Many of you have told me you are waiting for me to call the bottom. I am not going to do that. The bottom will not need to be called because when it is time to buy, the numbers will tell you so.
Asking Price: $843,900
Address: 59 Emerald, Irvine, CA 92614
{book4}
Time — Pink Floyd
You are young and life is long and there is time to kill today
And then one day you find ten years have got behind you
No one told you when to run, you missed the starting gun
I will never call a bottom. For any of you waiting for the big announcement on the IHB that the bottom is here, that announcement will never come.
I have written about the market bottom on a number of occasions including: The Market Bottom and Fundamentals at a Market Bottom, and I have predicted where the bottom will occur in Predictions for the Irvine Housing Market, and I followed up with I Was Wrong, It’s Worse… But today, I want to talk about what will happen when we get near the bottom of the market and why I will not need to call it–and no, it isn’t because I am afraid to. It is because it is unnecessary.
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, asking prices and 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 values based on cashflow, 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.
I have been experimenting to find a simple way to communicate these ideas in a report people can easily understand. The chart to the left is my attempt. Let me explain what everything means:
Each property is subjectively evaluated to determine its desirability as a long-term residence. This is a subjective evaluation. For instance, today’s featured property would be an excellent long-term home. It is a large home in a good neighborhood with few negatives. If the best properties in the entire market would rank a 1, and if the very worst would rank as a 5, this one, IMO, is a bit better than a 2. The little green dot represents my subjective evaluation of this property.
The black dots represent different important price points every buyer should be aware of. The first is the “value,” if you want to call it that, of comparable sales in the market. This has nothing to do with cashflow, and it is based totally on what people are currently paying for similar properties in the market. As we all know, we are still deflating from a massive housing bubble, so this comparable sales value in Irvine is currently well above any reasonable cashflow metric. The Comparable Sales Value floats up and down this chart based on whatever people are currently paying.
The next black dot on the list is the asking price. This can also be just about anywhere. The frequent WTF listing prices I profile here would be off the top of the chart. Hopefully, if anyone is actually considering buying in this market, they would at least try to pay less than current comparable sales.
The next black dot on the list is the Maximum Cashflow value of the property. Do you remember the post, Investment Value of Residential Real Estate? As I begrudgingly described in that post, there is a legitimate financial reason to pay more than rental parity for blue-chip properties a buyer plans to own for 10 years or more. This is not a large premium over rental parity. The calculations in that post demonstrate you can pay up to 10% more than rental parity on a long-term hold because you obtain the benefit of the inflation hedge. This is not a price point for homes you know you will want to move up and out of in a few years.
The next black dot on the list is the oft-described rental parity. One of the better discussions of this concept is contained in Rent Versus Own. This is the price level most properties in Irvine should reach at the bottom of the market. At this price point, the cost of ownership is equal to the cost of a rental. In theory, a buyer considering only financial concerns would be indifferent between renting and owning at this price point.
The zone between rental parity and cashflow investor levels is the gray area where all the less desirable properties fall. This would include most condos, any two-bedroom properties and what are commonly known as “starter homes.”
The final black dot is the cashflow investor level. This is the price point where an investor can acquire a property, rent it out, and turn a monthly profit from owning the property. This is the bottom of the line for Irvine properties, and it is usually about 25% below rental parity. Many of the crappy condos that have been leading the charge to the bottom will find support at this price point.
The final number on the chart would be those properties nobody wants to live in. Does everyone remember Dr. Housing Bubble’s series Real Homes of Genius? Those are the properties I am talking about. What they really need is a bulldozer.
So with that lengthy preamble, let’s examine what a good deal would look like. Take a look at this listing in Corona, California. I have not pulled comps for sales and rentals, but just by looking at the property and the price, I can make a barely educated guess about the dynamics of the property. To me, this looks like a nice median Corona property. The pricing should be at rental parity; however, looking at this asking price and the comps, it certainly appears as if both comparable sales and the asking price are below rental parity. This would be a property to buy, assuming you want to live in Corona (I am not endorsing buying this specific property as I have not researched it in detail). A person looking at a property like this one in Corona would see a chart like the one at the left.
You see, there is no need to “call a bottom.” I only have to identify good deals. Over time 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 under our feet.
Asking Price: $843,900
Income Requirement: $210,975
Downpayment Needed: $168,780
Monthly Equity Burn: $7,032
Purchase Price: $639,000
Purchase Date: 6/24/1996
Address: 59 Emerald, Irvine, CA 92614
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,794 |
| $/Sq. Ft.: | $302 |
| Lot Size: | 5,500
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary |
| Year Built: | 1985 |
| Stories: | 2 |
| Area: | Woodbridge |
| County: | Orange |
| MLS#: | S570083 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
Rare find. Light, Bright and Spacious Home in Woodbridge. 4 Bedrooms
plus a den with 3 Baths. Vaulted ceilings, Sunken Living Room,
Breakfast Area, Fireplace in Family Room and Master Suite. Private Pool
in the Backyard. Woodbridge features 2 Lakes and Private Beaches, lots
of Parks, Pools, and Tennis Courts. Walk to schools and close to
Freeways and Shopping.
This property was purchased for $639,000 on 6/24/1996. The owner used a $500,000 first mortgage and a $139,000 downpayment. Just for giggles, I calculated the compound rate of return this property witnessed between 1996 and 2009. It works out to 2.16%.
| 2.16% | |
| 1996 | $ 639,000 |
| 1997 | $ 652,818 |
| 1998 | $ 666,936 |
| 1999 | $ 681,358 |
| 2000 | $ 696,093 |
| 2001 | $ 711,146 |
| 2002 | $ 726,524 |
| 2003 | $ 742,235 |
| 2004 | $ 758,286 |
| 2005 | $ 774,684 |
| 2006 | $ 791,437 |
| 2007 | $ 808,552 |
| 2008 | $ 826,037 |
| 2009 | $ 843,900 |
So much for the rampant appreciation of the bubble. At least this owner cashed out. She got a $750,000 first mortgage and a $300,000 second from Lehman Brothers back in 2006.
If this property sells for its asking price, if a 6% commission is paid–and this one probably will as it is priced below neighborhood comps–the trusties for the Lehman Brothers bankruptcy will lose $256,734.
This price isn’t at rental parity, and it isn’t at maximum cashflow value either, but it is making significant progress toward affordability. Wait, prices will get better.
{book5}
Ticking away the moments that make up a dull day
You fritter and waste the hours in an off hand way
Kicking around on a piece of ground in your home town
Waiting for someone or something to show you the way
Tired of lying in the sunshine staying home to watch the rain
You are young and life is long and there is time to kill today
And then one day you find ten years have got behind you
No one told you when to run, you missed the starting gun
And you run and you run to catch up with the sun, but its sinking
And racing around to come up behind you again
The sun is the same in the relative way, but youre older
Shorter of breath and one day closer to death
Time — Pink Floyd
Rental parity is becoming an increasingly suspect valuation. For many properties and neighborhoods, there is no reliable rental parity.
Numbers can be produced, but they are no better than comparable sales. The rental market is moving that fast.
What’s the rental parity for a place in Riverside? Honestly? What’s the value when there are ten homes that foreclosed on the block?
Can you buy one the $50,000 2 bedroom places and rent it? Yes. Will the cost of ownership numbers look good? Yes. Will it be a good investment? Who knows. If you’re good with tenant selection and get lucky, yes. If you’re not, welcome to your slum lord nightmare.
I’ve already talked to people in the IE where other homeowners are cherrypicking their neighbors renters. What should one use to figure vacancy in the IE?
You don’t have to be in the IE either. Come to Costa Mesa, HB, MV, you see other behaviors that foretell the rental market is tettering on chaos. If you’re private renting, just look around, the rental signs go up, and stay up.
The uncertainty you describe is why there is so much downside overshoot going on in IE. This is particularly bad in the fringe markets in Hemet, San Jacinto, Banning, Beaumont and surrounding communities. Unemployment is creating a situation where there are more homes than jobs. That isn’t good for the sales or the rental markets.
I think it’s hard to characterize this as “downside overshoot” when the point that No Such Reality makes appears true to me; where is the bottom? The fundamentals are awful and getting worse:
Home prices falling
Rents falling
Unemployment increasing
Bankruptcies increasing
Business failures increasing
And all of this is happening with the .gov doing everything they can to keep rates low, which seems like a losing game to me.
So is this home below rental parity? I guess, for now. But I’m not going to put any money down just yet to found out for sure when fundamentally there seems to be a lot of risk to the downside.
As a side note,
some of you know that I moved this last fall. September 2008. This is because my former landlord wanted to raise rent by 12% over what I paid in 2005. Which was lower than what he got when he bought the place in 1999.
After 6 months of being on the rental market he has finally conceded that he cannot get that rate. He has lowered it back to where it was when I moved in in 2005. And it still sits.
It will probably rent in a month or 2 at that price, but to move it right now, he’d need to price it lower than 2005 and nearly 10% lower than in 2000. The fact remains that Orange County is on the bleeding edge of rents anyway. Any small bump in the economy produces shocks throughout the area like ripples in a pond. When the balloon is stretched so tight, it’s easy to burst.
It’s too bad, I liked that house and only moved because he was insistent that it would rent for so much more.
I guess it is his loss but also a warning to others considering being a landlord. Keep good paying tenants. It’s better than 7-8 month’s vacancy.
“Rental parity is becoming an increasingly suspect valuation”
I completely agree. What is rental parity in an economy that we’ve never seen before.
I agree with everything you said.
It appears even rents were in a bubble.
From CR this morning:
http://www.calculatedriskblog.com/2009/04/apartment-rents-fall-4-in-socal.html
Yes sir.
Think about all the people who could have bought during the bubble years but chose to rent because they felt priced out. It created an artificial increased demand for rentals and we know what that means for rent prices.
Now think about all the people who are moving in together and doing the roommate thing in order to get by. Demand is going to drop.
I still remember when I first came on this blog and made the claim that CA rents were in a bubble just like the housing prices. I was constantly met with a salvo of frothing at the mouth bulls popping off about Irvine’s exemption due to its Sacred Land appeal and sometimes they would even try to change the subject and start telling me why they hated Phoenix so much in order to make themselves feel better about paying the premium.
How the times have changed…
Funny you mention that. January of 2008, I had to move from a bad situation, and was in a bit of a rush. So I took a year lease on a nice little apartment but it was *way* overpriced. When I viewed the apartment, there were two units available in an 18 unit building and they both rented the day they became available. That was the market in January of 2008. You had to jump on a place, even if it was half decent, because it would be rented after one or two days. I have the money to buy, but didnt want to get into the market again at those prices, I figured they would come down eventually. I had purchased a condo in 2000 and sold it in 2005.
Cut to today, I’ve moved into a nice little house closer to the beach, in a residential neighborhood, with three other roommates. I’ve cut my rent by a full 2/3rds. And my old apartment building, 18 units, has 5 vacancies. They are asking the same rent from over one year ago. And they cannot get anyone to take one. Go figure.
Phoenix is still a hellhole ;-P, but there’s no disputing the downward pressure on rents in the Irvine area. There hasn’t been much change yet, but we’ll see how long that lasts…
Phoenix may be a “hellhole”, but I can assure you, more people are moving there than here.
;-P
Orange County is different … LOL! Click on my name to discover why we’re going to hell.
.
http://www.crackthecode.us/images/luigi_mansion.jpg
I have noticed the rental market softening as well. Even in Orange County
> I’ve already talked to people in the IE where other homeowners are cherrypicking their neighbors renters.
I didn’t quite get that statement — could you expand on that?
IR, is this one of your properties?
No. I would say so if it were.
he made a funny, NOT
Thanks, IR. Keep fighting the good fight. As you know, you have many supporters who can’t wait to see you kick some behind in this industry! Time to take out the garbage…
No kidding! When I first started reading the analyses of this blog, I thought that that was the kind of information I should be getting from a realtor given the amount of money that flows into their pockets. Instead, I would just get a smiley face and someone to tell me how neat I would be to have an OC address.
I’m glad IR is getting into the residential RE business because he belongs there.
And the nice thing about IR, he’ll tell you mathmatically why you should buy. Really, it would be in our government’s best interest to have these cost analyses done on every home transaction.
Rental parity is a moving target. Even the homes that are now at, or close to “rental parity” are facing significant challenges in the future.
I believe IR has stated that he doesn’t think rents and incomes will decline in the 10-20% range for Irvine. This is the one place were I disagree with IR. First of all, we’ve already seen income in Irvine decline by 10%+ during the last financial bust at the beginning of this decade. I don’t know why we won’t challenge those declines during this debacle … I don’t know why we won’t surpass the last income declines. I don’t think I’m being extreme by making such a point.
I don’t think we should pay much attention to what we believe as fundamental factors or what the “numbers tell you” in an economy that is being re-calibrated. After the shock is over, and we see were we stand as an economy (the bar is reset), then analyzing prospective properties using basic fundamental factors like rental parity, debt to income, price to income, will be more applicable.
This is no time to make absolute judgements on real estate, including using fundamental factors that were relevant in a 25+ year orgy of debt. These are relative times, and everything regarding the valuation of any asset should be viewed with skepticism.
You may be right on all counts. This uncertainty is another good reason for people not to buy right now.
Oh, and don’t forget the likelihood of higher interest rates in the future and a slowing of sales when the artificial stimulants are removed from the market.
I am with Lee on this one.
I don’t see how Irvine is going to escape from this due to its heavy concentration of real-estate/mortgage/financial related industries being fueled by bubble money that is now gone for good.
The surviving businesses are not going to be in any position to be doling out these artificially high salaries.
If the economy turns around, all these unemployed people are going to be competing with each other willing to work for smaller salaries and over time, the median is going to go down.
Irvine should be hoping for salary reductions just to keep the jobs in the area and prevent them from going to other states where you don’t have to pay someone 100K per year so they can afford to rent a studio apartment.
From http://www.ritholtz.com today.
As your Corona listing that’s off 68% since a sale in 2007 shows, housing in the Inland Empire has collapsed, as unemployment soared to 12.2% in February, and as many as half the homes with mortgages are worth less than their mortgages.
I guess there is no MR on today’s featured property which is positive. It will need to go down in price, perhaps another 15%, unless job market holds up.
the clock that says when you post is off by one hour
This is an interesting article about the shadow inventory
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/08/MNL516UG90.DTL&type=business&tsp=1
Interesting article. And they are only addressing the props that are already REO. What about the 80% in pre-foreclosure that won’t be cured. It is going to get ugly.
I love the valuations IR does for us and I usually see the logical sense in all the numbers. However, there is still such a nagging sense that even the rents are wrong here in OC. There are million dollar + homes everywhere here – yes, current rent comparison might drop them to 900,000 $ homes but I just don’t see how we can even support so many 900,000 homes here.
No way – I know how it feels surviving on our income – which is way higher than Irvine median – and we can’t buy a 900,000. Once all the extra cash from people who sold homes during the bubble and can put down 50% dries up things here in CA will change I believe.
That is unless hyper inflation – with wage inflation – kicks in – don’t see signs of that yet though as someone else pointed out!
I’m trying to think about how large the potential rental market is for a house like today’s, or larger homes.
If I was renting I would rent ‘just enough’ house so as to be livable so as not to overpay for house I don’t really need so I can save for a downpayment. If I had kids I’d be willing to pay up to be in a good school district. But, I have 2 kids, so I’d not see I need much more than a c 2000 sq foot 3BR. Maybe I’m happier on the smaller side than some (lived in NY Studio for some years does that to you), but I’m not sure why anyone family of 4 needs to rent as large as today’s home let alone anything much larger.
I know you probably have a reasonable size expatriate market for rentals in southern CA which probably helps homes like this. But I’d think that is a finite universe.
Rent like anything else is supply and demand so while I can see the supply rising as people buy to rent out, I’m just not sure I see where the demand is for rentals, particularly at the above median properties.
We just rented. We came from Europe and after studying carefully this site went for rent. We thought rent prices will go down, and waited to the last possible moment, but they didn’t.
When we were searching we ran into a sale/rent by owner property and called him. He explained he prefer to sell. We only have to put 100k in cash, and take over is nortgage – 7,200$/month for 30 years!!!!!!
We figured out these guys in REO have to move out, but their kids are still in school they do not want to leave school area, and moving into a 4000$ rent is still much less than they payed to their lender.
So they just let go their property to the bank, moved into “above median properties” rent, and still save. That is why rent price don’t fall, and why there aren’t so many 4-5 BR rent in the “good” neiborhoods.
We rented from someone out of state who bought at the end of 2008, below market price, but still too high for me, (+/- 350$/sqf) 50% cash.
I will reserve my full judgement until a later date…. but this blog does feel different already…
There is a different tone – it’s definitely not the usual Schadenfreude party.
I am accustomed to stopping by and reading about all of the stupid things that home-buyers did during the bubble and then getting a nice juicy example to look at and mock.
The tone appears to now be moving away from that and toward figuring out when it will be right to buy. The topics are still relevant, but they may appeal more to the “When will it be safe to buy?” crowd rather than people like me who want to see cash hemoraging from every orafice of some 30K millionaire nouveau riche trouser stain.
http://forums.redfin.com/rf/board/message?board.id=LA_OC&message;.id=7440#M7440
Here you go! 🙂
I think Kitty meant this redfin forums link:
http://forums.redfin.com/rf/board/message?board.id=LA_OC&thread;.id=7440
SanJose Renter
This one:
“Cheerleader”for Realtors gets foreclosed on! (http://lansner.freedomblogging.com/2009/03/25/oc-prognosticator-defaults-on-rental-house/17639/)
From the piece:
“Watts, the chief prognosticator for the Orange County Association of Realtors, once was one of local real estate’s biggest boosters. Where others saw a market slump, Watts kept seeing price gains.
In 2006, Watts forecast a 15% price jump. Instead, sales dropped 28% and prices rose a meager 2.4%.
In 2007, Watts predicted that local house prices would increase 7%. Following the subprime mortgage meltdown, and prices ended the year down 10%.
In 2008, he thought gains of 3-5% were conceivable for houses. By year’s end, the whole economy had tanked, and Watts had issued an apology. Home prices fell 30%.”
Don’t worry, I will look up a good HELOC abuse case for tomorrow or Friday. I still enjoy the train wreck too.
I am craving an ’07 knife catch or an Option-ARM recast walkaway. There’s gotta be some of those hitting the market about now.
I am all for getting ready for the bottom, but the knife catchers are going to tell the next chapter of this saga so please make sure that their important story gets told.
Or maybe even an update on Domino‘s housing empire (might be a little soon for that right now).
I feel the exact same way, mainly due to this little sentence.
“For instance, today’s featured property would be an excellent long-term home.”
Well, in all due fairness, I do believe that IrvineRenter has stated from early on that this blog will eventually become bullish as prices decline and become more affordable. If I am wrong, feel free to correct me as I am saying that from what I believe to have recalled reading in the past but do not have any links to prove it.
I sort of envisioned that period beginning in the 2011 area as I think ’09 and ’10 are going to be too volatile to make a safe decision on whether or not to buy. There are still many foreclosures going through the motions and the interest rates are still way too low. We have a long way to go.
Are you telling me this isn’t an excellent long-term home? I didn’t say or even suggest it was a good price, I merely pointed out that it is a desirable property that someone would want to live in for the long term. If it were $250,000 cheaper, I would consider living in it.
Look, you can see whatever you want to see. I cannot control that, and I have no desire to. I am not going to spend my time second guessing statements of observation because someone somewhere might find some way to construe it as realtorspeak.
I think that halfnote19 is taking exception with the phrase “long-term” as it has been weaponized by the NAR to convince people to speculate.
Whereas you were using it in the context of “quality of life” as someplace you would consider living for an extended period of time and not want to hang yourself – he/she interpreted it from the context of a monetary investment.
I did interpret it from the context of a monetary investment. Since everything tends to be based on relation to money/rental parity. Is that not what IR was referring to?
You are reading too much into it. I was just saying this is the kind of home someone would be happy to live in for 20 years. It isn’t a crappy condo.
Hey IrvineRenter,
A couple of suggestions. You might want to color-code the asking price and comparable sales price as these are the actual offered price neighborhood comps. I assume that the other values (1 through 5) are more or less stable and depend on real values (rental based numbers).
We should be seeing a lot less volatility in them and it would make your price chart easier to read.
Of course, this suggestion only makes sense if I understand your evaluation chart (which I may not). I also think you might be pricing to graphs (or concepts) into one chart without clearly delineating between the two (desirability the 1 to 5 scale) and price versus fundamental valuation metrics. You might want to break the rating system into two parameters and develop a combo rating so that others can understand your rating more intuitively.
Dejnov.
Thank you. I will consider your ideas on my next iteration.
Ultimately, I need to get this into an Excel chart. I have a spreadsheet to run all the numbers, but coming up with an intuitive display of the data is challenging, particularly given the limitations of Excel’s charting.
I think the above is hard to read/understand. If it takes you ~1000 words to explain it, it isn’t obvious enough.
Here is what folks REALLY want to know:
[Example]
Can I rent something better for less: Yes/No
If you answered NO to the above, how much do you save/make per month:_________________
Is this a good Investment Property: Yes/No
[/Example]
If someone wants to know why, THEN you can use your chart…. Even my example above is not clear enough as people will have to [gasp] READ [/gasp] it without colors and pictures. 🙂
I shouldn’t have generalized on all “folks”… Some folks, maybe like me.
There are some factors you can use to consider a bottom but as in the stock market by the time you wait for the green flag you missed the boat. If you want a house now do your homework figure out a correct price for it and low ball the bid you might get even lower than you expected because of the fear factor.
Once we hit a bottom which is when supply is absorbed and demand is higher and Ben now has increased the fed rate. Now he can’t touch it because it’s too low so all he can do is flood the money supply to keep the 30 year down to under 5% but of course those are for loans under the conforming limit.
Loans over 500k plus are starting at 8%.
Those with equity in their homes may try and sell now because they fear they will lose that and wish they had sold earlier can still hold the line in price but as the fear continues to spread they will drop if they really want to sell.
What seems to be gone from the equation is comps—banks are still loaning if you have the fico score plus deposit regardless of the rest of the neighborhood this should effect future sells when we finally wash out all the foreclosures. Which will hurt you in the future if you over pay for a remodeled home.
Similar to the one IR posted last week–1.3 asking price in a 500k plus neighborhood.
With under 5% interest rate it is a bargain in many parts of the county now especially with tax incentives to buy. Here in the OC it’s still slim pickings but we were at least one year behind the rest of the country so a good time would be Sept. into Dec. time frame if rates hold steady.
Rents are going down–my landlord is actually fixing a few things here and he has told me his line of credit had dried up. He over extended himself. Amazing how much debt people took on.
One more thought if you have cash and see rates moving you are now in control because cash is king.
http://www.zillow.com/homedetails/59-Emerald-Irvine-CA-92614/25491193_zpid/
is this $812k what the bank paid for this home?
or did someone already buy it–
I noticed the sale at $812k just a few months ago as well. My guess is this is what the bank bought the home for and they are trying to mark it up a bit. It will be interesting to see if they are successful getting a premium. This listing must really upset the other sellers of very similar houses nearby – 30 Foxboro at $1.159 million and 22 S Emerald at $1.019 million.
Looking at this house it needs so much work –the floors, kitchen –total updating big time. I would not pay over $700 for it–
and we don’t even know what the condition of the pool–
needs a lot of work–
Yes, when they mention a pool and don’t show any pictures of it you have to wonder. Plus, this is a pretty small lot (5,500 sq. ft) for a pool, let alone any backyard…..
The rental market is ridiculously soft right now. The gap between the landlords in reality and those who are still in 2007 (and the agents who really think they have any leverage as gatekeepers) is huge and growing.
Rents and prices are heading back to 1994 on a maglev train.
When Irvine Co. is lowering rent without the tentant asking you know the rental market is soft. TV news report rent in OC down 4%. That’s even before the bad employment figure hit OC.
Net rental income is hard to forcast. Typically the projected numbers are near best case situations. Good tentants can rapidly become bad tentants with lots of damages to the unit or hidden problems needing repairs. Hard to collect from someone with no income or crazy. I personally would have an empty unit than a bad tentant. 5% vacancy, who are they fooling? it typically takes at least one month to prepare and rent a place.
My lease is up this June.
I can afford to renew it, however, I think I’ll move back home to my parents’ house just to “twist the blade” into the rental market!
How dare renters complain? They should be happy that we let them live in OC. Just you wait ’till we hit them with a 10% tax for renting in California. That will fix the economy, create a new wave of buyers and cure cancer. Obama said so!
“Just you wait ‘till we hit them with a 10% tax for renting in California.”
Go ahead! Tax away!
People only rent what they can afford (unlike buying houses during the bubble). So, a tax increase will get factored into the cost of renting and rents will decline as a result.
Jeez… but Obama will cure cancer and that will free up trillions of dollars for renters to buy houses in Laguna Beach.
Can’t you people see sarcasm?
I see your sarcasm and raise you pity.
I know you were being sarcastic.
However, my point is still valid. They can tax us renters, but it ain’t gonna doing anything because you can’t squeeze blood out of a turnip.
Renters are turnips. However, these days everyone is a turnip – unless you are part of the Wall St./Washington cotorie.
Anyone have any ideas on how to assess the ‘shadow inventory’ in the area? It’s been commented that many banks are not selling foreclosed properties.
It seems you need to flush out the excess before other homes can appreciate. In essence the foreclosed homes become the ‘market price’.
http://www.calculatedriskblog.com/2009/04/shadow-inventory.html
That is a good question. I know someone who went into default last summer. They havent paid a single dollar to the mortgage in 10 months and still have not been foreclosed.
I’ve got you beat by a mile.
A friend of mine defaulted on his 1.8M note in May of 2007.
he still lives in the house. Has been through 6 short sale offers that fell through.
Chuck
John, that’s the ‘$64,000 question:’ what’s coming to market soon.
I track defaults very closely and still have not found a ‘rhythm’ to the process. My guess is that each bank/investor/servicer is dealing with defaults differently: I know some are holding off moving forward with short sales due to the potential of getting more $$$ from the Obama admin.
Looking purely at the Credit Suisse ARMS reset index, one would assume a large # of defaults this year, but that probably doesn’t take into account any successful workouts.
Nor does that chart take into account any sales/refinances/foreclosures, etc.
Matter of fact, I went so far as to email ivy zelman, creator of that Credit Suisse chart back in 07. My question – all those resets we see in the 2009-2012 period – how many wont happen because of sale/refinancings/foreclosures/workouts, etc.
She actually responded. She says the doesnt work for Credit Suisse any more so she isnt sure. However, her guess is that the number and amout of resets in the 2009-2012 period has been knocked down by a “substantial amount”.
So there you have it folks. I have no idea what a “substantial amount” means, but bottom line is I have no more faith in the accuracy of that reset chart any more…
I read a recent report that said of all the defaults that have occured, roughly half go into foreclosure that DONT get modifications.
Of the loads that do get mod’s, only 25% of those go BACK into foreclosure.
Believe it or not, this was spun as a positive which is odd to me because loan modifications don’t have a very long history. Who is to say that the other 25% won’t defualt again in the next 12 months? LOL
At least they get another 12 months of payments out of the mortgage slave.
Ummm, does 25% + 25% = 100%? I think you are saying that 25% of the mods (so of the 50% with modes, 25% of THOSE) turn into foreclosures. So 25% of 50% is way less then 25% of 100% (half I would say).
The impact of those workouts may be tangible in markets outside of California where GSE financing can help save the day. Here in California, very little of our financing was eligible for any loan mod programs, so although the national chart may have been altered, that portion of the chart representing California is still out there resetting even now.
I typed a big long astute observation about how loan mods ARE getting done in CA, but when I hit “submit” I must have typed the anti-spam word wrong and lost it (or I’ve been banned?).
Suffice it to say that loans can be modified in CA (they don’t have to meet GSE requirements because Lenders are just doing the mods voluntarily with no incentive).
Then I went on a rant about how even a 3% mod with 10 years tacked on the loan isn’t enough to save many in CA (they either refuse to sign, or agree to sign and then re-default)… and don’t get me started on Option Arms (again) – we haven’t found a solution for them, yet, and they are set to explode. A large portion of CA simply cannot afford the home they have, period.
PS I work for a lender going through their subprime/alt-a portfolio trying to fix loans. I don’t work for a “third-party” (and I’m not a former mortgage broker). I’m one of the good guys, trying to help people, so don’t attack the modguy 🙂
Oh, and don’t pay third parties for loan mods. They are part of the problem. Call your lender and they will work with you for free (takes some patience, we are overwhelmed right now).
replying to tonyE 2009-04-08 10:21 AM
How dare renters complain? They should be happy that we let them live in OC. Just you wait ‘till we hit them with a 10% tax for renting in California. That will fix the economy, create a new wave of buyers and cure cancer. Obama said so!
Yes we already pay that- they call it state taxes. Or maybe you mean the sales tax? .. taxes are where the money is coming from to fund POORER people to buy homes with up to 8K tax credits and 10K new home credits… If you could actually afford those homes, you wouldn’t qualify for the credit – the credit would be phased out by virtue of you actually having enough income.
cancer cure – well yeah there’s always a cure. Dying kills the cancer but it has unfortunate side effects. I think I prefer the stem cell research approach.
rents go up and down with demand but the big factor is jobs. OC register keeps reporting new hiring – FDIC and Verizon jobs just two nice big batches that spring to mind recently The job cuts seem to have abated for a while
Hmm… google “sarcasm”.
And we’ve never gotten a “stimulus” check, neither this year nor back in 1993 either.
We are at the bottom according to Diana Olick:
http://www.cnbc.com/id/30111893
I called the agent for this house today to see if they have any open houses scheduled, and she called me back and told me that she “expected multiple offers on this property, so if you are interested you should arrange to see it soon.” This could be typical realtor BS (“Move quickly or miss this great opportunity!”), but actually this price is pretty low compared to some other recent sales in Woodbridge in this neighborhood. I would speculate that there are some knife catchers lurking in the shadows who think this is a good deal…..
It is one of the prime streets of South Lake– but I also wonder if there is any noise issues by backing to the alley of the Estate Homes? I have friends in North Lake who live behind Estate Homes and have had some issues.
We have friends that live about a block from this house. There is very little noise there. This part of the loop does not get much traffic, and it is far enough from the 405, that you don’t hear it much either.
IrvineRenter,
Are you sure this house was sold back in 1996 for over $600K?
That does not look right – it was almost a bottom of the previous housing recession – houses like that were selling in $200-$300K price range. I know as we’ve purchased our first house in Irvine in 1997 (3 bd townhouse) for $179K…
I am only as sure as my data source. It showed both a $639,000 purchase price and a $500,000 first mortgage. It is possible the year was incorrect; it may have been 1999. I don’t know.
I have noticed the rental market is going down as well
yep the prices are odd i\for 1996
I love this blog and wish IrvineRenter well in his new endeavors.
I have been waiting quite some time to buy and I am still waiting. I think I’ve learned a lot from IrvineRenter’s posts and the comments. I just wanted to say thanks.
FYI, that 1996 price, if anyone remembers was the high point in the last bubble. To get to true valuations, one must go back to mid 90’s, say 1992, 1993,1994 that will give you a good start for both home prices and rentals.
Wow. Looks like 59 Emerald is already in “Backup offers accepted” status. Sold in 3 days!