41 thoughts on “IHB News 9-18-2010”

1. Laura Louzader September 18, 2010 at 3:34 pm

   This is exactly what I don’t want happening to me. What a shame to get a bargain-priced place for a price you can afford, then lose it because of job loss.

   That is wny my dream is for housing to be cheap enough that a person of slightly higher than average income could buy a place like this and it would be cheap enough for the mortgage to be, after a 10%-20% down payment, no more than 2X the borrower’s income.

   This is also why I’m looking in more “marginal” neighborhoods for places that cost half what they would in a “prime” area, that I can pay off in less than 5 years. This means buying smaller than I would like, and in a nabe that is not my favorite. But I can get a wonderful old condo for a gift price, and have real housing security. The idea is to get a long-term mortgage so my minimum payment is low, and make the biggest extra payments against the loan principal I can make to pay the thing off as quickly as possible. That way, if I have a month where my income drops, I can still make the payment, and can make large extra payments in flush periods.

   Think how much more secure most Americans would be, and how much better grounded our economy would be, if we lived well underneath our means instead of at their limits, or as is so often the case, way beyond them. We’d have capital to invest in new industries and wouldn’t have to spend the next 20 years digging ourselves out from under a multi-trillion dollar pile of debt.
   1. Richard September 18, 2010 at 7:03 pm

      Kudos to Laura Louzader.
   2. Planet Reality September 18, 2010 at 8:44 pm

      Housing is already cheap enough to buy at 2 times income. As you point out you simply need to choose the neighborhood and/or part of the country that fits your income.
      1. DarthFerret September 18, 2010 at 11:17 pm

         If you think that there are enough people in The OC with $300K+ incomes to buy up all these properties, then you’re beyond delusional.

         STOP buying into that nonsense your broker is telling you! Irvine is NOT populated with $300K+ households! How long are you going to let him string you along with fairy tales and shrinking paychecks? RE is dead in Orange County for the next 5 years at least, maybe 10. The good ole days are NOT coming back. Your $250K [r]ealtor income is gone forever. Go get a real job.

         -Darth
         1. Planet Reality September 18, 2010 at 11:28 pm

            At some point you are going to reach acceptance and buy in the neighborhood or part of the country you deserve.

            That is going to be a day of great peace for you.
            1. DarthFerret September 19, 2010 at 3:10 am

               LOL! You are SO brainwashed. Buying is not the only option, and at the moment, it is very far from the best. There are already Irvine properties that I can afford to buy, but why would I do that when I can rent for much, MUCH less and when I believe that RE prices will fall for years to come? My net housing cost would rise by over $1,000/mo if I bought the 3BR SFR in Woodbridge that I’m renting now, and that’s INCLUDING taking into consideration the tax benefits of owning AND the portion of the mortgage payment converted into equity. That’s also skewed by the lowest mortgage interest rates in our nation’s history! If we ignore all the tax and equity benefits and just look at the monthly cash outlays, I’d be paying $2,200/mo more than I’m paying now!!! That’s $2,200/mo out of my pocket just so that I can be an Irvine loanowner! And that’s not even considering the unpredictable extra costs for upkeep and repairs!

               So, yes, it will be a very peaceful day for me when Irvine prices complete their fall back to reality and I decide that it finally makes sense to buy here. It’s not hard choosing to wait! Not hard at all. All I have to do is browse Redfin and watch the falling prices. Now THAT is really a peaceful experience! Until prices return to REALITY (not to be confused with Planet Realty), I’ll ignore all the hucksters like you telling me to buy now or be priced out forever.

               -Darth
            2. Muzie September 19, 2010 at 6:05 am

               You don’t need 300k$ income to live outside Irvine, or in all parts of Irvine for that matter.

               PR has a point – you or I are not “entitled” to live there.

               Whining that you should ignore the equity and tax payments is just creating an example that’s not even grounded in reality. What are you trying to prove? The benefits are there, they don’t just disappear because you said so. I have trouble finding houses at rental parity or better close to Irvine. Maybe you’re just not looking hard enough.

               You won’t be priced out forever, that’s BS. It’s also BS to scream about prices coming back to a “reality” that just isn’t happening right now.
            3. Muzie September 19, 2010 at 6:07 am

               Arg, I meant I DON’T have trouble finding rental parity in locations around Irvine. You just gotta take your picks.
            4. Swiller September 20, 2010 at 10:11 am

               The sooner you accept the fact middle class america is gone, the better you will accept your role as a wage slave to the plutocracy.

               PR always brings a smile to my face, even though I live the bitter words he plants upon the screen.
         2. BD September 19, 2010 at 1:00 am

            Darth is correct… RE is dead not just in the OC but, SoCal in general for a good 10 years. Rising rates and stagnant incomes will keep prices flat at best or more likely grind lower until a real equilibrium is reached. This is not new and has happened in SoCal and the OC before.

            Good luck to anyone buying here now…The US may or may not got through the deflation Japan did but, CA certainly will…

            Why is this analysis wrong?

            …my .02

            BD
            1. BD September 19, 2010 at 1:19 am

               BTW, a 3 point rise in rates from say 4 3/8 to 7 3/8 (what I paid in 1999 when I bought in Mission Viejo) raises your monthly payment by 38% on a 30 year fixed.

               If you don’t think we are going to have much higher rates 10 years from now you are completely delusional. This will happen regardless of the fed… people buying our debt will not by our bonds at 5 and 6 or even 7 percent when we hit debt = 100% of GDP – also forcast to occur in 2020, 10 years from now…

               Equity will get destroyed b/c people are paying everything they can on a monthly basis now at 4 3/8!!

               My .02

               BD
            2. Planet Reality September 19, 2010 at 2:06 am

               I don’t think the scenario you propose will happen, but for arguments sake let’s say it does.

               In 2020 rates are 7 3/8%. In that scenario it’s likely that we’ve seen a fair amount of inflation. At worst I would expect house prices to be the same. 38% is nothing inflation wise compounded over 10 years for premium area incomes. But let’s take it a step further the real payment shock is less than 38% because with higher rates the tax incentive increases. The true monthly cost of ownership after the tax benefit would only be around a 25-28% increase. That’s nothing over a 10 year period. Especially for premium area incomes. Let’s not forget we are currently at rental parity. Rents have increased far more than 25% per decade in socal. Pick any decade you want.
            3. DarthFerret September 19, 2010 at 3:30 am

               Planet Realty: “Rents have increased far more than 25% per decade in socal. Pick any decade you want.”

               Why certainly! I’d be happy to help. How about the 1930’s? I suspect that 1989-1998 might also have failed to rise by 25%, since house prices didn’t rise by 25% during that time, but I couldn’t verify that.

               Or are you suggesting that our next decade will look more like the 2000’s than the 1930’s or the 1990’s? Ten years from now, we will be wishing for a letdown as gentle as the 1990’s!

               -Darth
            4. BD September 19, 2010 at 3:32 am

               I need to check with my tax guy but, if you make North of 250K there is no or little tax advantage. AMT hits those folks hard…me included. As long as you are willing to pay 600K for a condo then you might be right. If you want a real home with ocean views your mortgage deduction will not be there becausse these homes are $1M plus…

               The big mortgage makes no economical or math sense. I suppose you could have people putting 7 and 800K down but, this is not the norm.

               We are still far away from historical norms. I hope OC build the first perpetual motion machince with many 200K plus jobs but this is just as unlikely.

               The high end – the stuff we all want has the furthest to fall…

               Desire does not equal demand… unfortunately.

               I want to own but, we still have 30-50% to go for the stuff we want.

               my .02

               BD
            5. BD September 19, 2010 at 3:52 am

               I bought a very nice condo in 2003 with great views of the beach and harbor in HH – and then promptly remodeled everything from the dry wall up. I’m now renting the place for 2700/month (granite, stainles and jetted tubs and all). I’m still underwater for $1000 / month minus the $100K I spend in upgrades. Unless you believe that rents and salaries are poised for a big bump, prices now will continue to go lower.

               I don’t get a lot of enjoyment to subsidize someone elses life style to the toon of $1K/month but, that is where we are…

               Unfortunately rates will rise and prices will come down for all of those who make a payment on anything.

               All things will unfortunately revert to rental parity. This means I have at least a hudred grand or more to go lower…

               BD
   3. Walter September 18, 2010 at 11:53 pm

      For extra security and flexibility, you may consider only making extra payments on the mortgage once you have a 2 year emergency fund.

      I think the bank still requires the minimum payments every month even if you have made extra payments in the past.

      For me, I don’t bother making extra payments until I can write a check and payoff the whole loan.
      1. Laura Louzader September 19, 2010 at 3:25 am

         The lender absolutely does require you to make your minimum payment every month no matter how many payments you’ve made against the principal in addition to your monthly payment. That’s why it may be a good idea to do a 30 year fixed even if you’re older, to give yourself flexibility on the payments. With a cheaper dwelling, the payments will be very cheap relative to your income, leaving you extra money to set aside for your emergency fund.

         I agree that building an emergency fund is priority.
2. Sue in Irvine September 18, 2010 at 7:40 pm

   If the auction price was $319,000 is that considered a “recent comp” for the neighborhood?
   If an equity seller in the same complex was selling would that $319,000 sale go against them?
   1. IrvineRenter September 19, 2010 at 7:36 am

      Appraisers typically ignore trustee sale comps because it is happening in the all-cash market. Since appraisers are trying to determine the price in the fully financed resale market, this approach is necessary. If they did count trustee sale comps, it would cause many deals to fall through for lack of appraised value, and the net effect would be to raise down payment requirements as buyers would need to make up the difference. It would also greatly reduce sales volumes as few buyers would have this extra down payment money.
3. JK September 18, 2010 at 9:53 pm

   I don’t want to rain on the pity party here but if she had equity why would she not try to sell? It makes no sense?
   Something doesn’t add up here. It sold for $319,000 and her loan balance was less than $175,000 and you get foreclosed on?
   Am I the only one that thinks that something is wrong with this picture? Plus she didn’t make payments for a year and a half?(maybe)-possibly some/partial payments with trying to work out a loan mod.
   I’m not shedding a tear here because I think there’s more to this story than we know. Just my .02
   1. Planet Reality September 18, 2010 at 10:27 pm

      Agreed, there are many more worth while things to shed a tear for.. A woman living in an Irvine condo for 10 years and then moving on is not one of them. Why in the world is this a sobb story?

      Maybe IR can rent her an Las Vegas condo and not evict her and the other tenants when they stop making payments.
4. Foreign Cash Buyer September 19, 2010 at 1:41 am

   DarthFerret,

   Santa Ana is right next to Irvine and you don’t need 300k income to buy there. Now please leave Irvine.
   1. DarthFerret September 19, 2010 at 3:17 am

      Why would I buy in Stabba Ana when I can buy a condo for the same price in Orangetree?

      Better question: why would I buy a condo in Orangetree when the condos in Woodbridge are quickly falling down to those prices?

      Even better question: why would I buy a condo in Woodbridge and pay that big condo-complex HOA when I can wait a few years and pay the same for an SFR with a much lower HOA? Sure, interest rates will be higher, so the monthly payment will be higher, but I will be able to refinance into a better rate eventually, and I can also make additional payments against the principal. If I buy now and buy too high, then once I sign that big, fat (albeit low-interest and very payment-affordable) loan, I’m stuck with the bank’s 30-year plan on my overpriced property. What a stupid mistake that would be!!!

      -Darth
      1. FoolishRenter September 19, 2010 at 10:05 am

         DF,
         Don’t you know that RE always goes up over the long term.
         Buy now before you’re priced out of the market.

         Why rent, when you can squat.

         Once the bank and WS unload (transfer liabilities) for the MBS and bank owned loans to the US taxpayers, WS will then release open the floodgates with the stragetic FC’s and end the squatting.
      2. Alan September 19, 2010 at 2:22 pm

         I’m missing the point of this whole argument. Planet Reality and Laura Louzader are quite right – if you want to buy a house, go to an area where prices have fallen enough (or never rose in the first place) that you can do it easily and with a large financial safety margin. If you want to live in Irvine or some other similarly inflated market and don’t have the cash and income to easily afford it, then rent and wait. Seems to me you’re pretty much arguing the same thing, with the only question being what is the wait time for Irvine (1 or 2 years, 10 years, forever …).

         That is my strategy actually – I don’t need to own, and it is cheaper where I live to rent, so I rent and save. If things change and I need or want to own, I have enough to buy now, and I think it will get even easier to do so as time goes by. If prices start shooting up again, I’m an idiot.
         1. Laura Louzader September 19, 2010 at 9:52 pm

            The only thing that will make prices “shoot up” again is if we are:

            a) suddenly employed again with incomes double our old incomes

            or

            b) we go back to criminal lending replete with IO, Pay Option ARM, and other toxic types of loans that let the borrower momentarily deceive herself into thinking she can afford a $500K house on an income of $55K a year.

            If we’re going to do THAT, we might as well just declare a National Jubilee so we can start the whole process all over again. Then we might as well just shut down the government altogether along with every municipal government, and hole up wherever we can hide with a two-year supply of ammo and freeze dried foods, because absolutely nothing will be functioning and currency will be worthless.
         2. DarthFerret September 20, 2010 at 1:34 am

            I’m missing the point of this whole argument. Planet Reality and Laura Louzader are quite right

            That statement tells me that you are missing the point because you aren’t paying attention. Laura has agreed with PR very infrequently and only on very minor issues. PR has been arguing not only that prices will not fall any further but that prices in Irvine will rise by several percent a year for decades to come. He is wrong. Prices are returning to historical norms with regards to rents and wages (possibly with some overshoot to the downside). THAT is the point of this whole argument.

            if you want to buy a house, go to an area where prices have fallen enough (or never rose in the first place) that you can do it easily and with a large financial safety margin. If you want to live in Irvine or some other similarly inflated market and don’t have the cash and income to easily afford it, then rent and wait.

            You started with a false premise. I do NOT want to buy a house. I want to make wise (read: profitable) financial decisions with regards to my housing options. If the wise decision is to buy (I believe that it will be within a few years), then I will do so. Until then, I will rent. I do NOT need to buy a house.

            As for Irvine, that is where I choose to live. That is the parameter that I have placed on my housing options. For now, I have further narrowed it to Woodbridge (my son and I are addicted to the lagoons!), but that one is flexible.

            I don’t need to own, and it is cheaper where I live to rent, so I rent and save. If things change and I need or want to own, I have enough to buy now, and I think it will get even easier to do so as time goes by. If prices start shooting up again, I’m an idiot.

            Yep, that’s me too.

            -Darth
5. theyenguy September 19, 2010 at 2:23 pm

   As a news item, I provide a link to my blog article … Bear Market Commences As Currency Traders Unleash A Global Currency War By Selling The Euro

   A bear market in stocks started September 17, 2010 as currency traders sold the Euro, FXE, in response to the Bank of Japan intervening in the currency markets on September 15, 2010 and selling Yen, FXY, to stop the rise of its currency; this caused the Yen to fall to its 20 day moving average, which in turn terminated “long carry trade investing”. The Euro, FXE, fell 0.32% to close at 129.88.

   As I reflect on the article, in a debt deflationary environment, where currencies are falling, I would not want to be a purchaser of a property and a debtor. The only time I would buy a home is when I had cash to pay the entire price.

   And as I reflect on the article and look at the strength in the chart of the Australian Dollar, FXA, I finally understand why real estate is so expensive in Australia. It was the yen carry traders driving up the Australian Dollar, that drove investment into Australia farmland, and homes. But now, the dynamic is working in reverse: prices will be falling and disinvestment taking place.

   Barry Gray of WSWS.org writes Economic Crisis Threatens To Unleash Global Currency Wars:
   “Two events this week have highlighted the growth of global economic tensions and the slide toward international trade and currency wars.”

   (The First) “On Wednesday, Japan unilaterally intervened in currency markets to drive down the exchange rate of its currency by selling an estimated 1 trillion yen (worth some $20 billion). The move, the first such intervention by Japan in more than six years and the country’s biggest ever one-day currency action, breached a tacit agreement among the established industrial powers to avoid unilateral currency moves.”

   Yes war has been declared unilaterally, by the most currency oppressed country in the world. I do have to say they got themselves into this problem with 0.25% interest loans to fund carry investments globally going back probably to the 1950s and 1960s. Well finally, after a long series of prime ministers, the new guy, “Naoto Kan ordered the selloff of yen one day after he survived a bid by rival Democratic Party of Japan leader Ichiro Ozawa to unseat him. The markets were taken by surprise, thinking that the defeat of Ozawa, who had called for stronger action to halt the appreciation of the yen, lessened the likelihood of an intervention.”

   One might ask war with who? War first with currency traders: and like good luck, it is going to end very badly for everyone world wide. It’s a no win war for mankind, people do not win, governments do not and currency traders do not win.

   War second with other nations: now everyone will want to deflate their currency. And some like the US cannot do so at the current time. The only thing the US might do is put up trade barriers; but there certainly disadvantages.

   With the sell of the Yen by the Bank of Japan, and the sell of the Euro by the currency traders, Friday September 17, 2010, marks a historic pivot point. The world passed from abundant credit liquidity to ever diminishing credit liquidity. Peak Credit occurred Friday September 17, 2010. The 0.18% fall in the value of Junk Bonds, JNK, documents that the Global Credit Bubble has been pricked. The world has gone over the tipping point; it has passed from prosperity to debt servitude.

   The real estate application is that there will be a ever diminishing supply of qualified buyers and soon there will a soon liquidity evaporation and evaporation of mortgage lending, there will be no Bernake Brake as Irvine Renter suggests. The only thing I see is a broken Bernanke. Well, I do see a Credit Seignior, that is a credit boss, a lending lord, coming. I see Elizabeth Warren rising to oversee lending, banking, and mortgages.

   I wrote: “The Bank of Japan and the currency traders have torched the skies” ….. ”we are in a new investment matrix”….. “welcome to the desert of the real” ….. “we ain’t in Kansas no more”.

   I envision the day when banks will become property management companies renting out their REOs.

   Thanks again Irvine Renter, I enjoy the blog.
   1. Planet Reality September 19, 2010 at 8:15 pm

      The start of the Sept 17th bear market, was much less impressive than the start of your Sept 15th and Sept 10th Bear Market.

      Watch for the start of the Sept 19th Bear market when today at the Irvine Spectrum an Irvine mother opts for only 3 over priced kiddie train rides as opposed to the normal 4. The devastation will be felt as she marches the kids back to their Mercedes G55 in route to their shady canyon home.
      1. Renter 1 September 20, 2010 at 3:53 am

         Until her husband looses his job and the house goes into foreclosure. After that, the Mercedes is being replaced with a bicycle and they move into a 2 BR in one of the Irvine Company communities. Your wishful perception of reality is not reality. The few people spending their last HELOC dollars at the Spectrum ($20 at Macy’s?) won’t prevent the next price drop from happening.
         1. Swiller September 20, 2010 at 10:22 am

            Most of the “real” wealthy in Pelican Hill, Pelican Crest, and Shady Canyon, do not have mortgages. Like most wealthy people, they pay cash.

            Only the gambling wealthy are in debt to a mortgage, and yes, some of them are losing their homes…not many though.
            1. Renter 1 September 20, 2010 at 8:23 pm

               The real wealthy are not driving a Mercedes G55 or go shopping at the Spectrum
      2. Patrick.S September 20, 2010 at 5:04 pm

         LOL! My morning started way too early today – thanks for the laugh!
6. DarthFerret September 20, 2010 at 3:50 am

   Some anecdotal evidence…

   I have some automated searches constantly running on Redfin that send me daily updates on updates to Irvine properties based on my parameters. Today’s update had 6 properties listed: 1 property, the cheapest of the 6, changed from Active staus to Contingent (generally means an offer was accepted and the property went into escrow), a 2nd property was just updating their open house schedule, and THE OTHER 4 out of 6 were price reductions.

   Enjoy the ride down. Please keep your hands and feet inside the car. WHEEEEEE!!!

   -Darth
   1. DarthFerret September 20, 2010 at 3:51 am

      Got in a hurry…

      Shoulda been “…daily emails with updates…”

      -Darth
7. Peter Pan September 20, 2010 at 3:59 am

   Is PR a PR agent for the NAR? Little substance, wrong most of the time and a lot of noise, sounds just like the NAR!
   1. DarthFerret September 20, 2010 at 5:40 am

      If he is, they are most definitely not getting their money’s worth, but you’re right that they share the same style.

      -Darth
      1. Planet Reality September 20, 2010 at 7:25 am

         As usual you have created something in your head that doesn’t exist.

         You consolidate all of the uncertainty and fear that beats you up on a daily basis into my post. The only thing I’m not sure of is whether this is cathartic for you or if it creates more distraught. My post are not at all what you make them out to be, you create what you want to hate and fear in my post.

         When you reach personal acceptance the peace will fill your life with love.
         1. DarthFerret September 20, 2010 at 7:47 am

            When you reach personal acceptance the peace will fill your life with love.

            I can see you in an orange robe and shaved head as you say that. It’s not uncommon for those that bought into Ponzi schemes to turn to bizarre religious groups in a search for meaning after the scheme falls apart.

            -Darth
            1. Scrawny Kayaker September 20, 2010 at 9:32 am

               ALL religious groups are bizarre. Have you read their literature? Genies, magic underwear, cannibal crackers, flying goats, The Myth of Attraction, Portkeys… 😉
            2. DarthFerret September 20, 2010 at 11:05 am

               Just to make it perfectly clear: my point was not to denigrate anyone’s religion. Kayaker’s views are not my own.

               -Darth

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