People are afraid to face the hard landing, so we prompt our officials to endlessly support the market to avoid an uncertain fate. Which is better? crashing hard? or landing soft?
Irvine Home Address … 33 Gingerwood Irvine, CA 92603
Resale Home Price …… $550,000
{book1}
I felt all flushed with fever, embarrassed by the crowd,
I felt he found my letters and read each one out loud.
I prayed that he would finish but he just kept right on …
Strumming my pain with his fingers,
Singing my life with his words,
Killing me softly with his song,
Killing me softly with his song,
Telling my whole life with his words,
Killing me softly with his song …
Killing Me Softly With His Song — Shirley Bassey
The mess in our housing and financial markets are slowly draining the life out of us. The powers-that-be are killing us softly with their endless song and dance. Our government and the Federal Reserve want to engineer the fabled “soft landing.” So how would we measure their success?
A soft landing for the FED would be a slow and controlled decline of
house prices to levels sustainable by local incomes and free-market
financing conditions. The reason they will let it drop is to shorten
the time they have to support the market. The reason the Federal Reserve does not want to let it crash hard… they do not want their member banks to lose any more money. Wait, perhaps you thought it was because the US Government cares about you and your home prices… victim of the spin machine.
The FED’s mechanism for making the soft landing happen is the control of mortgage interest rates through direct purchase of agency paper. If the government insures it and the FED buys it, they could theoretically completely support the US housing market. There is no limit to the size of the Federal Reserve’s balance sheet. I doubt it would come to that.
The mechanism for recycling bad debt is (1) for the GSEs and the FHA to encase it in a new 30-year fixed loan at very low interest rates and (2) have the Federal Reserve buy that paper and hold it through maturity. The FED would not care about its actual value, it is merely stockpiling the detritus from the housing bubble… A toxic mortgage enema… The Federal Reserve’s Yucca Mountain… It will fester on the FEDs balance sheet — a pestilence contained in a paper sarcophagus where nobody looks and nobody cares.
{book4}
Soft Landing?
Payments are now affordable with conventional financing on most
properties, particularly those outside of Irvine. This is just a fact. The Federal Reserve has accomplished its primary market objective — stabilize prices through creating affordability. I believe prices will continue to fall for a number of other reasons, but payment affordability is no longer driving the price decline.
Now that we have reached payment affordability, how stable is that
affordability? and what happens if the system collapses?
You get Las Vegas.
Hard Landing?
Above is the Las Vegas S&P Case-Shiller Index with the conceptual stages of a bubble superimposed on it. Las Vegas landed hard; I am bullish on Las Vegas real estate. As you can see,
the despair stage can go on for a while and prices can remain depressed
and even fall further, but in my opinion, you have much greater
downside risk in Orange County than you do in Las Vegas.
Soft Landing? or Hard Crash?
The most common metaphor for a soft or a hard landing is removing a
band-aid quickly or slowly. You get the idea, but it doesn’t convey the
emotional trauma of an economic recession. The soft landing — to
continue the medical metaphor — is like a series painful bruises and
abrasions. It isn’t life threatening, but there is nothing pleasant
about daily pounding and skin scraping.
The hard crash is like a violent faceplant that is both humiliating and extremely painful — for a short period of
time, but then it is over, and you can move on with your life.
In many ways, the hard crash is better. Which would you prefer?
{book2}
Good Photo Presentation?
It is easy to make fun of the poor quality of marketing display on listings in the MLS because so many of them are so bad. Today, I want to compliment the photo presentation of this listing. The first photo on the listing display is not the drab front elevation, it is the best interior photo of the group. This presentation is much more eye-catching in a positive way. That’s the good…. Using the fisheye lens and distorting reality… that is not so good.
Irvine Home Address … 33 Gingerwood Irvine, CA 92603
Resale Home Price … $550,000
Income Requirement ……. $101,229
Downpayment Needed … $110,000
Home Purchase Price … $636,000
Home Purchase Date …. 12/2/2004
Net Gain (Loss) ………. $(119,000)
Percent Change ………. -13.5%
Annual Appreciation … -2.9%
Monthly Mortgage Payment … $2,362
Monthly Cash Outlays ………… $3,340
Monthly Cost of Ownership … $2,560
Redfin Property Details for 33 Gingerwood Irvine, CA 92603
Beds 2
Baths 2 baths
Size 1,598 sq ft
Lot Size n/a
Year Built 2004
Days on Market 6
Listing Updated 10/15/2009
MLS Number L31191
Property Type Condominium, Residential
Community Turtle Ridge
Tract Whgl
According to the listing agent, this listing may be a pre-foreclosure or short sale.
BEAUTIFUL HIGHLY UP GRADED SHORT SALE! Spacious 2 Bedroom and Den, Soring ceiling with lots of windows and light! Gorgeous hardwood floors,upgraded carpets in carpeted areas, upgraded tile in entry, MaBa, Laundry, Guest Bath. Upgraded cabinets & cabinet hardware throughout. Granite kitchen counter tops, upgraded tile backsplash & stainless appliances. Remote controlled shades in upper windows. Doorbell hookup to phone line. Master bedroom closets by California Closets, mirrored doors. Frosted glass/wood windows sliders in Master Bedroom. Silhouette brand window treatments. UV window tint on patio door and stairway windows. Phone trunk in Master Bedroom closet wired with wireless router & ethernet for jacks. Keypad entry at garage exterior, Epoxy garage floors. Park across street has Tennis, Basketball, etc. Near Beach, Newport Beach: Fashion Island, Corporate Plaza. Newport Coast Plaza. Orange County Airport, Freeways. Beautiful area! A must see home!
The pictures were good, but the description still needs work….
What is MaBa? Do they have Mexican Radio?
Master Bedroom closet wired with wireless router & ethernet for jacks? Is there a big demand for that?
- This property was purchased on 12/2/2004 for $636,000. The owners used a $508,712 first mortgage and a $127,288 downpayment.
- They did not waste much time before starting on the HELOC gravy train ride.
- On 11/14/2006 they refinanced with a $652,000 Option ARM and a $81,410 HELOC.
- Total property debt $733,410 plus negative amortization.
- Total mortgage equity withdrawal is $224,698 which includes their downpayment.
The gave up early this year…
Foreclosure Record
Recording Date: 07/16/2009
Document Type: Notice of Default
Document #: 2009000379425
Irvine Company News
For those interested in what the Irvine Company is doing, you may have seen the story on Sunday, Irvine Co. bets on homebuyer sensibility. Below are links to the support materials also released by the Irvine Company.
ICDC New Home Collection Press Release — Irvine Company — Fall 2009.pdf
New Home Neighborhood Fact Sheet — Irvine Company — Fall 2009.pdf
New Home Builder Profile Fact Sheet — Irvine Company — Fall 2009.pdf
I assume the realtor meant to say “The house is wired with cat5 cable which terminates at a router in the master bedroom.” The wireless comment is the laugher. Its not cheap to pull cat5 through an already built house and most people just want a cheap wireless router for their house. Residential cat5 is so dot com bubble. Its the perfect overimprovement. Unless you run a server farm or call center in your house or love having your friends over for videogaming parties; you aren’t going to ever need it and certainly aren’t going to pay extra for it.
Oh, I so disagree…
I would much prefer Cat 5. I would like it to go to the TVs for movie streaming, the closet doesn’t do me any good. It’s so much more stable than wireless. I have to unplug my router several times/week to re=establish a connection because there is so much interference from all the other routers in the building.
Not sure I agree. I use wireless to stream movies between two floors and I have no problems. I suggest you change the channel in your router settings and that should clear up your problem.
beign wired is less important now.
I’m running 11n (WPA2 secure) from upstairs office to downstairs entertainment center, with some older tech (Wii and laptop) running 11g. I’m able to stream windows media center from upstairs to the downstairs 360 without a fuss, and my tv (samsung) can directly access a stand-alone network storage array holding all my mp3s.
I used to think a wired house would be necessary, but that was before 11n.
Cat5 (without the e) limits you to 100mb.
Cat5e/6 and a gigabit router is pretty much overkill unless you have great HDD transfer speed. (I only get 12% to 20% utilization on my gb router, transfering to the gb-capable NAS)
Hmm.. I got 1600 feet of Cat5e in conduit. Delta backbone with star distribution on all ends. Someday I hope to go to spanning tree switches with link aggregration.
Gig E. At least two drops into every one of the five bedrooms with additional drops into the den (two sides) HTPC and living room -24/96 recorder/playback for stereo.
On top of that 802.11g for the four laptops.
High Bit Rate diOne Linux samba server, two 4TB RAID-5 servers, network printer, etc, etc. etc..
A total of 11 machines running today and four more in various states of rebuilding.
Now, what were you saying about Cat5?
Oh, we built TWO closets, one holds the servers, printer and has a 20A homerun.
how’s your electric bill looking each month? that’s a lot of gear.
You running a ISP out of your house? Otherwise totally needless capacity.
Allow me to add a word to your definition.
IMHO, a soft landing for the FED would be a slow and controlled decline of REAL house prices to levels sustainable . . .
Any (further) decline in NOMINAL house prices is catastrophic almost by definition, given the worst-case leverage involved.
By your definition, the FEDs job is even harder because it keeps facing deflation from the fallout of all the stupid loans during the bubble. The FED is certainly focused on creating a little inflation to stop the death spiral. Right now, real interest rates are high which doesn’t make borrowing appealing. This will change as soon as the economy picks up, then the FED will have to worry about overdoing it.
Are they preventing a death spiral in housing or they transferring the toxic assets from being a bank liability to a taxpayer liability?
The former goal is to keep the prior and new home owners paying their debts by keeping prices constant. If you can’t pay, sell the house without much loss.
The latter goal is to remove liability from the banks and transfer the liability to the taxpayers. With FHA loan with only 3.5% down, VA and USDA loans at 0% down, the house prices can be inflated with the old loans made whole, new toxic loans issued with the taxpayer on the hook. With little non-agency home loan occurring today, it looks like a transfer of liability to me.
In both cases the banks are being made whole. The taxpayer loses in both options, only more in the latter option. The chances of the latter case is greater than the former case. Prices can’t be maintained over 4x annual income and have a health long-term economy.
Just so.
In fact, because the stupid loans you mention continue to feed toxins into the financial system the FED needs to somehow create a discernible, even if low, nominal re-inflation of house prices.
This will have two effects:
1. It will tempt people who are underwater but can afford their monthly to hang on and hope they will eventually be made whole by the re-inflation.
2. As you point out, it will encourage new borrowing.
HOWEVER,
Any such re-inflation will have to be SUSTAINED, and at some point that means wage rises at the bottom end. Ensuring THIS without harmful effects is the real tightrope.
ozajh,
“… at some point that means wage rises at the bottom end.”
As you said wages are the last to rise. The working man will be the last to really benefit. The high end still will get the outrageous $100 million dollar bonus with newly issue options at a reduced strike price, while the regular blue and white colar workers will get paycuts, 401k match reductions and few to no new options.
I wired the closet in the bedroom which we use as an office. It has the printer, router, etc. They are not obvious, and all of the office supplies can go in there too.
The closet has ethernet “jacks“! YAY!!!!
http://www.crackthecode.us/images/cat5_ready.jpg
Maybe you’ll get lucky and find a VCR left out in the living room too when you move in!
Well, I’d hope that means the place is wired with ethernet, and all the connections go to the closet where you can add a router and connect whatever wall jacks in the rest of the house you want with internet. Wired is much better than wireless… more reliable.
OT I’m about to venture into the devil’s playground by buying Goldman Sachs 4.25% bond maturing on 2015.
Should I do it? It pisses me off that they’re one of the main culprits behind this current financial mess. Yet this very govt got their backs.
It’s like what the old saying goes: if you can’t beat ’em, join ’em.
Any feedback/criticism (like “Are you out of your effing mind?”) is welcomed.
What happens to the value of your bond if we see an inflation spike? If bond yields go to 9% before 2015, then the resale value of your holding cuts in half. You can always hold it to maturity to avoid taking a loss, but when you are stuck earning 4.5% in a world paying 9%, it isn’t fun.
IMO, we are still in an environment that favors holding cash. Long-term debt at low rates is the bubble investment du jour. I wouldn’t do it.
IR, yes, you’re right on the resale value. However, I plan to hold it until maturity (provided that GS doesn’t declare bankruptcy before ’15).
Not to worry because I’m only putting 4% of my liquid asset (most of it now in MM making pathetic returns, if any) in this. Thus, I still have majority of it in USD that’s still losing its value 🙁
Depends on how you view the value of the USD. Relative to other currencies, it is falling as it needs to per our massive trade deficit. Right now domestically, I’d say dollars are increasing in value.
What’s the spread between a GS bond and one from Citi or BoA?
No new corporate note from Citi but the one from BofA with expiring year of ’17 is going for 5.25%.
For 1%/yr, ain’t worth it. I’ll take the firm that’s controlling the govt 🙂
As opposed to the one just living off it…:)
GS’s decision to short MBS’s, however distasteful as they were selling them themselves, was brilliant and reflected the fact that they acknowledged the bubble.
Inflation spike is a slight exaggeration. What happens, WHEN, the fed raises rates to say 2%. Treasuries would be at 5.5-6%. Contrary to many opinions GS != UST, and GS’s notes have a nonzero default probability.
“If bond yields go to 9% before 2015, then the resale value of your holding cuts in half.”
Did you mean to say, the interest for the remaining term is cut in half?
By the time rates get to 9%, there will like be a few years left on the bond. For a short term bond, the value will not be cut in half because most of the value is in the principal, not the interest coupon. Now if this was a 30 year bond, the cut would be deep and painful.
Why feed the GS bonus pool? They have proven very well that they are extremely good at making money trading for their own account, and bonds have been a big part of it. They are not about making money for their clients or customers. Hard to bet against them in view of their success, but betting that they are offering you value for risk seems unlikely.
I’d worry that their bonds are all about making themselves the maximum amount – their capitalist duty in fact. The buyer is the sucker/bag holder getting taken.
Buy a house in Irvine. CNN says that you will get an 8.4% appreciation in 2010…beyond 2010 the sky is the limit 🙂
http://cgi.money.cnn.com/tools/homepricedata/index.html?market=21CA
With ignorant tools like that floating around the web, I am not surprised people believe their houses rise in value 10% every year.
Sustained delusion requires few data points.
IR have you seen a calculator with an input for the appreciation to be negative? :}
It looks as if the non-trade news has a positive spin or mantra…”we into the the recovery… a V shaped recovery… strong rebound….housing is improving….we’re at the bottom of home prices…. The business and trade news are much more negative.
“Mexican American Bar Association” – Classic!
We finally are rid of the last Cal Bar President whose sole purpose admittedly was to promote the interests of “women and people of color.” i.e. “Sorry white straight male California attorneys, you are unworthy of my representation and efforts.”
OK, deep breath…I really like the new Sonoma plans that they are building in Woodbury. I have been playing with the interactive floor plans on the website and really feel like they got it right this time. The combination of the great room and the indoor/outdoor room seems like a great fit for the Irvine climate.
I was looking for the price just hoping and dreaming that the TIC would get the price right.
“Starting in the 700’s”. Oh well. Give me the hard landing please so that I can buy one of these for $500k. Seems reasonable to me.
Here’s another story calling a bottom in Irvine:
http://lansner.freedomblogging.com/2009/10/20/recovery-more-rapid-than-expected-uci-prof-says/40537/
Granted, looking at the list of donors for UCI’s “Center for Real Estate”, you’ll quickly realize they are highly motivated to make the public believe we are passed a bottom and it’s time to buy.
Still, I’m wondering if this is more consistent with the “soft landing” discussed in this article or the “ICE” scenario described yesterday. Much of the buzz I’ve been hearing lately seems to support this “soft landing” scenario. Sadly. Yes, I’d really really also prefer a hard landing so regular people can actually buy homes in Irvine. It does tick me off that the median family in Irvine has a tough time affording a median home.
Take a neighborhood in SoFL where homes got finished in 2006/7. Lots of speculative buyers, but probably a couple actual people living there – minor celebrities included. Nearly every home will need to sell and for around half what they went for new. I think they’re foreclosing as fast as possible, and while the rates may help keep prices from falling so fast, they don’t seem to be preventing FC’s.
While I was once in the work-out camp, I now see FC’s as inevitable and a good step towards real price discovery.
The problem with that area is there just aren’t enough buyers – coupled with the Chinese drywall issues. Not enough potential renters. Not enough income to support the level of residential real estate investment. A huge chunk of the economy there was RE related and that’s gone for a long time, especially at the level it was at.
The band-aid is coming off slowly, but the end result will be pretty much the same. I don’t think the fed needs to raise rates soon, but it is inevitable, and they should float timelines to see which will be best. Preparation was abandoned during the bubble, and we should get back to it.
If the banks know that interest rates will most likely rise in the future and many economists are calling for a jobless/incomeless recovery, aren’t the banks risking having assets on their books that they won’t be able to dump in the future for higher values than today due to inability to finance the loans at the higher interest rates? Aren’t the banks shooting themselves in the foot today and why are we footing the bill for this again?
The difference lies in the obscure accounting details of mark-to-maturity. Lenders are hurting themselves underwriting long-term debt at very low interest rates, but even if the resale value of the loan plummets due to rising interest rates, they do not need to show a loss because they will hold to maturity when they will get back their capital.
The mark-to-maturity model has its place in how banks measure the value of their loans, but right now it is being used as a dodge to avoid writing off the value of the underlying collateral. That is not and has never been the purpose of mark-to-maturity accounting.
Lenders who employ a mark-to-maturity model will not record book losses because they will likely see a return of capital despite the changing resale value of the loan in the mark-to-market model. In short, we will not be bailing out banks that make a large number of low interest loans.
This from DataQuick’s recent default report:
“It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings. If so, it’s not out of the goodness of their hearts. It’s because they’ve concluded that flooding the market with cheap foreclosures in this economic environment may not be in their best financial interest. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses,” said John Walsh, DataQuick president.
Some people thought we (real estate bears) were crazy for suggesting such a thing. LoL
Follow me here!
The banks are colluding and conspiring to prevent homes (especially in places like The O.C.) from foreclosing. I’ve got 5 (FIVE) delinquent home-debtors on my street right now. This problem is huge. The banks (and the govt) know that a situation like what we’re seeing in LV, could become a lot worse if it hit the coastal communities in Southern California. They are desperately trying to prevent this from happening. I wonder if what they’re doing is legal? We have antitrust laws that typically try to prevent this kinda bullshit from happening . Antitrust laws are were created to make business compete for our dollars, and discourage monopolies and collusion. Not that the govt would do anything to stop it right now.
However, this cancer is not going away. It can treated for a short period of time, BUT the banks are eventually going to seize these properties, kick the freeloaders out, and then they’re gonna have to recognize these losses. That’s a fact.
I thinks the delaying is with the govt’s blessing, so the banks will not likely to be charged.
It looks like with the jobless recovery and improving economy, the USA will be Japan II with another lost generation. For the kids with parents in power, they will live as usually. The poor and middle class will be in a world of hurt.
It looks like Citi bank arranged for Andrew Hall to receive his $100 million bonus. Citi had to be creative by selling that unit to avoid govt review on the bonus’ (Businessweek 10/9/2009). Who says things have changed and a new era has arrived?
I was just surfin around Redfin and I found a funny:
http://www.redfin.com/CA/Irvine/3131-Michelson-Dr-92612/unit-301/home/7219088
“This desirable round plan ‘A’unit …”.. It seems to be on the 3rd floor… It is very “desirable” to have poles right out side of your “view”. Dues $1,126.97!!! LOL!
THANK YOU!!
First time poster on your blog but I do read it several times a day and love it thankyou. I have a few comments I would like to add. First the Cat5 connections in the closet are very common in Phoenix area apartments but not seen in homes out here very often. Cat5 data transfer speeds are higher than wireless. And in the description of this property I was kinda wondering what a soring ceiling is? Is it something different or maybe a spelling error?
“Sustained delusion requires few data points.”
Data point 1. “As seen on TV”
Data point 2. Bernankes mouth
I actually went and saw this property. Not bad.
Two other similar properties with the same floor plan are pending sale and accepting back up offer in Turtle Ridge.
– 138 roadrunner – pending sale – reg. sale – 595k
– 57 Gingerwood – back up offers – short sale – 580k
hmmmm