The bear rally has ended. The next leg down will likely lead us to the true bottom of real estate prices.
Irvine Home Address … 2100 TIMBERWOOD Irvine, CA 92620
Resale Home Price …… $359,900
The Spirit of the Woods is like an old good friend.
Makes me feel warm and good in-side.
I knew his name and it was good to see him again.
Cause in the wind he's still a-live.
Oh Fred Bear
Walk with me down the trails again.
Take me back, back where I be-long.
Fred Bear
Ted Nugent — Fred Bear
As I noted in a previous post, House prices resume their downward trend, the false bottom of 2009 is being tested by a languishing real estate market.
Housing Recovery Stalls
Fresh Fall in Home Prices Is Headwind for Economy; Other Signs Still Strong
By S. MITRA KALITA And SUDEEP REDDY — DECEMBER 29, 2010
A new bout of declining home prices is threatening to hamper the U.S. recovery, just as consumers and the overall economy have been showing signs of healing.
Home prices across 20 major metropolitan areas fell 1.3% in October from September, the third straight month-over-month drop, according to the S&P/Case-Shiller home-price index released Tuesday. Many economists expect the declines to continue into at least next spring, erasing most of the gains made since prices bottomed out in early 2009.
The housing market, which appeared poised for a recovery earlier in the year, now could be heading for a second downward drift.
“This looks like a double-dip [in housing] is pretty much on the way, if not already here,” said David Blitzer, chairman of the Standard & Poor's index committee. “Somebody who thought last year that it's going to be straight up from here was wrong.“
That's right. The bears were right, and the bulls were wrong.
Enough gloating. Back to the serious business of documenting the ongoing collapse of real estate prices.
Other news in recent weeks, however, has offered hope the economy is on the cusp of strong, sustainable growth. Retail sales returned to levels seen just before the recession started in 2007. Manufacturing continues to expand. U.S. exports are back to where they were just before the financial crisis.
Optimism among heads of small businesses and large corporations is also near pre-recession levels. And tax legislation that includes a one-year payroll-tax cut for most workers has boosted prospects.
Yet the twin forces of jobs and housing remain trouble spots. The labor market has added a million jobs in the past year, but that pace is far too slow to offset an unemployment rate that climbed to 9.8% last month.
Job worries are hampering consumer confidence despite strength in holiday sales and a rising stock market. The Conference Board, a business research group, said Tuesday that its confidence index fell to 52.5 from 54.3 in November, as consumers' views about job availability worsened.
The index, after rising through May as the economy showed early signs of improvement, now has retreated to its level of a year ago. The percentage of people planning to buy a home is also back to where it was a year ago, erasing improvement seen in early 2010.
U.S. Consumer-Confidence Index Slips
In the Case-Shiller data, all 20 cities in the index posted month-over-month declines in October.
As for year-over-year data, only four areas—Los Angeles, San Diego, San Francisco and Washington, D.C.—showed prices higher than in October 2009. Six markets hit their lowest since prices started falling four years ago, dropping below their spring 2009 levels, when most regions saw prices bottom out. The six were Atlanta, Miami, Seattle, Tampa, Charlotte, N.C., and Portland, Ore.
Prices in several markets, including Las Vegas and Cleveland, are nearly down to 2000 levels.
The low end in Las Vegas is trading at the early 90s levels. The good stuff still hangs on at 2004 prices. The good stuff will continue to decline, but investors and new owner-occupants will keep low-end prices stable.
The housing index was driven down by factors including the expiration of a federal tax credit for buyers who signed contracts by April 30, which caused demand to fall off.
Prices also were weighed down by a huge inventory of foreclosed homes, which tend to sell at sharply discounted prices.
In recent months, according to the National Association of Realtors, foreclosure and other distressed sales have represented more than 30% of home sales—and more than half in some states, such as Nevada.
Wells Fargo & Co. projects prices will drop 8% more by mid-2011, given high supply. “Demand is still dead in the water,” said Wells economist Sam Bullard.
Prices also face other hurdles: slightly rising mortgage rates, and homeowners who owe more on their houses than they're worth, and thus may walk away as values dip further.
The owners under pressure include Tasha McLaughlin, a 33-year-old mother of two in Sacramento's South Natomas neighborhood. She and her husband, Steve, bought their two-bedroom house in 2004 for $256,000, intending to stay about five years. After 11 months of trying to sell it between 2006 and 2007, the family took it off the market.
“Everyone is saying we should foreclose or claim bankruptcy, but I have a moral issue with that,” said Mrs. McLaughlin. “The more we try to pay the mortgage and pinch pennies, the more we get punished.”
Now, with a similar home down the block listed for $80,000, the McLaughlins are accepting that they won't recoup their losses anytime soon. Their interest-only loan is set to increase their current $1,600 monthly payment to $2,200 in seven years. If they were to default on their mortgage and walk away, they calculate that in about the same time, seven years, their credit scores would be stable enough to allow them to buy again elsewhere.
“I am just going to swallow my pride and walk out. I have to,” said Mrs. McLaughlin. “The market for homes is not going up.“
Housing analysts agree that markets such as Sacramento, Las Vegas and parts of Arizona and Florida are at risk of more declines. “These places relied so heavily on mortgages and real estate for their economy that we're going to see a two-tiered recovery,” said Chris Mayer, a professor of real estate at Columbia Business School. “Luxury spending is not going on across the country—it's happening among highly skilled consumers who live in the places that have seen some recovery.”
Homes remain a key part of Americans' wealth. Households held $6.4 trillion of home equity at the end of the third quarter, alongside $12.2 trillion in stocks and mutual-fund shares, according to Federal Reserve data.
For every dollar decline in housing wealth, consumers reduce spending by about a nickel in the subsequent 18 months, Moody's Economy.com chief economist Mark Zandi estimates. He cautioned that other factors, such as the stock market's strength and tax credits, could offset this effect.
“People feel poorer when their houses are going down in value,” said Jack Fitzgerald, chief executive of Fitzgerald Auto Malls, which has a dozen locations along the East Coast. He is seeing many customers who could buy new cars choosing used cars instead, “spending as little as they can.” While sales are improving, he expects them to grow only slowly, given all the consumer uncertainty.
Still, the overall economy's dependence on housing diminished greatly since the financial crisis, said Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm. “Consumers have shown us they can still spend even if home prices go down,” she said. But falling home values “put a lid on the recovery and the magnitude of it.”
I don't believe house prices will fall a large amount from here. They will go down, particularly at the high end, but with an improving economic picture, demand for housing will improve. Considering it has been hovering near historic lows for years, it is bound to pick up some in 2011. Much will depend on the course of interest rates and unemployment. If interest rates move higher and unemployment stays high, house prices may fall significantly, but if interest rates remain low, and if unemployment drops, we won't see a significant uptick in prices because hte overhead supply, but we could see a big increase in sales volumes. That would be great for clearing the market.
100% financing deal emerges from 2.5 years of shadow inventory
Today's featured property was purchased on 9/16/2005 for $509,000. The owners used a $356,300 first mortgage, a $152,700 stand-alone second, and a $0 down payment. The defaulted about three years ago.
Foreclosure Record
Recording Date: 05/12/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 02/09/2010
Document Type: Notice of Default
Foreclosure Record
Recording Date: 11/02/2009
Document Type: Notice of Rescission
Foreclosure Record
Recording Date: 06/04/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 04/21/2008
Document Type: Notice of Default
Since this was a purchase money, non-recourse mortgage, the bank was in no hurry to foreclose and take the loss. There is no prospect of recovery on this loan. The finally got around to foreclosing on 7/19/2010 for $431,484, then they spent several months preparing it for sale — which looks like they did nothing.
Are the shadow inventory deniers still making fools of themselves, or has everyone accepted that shadow inventory is real and not that hard to find?
Irvine Home Address … 2100 TIMBERWOOD Irvine, CA 92620 
Resale Home Price … $359,900
Home Purchase Price … $509,000
Home Purchase Date …. 9/16/2005
Net Gain (Loss) ………. $(170,694)
Percent Change ………. -33.5%
Annual Appreciation … -6.3%
Cost of Ownership
————————————————-
$359,900 ………. Asking Price
$12,597 ………. 3.5% Down FHA Financing
5.07% …………… Mortgage Interest Rate
$347,304 ………. 30-Year Mortgage
$75,116 ………. Income Requirement
$1,879 ………. Monthly Mortgage Payment
$312 ………. Property Tax
$100 ………. Special Taxes and Levies (Mello Roos)
$60 ………. Homeowners Insurance
$242 ………. Homeowners Association Fees
============================================
$2,593 ………. Monthly Cash Outlays
-$311 ………. Tax Savings (% of Interest and Property Tax)
-$412 ………. Equity Hidden in Payment
$25 ………. Lost Income to Down Payment (net of taxes)
$45 ………. Maintenance and Replacement Reserves
============================================
$1,940 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$3,599 ………. Furnishing and Move In @1%
$3,599 ………. Closing Costs @1%
$3,473 ………… Interest Points @1% of Loan
$12,597 ………. Down Payment
============================================
$23,268 ………. Total Cash Costs
$29,700 ………… Emergency Cash Reserves
============================================
$52,968 ………. Total Savings Needed
Property Details for 2100 TIMBERWOOD Irvine, CA 92620
——————————————————————————
Beds: 2
Baths: 1 bath
Home size: 1,270 sq ft
($283 / sq ft)
Lot Size: n/a
Year Built: 2005
Days on Market: 73
Listing Updated: 40526
MLS Number: P755549
Property Type: Condominium, Residential
Community: Northwood
Tract: Cust
———————————————————
According to the listing agent, this listing is a bank owned (foreclosed) property.
Like new! Immaculate one bedroom + loft (used at a bedroom) townhouse built in 2005 located in the desirable Collage complex. Unit features include brand new paint and carpet throughout, fireplace, one car garage, patio with pool views, walk-in closet and storage room. Complex is equipped with beautifully manicured landscaping, pool, spa and secure gate access. Property will be sold with washer, dryer, stove/range and dishwasher.
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 and a happy new year,
Irvine Renter
I am not one usually to advocate strategic default, but if the comps in your ‘hood are > 2/3rds off what you paid in 2004 (! what were people paying in 2006?), there is little reason to stay, as long as you can rent for considerably less than what you’re paying. Don’t feel bad for the banks. They wrote the loans that inflated the bubble in that area, there’s no reason for residents to shoulder a disproportionate share of the pain.
It requires caution to write about prices falling when even the WSJ article singles out LV and parts of CA/AZ/FL. The high concentration of foreclosures is itself concentrated in the bubble areas with the weakest non-housing/RE economies.
There were two foreclosure sales in our neighborhood in 2009. They were builder foreclosures largely the result of legal troubles for the builder. For one there was a minimal discount (the other was not complete, so there was a significant discount). They are a small number of the homes in the neighborhood and didn’t budge comps. Two homes on our street will sell for more than they did new in 2007 (one already did and the other is under contract). Two homes that have not been sold & on the market for 2 years are both being rented. One of which has to be rented for more than the mortgage payment.
The biggest issue with home prices, and one that seems to be very important to Irvine is supply and real demand. It’s not that a given median income will support a given home price. This is how I smelled the bubble in FL. They kept building $500k-$1M homes like it was going out of style, but I could see NO new jobs supporting those types of home prices. Looking back, it was probably all either people using bubble equity or speculators absorbing all that new inventory. No matter what home prices do, I can’t see enough jobs moving to that area to support that housing stock. A lot will turn into very expensive part-time homes for Canadians and South Americans.
As much as I hate to say it, South Cal is unique. People want to live here. They are willing to pay a premium to live here. Their purchasing power is not just based on income; yes most who buy here have very good salaries but also they often have other compensations like stock options and investments which generate additional income to their salaries. Also don’t underestimate the amount of purchasing money contributed from other memebers of their immediate families. To a lot of cultures, buying a house (a nice one in a nice neighborhood in one of the most desirable part of the U.S.) is a familial effort.
If people want to live here, that’s great, but the statistics don’t bear your thoughtline out. Orange County lost a net 108,000 people in 2010. They are likely being replaced over time by Service Sector employment jobs as per the County of Orange’s data. This means that if the average SS employment income is $30kpy, and the average home price is $450k, you’ll need quite the large family to bunk together in order to afford the monthly nut.
Southern California isn’t unique. It’s not immune, nor is it different than any other place with artificially puffed prices. Once we get to a Vegas or Phoenix style price deflation point, then it can be said recovery is neigh.
My .02c
Soylent Green Is People.
Case-Shiller indices for LA & San Diego are both down 36% from peak, so the idea that So Cal is ‘different’ in a way that is ‘different’ from either LV or other bubble areas is just false. The OC is represented in the LA index.
To say the whole county of SD is down 36% from the peak is just as false. Take Carmel Valley in SD for example. It’s down 10% from it peak due to its location proximity to the ocean and most importantly its excellent schools.
It’s an index of the whole SD area. I’ll leave it for you to research how it’s calculated, but it’s the gold standard of home price records. But, with it, you will see some areas of an index have better results than others areas in the same index.
Attention young newbee…
From old wise one who lived in “unique” So Cal though the last housing bust of the early 90s (soo last century). So Cal is not unique. Price declines have occured here before and will occur again. The fact that declines have not happened yet does not mean that they are not going to happen. Remember the the BLACK SWAN.
Lot’s of bullish sentiment here lately. It almost feels like we are back in 2006. I thought it would take a good 20 to 30 years before folks started whipping up the “it is different here” enthusiasm again.
How does the Kool-Aid taste?
“People” want to live here. What does that even mean? California has 37 million people, the vast majority are in SoCal, so I guess you’re right.
But then why are prices in the Bay Area, where fewer people live, higher than here?
So Cal is a desirable place to live, just as it was in the 60s, 70s, 80s, 90s, 2000s. That factor has already been priced into the market for decades. When when the market contiues to inflate faster than wages or faster than real estate elsewhere… Is it because it is getting more an more special over time, or is it because it is a bubble?
Southern CA is more desirable? I guess with nicer weather it makes being homeless easier.
Thanks for your bright input.
newbee is a home owner.
Wrong. Currently renting at $2500/month.
Made a couple of offers in the last few months but chickened out each time because renting and buying cost about the same. Why take on more risks and headache when the upside of owning is limited?
Good schools sell houses. Period. Looking around, those neighborhoods with excellent elemtary, middle and high schools almost always fare much better than others with lower ranking schools in a down market. A lot of people recognize the importance of childhood education and are willing to pay a pretty penny to be in an area with excellent schools.
I hope the new Governor will manage to cut the state deficit. It means substantial cuts on public education. Then the number of students per Irvine teacher will be 40-50, all sport and art teachers will get pink slips. It’ll be difficult to advertise “excellent schools in Irvine”.
What about this private school: http://calvarylife.org/ccschool/index.html
The annual costs are $3,000-5,000.
It’s strange, but I haven’t seen many Latino students there; though, it’s in the middle of Santa Ana. How many students per teacher? Probably, 10.
Sadly that would likely improve Irvine schools relative to surrounding areas. The Irvine schools have a high ranking because of hard working students who come from families and cultures that value education. Those hard working students would continue to score high on the test that factor into school rankings. Surrounding areas would see further declines. The US education system is unfair.
Certainly, the US education system is unfair.
In the capitalist world, if you want to send your kid to a better school, you just pay more to the school itself. The school prospers and hires the best teachers. And the school can be located in a poor and bad neighborhood.
The truth is no boss in America cares about your school when he/she hires you to a technical position. You just have to pass a test measuring your technical, programming, etc skills. It doesn’t matter if your school was Northwood High or New Delhi High.
It’s different in Asian countries. If a kid graduates from a prestigious university, he/she is hired by a corporation for life. No tests are necessary.
“Are the shadow inventory deniers still making fools of themselves, or has everyone accepted that shadow inventory is real and not that hard to find?”
Did I read that correctly? Are you saying someone else looks like a fool? Am I not reading the Benedict Arnold of bubble blogging? The guy who can ridicule “Irvine Ponzi’s” in one paragraph as his ‘Irvine Renter’ persona, but then seamlessly transition into ‘Larry Las Vegas’ in the next paragraph — the parasite who relies on the misfortune of desert “ponzi’s” to operate his vulture house flipping business?
Do what you have to do, it is a tough economy and I am sure you may be involved in business ventures you would not have in the past — in the interest of caring for your family. But as you mock others don’t forget the old saying about those who live in glass houses. Think about that as you head to the New Year. Think about how YOU might have gone a different direction — against your previous beliefs — to support your family. Then apply that to the ‘ponzi’s’ you mock here for all their friends and family to see. Do you really know what drove their behavior? Think about those Buddhist teachings you implied you followed in the past. Given your ‘flip’ in the last year, maybe a little restraint in how you view the misfortune of others might be in order?
So that’s enough of this drivel for me. I should have stayed away after my year hiatus from IHB. Damn that peson who told me I needed to come back and read this blog again, that I would be amazed. They were right about the amazed part, though.
Happy New Year!
Don’t come back. You were not missed.
The Karma Police stopped by for a visit, similar to the spelling police very accurate and spot on with their post, but an emotional snore.
Hey IrvineRenter, is Patrick Star the rent skimming landlord whose house you took? I would be pissed off too!
I think Patrick Star is the fool who used to go by the username Newport Skipper. I don’t feel the least bit sorry for all these ponzi helocers losing their homes, fuck em. The sooner we get them out of the system, the sooner things return to normal. And if you can make money on the way, so be it.
Happy New Year!
Just to set the record straight PStar was neither a landlord, NewportSkipper or a HELOC’er… in fact, he was an Irvine renter, just like Larry.
lot of angry home owners today.
probably good news for renters 😀
Entertaining article on HoA politics:
Housing Pain Pits Neighbor Against Neighbor in Florida
http://online.wsj.com/article/SB10001424052748703326204575616340542578852.html
Thanks for sharing your thought: “I don’t believe house prices will fall a large amount from here”.
In 1997, I stumbed across the book En Route to Global Occupation by Gary H. Kah; it shaped by conviction that one day I would see the economic collapse of the United States. That day is very near. From here I expect a fast economic fall; and as a consequence, I see practically no house sales and in that sense, the bottom is going to come in quite low.
Although I am not an Austrian Economist, I read their web sites to get an economic understanding of debt and currencies.
Michael Pinto in linked article Rising Rates Reveal Debt Reality relates: “the conceptalling interest rates and reduced durations have merely given the illusion of solvency to the US as compared to these other ailing sovereigns.”
“Right now, the US national debt is the biggest subprime ARM of all time. Much like homeowners who thought they could afford a mortgage that was 10 times their annual incomes, Messrs. Krugman and Wesbury are blinded by deceptively low current rates of interest. These ostriches won’t poke their heads up to see the writing on the wall: low rates and quantitative easing cannot coexist for long. As rates continue to rise, the reality of US insolvency will be revealed.”
Bank insolvency will probably show first….This country and county needs more jobs now….. debt reduction later. How much did housing prices fall during the 30’s depression peak to valley? Do you really think they will fall another 20% from here? Here’s for a better New Year in 2011……
speaking of falling prices, dja’ all c this?
harry potter, i mean, henry paulson, after he TARPed the banks $700 large LOST a cool mill. on his OWN (i am sure fashionable) DC home.
and i quote:
Paulson sold his three-bedroom home in a tony Washington neighborhood last week for close to a third less than his initial asking price and more than $1 million below what he paid for it more than four years ago.
http://www.washingtonpost.com/wp-dyn/content/article/2010/12/31/AR2010123103722.html?hpid=sec-business
jed,
Hank Paulson’s net worth is about $700 million, so this $1 million loss on his Washington DC home is about 0.15% of his net worth. If you lost 0.15% of your net worth, would you sweat?
For people like Hank, real estate costs are just like our expenditure on electronics. Think about it: If your net worth is $1 million, then 0.15% of it is $1,500, about the cost of an HDTV.
Although prices have fallen since the peak, they are still far above their previous lows in 1996, even after adjusting for 40% or so inflation since then.
Why? Well, the difference is entirely due to government intervention in the housing market. Future taxpayers have been designated as the payers, to pay to keep home prices high. For young buyers, that means you will be paying the taxes that distort the market now, forcing you to pay more for a house today. A little double hit.
How low can house prices go in Southern California? It’s a cyclical market, and the last cycle bottomed in 1996. We are still way above that level, and the only reason is government intervention. Where prices go is not a function of the market. It is a function of Federal Reserve quantitative easing actions, and FHA and Fannie and Freddie supports for below-market loans.
This is not an anti-government rant. It’s just a statement of what factors will determine house prices in So Cal in the years ahead. The market has lots of room to go down (or up), as evidenced by history. All that matters now is the amount of money the government will direct at the housing market. They can dial the price level at will, and have already done so. I don’t know what they will decide to do next year, or in 5 years time.