Las Vegas continues to lead the way with the highest rate of foreclosures and underwater homes.
Irvine Home Address … 7 BITTERWOOD Irvine, CA 92604
Resale Home Price …… $1,066,000
Dig for gold
Dig for fame
You dig to make your name
Are you pacified?
Hot and cold
Bought and sold
A heart as hard as gold
Yeah! Are you satisfied?
Metallica — King Nothing
Las Vegas remains nation's capital for underwater homes and foreclosures
by JON PRIOR — Thursday, November 11th, 2010, 2:52 pm
One of every 70 homes in Las Vegas received a foreclosure filing in October.
For 19 of the last 20 months, the city has held the highest rate of foreclosures for any metro area. And with more than 80% of its homeowners underwater on their mortgage in the third quarter, Las Vegas continues to hold the nation's top spot for negative-equity homeowners and rates of foreclosure.
Since February 2009, Las Vegas has held the highest foreclosure rate every month except November 2009 when Merced, Calif., passed it, according to RealtyTrac data. Merced was also the last city to have the most foreclosures 21 months ago. That February, the Las Vegas foreclosure rate was at one in 60, more than seven times the national average.
But the volume of foreclosures has gone down. In the first quarter of 2009, there were 35,321 Las Vegas properties that received a filing, compared to the third quarter of this year when 32,288 properties received a filing. It's a decrease of 8.5% over that span.
Still, Las Vegas holds a foreclosure rate nearly five times the national average, and having such elevated concentrations for a prolonged period time shows. Squatters sleep in tents on abandoned developments dreamed up during the bubble, and casinos are muted. Metro-Goldwyn-Mayer, owner of the MGM Grand, filed for Chapter 11 in November.
According to a report from MDA DataQuick, the median home price in Las Vegas has fallen more than 58% from the peak in November 2006 to land at $130,000 in September. Such staggering drops has left four out of every five homeowners in Las Vegas owing more on their mortgage than the home is worth, according to a recent study from Zillow.
Hundreds of projects are planned in the downtown redevelopment area, according to city officials, including the $40 million, first phase of Symphony Park. Still, plummeting prices and underwater homes are a millstone around the neck of the market, according to Zillow Chief Economist Stan Humphries.
“Beyond the lost tax credits, the [Nevada] housing market has been undermined by a weak economic recovery, a lack of significant job growth and potential homebuyers’ concerns about job security,” according to DataQuick.
There is really only one reason prices are so low in Las Vegas: the bubble there was almost entirely subprime, and lenders foreclosed. The entire amend-extend-pretend policy at the banks was a direct reaction to the Las Vegas housing market. Las Vegas is a textbook study in housing bubbles.
When the foreclosures mounted, the must-sell inventory pushed prices lower and sparked a vicious circle of accelerated default that caused prices to overshoot fundamental valuations to the downside just as bubble bloggers and others predicted. Prices are being held down by the weight of inventory, and prices will continue to suffer until the inventory is liquidated. It is the nightmare scenario the Federal Reserve and the banking cartel is hoping isn't repeated in Orange County.
For me the appeal is twofold: (1) There will be no shortage of property flips over the next several years, and (2) valuations are so low that cashflow investing makes sense. All my education and experience in real estate tells me this is the right place at the right time. I blog about it here because I believe in it. I go out there and put my time, effort, and money where my mouth is.
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Las Vegas will recover emotionally
Over the last couple of months I have been making weekly trips to Las Vegas. On occasion, I make my way to the craps tables to be part of the action. I am not much of a gambler. I can't get too excited about risking money when I don't have an edge, but playing $3 or $5 craps is entertaining, and watching the people at the tables is a unique study in human behavior.
When a game of craps starts, everyone is excited and hopeful. People place their bets and go about trying to make money from random chance. Will fate smile upon them? As the dice roll, if the table is hot and people are winning, many gamblers will press up their bets to see if their numbers come up and they can make a fortune. So it is with real estate.
During the housing bubble, every home owner was suddenly given a gift of equity from the market gods. Many chose to parlay that equity and buy several investment houses. As prices continued to rise and speculators pressed their bets, everyone was the real estate craps table was having a great time.
Then a 7 is rolled.
There is a pregnant moment when the dice are rolling. Will your number come up, or will a 7 wipe you out? When the inevitable 7 is finally rolled, there is a collective deflating sigh released by everyone at the table. All the money still on the table is lost.
Las Vegas residents have either seen or participated in moments like this as long as they have lived there. The losing hand is part of everyone's gambling experience. Through desensitization, Las Vegas residents have become very resilient about losing. Most pick themselves up and move on. So will it be with the housing bust.
Las Vegas residents will get over the emotional scars quickly. By and large, they won't be stressing about their deflating home values like many in California will. In Nevada, they don't have a history of rapidly rising home values and a culture of dependency on mortgage equity withdrawal. They all enjoyed it while it lasted during the bubble, but most will go back about their business. Like remembering that pressed-up $30 odds bet they lost on the 6, Las Vegas residents will remember what their homes sold for in 2006, but they will accept it is no longer worth that and move on. Contrast with Californians who will hang on to their kool aid beliefs until prices come back — no matter how long that takes.
Perhaps you disagree with my broad generalizations, and there are obviously exceptions, but I believe residents of Las Vegas will recover emotionally even though many have been wiped out financially. They have seen it too many times before. The emotional recovery from financial loss is part of their culture.
Playing the Don't
As a contrarian investor, I look for opportunities in place like Las Vegas where others see only troubles and disaster. Out of crisis comes danger and opportunity. In contrarian investing, you profit while the herd is losing — like playing the Don't Pass at a craps table. In craps, you can play either side of the bet. If you play the Don't, it is just like being the casino. You win when others at the table lose and visa versa.
It's fascinating being at a table playing the don't. When everyone else is winning and cheering, you curse to yourself as your point bets get hit one by one and you lose money. When everyone loses and feels the collective defeat, you feel great relief as you finally get paid for your bets still on the table.
Playing the Don't often requires keeping a low profile. Cheering about your winnings as others just lost everything doesn't make many friends at the table.
Distressed asset investing in Las Vegas foreclosures is much like playing the Don't. Each property I acquire is a loss for someone else. As each loan owner gives up in Las Vegas, there is an investor or some other family looking to find opportunity in the collective loss of the housing market crash.
Bank Error in Their Favor
The bank began foreclosure proceedings on this property in early 2009. The borrower had not made payments since 2008. The original Notice of Trustee Sale was filed on 6/9/2009. These notices give the trustee one year to call a sale. The bank didn't want to foreclose so this property became part of shadow inventory. On 7/27/2010, they had to file another notice of default and start the process all over again. The processed quickly (91st day) on 10/28/2010 to make up for the expiration error.
This kind of procedural mistake is more common when the system is being overwhelmed. The banks are rewarded by their own procedural inefficiency. If the banks foreclosed on every delinquent borrower quickly, they would soon own 10% to 30% of the housing stock in the United States as REO. With a 10% delinquency rate and substantial strategic default — true strategic default not accelerated default — the banks would be a massive property REIT.
Since the banks have delayed foreclosure, they have kept much of the illusory debt alive on their balance sheets (40% underwater mortgages have a high book value and a low recovery value). They have been rewarded with time by their own bureaucratic ineptness. Time the Federal Reserve hopes the banks can use to earn enough to pay off the losses. It may work. It may not. Probably not.
Foreclosure Record
Recording Date: 10/28/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 07/27/2010
Document Type: Notice of Default
Foreclosure Record
Recording Date: 06/09/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 03/06/2009
Document Type: Notice of Default
The previous owners had a dream of a perfect Irvine remodeled tract home, and they borrowed a $1,000,000 to make their dream come true. It's a bit to close to the noise and air polluted Irvine Center Drive to command a huge neighborhood premium. Basically, they paid peak price for the house, then they remodeled and over-improved it. Since this now a short sale, the market has concluded these owners did not add value to match what they spent.
- This house was purchased on 6/6/2003 for $455,000. The owners used a $364,000 first mortgage, a $91,000 second mortgage, and a $0 down payment. The borrowing you are about to witness was preceded by a $0 loan. These borrowers never had any of their money at risk.
- On 5/11/2004 they opened a HELOC for $157,000.
- On 5/31/2005 they got a larger HELOC for $234,000.
- On 6/27/2005 they refinanced with a $540,000 first mortgage.
- Then they remodeled the house. On 7/29/2005 they obtained a $998,000 building or construction loan.
- On 6/15/2006 they got a HELOC for $100,000.
- On 9/13/2006 they got another loan for $118,539.
- Total property debt is $1,116,539 assuming the $100,000 loan was rolled into the $118,539.
- Total mortgage equity withdrawal (part renovation costs) is $661,539 all of which was lender funds given out after the transaction started with no money down.
Can you see why houses were so popular. Imagine today that you could find a lender who would…
- give you all the money to buy a house,
- give you a couple hundred large spending money for the first two years,
- and give you another half a million dollars if you made that house they gave you into your dream house.
- Of course with the promise that there would be plenty more free money forever from the magic housing ATM.
The couple that created this masterpiece (sarcasm to taste) was offered and given everything stated above. Who would turn that deal down? If you had known then what you do now, would you do anything differently?
Irvine Home Address … 7 BITTERWOOD Irvine, CA 92604 
Resale Home Price … $1,066,000
Home Purchase Price … $455,000
Home Purchase Date …. 6/6/2003
Net Gain (Loss) ………. $547,040
Percent Change ………. 120.2%
Annual Appreciation … 11.5%
Cost of Ownership
————————————————-
$1,066,000 ………. Asking Price
$213,200 ………. 20% Down Conventional
4.38% …………… Mortgage Interest Rate
$852,800 ………. 30-Year Mortgage
$205,413 ………. Income Requirement
$4,260 ………. Monthly Mortgage Payment
$924 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$178 ………. Homeowners Insurance
$85 ………. Homeowners Association Fees
============================================.jpg)
$5,447 ………. Monthly Cash Outlays
-$1009 ………. Tax Savings (% of Interest and Property Tax)
-$1148 ………. Equity Hidden in Payment
$341 ………. Lost Income to Down Payment (net of taxes)
$133 ………. Maintenance and Replacement Reserves
============================================
$3,764 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$10,660 ………. Furnishing and Move In @1%
$10,660 ………. Closing Costs @1%
$8,528 ………… Interest Points @1% of Loan
$213,200 ………. Down Payment
============================================
$243,048 ………. Total Cash Costs
$57,700 ………… Emergency Cash Reserves
============================================
$300,748 ………. Total Savings Needed
Property Details for 7 BITTERWOOD Irvine, CA 92604
——————————————————————————
Beds: 4
Baths: 4 baths
Home size: 4,600 sq ft
($232 / sq ft)
Lot Size: 6,780 sq ft
Year Built: 2005
Days on Market: 149
Listing Updated: 40469
MLS Number: S621737
Property Type: Single Family, Residential
Community: Woodbridge
Tract: Pt
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Property Now a Short sale! Spectacular Custom Home in the Heart of Woodbrisge. Four Spacious Bedrooms, and Four Full Baths, PLUS Home Office,(Could be 5th Bedroom) Laundry/Craft Room,and Media/Bonus Room with drop down screen. The Master Bedroom has a Luxurious Master Bath with a Giant Soaking Tub and Separate Shower, all in travertine and granite materials. The Gourmet Kitchen has Quality Cabinetry,Chef's Sink, Walk-in pantry,Butler's Pantry,state of the art appliances,Built-in Refrigerator, and eating area which is adjacent to the Family Room with B.I.Cabinetry and Media Niche. Huge Dining Room for larger families and a Dramatic Stairway off the Decorator-Perfect Living Room with a Classic Fireplace. Flooring is a beautiful dark wood with partial carpeting.A comfortable front porch and Winding Walkway leads visitors to the Front Door of the larger front yard. Located on a cul de sac street and close to Park, Schools,Pools,Shopping etc. All offers will be submitted to lender equally.
All offers will be submitted to lender equally? Why does this agent have to make a point of saying that. Is it because listing agents screen offers to their benefit?
Money Magazine
Two years ago, I enjoyed the local attention in the Orange County Register when I published the book and my identity. Now, I am pictured in an article in this month's Money Magazine (No, I am not on the cover). Go buy the magazine and see for yourself. Hopefully, they will have an online version soon I can link to.
Whether or not you like what I write or support what I do, you have to admit, getting into Money magazine is pretty cool.
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
I agree. Having spent lots of time living/working outside CA, my opinion is people elsewhere do seem to face reality in a more practical fashion. IMHO CA has an entitlement problem; Californians consider themselves superior to the rest of the US; OC residents consider themselves superior to the rest of California. The weather, the beach, a celebrity culture; the lifestyle is a need, not a want, regardless of income and/or education level.
This attitude will come back to haunt California when the state goes bust, and smugly holds out its manicured hand to the rest of the US, expecting a bailout.
In 2005, CA paid $290B in federal taxes, while receiving $242B in Federal spending. Essentially providing $48B of ‘bailout’ to other states, in one year. If you want to really get blown away, look at 2000/2001, obviously fueled by the tech boom. 2000 & 2001 combined, CA paid $542B in taxes, while receiving $365B – a $177B subsidy to the rest of the country. I don’t live in CA, but think that people need to be accurate when talking about where taxes come from and where the spending goes.
What’s your point. I get 0% of my taxes back from CA each year.
The point is that California is paying Alabama’s bills, basically.
I’m glad someone understands arithmetic.
And I pay other peoples bills. The “Haves” pay for the “Have Nots”. That’s life. Accept it and budget for it. Is it a complete suprise each year when CA has to write the federal government a check? And I’m pretty sure that 100% of CA’s money isn’t going to pay other state’s bills. I’m sure some of it pays for programs like national defense just like some of my taxes that go to CA pay for police and firefighters.
Who built the road so you can get home jackass.
Wild guess is that non-interstates are paid for by the state that they reside in. I get that my tax dollars pay for stuff. Extrapolating, CA’s money they give the federal government pays for stuff like national defense, national intelligence… The point I’m making is why the solution to CA’s budget crisis is to stop paying the federal government money. Should citizens and businesses stop paying their taxes to get the economy rolling again? Then how are we going to pay for the roads you drive home on, jackass.
Does anyone know what percentage the average state gets back? I think that it’s fair to assume that a lot of the money is spent on things like national defense.
California is an attractive relative who makes 100K but spends 200K; she’s given more than she’s received, especially in the glory years when tech boomed and everybody who owned RE in CA was a budding millionaire. Now that it’s no longer 2005, she finds the concept of cutting back unacceptable even though her CC’s are maxed out.
She requires a first class plane ticket; she won’t fly coach, and will need an extra Vuitton suitcase to hold those lavish gifts. Anybody want to help?
Let’s look at the actual numbers: CA’s state tax revenue is in the ballpark of $80B, and its state expenditures are around $100B, for a $20B deficit. How hard is it to see that if CA got a $20B check from the feds, that they’d still be sending a net $28B to DC, not the other way around?
I’m not sure why anyone would not understand that California is a huge portion of the US economy and therefore pays a disproportionate amount of US taxes.
Maybe you need to dumb it down for them, a phrase like this may work:
California is too big to fail.
You’re not completely seeing my point. CA could still be the state with the largest contribution to tax revenue, even if it got more back in federal expenditures. At that point, it’d still be tbtf, but would not have been providing for those bailing it out in prior years.
The analysis isn’t perfect, but I’m sure they take into account things like national defense. With reference to the federal budget, there are states that are net donors and net receivers, and I have not seen any serious argument saying CA is a net receiver.
Look at the S&L bailout and how it disproportionately went to Texas. Did TX have an entitlement problem, or have the attitude that the rest of the country would bail them out? Do many even hold that era against Texas today?
Congrats on getting in Money Magazine & thanks for the update; I’ll have to go check out a copy now. This is exciting indeed!
Sweet
I love listings that blatantly lie. This house was not built in 2005; it was built in 1977 and remodeled and expanded in 2005, unless the remodel was a complete teardown and rebuild which doesn’t seem to be the case (but who could tell). The square footage figure is seemingly pulled from thin air as well. Now, there are probably permits for the remodel, but the remodel isn’t reflected on the tax rolls (which show it as a 4 bed, 2 bath, with 1,808 square feet). I doubt the house currently is exactly 4,600 square feet as the listing claims.
It’s a good think realtors (little R) aren’t held accountable to any sort of standards.
This was a complete teardown with the exception of one outer wall. I actually helped the family move in back in 2003 and been wondering when this home would finally be profiled. With so many cases like this in Irvine, it took a while. I’m not surprised….
This is the only place that I know owners would list their ugly homes for over $1m when it is no different than the entry level homes from Palmdale.
Stop being so jealous.
Irvine is special… like Vegas.
Speaking of Vegas being special.
http://www.lasvegassun.com/news/2010/nov/18/research-firm-predicts-continued-erosion-housing-p/
Another 16% by June 2012 ? Only thing worse in this country is Detroit.
I don’t understand how the past several years can be observed and reliably come up with any kind of numeric prediction. Where do they get that number from? Statistically speaking, there is no way that any specific figures can be derived from the data from the last few years. That number is bogus. Not to say that Vegas won’t come down, but any prediction of specific numbers are just a stab in the dark.
The only difference is that Detroit has more higher education – higher paying jobs.
Did anyone see “The Office” last night with Ryan trying to get his coworkers to invest in his new company…which had 9 days of solvency left?
lol— it was hillarious.
In the linked article Eurozone Sovereign Debt Shocks And US Quantative Easing Have Light The Fuse For Götterdämmerung, I write:
Leigh Phillips in EUObserver reports Van Rompuy Warns EU Is In Survival Crisis: EU Council President Herman Van Rompuy has warned that the eurozone and the European Union itself are fighting for their life as a result of the ongoing sovereign debt shocks, most recently in Ireland and Portugal.
“We’re in a survival crisis,” the president told an event at a Brussels think-tank on Tuesday morning (16 November) ahead of a meeting of finance ministers from countries that use the euro, where it is expected that they will interrogate Ireland and Portugal over the state of government finances.
Mr Van Rompuy warned that if the eurozone does not survive, neither will the EU. “We all have to work together in order to survive with the eurozone, because if we don’t survive with the euro zone we will not survive with the European Union,” he said. “But I’m very confident we will overcome this,” he added.
Some economists are not so sure whether the EU will “overcome” the financial crisis, as Mr Van Rompuy believes.
Ambrose Evans Pritchard in a recent Telegraph article, used the word “Götterdämmerung“, a particularly apt word, to describe the apparent fatal wound to the world’s financial, economic and political systems which is coming soon, as bond traders continue calling interest rates higher, such as the US mortgage rates, and the Interest Rate on the US Government 30 Year US Treasury bond and the Interest Rate on Portugal, Italy, Ireland, Greece And Spain sovereign debt ; and as currency traders continue a global sell off of the world’s currencies, as both conduct a war for sovereignty against the world central bankers and world leaders.
Are you prepared for Götterdämmerung?
Is your investment portfolio Götterdämmerung proof?
I encourage that one NOT be invested in real estate, rather in gold, and that one rent not buy.
yenguy posts give me nightmares.
how is yenguy’s portfolio allocated?
My post was not intended to give nightmares, only inform.
Theyenguy’s financial portfolio is currently 100% gold, and starting next month I will be adding silver.
Theyenguy’s spiritual portfolio is 100% faith
With regards to “intended to […] inform”, I usually skip reading your comments because though they seem intelligently written, they’re so filled with economics jargon and concepts I’m unfamiliar with (beyond the econ basics that I’ve learned as a result of following the housing market) that they don’t inform me at all.
Your above two comments, on the other hand, are easily understandable even by the layman. Thank you for wanting to inform.
7 BITTERWOOD
the street sums it up.
If the owner can find some ignorant uninformed buyer, he can break even. And if the banksters are able to move the liability to a GSE, the banksters and soon to be former owner can party on the taxpayers’ dime or should I say quarter of a million dollars.
As for funds going to a state, it hard to calculate because many of the purchases are to vendors or manufactures who from local, interstate and international suppliers. Transportation substities in agriculture area lowers the price of transportation for food to urban areas. It’s suprising to see food more expensive in some rural area than in OC.
Has the federal govt ever bailed out a state or a state been declared insolvent?
Way to go Las Vegas. I remember when things were hot, everyone talked about investing in Vegas, as if you were not cool if you were not.
Portabello Estate in Corona del Mar finally sold
Corona del Mar mansion sells for record price
http://lansner.ocregister.com/2010/11/19/corona-del-mar-masnion-sells-for-record-price/89316/
O.C. unemployment drops to 9.1%
http://economy.ocregister.com/2010/11/19/o-c-unemployment-drops-to-9-1/44408/
“Orange County saw particular strength in professional and business services, which added 3,000 jobs in October. This sector, which includes accountants, lawyers, engineers and temp workers, increased by 9,600 in the past year.”
I believe 7 Bitterwood is a short sale no more…it went to auction on Nov 17 and went back to the bank for $1,023,750. A million dollars owed on a half million dollar house. Ouch. Wonder how long it takes before it shows up as a foreclosure?
Good work on getting the Money Magazine article, Mr. Irvine Renter. That’s a nice ‘man of destiny’ look you have on your face in that picgture.
Congrats on making Money, IR!
IR wrote:
> It’s a bit to close to the noise and air polluted Irvine Center Drive to command a huge neighborhood premium.
That seems a little misleading. Irvine Center Drive is one of the larger NW-SE roads in the area, but the traffic isn’t that heavy along that part of it. If you had said “a bit to close to the noise and air pollution of Irvine Center Drive”, I would have had no problem with the statement, and I agree that the property shouldn’t command a premium in that location, but as worded, it sounds like Irvine Center Drive is particularly awful, which isn’t the case.