Earlier this year I profiled an REO on Lakepines that is now a 2003 rollback. The next-door neighbor is trying to sell for 30% more. Good luck with that.
Asking Price: $289,000
Address: 16 Lakepines, Irvine, CA 92620
Asking Price: $375,000
Address: 17 Lakepines, Irvine, CA 92620
Girl Next Door — Saving Jane
I’m a little bitter
Everybody loves her but I just wanna hit her
She’s Miss America and I’m just the girl next door
Oh and I’m just the girl next door
It must be very frustrating for seller when the propery right next to yours is put up for sale at a price 30% less. Those who are most reality-challenged can ignore the huge problem this creates, but buyers and lenders will not. The fact is that a neighboring comp selling at a 30% discount reduces your value 30%. You must either reduce your price or fail to sell the property. Or I suppose there is one more option…
I first profiled one of our two featured properties in by post on Housing and Tax Policy. In January, 16 Lakepines was asking $335,000. The property has been relisted for $289,000.
{book5}
Asking Price: $289,000
Income Requirement: $72,250
Downpayment Needed: $57,800
Monthly Equity Burn: $2,408
Purchase Price: $450,000
Purchase Date: 5/18/2006
Address: 16 Lakepines, Irvine, CA 92620
| Beds: | 2 |
| Baths: | 2.5 |
| Sq. Ft.: | 1,204 |
| $/Sq. Ft.: | $240 |
| Lot Size: | 868
Sq. Ft. |
| Property Type: | Attached, Condominium |
| Style: | Contemporary |
| Year Built: | 1977 |
| Stories: | 2 |
| County: | Orange |
| MLS#: | C09032959 |
| Source: | MRMLS |
| Status: | Active |
| On Redfin: | 8 days |
SHOW YOUR CLIENTS THIS AMPLE 2 BEDROOM 2 BATH CONDO CENTRALLY LOCATED
AND SITUATED ON A WELL CARED FOR COMPLEX WITH RELAXING WALKING AREAS.
LARGE PRIVATE PATIO JUST IN TIME FOR THE COMING SUMMER DAYS AMONG THE
AMMENITIES IN THE COMPLEX LIKE POOL AND SPA. PLEASE SEE AGENT REMARKS
IN ORDER TO EXPEDITE PRESENTING YOUR OFFER AND SHOWING INSTRUCTIONS.
ANOTHER GREAT LISTED BANK OWNED PROPERTY N THE CITY OF IRVINE. I love that lead.
I wonder if this REO was listed by an agent, or if the lender thinks that using ALL CAPS is just how property descriptions are written?
The total loss on this property stands at $178,340 assuming it sells for asking and a 6% commission is paid.
Check out this price history.
| Date | Event | Price |
|---|---|---|
| Jan 16, 2009 | Listed | $335,000 |
| Dec 19, 2008 | Listed | $335,000 |
| May 18, 2006 | Sold | $450,000 |
| Sep 11, 2003 | Sold | $329,000 |
| Oct 26, 1999 | Sold | $155,000 |
| Jun 27, 1991 | Sold | $157,500 |
| Nov 28, 1990 | Sold | $122,500 |
| Feb 16, 1989 | Sold | $137,000 |
This property is now a 2003 rollback.
{book}
I wonder how short-sale prices are set. The owner of our second property is 30% higher than the neighbor, and it is short sale. As a short-sale seller, why do you care what the price is? You are not paying it; it is a short sale. Is the lender telling this seller, “Price it at $375,000. I don’t care what the comps are?” I can understand stupid pricing when it is being set by greedy and ignorant sellers, but why is the lender demanding… oops, I think I just answered my own question.
Asking Price: $375,000
Income Requirement: $93,750
Downpayment Needed: $75,000
Monthly Equity Burn: $3,125
Purchase Price: $457,000
Purchase Date: 1/19/2007
Address: 17 Lakepines, Irvine, CA 92620
| Beds: | 2 |
| Baths: | 3 |
| Sq. Ft.: | 1,366 |
| $/Sq. Ft.: | $275 |
| Lot Size: | 828
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Townhouse |
| Year Built: | 1977 |
| Stories: | 2 |
| View: | Trees/Woods, Has View |
| Area: | Northwood |
| County: | Orange |
| MLS#: | S563896 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 39 days |
Irvine. Recently painted exterior in modern tones. Entry foyer leads to
sunny morning breakfast nook in tiled kitchen and large formal dining
room overlooking landscaped year patio area. Many tall windows and
vaulted ceilings. Customized living room offers additional wall space!
Skylight brightens big master with vaulted ceiling and private view
balcony. Large 2 car garage w/ direct access. Association includes 2
lighted tennis courts & 2 pool & spa areas. Sold As -Is Short
Sale.
Affordable? Yes, it probably is affordable to someone who would not be willing to live there.
Fortunately, for today’s seller, lenders were still giving out 100% financing in January of 2007; the owner paid $457,000 by using a $365,600 first mortgage, a $91,400 second mortgage and a $0 downpayment. If this property sells for its asking price, and if a 6% commission is paid, the total lender loss will be $104,500.
That doesn’t sound so bad, does it? Some lender or investor somewhere is getting a field report saying they will lose around $100,000 on this deal. Based on the property next door, they will really lose closer to $200,000. Is it no wonder everyone is having a hard time pricing toxic assets.
{book7}
Senior class president
She must be heaven sent
She was never the last one standing
A backseat debutaunt
Everything that you want
Never to harsh or too demanding
Maybe I’ll admit it
I’m a little bitter
Everybody loves her but I just wanna hit her
She is the prom queen I’m in the marching band
She is a cheerleader I’m sitting in the stands
She gets the top bunk I’m sleeping on the floor
She’s Miss America and I’m just the girl next door
Oh and I’m just the girl next door
Girl Next Door — Saving Jane
I would like to encourage all to go to the “gold poll” and vote.
https://www.irvinehousingblog.com/forums/viewthread/4827/
I discovered an interesting article at CNN Money:
http://money.cnn.com/magazines/moneymag/moneymag_realestate/2009/maps/states.html
While it doesn’t have specific stats for Irvine, here’s what it says about Santa Ana (the only city listed, however I believe these stats are for the region):
Santa Ana, CA
Rank: 35
Home price forecast: -9.6%
(one year, forecast through March 2010)
When they’ll hit bottom: 2009:Q4
So CNN is saying that Santa Ana (or OC) home prices will hit bottom at the end of this year.
LA is expected to hit bottom in Q3 2010. I guess that will be time for me to buy!
That was my guess the other day. About 10%.
We’ll see. I’ve been wrong before. Like thinking the market would only go down 15%!
lol
15% was my “most likely worst case scenario” too. I bought the kool-aid that “people will do EVERYTHING to keep their homes.” I also believed the government would bring out heavy artillery to fight the downturn. I was dead-wrong on the first, and woefully underestimated the second (and the government doesn’t even appear to be done!).
The gov’t. is far from done…don’t think these all-time low mortgage rates will spur buying?
30-Year fixed mortgage rate hits record low 4.78%: Freddie Mac- CNNMoney
http://tinyurl.com/cat3hq
Damn! I just closed my refi yesterday!
I guess if I had waited six more months I could refi where the lender will pay me 5%?
Oh well… maybe I can refi then.
Yeah, being a current renter looking to buy, I’d much rather buy a less expensive home at a higher interest rate than the other way around; but it appears the constant stimulation (tax incentives, limiting housing supply, and decreasing interest rates) of the housing market may mitigate that probability. I had never imagined the Executive–Branch/Congress/Treasury/Feds/FDIC all jumping in with both feet. On the other hand I did not expect the burst of the bubble to have such huge and destructive effect on the financial system and the economy as a whole. I don’t know about other but the important thing now is to keep one’s job at these difficult times…
All these bail-out crap is blowing smoke. The wealthy had lost a lot of money to the bust, and the bail-out is merely a ploy to pass on the loss to the common folks.
As others have said, the best way to resolve these issues is to have the government take over the failed institutions. In doing so, all debts are wiped out with the wealthy losing everything. After ridding the idiots running these companies, the government can then spin each piece off and recuperate the money in the process.
A lot of the AIG bail-out money was in turn paid to Goldman Sachs as insurance money…
I annoys me when such articles don’t say how they calculated the drops, or the timing.
I’ll just say that for OC they are flat out wrong. Way too optimistic. OC has about 2.5-3.5 more years of declining prices.
For LA, they are also too optimistic, but it’s not as far off as their OC projection.
Their forecast for Ventura County is just plain stupid. 69% of homes being sold are either foreclosures or short sales. A 10% further drop? Prices will be down 10% more by July, 25% more by December. Maybe Money Magazine means listing prices and not sale prices? The two keep getting further apart.
You are not supposed to question how they arrived at their conclusions. You are meant to consume it, feel positive, and go buy some jewelry.
Ventura county reminds me of something I had completely forgotten about.
Here’s a little personal history:
I was lowrydr714 then due to changes from the phone company I became lowrydr949, then moved and became lowrydr805. I was living in a coastal house in Oxnard around 2002 and was amazed at the prices even back then. I was just steps from the beach and was renting the first floor of a house house for only $800!! (owners lived upstairs, separate apartment downstairs with private entrance and garage)
I then became lowrydr310 and stayed in touch with friends in the area who were raving about their new purchases in Camarillo and Oxnard, despite any of them coming close to having enough income to sustain their payments at the prices they paid. Now that I think about it, it just didn’t seem like most people there were able to afford the $500K and $600K+ homes that were selling at the time. It’s not a surprise that the number of foreclosures or short sales are so high in Ventura county.
Just remember, these same media outlets like CNN and almost everyone else were the same people saying that there is no bubble and that real estate will continue to appreciate indefinitely. They’re way off from reality.
You are right, the jobs just aren’t there to support all those home purchases in Ventura County.
My last job here at Edison required me to visit our Ventura service center every so often and this is when the building boom was going on. I saw tracts and tracts of these homes going up in the middle of nowhere and wondering who’s buying these?
Guess it was the maids and farmworkers…
No way. We won’t see the bottom for quit some time. Allot of the 5 year arms are going to reset in 2010-2011 so foreclosures will go up. Plus as Irvine renter mentioned the 10 year arms are going to reset in 2016. The last time the market was strong was in 1989, down in 1994. Then it got strong again in 1999. Thats 10 years after the top. The next peak was in 2006, let’s say it’s weaker in 2010-2011, it won’t start to grow again until 2016.
So my point is that if you are ready to buy a home and you want to live in it for the long run. You’ve got 20% or more to put down and can easily afford the mortgage payment every month, including all the other expenses like tax, insurance, furniture, maintenance etc. then OK. The time to buy will be from 2011-2016. You’ll have a 5 year window to find your dream home.
Historically the “American Dream” of home ownership meant buying the home for cash. Or putting 50%-75% down and paying the rest off in 2-5 years. This Idea of paying for a house in 30 years started because of the great depression. The government got involved with the banks and made if more affordable for Americans to get into a home. The banks agreed because they are rapping the people with “Compound Interest”.
The way to do it, if you can, is how it was done back in the day. We wouldn’t have this current world economic disaster right now if Americans had a clue. We need to get out of debt and stay out of it. Save money and paying in cash is the way to go. If you need to borrow money you should think about it very carefully.
I am 100% debt free. I own what I own. That the way it should be. Thats the way America should be. The American people have there noses in the air thinking they are gods gift to the world, and at the same time the humble Chinese are kicking our financial a$$.
Just because ARMs are resetting doesn’t mean the end of the world. I know plenty of people including my parents, myself, and friends and co-workers that have ARMs and are financially sound. My ARM is resetting in May, and my interest rate and payment will be going down.
The Option ARMs are the scary ones. Those can have an impact definitely.
And I agree with you, I think the market will be weak for some time. It’s going to take time to unwind from this mess. But, if you can lock in an asset at a low interest rate and keep the place a while it could be a good decision.
The people with regular ARMs (no negative amortization) will be ok while interest rates stay low. However, if there is either inflation or a rise in real interest rates, they could get hit pretty hard. The amount payments can change varies a lot between individual mortgages, but it will be a new source of forced selling whenever rates rise.
They should modify the term valuing toxic asset to valuing toxic properties. So many of the bubble properties bought at the peak will default that what you can get through short-sale or foreclosure-fees is the underlying value of the original mortgage note. You shouldn’t be able to value one property 30% higher just because you’re asking that value – you should conservatively value at the minimum comp. OR you could use rental equivalent – the alternate way to appraise – but that wouldn’t give the bank what it wanted.
Banks need to compute what every home they own a mortgage for would sell for today, and then the likelyhood of default. I think the default probs are less the problem than what a bank would recoup in event of default. That is why they didn’t care about defaults in the first place because they assumed they would make a profit reselling the property at a price higher than the original loan. That assumption was garbage and needs to be thrown out!
That is what they should do, but I know from inside sources that the lenders are not doing this. They are living in their mark-to-fantasy accounting world.
And today they received a gift from FASB.
Hi all. I am offtopic but I hope you can help.
A friend of mine and her husband wants to buy the following house – 62 Amherst Dr, Burlington, NJ – for the asking price – $295,000. The house seems to be a short sale. They already negotiated, but they can still pull back.
I am trying to convince her/them to put a house purchase on hold for a while, especially since her husband was laid off last week (but they still want to go ahead with the purchase).
Currently they live with his parents (for about an year) and of course, they are not very happy with the situation. I told her to rent an apartment, but she is reluctant (she told me myths like “we wasted money why we were renting that apartment in NY some while ago”).
I personally know that especially in their situation, it’s the worst time to buy, no matter how low the price might seem to be, because: (1) prices are still falling, (2) they are now on one salary and on one unemployment benefits, (3) her job is not secure; she might lose it like he lost it, (4) they need (location) flexibility if they will both need to start looking for new jobs, now or when the economy will not be on free fall any more.
How can I convince them? What are the most convincing arguments? Because simply listing what I know might not be very persuasive.
With the job loss they should not even be allowed to qualify for a loan. This is what got us in this mess to begin with. People should not be able to buy if they do not have enough money and a secure job to do so. The sad part here is if she losses her job they could lose their down payment and that is not easy to save for.
Really insane to buy –get a job first.
You can’t convince them. People will always do what they want.
Stop with the drama. The harder you try the more you put the friendship on the line. Ultimately nobody wins–even after they realize you were right.
There’s nothing to be gained by your drama. Wish them the best and let it go. It’ll be tough to do because you’re female, but trust me on this.
I agree that it’s hard for women to act in a mature manner. I’ve lost one job over a simple rump pat and another when my coworker broke down in tears after I berated her liberalism over the course of a month. While it seems shocking that normal people get punished for the childish behavior of women, this is the world we live in.
So you got fired for sexual harassment and emotional abuse. You sound like a real winner Kirk! Boy, you showed those women who’s boss didn’t you? Too bad, Tom Likus is off the air.
A “simple rump pat”? If you’re trying to be funny Kirk you’re not hitting the mark.
If you’re not trying to be funny (and I have my suspicions that you’re not) you’re a major league A-hole. Something tells me that given your wingnuttery you may be oblivious to this fact.
Oh, come on! He was making a point that Mr. Kanji, there was being sexist. It was funny.
Take a look at his website. I’ve seen parody trolls and he
ain’t one (first rule – you have to be funny)
Mr. Kanji intentially made a shocking remark in order to draw attention. Without the shock value, Marian would simply dismiss the “don’t be nosey” advice.
Kirk simply shat all over the effect by drawing the wrong kind of attention to the comment. No biggie.
Well, not quite — you have to try to be funny. I agree 100% that he utterly fails (and causes all kinds of collateral damage in the process).
Don’t feed the troll.
Kirk is good at making plausible-sounding statements which get people angry or provoke a lot of responses.
I think he’s actually a bit like having Stephen Colbert post. He sounds like a blustering narcissist if taken at face value. However, he’s mocking what he pretends to be or support.
If so it appears he has a whole website devoted to the task. To each their own I guess.
Thats funny.
It’s funnier that most people don’t get sarcasm.
I get annoyed by most of what Kirk writes, but this is the first time that I actually chuckled.
The ‘single rump pat’ hahhahahaha
I lol’d.
I have never failed to be entertained by Kirk’s visits.
Hmm.. if my boss patted my rump I might get offended too.
He’s pretty ugly. 😛
I haven’t been able to convince any of my friends to wait until the market deflates before buying. I watched a friend of mine move across the country just last week to a new house he’d just bought; I’d pointed him to this blog (“Yeah, that website seemed very specific to California”) and to the data showing that housing prices in his new neighborhood had doubled over the past 8 years (for no reason).
What can you do?
Hang on to your wallet. Your friend (or his bank) will soon be expecting a bailout.
You just can’t convince everyone, nor should you try. They should be a lot more conservative with one of them out of a job. But they’re not and that tells you everything you need to know.
Leave them alone. They will learn through experience.
you can lead a horse to water…
Hi Irvine Renter,
What’s the latest with the Alt-A & Option Arm situation you wrote about in a previous blog?
Where are we at with this?
I have no updates on the schedule, but I have read reports that the default rates on these loans are increasing rapidly. It is difficult to tell if this is due to the economic stress or if they would have defaulted anyway. There are no signs of this problem being anything other than the debacle we suspect it will be.
According to the listing, the second property is larger than the first (a whole 160 sq ft) and has 3 full baths instead of 2 1/2 baths so it should sell for more, not 30% more, maybe $20k more.
How can the lot size be listed at 828 sq ft while the condos are 1200 sq ft? I don’t think I’ve seen this before.
The bigger one also has a 2 car direct access garage. Much better than a crappy carport.
The foreclosure will get bid up with multiple offers.
Being a two-story condo, the footprint is probably 828 SF while the usable square footage is 1200.
At least these homes are in a price range that allows a borrower to a attain government subsidized mortgage.
What about all the distressed property that’s currently priced way above the conforming loan limit. Many of these homes are 30 to 40 percent off the previous selling price, but yet they still can’t find buyers (suckers), due to NO FINANCING. LoL
What a sham we’ve been running here in Orange County.
I think it should be obvious: properties described in ALL CAPS list for 30% less than those described with both upper and lower case characters.
Those little letters aren’t cheap you know!
> […] properties described in ALL CAPS list for 30% less than those described with both upper and lower case characters […]
LOL! 😆
When I talked to my lender about a short sale, I told them (and they pulled) what the last 2 properties in my area had sold for. The person I was speaking to on the phone said the lender (Chase) would never approve such a loss.
My loans are for $342,0000 and the last 2 in my area at the time were like $172,000 and $178,000 (Chase holds both my first and second.)
The lender reps I spoke to didn’t “demand” a price, but made it pretty clear that a realistic price wouldn’t be approved. I would have had to have priced mine under $172,000, while I did have a garage and the other 2 units had carports, I only have 2 bedrooms, and the other units had 3.
My other frustration is that a realistic short sale price is one I can actually afford to keep the house at! (I’m in foreclosure due to a divorce.) I did tell the lender that, but was told they weren’t doing significant principle reductions…
I feel your pain. You had bought at the wrong time and you wish to undo that. It must be frustrating for you that the lender may sell the place to someone else for say $175,000 but not to you (through principle reduction). But if they do approve principle reduction, then everybody and his brother who are upside down will try to do the same thing, causing the lenders (& hence taxpayers) to lose even more money. If you don’t mind me asking, why did you buy the place if you could not afford to pay back the $342k loans? I think the new government subsidies and loan modifications guidelines may allow you to stay if you can afford the payment with about 3% interest rate or possibly lower for a few years. I would check into that… JMHO.
Oops! Sorry, I should have read more carefully because you did mention going thru divorce which obviously changes the financial situation. Again, I hope you get a satisfactory loan modification…
Yeah, we totally bought at the wrong time. But for the divorce, we’d have been fine, even though we have an adjustable arm. My soon-to-be ex husband just passed the bar and has a line on a few jobs in his industry (workers comp insurance adjusting), and if things had been going to plan, by the time our arm re-set, he’d be making double his salary at the time we bought, plus I’m in pharmaceutical school, so my income will be going up as well.
Not that we didn’t make mistakes, and if I had it to do over again, I wouldn’t have bought, but we only used our home loans to buy our home, and had a plan to accomodate and interest rate flux at the end of 7 years (the term of our fixed rate).
But with the divorce, I’m left with half the income I had, plus debt (things got a little tight with bar prep classes and such, so we used credit), so I can’t swing the home by myself.
An added facet is we purchased the house before we were married in my name only due to the enormous amount of student loans in his name. We used a stated income loan, but gave our broker our paystubs and he used that figure for the stated income. Since it was purchased before marriage, I’m the only one on the hook for it.
My whole thing is that if the bank’s going to have to sell it at auction for $170k, wouldn’t it make more sense to work with someone who’s already in the house and (up until my separation) always paid on time? It seems like not going through the auction/foreclosure process would save the bank a lot of money too…
It’s a mess I’ll be cleaning up for years to come, that’s for sure! At least I’ve learned some valuable lessons for next time, both on the home buying and marriage front!
Thanks for posting your story, Kate.
Thanks again for sharing your story. Yes, I agree that it would make more sense for the lenders to work with the homeowner because this way they have less to lose and they can also limit the supply of foreclosed homes on the market. But since they are not doing principle reduction as they told you, the question becomes: Can you afford the payment on the original loans at say 2% or 3% which will essentially cut your payment by about 30% to 35% – say principle and interest from about $2,200 to about $1,500? (excluding tax and insurance HOA…etc). Will the REDUCED total payment be less or close to rental parity?
I know a local builder who is going through the same issue. They tried to do a workout with their lender based on current sales prices, but the lender would not budge. The builder let the property fall into forclosure, and another builder bought the parcel for less than the original builder had offered to pay on the original note. The lender was willing to lose more money to avoid the consequences of moral hazard in writing down the original loan. Once the lender agrees to principal reduction on one loan, every other loan holder in the portfolio asks for the same.
In short, they would rather evict you and get less than $172,000 rather than write down your mortgage to a manageable level because once they write yours down, they will have to write down everyone’s.
Yeah, but if they don’t do the write downs, a lot of people will default on the loans, resulting in a worse result than if they did. And if enough of these properties go into foreclosure, supply will increase, lowing sale prices further.
Plus there are other costs in foreclosing. You have to list the property and pay real estate commisions and taxes and inspection fees and who knows what else. You have to repair the property or it won’t sell. You have to pay the legal fees in the foreclosure itself.
Maybe this is why some banks are choosing the third option: Pretend the stuff doesn’t exist. Don’t write down the loan, but don’t foreclose, even if the owner stops paying his mortgage payment.
“Maybe this is why some banks are choosing the third option: Pretend the stuff doesn’t exist. Don’t write down the loan, but don’t foreclose, even if the owner stops paying his mortgage payment.”
That makes sense in some low-end areas of Michigan but not in most areas of California. If someone stops paying, lenders can foreclose and sell the property and get SOME of their cash back, albeit at a loss of portion of original loan.
Reducing the rate will make a huge difference in the affordability of the monthly payment. For example, payment on a $600K loan at 3% will approximately equal the payment of a $425K loan at 6%. If lenders just reduce interest rate for qualified but at-risk-of-default homeowner/borrower, it will mitigate a lot of the risk to both borrower and the lender. This is just an example before even including the mortgage subsidies the government approved recently.
http://online.wsj.com/article/SB123853857749575441.html
Article in today’s wsj pointing out that home prices have a relationship to household earnings (gasp!) and that there is still a long way to go down despite the fact that national markets are generally at 2003 pricing.
The http://online.wsj.com/article/SB123853857749575441.html
has average values and not specific Irvine values charted. Lots of people in the midwest say there house price is 2 to 3 times their yearly salary. They have lots of disposable income. Much of the US is properly or near properly priced. Irvine is another story.
Medium HHI with kids is ~$120k, my guess on a medium SFH is >$550k. Anybody with more current data and non-guess no medium SFH price?
IR observation leaders fear the moral hazard is part of the story. They fear once at the feeding trough, borrowers come back again and again for loan modifications. If you give it to one and not to others, discrimation charges also come into play.
Wow, this is going down to a point where I can actually afford it, very soon they’ll be at $200,000 and I can really afford it.
Another shocking study:
Study: REO Sales Having Impact on Home Prices
Sorohan, Mike
A new study from Lender Processing Services, Jacksonville, Fla., found that foreclosure sales, also known as real estate owned sales, have had a significant impact on home prices in key U.S. markets.
The study of changes in regional home prices between 2007 and 2008 in the nation’s top housing markets found that the spread between REO sales prices and non-REO sales prices widened and showed signs of widening further, said Nima Nattagh, senior vice president of LPS’s Applied Analytics division.
“While the gap between REO sales prices and the rest of the market was very slim prior to 2007…that gap is growing at an accelerating pace,” Nattagh said. “In general, markets that experienced sharp drops in home prices in 2008 also saw deeper REO discounts.”
The study’s methodology uses a repeat sales model that looks at the sales value of the same home over time. Nattagh said this particular model is advantageous in that it looks at the same houses and is not subject to other changes in values due to mix of properties selling.
The largest drop in prices of REO sales took place in Riverside County, Calif. Home prices there fell by 28 percent in 2008 versus 2007; however, including REO sales, prices fell by 34 percent compared to 2007.
“The graphs of the index of sales, REO included and REO excluded, fell in line and ran with each other until about 2006,” Nattagh said. “After that, both sets of indices are declining, but the gap between the two sets is widening. It is a bit of a cause and effect problem; the market is impacted by REO sales.”
The study also found that, including REO sales, home prices declined by 29 percent during 2008 in the Phoenix market, where analysts cite significant overbuilding. When REO sales were excluded from the analysis, though, the price decline was less severe at 19 percent year over year.
The gap between home prices with and without REO sales was smallest in Seattle, New York and Cambridge, Mass. Nattagh said while the national housing market has been affected, the current turmoil suggests that the current downturn in the housing market is regional, with western states, Michigan and Florida seeing double-digit declines in home prices, while other regions have fared much better.
“Our expectation is that the foreclosure situation will continue to worsen because of the economic situation,” Nattagh said. “We are going to see increased foreclosures due to the economic situation, but components of some loans originated during the 2000s that are due to reset this year will continue to cause problems.”
Nattagh said further deterioration in the housing market will most likely deepen the REO discount levels in these markets.
“We’re still at a fairly fluid stage in the market ,where we don’t know where prices are going,” Nattagh said. “We know they’re not going to go up. Clearly the foreclosure and REO sales are a component of the price changes we’ve seen. Whether we see a settling of prices remain to be seen. We are not going to see any price appreciation for another three or four years. In Riverside County, prices remained flat from the early 1990s all the way until 1999 or 2000. Assuming that the current recession is as severe than what we witnessed in the early 1990s, I don’t think we’ll see any more price appreciation for the next five or six years
In Riverside city, REOs are frequently more than half off the previous sale. Two thirds off is not uncommon, and I’ve seen more than 80% off several times. Places like Moreno Valley are even worse, I believe.
“While the gap between REO sales prices and the rest of the market was very slim prior to 2007…that gap is growing at an accelerating pace.”
Yup, it’s a real REO Speedwagon.
O.C. real estate/finance jobs at 7-year low
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