The housing bust is forcing many homeowners to become renters, and in the process, the home ownership rate is projected to hit a 50-year low.
Irvine Home Address … 4602 ROXBURY Dr Irvine, CA 92604
Resale Home Price …… $423,800
What is love
Baby, don't hurt me
Don't hurt me no more
Baby don't hurt me
Don't hurt me no more
Haddaway — What is Love
Every homeowner loves their property. As the foreclosures pile up and homeowners are forced into a life of rentership, many will come to question their love affair with homeownership. Was it really about owning the home, or was it about having their own private ATM machine? Whatever the reason, these properties are a source of pain, and may just want the pain to end.
Apartment Rentals Hit Record Highs in 2010, as More Americans Shun Homeownership
The National Multi Housing Council (NMHC) reported results of its latest Quarterly Survey of Apartment Market Conditions Friday, stating the industry is on the rise, improving in all four indices surveyed and setting an index average record for the second quarter in a row. The results show a shift in consumer mentality toward short-term rental agreements and away from long-term mortgage debt.
Currently one-third of Americans rent their housing, and over 14% live in a rental apartment. The NMHC represents the interests of rental property investors, such as Fannie Mae, Freddie Mac, Stewart Title and Starwood, to name a few.
NMHC chief economist Mark Obrinsky suggested other economic factors boosted the market for apartments.
“Demand for apartment residences has substantially increased thanks to modest improvements in the jobs market and the continuing decline in homeownership rates," he said.
It shouldn't be surprising that apartment rental rates are up as homeownership rates decline.
Homeownership rate continues to slide 
By Haya El Nasser, USA TODAY, – Aug 1, 2010
Millions of houses on the verge of foreclosure threaten to send homeownership to its lowest level in 50 years, according to new industry estimates.Fresh projections say the rate could plummet to about 62% as early as 2012 and almost certainly by the end of the decade. Homeownership rates haven't been that low since they hit 61.9% in 1960.
The share of households that own their homes has been sliding since the housing bubble burst in 2006. The rate fell again in the second quarter of this year to 66.9% — the lowest since 1999 — from a peak of 69.4% in 2004, the Census Bureau says.
FORECLOSURE: More than 1M homes in danger in 2010"Anybody who knows anything about housing thought it would be flat in the second quarter," says John Burns, CEO of John Burns Real Estate Consulting, a national housing market analyst based in Irvine, Calif. "Homeownership fell during the quarter when government was offering a tax credit (to first-time homebuyers). What do you think is going to happen now that there's no tax credit?"
The continued decline — 0.5 points lower than the same time a year ago — points to a fast plunge, he says.
Burns estimates that 6 million of the 8 million homeowners who are behind on their mortgages will lose their homes to lenders in the next two years. This "shadow inventory" could push ownership rates down to 61.7% within two years, he says.
If John Burns is right — and I have the utmost respect for his forecasts — the conversion of such a large percentage of housing from ownership to rental property is going to crush prices.
It may seem like a small point, but if home ownership didn't rise in the second quarter with tax credit in place, and if it dropped so quickly thereafter, the trend is unmistakable. And since most of these foreclosed owners will not be buying a house any time soon, it is very likely that Mr. Burns's forecasts will prove true. Even though Fannie Mae has reduced its waiting time to only two years, these borrowers still have to come up with 20% down, and with our still bloated house prices, that is a difficult task that few will accomplish.
Arthur C. Nelson, director of the University of Utah's Metropolitan Research Center, says the rate may not plunge that quickly because many foreclosed homes will be purchased by others.
Others who? The others are mostly investors who are renting these properties to former owners. Investors pay less than owner-occupants — considerably less. That is why a conversion from owner occupancy to investor ownership lowers prices. There simply are not enough first-time buyers and others with good credit to clean up this mess.
Homeownership has been a cornerstone of the American dream because it has generally built personal assets and stable neighborhoods.
That is until we allowed every homeowner to raid the equity piggy bank with cash-out refinancing and HELOCs.
Federal policy has long encouraged homeownership through the mortgage tax deduction and government-backed mortgages.
The push to own rather than rent now is being questioned. "A large percentage of households are not responsible enough to handle a mortgage payment," Burns says. "Growing homeownership is a great goal but you have to grow the percentage of households that are responsible."
John Burns is right, although nobody wants to hear the truth. We pushed home ownership rates up to 70% by giving loans to people who were not up to the task..jpg)
More stringent financing requirements may prevent some from buying.
"We've seen low-income homeowner rates declining by twice as much as higher-income groups," says Daniel McCue, senior research analyst at Harvard University's Joint Center for Housing Studies.
The decline in home ownership at the low end is because lenders foreclosed on subprime borrowers while their alt-A and prime brethren have been allowed to squat. The higher income groups will also see a decline in home ownership rates as lenders finally get around to foreclosing on these people.
"Everyone is looking harder at the benefits and potential risks of homeownership. Is it the right option for you?"
Demographics also affect home buying. The children of Baby Boomers are coming of age but young adults typically rent and financial pressures are further delaying home buying decisions. More 20-somethings have returned home to live with their parents. The 2010 Fannie Mae National Housing Survey shows that two-thirds of Americans still prefer owning a home because it's a good investment in the long run.
The housing bust is providing bargains for home buyers willing to take the plunge.
"Affordability is very much in favor of homeownership right now," Burns says. "If the economy turns around quickly, you would hope that responsible renters would become homeowners."
With the super low interest rates, affordability is good. It is even improving in Irvine as today's featured property demonstrates. Personally, I would prefer higher interest rates and lower prices because if you buy today, you will never get the chance to refinance into a lower rate loan. However, rental parity will soon be upon us, and for those who plan to stay for the long haul, they will be able to ride out the declining prices that will occur as interest rates go up and shadow inventory comes to market. There is no urgency to buy, but when prices are below rental parity, there are fewer reasons to rent.
Peak buyer accelerates their default
I have profiled hundreds of peak buyers who have lost their properties to foreclosure. The official statistics say that only 20% of defaults are strategic. Do you believe that? Do you really believe that all the people I have profiled on this blog — just in Irvine — are casualties of unemployment? Couldn't these people afford to keep these homes if they obtained a loan modification? Isn't everyone in Irvine rich and should be able to afford a half a million dollar house?
Strategic default — or accelerated default as I have more accurately described it — is far more widespread than lenders would like to believe. The buyers of the houses I profile each day could never afford the property, and most don't see the point of continuing to fake it with a loan modification, so they simply quit paying. It's difficult to tell if a default is accelerated by choice or compelled by unemployment, but since nearly every property I profiled was also deeply underwater, what would you guess it is?
- This property was purchased on 2/23/2006 for $565,000. The owners used a $452,000 first mortgage, a $56,500 HELOC, and a $56,500 down payment.
- They stopped paying early last year and managed to squat for about a year.
Foreclosure Record
Recording Date: 04/01/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 08/14/2009
Document Type: Notice of Default
The bank took this property back on 5/11/2010 for $436,500.
Irvine Home Address … 4602 ROXBURY Dr Irvine, CA 92604 
Resale Home Price … $423,800
Home Purchase Price … $436,500
Home Purchase Date …. 4/30/2010
Net Gain (Loss) ………. $(38,128)
Percent Change ………. -8.7%
Annual Appreciation … -8.8%
Cost of Ownership
————————————————-
$423,800 ………. Asking Price
$14,833 ………. 3.5% Down FHA Financing
4.57% …………… Mortgage Interest Rate
$408,967 ………. 30-Year Mortgage
$83,507 ………. Income Requirement
$2,089 ………. Monthly Mortgage Payment
$367 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$35 ………. Homeowners Insurance
$0 ………. Homeowners Association Fees
============================================
$2,492 ………. Monthly Cash Outlays
-$337 ………. Tax Savings (% of Interest and Property Tax)
-$532 ………. Equity Hidden in Payment
$25 ………. Lost Income to Down Payment (net of taxes)
$53 ………. Maintenance and Replacement Reserves
============================================
$1,702 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,238 ………. Furnishing and Move In @1%
$4,238 ………. Closing Costs @1%
$4,090 ………… Interest Points @1% of Loan
$14,833 ………. Down Payment
============================================
$27,399 ………. Total Cash Costs
$26,000 ………… Emergency Cash Reserves
============================================
$53,399 ………. Total Savings Needed
Property Details for 4602 ROXBURY Dr Irvine, CA 92604
——————————————————————————
Beds: 3
Baths: 2 baths
Home size: 1,112 sq ft
($381 / sq ft)
Lot Size: 4,992 sq ft
Year Built: 1971
Days on Market: 12
Listing Updated: 40393
MLS Number: S626665
Property Type: Single Family, Residential
Community: El Camino Real
Tract: Wl
——————————————————————————
According to the listing agent, this listing is a bank owned (foreclosed) property.
BANK OWNED!!! NICE SINGLE STORY IN THE WILLOWS. NICE FLOOR PLAN COMPRISING THREE BEDROOMS, TWO BATHROOMS. LIVING ROOM WITH FIREPLACE. 2 CAR GARAGE WITH INSIDE ACCESS. KITCHEN HAS BEEN UPDATED. THE BANK HAS APPROVED REHAB AND IS IN PROCESS OF NEW FLOORING, NEW INTERIOR PAINT AND OTHER MISC REPAIRS (CALL FOR LIST). ROOM ADDITION AT REAR OF PROPERTY IS NOT PERMITTED (AS IS), NO CONTRIBUTORY VALUE ADDED TO PRICE. CONVENIENTLY CLOSE TO GREAT SCHOOLS, PARKS, SHOPPING, FREEWAY ACCESS AND MUCH MORE! A GREAT OPPORTUNITY FOR YOUR PRIMARY RESIDENCE BUYER OR INVESTOR BUYER! NO HOA FEES AND LOW TAX RATE (NO MELLO ROOS). Free appraisal and credit report if buyer finances through Bank of America Home Loans.
Payment affordability is excellent
Each week as I prepare these posts and input an even lower interest rate, I have been watching the cost of ownership drop lower and lower. The resale prices are still quite high, but the payment affordability is excellent. An FHA buyer would have a cost of ownership of only $1,700 a month for this detached 3 bedroom 2 bath home in Irvine. Yes, this property has some serious negatives, but it would likely rent for more than $1,700. You can find a few cheap condos renting for that price, but I can't find anything detached. If any of you can find a link to an detached 3/2 renting for less than $1,700 in Irvine, please post the link in the comments.
I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.
Have a great weekend,
Irvine Renter
Californians and other bubblers view real estate in a fundamentally different way than much of the rest of the country. One of the things I liked best about our previous home was that it was…affordable. Relative to our current short-term rental, it was 2X as big, but cost $200 less/month, for higher overall quality. I never viewed it as an investment, just somewhere enjoyable to live.
If you can’t afford the payments, the lifestyle and perceived prestige of your home may be enjoyable, but the financial stress has a cost too. Some may just live in ignorance right up to the point when they lose the home, but if you’re keeping track of reality on a day to day basis, that should make someone not really love their property.
http://www.nytimes.com/2010/08/12/business/12debt.html
[quote]Fewer than 5 percent of these clients said they would continue paying their home equity loan no matter what.
Ten percent intend to negotiate a short sale on their house
The other 85 percent said they would default and worry about the debt only if and when they were forced to, Mr. McCain said.
[/quote]
[quote]Mr. McCain, who recently negotiated a couple’s $75,000 home equity debt into a $3,500 settlement. “It’s come to the point where [b]morality is no longer an issue[/b].” [/quote]
[quote]Darin Bolton, a software engineer, defaulted on the loans for his house in a Chicago suburb last year because “we felt we were just tossing our money into a hole.” This spring, he moved into a rental a few blocks away.
“I’m kind of banking on there being too many of us for the lenders to pursue,” he said. “There is strength in numbers.” [/quote]
people are finally wising up and defaulting on their bad debt.
next few years should be interesting to see how this plays out.
I hear they are taking 10 cents on the dollar and sometimes 5 cents. I don’t think they want everyone to know this.
From Bloomberg:
U.S. Is Bankrupt and We Don’t Even Know It
http://www.bloomberg.com/news/2010-08-11/u-s-is-bankrupt-and-we-don-t-even-know-commentary-by-laurence-kotlikoff.html
[quote]“The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.” [/quote]
[quote]I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt.[/quote]
wtf. $202 trillion?! what comes after trillion? gajillion?
[quote]How can the fiscal gap be so enormous?
Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. [/quote]
i’ve come to the conclusion the US government is indeed running a ponzi scheme.
they know the amount of debt, they know the amount of revenue. they know debt is enormous relative to revenue. and they are pretending that nothing is wrong.
i suppose if one understands politicians are inherently dishonest, this shouldn’t come as a surprise.
Looks like the boomers hit the eject button at just the right time. Entitlement packages like theirs will never be seen in this country again. I really feel for the Gen Yers, talk about getting the stick broken off in you.
The US government runs the biggest Ponzi Scheme in the world…it becomes more apparent everyday. How long can this shell game keep going before the inevitable bust?
More like the boomers are going to be ejected as the inflation plane will leave without then ( no wages to go up with real inflation ), their entitlements get axed to reduce the deficit, and they all try to sell their sFRs at the same time …
If you mean by Ponzi scheme that current taxpayers pay for retirees social security and medicare benefits, and current taxpayers expect future taxpayers to do the same, then yes. But if you object to it that much, propose abolishing those systems and see how far you get.
That $202T number is all deficits for an infinite time horizon, discounted to today. This assumes we don’t change anything, and it can manipulate discount rates and inflation to make it seem better or worse.
Inflate the pain away.
Somehow i dont think its going to go quite as well as the govt plans it to.
“Home Ownership Rate Declining” !!!!.
“Squatting at an all-time high in 50” years should be the headline.
Is it me or did I see just this week see the Government give a couple of more billion to “distressed” homeowners. For some reason it didn’t make the BIG headlines.
“With the super low interest rates, affordability is good. It is even improving in Irvine as today’s featured property demonstrates. Personally, I would prefer higher interest rates and lower prices because if you buy today, you will never get the chance to refinance into a lower rate loan. However, rental parity will soon be upon us, and for those who plan to stay for the long haul, they will be able to ride out the declining prices that will occur as interest rates go up and shadow inventory comes to market. There is no urgency to buy, but when prices are below rental parity, there are fewer reasons to rent.”
Very well articulated. When people ask me if they should buy, I think I will have them read this paragraph and tell them a real estate “expert” wrote it. People love to hear from the experts.
I just got this from foreclosure radar, it appeared we were on the right track for a while with increasing supply. However, it appears the banks may be pulling back again.
“July California Foreclosure Report
NO FORECLOSURE WAVE IN SIGHT Investor discounts at trustee sale vary by county
Discovery Bay, CA, August 12, 2010 – ForeclosureRadar (www.foreclosureradar.com), the only website that tracks every California foreclosure and provides daily auction updates, issued its monthly California Foreclosure Report for July 2010. Foreclosure activity was again mixed in July. Foreclosure filings and cancellations dropped after rising last month, while foreclosure sales rose after dropping last month. “Despite a tsunami of mortgage delinquencies we continue to see no signs of a foreclosure wave” says Sean O’Toole, Founder and CEO of ForeclosureRadar.com. “Lenders and government intervention continue to delay foreclosures despite their continued failure to find a long term solution to unsustainable negative equity.”
what happened to that huge increase in foreclosures by BoA?
[quote]Bank of America is projecting a 600% increase in its already large number of monthly foreclosures.[/quote]
https://www.irvinehousingblog.com/blog/comments/bank-of-america-to-increase-foreclosure-rate-by-600-in-2010/
IR,
Do you include mortgage insurance (PMI) in your cost-of-ownership calculations? That is required whenever the down payment is <20%, right? I calculate PMI of ~$187/mo for this property.
Another thing to keep in mind on this property is the very small size. This is only 1,112 sq. ft. for a 3-BR SFR! For a house in a less-desirable location and not currently in a presentable state (withered yard, etc.), this is priced at a whopping $381/sf.
-Darth
I continue to see more and more sub-$500K SFR’s popping up on Redfin. Predictably, they are starting in the less-desirable neighborhoods, such as Orangetree and the strip of Walnut between Ralph’s and Irvine H.S. However, they are now creeping farther and farther into other areas of Irvine:
Deerfield:
$499,900
http://www.redfin.com/CA/Irvine/5-Fern-Cyn-92604/home/4682603
This one is a short sale, so one can only speculate on the validity of the price, especially since it was reduced by $60,000 (10.7%) yesterday. Assuming 3.5% down and comp rent of $2,200, this house is now ~$200/mo cheaper to own than to rent.
As IR pointed out in the article above, rental parity (and more!) is slowly creeping through Irvine.
-Darth
Yes, in last 45 days supply has been increasing, prices have been decreasing, demand seems to be decreasing, and rates are dropping. That’s a nice combination for those waiting to buy.
I’m crossing my fingers too.
Not HUGE drops but drops none the less. The thing is, it’s making 3CWGs outside of Irvine quite affordable… maybe I should become an SCHO.
P.S. Upon closer inspection of the listing, 5 Fern Canyon might not be a short sale.
-Darth
http://maps.google.com/maps/place?hl=en&wrapid=tlif12817241470932&um=1&ie=UTF-8&q=total+salon+roxbury+irvine&fb=1&gl=us&hq=total+salon&hnear=Roxbury+Dr,+Irvine,+CA+92604&cid=6153370609511953109
It’s not just a house, it’s a full service hair salon!
@IR:
I think you can find sub-$1700 rentals in Irvine on Craigslist but you’re right… I don’t think any are detached.
I read an article in the Register that rental rates are going up in Irvine… why?
Do you have a link to this article? This has certainly not been my experience. I have seen only declining rental rates over the past 2 years.
-Darth (renting in Irvine)
@Darth:
Sorry… missed this question:
http://lansner.ocregister.com/2010/08/12/apartment-rent-up-in-half-of-o-c-cities/76723/
I find that article interesting because you can find very recent articles saying Irvine rents are lower.
Bah.
Nice to hear about these price declines and ownership-rate collapses that will be occurring everywhere except Irvine.
Sounds about right
TIC can’t roll out the new product fast enough
I received an email from them last week offering incentives for Woodbury East. The ending of the tax credit slowed sales more than they had hoped it would.
A housing crisis looms in Irvine!
Perhaps TIC will consider annexing parts of Santa Ana and Tustin, scraping off eyesore housing and thereby turning much cheaper land into desirable and gracious Irvine properties.
I think TIC is smart to require 20% down even when the “buyer” can get alternative financing at 3.5% down. It will require effort to refinancing and expenses after purchase to get squatters’ rights on new TIC house. That will reduce the number of wilted lawns and gardens.
I am looking for a new place. I noticed that IAC doesn’t offer discount or incentive at all or at least as much as they used to. Can it be because of “he housing bust is forcing many homeowners to become renters”.
Why rent when they can squat?
But if this is true… we should check to see how public storage businesses are doing… should be a lot of ex-homeowners storing their McMansion goodies away.
Please keep churning out the American Gothic graphics. I thought I might someday tire of them, but that is not the case.
The last few days of them have been hilarious.
Thank you. I am starting to build quite a library of them.
Just when I didn’t think the govt could do more to encourage over bidding:
http://www.ritholtz.com/blog/2010/08/luxury-condos-get-fha-backing/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TheBigPicture+(The+Big+Picture)
Luxury Condos: FHA loans for only 3.5% down. With HOA included in the price. It can be a true walkaway with free rent on the taxpayers’ back. What at way to transfer the banks’ liabilities to the taxpayers.
Paying rent but should of been squating.
I moved out of Woodbury Lane in May because they were keeping my rent at 1900/month and they wanted me to sign a 16 month lease. They would have increased my rent if I signed a shorted lease