Before Bear Sterns got absorbed by JP Morgan, they underwrote a large number of Alt-A loans. It was one of the many reasons for their implosion.
Today’s featured property was one of those loans. The property sold at auction for 31% off its 2005 purchase price.
Asking Price: $404,900
Address: 804 Maplewood, Irvine, CA 92618
{book3}
Dead End Street — The Kinks
What are we living for?
Two-roomed apartment on the second floor.
No money coming in,
The rent collectors knocking, trying to get in.
What level of affordability are we waiting for? Well, something better than a 2 bedroom apartment for those making over the median income. This is the definition of a property thats value should never exceed rental parity. Why would anyone pay more than the cost of ownership for an apartment?
We all know people did this due to fantasies of appreciation. I doubt anyone would pay a premium for a property like this one for any other reason. Would you? The REO trustee is hoping someone will. Based on the nearby comps, I doubt it will happen.
Asking Price: $404,900
Income Requirement: $101,225
Downpayment Needed: $80,980
Monthly Equity Burn: $3,374
Purchase Price: $549,000
Purchase Date: 8/10/2005
Address: 804 Maplewood, Irvine, CA 92618
| Beds: | 2 |
| Baths: | 3 |
| Sq. Ft.: | 1,200 |
| $/Sq. Ft.: | $337 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Year Built: | 2000 |
| Stories: | 2 |
| Floor: | 1 |
| Area: | Oak Creek |
| County: | Orange |
| MLS#: | S570032 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
bath. Beautifully upgraded master bath with granite counters. Nice
floorplan with kitchen open to dining room and living room. 2 car
tandem garage attahed. Good location within tract, near pool, shopping
and schools. Come and see this beauty in Irvine.
Short and sweet.
This property was purchased on 8/10/2005 for $549,000. The owner used a $439,200 first mortgage, a $54,900 second mortgage, and a $54,900 downpayment. You can see more of these properties where the owner had a significant downpayment walking away now the prices have moved down so far. There is a point where people are so far underwater that they just give up. Statistics show this amount is not typically very large as the default rates increase dramatically once people go under.
If this property sells for its asking price, and if a 6% commission is paid, then the total loss on the property will be $168,394. Both loans were from Countrywide, and they ended up in BSALTA 2005-09. If you want to see why Bear Sterns went under it is here. They were loaning people half a million dollars to buy 2 bedroom apartments. Great business plan.
{book4}
Theres a crack up in the ceiling,
And the kitchen sink is leaking.
Out of work and got no money,
A sunday joint of bread and honey.
What are we living for?
Two-roomed apartment on the second floor.
No money coming in,
The rent collectors knocking, trying to get in.
We are strictly second class,
We dont understand,
(dead end!)
Why we should be on dead end street.
(dead end!)
People are living on dead end street.
(dead end!)
Gonna die on dead end street.
Dead End Street — The Kinks
Is this a 2-story or one-story floor plan? Is there a neighbor either upstairs or downstairs from you? If there is, then this is one extra negative in my book.
I think it’s a 2 story. Picture 9 of the listing shows a hint of a staircase railing on the right side of the picture.
Also, at $337 per square foot this condo is way overvalued still.
And, are they lending money on condos? When we refi’d I was told that they were only lending on SFHs.
Good eyes and great detective work. Somehow I missed it. Thanks.
So, it is a good starter apt or home if price comes down 30% from asking.
.
http://www.crackthecode.us/images/IrvineDungeon2.jpg
I hope we see that one again. LOL!
That is funny.
Even funnier is that someone would buy a place with a tandem garage. Ick.
Trying to park two cars in a tandem garage must be a complete nightmare, but for those with only one car looking to convert part of their property into a home music studio, they provide a great opportunity (in part because the ability to put the separating wall at an arbitrary point allows you to make the studio dimensions be within the range of preferred length:width:height ratios to avoid the worst frequency-cancelling standing waves).
The listing agents always seem to drop the ball and ignore all of the dungeon potential that many of these houses have.
You’d think that they would actually look at the photos before they upload them.
I guess you can’t expect much for a mere 400K price tag as the commission stands to only be about 24,000$ with maybe a piddly 5000.00 going to the agent. Gasp!
I was at the open house. View from the other end:
At least it’s pet friendly.
> At least it’s pet friendly.
😆
It’s a 2 story floor plan, with no neighbors above or under. Tandem 2.5 car-length garage. The location is closer to the pool and gym, but given choice I’d prefer a unit near the back, where the bridge is.
I live in Oak Park, so if anyone has questions you can just ask me. Or check toddm.com for floor plans. The 1 bed and 2 bed + loft units have 3 stories, while the 1 bed + loft and 2 bed units are 2 stories.
Living on this side of Oak Creek is further away from the 405 FWY and noise. Easy walking distance to Gelsons center plus Ralphs center across the street. Short drive to 2 hospitals, UCI, Specrum, Laguna Canyon Rd (to Laguna Beach), 405 and 5 FWY entrance. Prices are a little high however.
A half-million dollars for a two-bedroom apartment? I know the cliche of asking “Are you on drugs?” has been overused to the point where I’m hoping that at least it’s an interesting mix (I recommend freebasing Preparation H), but there are times where you have to wonder.
As ridiculous as it looks, the average chump does not care about the bottom line price. Like age, it is “just a number”.
The chump-buyer has been pre-conditioned and indoctrinated into the 30-year slavery state of mind and only cares about what kind of magic his mortgage pimp can conjure up for the monthly payment.
Can you imagine how low house prices would be if everyone joined together and refused to endenture themselves for 30 years and opted to rent instead? The prices of houses would plunge to levels where the average person could pay cash for their home.
We have so many more houses than we need; we should be paying pennies on the dollar for them at this point.
The current system depends on the average buyer accepting the status quo of 30 year slavery. The prices will always rise to what the average idiot is willing to borrow. If the average idiot refuses to borrow, the prices will drop in reverse fashion.
We have only slightly more houses than we need. What really drives prices down is being unaffordable. For most people, that is a monthly payment calculation, not a price calculation. Changes in down payment requirements, unemployment, income or income documentation, and rent of a similar house are more important.
I have also found that expected price appreciation/depreciation is extremely important in the timing of purchases, and the decision on when and whether to walk away from an underwater home. In LA/OC in 2010-2011 about 60-65% of homeowners will be underwater. Some of them will have homes with market prices less than a third of what they paid.
“I have also found that expected price appreciation/depreciation is extremely important in the timing of purchases”
For evidence of the truth of that statement, you have to look no further than the readers of this blog. Everyone is waiting to buy because prices are still going down, as they should.
yes, IR, same as you, we (almost)all in this blog are waiting to buy.
Let’s say we are about a 1000 people in this situation, all in Irvine, probably in the same category of wages/cultural/family/etc… So eventually with similar house expectation.
When time comes (and who’d be giving the signal?…), from being all good friends from the blog, we’ll all become enemy competing to get our dream and long waited house !
2011 will be the year for IRBlogger rally !
Do you think our good old Uncle Sam is going to let this free market wheeling happen just like what you wish?
Property tax is a big, very big source of income for many of our inept, tax-and-spend governments (local, state, federal).
Why do you think they are spending big to promote home ownership, and to keep home values way up there?
Property taxes….
finger licking good, for many of them.
Already they’re thinking about reversing prop 103 in California.
Already they’re talking about limiting mortgage deductions.
It is so, so true: Night robbers are criminals; Day robbers are our own governments.
An old Chinese proverb, but true everywhere, especially now in this country…
Tax and spend; tax and spend; tax and spend…
They are just a bunch of morons. They will pay.
They won’t fight!
Again, as in the past, you’re going way too far by implying that everyone with a 30-year mortgage is an idiot slave.
Do you really think a market where buying is massively cheaper than renting for the equivalent period of time would be sustainable for more than a very short time?
Refrigerator not included. I think a lot of these apartment-buyers were young couples who “borrowed” from family for the down payment. Their parents were probably reading the OC Register real estate section and convinced them to buy now or be priced out forever and then sell for a huge profit two years later so they can move up to a McMansion.
That is a sad but true assessment of what happened. Now those young couples have ruined credit, and they are excluded from the housing market due to their FICO score instead of the price of the property.
Not only that, but they have to start all over saving for a downpayment. I’m sure it took them a while to save 50 grand too. Now they get to do it all over again with a lousy job market.
Meanwhile, if they had opened up a HELOC and sucked out as much money as they could, they would be in a much better financial position and I don’t believe the consequences of such robbery would be that great.
Some country we have. I never thought I would have such antipathy for our leaders as I do today.
Refrigerator Not Included
This would make a great housing bust book title.
I propose a chapter titled “Revenge of the Innumerate Slackers”. Guess who isn’t bothered much by the bust? People who don’t care about their credit ratings and have little or no investments. They frequently don’t plan for the future and especially don’t do financial planning.
Definitely needs a chapter entitled “Throw Mama’s Money from the Train.” Why throw away your own money on rent when you can throw away mom’s money on a down payment for a condo you’ll walk away from 3 years later?
What I saw happening quite frequently was the parents as the instigators using their children as pawns.
The parents were hopped up on Kool-Aid and wanted to invest so they would buy up condos under this altrusitic premise of having a place for their kids to live in while in college or something with the hopes of flipping it when the kids move out later on. In the meantime, the kids would pay the rent and subsidize the bad investment.
I know several people who bought because their parents manipulated them into doing so.
I’m just glad I don’t have the double whammy of being upside-down and having blown some of my parents’ retirement savings. I’m sure it’s tough to resist your mom or dad waving tens of thousands of dollars under your nose while promising to make you a real estate millionaire.
Heh. I currently live in a place that’s been renting for the last ten years, as the owners bought it for their daughter for the day she finally decides to move home. When my wife and I moved in, we were told that while the owners were glad that we were going to stay for more than six months, we’d have to be ready to move out at the end of that lease if their daughter needed “her” house. We’ve been there for nearly five years, and it’ll probably be up for rent for another ten.
Otherwise, I can’t agree with you more about the parents pushing their kids into monster flipper houses. I watched this with a friend and her husband, and it was for the best of intentions. She was getting married, and her parents, who are some of the coolest and most interesting people I know, figured that they’d help the newlyweds by buying a house and renting it to them for the mortgage payment. Her new husband went absolutely ape about a BIG house with a swimming pool and more than enough room for the big parties he liked to throw, so her parents said “Sure? Why not?” Not only did they buy at the height of the boom, but the both of them lost their jobs a while back. Now they’re in a house that’s way too large for them to keep clean, with a swimming pool and other amenities that hit them with ridiculous electric bills, and they simply can’t afford to leave. They won’t get hit with the credit problems by walking away, but they also don’t have the opportunity to leave and move into a smaller place, either. Either way, they’re screwed, and I’m now very glad that my wife’s parents never did the same thing for us.
Does anybody recall about 1 year ago around this time, there were some bulls showing up to the blog claiming that FHA was going to be the White Knight that will ride in and rescue us from the bubble implosion? Whoops. So much for that.
http://moneyfeatures.blogs.money.cnn.com/2009/04/06/are-fha-loans-the-next-housing-time-bomb/
Are FHA loans the next housing time bomb?
April 6, 2009 9:30 am
Ready to burst – again?
As private mortgage lending all but dried up over the past year, the federal government swooped in and repositioned the Federal Housing Administration’s (FHA) insured-mortgage program to pick up a lot of slack.
Over the past year more than one-third of new mortgages are FHA-insured loans, compared to less than 3% at the peak of the real estate bubble. Moreover, in recent Senate testimony the inspector general for Housing and Urban Development said FHA-insured mortgages accounted for about 70% of loan biz in the first quarter. One of the big drivers of the increased FHA presence is the move that raised FHA-insured loan limits to as high as $729,750 in certain high cost markets. That made the program a viable option for plenty more borrowers.
But rather than a glowing example of how the federal government can step in and boost an ailing financial market, there’s growing concern that the massive role taken by FHA to buoy the ailing mortgage market, could in fact lead to yet another taxpayer bailout.
It turns out that a whole lot of borrowers getting FHA-insured loans can’t make the payments. At the end of February about 7.5% of FHA loans were “seriously delinquent;” up from 6.2% a year ago.
This past Thursday, HUD inspector general Kenneth Donohue conceded that the trend is not encouraging.
“the trend is not encouraging”
Is that politician speak for “get ready to take another one in the shorts”.
Can you imagine an FHA loan for 729,750? LOL! How is this seriously supposed to help people afford a house?
Yes, sir Mr. First-Time-Home-Buyer – We realize that you live in a “high cost market” and have no money because you spend 1800.00 a month on rent and cannot save up a down payment; that is not your fault. Let us help you out. Here is 700K for you to go and buy yourself a nice condo with granite counters for you to lay your bucket of cripsy KFC on top of.
Pay us back if you feel like it – otherwise, we’ll just tax the sh*t out of your kids and their kids to get it back. What matters right now is that you have the home that you cannot afford that you are entitled to.
cripsy KFC? Crispy?
If any Bloods are reading the blog – do not drive-by my home; it was a typo.
Drive-by cancelled.
OC Blood
I am still waiting to hear some of that cutting edge Irvine Gangster rap that is bound to emanate from the hard times of this recession.
“Chillin in tha McMansion when I hears tha roar”
“Tha sheriff outside pounding ats my door”
Gots ta grab my beamer
and my trophy wife whore
“Speed away in the Benzo with my 24’s”
ha ha ha
Or substitute:
“HELOC’s dried up so the Benzo drives no mo”
.
http://www.crackthecode.us/images/zizzle_equity.jpg
LOL!!!
JFC that is funny!
I always enjoy AZDavid’s comments.
In 2006 we were trying to decide between moving to California or Ohio.
After looking at house prices in California we decided we could not afford a house.
We ended up in Ohio and bought a house we could easily afford and pay off in 5-10 years.
I thank God we were able to make a rational and not get cought up in the housing market frenzy.
I remember people at a party in OC telling me how prices are never going to come down.
The Irvine Company rents a two bedroom two bath 900 sqft down the street for 1720 if you compare the two, bump the rent up to 1800 because this place is bigger, 1800 – 220 in home owner fees is 1580. 1580 x 160= 252800 at rental parity and that should not be the bottom. The Irvine Company seems to keep lowering its rents. It is going to be an interesting ride.
Rents are going down?
How can that be – the bulls said that that was impossible on the Sacred Land of Irvine with all its wonderfulness and so many people “competing for a place to live”.
Are the masses starting to figure out that they have been fleeced and that 1800.00 a month for shelter is tomfoolery?
FWIW, rents in neighboring Costa Misery are tanking hard. They are down *at least* 10%, but I think more like 15%.
In general, I would suggest to renters to keep an eye on the market and demand lower rents where it makes sense. It pays to be astute. $1.25-1.50 per square foot is a good price in CM, in Irvine I’d guess $1.50-$1.75 is a good price. Don’t fall for the BS from the clowns asking $2-2.50 per square foot, unless there’s something really really special about the place.
Of course, if your credit is bad, you may get stuck with one of those clowns. 🙁
I know several Irvine Co. renters, and just a couple have been able to lower their lease rate, and even then it’s been just 2-3%.
Once you’re already locked into a lease, why would they lower it? I just signed a 12 month lease in Irvine (not Irvine Co.) for a 2/2 and got $5,000 in rent money to use how I would like to, this equates to over 2 months of rent. I’ve seen the first months free deals, but the $5,000 is why I chose to move.
That is an amazing incentive.
BTW, it is good to see you here again. You have been missed.
Actually, there is some allowance for HOA fees in the GRM, but not as much as this property has. That aside, your calculation is the kind of math homebuyers will be considering in the future. The days of fantasizing about rampant appreciation are over.
Oh, I doubt the days of fantasizing rampant appreciation are over. Just the days of realizing it!
You can’t really compare apartment style living with this particular condo where you got no neighbor on top or below you. Furthermore, although it has tandem garage, it’s attached (oooooooooooo…….).
Other than that, your calculation seems to be ok except for the fact that we haven’t hit that $250k price yet.
http://voiceofsandiego.org/articles/2009/04/06/toscano/724housepayments032609.txt
for your consideration, historical data from San Diego that shows that contrary to common wisdom, interest rates and house prices positively correlate not inversely correlate. (until the bubble when the fed stopped caring that house prices were inflating like crazy). I think this says that both high house prices and high interest rates reflect an inflationary environment where locking in a low monthly house cost is a good idea, and where banks need to charge more to make any money.
Commonly on this blog and others it’s assumed that when interest rates come back up to normal that housing prices will HAVE to drop even more. But I don’t think that’s clear. Instead I think a better metric would be the difference between the interest rate and the inflation rate. The spread, if you will. Which unlike the current mortgage rate, may not be at historic lows.
Cara,
For some reason our comment filter consistently “closes” your comments from view. This has been happening for weeks. You have never posted anything inappropriate, and we are reviewing the cause of this problem. I apologize for the delay in seeing your astute observations. I have been manually approving your comments, and I will continue to do so until the problem is resolved.
Very interesting — thanks for the link. Would be neat if someone were to graph that for O.C. and/or nationally, to make sure there isn’t some weird quirk in the S.D. market.
Another weird property with more baths than bedrooms! Who designs these things? Somebody who really likes Taco Bell and might have to go at any moment? Why on earth does a two bedroom, 1,200 sq ft condo need three bathrooms? I’ve seen houses that size with only one.
It’s not really meant to be a family home its a 2 bedroom rental. Each bedroom gets a bath and a half bath for visitors off the common area. The private bath reduces a lot of the aggravation of sharing space and half the rent is lower than a one bedroom apt. The tandem garage would be a problem for two UCI students splitting the rent although they are probably the target market.
The design is very different than a 1200sq ft 50’s ranch and its not really meant to be a starter home for a family with kids. These condos are glorified apartments which have been marketed as homes during the bubble.
I guess that makes sense, now that you describe it that way. Makes more sense than the 1 bedroom/2 bath property that was posted a few days back. If there’s only one bedroom, there’s no need for a second bath off the hall-put the main one off the hall in the first place.
However, one thing that works against this theory is the make up of the baths-only one is a full bath, the other is only a 3/4 (no tub). Looks like it has a specific master bedroom too, and a smaller second one. If it really was designed for two roommates to share, splitting the cost, you would make it so there would be identical, dual masters, each with a full bath. As you pointed out, the silly tandem garage hurts this usage as well.
Geotpf, it’s 2 floors and the 2 full baths are on 2nd floor while the 1/2 bath is on 1st floor.
You probably don’t wanna run up the stairs when you’re in a hurry downstairs.
The 1 bed, 1 1/2 bath on 1 single floor the other day IR profiled was more ridiculous than this one.
“… There is a point where people are so far underwater that they just give up. Statistics show this amount is not typically very large as the default rates increase dramatically once people go under…”
I don’t think the underwater factor can be extracted from the other factors and be blamed for defaults. I think a bigger factor in predicting default is DTI. The higher it is, the much more likely default is – couple that with an underwater mortgage, and default is hastened.
i.e. The more you stretch to mortgage a home, the more likely the appearance of any negative factor will cause default.
“i.e. The more you stretch to mortgage a home, the more likely the appearance of any negative factor will cause default. ”
Yes, I have not seen any studies that have examined why people are defaulting once they go underwater, but I suspect your premise is correct. I have seen graphs (which I cannot find right now) showing the rate of default relative to equity, and it shows a slow but steady increase up to the point of breakeven, but once people go underwater, the rate of default increases significantly.
I spoke with one of the authors of this paper last week.
http://www.bos.frb.org/economic/ppdp/2008/ppdp0803.pdf
“Millions of Americans have negative housing equity, meaning that the outstanding balance on
their mortgage exceeds their home’s current market value. Our data show that the
overwhelming majority of these households will not lose their homes. Our finding is
consistent with historical evidence: we examine more than 100,000 homeowners in
Massachusetts who had negative equity during the early 1990s and find that fewer than 10
percent of these owners eventually lost their home to foreclosure. This result is also, contrary
to popular belief, completely consistent with economic theory, which predicts that from the
borrower’s perspective, negative equity is a necessary but not a sufficient condition for
foreclosure.”
See also http://www.bos.frb.org/economic/ppdp/2008/ppdp0802.pdf
Cool to see actual data from the last downturn — thanks for the link and the summary.
thanks IR. I’ve gotten used to it, but it would be nice to figure out why it’s happening. My comments are not time-sensitive.
The bigger picture…….
Until recently I never really felt sorry for the American Indians. I mean; if they wanted to sell the state of New York for some beads and rocks then that was their problem, but now I know how they feel.
Graduating from high school in the 80’s I have been enamored with capatalism, consumerism and Reaganomics. I still do believe in the general theory that if people are allowed to keep most of their money they will buy products etc., and that will “grease the wheels” of economy and everyone will prosper.
Unfortunately we have all been taken to the woodshed and sold beads and rocks just like the American Indians were. Trickle down became trickled on, small government became HUGE government. There has been a mass exodus of manufacturing jobs because of high taxes, insurance and environmental issues. To go with that loss of industry has been the typical company pension and health care benefits.
I was a firm believer in free markets and the stock market as a way to save for retirement in lue of company pensions. Remembering all the materials that I have read over the last 20 years about where my “portfolio” would be by the time I was 60 was both exciting and inspiring, plus my employer would MATCH up to 2% of the 6% that I would put in!!!!!WHAT AN EFIN GREAT DEAL!!!!! FREE MONEY!!!!!
Well here we are 20 years later and everything, I mean everything is in the shit can with no end in sight. Government gets bigger, now the automobile industry is on the verge of collapse, the equity markets were and are a complete sham, retirment funds are wipped out, taxes are going up, the global warming doctrine will keep manufacturing in China and Mexico and condo’s in Irvine are still a 1/2 million dollars. WTF?
We need a good old fashioned American revolt. We have been getting rear ended for too long by lieing politicians and CEO’s.
Screw em all.
The public should be storming the National Mall by the hundreds of thousands – if not millions.
The level of apathy is still very high. People are mad about the economy, but they are lazy arm-chair generals for the most part.
They will huff and puff and talk a big talk, but at the end of the day – they will elect to relax on the sofa, watch American Idol, and chow down on some KFC rather than camp out in the cold in front of the White House and miss a rent payment back home. That’s just the reality – modern day Americans are cows who are unwilling to endure real hardship.
The few that are willing to leave the herd are not large enough in numbers to make the government pay attention.
I agree with everything you say. Unfortunatly I think it will have to stay bad like this for several years before it really affects a majority of the population. Most people have been “living it up” for the last few years and believe the “good times” are just around the corner.
I dont believe that for a minute, they are now estimating a 4,000,000,000,000.00 net world wide write down of “assets” in 09.
FOUR TRILLION DOLLARS.
Not only is all the fake money being flushed out of the world banking system, but soon cash will again be King and people will actually begin to start “saving for a rainy day”.
Seriously, who is going to be buying $4.00 cups of coffee and sending little Johnny (who is a brat) to Cotillion?
I am planning of going to the Tax Day Tea Party here in Santa Ana on the 15th, I suggest everyone look up one that is in their area as well.
Dunno that any one-off demonstration like this is likely to have any effect, but good to know about it — thanks.
For anyone planning on bringing a sign, note this Santa Ana ordinance (from http://www.theminorityreportblog.com/story/steve_foley/2009/03/26/orange_county_ca_tax_day_tea_party):
Listen to you! Well I was a DFH, and never trusted Reagen, nor did we trust the big ol free market.
And I’m doing fine, house all paid for, and enough money in the bank for retirement, even if there’s no SS. And don’t owe a thing.
As soon as you thought Reagen had some thing to offer besides being good with chimps, you were a goner. Sorry you got taken.
Why do you want to revolt? You got everything you asked for, and more. And with Bush you got it all, and a glorious war or two to go with it. And now you want to revolt? Ttypical post-modernist liberal socialist. Gimme, gimme, gimme, and then vague threats of violence when you don’t like what you asked for and gotten. Typical hippie behavior.
Wow Mooser, it’s good to by you. You must be so smart. To bad everyone cant be like you, not a care in the world.
BTW, I am not a hippie and dont want anything from the government except to quit killing businesses with taxes, regulations and political correctness.
Ron Paul was my candidate of choice but right now America is not ready for a guy like him but there is still hope.
Good thing the last eight years didn’t kill the financial industry w/excessive regulation. How’
s your Bear Sterns account doing these days?
Oh, and don’t forget the multi-million dollar salaries and year-end bonuses of executives and their short-sighted management strategies to make a profit as a reason for loss of manufacturing jobs. Those unearned, undeserved bonuses alone probably pay for all of the environmental compliance many companies ever need.
hi IR,
the bottomline is, when will be a good time to own a home in SoCal? a lot of people are feeling that this is a good price now (incl. me), because we were blinded by ridiculous prices last couple of years. estimating when the prices will stop the slide is a tough one and i dont think that we will see the price increase anytime soon. At the same time, people dont want to be left out of buying opportunity. we saw that when people think prices are climbing, there is a MAD rush to buy a home.
I’m sensing that this post is a test of some kind. Seems too soon after the weekend announcement.
AZDavid.. not sure what announcement you are referring to, but i am just waiting to move into my own home and trying to understand the mkt as best as i can.. not that i want to perfect the bottom, but at the same time if i buy today, i dont want to see 20% drop in my home value by next year..
Sam,
At the bottom of the market what pressure will there be for prices to raise? We’ll be coming out of a “recession”, houses will still be overbuilt, interest rates will be up, and people taught to be miserly during the “recession” will still be scared that prices will fall more. The only thing that will bring houses up is affordability, and just as it took people 2 years plus to figure out that houses were a bad idea, it’ll take at least 2 years for them to change their mind, and even then how many will have that nice 20%-30% down after all this is over? I’ve been dipping into my down payment since my work has been drying up. You have to figure a lot of other people have been too.
lakeForestRenter,
i also agree that it will take some external factor to start the climb in prices (something to increase demand, hopefully not the same freeforall loans again). however, i am just trying to guess when the mkt will stabilize the downward slide. Once stabilized, the prices might stay in the acceptable range (+/-5% like traditional real estate mkt) for long period before we see an increase.
agreed, i can’t imagine any scenario where prices would rocket up faster inflation. This housing bubble burned way to many families and banks.
I like to think i associate with intelligent, informed people, and i know 3 families currently in foreclosure. Listening to them and watching their marriages suffer under the strain, they are as completely turned off about housing as you could possibly be. Housing will have to cost less then renting to interest them again. And as they were all lied to (their fault don’t sign something u don’t understand) even then it’ll take some time.
My personal opinion (worth not much) is that now is the time to buy on the lower end of the market in Southern California (under $200k-so not much, if anything, in Irvine qualifies). For a property in this price range, I would wait a few more months, but squeeze in just before the December First deadline for the eight grand tax credit. For more expensive properties, I would wait until next year sometime.
In any case, the bottom will stagnate for awhile. Missing the absolute bottom by six months will probably only cost you an 5% extra at most. There will not be a super-quick recovery.
Now, in there very short term (next month or two), there may be a false recovery, which is mostly seasonal. Once all the Fannie Mae/Fredie Mac post-foreclosure moratorium inventory hits the market, that false recovery will stall and collapse.
This will probably be the most dissected comment I have ever offered here on the blog.
If you are feeling like you might be “priced out” or that you need to buy because you “don’t want to miss the price rally,” you will be a knife catcher. These emotions are the telltale sign of residual kool aid intoxication. If there is anything I have been trying to get across over the last 2 years of writing for this blog is that these emotions are harmful to your financial well being. These feelings are what motivated everyone to buy who is either underwater or already foreclosed out of their overpriced homes.
Just so you know (a more detailed explanation will come in a future post), I will never call a bottom. I will profile properties, and I will discuss what I believe the value of these homes are based on rental and income numbers. At some point, probably 2 years from now, the comparable sales prices should be at or below reasonable valuation levels based on rent and income. It will not be a call to buy, it will merely be a comparison of value to current pricing. When current pricing is below cashflow value, it is an implied buy signal. It doesn’t mean property values might not decline further, but it does mean that even if that occurs, you are still saving money owning versus renting and declining values are not going to hurt (as much).
For instance, right now in several markets, there are properties trading at a discount to rental parity or even cashflow investor levels. Go to Redfin and look at some of the properties in Riverside County. They are everywhere. If I were to do a cashflow analysis of these properties and show price levels of rental parity and cashflow positive investment value, you would see that the current comparable sales are trading below these levels in many instances. That is a buy signal. At some point in the future, not now, the same analysis will point to buying in Irvine’s market.
There will not be a “calling of the bottom,” but there will be an emergent trend where each day here at the IHB we see more and more properties trading at or below rental parity. When that occurs, the bottom, although not called by anyone, will be upon us.
Lansner: Is Irvine turning to sellers market again?
http://tinyurl.com/c63hpa
Tidal wave of distressed units hit O.C. condo market
http://tinyurl.com/cg2g2p
In Tuesday’s blog you referred to a mortgage originated by Countrywide being part of a security marketed by Bear-Stearns labeled BSALTA 2005-09. Could you give brief explanation of the mechanics of securitization and how these were labeled and sold.
That is not an easy request to fulfill. Try starting with this post: Structured Finance 101.
Basically, Countrywide would make a loan, and Bear Stearns would buy it along with thousands of other loans. These loans were put into complex CDO structures and sold to investors. The asset-backed security bundle (group of loans) today was named, BSALTA 2005-09.
Ah, so this blog is the place to go to find out about the “Tea Parties” Will you be announcing militia get-togethers soon?
In 1960, a new 3 bd 1800 sf house in outter Los Angeles county was 1.2X salary for an aerospace engineer ($10,000 per year). Likely medium household income was $8,000 per year in L.A. The CA housing was much more modest than today.
What’s the price of a modest 1800 sf house today compared to medium household income? In any CA metro area? In the mid-west, 2.5X to 3X yearly gross household income for a better built house is typical.
CA housing cost in OC, LA is still way out of line with income. With decreasing income, the rents will go down, lowing prices to acheive rental parity. Wage income is the last to rise and one of the first to fall in the economic cycles. Excess money supply (M3 in older terms), raising prices, then wage — not the other way around.
The best govt. intention of affordable house by artifically lowering interest rate and income requirement is a road that leads to …. Housing inflation, greater property taxes, being priced out of the market, seller;s market, then a collapse. For the sake of the arguement, I assumed the govt. intention was benevolent.
Part of the issue with affordability (in the long term) is the lack of land. Land is a fixed quantity, but the number of people wanting to move into greater Los Angeles (and Irvine) is increasing. So, demand is greater than supply, and prices go up.
Now, compare that to Riverside and beyond (Moreno Valley, San Jacinto, etc.). Plenty of undeveloped land out here, and not as much demand, so prices are much, much lower.
yep your house gets the demand depenf\ding on the place and if there are more buyers then your house will be wow