A press release from Nielson Wire has an interesting map of home equity that also reads as a map of the housing bubble's deflation.
Today's featured property is riding the updraft of FED interest air and overtopping its peak value.
Irvine Home Address … 84 DANBURY Ln Irvine, CA 92618
Resale Home Price …… $519,000
{book1}
The boys from North Dakota
They drink whisky for their fun
And the cowboys down in Texas
They polish up their guns
Why would someone write a song about North Dakota? Why would someone live in North Dakota? Why would someone visit North Dakota? I will ask Shevy when he gets back….
I believe North Dakota is the only state to show economic growth during the recession — I guess North Dakota kept on grazing cattle while California developed sophisticated financing Ponzi Schemes those rubes in North Dakota could never understand. For whatever reason, northern states still have housing equity, and southern states do not. They are doing something right in North Dakota.
Housing Bubble demography?
A forgettable post with shoddy analysis, Homes Below the 37th Parallel Most Likely to Have “Underwater” Mortgages, contained a useful map of % equity by zip code. The report itself contained this gem:
“In a way, the housing boom and subsequent bust is similar to the stock market boom and bust of the late 1990s,” notes Greg Fisher, Sr. Data Product Manager, Nielsen Claritas. “Just as unprofitable company stocks soared, new home markets soared without regard to real value. In other words, in many new home markets, the prices skyrocketed and became disconnected with the value of the land the homes physically sat on. Salary increases were far outpaced by home price increases, which was unsustainable. At the same time, established and profitable companies’ stocks endured slower growth and suffered far less damage when the market corrected, just as older housing markets are weathering today’s real estate downturn. These housing markets already had the fundamentals to protect against the worst of the housing bust – stronger incomes and more valuable land.”
This analyst's statement makes no sense. Older housing markets are not weathering today's real estate downturn better than new markets. The real distinction is between subprime — which went through the foreclosure mill — and everything else — which is in shadow inventory and yet to be crushed. This downturn is not due to fundamentals; it is caused by improper asset valuations and the market's need to readjust. The fact that some areas have stronger incomes means that some areas will have higher prices, once markets balance price with income, something yet to occur here. Also, land value is a function of house price, not the other way around.
Map of Housing Market Deflation
The graphic below was developed to present the author's prepositions about migration patterns. Quite honestly, I didn't find much value in silly conclusions spit out by computer models when the authors displayed no functional understanding of the action in the mortgage market that created the effects visible in the graphic below.
The map above is best interpreted as a housing bubble deflation map. The green areas are those where prices have not crashed, where affordability is still low, and where prices are most perilous.
The red areas represent areas where subprime financing dominated, or where prices did not appreciate wildly during the bubble, so any decline submerges borrowers. For instance, Inland California, Florida, Nevada and Arizona were subprime lending dominated markets, and since these markets collapsed before amend-extend-pretend, prices there have been pounded back to the stone ages. Texas and the South saw little bubble appreciation, so price drops there redden the map.
The green areas have lenders worried, particularly in Coastal California and the Northeast, because the dollar amounts involved are so much larger that complete collapse of their Ponzi Scheme, similar to what happened to subprime, would deflate the entire capital base of our banking system. Our Government is intent upon keeping this remnant of the Housing Bubble inflated as well as the enormous commercial bubble they inflated.
From the same article:
What Do Severely Underwater Homeowners Look Like?
-
They earn $23,000 less than the U.S. average.
- Severely Underwater Income: $35,000
- U.S. Income: $58,000
-
Their homes are worth $113,000 less than the U.S. average.
- Severely Underwater Home Value: $103,000
- U.S. Home Value: $216,000
-
They have 58% less home equity than the U.S. average.
- Severely Underwater Home Equity: -43%
- U.S. Home Equity: 15%
-
Their mortgage balance is $7,000 higher than the U.S. average.
- Severely Underwater Mortgage Balance: $187,000
- U.S. Mortgage Balance: $180,000
-
They are located in areas where the home ownership rate is 25% lower than the U.S. average.
- Severely Underwater Homeownership Rate: 46%
- U.S. Homeownership Rate: 71%
-
They are 21% less likely to be located in areas where the prevalent house type has 1 or 2 units.
- Severely Underwater 1 & 2 Unit Housing Rate: 52%
- U.S. 1 & 2 Unit Housing Rate: 73%
-
They are 17% more likely to be located in areas where the prevalent house type is a multi-family unit.
- Severely Underwater Multi-Family Unit Rate: 34%
- U.S. Multi-Family Unit Rate: 17%
-
They are 2.3 years younger than the U.S. average.
- Severely Underwater Householder Age: 47.9
- U.S. Householder Age: 50.2
-
They have lived in their homes 2 years less than the U.S. average.
- Severely Underwater Year Moved In:10.4 Years Ago
- U.S. Year Moved In: 12.4 Years Ago
For more info: Contact The Nielsen Company
Those poor poor people; we have good incomes here, so Irvine must be immune, right?
By virtue of having purchased in some bygone era when prices match incomes, owners of properties like today's can get $500,000 for a shoebox. Is this our new reality?
Irvine Home Address … 84 DANBURY Ln Irvine, CA 92618 
Resale Home Price … $519,000
Income Requirement ……. $109,060
Down Payment Needed … $103,800
20% Down Conventional
Home Purchase Price … $246,500
Home Purchase Date …. 11/30/1999
Net Gain (Loss) ………. $241,360
Percent Change ………. 110.5%
Annual Appreciation … 7.0%
Mortgage Interest Rate ………. 5.13%
Monthly Mortgage Payment … $2,262
Monthly Cash Outlays …..….… $2,880
Monthly Cost of Ownership … $2,280
Property Details for 84 DANBURY Ln Irvine, CA 92618
Beds 2
Baths 2 full 1 part baths
Home Size 1,127 sq ft
($461 / sq ft)
Lot Size n/a
Year Built 2001
Days on Market 4
Listing Updated 2/23/2010
MLS Number S606538
Property Type Condominium, Residential
Community Oak Creek
Tract Cobb
ELEGANT DETACHED HOME in Oak Creek featuring two generous bedrooms PLUS LOFT, two and one-half baths, two-car attached garage and private yard with low-maintenance hardscape! DESIGNER UPGRADES include beautiful laminate floor, Plantation shutters and more! SPARKLING KITCHEN includes French cabinetry, built-in microwave, dry-foods pantry and under-cabinet task lighting. SPACIOUS MASTER SUITE features walk-in closet as well as master bath with dual vanities and soaking tub. JUST STEPS TO RESORT-STYLE pools, spas, tennis, basketball volleyball, award-winning schools and the Gelson's Marketplace with upscale shops and restaurants.
This must be the rhythmic CAPS LOCK style of writing where random words are EMPHASIZED BY CAPS LOCK.
These owners paid down their mortgage! Hurray!
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
That does not completely capture underwater homeowners. The areas of SoFla I am most familiar with have underwater borrowers who make roughly 2x income, and homes are now 1.5-2x as expensive. Sure this is a far cry from the 3-4X those houses were selling at peak. That area was primed with specuvestors and the floor of pricing will be Canadian part-time residents. Prices are getting close in a lot of places (some small condos are selling for 25% peak prices).
The difference I see b/w Irvine and SoFla are the quality of jobs. Not that that supports an infinite price difference, but there are a lot of great tech jobs in Irvine, whereas there are no comparable jobs (in ee/tech) in the SoFla.
Comparing them to the average is not as useful as the map. The better map is also where the underwater mortgages are, not an average equity measure.
“The green areas are those where prices have not crashed, where affordability is still low, and where prices are most perilous.”
Or where prices never went up substantially and nobody drank the koolaid. You mentioned ND.
I’ve found some green cities.
Bellingham, WA, is home to the University of Washington; home prices are $280,000 with household income of $52,000; home to income ratio is 5 to 1.
Bremerton, WA, is home to a naval submarine base. Median home price is $188,000; $147/sq foot; median household income is $39,000. Home to income ratio is 5 to 1.
Port Angeles, WA, is know as the Gateway to the Olympic Peninsula; the fact that it has not seen a rapid rise in population has help home prices gently rise and maintain their value; median home price is $340,000; median household income is 35,000. Home to income ratio is 10 to 1.
Seattle, WA is ranked # 3 in the 2008 US City Sustainability Rankings; it has a mild climate that has drawn and kept people; traffic through the Port of Seattle is expanding; although its employment base, consisting of Boeing and Microsoft is shrinking, these have contributed to a strong real estate market.
Matthews Beach in Seattle, 98125; $395,000; $238; $68,000 The house to income ratio is 6-to-1.
Washington state towns are in the green area shown on the map.
Bremerton, WA, is home to a naval submarine base. Median home price is $188,000; $147/sq foot; median household income is $39,000. Home to income ratio is 5 to 1.
Port Angeles, WA, is know as the Gateway to the Olympic Peninsula; the fact that it has not seen a rapid rise in population has help home prices gently rise and maintain their value; median home price is $340,000; median household income is 35,000. Home to income ratio is 10 to 1.
Seattle, WA is ranked # 3 in the 2008 US City Sustainability Rankings; it has a mild climate that has drawn and kept people; traffic through the Port of Seattle is expanding; although its employment base, consisting of Boeing and Microsoft is shrinking, these have contributed to a strong real estate market.
Matthews Beach 98125; $395,000; $238; $68,000 The house to income ratio is 6-to-1.
I found some other green cities.
Bethesda, MD, $759,000; $422; $131,000 Bethesda, MD is a bedroom suburb of Washington DC; here your hard earned tax dollars ahre helping pump up home prices; the home to income ratio is 6 to 1.
Hoboken, Hudson County, NJ, 07030, is a transit village; median household income is $62,000; 25% of the population works in finance and real estate. Homes cost $568,000 and cost $547/sq foot. Real estate has gone up in price dramatically here; when people make a seven figure income one year they can afford to put a signifcant amount of money down on a property. The home to income ratio is 9 to 1.
Excelsior, San Francisco, 94112. The Excelsior area of San Francisco is an example of The American Dreams Lifestyle http://tinyurl.com/y9lltk4 for Asians, where middle-aged immigrants and their children live in upper-middle-class comfort. The home price is $516,000 and the household income is 82,500. The home to income ratio is 6 to 1.
The above towns are examples where real estate prices have stayed higher because income is generally above the national average, people have lived in their homes longer than the average, that is they did not recently relocate, they live in a college-university town, a technorati town, near a naval base or an air base, or near a major financial center, not in the rust belt, chemical belt like New Jersey, or current manufacturing belt like Los Angeles.
Mortgage lenders preyed on people in Arizona, Florida, and Nevada, and California by extending Option-Arms loans, and Alt-A loans, in addition to subprime loans. Loan officers made a terrific amount of income; I mean a fabulous amount of income from their lending programs. I specifically remember the incessant TV ads from Ditech pitching loans. These loans were stated income loans — undocumented loans, people simply stated the income needed to get the loan; I guess they must have been thinking of their lottery and casino income, as well as their auntie’s income. Many people simply made the minimum payment, and now the loans are recasting, and notices of default and delinquency (NODs) are soaring.
To exasperate the situation, many cunningly and with premiditation, used mortgage equity withdrawl (MEW), and abandoned their homes to the lender.
Flippers added to the problem by pushing the buying wave ever higher, which stimulated a demand for investors to buy second homes — vacation homes in sunny Arizona and Nevada.
Developers got lucrative deals from regional banks, especially in Georgia, Texas and California to build:
55+ retirement communties … Ocala, FL
Upper end developments … The Highlands, Riverside, 92879
Entire cities … North Port, Sarasota, FL, 34288
Transit cities … Lathrop, San Joaquin, CA, 95330
Master planned communities … The Retreat in Corona, Riverside, CA 92883
Towns at a long, yet do-able, commute to a desireable city, like San Francisco … Richmond, Contra Costa County, CA, 94802
Ocala looks pink, but Palm Beach/Broward/Dade look green – but they have tons of underwater borrowers, but also tons of retirees/vacation homeowners who didn’t hit the MEW trough. One person who owns their home (100% eq) could cancel four with -25% eq, depending on how the calculation was done.
Why did lenders focus on AZFLNVCA?
One word: BOOMERS
It is all about transfer of wealth to the boomers who like to have their winter houses out in AZ and eventually retire there to live the good life playing golf.
Housing for the past 20 years has all been about catering to boomers and funded by the younger people who have year after year accepted more and more debt.
All of the money making in house building has been building ever more larger and extravagant houses for boomers and then extending lots of debt to younger people to pay for it all.
Think about it. A generation that has completely ripped off it’s children and grandchildren through social manipulation combined with financial innovation.
When you buy a piece of real estate from a boomer for two three times what he paid 10 years ago I want you to think ‘Whose YO daddy!”
Big secret – boomers also contributed mightily to the run-up in housing prices during the 1980’s.
Q: How?
A: Through multiple divorces and marriages.
Every time they divorced, the property was sold and the sellers (boomers)added the cost of the realtor commission plus the costs of twin down payments on new residences to the price of the house being sold.
This tactic drove up the cost of housing and negatively impacted younger boomers – those born during the Korean War and those born during the early years of the Vietnam War.
Everything these older boomers touched was destructive to those younger than them. They are the most selfish, self-centered generation the world has ever seen.
This is for AZDavidPhx:
http://www.boomerdeathcounter.com
I know B-Town quite well (Bremerton to you).
The prices there have crashed, trust me. There used to be condos on the waterfront by the ferry that have dropped by 50% and now are going into auction. No one wants them.
They were building homes all over the place in Bremerton, Silverdale, Poulsbo, all the way through Bainbridge Island to Winslow. The idea was that Seattlelites would take the ferry to Kitsap County. Sort of like Moreno Valley with a Ferry Commute.
The prices have crashed dude. I know that are extremely well.. Seattle too.
I rented in this neighborhood 6 or 7 years ago, and these detached (zero lot line) homes are TINY. 1100 sq ft spread over two floors, and remember: the stairwell space counts in the sq ft, as do the closets and powder room,etc.
It was so small that someone sitting on the outer edge of our small 4-person dining table had to get up and push their chair in for the person on the inside to get out.
I also used the master bedroom “walk-in” as a computer/office (with no windows).
$500,000+??? ROTFLMAO. I might change my handle to ForeverRenter 🙁
This condo must be very small, with minimal usable space. The staircase will take up 100-150 square feet, plus there’s 2.5 bathrooms (since it’s a two story, there’s a powder room downstairs)-that’s a lot of bathrooms for such a small place. So, non-staircase, non-bathroom square footage is probably 700 sq ft or so.
Oh, and it looks like it’s priced about $100k over comps. Still, even $400k is a lot for this shoebox-but looks like somebody would pay that.
As Barnum said, there’s a sucker born every second (or minute) in this country.
There’re plenty of suckers out there to carry the torch.
There are even more, with all these crazy bailouts! Buy! Buy! Buy! If you fail to pay your mortgage, Uncle Sam will take care of you. No question asked!
Happy Buying! You’re making America rich and strong. Be patriotic!
Is that a picture of Einstein on the wall?
http://images.easyart.com/i/prints/rw/en_easyart/lg/3/3/Albert-Einstein–Pop-Art–Celebrity-Image-331465.jpg
Is that an image of Saturn and its rings over the kitchen sink?
I disagree somewhat with the older markets statement by IR. If you look at it macro (ex. Mission Viejo vs. Corona say). Let’s roll back 5 years, there is a family with kids that wants to buy a place they can afford. Obviously, with bubble prices, Corona wins and the family chooses to endure a long commute to work in coastal OC.
But now, post crash – maybe they can afford the place in Mission Viejo. So they buy there instead.
The decision of where to buy is going to take all the factors into account (ex. cost of housing, cost of commuting, schools, etc) and then make the most logical trade offs.
If they bought at bubble prices in Corona…they are probably stuck there since they are hopelessly underwater.
I know some people who bought in the IE during the bubble because they wanted to get into the housing game and couldn’t afford LA/OC. They are regretting that decision now. A rental in LA/OC would have been the right move…probably cheaper, no commute, mobility and not be shackled to an underwater house.