The mess from the Great Housing Bubble, millions of foreclosures, will take nine years to sell at its current rate.
Irvine Home Address … 57 NIGHT BLOOM Irvine, CA 92602
Resale Home Price …… $629,000
{book1}
I want a little bit,
I want a piece of it,
I think he's losing it,
I want to watch it come down,
don't like the look of it,
don't like the taste of it,
don't like the smell of it,
I want to watch it come down.
all the pigs are all lined up,
I give you all that you want,
take the skin and peel it back,
now doesn't it make you feel better?
Nine Inch Nails — March of the Pigs
I make no secret of my disdain for the banking interests that have ruined out housing market. They operate as a cartel to withhold inventory and keep prices high. I want to watch it come down.
Number of the Week: 103 Months to Clear Housing Inventory
By Mark Whitehouse
103: The number of months it would take to sell off all the foreclosed homes in banks’ possession, plus all the homes likely to end up there over the next couple years, at the current rate of sales.
How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern.
As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.
Inventory of foreclosed homes up 20% and shadow inventory up 30%. Those are not signs of a bottoming in real estate. And look at the size of those numbers — 4.8 million borrowers are not paying their mortgages.
Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses.
The amend-pretend-extend dance creates shadow inventory. Lenders think they are buying time, but they can only hold back the floodwaters so long. What are they going to do with nine years of inventory?
Think about what banks are doing. They now control the market like a monopoly. They are withholding product to artificially drive up costs to buyers just like the trusts of the nineteenth century. Instead of acting in the best interest of the populace like Teddy Roosevelt, our leaders are encouraging this anti-competitive behavior.
The government is understandably worried about the situation, and its Home Affordable Modification Program has made an impact by helping people stay in their homes and avoid foreclosure. As people who enter the program catch up on their payments, the number of homeowners 60 or more days delinquent has fallen 9% over the past two months.
Wait a minute… People are not catching up on their payments. They are having their delinquent amounts added on to the mountain of debt that is already too large. The government deferments and temporarily reduced interest rates are nothing more than Option ARMs guaranteed to blow up later.
Now, though, the effect of modifications could be on the wane. According to Goldman Sachs, HAMP started less than 80,000 trial modifications in March, less than half the number in the peak month of October 2009. At the same time, a growing number of modifications are being canceled as borrowers prove unable to pay. By Goldman’s count, about 68,000 were canceled in March.
Let's do a little math: 80,000 started, and 68,000 failed leaving 12,000 net, which will probably fail later. There are 4.8 million in default, and they may have successfully amended 12,000 last month. At that rate, it will take approximately 400 months or 33 years to amend our way out of the problem.
All this means that little can stop banks’ inventory of distressed homes from growing. Too many people owe too much more on their homes than they can afford. For the housing market, that could mean a long-lasting hangover.
They couldn't afford it
No spectacular HELOC abuse today. This couple fit the profile of most buyers in 2005, they couldn't afford the mortgage, and they should never have been extended so much credit.
The property was purchased on 12/5/2005 for $648,000. The owners used a $518,100 first mortgage, a $129,500 second mortgage, and a $400 down payment… I am struck more by the ones with a tiny down payment than with no down payment at all. This couple moved into a $629,000 property with only $400 invested. It was more difficult to get a rental than buy a house in 2005. The credit and income checks were more onerous for a rental than a purchase as well. Funny that landlords were more worried about getting paid than lenders.
These owners gave up trying in late 2008 or early 2009:
Foreclosure Record
Recording Date: 09/03/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 05/13/2009
Document Type: Notice of Default
They did get at least a year of squatting before the bank got around to foreclosing.
Irvine Home Address … 57 NIGHT BLOOM Irvine, CA 92602 
Resale Home Price … $629,000
Home Purchase Price … $527,000
Home Purchase Date …. 3/17/2010
Net Gain (Loss) ………. $64,260
Percent Change ………. 19.4%
Annual Appreciation … 111.0%
Cost of Ownership
————————————————-
$629,000 ………. Asking Price
$125,800 ………. 20% Down Conventional
5.16% …………… Mortgage Interest Rate
$503,200 ………. 30-Year Mortgage
$132,623 ………. Income Requirement
$2,751 ………. Monthly Mortgage Payment
$545 ………. Property Tax
$150 ………. Special Taxes and Levies (Mello Roos)
$52 ………. Homeowners Insurance
$154 ………. Homeowners Association Fees
============================================ 
$3,652 ………. Monthly Cash Outlays
-$474 ………. Tax Savings (% of Interest and Property Tax)
-$587 ………. Equity Hidden in Payment
$256 ………. Lost Income to Down Payment (net of taxes)
$79 ………. Maintenance and Replacement Reserves
============================================
$2,926 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,290 ………. Furnishing and Move In @1%
$6,290 ………. Closing Costs @1%
$5,032 ………… Interest Points @1% of Loan
$125,800 ………. Down Payment
============================================ 
$143,412 ………. Total Cash Costs
$44,800 ………… Emergency Cash Reserves
============================================
$188,212 ………. Total Savings Needed
Property Details for 57 NIGHT BLOOM Irvine, CA 92602
——————————————————————————
Beds: 4
Baths: 2 full 1 part baths
Home size: 1,821 sq ft
($343 / sq ft)
Lot Size: n/a
Year Built: 2005
Days on Market: 18
MLS Number: S613191
Property Type: Condominium, Residential
Community: Northwood
Tract: Merc
——————————————————————————
A Charming DETACHED upgraded home in a newer community! Superb location – quiet internal lot. Tastefully upgraded with a functional floorplan. Light and Bright Gourmet Kitchen with an Island and stainless steel appliances. 3 bedrooms upstairs and one office that could be easily converted to a 4th bedroom downstairs. New designers dark laminate on the first floor. New carpet. Freshly painted. Elegant Window covering. Nice side yard. Two car side by side direct access garage. Steps to association pool/spa & community. Close to post office, shopping center & easy access to freeway. Walking distance to Beckman highschool. A truly beautiful home!
Irvine Inventory
The seasonal pattern with inventory is for it to hit a low on January 1 and increase through July or August. For the last few years, this process has been aborted by a combination of underwater borrowers not bothering to list and lenders keeping real estate owned as rentals.
This year, inventory is rising as part of its normal function. The lenders are likely testing the market to determine how much inventory and volume the market will take before prices head south — at least while they have some control of the market.
I think many people assume that lenders put their properties back on the market after a foreclosure. Sometimes they do, but some of that inventory is either sitting empty or being rented.
For instance, 92 Dovetail was purchased at auction in late January. Why isn't it on the market over three months later?
7 Foxchase was purchased last September.
77 Olivehurst was purchased last June. At least it is for sale.
Irvine isn't as bad as many other communities for withheld inventory because our market is stronger, but it still exists here.
Latest default and auction data
According to Foreclosure Radar, there are 371 owners that have received Notices of Default.
There are 474 properties that have been served Notices of Trustee Sale and are awaiting auction.
The combined total is 845 properties. That is more than the total inventory for sale today.
That is the visible inventory. For each property that has received a notice, there are four in shadow inventory based on national averages. We know B of A is ramping up its foreclosure processing, and other lenders are likely doing the same, so the inventory of auction properties and pre-foreclosures should continue to rise all year.
Short sales are not the answer
The HAFA program to streamline the short sale process is not how this problem will get resolved. If it isn't for sale, it will not be sold short. Whenever I look through these properties, only a tiny fraction are for sale. There is not much double counting between what is available on the MLS and what is going through the foreclosure process.
Lenders believe they can hold these properties and perhaps get their money back as prices appreciate. The presence of so much inventory hanging over the market will keep any price appreciation in check. And as the cartel absorbs more and more inventory, the pressure to get rid of it will cause cheating among the cartel participants and force prices lower.
.
Isn’t it about time to start picketing infront of these deadbeat POS squatting homedebtors houses?
Forget picketing. You should be spraypaint the property with large words like ” squatter” or “indefault”.
Careful that you would go to jail for, also trespassing is illegal since technically they still own the house until the bank decides to kick them to the curb.
If you are going to spray paint, do it at the banks. They created the mess and are allowing it to continue. Many of these 2004 – 2005 purchases were families that listened to the “buy now or be priced out forever” BS we get from the NAR and CAR.
I wouldn’t ever condone vandalism.
I would however laugh my ass off if I read about it in the news.
I do think that the owners meed to be “shamed” more on this blog and have their names and pictures posted.
Of course however…it wasn’t their fault. It was those nasty banks. Just like when a person OD’s on crack. They’re innocent. It was alllll that nasty dealers fault.
If I had the ability to claim an asset was worth whatever I want and then leverage that asset 10 times over on a 0% interest rate arbitrage I am going to do that a lot longer than 9 years. I will do that as long as I can. Of couse some bank might be really smart, far smarter than the rest and break up the cartel by handing their keys to the FDIC and give up the 0% interest rate arbitrage gig.
Let me get this straight:
The profiled house was purchased at the peak of the housing bubble for $648k.
Now almost 5 years later this Irvine house can sell for $629K at close to rental parity. Amazing, the Irvine market has been more reselient than I would have forecasted.
There seems to be no end in sight to the suckers lining up to buy Irvine real estate today at peak bubble prices. Who knows, these people might be the smart ones. If it really hits the fan in the near future, you might be able to squat for 5 years. All fundamentals and rationale have long since been thrown out the window…nobody knows how this will all end.
“Amazing, the Irvine market has been more reselient than I would have forecasted.”
The combination of residual kool aid intoxication and temporary affordability has made 2005 prices attainable. I don’t see where this provides much room for upside. Unless people start making more money or underwriting standards are abandoned again, the market will finally be tethered to incomes and interest rates. Incomes don’t show any signs of going up, but interest rates likely will.
For me the real question is what will this rent for in 5 years. I would pay a ton of money for that foresight. I’m more surprised with how well rents have held up in Irvine given the economy.
You can probably thank the IAC for that . . .
What I can’t figure out is why there are so many people, with apparently limitless cash and/or stellar credit scores with huge down payments, who can afford to buy up all these Irvine properties like it was 2005-06. Turtle Rock is particularly baffling to me. How is it that tiny 1970’s ranch houses – many with few upgrades – still go for upwards of $1 mil? How is this pattern sustainable? Who are these people and what are they smoking, because I think I need some of that!!!
“all these Irvine properties” Not so much.
There are not that many buyers, there are few properties to buy. Limit supply and prices will rise.
passing through,
I’m with you there. I guess that the combination of low inventory in TRock, residual Kool Aid intox., plus people buy into the “good school” mantra and will overpay regardless of the fact that if they live somewhere else less expensive and have their children attend private school, they still save a lot more than overpay in TRock.
Buying house is 50% finance dependent and 50% emotion.
IR,
Could you enlighten us on the situation at Turtle Rock? Appreciate your thoughts!
Paying for a good private school and the associated costs to get there, etc. may not be so cheap. I’m not familiar with the possibilities and costs in Irvine/OC. Paying it out to a school and it is gone for sure. Enough people may still hope that they will recover it when they go to sell the house.
Can you imagine where Irvine prices would go if mortgage rates dropped to 4% to save the depressed housing markets all over the country?
If you are going to do something like like, better wait for an election year…
“Could you enlighten us on the situation at Turtle Rock? Appreciate your thoughts!”
Turtle Rock has a number of things going for it. First, IMO, it is the best place in town to live. The lots are large, the access is good, and the views are great. If I could afford to live there, I would. I am not alone in desiring Turtle Rock or recognizing its value, so others have bid prices up to the stratosphere.
Most of Turtle Rock’s owners have been there a long time, and fewer of them have been HELOC abusers (although many still did). There is a chance that Turtle Rock may not fall much in value simply because the supply is so limited and the demand is high. The prices are still ridiculously inflated, but if supply is limited and buyers are willing and able to pay it, there is no guarantee prices will fall there. IMO, you will see much more pricing pressure in Turtle Ridge than you will see in Turtle Rock.
Agreed.
And you get a better deduction from mortgage interest and property tax than private school tuition.
Also… just because a school is private does not necessarily mean the instruction is better than many public award winning school districts.
I think that if you have children you should match your family to the neighborhood that has predominantly the same age group. Turtle Rock is beautiful but the biggest drawback to me is that due to the longevity of the families in the area most of the next generation is now in their teenage years. This translates into very dangerous streets. Have you ever seen a 17-yr-old drivee a 650hp Mercedes? It is not pleasant and a real hazard to families who want to walk around the neighborhood with toddlers and grade-schoolers. In contrast in a newer neighborhood like Woodbury most of the children are babies/toddlers and elementary school age. The Woodbury community park is packed every night and the interior streets/sidewalks are always thick with strollers.
Agreed. I wish some of my clients could figure that out. They pay a fortune for a house in a good school district, then send their kids to private schools and complain that they don’t have any money.
TRock is definitely the Palos Verdes of Irvine…an older, more established community. If anybody is familiar with PV, they closed a lot of schools due to the change in demograhics (people starting families couldn’t afford the area anymore). Only the wealthy or people who bought way back when could afford to call PV home.
I’m curious to see how this will all pan out. I lived in TRock before and really liked it, I just don’t know if that premium can hold up. Finding an old rancher for less than 750K is almost impossible.
I get the logic and understand the supply/demand ratio may remain tighter than other areas of Irvine.
But, there is a limit to how many $1 million+ homes can sell in Irvine. And these homes are not just in Turtle Rock.
Some of the recent sales were from pent up demand from people who patiently waited for the bubble to pop over the last few years. But there is also a new crop of buyers who are now entering homes with mortgage to income ratios much higher than 30%. I know from multiple acquaintances that this is not difficult to do with an FHA-backed loan.
Another thing to remember is that these two groups of buyers are now out of the market and as things settle over the next few quarters I think we will see some surprises to the down side for these and the other reasons IR talks about.
-Nick
“What I can’t figure out is why there are so many people, with apparently limitless cash and/or stellar credit scores with huge down payments, who can afford to buy up all these Irvine properties like it was 2005-06….How is this pattern sustainable? Who are these people?…”
1. Immigrants who obtain overseas family money & who do not read blogs such as this one. They have their own communities and info sources separate from housing bubble sites.
2. Overseas investors who have soured on the euro due to the crisis in Greece. These folks have returned to putting their money into U.S. real estate.
Irvine is not for the local buyer anymore and hasn’t been since 2000. “Local buyer” is defined here as relocated Americans or California natives.
It has morphed into a global community.
~Misstrial
If the Obama administration dares take a step in a direction so strong as TR did to bust trusts, the tea- partiers would be out in full force screaming about communism and fascism and the destruction of liberty and other things they don’t understand. Could any of you *IMAGINE* what the response would have been in 2005 or so if any politician at any level of government suggested higher interest rates or requiring 20% (or hell even 10%) down to get a mortgage to stop the inflation of the bubble? COMMUNIST! FASCIST! FREEDOM HATER! AL QAIDA LOVER! THE FEDRAL GUBMINT’S TAKIN OUR PROPERTAY! NEXT THEY GONNA TAKE OUR GUNS!
A lot of people who comment on this blog would have been leading the charge.
For this administration to do something fiscally responsible would be applauded by conservatives. Pressuring banks to increase the necessary down payment would be excellent for our economy. Having the government take over our banks, which is more in line with the way Obama does things, would cause an outcry with the citizens of the United States. By the way, what do you have against people who are against the government overstepping their constitutional boundaries? What don’t they understand? That Obama is a genius and everyone who doesn’t agree with him is an idiot? Is that it?
“For this administration to do something fiscally responsible would be applauded by conservatives.”
My goodness. I have no idea how anyone could think this.
There are many reasons to oppose Barack Obama’s policies and question his judgment. Conservatives have every right to oppose him, whatever their reasons.
But they will never, ever applaud him. Were he too adopt the entire GOP platform and enact it, the whole thing would be denounced as fascism, or a communist head fake.
Health care legislation which paralleled Mitt Romney’s earlier, pre-tea-party proposals, and was to the right of Nixon’s plan, was called communist. Obama has said and done nothing on gun legislation, yet conservatives are completely convinced that weapons will be outlawed or seized. A conservative friend today made fun of Obama for voicing support for offshore drilling: had Obama’s words come from a conservative speaker, he would have nodded at the speaker’s wisdom.
I think Obama is overrated – plenty to pick on. But the conservative hatred for him goes so far beyond questions about his policies that there is no way they will ever applaud him for anything.
HydroCarbon,
Unforetunately, you are right on the money. I’m a middle of the roader from a conservative family and I’m amazed at the deep well of fear and loathing for Obama (or Pelosi or Reed, just insert the Democrat’s name here). He’ll never get credit for anything and will always take the blame for any problems (whether he created them or not). Why, I’ve already seen a couple of articles about the Gulf oil spill where there is a conotation that his administration is handling it wrong or will use it for some hard-core environmental extremism. Amazing.
FH
Oh please, now people are going to start saying that the tea-party can be blamed for the Administration’s incompetence? Wow. Where is super Obama today? Swimming in the gulf personally pulling oil-control booms in his teeth?
The climbing inventory is a seasonal trait. More homes come on the market naturally late Q1 through Q2. You can see it in the graph. The tale of the tape though is the percentage of distressed new listings versus equity sellers. We are seeing more equity sellers listing now that prices have stabilized. My guess though is that there aren’t that many equity sellers remaining, given that there were so many refis and HELOC’s done in the past 8 years. These equity sellers are the lucky ones who would have sold at a loss in 2008-2009, but now are getting out while the going is good.
There are quite a number of Realtors believing there is a 5 – 9 percent increase in pricing coming in 2010. Even with my limited math skills, a 45% loss from peak, rebounding to a 40 or 34% loss is still a loss, not a gain.
My .02c
Soylent Green Is People.
While this is true… for the homes I’m looking at in Irvine, I don’t even see a 20% loss from peak.
I’ve been told that this is a plateau just like in 1993… I sure hope so.
“They are withholding product to artificially drive up costs to buyers just like the trusts of the nineteenth century. Instead of acting in the best interest of the populace like Teddy Roosevelt, our leaders are encouraging this anti-competitive behavior. ”
History or behaviors are hard to break. During the great depression, the federal govt a fundemental shift in policy. FDR set the tone that prices of goods were to be maintained if not increased. “Ruthless competion” was out and controlled markets were in with marketing and industrial groups setting price to unsure their long term profitability for the trade groups (or polical contributions). Historically Marx and Lenin were the trend setters to follow in industrial orgainization and state controlled macro economics, but they could not admit that to the American public. That worked well for a war time economy, when the govt needed a total war ecomony. Heavy industries and agriculture for the 1930 to 1960, now it the hedge funds, banksters and housing markets for 1990 to current. Marxism and Leninism are failed systems except for total war economies. For consumer economies, they are very proned for creative bookkeeping. The fox guarding the hen house.
At 0% cost, 5% interest, govt bailout of FC’s, the banks can carry the pretend for a generation. All the banks need to do is sale a a high price either for cash or GSE backed loan. The GSE will the the govt/taxpayer problem and liability. The banks can even profit from the GSE loans with the origination fee, servicing fee, late fees, FC fees. It’s a win-win for the banks and squatters.
Why so much angry at the squatters and placing sole blame on the squatters?
There is much anger against people because it’s real, it’s tangible, it’s someone you can BLAME. Blaming the government that WE voted for, blaming the banksters that WE do business with….never going to happen, how can you bite the hand that feeds….and that hand feeds ALOT of fraud.
That’s why people here blame the homeowners. In many cases, it is justified because they used their home recklessly, but many homeowners simply got “caught” because the system is so gamed towards corporate gain and privatized losses. There’s plenty of blame to go around, but when you honestly look at the facts, it couldn’t have happened without the top making it happen.
Look at GS. Package sh1t they KNOW is going to default, then place hedge bets that it WILL fail. Nope, no fraud here, just the biggest wealth swap in the history of man…nothing to see, move along, keep paying your taxes, the next line is for a haircut, and then a financial shower for all you!
The GOP can bury what’s left, you may even get a condo in Irvine after you help.
The Housing Market Has Gone Mad
Monday, April 26th, 2010, 12:30 pm
“I can’t explain myself, I’m afraid, sir, because I’m not myself you see.”
“It would be so nice if something made sense for a change.”
– Alice, in Lewis Carroll’s Alice in Wonderland
Let’s start with what’s clear right now—the simple fact is this: our nation’s housing markets have gone mad. Up is down, and down is up, and quite literally so. I’d not be surprised, in fact, to run into a Mad Hatter having a tea party in front of his dilapidated house (that he hasn’t paid the mortgage on for years, of course).
And that’s just the point. Our nation’s housing data has more in common with Alice in Wonderland than it does with anything resembling reality right now. And my thinking here isn’t the figment of a misguided perma-bear attitude, lest some readers mistake my stance: I, for one, am rooted firmly in reality. Housing will recover and return to strength. It must.
But not yet.
In fact, the disconnect between housing reality and the Wonderland we’re all now living in was the subject of a formal note last week from researchers at Standard & Poor’s. Like me, they were vexed to see that seasonally-adjusted housing data has looked so positive, while the unadjusted data looked far less so.
Most media outlets, after all, have been trumpeting the positive, seasonally-adjusted data as proof of recovery.
Here’s an example: the raw S&P/Case-Shiller data found a -0.2% dip in home prices in January (using the 10 city index), yet the seasonally-adjusted data reported by most media outlets showed a 0.4% increase month-over-month. This sort of dichotomy has been apparent for some time—and not just within the S&P/Case-Shiller data, either.
Consider the insight of Gluskin Sheff Chief Economist David Rosenberg:
“Now it would be one thing if January was an unusually weak seasonal month for home prices deserving of an upward skew from the adjustment factors; however, from 1998 through to 2006, they rose in each and every January and by an average of 0.6%.
“But what happened is that home prices collapsed in each of the past three Januarys — by an average of 1.8%, or a 25% annual rate. And, seasonal factors typically weigh the experience of the prior three years disproportionately so what looks like steady gains in housing prices may be little more than a statistical mirage.”
In other words, the disparity between adjusted and unadjusted data suggests that seasonal statistical corrections are doing more than simply correcting for any seasonal effects—especially if you believe that the underlying seasonal patterns of the housing market have been significantly disrupted by what statisticians would call “exogenous” variables. (That is, something other than seasonality.)
In its note, the S&P/Case-Shiller Home Price Index Committee suggested that foreclosures and “other market dislocations”—code speak for extraordinary mortgage market support from the Fed, as well as a substantial tax credit program for consumers—have affected home prices beyond what would normally be seen by seasonality. “[W]e believe that current market conditions are making the seasonally-adjusted data less reliable indicators,” the committee said.
“[T]he Committee believes that, for the present, the unadjusted series is a more reliable indicator and, thus, reports should focus on the year-over-year changes where seasonal shifts are not a factor.”
Welcome to Wonderland, indeed.
So, for now, we see builders swinging their hammers again a little bit more, pushing March housing starts up 20.2 percent from one year ago—those numbers coming fresh off of an all-time record low in new housing starts in February. And we see that existing home sales soared in March, too, up 6.8% as borrowers rushed to claim a tax credit before expiration. Is this what recovery looks like? Only if you believe this is reality.
I tend to see reality in terms of a not-so-hidden overhang of distressed mortgages that must eventually be dealt with—7.9 million, at last count. And whether through short sales, or the tried-and-true foreclosure to REO pipeline, there are undoubtedly millions of such homes yet waiting to enter the nation’s available housing supply.
Likewise, we are seeing vacant housing units reach a record, as well, hitting 19 million in the first quarter of this year according to data released Monday morning by the Commerce Department. Depending on whose estimate you believe, that adds another 1.5 to 2 million excess housing units that will undoubtedly constrain upward movement in home prices.
Is there anyone out there that really believes that an unavoidably increasing and likely substantial supply of homes will somehow drive home prices upward further this year? Perhaps only those that live in Wonderland.
Where exactly are all these vacant homes? If they’re in the midwest, or anywhere where there’s a weak economy without many available jobs, then these vacancies don’t mean much (except for the fact that someone’s holding the bag). I don’t see any vacancies anywhere around LA or NY.
Exactly right, this is the Irvine Housing Blog, not the Detroit Free Press. I would be more worried about how the government may respond to help depressed areas. Turtle Rock doesn’t have a proble and doesn’t need any government help. When the government sets policies to help the depressed housing areas it props up Turtle Rock even more.
It’s a Jenga tower. The top level is not going to hold if there is a missing level below it.
Aside from foreign cash buyers, the deus ex machina of any housing market in distress, there is nothing to prop up the upper levels of the market but move-up buyers. Either a patient, thrifty renter with a solid income, or, far more likely, a move-up buyer able to cash out equity from the sale of the existing home and put it down on the Turtle Rock residence.
The bottom to lower-middle levels of the market have dropped. There is no equity to bubble up the column of sales into the upper tiers. Government supports aren’t boosting the bottom and middle of the market. The only thing which can save Turtle Rock is a marked preference among well-heeled buyers, fewer and fewer in number these days, for that particular location. Since near-substitute properties are slightly cheaper, and soon will be far cheaper, Turtle Rock had better be a pretty special place in the eyes of a lot of people to keep prices elevated.
And, if it is so special, then the premium was likely already priced in during the years of insane lending. I don’t see any way of arguing that Turtle Rock, and Irvine in general, were somehow undervalued relative to their surroundings during the bubble, and will now remain elevated to reflect a premium that did not exist in 2006.
Just remember –
1998
Booming Economy
7% 30 Year Fixed Rate Mortgages
Median Income: abt 50K
2010
Horrible economy
5% 30 Year Fixed Rate Mortgages
Median Income: abt 50K
Do the arithmetic and it’s not difficult to see where things are going. You have to give it up to the government for successfully reinflating another bubble with all the stimulus and money printing being sold as a recovery. Now we just sit and wait for the next shoe to drop that pops it. Might as well start taking bets while we wait.
Question: Even if that number of 845 distressed properties were to double or quadruple… how much would that really affect Irvine prices?
Based on over 50,000 homes in Irvine, even if 4000 homes were foreclosures, that’s only 8%. What is that number like elsewhere?
Just trying to get some comparative perspective here because as this down cycle continues to not go down very much, I’m looking for reasons to believe that newer SFRs that sold for $800k-$1m in 05/06 are going to sell for $650k-$800k by the time Irvine bottoms.
Prices are set on the fringes by a relatively small number of sales. If inventories and sales volumes increase much from where they are now, prices will go lower. The only thing keeping prices high is a serious lack of inventory capable of selling.
The level of market distress is orders of magnitude higher than in the early 90s. When 1% of the market is distressed, the supply can be absorbed, but when 2% or more is distressed, prices come under significant pressure.
Look at the Irvine Company. They are hoping to sell 800 homes this year. If 845 foreclosures suddenly entered the market, would they still be able to sell 800 homes? Everyone is relying on the cartel holding together to sustain pricing, including the Irvine Company.
But it’s unlikely that 845 foreclosures are going to hit the Irvine market at one time.
I’ve seen those ForeclosureRadar maps for the last 2 years and buttons seem to disappear with little or no explanation (even the red ones).
And one would think that the Irvine Company putting 800 houses in an overpriced area would have some effect too. I remember when word of the 2010 Collection first came out, no one believed they would be able to sell at their first announced prices. Not only did they raise them before they came out and people still bought, they have continually raised them almost every phase and some neighborhoods are almost sold through. How is it they are able to sell 400 homes at these prices? If there is that much demand for overpriced new homes… maybe there is that much demand for 845 underpriced pre-owned homes so the net effect would be zero.
I’m just not convinced those foreclosure numbers are going to have that significant an effect… but I hope I’m wrong.
The USSR was able to keep up the pretend for 70 years. Every US president personally believed that the USSR was going to ecomonically over take the US while claiming otherwise in speeches, except that “ingnorant” “second rate educated” non-Ivy Ronald Reagan, who actually beleived in the nonsense he was saying. Thank God. The USSR was able to rewrite itself with Gorbie, but the counter-intel state still continues.
The US has a completely willing media for the extend and pretend. Too bad bloggers like IrvineRenter have an outlet. Maybe a little vacation at a reeducation camp would help to get everyone agreeing with the govt/bankster programs.
The normal average turn-over was every 7 years. So 14% normal. If 8% extra is released in the market that would be 20% available supply for a 14% demand. Irvine numbers are likely different.
Like the run-up in housing, these time periods to exhaust inventory are highly location dependent. As a comparison: a condo in my hometown in SoFla sold at a point yielding a rough 75% loss to the bank; a builder foreclosure in my part of NC sold at a price that yielded the bank a PROFIT on the sale – even accounting for 6% realtor commissions, and a year of 7.5% interest income lost.
There have been builder foreclosures in my part NC, but nowhere near the degree as in FL. Other parts of NC have been hit harder.
However, I think the 9 year time frame is UNDERestimating the excess inventory in SoFla. A lot of that is from the overbuilding of condos, but a lot of detached homes were investor bought, and now there isn’t anyone to buy them. There aren’t enough jobs to support the number of homes, and the number of jobs there is decreasing. Because of that area’s dependence on construction, I see this as a secular trend, not just a recession related dip. I’m from the Atlantic coast of FL which is not nearly as depressing as the Gulf Coast.
I consider the floor on prices in FL to be the price Canadiens will pay. It is much harder to get a mortgage in Canada, and I wonder how many Canadiens buy a vacation home in FL before they purchase a primary residence in Canada. The good thing about a Canadien buying a home in FL is that they don’t need a job and they bring cash to spend.
Point is, the key to real estate is location^3. The key to prices & inventory work down is the same.
This post was encouraging, especially the last line:
“And as the cartel absorbs more and more inventory, the pressure to get rid of it will cause cheating among the cartel participants and force prices lower.”
But I have a question.
What pressure or pain will prompt some cartel participants to “cheat” like this and start releasing more of their foreclosed homes for sale? Does this pressure/pain come from bank investors unsatisfied with stock prices, the SEC, the US Govt, other? Fear of no more bank bailouts? I ask because up to now there seems to be zero sense of urgency on part of the banks. There seems to be no dire consequences for a bank business to step outside of its core competence (making loans) and becoming a storage warehouse of overvalued houses.
Also, does anybody ask themselves what the “Bad Debt Expense” ledger looks like for a BofA or WAMU? It must be soul-crushing.
The pressure to write down non-performing loans is supposed to come from regulators, but with mark-to-fantasy accounting, many regulators are turning a blind eye.
The pressure to sell real estate owned comes from stock and bond holders. People invest in in banks because they want their money to go into loans that make interest. These investors do not want to invest in real estate, or they would have purchased a REIT. The more polluted the income stream becomes by real estate, the more uneasy investors become. That is what ultimately forces banks to sell their REO.
The pressure is from the invisible hand. Do I sell today and get X to strengthen my balance sheet, or earn 3-4% in treasuries, or do I wait 6 months hoping to get 1.1X, but might get 0.9X or 0.8X, and have 6 months of lost interest.
IR, I don’t know if it is totally cartel behavior keeping properties from getting on the market. I think banks are understaffed and don’t have a lot of skill in managing REO. Consider that underwriting was a core business and they stunk at that. They went probably 4 years without a single REO (with the bubble inflating you sell before you get foreclosed). Why would people develop skills to handle a situation that never happens?
Banks aren’t understaffed, and they’re not stupid either.
I’ve followed many properties that sit on the market as an overpriced REO, if it doesn’t sell at their dream price, it gets pulled off the MLS and mothballed. The crap gets “marked to market”. Good stuff gets pulled.
I’m not talking about Irvine however. But quite a few in Seattle, L.A. and Florida.
I spend 8 hours a day looking at listings.
The shenanigans are obvious.
“Having the government take over our banks, which is more in line with the way Obama does things, would cause an outcry with the citizens of the United States.”
Uh, apparently you aren’t real aware of your surroundings. In fact, the writer of this blog (along with many others) had proposed just what you call “the Obama way”: nationalizing the banks. So is IrvineRenter a SOCIALIST?!??!?! OMG, THIS BLOG IS COMMUNIST!!!!
Idiots.
“Having the government take over our banks, which is more in line with the way Obama does things, would cause an outcry with the citizens of the United States.”
Uh, apparently you aren’t real aware of your surroundings. In fact, the writer of this blog (along with many others) had proposed just what you call “the Obama way”: nationalizing the banks. So is IrvineRenter a SOCIALIST?!? OMG, get the authorities!
I just checked redfin.com,
back to the future!,
asking prices for mid/high level housing are back to 2006 levels!, no bubble at all, nothing happened, NADA!
though, apartments/condos are 30-40% down from 2006!,
what’s going on?!?
like watching people walking on water!
Why should a home owner worry about a notice of default. The bank needs to act upon it to actual DoTS to have any teeth. Just looking at the NoD as a notice of at least 3 month of free rent, if not another year or two years for the squatters who game the system with the banksters/govt help. Now that’s a real stimulus package 24 * $3000 = $72,000 tax free on principle residence?
Question: Can the home owner (house borrow) take the non-paid interest off on the SchA like a bank would declare the unpaid interest as Income: receivables?
Condo are the last to go up and the first to go down. With high HOA, SFU and Duplexes are almost like condo in monthly payments and HOA rules. The general peacefulness and school of Irvine has kept prices high. Ultra low interest has also helped greatly.
Hey IR,
I like the Alice in Wonderland analogy. It got me thinking of the old Jefferson Airplane song “Go Ask Alice”.
You could change the name Alice with “Lawrence Yun” of NAR or Bernake or any number of others..your choice.
LOne pill makes you larger
And one pill makes you small
And the ones that mother gives you
Don’t do anything at all
Go ask Alice (replace with Lawrence Yun)
When she’s(he’s) ten feet tall
And if you go chasing rabbits
And you know you’re going to fall
Tell them a hookah smoking caterpillar has given you the call
Call Alice
When she was just small
When the men on the chess board (AKA Goldman Sachs)
get up and tell you where to go
And you just had some kind of mushroom
And your mind is moving slow
Go ask Alice (or any other realtor)
I think she’ll know
When logic and proportion
Have fallen sloppy dead
And the white knight is talking backwards (Obama)
And the Red Queen’s “Off with her head!”
Remember what the dormouse said
Feed your head
Feed your head