Give It Away Now — Red Hot Chili Peppers
Give it away give it away give it away now
I cant tell iff Im a king pin or a pauper
In yesterday’s rather lengthy post, I discussed Debt-To-Income Ratios: The Forgotten Variable. Today, I want to bring together parts of that post with other issues in the marketplace to paint an accurate picture of where we are. In the discussion on DTIs, I had the following table that shows how the median income household is financing median income properties.
| $ 91,101 | Irvine Median Income |
|
| $ 7,592 | Monthly Median Income | |
| 5.0% | Interest Rate | |
| Payments, Taxes, Insurance | DTI Ratio | Max Loan * |
| $ 2,126 | 28.0% | $ 336,580 |
| $ 2,353 | 31.0% | $ 372,643 |
| $ 2,885 | 38.0% | $ 456,788 |
| $ 3,644 | 48.0% | $ 576,995 |
| $ 4,024 | 53.0% | $ 637,099 |
| * Max Loan based on 85% of payment going to debt service |
||
The chart would suggest that people who are still borrowing 6 times their income are doing so by utilizing DTIs near 50% (which represents almost 80% of take home pay). The reality is slightly different. Lenders are telling me that most people buying today are using 5-year and 10-year interest-only mortgages to get the DTIs down to somewhat manageable levels. So how does that math work out?
A median income household earning $91,101 can put $2,885 toward housing payments and expenses if they utilize a 38% DTI. (I think this is insanely high, but the government seems to think this is manageable.) If 20% of the $2,885 needs to be set aside for taxes and insurance ($577 per month), then $2,308 can be put toward an interest-only mortgage payment at 5%. This will finance $553,920 which is a little over 6 times income. Add a downpayment to this, and median income households can “afford” a house price between $550,000 and $650,000. The numbers are a bit smaller with the higher jumbo interest rates, but the downpayment requirements are higher too. Plus, some lenders will still allow DTIs higher than 38%.
People using 38% DTIs, 10-year interest only mortgages and downpayments of 5% to 20% are sustaining the housing market.
Are you willing to do this? I’m not.
For this method of finance to sustain home ownership, mortgage interest rates will need to be at 5% in 10 years time and prices will have to be equal to or greater than they are today. If those two things do not happen, today’s buyers will not be able to refinance, and they will be in the same circumstances as those facing foreclosure today. The only other thing they can hope for is that they will have a much higher income to afford the payments.
In the 10 years while these homedebtors are waiting to see if they can refinance, they will endure crushing housing costs that crowd out all other forms of consumption or savings. People buying today do not believe the harsh economic realities of making crushing mortgage payments is going to go on very long. Most believe that appreciation is right around the corner and with it, they will be able to get a HELOC and begin supplementing their missing income through mortgage equity withdrawal.
Do you think that is going to happen. I don’t.
So there you have it: people buying today are doing the following:
- Using 38% DTIs and interest only financing,
- Betting the interest rates will still be at 5% when they need to refinance in 5 or 10 years,
- Betting their house will appreciate between now and when they need to refinance,
- Counting on rapid appreciation soon to provide free money they can tap with a HELOC,
- Counting on banks giving them a HELOC after the banks just lost a trillion dollars doing the same.
- Putting their faith in the Real Estate Gods to make it all happen.
It this does not work out as planned for today’s buyers, they will be renting from their lender for 5 or 10 years, then they may be evicted when they fail to make the increased rental payments on the banks money that will come due after their loan resets. During their rental period, they will be paying 30% to 40% more than traditional renters will be paying for the same property.
Greedy little people in a sea of distress
Keep your more to receive your less
So why are people doing this? Fear and greed. They are afraid that if they do not buy now, they will never get the chance again, and more importantly they want that free HELOC money they think is coming back soon. Fear might compel someone to buy, but only greed will compel them to pay that much.
In my opinion, if you took away the enticement of free money, prices would collapse almost immediately. We have documented on this blog the hundreds of thousands of dollars of free money borrowers got from their lenders. For those who sold at the peak, the money was totally free, and for those who didn’t, they have to pay with damaged credit. Big deal. They all got to spend or keep the free money.
Californian’s have learned this free money is there, and all they have to do is buy real estate to get it. The collective insanity of everyone believing and acting on this idea makes prices rise and makes the fantasy a reality. Right now, the only thing preventing this from happening is reluctance on the part of lenders to give away another trillion dollars in free money to people who will not pay them back. Personally, I don’t think this reluctance from the lenders is going to change. Funny how losing a trillion dollars will make you a bit more cautious…
{book}
It seems like there are some properties people just don’t want. I can
understand all the crappy little condos in The Lakes (Lakepines,
Pinewood, Streamview, etc.) but when you see newer, larger, more
desirable properties still in the system and still with declining
prices, you have to wonder what is going on. Today’s featured property was first on the IHB as a 2003 rollback in August of 2007, right as the credit crunch hit. It has been almost a year and a half since this property was first featured, and it is still making its way through the system.
Do you see why the hangover from the Great Housing Bubble is going to last longer than most people realize? We will be dealing with properties like this one for the better part of a decade. We still have a number of resets in 2011. It isn’t hard to imagine some of those still polluting the market in 2014. Plus we have all the knife catchers from 2007 and 2008 who used 5 year interest-only ARMs to clean up after.
Asking Price: $499,900
Income Requirement: $124,750
Downpayment Needed: $99,800
Monthly Equity Burn: $4,158
Purchase Price: $735,000
Purchase Date: 5/4/2006
Address: 144 Saint James #54, Irvine, CA 92606
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 1,931 |
| $/Sq. Ft.: | $259 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Year Built: | 2002 |
| Stories: | 2 |
| Floor: | 1 |
| Area: | Walnut |
| County: | Orange |
| MLS#: | S538589 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 188 days |
 Unsold in 90+ days
|
|
Master Bedroom. Corian Counters and a center island. Custom tile
flooring and planation shutters.
planation?
If you look back at the original post, you see that the sellers were asking $651,900 in August of 2007. Now the asking price is $499,900.
This property was purchased on 5/4/2006 for $735,000 by a Married Woman as her sole and separate property. She used a $588,000 first mortgage, a $147,000 second mortgage, and a $0 downpayment.
The property was taken back by the lender on 3/13/2008 for $564,750. The second mortgage was wiped out.
If this property sells for its asking price, and if a 6% commission is paid, the total loss to whoever holds New Century’s toxic waste will be $265,094.
Yes, I can see where lenders and investors will be ready to start handing out HELOCs and second mortgages again soon…
{book}
Greedy little people in a sea of distress
Keep your more to receive your less
Unimpressed by material excess
Love is free love me say hell yes
Im a low brow but I rock a little know how
No time for the piggies or the hoosegow
Get smart get down with the pow wow
Never been a better time than right now
Bob marley poet and a prophet
Bob marley taught how to off it
Bob marley walkin like he talk it
Goodness me cant you see Im gonna cough it
Give it away give it away give it away now
Give it away give it away give it away now
Give it away give it away give it away now
I cant tell iff Im a king pin or a pauper
Give it away now
Give it away now
Give It Away Now — Red Hot Chili Pepper
Sure there are greedy people but what the hell are banks thinking of lending on such terms? They have to know they will be stuck with the property on their books when it inevitably reverts to them.
And I am sorry, but for house that price – no oven or fridge?
Can you say “displaced owner took it with her…”
Business is slow in every business now, I am taking deals that I would have laughed at a year ago. If they have the downpayment, credit score and the ability to pay the loan then why not? Whats the worst that can happen, you stiff the government on the bailout money?
“Most believe that appreciation is right around the corner…”
A corollary to this is “Most Irvinites believe it can’t happen here” (a crash that is). So they continue to buy at 10-15% off the peak thinking they are getting a good deal.
Condos like this next to the tracks will crash first of course. It is barely worth half its peak price.
The governments are running a campaign to entice people to hang on and buy in. And, of course all the trillions of bailout money simply encourage more reckless risk taking.
We do have a society that does not really punish the bad guys or the irresponsible any more.
Winning is yours, and losing is on everyone else. So, why not?
“So why are people doing this? Fear and greed.”
Another reason is the stigma of being called a renter. I’ll never forget the monotone ooohhhhs and expressions from people after telling them we rent during the past several years.
I agree this a huge, unspoken driving force. It has been bashed into peoples brains (since before the bubble) that renting is just throwing money away. Never taken into account is the actual MATH, or the reality of today’s housing market. I rent (and am thrilled I do right now) but I STILL have all friends and family asking when Im going to buy. The cult needs to keep up its membership…
Funny, now I get “you’re lucky”. If they ask about why and I explain that I predicted this mess as far back as 2004, they switch to asking about the future.
I’ve now adopted a simple explanation for people who aren’t in finance or econ. 2009=2002. When you pull all of the fraud, excess leverage, and speculation out of the system, this is true for a wide variety of assets. I think it will be true for homes, stocks, oil, and most commodities.
I am still researching and modeling what 2010 will be like. Maybe 1998, not sure yet.
Bravo IR!
Your best post yet. People seem to think the Koolaid has been shut off, but obviously it hasn’t. A median home price that is 3-3.5 times the median household income should be the norm and I won’t consider buying until we get there.
The only problem is will that $91k figure continue to hold up in the face of a recession/depression. Who is gonna bet that it will…
Yes, folks are still buying. I made a post to the forum about a flip in Dove Canyon last month. Well, the home is now in escrow. It didn’t sit there long. If it closes, it looks like the flipper/realtor will have made a killing.
http://www.redfin.com/CA/Rancho-Santa-Margarita/9-Amberwicke-92679/home/17923133
I’m curious to see what it sold for – I will keep you posted when the numbers are available.
The insight on how people are buying these days is helpful (thanks), but do you have any more info on the current buyers from your lender sources? Are they indeed the limited pool of high FICO, 2nd-quartile-of-income folks you were talking about yesterday? Are they first-timers or are they trying to move up from 2000 purchases while they can still get 2002/2003 pricing on their old places?
This is not to nitpick; I’m just really curious.
The other common trait of current buyers is that they do not have to sell their current homes to purchase. There is no move up market. The people buying today are either renters, new to the area, or people buying 2nd homes with significant cash downpayments.
It’s so hard for me to picture anyone in the “median bracket” with the required 20% downpayment sitting in the bank. How do you squirrel away 100k cash on a 90k salary, living in Irvine?
Add kids to the equation and it’s even more mind boggling.
They are squirreling away considerably more than 20%… They are putting $200K down, not $100K.
I don’t understand how IR’s post about downs of 5-10% and I/O loans sustaining the market jives with [url=http://www.irvinerealtorsite.com/IrvineDowns.xls]Deuce’s spreadsheet[/url] showing an average down of 38% and a median down of 28%. Does anyone want to help me understand how those numbers mesh? Explain it to me like I’m five.
^ Correction, I meant 20%, not 10%.
i don’t think it does, i don’t understand this post, it lacks IR’s usual pensive analysis backed by facts.
Tell me if I use too big of words:
1. Sampling Bias: no loan info and cash purchases are assumed to be 100% down, which is not truly “financing”. Statisticians remove those as outliers. Removing those changes median to 25% down.
2. No 2nd trustee notes: Many of them have 2nd trustee notes that are not reflected. This would take a lot longer time because a full title search of each property would be required. Needless to say, it would probably bring the average down to somewhere in the 15% +- range. There are still a lot of rich fools in Irvine.
Chuck Ponzi
The spreadsheet’s info is accurate by it’s not answering the question of how much people put down when they “finance” a purchase. Outliers need to be removed, and total DTE needs to be reflected, not just the first trustee.
A somewhat larger downpayment and a somewhat smaller DTI doesn’t change affordability. People are still using DTIs that are too high and risky I/O loans. My point is that this kind of financing is not desirable or sustainable.
David mentioned below that the GSEs are finally requiring borrowers to at least qualify for the fully amortized payment. This will help lower the amounts people can finance.
Do you think there is an indefinite buyer pool with huge downpayments like we are seeing today?
CP –
1. I agree with you on removing outliers/fliers. Please understand that I have tried to make as much info available as possible to allow each individual to skewer to their own taste. I might also recommend considering only target-specific tiers to compare (low/midrange/top price points), when pulling one’s own numbers from this tool.
2. Actually, if there is a 2nd it has been reflected (unless unrecorded). There have been relatively few lately, though, that have utilized more than a single loan. Even private party lenders have been integrated when recorded with the county, and is one of the reasons there is about a 15-day lag in data availability. Total recorded DTE is what has been listed.
3. Largest margin for error remains manual entry (fat fingering) for the debt numbers. Each APN was run (it WAS a longer time!) as there was no way to incorporate the 1st and 2nds and differentiate between refinances otherwise. I would welcome and encourage anyone with access to audit the numbers. I’m trying to get the best info available and appreciate the help. Otherwise this thing is useless. PM me if interested.
Thx,
IR2
Here too is a transformation. 2004-2007, realtors wondered why people with decent incomes and a lot of savings hadn’t bought homes. Some of them got upset at the explanation “because we’re smarter than you and most of your clients”. Actually, I didn’t say it exactly that way. I just told them that if you ran the numbers and excluded expected appreciation, buying was a pretty bad deal.
Now, they are relieved to hear that we are renters. They are even happier to hear “preapproved”.
Note that recent Freddie guidelines for 2009 require borrowers under a 10/30 loan, i.e. interest only for 10 years, to qualify based on a fully amortizing payment amount:
http://www.freddiemac.com/sell/factsheets/initialinterest-frm.html
Perhaps moderator can comment, I am not an expert in this, perhaps there is some exception to this rule, but on its face does suggest that buyers won’t be able to finance based on the interest only amount.
this is the only thing that makes sense to me. I have no problem with IOs/ARMs or even option ARMs. BUT the underwriting has to qualify at the MAX payment the loan could possibly fetch.
I cannot believe IOs are still being done (or have been until recently) based on the IO payment alone. Banks deserve to fail for doing that.
There is a lengthy discussion on the forum about the big cash downpayments recent buyers have been putting down on house purchases. Have you looked at that, IR?
The kitchen strongly resembles a laboratory. Or a hospital operating room.
So how does one take a $250K hit on a house purchase/sale and not at least consider suicide?
It seems like a nice enough place – even though I dont’ know the neigborhood. What’s keeping it from selling? The $499K price would seem to be getting in the ballpark – or I am missing something (Probably)?
This “Park Lane” tract is near train tracks and the part of Harvard Ave. it sits next to gets super busy during rush hour.
The positives are that the places are newer and it’s still a decent part of Irvine. $499k is getting closer…decent starter home.
Park Lane is a value tract and has been seeing 2003 rollbacks. Proximity to the train and Jamboree hurts it. I believe the builder was Hovnanian and the quality, finishes, etc. were cheap. The floorplans, exterior architecture, etc. are mediocre at best. The schools that service the development are the possibly the worst in IUSD.
We knew a family that was renting and looking to buy. We referred them to the Park Lane tract and they bought there. I believe that those units were selling in the mid $200k’s. Within just a couple of years the property value had doubled. If they had been pulling money out of the thing, it looks like they could have pulled about $500k at the peak.
Alas! They are still there, paying down their mortgage each month. Living the dull life.
One of my kids would like to buy in Park Lane in a few years when done with college and when she gets into her career field, if the prices hit $300k or less. I really don’t see that as being all that unattainable.
Ipop, The schools that serve PL are CollegePark/Westpark for elementary, Venado for middle school and IHS for high school?
Which of these schools do you think give the worst education? CP/WP elementary and IHS have been very good, imo.
I thought all those schools you mentioned are very good IMO.
If Park Lane residents get to choose Westpark Elementary I know that school has some of the highest API’s in the district.
Even the worst schools in Irvine are better than the ones in Tustin…maybe Beckman is an exception.
College Park has an extremely professional, caring and experienced staff. It is an ESL site, so there is an excellent mix of race/language variety there. They have a “world faire” at the end of the school year that is just so impressive – with each ethnic group putting on little food and activity booths for everyone to sample for a small fee. Westpark has a year-round curriculum and is favored by working families that don’t care for the traditional school calendar that CP follows.
Vendado is, well…. middle school. I don’t know how the other middle schools add up in Irvine, but our overall experience of Vendado was just “relief!” when it was over.
IHS has excellent programs in music, sports, drama, government/community activism. Each of the High Schools seem to have particular stand out programs that make students possibly gravitate to other campuses, but overall, your kids are getting an excellent education in Irvine.
Anyone who thinks that private schools are the only schools that good, simply have not given the Irvine schools proper consideration. Suhkee Kang is a great supporter of the city’s schools and I am so grateful he won as Mayor of Irvine.
My reference re: schools was to College Park, Venado, and IHS. All great and fine schools, ones to which I would happily send my kids to, but they rank toward the bottom as compared to other IUSD schools.
I am using API as the measure. There are only two IUSD elems with a lower API than Collage Park and 19 with better. Venado is the worst scoring middle school, the only one with an API sub 900. IHS is probably on par with Woodbridge, but not nearly as good as NHS or Uni.
We rent and possibly will buy in a neighborhood serviced by these three schools so obviously we find them more than adequate but that doesn’t change the fact that there are many schools in IUSD that are stronger/better.
I disagree. I believe Ladera Elementary in Tustin Ranch is the highest scoring elementary school, in terms of API, in all of TUSD and IUSD.
I think the best TUSD schools, such as Ladera, Peters Canyon, Hicks, and Pioneer, are likely better than the worst IUSD schools…
Pioneer Middle school is a nationally recognized middle school.
Tustin Ranch elementary is a wonderful school.
I think you are confusing the schools in 92780 with the ones in 92782.
Thorman/Currie on Redhill performs so poorly that the kids can get interdistrict transfers because of their api scores.
Ockurt:
Please reconsider your statement that “even the worst schools in Irvine are better than the ones in Tustin.”
If you want to look at the API scores, here is an example:
TUSD —
Peters Canyon: 931 & Blue Ribbon school
Pioneer Middle School: 936
Ladera: 953
Tustin Ranch Elementary: 844
IUSD–
College Park: 896
Venado: 899
Deerfield: 923
Which ones are “better”?
To really get a frame of reference we could look at what kind of API scores are at schools in outside areas and there are many in the 600’s and 700’s. (Santa Ana High School = 624.) I consider all the parents and school kids in Tustin and Irvine to be extremely fortunate that they have such good schools. For some reason it really irks me that we’ve become so stuck-up that we find API scores in the high 800’s as being not good enough when it could be oh-so-much worse!
I stand corrected, I forgot 92782 had its own school district.
or should I say, same TUSD but better schools 🙂
I voted for Kang as well…
SoCal78, we are spoiled aren’t we…most people would be happy with API’s in the 800’s…
We forget how good we have it here…
the schools are as good as the kids are–meaning the higher educated parents equals the higher educated kids produced–
And usually higher areas of income produced higher educated children.
Having raised two kids through college I would say the parents are 75% of what their kids become.
“I would say the parents are 75% of what their kids become.”
It really is the “Whole situation”. Parents are absolutely critical to a child’s success. However, anyone who has had to deal with a crummy peer group that their child chooses can tell you that who they associate with is VERY IMPORTANT. Overall, the students and families in Irvine seem to be mostly on the same page when it comes to education. During sports awards banquets when the coach announces the Seniors, you’ll hear the question: What college will you be going to in the Fall? Not IF the student athlete will be going.
You want to see a good kid really struggle, go save a few bucks and live in Santa Ana. Unprepared peers, neglected environments, unsound school district decisions, violence….. and you’ll think it is a miracle to even have 600 test scores.
It’s the state fault we pay teachers well so why should any area be any different. You put in police to control the violence, you teach the children. Santa Ana is no different than any other city in California. You require the parents to be involved. We all pay taxes so why should one area have any benefit over another? This good area vs. bad areas hurts the entire state.
I absolutely agree that the parents are the main factor in a child’s success. IMO, Irvine has the great scores due to parent clustering.
My children graduated from a 600 API IE school and it was a great experience. I think of it as being a big fish in a little pond. While there are lots of unmotivated students, there were plenty of families very interested in educating their children. There were also great teachers. It is just not as obvious because the scores are not there. Our current principal comes from Irvine and Newport Beach. Our last principal moved on to Laguna Beach. Lots of cross over.
Regarding budget cuts, I say go for it. They have been throwing money at the schools and what you really need is support from the parents. You can’t buy that.
Remember to read to your children!
Caveat: I have no kids. However…
The “search for good public school districts” seems foolish to me. Doing-the-numbers… “nice/OK” living areas (non-fashionable in any way), *renting* allows sufficient funds to send your kid to the best Private Schools around.
What’s wrong w/my logic?
does anyone live by this area? how often do the trains run? (i’m assuming they have to whistle at harvard) is there noise from the toll road? would anyone consider it unsafe to live that close to a freeway? what do you see this place going for in a year? and at the bottom? thanks.
does anyone live by this area? how often do the trains run?
I believe there are now 22 trains that travel by each day. They all honk their horns at Harvard. The most rumble-y ones come at around 2 am on the weekends- they are the big freight trains headed for San Diego.
I am not sure about the toll road noise there. The freeway is at some distance and the winds are favorable at PL (most are coming from the ocean to the 5 freeway).
There is noise and lights from Harvard Park which has sports teams and a skate park basically year round. I think that the lights are out around 10 pm – but you’d have to check.
For the price, College Park or Colony (across Harvard street) give you better price per square foot, fairly large yards, no mello roos, established summer swim teams and low HOA fees. But the homes ARE older.
I live a half mile further from the tracks, maybe a bit more, and I can hear the trains pretty well when it is cold. I can here the freeway and/or toll road right now as well… Its not loud, just a slight ever present annoyance.
Over the past three months, October through December, the median purchase price in Irvine was $580K with a median down payment of $194K. People are putting 33% down on their median Irvine homes…
This means they need a loan of $386K. They can obtain this loan today, as a 30-year fixed at 5.25, with principal + interest each month of $2,131. That would likely their DTI down to around 35% or so wouldn’t it?
Making the general assumptions that wages will increase for the median buyer, a 35% DTI on home purchase with a 30-year fixed is probably sustainable. I think that is why home prices in Irvine haven’t been falling much over the past 6-9 months. Household incomes haven’t felt the pinch to a large degree yet and with cheaper money available, it allows the Irvine median to hover around $600K still.
I find it amazing that the median Irvine buyer has almost $200K to throw down. It’s not easy to save $200K… When we bought our median Irvine home (3/2 1600sf) back in 2001, we only had $75K to put down.
It is amazing how much cash buyers have been putting down.
We recently made an offer on an Irvine foreclosure and got pre-approved for a $600k+ loan WITHOUT a contingent sale of our condo and only 5% down. Seems like the lending standards have definitely tightened but not enough it seems. I couldn’t believe they would loan us that much with so little down especially in this economy…maybe that’s helping sustain prices around here as well.
There are people getting those offers who are not refusing them. That is why prices remain elevated.
I think it is easy to explain: it is NOT the median household who are buying the median houses.
There are a lot of people in Irvine making far more than 91k$/y. Like 2 or 3 time more, easily.
Many have come in the 2003/4, and were saving while renting. in 4 or 5 years, even without any money at the beginning, and with a ‘normal’ living life style, they have a lot of cash now that they can use for downpayment.
I know many of these people. And surprisingly, still many of them are not believing home price can still go down for another 3-5 years. So now that they can afford the right house for a reasonable living standard, they buy. Weird to be smart to make that amount of money, but rush to be a real owner. Now, many of these people are immigrant, and owning a CA house, in Irvine (city of UCI, university of C.. Immigrant) means a lot. So it is an achievement.
Part of IRs assumption is that the vast majority of people who are buying in Irvine (and will buy in Irvine) already live in Irvine. The fundamentals can change if the opposite is true due to the desirability of an area versus surrounding areas. I don’t know the correct assumption, I am just pointing out the assumption being made.
First post. We sold our house (10 Iron Springs if you want to look it up) and are now renting thanks to this blog. Thanks guys! =)
We priced aggressively and sold our property in 3 days with 10 written offers on the table. The offers were from a mix of people. We had one investor (the only one to offer below asking) and the rest were first timers, move-uppers, or someone buying for someone else (for children or grandparents). Only one offer was 20% down, the rest ranged from 40% to all cash. All offers were from asians (except one Brazilian). The offer we accepted was a first time buyer with substantial down.
The one thing that seemed consistent among all the offers as well as those that came looking was that they believed the market was near bottom and that Irvine is still the place to be.
FYI, we did leverage our house to buy a business which is still running smoothly and is now fully paid off.
Congrats samuroo. Your sale is the median sale I have for the month of December in terms of Case-Shiller index value. You did pretty well…
I like the low list pricing. $28K over list is a good bid up. The low list definitely works to generate offers in mass.
A few too many plants in the listing pics IMO, but looks like it showed clean and uncluttered. I noticed the extensive hard-scaping in the backyard. How much did that run you?
LOL! Too many plants eh? Yeah, we’ve heard that before. =P
The offer was one of two at 730k. The buyers being Chinese, wanted a sales price of 728k because they wanted the “8” at the end for good luck and kicked us back 2k for closing.
We priced it low because we didn’t want it to sit into Jan or Feb when we were expecting a flood of listings. Listing in Nov, we had practically no competition in our price range.
The hard-scape in the back is all stamped concrete imitating stone, so it only ran us 12k. Admittedly, back then we bought a house we could barely afford, so we were on a tight budget.
thank you for posting this. I’ve been looking for anecdotal evidence of what has been going on.
Remember also that it isn’t really the median income earner that buys the median income house. Approximately 40% of the market are renters….which is generally a pretty stable statistic. So if you take that 40% of the income pool out, I wonder what the median income of the remaining 60% would be? I would be curious to see what the median income in Irvine is for the typical median priced home of approximately $600K. I would guess that it is well north of $90K, but that is just a guess.
Also, IR mentioned that the people getting the 10 year I/O loans way too aggressive. Do you guys think that having 10 years of fixed payment is risky? Usually 10 years is plenty of time….but obviously these are different times.
I don’t know why somebody would use 10 years when the difference between that and the 30 year rates is so small.
“…It’s not easy to save $200K…”
It’s a LOT easier to save a sizeable amount (relative to your income) if you have less than 28% dedicated to housing and no other consumer debt. Delay having children, and savings can grow very fast.
Different people will enter a declining market at different price points.
The bubble proved people will believe anything they want to believe to justify buying a home.
Here the justification is the prices are lower then they have been in years and the interest rate is very low. A great combination if you need the nudge toward justifying the purchase today.
No different then the early, middle and late adopters of technology.
The early adopters want it now and don’t care that they are paying more.
Middle find the price point comfortable and then jump in.
Late adopters want the lowest price and are willing to wait.
We are also assuming these buyers know that the next wave of foreclosures may be right around the corner with all the resets coming. Not all buyers read the IHB every day.
What is suprising to me is when I see one of these homes sell, like the one IPO mentioned a few posts ago, I go to redfin and search similar properties.
In almost every instance I can find what I think is a much nicer home for the price, in Irvine. I wonder what is keeping people from doing this basic research.
Barney Frank advocates pushing the jumbo limit back up…
http://www.boston.com/business/personalfinance/articles/2009/01/05/jumbo_mortgage_loan_rates_put_damper_on_refinancing/?page=2
I’m having trouble figuring out why the banks *wouldn’t* lend a 10-year IO loan that will likely fail. It seems that they win whether the borrower fails or not. Can someone help me with the numbers? I’ve got to be forgetting something.
From IR’s numbers above a very simple, non-discounted, conservative calc:
$ 650,000 = Purchase (2200 sqft = $295/sqft)
($ 96,080) = Down (14.78% plug to equal IR’s example loan amount)
$ 553,920 = Loan (From IR’s exp)
($ 276,960) = Bank Interest earned (@ 5.0%, 10yrs. from the example, not FV)
$ 110,784 = Bank cost of loan (How much does the bank pay for the money? 0%? 1%? 4%? I don’t know, say for shits-and-giggles 2%, not FV)
$ 387,744 = Banks ending liability (2200 sqft = $176/sqft)
($ 262,566) = Price decrease before the bank would be under water (-40% decline from $650k). And that’s with only 15% down.
Even if the bank’s cost of the loan is 4% it would still have to be a $151k (23%) loss on the value of the house before they were under water. At 4.5% it would be $124k (19%) loss. (Not discounted)
My apologies if I’ve completely ham-fisted this but I’ve got it stuck in my head that the bank gets to rent this out for 10yrs, as IR suggested, make money on it, and if the borrower fails, so what, they will still probably sell it for breakeven if not more. Please educate me from the banks’ end.
It never ceases to amaze me the attachments people develop for their money:
Billionaire kills himself over financial crisis
Yes I read this early today very sad when one’s stress level to think clearly gets so distorted one kills themselves.
Interesting that his professional bio didn’t mention anything about local charities that he had shared his fortune with. I’m no psychiatrist but you billionaires out there will be less stressed if you try to share your billions. I’ll be glad to help you in that capacity.
The bottom line in all of these posts is how can we get Irvine to change? How can we get real sized lots with decent built homes? Can we get decent prices? Can we buy any real land? Can we get Green homes? Can we do it ourselves?
Can we really live in Irvine?
And so far the only answer is still a NO—only can rent and it’s not income it’s investment. As an investment Irvine is going to be a slow bleed until the city planners decide to do something that will bring new buyers into Irvine that will produce real jobs.
And they DO NOT have the brain power to understand ANY of this. Even with the “so called” great schools that many of them went too. They do not have the ability to change just like our homeowners still wanting to get 300% out of their buy in price or more.
The sad part about Irvine and I have written to City council members (not one wrote me back) is they have NO SIGHT. They do not want change they want prices back up.
The feel they deserve this–this is Irvine. They have zero economic education.
So we get more commercial stores so we can shop for more to put in our tiny homes with zero backyards for all that patio furniture that is for sale. LOL
And we get a GREAT Park—what a waste of land–
NY unemployment claim systems overwhelmed
51 minutes ago
ALBANY, N.Y. (AP) — New York’s unemployment claims systems have crashed, overwhelmed by tens of thousands of jobless New Yorkers trying to call or log in at once ahead of this week’s filing deadline.
State labor department officials say the problem started Monday and caused the phone banks at the state’s toll-free claims center to shut down, followed by the online filing system. Leo Rosales, an agency spokesman, says as many as 10,000 people per hour were trying to log into the system.
Technicians are trying to bring the systems back online Tuesday afternoon but officials couldn’t say when they’ll be back up and available.
Rosales says the system failure shouldn’t delay newly unemployed workers from getting benefits because they have until the weekend to file claims
http://investorvillage.com/smbd.asp?mb=4245
IR a site you may like?
Long time reader from Bellevue WA, First time poster.
I prefer calculating against net pay rather than gross pay.
Since you will be writing a monthly check against your bank’s net balance.
Just for sake of calculation this Irvine family monthly take home is $6900.
Now the percentage better reflect how much money is taken away from the bank statement each month.
Payments, Taxes, Insurance
$ 2,126 31.0%
$ 2,353 34.0%
$ 2,885 42.0%
$ 3,644 53.0%
$ 4,024 58.0%
A LOT of the places I do business are nowhere near the least expensive.
I’m no different than anyone else, I want to be taken care of and will pay more for that service that makes me feel special or spoiled.
i took a dump on all houses in irvine…