The people who spent their homes are the ones selling now. Today we have two in the same neighborhood.
Asking Price: $558,880
Address: 182 Garden Gate Ln Irvine, CA 92620
{book1}
There’s a stale morning light
In the garden where you lay
All through the night
Through this poisoned nightmare
Have you set yourself free?
The Garden — The Creepshow
The theory that prices can hold up in Irvine all revolve around resident’s ability to make mortgage payments (They better not fall behind). If everyone in their overpriced homes continues to make their payments, then we will not have large numbers of REO, and prices will deflate slowly as the cash buyers spend themselves and fundamentals catch up. At least that is the theory. (There is also the theory that house prices have bottomed and that they go up by magic.)
I have profiled dozens if not hundreds of properties where the owners increased their debts and effectively spent their homes. The most distressed owners have already been foreclosed on, but there are many more spenders in distress due to the enormous debt burdens and the shaky economy. This crisis is not over until all the HELOC abusers have been flushed from their homes. Until then, we will see them bolt from the ethers like the properties today.
From The English Garden:
First, I want to say this is one of my favorite neighborhoods in
Irvine. It features architecture reminiscent of a small English village
with quaint cottages. There are few visible garages, the sidewalks are
detached from the street, and the trees make for a great street scene.
It is very close to Canyon View Elementary in Northwood. If prices were
not ridiculous, I would buy in this neighborhood.
Asking Price: $558,880
Income Requirement: $139,720
Downpayment Needed: $111,776
Purchase Price: $186,000
Purchase Date: 4/4/1998
Address: 182 Garden Gate Ln Irvine, CA 92620
| Beds: | 2 |
| Baths: | 3 |
| Sq. Ft.: | 1,182 |
| $/Sq. Ft.: | $473 |
| Lot Size: | 2,132
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Cottage |
| Stories: | 2 |
| Year Built: | 1998 |
| Community: | Northwood |
| County: | Orange |
| MLS#: | S585660 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 7 days |
IS NESTLED ON A LARGE, PRIVATE INTERIOR LOT W/ A WRAP AROUND YARD.
LOWER LEVEL OFFERS AN OPEN, BRIGHT GREAT ROOM W/ MANY INTERESTING
ARCHITECTURAL TOUCHES, CUSTOM BUILT-INS, A ROMANTIC FIREPLACE AND
HARDWOOD FLOORING. CENTRALLY LOCATED KITCHEN IS IDEAL FOR ENTERTAINING
AND OFFERS A GAS COOKTOP, MICROWAVE, HUGE CUSTOM PANTRY AND RECESSED
LIGHTING. UPPER LEVEL INCLUDES A MASTER SUITE W/ SHOWER, DUAL SINKS AND
A WALK-IN CLOSET; OFFICE W/ BUILT-INS AND TRACK LIGHTING; AND A JUNIOR
SUITE W/ FULL BATH. ADDITIONAL AMENITIES INCLUDE CUSTOM PAINT, EUROPEAN
BERBER CARPET ON UPPER LEVEL, CEILING FANS, GARAGE FAN, CUSTOM STAIR
RAILS WITH COTTAGE CUTOUTS, AND HEATING/AC SYSTEM UPGRADED W/ 2ND
BUILT-IN FRESH AIR SUPPLY (BOTH LEVELS) TO ALLOW BALANCING TEMPERATURES
UP & DOWN. CHARMING DUTCH DOOR LEADS TO PATIO & WRAP AROUND
YARD W/ A BRICK PORCH, PEBBLE AGGREGATE WALKWAY W/ BRICK ACCENTS,
MALIBU LIGHTS AND AUTOMATIC SPRINKLERS.
Do the Europeans make better berber carpeting as well as better bidets?
- This property was purchased on 4/4/1998 for $186,000. The owners used a $137,000 first mortgage, and a $49,000 downpayment.
- On 6/22/1998 they opened a HELOC for $10,000.
- On 1/19/2000 they opened a HELOC for $50,000.
- On 1/31/2001 they refinanced with a $210,000 first mortgage.
- On 6/29/2004 they opened a stand-alone second for $69,500.
- On 3/9/2005 they refinanced the stand-alone second for $130,000.
- On 1/10/2006 they refinanced the first mortgage for $348,924.
- On 3/31/2008 they refinanced the first mortgage for $342,141.
- Total property debt is $342,141.
- Total mortgage equity withdrawal is $205,141 including their $49,000 downpayment.
Surprisingly, this isn’t egregious compared to many I have profiled, and their debt is low enough they will not be a short sale. Is this sophisticated financial management or crazy and lucky? If given the chance, people who have succeeded using these techniques will use them again.
{book7}
Our second property has been featured before in A Warning about HOAs.
Asking Price: $670,000
Income Requirement: $167,500
Downpayment Needed: $134,000
Monthly Equity Burn: $5,583
Purchase Price: $499,000
Purchase Date: 6/28/2002
Address: 74 Turnbury Lane, Irvine, CA 92620
| Beds: | 3 |
| Baths: | 4 |
| Sq. Ft.: | 2,400 |
| $/Sq. Ft.: | $279 |
| Lot Size: | 3,562
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Other |
| Stories: | 2 |
| Year Built: | 1999 |
| Community: | Northwood |
| County: | Orange |
| MLS#: | S564755 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 179 days |
be converted into a bedroom. kitchen has large center island with
granite counter top. Laminate wood floor, Beautiful backyard with
covered patio and built-in B.B.Q. Master bathroom has tub and european
bidet.
At least I know what the bidet is for now….
- This property was purchased on 6/28/2002 for $499,000. The owners
used a $399,000 first mortgage, and a $100,000 downpayment. So far so
good. - On 5/20/2003 they opened a HELOC for $82,000.
- On 10/4/2004 they opened a HELOC for $248,000.
- On 4/18/2006 they refinanced with a $650,000 1 year ARM.
- On 6/13/2006 they opened a HELOC for $160,000.
- Total property debt is $810,000.
- Total mortgage equity withdrawal is $411,000 including their $100,000 downpayment.
If this property sells for its asking price, and if a 6% commission is paid, the total loss to the lender will be $180,200 assuming this borrower fully tapped the HELOC.
There is plenty of talk about a bottom. The market cheerleaders and denial inducers are working overtime. Do you really think this is a bottom?
The “bottom” question depends on which bottom you’re trying to call. The bottom for housing prices, or the bottom (top) for inventory. And which one will bottom first?
I think the people calling a bottom are wishing the night away. At best this will be a lackluster fall/winter selling season. But I think we have another huge housing crash in front of us, either this fall or next spring. There has been no real capitulation…something still needs to shake the trees.
I think a crash in China might be the next thing to bring us a leg down, but that’s just a wild ass guess.
And to answer my own question, I think inventories (real inventory, not shadow inventory) needs to peak before we see a bottom in housing.
From what I’ve seen near my parents & in-laws, low to mid end has capitulated. Condos that sold for 96k in 2005 bank sold to investors for 10.4k. There are still hangers-on, pretty much waiting for FC, probably enjoying a rent-free lifestyle putting that mortgage payment money into bk-protected assets.
What makes Irvine different than SoFL, from what I’ve read here, is the lack of overbuilding. In a lot of cases it was the builders/developers that capitulated first – WCI bk’d a year ago.
In appreciating environments, it seems like you could use refinancing to pay for your home. If it costs 7.5%/yr cash-outlay – tax savings, but your home is appreciating at 10-15%, you could cash-out every year, or every other, use the proceeds to make your payments and even have a little left over! That works…until it doesn’t. You get double banged with a higher payment and no refi proceeds to cushion it. You should look at a property and estimate net cash paid to keep it (total PITI payments – tax savings – refi cash out). It seems like many will yield negative numbers – free living!
According to Redfin, the sold $/sq ft of Irvine houses has been flat for 11 months now. How much longer does that have to occur for people to accept that a price bottom has occurred? 2 years? 3 years? Longer?
Theories about how people can’t afford these properties are just that, theories. The actual numbers tell a different story.
Now, a bottom doesn’t mean prices will go up any time soon-it just means they have stopped going down.
I am not sure about Redfin when it comes to Irvine sold homes. Few months back when I was looking, Redfin rarely showed sold homes properly. I think if one wants to look at sold homes in Irvine it better to use “trulia”.
Not sure why, but I did not see such a problem for Ventura, San Diego etc.
I just checked; Trulia shows similar stats.
Prices stay flat…product gets better.
Pretty simple.
According to Redfin, the sold $/sq ft of Irvine houses has been flat for 11 months now. How much longer does that have to occur for people to accept that a price bottom has occurred? 2 years? 3 years? Longer?
If all factors are normal, flat prices would point to a bottom. I’m not even going to list the factors that make this market abnormal…
There is no bottom in LA home prices, or Irvine.
The lending being used to try to support prices won’t last. Interest rates will rise.
As the foreclosure moratoria expire, and more people experience unemployment and resets, more properties will be dumped on the market, especially the high end.
If the Fed Govt could continue its support, you would see a slow downward trend. If the first time homebuyer credit, Fed buying of MBS, or Fannie/Freddie/FHA loan guarantees change substantially, the other false supports will end.
I am worried about the effects of the Fed releasing names of who has received how much support under various programs. Watch out next week.
I agree about being afraid. They’ve done a great job of keeping this under wraps for a year. In 12 months they haven’t done ANYTHING to address the imparment to the lending book these guys are claiming. The repeal of “Mark to Market” bought them some time, but eventually the rotting corpse of these overvalued assets will be exposed for what it is. A rotting corpse.
Why are you worried about the release of names? Other than arouse the ire of hapless taxpayers, I don’t see any risk to named parties providing the Fed continues to treat the situation as it has.
I’m worried because it will show a number of banks which are on the FDIC’s watch list. Those banks will be taken over faster.
The FDIC doesn’t have enough money or manpower to take down 50 medium sized banks in a month. They can get various cash advances and lines of credit.
“Richard Bove, an analyst with Rochdale Securities, told Reuters in a report that the FDIC’s Insurance Fund may need to collect an amount that would equate to about 25 percent of U.S. bank industry pretax income in 2010 to stay afloat.” http://www.americanbankingnews.com/2009/08/23/fdic-deposit-fund-may-need-25-of-u-s-banking-profit-in-2010/
Even worse, the banking industry stands a good chance of losing money in 2010. All that’s required is either: recognizing actual losses in mortgages and CRE, or a big rise in short term borrowing costs, or big markdowns on the banks’ investment portfolios.
Previously, many people thought that the banks would use profits to help dig out of their own holes they dug through irresponsible lending. More and more, it will become a question of whether surviving banks can make enough money to cover FDIC charges arising from OTHER banks’ stupid decisions.
I also predict that the FDIC charges will go high enough that many banks will try to rearrange their borrowing and deposits elsewhere in the holding company, to minimize fees. Shadow banking might return.
That’s quite a price per square foot differential on those two places, care to comment?
The owners at Garden Gate think they have a load of equity, so they have priced to fantasy. The owner at Turnbury Lane is a short sale priced to attract offers. With such different outlooks and goals, the pricing is reflective of the owners situations.
Realistically, why would someone buy the property at Garden Gate when you can get double the square footage and one more bedroom for only $120,000 extra?
the cottage is really awfully cute though, at least in pictures. (real real tiny though) I can see it commanding a higher price per square foot. Just not, you know, double. Actually I bet if they put it up for 279/sqft (330k) they’d sell. Still seems like an awful lot of money for 1100 sqft but irvine prices always seem high to me.
I was in the second house a few months back during an open house. Hadn’t been prepped for showing, so it was dirty and cluttered. One of the bedrooms was the upstairs loft area blocked off from the stairway with a sheet.
I have seen this house too, the kitchen was very dirty and needs work, there are a group of teenagers living in the house. The house is full of floor to ceiling mirrors. The bank is insisting on a WTF price hence most of the low offers are rejected. I am guessing that this house will be another FC statistic.
A Bottom … A real Bottom?
These are other homes, all within 1/4 of a mile from the home on Turnbury mentioned above.
Here comes what many of us have warning about:
618 Timberwood, Irvine, CA? – more info »
$407,200 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
49 Sconset Ln, Irvine, CA? – more info »
$572,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
39 Darlington, Irvine, CA? – more info »
$544,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
50 Arborwood, Irvine, CA? – more info »
$616,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
9 Blue Spruce, Irvine, CA? – more info »
$999,999 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
215 Darlington, Irvine, CA? – more info »
$300,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
10 Foxcrest, Irvine, CA? – more info »
$810,000 0 bed 0 bath
“This property is up for Auction. The preforeclosure phase has ended and the lender seeks to recapture its losses by auctioning the property in a public …” realtystore.com
963 Somerville, Irvine, CA? – more info »
$536,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
75 Trailwood, Irvine, CA? – more info »
$1,040,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
12 Maywood, Irvine, CA? – more info »
$269,900 0 bed 0 bath
“This is an REO, meaning this property has been foreclosed on because the owner couldn’t meet their payments. The bank now owns this property.” realtystore.com
“Pre-foreclosure.”
Yeah.
I work with 3 different people who are playing this game with their banks. One individual hasn’t made a payment in 10 months – SAYS he has all the cash stockpiled – and is working with the bank to adjust rate/term and hopefully prin. The other two are a few months behind, but all are playing chicken with the bank — and all are ready and willing to give the house up OR stay put, provided the ‘work out’ gets the payments to 30-33% of gross income. There was a fourth, but he was in a low end place and the bank bounced him out right on sched. the rest are in 3 and 4br SFRs.
In other words, yes, it’s an REO pipeline, but that’s all it is – a pipeline. Only a portion of those will make it to REO stage. The banks are moving slowly on all fronts to do anything, and are going to lose no matter which course they take. The question is, how to mitigate the loss?
If YOU were the bank, what would YOU do? Since most on these boards are aggressively bearish, you believe prices are going to crash HARD. Given that, why WOULDN’T you work out the loan, esp with a fed guarantee post-workout?
this is the prob with gov intervention. it changes the rules completely. you can’t look at a CSFB or C-S chart and make a thesis — you have to overlay the reality of changing policy. this is going to be long and painful…
The shadow inventory is finally revealing itself. Since february of this year, there has been zero house for sell in my corona neighborhood. All of a sudden, in the last two weeks 5 houses are now on the market. I forsee decent price drops this fall/winter. Now the question is…what impact will the removal of the $8K tax credit have on top of this?
“I don’t care what you say, my anecdotal evidence agrees with my reality.”
The $8k tax credit might hurt the low end a bit, but will not affect the prices of properties above a half million or so, because to afford such places one would have to make more than the income limits of the credit.
Even on the low end, it might not change things that much. Let’s assume half the buyers drop out. Instead of, say, a dozen offers on every low end property, there will then only be six. Hardly the stuff that will cause further price decreases.
Plus, there are some indications that the government may extend and possibly even expand the credit (increase the size to $15k, remove the first time home buyer and income restrictions).
When I was a kid, we had a bidet.
I had no clue what it was for, so I used it to float my little plastic boats.
In today’s world, with daily showers, a bidet is useless. Like many things invented by the french, mustard, it covers up the problem (rotten meat).
However, I guess it looks good.
Oh yeah, I had these neat plastic soldiers that would ride in the plastic boats.
I guess we could call that my “bidet marine wars” period.
Turtle Ridge is absolutely full of homes that are delinquent. These people are running out of time and options.
The Tsunami – Hell Storm is now upon us:
33 Gingerwood, Irvine, CA? – more info »
$652,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
224 Coral Rose, Irvine, CA? – more info »
$497,600 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
124 Roadrunner, Irvine, CA? – more info »
$600,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
120 Jadestone, Irvine, CA? – more info »
$449,800 2 bed 3 bath
“This is an REO, meaning this property has been foreclosed on because the owner couldn’t meet their payments. The bank now owns this property.” realtystore.com
108 Coral Rose, Irvine, CA? – more info »
$400,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
223 Danbrook, Irvine, CA? – more info »
$534,600 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
24 Rose Trellis, Irvine, CA? – more info »
$1,499,900 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
8 Canyon Terrace, Irvine, CA? – more info »
$700,000 3 bed 2.5 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
23 Bower Tree, Irvine, CA? – more info »
$650,000 0 bed 0 bath
“This property is up for Auction. The preforeclosure phase has ended and the lender seeks to recapture its losses by auctioning the property in a public …”
29 Hidden Trail, Irvine, CA? – more info »
$1,000,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
28 Sylvan, Irvine, CA? – more info »
$1,610,000 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …”
28 Woods Trail, Irvine, CA? – more info »
$1,758,750 0 bed 0 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
8 Canyon Terrace, Irvine, CA? – more info »
$700,000 3 bed 2.5 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
19262 Sierra Inez Rd, Irvine, CA? – more info »
$650,000 4 bed 2.5 bath
“This property is a Pre-Foreclosure. The homeowner has missed at least one payment and may be willing to sell this home at an attractive price, in order …” realtystore.com
12 Misty Shadow, Irvine, CA? – more info »
$415,999 0 bed 0 bath
“This is an REO, meaning this property has been foreclosed on because the owner couldn’t meet their payments. The bank now owns this property.” realtystore.com
TOO MANY TO LIST!
But you can bet your bottom dollar … we’re close to a real estate bottom here in The OC.
🙂
The question is, do those pre-foreclosures actual turn into REOs, or do they get loan mods? Now, keep in mind that the loan mod programs are just starting to ramp up in many cases, so the low percentages of completion of loan mods so far may not represent the percentages of people who, in the end, get loan mods.
If, in the end, a lot of those pre-foreclosures get loan mods, that would keep inventory low and support a bottom. If they all get foreclosed upon, especially if all at once, prices might drop further due to an increase in inventory. But right now inventory is very, very low, supporting the bottom.
Once a property gets to this point, there’s very little turning back. Loan mods barely work to conclusion.
Keep wishing the night away, Geotpf. I hope you’re right; I’m betting you’re wrong.
U.S. Mortgage Holders Less Likely to Dig Out of Delinquency
http://www.bloomberg.com/apps/news?pid=20601087&sid=aC_dNm0IG400
I know a guy who stopped paying. They modified his loan so he had a lower payment. He still refuses to pay a dime. There will be a decent percentage who go this route – maybe not right now as the consensus is we’ve reached bottom – but in time, when prices continue their descent this will become popular.
IR: “The most distressed owners have already been foreclosed on,…”
I disagree.
First, now that 35 of the largest lenders/servicers have signed on to participate in Obama’s Home Affordable Modification Program (covering virtually all mortgages), they have agreed to immediately put on hold any active FC when a borrower that might be eligible applies for it. It’s automatic.
Second, we learned of a glitch yesterday that failed to pick up FCs that were left on hold after the mod was denied or never executed… Hundreds from a Year ago. I’m sure this happens on an even larger scale at the big banks!
Free rent!! But eventually a lot of these will still wind up in FC months from now.
First, now that 35 of the largest lenders/servicers have signed on to participate in Obama’s Home Affordable Modification Program (covering virtually all mortgages)
Nope.
Who is eligible for Obama Mortgage Relief Loan Modification?
1-Have obtained the mortgage before Jan 1, 2009
2-Have the primary mortgage of less than $729,000
3-May be default or at risk of the default
4-The home should be owner occupied
Who is NOT eligible?
1-Speculators, who bought as investment property
2-Not a jumbo mortgage loan
3-Those who misrepresented their income in the home loan application
In most communities, “virtually all mortgages” are covered. But not here in Irvine. We have plenty of jumbo mortgages exceeding 729k.
Correct, I was speaking nationally. I recently put dozens of FC on hold nationwide and other parts of CA – without even having yet had a conversation with the borrower, but since this is an Irvine-centric blog, you’re right… HAMP won’t apply to those who’s first mortgage is > 729,000.
hmmm… I count only 4 on your list that are over $729.
don’t get me wrong, the high end is going to fall, but your thesis is incomplete.
A bonafide bottom won’t happen until the government stops meddling. Until then, any bottom-calling is purely self-serving. The government has no interest in keeping people in their homes long term. These silly modification programs are a short-term fix whose only purpose is to keep mass foreclosures from happening all at the same time. People doing loan mods WILL eventually lose their homes. Until then, and until government stops meddling, this game will continue. Bottom? Not for awhile. A long while.
+1. Much more succinct than my post earlier.
You assume the government will ever stop meddling. What if it never does?
The thing is, they will need to continue to up the anti. The 5.5% rates and the $8k bribe create demand by pulling it from the future, people who would have been buying 1-2 years from now are instead rushing to buy now. However, even if they continue these policies, we will reach a new steady state, where the buying populace has just time-shifted 1-2 years forward. Then the stimulative effect will be lost and they will need to up the ante in order to create more.
Just as there was a limit to how crazy of products banks could offer to sustain the bubble, there’s a limit to how insane of programs the government can run. And the crazier it gets the more painful the unwinding.
So actually, for stability, you had better hope they start slowly phasing out these low rates within a year or so, and set a phase out on the next installment of the $8k buyer bribe.
Gov’t will not stop meddling until housing/foreclosure news no longer command headlines of our national media. As long as the initial shock of housing collapse to the general public lingers and mainstream media keep sensationalizing on this topic, policy makers at all levels (White House, Congress, Fed, state and local gov’t, etc) will continue to feel the urge to do “something”.
But we will come to a time in the near future (in a couple of years perhaps) when we finally reach the point of fatigue by this housing saga. Foreclosure reports no longer evoke any emotional reaction stronger than weather reports. Housing deflation gradually becomes common knowledge that is mundane and boring and slowly fades away from public consciousness. You no longer hear people at work or cocktail parties talking about catching a good deal at foreclosure auction or projecting a market bottom. Media talk heads stop spewing all the pseudo-facts about the market on the daily news. And even your local realtor begins to quietly look for a job at that used car dealership…. Our gov’t will probably stop meddling in housing market at that point because there won’t be any tangible political reward for doing that any more. And the real price discovery based on the good old market mechanism will finally start which leads to the second stage of this downturn.
People always accept reality in the end – not because they see something new, but because they finally get bored of it…
If done correctly, a pull back of government incentives would keep prices steady. That is, the market will eventually recover organically. If the government waits until that happens, and then slowly raises interest rates, etc., prices will remain stable or grow slightly, preventing a second bubble down the road.
Personally, I think the government should have raised interest rates in 2004 or 2005 or so once house prices began to skyrocket. Would have prevented such an extreme bubble.
Geotpf,
I think you’re missing the point that compared to incomes, most Irvine houses are wildly overpriced. No matter what, the prices must fall to become affordable to people at 3-4x income. If Irvine incomes can support high prices, fine, but I don’t think they really can.
oops, I didn’t read this comment first, so obviously we agree on this half of it…
I agree with orcian, that a bottom won’t happen until the government is out of the housing market.
The Government is doing all they can now to spin the situation positively. Every good news is greeted with “housing is now in recovery”.
However, the fundamentals show that no matter how much money the government prints, it’s just going to hurt the government. We are not going to see inflation which is what the government is hoping for. Instead, it’s going to be deflationary, the reason why is that jobs are moving overseas.
The stimulus should of been infrastructure and alternative energy.
When a government prints money, how can that be deflationary?
Under normal situations printing money is inflationary, however, china pegged their currency to ours, so no matter what their products are going to be cheaper and their labor is going to be cheaper.
Also, inflation occurs when more people have more money. This is not the case. People are losing their jobs and they are in debt. So they are not buying anything.
Your theory is half-baked.
At the end of the day, we have increased our money supply. Unemployment has not traditionally been a factor in inflation — in fact, nearly every incident of hyperinflation has occurred when unemployment and debt have been out of control.
Wage increase is the main cause of inflation. If more people have money then we will see inflation. If people are out of work and can’t buy things we will see deflation.
That’s econ 101.
You have mis-stated reality.
Wage increases are an *effect* of infation that are part of the vicious cycle of inflation.
Currency devaluation is the main cause of inflation, which spawns asset inflation, and the cycle continues.
Read: http://en.wikipedia.org/wiki/Hyperinflation
When you talk about price inflation you are basically saying there are too much money and money-equivalent (credit) chasing for too few goods and services. Under normal circumstances Fed’s expansion of money supply will cause price and wage inflation. But the economic environment we are in today is anything but normal. The money Fed pumped into the system has either been hoarded by financial institutions as extra reserves to prepare for more toxic loan write-offs (or they simply can’t find enough credit worthy borrowers out there to lend), or been diverted as funding for ever escalating speculation in equity and commodity markets. Barrons had a good article yesterday on how USD has become the bona fide currency for global “carry trade”. And the recent bubble blowing in global equity and commodity markets seem to substantiate that point. Without turning the extra liquidity into genuine capital investment and consumption expansion via elevated lending, increased money supply would not have “velocity”
During the credit expansion era of the last 25 years easy credit/debt had largely functioned as “money” that provided the same purchasing power to boost demand. Now we are in a painful deleveraging process in which massive amount of money equivalent (credit) vanished overnight. So far Fed’s printing press has not been able to fully counter the fast shrinkage of money base once the credit component is taken out of the equation. And the aggregate demand will continue to be sluggish until debt destruction (deleveraging) runs thru its course.
On the other hand, excess supply is everywhere. From houses to cars to a gazillion things you can find in a shopping mall. Production capacity utilization in the US is still way below 70% (most of our industrialized counterparts are not doing any better). Average weekly hours worked has been down and stagnant. Unemployment rate keeps rising. Even Chinese gov’t is stubbornly betting on a US consumer recovery by pushing banks to accelerate lending to its struggling export sectors (similar to what happened in the US – a large portion of that Stimulus money found their way into stock and commodity markets). The global structural imbalance will have to correct at some point in some distant future but won’t happen now for a variety of political reasons. And until then we will be facing the unrelenting deflationary pressure for years to come.
Senator warns of hyperinflation rivaling the 1980s
http://tinyurl.com/nyka7e
I agree with this analysis, but I’m wondering, does that mean the government gets something for nothing? Specifically, does Helicopter Ben get to keep dropping (printing) money for free, or is there a cost? Let’s assume he doesn’t go too wild with it.
TINSTAAFL — the ‘true’ econ 101.
the theory that that devaluing the currency will not be enough to counteract deflation is a kooky way to back into a conclusion.
No this scheme can not go on forever. Hyper-inflation, higher taxes and much reduced standard of living will be the ultimate price to pay in the long run. But the high inflation part won’t happen until the ongoing deleveraging process is complete first.
Think of this as a way to turn severe pain associated with a sudden total economic meltdown into small incremental pain stretched out for a long period of time. This is basically what Japan had over the past two decades. In the end the deleveraging will go through no matter what they do. But to the general population it seems much more tolerable if the asset price decline is kept at a slow pace for a long period of time. In a few years people will become accustomed (or numb) to this new economic reality. For the time being we are still at the very early stage of this process. And we still have to endure all the background noise of green shoots sighting and bottom calling.
I agree it can’t continue. However, I’m thinking more of the scenario where the Fed stops printing money tomorrow and leaves all the existing printed money out there. What is the cost of that approach (modest money printing let’s call it), vs. not printing anything? It sounds like it just trades current pain for pain down the road. With more money printing increasing the latter.
Let’s set the record straight once and for all: Inflation is the expansion of the money supply, higher prices are the result, wages rise as well but are the last to rise and always lag behind. Deflation is the contraction of the money supply – less dollars chasing goods causes prices to fall.
We are in a “deflationary” economic environment where prices of goods and wages should be falling further than they actually are. The government keeps expanding the money supply and when velocity picks up, look out! I like deflation, and no it doesn’t make me stop buying everything in hopes of lower prices in the future. I still buy. That argument is bunk. In a productive economy with a fixed supply of money, wages would actually go down as more jobs are needed. Prices would fall faster than wages fall – so your purchasing power is still increasing. Econ 101B
Investment banks de-facto printed money through increased leverage. That money has figuratively burned, as the debt backing it has been devalued. This magnitude of debt deflation > fed printing money efforts, for a net deflationairy effect. Were the fed to 2x or 3x its programs and inflation might kick in.
The investment has burned, yes. That leverage bought something, somewhere and somebody received the money ie an irvine home seller or a homeowner pulling money out and buying a ferrari. That money is out there and was laundered throught the car dealer owner, salesman, etc. I’m pretty sure the investment banks are still levering up on cheap money, house buyers are still levering up on cheap money, government is still expanding the money supply and the money will get out there one way or another. Don’t forget the Foreigner ability to send money velocity to the moon, God help us when that happens. Our government keeps spending and keeps rates low in both booms and busts now – Kamikaze Keynesianism. We’re all dead in the long run anyway right? Yes, and Keynes should have shot himself in the head right after saying that.
The main action the ‘government’ is taking in mortgages is the Fed’s low short term rates coupled with the Fed’s buying MBS’s. The other action is the backstopping of the GSE’s, making explicit the implicit guarantee.
Is there a real exit plan for either? Many people, if told what getting the govt out of the GSE business would actually mean, would be happy to keep them going. Fannie/Freddie losing govt support would increase rates & reduce mortgage availability. Higher rates -> lower home prices. Those hurt most are those expecting to move down the housing ladder – people approaching or in retirement. Those that might benefit are the move-up buyers, which it seems are nearly nonexistent.
Govt involvement now is appropriate, but 5 years ago really was not. We also need to be debating the exit strategy – keep GSE’s fully govt controlled, or spun off completely private w/no implicit guarantee.
STOP THE CHATTER. THE BOTTOM FOR IRVINE AND THE MAJORITY OF THE OC IS $250/SF. IF YOU TAKE THE PRICE PER SF IN YEAR 2000 FOR MOST HOMES SOLD IN OC AND INFLATE THAT # BY 4%, MOST HOMES WILL COME IN AT $250/SF. THIS IS THE NUMBER. DON’T BUY UNTIL YOU GET THIS PRICE!!
Love the caps. Must be a reformed RE agent. Old habits die hard.
RIGHT!