a better feel for the neighborhoods we’d be buying in, while halving our commutes. It was definitely worth it, but I’m not sure I could have justified it if we had taken any larger of an increase in our rent.
Buy out of need…
If you find the apt. crowded then sure move up.
But if you can live with it for another 9 mo. i’d say wait it out.
No_worries: your bio reads like mine.
I’ve been sitting on the sidelines, and I could have (and almost did, before finding the IHB) gotten in at the tail-end of 0 down loans. Fortunately, I didn’t.
Now, I’m just focused on getting all my ducks in a row, mostly down payment (which I had none before: I put $500 a month into an account at 7% interest now). I’m open to moving, but only if the rent savings works out over the course of a full year (given that I get to take a free bus to work from where I live now, that makes it tough to save by moving).
Anyway, my thinking is that, with fall and winter upon us and the economic shit hitting the fan, we’ll see some capitulation over the next 6 months. Then, I’m going to reassess a time-line. So, my advice (for what it’s worth, which isn’t anywhere near what IR’s or others on this blog’s advice is worth) is that the worst that could happen by signing a 9 month lease is that you find yourself wanting to get into the market a month or two later (seeing as you’d end up with at least a week of double-residences anyway you slice it, and it could easily take a month or two to find a place, see it, inspect it, yada yada yada). If you miss the bottom by a month, is it the end of the world? Not hardly.
However, if you find yourself absolutely miserable in your current situation, and really wanting to set down roots, there’s nothing all that wrong with buying now. It’s only money. Just ask yourself if it’s worth it TO YOU. Nobody else can make that decision for you. Personally, I’m very risk-averse, so I prefer the safety of renting a place that’s too small right now. But, if we get the baby urge or just get tired of the crappy little place, we might be willing to pay for a little equity burn.
No money can replace the comfortable feeling of having a spacious house. If you have a baby, it would benefit the baby more.
“If you have a baby, it would benefit the baby more.”
Absolute baloney!
Nice to have you back NIrvineRealtor!
Hon, the baby doesn’t notice the diff between a SF house with a yard, and an overly-cozy apt. A five-year-old will definitely appreciate a back yard, but an infant doesn’t know the difference.
It amuses me to see people use their children as the justification for their extravagance and self-indulgence. Kids really don’t appreciate the kind of luxuries that adults have come to consider “necessities”, and some of the luxuries geared to kids just might be pernicious.
If anything, the baby might prefer the apartment, because that means his crib just might have to be in his parents’ bedroom, where he can sense their comforting presence, vs. down the hall where he might feel deserted and insecure.
And I’d surely rather raise my kid in an apartment in a fine neighborhood with superior schools, than in an overpriced dump of a house 300′ from a highway on-ramp in an indifferent school district. With so many school districts these days in danger of shutting down altogether because of financial problems, a parent perhaps ought to place that consideration before absolutely everything.
Pet peeve: If it has a number sign in the address, it is not a single-family residence. This is a townhouse. Check the aerial photo on Redfin. I’m tired of realtors/UHSs fraudulently classifying attached homes and townhouses as SFRs.
Hear hear. I get huge numbers of properties bogusly (and likely fradulently) classified as SFRs when I do searches on Trulia or Zillow. Fewer on Redfin, although it certainly occurs there too. In answer to a recent round of correction flags from me, they told me that their ability to correct incorrect property type or other details is limited due to MLS rules about changing the data, and that I would have to take it up with the listing agents. Grrr.