Today I discuss the latest happenings in the Las Vegas housing market. Foreclosure sales to third parties were up dramatically in March. I know. I was there (virtually).
Las Vegas Home Address … 6349 BLUSHING WILLOW St North Las Vegas, NV 89081
Resale Home Price ………….. $86,900
You Just slip out the back, Jack
Make a new plan, Stan
You don't need to be coy, Roy
Just get yourself free
Hop on the bus, Gus
You don't need to discuss much
Just drop off the key, Lee
And get yourself free
Paul Simon — 50 Ways to Leave Your Lover
There must be 50 ways to leave your lender. Strategic default is now a way of life in Las Vegas. With most properties underwater and little prospect for recovery, most loan owners are wisely walking away.
On 3-22-2011 I noted that Nevada has 167,564 empty houses. In that post, I made the following observation:
The number of properties pushed through the Las Vegas auction site in March to third parties has been remarkable. I picked up five this month. Any rumors of an end to the foreclosure problems in Las Vegas will be dashed when the March foreclosure numbers are announced. Remember you heard that here first.
Guess what?
Nevada foreclosure sales rise sharply in March
LAS VEGAS REVIEW-JOURNAL
Nevada foreclosure sales jumped sharply in March, rising 109.5 percent from February on a daily average basis, Discovery Bay, Calif.-based ForeclosureRadar.com reported Tuesday.
Notice of default filings rose 9.7 percent from February overall, but decreased 10.4 percent on a daily average basis after adjusting for additional days in March. Notice of trustee sale filings increased 24.9 percent month-over-month, but just 3.1 percent on a daily average basis.
More significantly, real estate-owned, or bank-owned, sales skyrocketed 159.8 percent and sales to third parties jumped 143.8 percent from February 2011.
February was awful. The lists each morning were thin, and the bidders on the site anxious to deploy their capital were bidding properties up to stupid numbers. March was a different story. Being patient through February was difficult.
Even when viewed on a daily average basis, those increases were dramatic with a 53.4 percent increase for sales back to bank and a 50.3 percent increase for properties sold to third parties.
One of the reasons foreclosures fell in February was a lower-court ruling against ReCon Trust, a major trustee for Bank of America, said Mark Skilling, chief operating officer of ForeclosureRadar. The order was later lifted by a federal court.
“This month, we see a little yo-yo action going on because sales are back up dramatically,” Skilling said. “You're kind of back to normal in terms of sales back to the bank.”
Las Vegas saw 2,120 homes go to foreclosure in March, the largest gross count in more than a year, he said.
Lenders are loading up the MLS for the prime selling season.
Average time from notice of default to foreclose rose to 322 days in Nevada, up 16.3 percent from the prior month and longer than anywhere else in ForeclosureRadar's coverage, Skilling noted.
Clark County REO sales soared 166 percent over February and third-party sales rose 140 percent. However, foreclosure filings also rose 10.47 percent for notices of default and 27.11 percent for notices of sale. Inventories in the county changed less than 10 percent from last month.
In Washoe County, REO sales rose 126 percent and third-party sales were up 160 percent over last month. Filings rose less than 10 percent and bank-owned inventories rose only 5 percent.
Anna-Lena Thomas of Windermere Real Estate in Anthem Hills wants to know why banks aren't foreclosing on more homes. Are the homes tangled in title issues or are the banks just going to put one house on the market at a time to make more money?
Anna, they are putting houses on the market one at a time to make more money. Lenders will own real estate for decades.
She found 64 homes with more than 2,400 square feet in the Green Valley Ranch subdivision that had received a notice of default, some as early as 2008. Only four are listed as short sales and none of them show up as notice of trustee sale, or foreclosure.
“The rest are just sitting out there, vacant or not, but no one is making the payments,” Thomas said. “It's OK to not make your payments. Banks don't want to sell cheap. Our market bottom looks really long. People are afraid of deficiency judgments and don't want to short-sell.”
The market bottom in Las Vegas will be very, very long.
Skilling of ForeclosureRadar said the Realtor is “dead on” with what's happening. Actual REO inventory hasn't increased that much in Las Vegas and there's no greater pressure on banks to release them than there's always been, he said.
“The dilemma the bank faces is they may have to recognize losses if they sell REOs. The servicers that are working for them are making money, so there's not a lot of pressure to move that inventory into the market,” Skilling said.
Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.
There is no reason to believe lenders will speed things up. It doesn't serve them. Prices in Las Vegas are so low because there is simply too much supply for the available demand. Affordability is NOT an issue there, and it won't be for quite a while.
The ebbs and flows of auction bidding
One of the key functions I serve to my investment fund is selecting properties to bid on each day. It's a task that requires patience and discipline in order to be successful.
Each day when I have money to deploy, I obtain the list of properties where opening bids are below an estimation of market value. My task is to pull comps for twenty or thirty properties a day and establish what I believe to be a more accurate resale value. I back out my costs and arrive at my maximum bid. If this number is above the opening bid, I put it into the market and see what happens.
The margin I demand varies from property to property based on its location, condition, and rental desirability, but I consistently apply my methodology irrespective of the prices paid at the auction site. Over time, I have noticed how the margins go up and down depending on how many bidders are active and how aggressive they are.
For instance, I had a few closings, so I had $350,000 to go shopping last week. Monday last week was a zoo. Jacki reported there were three times as many people at the auction site, and it showed.
After the auction, I like to evaluate the auction price relative to my bid. It gives me an indication of bidder aggressiveness. On Monday, many properties were sold for more than 10% higher than what I was willing to pay. And remember, it takes two aggressive bidders to push prices up. At 10% more than I paid, the best case scenario for those buyers is to break even. Many houses purchased last week will turn into losers.
As the week wore on, the aggressive bidders were getting properties, and transaction prices began to get closer and closer to my bids. It told me the more aggressive bidders were spent, and I would soon be getting properties.
On Monday I picked up one, and on Tuesday (yesterday) I picked up two more. I'm spent for a few days until my next closing.
It takes patience to put so many bids in the market and resist the temptation to chase, but overpaying and not making any money doesn't help, so patience is mandatory.
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The foolish ways flippers lose money
Having observed the auction market for some time now, I have noticed a variety of ways people lose money. The following is my shortlist of ways auction participants lose money:
Buying occupied properties
You probably remember Vicente the Fox. Occupied properties are nothing but problems.
In retrospect, what I see as the biggest problem with occupied properties with holdover tenants is the idle money. When I have money tied up in a property, that is capital not available for me to buy another profitable flip. It becomes a drag on returns. The further unpredictability of damage during eviction can turn the inconvenience of idle capital into the tangible pain of loss.
If I have experienced these issues, others have too. Occupied properties have greater apparent margins. For those chasing margins through occupied properties, it's only a matter of time before these problems emerge.
Automated valuation models are wrong
Some bidders use automated valuation models to establish what they believe they can resell the home for. In fact, there are some operators out there who believe they have invented a better mouse-trap. They are wrong.
Automated valuation models all have weaknesses. There is no automated model that will provide the accuracy of a human being with market knowledge and the power of discernment.
Bidders who rely on these models usually end up buying those properties where their model was wrong and grossly overstated the value. The winner at auction is the bidder with the most aggressive assumptions. If their automated valuation model spits out overly aggressive assumptions, they are certain to end up with those properties. Have at it. The pattern of losses will fascinate the programmers.
Failing to recognize their costs
Many bidders don't know what it really costs them to prepare a house for sale, nor do they realize all the taxes and fees in the transaction. It's common for newbies to overpay and obtain little or no margin because unknown costs eat up their profits.
On one of mine, I underestimated the HOA settlement price by $3,000 on a deal where I obtained full asking price. Unlike here in California where HOA debts are wiped out, HOA debts survive foreclosure in Nevada, and collection has become a racket. I have one statement where the HOA turned a $380 late fee into a $3,600 collection due. In fact, it was that one that blew out my budget. I learned to budget for a back HOA fee on any property with an HOA, and I triple any recorded lien amount. It's still a guess.
Many buy properties with no idea what they need to do to prepare them for sale. What home sales background do they have? What about homebuilding experience? It isn't rocket science, and intelligent people can figure it out, but without guidance and experience in these areas, prospects for success are limited.
To prepare for sale, it's very difficult to spend less than $1,500 on any property, and $3,500 to $6,000 is the norm. For older properties it can be much more. Many foolishly budget zero. And when they realize they have a problem — nobody wants to buy their house — they have no idea how to solve it. I hope they like the house because they will own it a while.
People will bid thin until they buy a few with missing kitchens (it's happened to me. You can't always see the interior. I budgeted for it.) The few that blow up their costs blow up their venture. I always budget for a full renovation unless I have either (1) interior pictures from an occupied MLS house, or (2) interior pictures of empty houses taken through the windows on the morning of the auction. If the pictures show I won't need certain costs, I can tighten up my bid number and still get my margins. I need to be aggressive when I safely can if I want to keep getting properties.
Failing to recognize the value of certain costs
Sometimes it is wiser to spend a few more dollars to obtain better service.
I know one bidder who is attempting to deploy several million at the site. He is paying someone with little or no training to pull comps and bid on properties, and he has gone to a $300 listing agent to sell them. As you might imagine, he as overpaid for most of the properties because he usually ends up with the ones where his inexperienced agent blew the comps. Also, since he is not paying for any assistance with the listings, he is managing all his own escrows and he has problems with deals closing on time. He is penny wise and pound foolish..jpg)
I use a bidding service to obtain data on the properties I buy. This service is expensive. There are competing services in the area. However, I witnessed one of these competing services buy a house with no kitchen because they were looking at old pictures. Overpaying for the wrong properties due to bad data can be costly. Despite the higher cost of the better service, it provides value in excess of its cost.
Not viewing the activity as a business
The primary reason amateurs fail at the auction site is that they don't look at the activity as a business. People go there as if buying property were a spin at the roulette wheel. Most believe they can buy anything, broom it out, and buyers will eagerly snap it up for a huge profit — and my previous post probably fed into that misconception. The reality is flipping houses is like navigating a minefield where one misstep can be a disaster.
Processing properties is akin to homebuilding. It requires a steady pipeline of properties moving through. The process needs to be managed with the urgency of an ongoing enterprise rather than a speculative wait-and-see. Those that wait-and-see in this business rarely like what they find.
Trying to hit home runs
Related to the last point, those who operate as a business try to hit many singles. Amateurs try to hit home runs. It's not uncommon for flippers to buy a property put it on the market and be unwilling to lower the price to sell it. Whatever they thought it was worth doesn't matter. The market is never wrong. Those that fail to cut their losses in a declining market end up with very large losses.
Buying expensive properties
Properties prices over the median are enticing at auction because the apparent margins can be very large. The buyer pool with $1,000,000 cash on any given day is pretty thin. I try to keep less than $100,000 in cash at all times. Idle money is a drag on returns. The thin buyer pool makes for lower bids and wider margins.
The problem with these apparent margins is the speed at which it can be converted back to cash. It's rare to get full asking price offers the first day of a $1,000,000 listing. And if it happened, the property was probably priced too low. The sales velocity at the high end is low in any market, but it is excruciatingly slow in distressed markets. Flipping in that market can mean holding a property for six months or more to find a buyer willing to pay top dollar. Since the high end is in decline nearly everywhere, holding out for a high price may take years, decades even.
So how will I fare on this property?
House Address … 6349 BLUSHING WILLOW St North Las Vegas, NV 89081 
Resale House Price …… $86,900
House Purchase Price … $61,700
House Purchase Date …. 3/18/2011
Net Gain (Loss) ………. $19,986 **
Percent Change ………. 32.4%
Annual Appreciation … 490.1%
Cost of House Ownership
————————————————-
$86,900 ………. Asking Price
$3,042 ………. 3.5% Down FHA Financing
4.90% …………… Mortgage Interest Rate
$83,858 ………. 30-Year Mortgage
$17,789 ………. Income Requirement
$445 ………. Monthly Mortgage Payment
$75 ………. Property Tax (@1.04%)
$18 ………. Homeowners Insurance (@ 0.25%)
$122 ………. Homeowners Association Fees
============================================
$660 ………. Monthly Cash Outlays
-$42 ………. Tax Savings (% of Interest and Property Tax)
-$103 ………. Equity Hidden in Payment (Amortization)
$6 ………. Lost Income to Down Payment (net of taxes)
$11 ………. Maintenance and Replacement Reserves
============================================
$533 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$869 ………. Furnishing and Move In @1%
$869 ………. Closing Costs @1%
$839 ………… Interest Points @1% of Loan
$3,042 ………. Down Payment
============================================
$5,618 ………. Total Cash Costs
$8,100 ………… Emergency Cash Reserves
============================================
$13,718 ………. Total Savings Needed
Property Details for 6349 BLUSHING WILLOW St North Las Vegas, NV 89081
——————————————————————————
Beds: 3
Baths: 2
Sq. Ft.: 1505
$058/SF
Property Type: Single Family Residential, Detached
Year Built: 2006
County: Clark
MLS#: 1129694
Source: GLVAR
Status: Exclusive Right
On Redfin: 24 days
Cumulative: 24 days
——————————————————————————
MOVE IN READY! Not a Short Sale or REO. Quick Response from Seller. 2-Story Home, 3 Bedroom, 2-1/2 Bath in a newer gated community in a nice area of North Las Vegas. Neighborhood includes lots of grass, park, and jogging trails.
** the net gain or loss numbers in the post do not represent what I net on the deal. Other expenses usually cut the apparent margin above in half. If I obtained full asking price for this property, the fund will make about $8,000, not the $19,986 my post spreadsheet formula put out. My normal daily posts don't include other costs of preparation for sale. A 30% gross yields a 10% net.
What's it worth?
The following were the comps I used to value this property. They are all recent sales within the subdivision of model-match properties. Those last two sales aren't good for the comps…
| Comparable Resales | Resale Date | Amount |
| 2007, 3/3, 1505 SF, $80000, $53.12/SF, 6307 BLUSHING WILLOW ST, CENTENNIAL BRUCE WEST 40-UNIT | 3/8/11 | $80,000 |
| 2006, 3/3, 1505 SF, $80000, $53.12/SF, 1022 SHADES END AV, CENTENNIAL BRUCE WEST 40-UNIT | 2/22/11 | $80,000 |
| 2005, 3/3, 1505 SF, $88000, $58.43/SF, 1016 APPALOOSA HILLS AV, CENTENNIAL BRUCE WEST 40-UNIT | 2/18/11 | $88,000 |
| 2005, 3/3, 1505 SF, $89998, $59.75/SF, 1033 APPALOOSA HILLS AV, CENTENNIAL BRUCE WEST 40-UNIT | 1/24/11 | $88,649 |
| 2005, 3/3, 1505 SF, $84900, $56.37/SF, 1243 MAPLE PINES AV, CENTENNIAL BRUCE WEST 40-UNIT | 12/23/10 | $82,000 |
| 2007, 3/3, 1505 SF, $86900, $57.7/SF, 923 SHADES END AV, CENTENNIAL BRUCE WEST 40-UNIT | 12/22/10 | $85,000 |
| 2004, 3/3, 1505 SF, $89000, $59.09/SF, 1158 MAPLE PINES AV, CENTENNIAL BRUCE WEST 40-UNIT | 12/2/10 | $90,000 |
| Comparable Rentals | Lease Date | Amount |
| 6216 STANDING ELM ST — 3 bed 3 bath 1505 SF — 2004 List: $995 | 12/20/10 | $950 |
| 932 APPALOOSA HILLS AV — 3 bed 3 bath 1505 SF — 2005 List: $995 | 12/8/10 | $995 |
| 1017 SUNNY ACRES AV — 3 bed 3 bath 1505 SF — 2007 List: $980 | 11/23/10 | $980 |
| 923 APPALOOSA HILLS AV — 3 bed 3 bath 1505 SF — 2005 List: $1000 | 9/23/10 | $950 |
| 1232 N APPALOOSA HILLS AV — 3 bed 3 bath 1505 SF — 2005 List: $1000 | 6/16/10 | $1,000 |
| 6217 BLUSHING WILLOW ST — 3 bed 3 bath 1505 SF — 2008 List: $1000 | 8/30/10 | $1,000 |
| 906 APPALOOSA HILLS AV — 3 bed 3 bath 1505 SF — 2006 List: $995 | 8/1/10 | $995 |
If there are many more transactions in the low 80s, it may be difficult to get an appraisal for a higher asking price. That uncertainty is the business risk in a transaction like this one.
How does it work as a rental?
I pull rental comps to see if properties are desirable as rentals if local owner-occupants don't step up. This one is a fairly good one even for a retail buyer paying full asking price.
| Mortgage Purchase Financial Analysis | 15-Year | 30-Year | |
| 5 | Mortgage Interest Rate | 4.5% | 5.1% |
| 6 | Actual Monthly Cashflow | $(0) | $139 |
| 7 | Cashflow after Financing | $3,093 | $4,306 |
| 8 | Initial Capital Investment (down payment) | $18,083 | $16,780 |
| 9 | Cash-On-Cash Return = Cashflow / Investment | 17.1% | 25.7% |
| Notes: | Rental Income | Terms | Calculations |
| 10 | Gross Rent | $1,000 | |
| 11 | Vacancy and Collection Loss | 5.0% | $50 |
| 12 | Monthly Rental Income | $950 | |
| Operating Expenses | Terms | Calculations | |
| 13 | Property Tax | 2.67% | $189 |
| 15 | Homeowners Insurance | 0.50% | $35 |
| 16 | Maintenance and Replacement Reserves | $45 | |
| 17 | Homeowners Association Fees | $79 | $79 |
| 18 | Property Management Fees (% of Gross Rent) | 10.0% | $100 |
| 19 | Monthly Cash Expenses | $448 | |
| 20 | Net Operating Income | $502 | |
| 21 | Monthly Payment (based on maximum loan) | $362 | |
| 22 | Actual Monthly Cashflow(assuming impounds) | $139 | |
| Net Operating Income | $502 | ||
| 23 | Interest Expense (subtract from NOI to obtain P&L) | $282 | |
| 24 | Total P&L After Expenses and Debt(loan amortization plus excess) | $219 |
This is a solid rental property providing positive cashflow with a 30-year mortgage.
Check out the school ratings for the property:
Elementary: 4 out of 10
Middle: 2 out of 10
High school: 3 out of 10
Yikes, people in Irvine would freak out if they had to send their kids to a school with a 9 out of 10 rating, a school that is 8 out of 10 would be slumming it.
Flipping to hourly workers with FHA loans, I’m sure the community will be better sometime this century – not.
At least the people buying outside of Irvine will have a chance at paying off the mortgage sometime in this life versus slaving away to a house for all eternity. 10 out 10 school is not magic.
A third of people buying their expensive house in Irvine, have the house paid off on day 1.
Don’t hate the player.
I’d be interested in knowing what percentage of the one-third that you claim are owner occupied houses and how many show up on craig’s list in the For Rent section.
I am not interested in the real-estate gamers using group funds to cashflow a property. I am more interested in the wage slaves who are taking out 30 year mortgages at age 40+. I know, I know, 25 year olds with 500K are a dime a dozen on Planet Realtor.
LOL, I crown thee king of straw mans.
Oh, so you don’t want to talk about the speculators and the “FCB”s in your one-third. I see how it is.
Nice try at changing the subject. You should go back to a fine Irvine school and learn what a strawman actually is though which requires a misrepresentation of your argument followed by a refute of the misrepresented position. I never refuted your claim of one-third. I just said I would be curious as to what it may be composed of. You are big into overstating people’s incomes on here – I thought for sure you were going to go along with the 25 year olds with 500K theory.
So, getting back on your topic of one-third of buyers have no mortgage. Is it your position that flippers and cash flow investors are of no significance? Minor significance?
In other words, I think your one-third is overstated when you consider the context of the buyer.
PR, no response? Your face must be stinging from that bitch slap.
“A third of people buying their expensive house in Irvine, have the house paid off on day 1.
”
What a load of BS! Are you high or something?
You need to lay off the dope.
[Part 1 of, I think 3]
You are clearly a sharp guy who follows the Irvine residential real estate market closely. I enjoy reading your comments and believe they help me to more accurately understand the residential real estate market in Irvine. I’m not seeking to dress you down or pillory you in any manner whatsoever. Really. I’m not.
Clearly you wish that life were fairer in our country but you have resigned yourself to the “sad reality” that it is not and is currently seems to become less fair by the day.
Personally, I struggle to keep my skepticism about our country from becoming cynicism. I believe skepticism is healthy but cynicism is not. It makes me sad to type that generally, for the last few decades, our country has been in a decline. I’m very confident that things will get better in the US; but sadly I am convinced they’ll need to get much worse first. When I look at US history, I see that like most countries, we tend to make significant corrections only after a heartbreakingly painful crisis. As Edmund Burke said, “Those who don’t know history are destined to repeat it.” Sadly, we collectively don’t know history.
As others have commented on this blog, I suppose you have a strong interest in the Irvine residential real estate market and would personally benefit from an appreciation in real estate prices in Irvine. This bias I perceive seems to cloud your view. Of course all of us have cloudy views; none of us actually sees “The Truth.”
Furthermore, sometimes you seem to drift off the topic in order to discuss some of your favorite obsessions. Why not simply say, “This country is headed in the wrong direction and it pisses me off! The powerful few are taking advantage of the weak many!” or “I stand to make a bunch of money if people believe Irvine residential real estate will appreciate. Therefore, sure, I have a strong bias.”
Heck, Irvine Renter has an extremely sharp and facile mind, but when AZDavidPhx tries to show Irvine Renter some fair and objective facts about Irvine Renter’s behavior, Irvine Renter suddenly turns from a rationale and level-headed guy with a soft heart, to an icy cold capitalist who starts to make Social Darwinist arguments that sound like something straight out of Ayn Rand.
I’m not anti-Irvine Renter. Not at a little bit. Not at all. I’m simply pointing out a flaw in his reasoning that AZDavidPhx repeatedly drives trucks through but Irvine Renter seems to dismiss. Hey, I’m sure I’ve acted in just the same way as both you and Irvine Renter. As the adage goes, “Where you stand on an issue depends on where you sit.” AZDavidPhx and I are clearly on the sidelines. Therefore, it’s easy for us to be more dispassionate whereas you and Irvine Renter clearly have “skin in the game” and are therefore necessarily more biased. If our positions were reversed I suppose our opinions might be reversed too. I’m not out to bash; I’m out to clarify. Ok?
I think that would be a more healthy and honest way of engaging others in an open discussion. Personally, I think that your angry rants, snide remarks, and occasional smugness tend to debase many of your otherwise valuable contributions. You’re a clever guy. You add much to this blog. Why not take the high road?
I do agree with your general point that residential real estate from say Laguna to Malibu is different than in say Santa Ana or Riverside, even thought it saddens me to think about it. As the rich have gotten richer in this country over the last few decades, the middle class has shrunk, and the poor have mushroomed. Clearly we will tend to have residential real estate price differentials more like Brasil or Indonesia than Japan or Denmark.
For example, it’s very difficult to imagine a wealthy denizen of Rio di Janero moving to a favela in the hills, not matter how much of a price differential there is. Generally, I think that’s your point about Irvine being different. Isn’t it? Generally I agree with that point.
However, as much as I agree with what I believe is your implicit thesis (the gap between in prices between, say, San Bernadino and Manhattan Beach will increase because we’ve moved back towards what Mark Twain dubbed, the Gilded Age) you are clearly ignoring Irvine Renter’s very strong argument of the substitution effect, particularly if you subscribe to the notion that markets are made at the margins.
Due to the substitution effect, I strongly suspect that residential real estate from Laguna to Malibu will drop at least 15% in value over the next three years when compared to the price of gold. However, due to rampant inflation in the US for products other than houses, prices in US dollars may actually increase.
[Part 2 of 3]
Now here’s a little tangent I’ll go off on: frankly, I wish instead of all the talk about how to fix our financial system with increasing government intervention to avoid yet another bubble (such as the current dotcom tech bubble that is likely to burst within the next 2 years, Groupon eerily reminds me of WebVan) or the need to return to laissez fare (which is really a polite way of saying, allow the powerful few to collude against the weak masses), we’d talk more about the benefit of both moving from paper money (fiat currency) back to gold and silver as well as recreating and then relying on our own local communities instead of “Society” and “The Government.”
Imagine if you wanted to obtain some property and didn’t have sufficient money you would either save money until you could purchase the property or you would get a loan (in the form of gold and silver) from members of your own community. If you were to not pay back your loan, you wouldn’t worry about going bankrupt; you’d worry about being ostracized or at least shamed. Sure, we’d need to exchange some of our cherished freedom and innovation for security and close personal relationships, but I think we’d be better off. Ok. I’m done with that tangent.
Of course people who live in Irvine generally aren’t going to live in North Las Vegas, just as folks who buy Ferraris normally don’t normally buy Hyundais. I assume we agree on this. But such an observation doesn’t seem germaine to this discussion. Furthermore, it’s like saying folks who sell Ferraris shouldn’t set up shop in South Central Los Angeles. It’s not merely obvious, but generally goes without saying.
Here’s what I think your argument is missing by a country mile: if Irvine Renter’s income requirement of $17,789 for the property above is correct, then a blackjack dealer making $14/hour could easily afford this house. If he were married, his wife might not even need to work. Think about that for a moment. Then think about it some more. That’s probably a very attractive proposition for many working Joes currently living in Riverside. Heck, if a guy were making $8/hr pumping gas in Las Vegas, and he were to work 45 hours per week, he’d satisfy Irvine Renter’s income requirement of $17,789 for the property.
Irvine Renter’s point seems to be this: housing in Las Vegas is now very affordable for the average working Joe. Folks who live in Irvine aren’t generally the average working Joe. Now here a little “call out” that I hope you take constructively: before you accuse others on this blog of creating straw men, please consider that you often create ones of your own. Specifically, when you opined:
“Yikes, people in Irvine would freak out if they had to send their kids to a school with a 9 out of 10 rating, a school that is 8 out of 10 would be slumming it.”
I think that’s a ludicrous straw man that significantly debases the quality of discourse on this blog. It’s like saying folks in Irvine don’t tend to shop at the 99 Cents Only store therefore, the 99 Cents Only store should close up shop. Come on now. You’re much too smart and too well educated to make such a foolish argument. I hope you will bring your A game next time. Like I opined at the outset, I like reading many of your comments.
Perhaps Las Vegas will become a ghost town like so many others in the West, but frankly I sadly agree with Irvine Renter: sin sells. Macao may have taken away many wealthy Asian gamblers and local casinos around the country may keep some Americans away from Las Vegas. But spending billions of dollars to create another oasis of sin somewhere in the US, simply seems like a daunting proposition. And spending billions of dollars to one day restore Havana or build in any other foreign country seems out of the question as well. I think some folks in Las Vegas are still smarting from Castro taking their casinos.
Personally I loathe Las Vegas. Sin city makes me sick. But that’s just me. Let’s consider a 40 something middle-level manager living in New Jersey. To him the idea of attending a convention of some sort in Las Vegas in February, playing golf and/or tennis and indulging himself in some of the available vices will likely seem very attractive. Barring some sort of cataclysmic event like a nuclear war or revolution, he’s one of countless customers who I am convinced will be attracted to Las Vegas for many decades to come.
And when folks like him come to Las Vegas, someone (for, say, $14 per hour) is going to deal them a hand of black jack and someone else (for say, $8 per hour) will work the at the gas station where he refuels his rental car.
[Part 3 of 3]
And those average Joes with their FHA loans and their families will enjoy a wonderful climate for about 7 months per year, a tolerable one for 2, and an inferno for 3 months of the year, and live in house they can actually afford. Heck, they may not even need to send their wives out to work!
And as for schools, their schools in North Las Vegas probably won’t be any worse than the schools back in, say, Riverside (not Irvine!) where they came from.
Sheesh, Planet Reality, you sure didn’t live up to your screen name with this post. Like I mentioned above, next time please bring your A game. Ok? You’ve got game. Really. You do. But we need a high level of constructive discourse on this blog, not a low level of banal vitriole.
You certainly had a lot of energy for that astute observation.
High quality response, love the comment about the favela in Brazil. A couple of your paragraphs are brilliant, but read below.
Technical Support, thanks for posting your astute observations. I enjoyed reading them and hope to read more of your comments in the future.
So let me get this straight …
The rest of the USA outside Irvine is a favela.
Really?
That’s some mighty strong Kool-aid you Irvinites are drinking.
SanJoseRenter, I don’t think that’s what TC really meant.
In sum, I believe his argument was that LV’s residential RE is now so cheap that even a lower-middle class family can afford it.
Irvine’s RE market, IMO, is somewhat closely related to Cupertino with its growing Asian population (you’re SanJoseRenter so you should know what I’m talking about).
“You certainly had a lot of energy for that astute observation.”
I am not so sure that was an Astute Observation–Astute Manifesto is more appropriate.
I’m impressed, you read me accurately… few here do.
When you read my post you should see a differing view point and hopefully chuckle a little. A view point based on facts and unfortunately as you point out, the sad reality.
Anyone who reads me with venom, is not getting the venom from my post but has that venom built up inside themselves. They choose me as an outlet to release that venom. That’s not the correct way to read my post but I hope it’s at least cathartic for them. Sometimes I create conflict for IR to improve the discussion away from group think, unfortunately he tends to take it the wrong way. In the great new American fashion of polarizing your percieved enemies Irvine Renter calls me a “bull”. I am not, but I do accept the sad reality.
I’m impressed, you read me accurately… few here do.
Sounds like PR needs a hug.
[Part 1 of 2]
I’m impressed you didn’t take umbrage with my criticisms, which I certainly hoped you’d see as constructive.
Reading you guys “seriously kidding” (a roommate in college taught me that concept) with one another makes me smile because I like the camaraderie but it also makes me sad because you guys are playing a small game instead of a big game.
We have very serious structural problems in the US that we need to address. These problems aren’t lighthearted kid’s stuff. Not by a long shot.
You, Irvine Renter, and some of the others on this blog are clearly smart enough, educated enough, and passionate enough to put your heads together to come up with some practical solutions to real problems we face. This blog has the potential to be something really great. Irvine Renter posts some magnificent stuff on a regular basis that makes my jaw drop (literally). His writing is frequently brilliant. And some of the “Astute Observations” you and others post on this blog, when you aren’t engaged in banter, are occasionally brilliant too.
But like I mentioned, reading you guys exchange clever jabs with each other in a game of one-upmanship seems cute also makes me sad. This isn’t a child’s game. We’ve got real problems. Really. We do.
I don’t want to live in Brasil or Indonesia. And it pains me to say that we’ve been headed down a path to becoming like them since probably the early 1970’s.
This recent housing bubble is one of myriad events over the last 40 years that are the direct result of our country’s tendency of moving back towards the Gilded Age
We would be best served to consider the *context* of our march back towards the Gilded Age (Social Darwinism) when we view *content* such as the recent housing bubble. It’s not a unique event; it’s part of a pattern of our imperial decline. As our empire is declining, a cabal has succeeded in tilting the board further and further in their favor. As Madame de Pompadour (a French courtesan and mistress to King Louis XV) said when the French financial system was on the verge of collapse, “After us, the deluge. I care not what happens when I am dead and gone.” Hmmm. Not too inspiring is it?
That seems a stark contrast from the Greek proverb, “A society grows great when old men plant trees whose shade they know they shall never sit in.” Kind of, dare I say, uplifting and heartwarming.
The recent housing bubble didn’t come out of left field. It wasn’t like a meteorite that came crashing down on us. Many people saw it coming.
This nonsensical yet purportedly essential component of the “American Dream”, going into enormous debt to buy a big stucco box that is in a neighborhood often bereft of anything resembling a real community, is collective folly. Enticing young mothers try to juggle caring for their young children (let alone, say, their aging or sick parents), take care of their husbands, and make a living is just plain absurd. It’s a kind of collective Kool-Aid we’ve drunk. And it’s killing us slowly and painfully.
(By the way, Irvine Renter, Kool-Aid isn’t what Jim Jones’ followers in Guyana drank to commit suicide, it was “Flavor Aid.” http://en.wikipedia.org/wiki/Drinking_the_Kool-Aid Therefore, if you want to be historically accurate you’d talk about Flavor Aid. However, I realize Kool Aid has entered the vernacular to describe the phenomena of followers committing suicide at the behest of their leader).
We need to stop wasting money going into debt to consume such frivolous items as new cars and expensive houses. Instead we need to focus on working less, making do with fewer material possessions (the stuff we tend to buy on credit, only to refer to it as “junk” a few years later), and instead spending more time creating and nurturing real communities.
In other words, he who dies with the most toys does *not* win. It’s the person who lives the best life who we remember and admire. Easier said than done. Sure. I realize that.
Focusing on the chicanery de jure may be titillating, but ultimately it’s shallow and empty. Haven’t you noticed that? You often opine something like, “Don’t hate the player, hate the game.” I agree with your sentiment. I don’t hate the game, but I know the game is rigged and needs to be changed. And clearly you know that too.
Talking about this bankster or that crook is a bit like rearranging deck jars on the Titanic. Ok? Like my dad taught me, “The man doesn’t make the times; the times make the man.” We have created an environment that encourages bad behavior and then we are shocked and loudly denounce those who behave badly. Come on. That’s just absurd.
Sure, requiring folks to put down at least 20% to purchase a house is one for simple and sensible way to improve a relatively minor problem we have. But there are many far meatier problems we could be discussing.
Let’s say we were to get folks to see that moving back towards creating real communities is even better than merely putting down 20% towards a mortgage or even owning a home free and clear. Living in a home that’s bought and paid is wonderful financially, but what if you don’t have more than a nodding acquaintance with most of your neighbors, couldn’t rely on them to help you out in more than a perfunctory manner in a time of need, and don’t live within walking distance of any of your family or friends?
What if instead of going to an impersonal institution such as a bank to fund a loan of paper money, your neighbors- who were also part of your community- were the ones who had loaned you “real money” (such as gold and silver) for your house?
And what if you chose to live in place because that’s where your actual community is located instead of merely “good schools” or “good jobs”?
Of course chasing a “Leave it to Beaver” lifestyle did enrich real estate agents, car dealers, and other purveyors of the stuff we voraciously buy, yet don’t actually need, to fill up the emptiness left by our loss of community we’ve generally inflicted upon ourselves in modern, urban America as we chase the so-called “American Dream.” A dream that generally seems to be “so close yet so far” much like a glimmering mirage must appear to the hapless traveler who has exhausted his supply of water and is gradually dying of thirst in a barren desert.
Back when the World Wide Web was still pretty new about 15 years ago, I vividly remember reading this article (which I just found with a quick search on Google, a company that didn’t exist at the time) using a dial up modem.
Home from Nowhere
http://www.theatlantic.com/past/docs/issues/96sep/kunstler/kunstler.htm
How about discussing stuff like this on the Irvine Housing Blog? After all, no one really just wants to merely live in a house in a nice neighborhood, instead what everyone wants is to live in a real home in a real community.
As human beings we all play games. How about we play a big game instead of a small game? Sheesh, I’m not asking you to take up arms and risk being shot. I’m merely asking for some serious discussion about fundamental problems that we’d be far better off solving with foresight than cleaning up in hindsight.
And if you think things like 9/11 or the bursting of the recent housing bubble are “big problems” I’d urge you to reconsider. I am convinced we are headed for some far greater pain and suffering in this country. We can avoid this pain and suffering, but it will take more than just hoping and dreaming.
And yes, I’ve succumbed to the obsessive-compulsive tendency I warned Irvine Renter against. I need to get married and find a community myself so that, amongst other things, others will help keep me healthy. Here’s definition of advice I’m fond of, “Advice is something that is easy to give but hard to take.”
You are asking too much of the vast majority of bloggers here. They would need to understand, admit, and accept the problems first. They are stuck in their own worlds. When you accept the sad reality, you understand there is not a god damn thing you can do. What is more you understand any problems that exist here are not that big of a deal. If you are starving to death or experiencing genocide, that is a real problem. Our problems in this country are a joke.
Deflect much?
“You are asking too much of the vast majority of bloggers here.”
Step up your game and take some ownership to increase the level of discourse.
anyhwere else in town you’d be fine. Mass Exodus going on in N LV now though- good luck, and prepare to rent
Having lived in SoCal all my life (LA & OC), it’s always quite a shock to see prices in other places that are so dramatically lower than around here. Even though I know LV is a distressed market, I expect that if one is employed in a professional position, salaries, albeit lower, are not 3-4 times+ lower than LA/OC, which is where RE prices seem to be. It’s nuts!
It’s easy for any of us to say that from our arm chairs, until you are serious about finding a house. You soon realize that the good neighborhoods with the top schools and educated professional neighbors are cheap but not that cheap. Not cheap enough to move to Las Vegas, Riverside, or any other city in decline for the next 100 years.
Its not just distressed areas that are way more affordable than California.
Columbus Ohio, 15th largest city in the US. Diversified economy of banking, insurance, energy companies, tech, retail corporate headquarters, resturant corporate headquarters, state govt, and a major university.
Plenty of good neighborhoods and suburbs with good schools.
My suburb has a well regarded school system, plenty of parks, bikeways, and a small private college.
2500 sq foot house, 3 bedroom, 4 bath, 5 car garage, 1/3 acre lot, granite and stainless in the kitchen, full unfinished basement not counted in the square footage.
Bought it last year for $330k.
Baxter is right. It’s the one reason that I would not move to someplace like Irvine. Why would I move there to earn 20% more only to spend 100% more on rent?
because depending on your salary, 20% more is a lot more money than 100% in rent?
as long as your rent is less than 1/5 of your pay, it will work out in your favor depending on taxes.
People have a very poor understanding of expense ratios on this blog when it comes to both salaries ad inflation. I’m being harsh, it’s not just this blog.
I would imagine that, of people in Irvine paying rent or a mortgage, very few are paying less than 20% of their income towards housing. From the census stats, 25% pay less than 20%, while 38% pay more than 35%.
Seems believable enough.
But the 20% of salary isn’t dependent on Irvine %. It is dependent on what you currently pay before you move to socal or irvine or wherever.
If you do pay less than 20% in your current location, then it is still worth it to move if your salary goes up by >20% and rent =<100%.
Your net cash after expenses will be higher even if % spent on housing is greater. But seeing as CA is probably one of the highest taxed states, the percentages are probably different (ie, wage increase has to be higher or expense increase has to be lower to make "breakeven" after taxes)
Anyhow, the point is, there is a scenario where the % increase in pay can be much less than % increase in expenses and you can economically justify the move.
You’ve got your numbers/terms backward your increased pay should be much MORE than your increase in expenses to justify a move…from a purely dollar & cents pov.
A move from Minneapolis to Irvine does not need to be solely justified by $. Weather alone would be worth some additional % of take-home towards housing.
Actually, your example of spending 20% on rent, and then getting a 20% raise and having your rent double is an exact wash. 100k income, 20k rent 80k after rent-> 120k income – 40k rent, 80k after rent. Take out 1/3 in taxes prior to rent and 67k – 20k = 47k vs. 80k – 40k = 40k, $7k less in up-income 20%, up-rent 100%.
In my case, the difference in salary between here in AZ vs Irvine is about 9K per year which is not even a 20% pay increase. Considering my rent will jump by 1K per month at least, it is an obvious bad deal.
David,I’m sorry you would only get a $9k pay increase, but why would you need to live and work in Irvine?
You could work in Irvine and live very close by for $500 a month cheaper. You don’t have kids (though you are an expert on parenting 😉 you would probably enjoy it more than Irvine, and AZ for that matter. I’m sure they have clubs where you get to dress up like a medieval warrior here and battle on the weekends.
but why would you need to live and work in Irvine?
Exactly, I don’t need to which is why I could not care less about Irvine.
You don’t have kids (though you are an expert on parenting
I do get a kick out of self-aggrandizing members of your community who use their children as a reason for going into huge mortgage debt and buying overpriced houses in order to keep up with the Joneses. I had to buy the Rolex so that I would have a quality watch to keep time with so I could make sure that I was never late picking up my children from school.
I’m sure they have clubs where you get to dress up like a medieval warrior here and battle on the weekends
But I thought Irvine had all of the rich Asian heritage. I would not settle for anything less.
How are the big banks making record profits with these record foreclosures? Where are the losses going?
The National Debt and the balance sheet of the Federal Reserve – or in other words, anyone who is a member of the middle or poor class.
In some cases, the banks have already booked the losses from these foreclosures. In other cases, they just packaged the loans and sold them to some pension fund or other investor.
They could be loans from a bank like Colonial or Corus who have gone bankrupt and their assets, loans included, were bought at a discount by other banks or investors.
Who foreclosed can tell you a little about how much loss these sales cause today.
CNN Joining the party. Naturally, a “r”ealtor is the single source of information. Easy money! Turn 10K into 40K!
What a great way to feed at the trough. “Help” wannabe “investors” buy real estate and collect a commission, then help them flip it and collect a commission. When a flip doesn’t work out, not your problem – on to the next patsies.
IR,
For these super low priced properties, I think you need to adjust your spreadsheet.
You should eliminate the MID, as purchasers will take the std deduction at this level.
You should also increase the maintenance to a number that would allow water heater or roof replacement, as this isn’t really a percent of the sale price, but more fixed costs.
I have adjusted my spreadsheet to pick up PMI on FHA loans. The cost has become so large, that it rivals the property taxes.
The MID is calculated at a much lower rate on the low end properties. I have added a new floor at $45,000 income. If they fall below that, the applied tax savings falls to zero. That will pick up properties like these in Las Vegas.
The maintenance number I use is based on a percentage because its expedient. I am going to add a $20 monthly minimum to my formula to reflect the reality of low-priced properties.
Thank you for the feedback.
I read that article and haven’t been capable of a coherent thought about anything else since.
The word “rage” does not have the power to convey what I feel as I read of the continued fleecing and impoverishment of this country to pad the back pockets of our corporate elite with taxpayers’ dollars.
This country is well on its way to becoming a 4th world cesspool where 99% of the population lives in dirt-floored shanties along open sewers while the 1% that is politically connected plunders them down to their last grains of rice.
I’m beginning to be sorry I’ve lived even this long.
Las Vegas is a place where rents are rather high versus sale prices. How many Irvine places have monthly rents of more than 1% of the purchase price? None. I can see bidding on these properties not to flip them, but to rent them out. At the auction price that IrvineRenter paid, it’s more like 1.5% a month, which is insanely great.
Recently, Costa Mesa handed out pink slips to 50% of its public workers.
The mayor stated that the pension costs became unmanageable because of poor investments.
I’m sure they had invested in the housing market that “always goes up and never down”.