The MLS inventory is growing. The pre-foreclosure inventory is growing. And shadow inventory is growing. Will our spring rally fizzle out?
Irvine Home Address … 24 ROSE TRELLIS Irvine, CA 92603
Resale Home Price …… $1,900,000
{book1}
Give me no restrictions on what I do or say
Don't speak of tomorrow when it's still today
Leave me to my selfish ways, I'm well enough alone
That is what I tell myself as I stumble home
Derelict across the street in the garbage bin
Looks like he's found something neat judging by his grin
Such a long long way to go, hope I get there soon
Men At Work — No Restrictions
With the restricted inventory condition engineered by the banks, our market is not going to clear any time soon. They may be successful at holding up prices to some degree, but it will take a very long time to work off the overhanging inventory of distressed properties. As this process drags on, more Ponzis will flame out, and the distressed inventory will continue to grow. The housing bust is not over.
Only 650 on the MLS
About 650 homes are for sale on the MLS, and there very few properties in the foreclosure process currently for sale. Many of the short sales are in pre-foreclosure, but most of those in the foreclosure pipeline have already given up. They are squatting and waiting. The number of properties tied up in the foreclosure process exceeds our steadily increasing MLS inventory.
Pre-Foreclosure and Auction inventory continues to rise
According to ForeclosureRadar.com, visible inventory is as follows:
342 Pre-Foreclosure (NOD has been filed)
484 Auction (NOT has been filed)
826 Total Pre-foreclosure and Auction Properties.
Is 826 a big number?
In the last 30 days, the postponements have far exceeded the number of sales. There were 36 properties sold back to the bank, and 9 properties that were sold to third parties. That is 45 properties sold in one month out of an inventory of 826. At that rate of sales, it will take 18 months to clear the inventory.
Foreclosure inventory isn't like MLS inventory that needs three to six months supply available to make a market. Foreclosure inventory should be near zero. The total months to clear foreclosure inventory is usually less than one. The fact that we have over 800 properties in this visible inventory is troubling.
The homebuilders like the Irvine Company are taking advantage of the restricted inventory to sell new homes. As someone whose livelihood depends on the homebuilding industry, I think its great that sales are doing so well. As a consumer, I find it irritating that the reason homebuilding is coming back is because the inventory that should be available on the MLS is tied up by lenders who are allowing everyone to squat. It's really bad in Las Vegas where more than 1,000 new homes were built in a city with 9,000 empty ones.
At least 2,700 in Irvine shadow inventory
Bear in mind that none of these numbers capture the shadow inventory of those who are not paying their mortgage but the banks have not begun the foreclosure process. The latest report is that 8.4% of Orange County mortgage holders are delinquent on their payments. There are about 75,000 homes in Irvine and about 45,000 mortgages. If only 6% of those are delinquent, that amounts to 2,700 homes. If Irvine matches the 8.4% rate of Orange County, then 3,780 homeowners are delinquent The ratio of three to four houses in shadow inventory for each house in pre-foreclosure is about the same as national figures.
At the rate of distressed inventory sales of 45 per month, it will take 60 months to work off this inventory — and that is if we stopped adding to it today.
Eighteen months for visible inventory and sixty months for shadow inventory doesn't sound as bad as it really is because more properties will become distressed as this inventory is worked off. Many more borrowers that currently are not delinquent simply can't afford their homes. Large numbers of Ponzi borrowers are continuing to build their Ponzi debts. Most are resorting to credit cards right now waiting for the HELOC money to come back. It isn't going to. The long term ramifications of shutting down the home ATM is going to be more distressed properties and foreclosures as the Ponzis implode.
In the interim, we sit and wait.
Washington Mutual's Garbage
Below is a sample of one defunct lender's toxic waste. The first two properties account for over $10,000,000 in bad loans. Do you see why they are in no hurry to foreclose?
| 89 CANYON CRK | 5/26/2010 | $ 5,200,000 | WASHINGTON MUTUAL BK FA |
| 41 GOLDEN EAGLE | 6/7/2010 | $ 4,860,000 | WASHINGTON MUTUAL BK FA |
| 27 STARVIEW | 7/7/2010 | $ 2,240,000 | WASHINGTON MUTUAL BK FA |
| 8144 SCHOLARSHIP | 6/2/2010 | $ 1,674,282 | WASHINGTON MUTUAL BK FA |
| 11 GAVIOTA | 5/27/2010 | $ 1,260,000 | WASHINGTON MUTUAL BK FA |
| 3131 MICHELSON DR 1702 | 6/3/2010 | $ 1,226,600 | WASHINGTON MUTUAL BK FA |
| 3141 MICHELSON DR 1402 | 5/27/2010 | $ 1,000,000 | WASHINGTON MUTUAL BK FA |
| 28 CRIMSON ROSE | 5/27/2010 | $ 1,000,000 | WASHINGTON MUTUAL BK FA |
| 10 FIGARO | 6/2/2010 | $ 880,000 | WASHINGTON MUTUAL BK FA |
| 55 MIDNIGHT SKY | 6/21/2010 | $ 867,000 | WASHINGTON MUTUAL BK FA |
| 78 DOVECREST | 5/28/2010 | $ 815,000 | WASHINGTON MUTUAL BK FA |
| 61 DOVECREEK | 6/28/2010 | $ 760,000 | WASHINGTON MUTUAL BK FA |
| 26 DINUBA | 6/10/2010 | $ 744,000 | WASHINGTON MUTUAL BK FA |
| 89 LAMPLIGHTER | 7/7/2010 | $ 737,112 | WASHINGTON MUTUAL BK FA |
| 37 LAKEVIEW 54 | 5/21/2010 | $ 682,500 | WASHINGTON MUTUAL BK FA |
| 6 CEDARSPRING | 7/2/2010 | $ 650,000 | WASHINGTON MUTUAL BK FA |
| 16 ARBORSIDE | 5/25/2010 | $ 643,700 | WASHINGTON MUTUAL BK FA |
| 2251 WATERMARKE PL | 5/26/2010 | $ 639,000 | WASHINGTON MUTUAL BK FA |
| 4911 KAREN ANN LN | 6/2/2010 | $ 638,250 | WASHINGTON MUTUAL BK FA |
| 196 WILD LILAC | 6/14/2010 | $ 608,000 | WASHINGTON MUTUAL BK FA |
| 4082 GERMAINDER WAY | 6/18/2010 | $ 594,000 | WASHINGTON MUTUAL BK FA |
| 14 SHENANDOAH | 6/3/2010 | $ 560,000 | WASHINGTON MUTUAL BK FA |
| 4056 WILLIWAW DR | 6/3/2010 | $ 550,000 | WASHINGTON MUTUAL BK FA |
| 17 MONTE CARLO | 5/26/2010 | $ 548,000 | WASHINGTON MUTUAL BK FA |
| 62 FRINGE TREE | 6/17/2010 | $ 536,750 | WASHINGTON MUTUAL BK FA |
| 35 WONDERLAND | 5/26/2010 | $ 534,000 | WASHINGTON MUTUAL BK FA |
| 4092 ESCUDERO DR | 5/28/2010 | $ 487,500 | WASHINGTON MUTUAL BK FA |
| 14 BLUEBELL | 6/10/2010 | $ 486,500 | WASHINGTON MUTUAL BK FA |
| 5 FASANO | 6/7/2010 | $ 420,000 | WASHINGTON MUTUAL BK FA |
| 4391 BERMUDA CIR | 5/27/2010 | $ 417,000 | WASHINGTON MUTUAL BK FA |
| 42 GILLMAN ST | 6/7/2010 | $ 416,500 | WASHINGTON MUTUAL BK FA |
| 14601 LOFTY ST | 5/24/2010 | $ 398,000 | WASHINGTON MUTUAL BK FA |
| 212 GREENMOOR 94 | 6/14/2010 | $ 397,500 | WASHINGTON MUTUAL BK FA |
| 396 MONROE 190 | 5/24/2010 | $ 390,000 | WASHINGTON MUTUAL BK FA |
| 132 OVAL RD 2 | 6/11/2010 | $ 384,000 | WASHINGTON MUTUAL BK FA |
| 17 LAKEPINES | 5/24/2010 | $ 365,600 | WASHINGTON MUTUAL BK FA |
| 437 RIDGEWAY | 5/24/2010 | $ 315,000 | WASHINGTON MUTUAL BK FA |
| 10 LAKEPINES | 5/20/2010 | $ 286,780 | WASHINGTON MUTUAL BK FA |
| 87 ROCKWOOD 47 | 6/29/2010 | $ 272,000 | WASHINGTON MUTUAL BK FA |
| 4 MAGELLAN AISLE | 5/25/2010 | $ 260,000 | WASHINGTON MUTUAL BK FA |
| 147 STREAMWOOD | 6/21/2010 | $ 200,240 | WASHINGTON MUTUAL BK FA |
| 406 ORANGE BLOSSOM 121 | 6/10/2010 | $ 182,500 | WASHINGTON MUTUAL BK FA |
If any of you thought Irvine was immune, think again. All the households in the list above are squatters. Are any of your neighbors in there?
Prime mortgages going bust at an alarming rate
WASHINGTON — Aftershocks from the nation's financial crisis continue rumbling through the housing sector as fixed-rate mortgages held by the safest borrowers accounted for nearly 37 percent of new foreclosures during the first three months of this year, the Mortgage Bankers Association reported Wednesday.
Additionally, more than one in 10 homeowners were behind on their mortgage payments in the first quarter – a record, the association said. That's up from 9.47 percent in the last three months of 2009.
Prime loans, those made to the safest borrowers with the highest credit scores, account for almost 66 percent of outstanding U.S. mortgages, so their rising foreclosure numbers are troubling.
"People with higher scores are defaulting at rates we have not seen in the past," said Jay Brinkmann, the chief economist for the trade group.
I always get a kick out of industry insiders that act surprised. We have all known this problem was going to wipe out the alt-a and prime borrowers. It is only a matter of time.
If you have been paying attention to the news on delinquencies, for the last 3 years, this number has gotten worse month after month, and it shows no signs of peaking. Yet while the delinquency rates continues to climb, we get reports about declining default notices or declining foreclosure rates. Those rates become rather meaningless as long as the delinquency rate keeps climbing. The differential just adds to shadow inventory.
It is becoming obvious that shadow inventory is the only answer lenders have to the problem. They screw around with foreclosure statistics, and they allow a great deal of squatting. The result of their amend-pretend-extend is a restricted inventory condition supporting current pricing. I believe this is a cartel arrangement doomed to collapse. We will see.
The slide into foreclosure of the strongest borrowers is partly a function of the nation's unemployment rate, which is now 9.9 percent. The Great Recession has mowed down white-collar and blue-collar workers alike.
I would like to caution people against making a strong correlation between unemployment and delinquency. Unemployment is certainly making matters worse, but most of these people would have defaulted anyway in time. Unemployment simply accelerates the process.
The danger in this correlation is the false belief that an improvement in employment will bring about an improvement in the delinquency rate. It won't. Most delinquent borrowers couldn't afford their mortgages when they were fully employed. If they go back to full employment, they still won't be able to afford the mortgage.
In the first quarter, almost 21 percent of foreclosure starts were for adjustable-rate mortgages held by credit-worthy borrowers. Fixed and adjustable-rate prime mortgages combined accounted for more than 57 percent of all new foreclosures.
The MBA's data also showed that more than 6 percent of fixed-rated prime mortgages were delinquent from January to March and more than 13 percent of all homeowners with adjustable-rate prime mortgages were behind on payments.
California – the most populous state, which accounts for more than 13 percent of all U.S. mortgages – seems to have turned a corner in housing problems. It held 21 percent of all foreclosure starts during the first quarter of 2009 but only 14.5 percent in the first quarter of 2010.
Before we celebrate the improvement, consider what this statistic measures: the delinquency market share. California delinquencies are still rising, but other states are rising even faster. Our loss of delinquency market share isn't because borrowers here stopped going delinquent.
…One potentially troubling trend emerged: foreclosure starts rising in states that aren't commonly viewed as housing-bubble states. Washington state posted the largest increase in foreclosure starts overall in 2010's first quarter versus a year earlier, followed by Maryland, Oregon and Georgia. Washington state also posted the largest rise in foreclosure starts that involved prime and subprime adjustable-rate mortgages.
In another troubling trend, 42 states and the District of Colombia saw increased foreclosure starts for homes that were carrying FHA loans, which are considered among the safest. Only nine states, including Alaska and Idaho, saw foreclosure starts for FHA loans fall.
The rise in prime-mortgage foreclosures is important in the context of the sweeping revamp of financial regulation that's moving through Congress. Big financial institutions are trying to defeat a provision that would require them to retain 5 percent of the mortgages that they underwrite or sell into a secondary market to be packaged into mortgage bonds. They argue that they shouldn't have to do this for prime fixed-rate loans, but the latest data show that these loans aren't immune to delinquency and foreclosure.
Why would lenders resist a regulation to keep 5% of their mortgages in their portfolio unless they wanted to underwrite bad loans? The whole point of having a secondary market was to allow free movement of capital, not to allow banks to become origination machines with no responsibility, which seems to be what they want.
The data also suggest that the Obama administration's efforts to reverse the rate of delinquencies and foreclosures haven't been effective. The Treasury Department reported Monday that lenders or loan servicers had permanently modified only 68,000 mortgages in April, while more than 277,000 modification offers were canceled and presumed to be back on foreclosure tracks.
"It is jolting to see the persistence of the foreclosure epidemic," Michael Calhoun, the president of the Durham, N.C.-based Center for Responsible Lending, said in a statement.
It's only jolting to those who didn't expect this to go on so long. I have consistently maintained that loan modification programs have no chance of success other than to give borrowers false hope and get them to make a few more payments. The amend-pretend-extend policy has caused this crisis to drag on much longer than it should have.
HELOCs are a girl's best friend
Sometimes, I really wish I would have lied and levered myself into a $1,000,000+ home. The banks are not foreclosing on anyone over the conforming limit. Of the 36 properties that went back to the bank in Irvine over the last 30 days, only one of them was over $800,000 (it was a penthouse in the North Korea Towers). Of the nine properties that were sold to third parties, the most expensive was $700,000. The banks know there is no market outside of the GSEs and the FHA, so everyone who has defaulted on a jumbo loan is being allowed to squat.
The owner of today's featured property is like many other high-end Ponzis. She has taken enough money out of the walls to support an opulent lifestyle, and now she is squatting.
- This property was purchased on 12/16/2004 for $1,293,000. The owner used a $969,650 first mortgage and a $323,350 down payment.
- On 1/19/2005 she got a $129,000 HELOC.
- On 7/19/2005 she refinanced with a $1,200,000 first mortgage.
- On 9/28/2005 she opened a $195,000 HELOC.
- On 5/1/2006 she obtained a $282,800 stand-alone second.
- Then on 7/14/2006 she refinanced with a $1,499,900 Option ARM with a 1.85% teaser rate and a $189,000 HELOC.
- Total property debt is $1,688,900.
- Total mortgage equity withdrawal is $719,250.
- Total squatting is at least 15 months.
Foreclosure Record
Recording Date: 08/31/2009
Document Type: Notice of Sale (aka Notice of Trustee's Sale)
Click here to get Foreclosure Report.
Foreclosure Record
Recording Date: 05/21/2009
Document Type: Notice of Default
You have to admire the thinking of these Ponzis. After extracting nearly three-quarters of a million dollars and squatting for more than a year, she lists the house at a WTF asking price hoping someone will step up and pay off her debts.
Any takers?
Irvine Home Address … 24 ROSE TRELLIS Irvine, CA 92603 
Resale Home Price … $1,900,000
Home Purchase Price … $1,293,000
Home Purchase Date …. 12/16/2004
Net Gain (Loss) ………. $493,000
Percent Change ………. 46.9%
Annual Appreciation … 7.1%
Cost of Ownership
————————————————-
$1,900,000 ………. Asking Price
$380,000 ………. 20% Down Conventional
4.94% …………… Mortgage Interest Rate
$1,520,000 ………. 30-Year Mortgage
$390,731 ………. Income Requirement
$8,104 ………. Monthly Mortgage Payment
$1647 ………. Property Tax
$375 ………. Special Taxes and Levies (Mello Roos)
$158 ………. Homeowners Insurance
$410 ………. Homeowners Association Fees
============================================
$10,694 ………. Monthly Cash Outlays
-$1614 ………. Tax Savings (% of Interest and Property Tax)
-$1847 ………. Equity Hidden in Payment
$726 ………. Lost Income to Down Payment (net of taxes)
$238 ………. Maintenance and Replacement Reserves
============================================
$8,197 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$19,000 ………. Furnishing and Move In @1%
$19,000 ………. Closing Costs @1%
$15,200 ………… Interest Points @1% of Loan
$380,000 ………. Down Payment
============================================
$433,200 ………. Total Cash Costs
$125,600 ………… Emergency Cash Reserves
============================================
$558,800 ………. Total Savings Needed
Property Details for 24 ROSE TRELLIS Irvine, CA 92603
——————————————————————————
Beds: 3
Baths: 3 full 1 part baths
Home size: 2,650 sq ft
($717 / sq ft)
Lot Size: 6,139 sq ft
Year Built: 2004
Days on Market: 6
Listing Updated: 40316
MLS Number: S617693
Property Type: Single Family, Residential
Tract: Ledg
——————————————————————————
This home features a unique Casita with it's own entrance and it's own full bathroom. Custom Goumet kitchen along with custom hardscape and salt water pool.
The realtor couldn't spell gourmet properly….
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
AP Top News at 8:35 a.m. EDT
(AP) – 52 minutes ago
WASHINGTON — Congress is getting tougher on both borrowers and lenders blamed for inflating a housing bubble that, when it popped, plunged the nation into a severe recession two years ago. Under sweeping financial overhauls that have now passed the House and Senate, home buyers won’t be able to get a mortgage without producing pay stubs or other evidence they can make their monthly payments. A new consumer watchdog will police lenders who offer impossible-to-resist subprime mortgages and then jack up the interest rates to impossible-to-pay levels.
You would think these laws would have been enacted in 2007 when things blew up. When I rented an apartment, the owner wanted to see my last pay stub. You would think a lender would want to do the same when suitcases full of money are involved in a housing transaction. I still shake my head at the complete lunacy surrounding us.
Oh wow! Pay stubs! DAY-YAM! These politicos are cleaning house! Pun intended!
How about their FHA Subprime Frankenstein? No talk of 20% down payments.
We are going to continue to push crappy mortgages on people but this time around we will check their pay stub! If they lose their job after the fact then that will just be unfortunate. Don’t think that way though! Be positive!
Lipstick on a pig reform.
Also known as:
http://www.crackthecode.us/images/government_solutions_inc.jpg
I’m waiting for the bills details. Likely removing most liability for the odious chore of checking the paystubs. Banksters: Checking is breaking my back. SOB SOB SOB
The future taxpayers will windup with the bill. $$
An Irvine map with an overlay of the FC houses will show what neigborhoods will be cleans of the excessive debt burden. Sometime people carry a removable heavy burden that slowly drags them down until they are deep under water. Some times another tries to rescue them, but also doesn’t every come up. Best to let go of the burden, i.e., cement block.
What?????
Pay stubs?
Great! Now we’ll have people falsifying….wait for it….pay stubs so that they can get that home of their dreams.
SUZANNE RESEARCHED THIS!!!
Maybe a combination of pay stubs and copy of tax returns, etc. might be in order, ya think?
Way to go Washington! Sharp as a tic-tac as usual.
$717/sq ft
wow
If you have cash homes that sold for $3M – $5M are going to be had at 50% off.
If you don’t have cash you are SOL. Even with the cash to drop $1.5 – $2.5M you need to want to live in one of these McMansions.
For most people the bottom in Irvine may have been 2009, as mortgage rates head lower. First with the euro debt crisis and then with the looming Chinese bubble. T-bills will set record lows. The bottom in less desirable areas with severe unemployment and future employment issues may be 10 years away. It pays to be in a prime safe haven location.
In a market crash, there are two kinds of properties: (1) those where the value has already crashed, and (2) those where the prices have not crashed yet. Buying properties that have not crashed yet is not a safe haven, it is buying a disaster waiting to happen.
There is no huge disaster waiting for those who bought in 2009 at rental parity.
Life is unpredictable, the only huge disaster would be related to something outside of housing.
You have a problem understanding micro and macro trends.
Again I encourage you to invest in Riverside or Las Vegas “cashflow” properties. You clearly know better and should make money from your insight. Otherwise it’s all BS or you are trying to sell something.
Given that this is the Irvine Housing Blog, I would be far better off peddling the BS about Irvine immunity. That would generate sales for me.
And yes, I fully intend to put money into Riverside County or Las Vegas cashflow properties.
Is this your way of saying you are investing $5K in an REIT? If not I hope you document your investment experience in desert property.
You may not like my contrarian view on interest rates, but so far I see it playing out exactly as I expected. Prime areas get a shot of steroids with rates and government subsidies, while economically challenged areas continue to decline.
Wasn’t PR the one who was claiming that the Irvine Shadow Inventory was a myth? I was expecting to see some denial over the 2700 figure or at least some kind of Irvine shall triumph chest thumping. Instead just seeing the usual blubbering about interest rates and the everything has gone as I have forseen wanker talk.
PR…then what would you invest in? Right now there’s no money coming back on interest rates, holding cash just might come back to bite you when…if inflation starts kicking in.
At least property is tangible….you could at least set a freaking tent on it if it came to that.
Shadow inventory by definition is a myth until it comes to fruition.
If interest rates continue to decline and stay low while supply is released at a pace that meets demand in Irvine the end result is elementary.
My view is contrarian. Buy US, Canadian, German, and Japanese bonds. Buy TIPS and buy MBS.
PR – so you think these folks who stop paying their mortgage and squat for a year are planning on curing their mortgage delinquincy just in time before the Sheriff arrives and therefore we cannot consider the house as inventory because the eviction has not yet come to fruition? You have your head in the sand.
PR, are you familiar with the concept of duration in regards to bonds.
It is basically shows how sensitive bond prices are to changes in interest rate. It is interesting that our contra view is to buy bonds wherein the flight to quality effects have been the greatest and current yields the lowest. As that flight to quality ends, the bond will fall significantly in price unless you believe that interest rates in US can lower than 3.4% on 10 year and sub 1% in Jpn.
Also, why recommend TIPS? If you believe inflation is coming, then you should avoid the above mentioned government bonds as they will fall in price.
Not sure how this is contrarian.
Also, MBS? If rates are super low right now, as rates rise, the duration of MBS will increase dramatically because people will not be incented to refi (one of the assumptions built in all MBS models.) So you will have increasing duration (basically increasing sensitivity of bond prices to rising rates) exactly as rates are rising, the worst possible combination.
The flight to quality has ended? It’s only just begun.
You need to take a course in reading comprehension.
Great reply! So I can raise my reading comprehension, let’s get a prediction out of you.
So from 3.2% current yield on 10 year US 1.3% current yield on JPN 10 year, what will the yield become before you unwind this position? IE, when will the flight to quality end since it has only begun. How many months and what yield? You keep asking IR to post his investing results, why don’t you also make a prediction as well as your investments.
My prediction is that we will hit record lows in the 10 year t-bill. If you took that course I recommended you would already know that.
In addition the longer the fed rate is held at 0% the closer we will get to a 100 bps spread for mortgage rates over the 10 year t-bill.
I’m hoping your math skills are better and you can figure out what that means for mortgage rates and Irvine prices.
I don’t expect Irvine Renter or most of the regulars here to understand since they have been predicting that interest rates will go to the moon since 2007.
My monthly payment on my 4 bedroom Riverside house, including taxes and insurance, is $868 a month. The 3 bedroom house next door to me is rented for $1,350 a month. A 2 bedroom house on my block is currently available for $1,100 a month.
Now, I’m certainly no pro, but those certainly seem like numbers that pencil out to significant monthly cash flow, even factoring in vacancy and maintenance and the like.
Great. So record was 2.1%. Time frame?
What about your jpn yield prediction and time frame?
As for 100 bps, current 30 year rate is about 4.75 and 10 year is about 3.2 so already more than 100 bps…but not what the yield spread had to do with keeping fed rates at zero…I couldn’t make your recommended course, scheduling conflict.
Significant money cash flow only until the renters are going to continue to pay. when rental properties abound and when renters can no longer afford due to economic hardships, rents drop but mortgages and taxes dont. Its going to get there sooner or later. WTF housing prices and WTF rental prices cannot be sustained for too long. Look at Irvine Co. already reduced rents and willing to go even lower.
Short the stock market long term instead of holding cash. Per Robert PRecther Elliott Wave, Dow Jones will be sub 1000 by 2016, EU will breakup in 2-years and Euro will cease to exist, next Japan and China will implode due to debt, US will be in depression due to inability to finance debt in next 3-years. Seriously, so far he has been bang on. This is why you want to buy home soon and start squatting soon after we lose jobs. If we are renting and lose jobs, guess we would be in shanties.
I can set a tent anywhere, including your front yard. All I need is my gun.
What “Reality” is predicting must be a
major deflationary period to
continue unabated as debt defaults
lead to Fisher style debt deflation.
That’s not at all out of the
question, but in my view, no one
is going to get filthy rich by
buying government debt in the next couple of years. It looks more like a strategy
for wealth preservation. Let’s say
I have $100K to invest and I
put it into treasuries. And let’s say the
interest rate drops from 3% to
1.5%. What will I have after two or three years?
Certainly not a vast fortune.
Now if I have $100M and I do the same
thing I will have earned several
average fortunes, and will have gotten even
filthy richer than I already am!
So this is strictly a rich man’s strategy for
getting richer.
If instead, a massive amount of
money is printed and a period of stagflation
commences (with the debt monetized), what I would need is to get the hell out of dollars and into
something that will preserve my assets, or even
appreciate during the interim.
If the Fed lucks out and brings the economy in for a soft landing with inflation
set just right to stimulate the economy without
causing stagnation, then increased
borrowing demand will drive up
interest, and anyone holding
long term debt will be left “holding the bag”.
Will real estate regain its status
as a place to put your money in an inflationary environment? I don’t know. That is
what this blog should be looking at
without any bias, and from a worldwide perspective.
Joe R.
I think that for me, holding short to medium
term dollar denominated investments
(e.g. bonds, munis, treasuries, CDs, money market,
insured bank deposits, etc) is the best strategy.
Holding stocks in retirement accounts with long-term horizons is also smart, as is owning
real estate with minimum debt.
For the stocks, diversify industries and have at least 1/4th in foreign stocks (weighted more to
Asia and the Americas and less to Europe).
Precious metals including metal etfs,
coins and mining stocks should be there, but
not excessive as the volatility
will drive you nuts. I think that gold
is overvalued based on the rate of inflation
and its historic price (probably about
double or more over when gold
was money in the US). Silver is
less overvalued over its historic
price, and a 20% drop would make it a buy
again based on the price inflation
model. Platinum and palladium
are far rarer and more in demand for
industrial use (palladium is nearing an all time high though).
The proportion of all of these in your
financial plan will vary with your
age and stomach for risk. The one thing
I’m avoiding is long term government
debt without inflation protection.
PR,
are you saying last year I could’ve bought a decent house in Irvine at rental parity? Like a 3-4 bd house with a garage and some kind of yard? Wow, have I missed the boat!?
I’d like to see an example though…
“It pays to be in a prime safe haven location.”
Yeah right. Irvine (or OC) is the “safe haven” until it is not. Remember the good old 80’s when everybody thought the mighty Japan Inc. was going to take over the world market. If you told someone in late 80’s/early 90’s that Tokyo condo price (or Nikkei) would eventually drop over 75% in the next 15 years, they would think you were a nut case – “look, Japanese economy is the strongest and fastest growing in the world, Tokyo is the center of the action and one of the most densely populated cosmopolitan cities in the world, and every one with some serious money wants a piece of it, and Tokyo RE never experienced a substantial market correction …. Yada, yada, yada….”
Now tell me what so special about Irvine again? 20 years ago Irvine was probably not even considered by many as a “prime location”. Just because of a housing bubble and some FCB cash all of a sudden Irvine morphed into a permanent “safe haven”??
Irvine RE market is being temporarily propped up by a bunch of wobbly sticks – gov’t subsidy, low rates, supply constriction, foreign buyers. In long run none of these are sustainable. And few of the local sectors look promising as source of job/income growth in the next 5-10 years. Not to mention the dire strait the State is in and the business-unfriendly environment in CA that’s not going to make things much better.
The bottom line is that the typical buyers in Irvine (or other better locations in OC) are middle or upper-middle class folks who support themselves by holding a job. So long as this fact does not change, there is nothing “safe” to speak of Irvine (or OC) housing market.
Irvine has always been a “prime location” since Day One.
I quit reading your post after that comment. Obviously you don’t know the Real Estate history of Irvine.
I lived in Irvine for a few years and though it was a nice place to live, but are you saying that Irvine is more ‘prime’ than Aliso Viejo or Laguna Niguel? If so, why?
I’m not saying you’re wrong, I’d just like to know some more details. IMO, they’re all nice places.
No one should stereotype Irvine (as far as residents’ income) as either rich, middle class, lower middle class…etc. Why? Because Irvine has all these INCOME classes of people. It has Shady Canyon for the supposed ubber rich, Turtle Rock and Ridge for the upper middle class, then Woodbridge… to Orange Tree area on the lower rungs. No one should expect a city of more than 210,000 residents to be all of the same income class. Only small enclaves throughout the country (similar to Beverly Hills, Hampton’s, some areas of Newport Coast, Crystal Cove) could be classified as really all rich. What Irvine does well is to provide (more or less) equal safety and good schools to all of its residents and therein lies its overall appeal. Aliso Viejo and Laguna Niguel are very nice overall but still has some not-so-good elementary schools and do not offer the same job opportunities as Irvine.
@lowrydr310:
1. More central to Orange County.
2. Has a UC.
3. Easy access to 405/5/55 without a toll road.
4. More diverse ethnic dining (not saying that is “prime” just a reason why some think Irvine has a higher “premium”)
5. School district.
6. FBI safety reports.
Much of this list can be said to be perception-based… but for many, perception is reality.
1. More central to Orange County.
2. Has a UC.
More a turn off than an advantage since every second community has to struggle with all the student parties and the crazy drivers in their tuned BMWs that compensate for other deficiencies
3. Easy access to 405/5/55 without a toll road.
Or, as I would phrase it, constant traffic noise, congestion and pollution
4. More diverse ethnic dining (not saying that is “prime” just a reason why some think Irvine has a higher “premium”)
5. School district.
6. FBI safety reports.
So in Irvine one car gets stolen and in Aliso two? Who cares?
Weak arguments.
Since Day One??? Wow. You got me here. I don’t even think NYC, SF or LA were a “prime location” since “Day One”. Always thought it takes a little time for a place to establish itself as a prime location.
Don’t get me wrong. I agree Irvine has always been a nice place to live for families. I was only questioning the validity of its being a permanent safe haven and completely immune to all economic malaise.
Go read…
http://www.ci.irvine.ca.us/about/history.asp
Not only have I lived in Irvine since ’87, but some of my neighbors have lived in Irvine since _before_ the City existed. In fact, when we rebuilt our house we had to pull the original drawings from the City.
As it turns out, my house was built when this was County, not City.
Now then, according to my neighbors, when my TR neighborhood was being built, alongside UCI, the prices were higher than in neighboring areas.
The Irvine Company always priced the area for upper middle class, unlike say, Huntington Beach, which has a lot more middle class neighborhoods.
In so far as anything South of the Y…. When Irvine was founded, the 405 was a highway, not a freeway. And even when it was built into an Interstate, the Y was always a huge block -even today. That meant that pricing South of the Y takes into account the additional half hour drive it takes to get to John Wayne.
So… not only have I lived in Irvine for over 23 years, but some of my neighbors predate the City and thus my information if first hand, from the original owners.
Oh, another thing.. the City of Irvine was a mid 20th century marketing concept by a very large landowner.
It did not grow as NYC, SF or LA. It did not have “organic” growth from a small outpost, but was instead laid out according to a “Master Plan” that envisioned a mid sized City with a UC (that’s a rather big score, huh), light industrial, close to a regional airport, parks, retail and residential. All built along villages.
Therefore, the marketing ensured that from “Day One” the pricing structure and lot design would be designed to attract the upper middle class. The Irvine Company was selling the residents into the Master Plan, even as the lots they were selling were smaller and overpriced compared with Costa Mesa, Huntington Beach, Tustin, etc…
I suppose that UP was a bit lower in the scale, say, “mid upper” middle class, but it still sold at higher prices then Garden Grove and Costa Mesa at the time.
Quite a marketing feat when you think that people had to drive south of the 55/405 interchange on a road, not a freeway.
I believe that at the time, only UP, TR and parts of Woodbridge existed. I’m not quite sure about Northwood, I think that came later.
Tonye,
Thanks for the very thorough explanation of the historical background of Irvine City. Very informative.
I have lived in OC and worked in Irvine for a dozen years but certainly do not possess the extensive knowledge of the area as you do. And this is very helpful. The nice thing about IHB is that it provides such a great forum for people to exchange info and ideas.
@tonye:
I think some parts of Northwood are a little older than Woodbridge. They were built at around the same time.
I live in Orange. I won’t buy in anywhere I can’t paint my house purple if I want to.
I can commute to a whole lot of locations in less than an hour even when traffic is bad.
I have WORKED in Irvine though (2 different jobs for over 15 years).
Joe R
FDIC running out of cash
Would have gone bust already if not for new “banking fees”
The spin is that the too big to fail banks are making record profits so there is reason for optimism.
There is a tidal wave of loans defaulting in both residential and commercial real estate washing ashore and they are optimistic because banks are borrowing money at 0% and loaning it to us for profit or buying treasuries. Notice the author of the article glazes over just how the banks are profiteering. The reader is just supposed to say “moo” and assume that the bank profiteering on village coffers is somehow good for him.
You relate: “There were 36 properties sold back to the bank, and 9 properties that were sold to third parties.”
On the 36, perhaps the banks, will have to book some amount of loss; that is perhaps they will have to write the property down to the purchase back price. Now those properties will either be vacant or will be leased out. Nationwide there is about a 12% vacancy rate; what a travesty and testament to overbuilding and to creative lending products and policies.
Washington Mutual was a toxic lender, as were so many in California; greed took over the lenders; yet the executives testified in Congress that none of the boom to bust cycle was their fault.
Come to find out, Washington Mutual was well known amoung home seekers for stated income loans, that is non-verified income loans … one simply walked in and state his income and got the loan.
Frankly, I wish I would have known of this entitlement … I would have not had to live in the homeless shelter … No one ever told me of stated income loans until I read of them recently on the internet. At first I had a hard time believing the truth of stated income loans; just as I had a hard time believing and understanding that FASB 157 was interpreted to mean that bank officers can value property at their best estimate rather than to market.
Planet Reality: “My view is contrarian. Buy US, Canadian, German, and Japanese bonds. Buy TIPS and buy MBS.”
Not really contrarian. Fixed-income investment is classic strategy for time like this (low rates and low inflation), but the question is, how long it will last.
Buying TIPS is the only thing that makes sense short to mid-term. Th emarket psychology turns on a dime, and buying low-yield bonds is safe as long term is short. If 10-year bond rates go to 5% or more one could lose a good % of his/her investment in bonds.
The Register.com is reporting that Central Park West has 21 sales in the low rises. The official grand opening is tomorrow. And no, I’m not interested in buying over there. Although I will probably go look at the models.
Website is amatuer look. Black background is very passe and hard to read.
The outside of one of the development looks like the low income apartments in N.Cal. bay area that were built 10 years ago. Some designer?
Or monkey see, monkey do. Back to the instant tentament look and feel of the late 1960’s to late 1980’s. UC Berkley’s school of architecture building or Boston city hall, which has the smell of urine. BCH of the worst designed building that I had to displeasure to visit.
I haven’t seen the place in person, but the promotional material makes it look nice. The prices don’t seem *too* horrible either; they appear to be priced in line with the current market, assuming the current sales trends continue (yet out of my budget). What are the HOA fees like? Mello-Roos?
IMHO: Some of the smaller townhouses were McStackers, narrow and multiple floors (outside looks like lower income housing units). Very tight stairs not very good for older folks or those with younger kids–more student like. The towers were nice. Good sound insulation to the I-405 but they had either the AC turned up (wind noise) or music playing.
Quality of construction was dependent upon the building, i.e., $. I like the lay-out of the towers, which as good for a couple with maybe 1 or 2 kids at most. Good floor plan for rooms, kitchen, and bathroom. Towers design were more like East coast higher end “apartment” that is high end condo in CA. Not bad with one with HOA of $700 with utilities except electricity, cable and internet. HOA cost and what utilities included varied between buildings.
bkshopr?
Gotta love inefficient markets like residential real estate. So how do we get to all that “squatter inventory”?
Hey Irvinerenter. Back in 2008 you had sent me information over how you come up with cost of ownership and monthly payments. Could you please send again? My computer HD fried and I lost all data. Would you please send it to me again.
On to housing, I think FHA is great. There are lots of first time homebuyers including myself. Why pay more downpayment when Govt. is going to allow us to buy a home for only 3.5%? My thought process is that home values will continue to decline for several years and chances of most of us losing our jobs are huge. Knowing no matter how cheap a home we buy today or in next 6 months, we will lose money. I say lets pass the buck to the Govt. too, this would be our way of saying “Thank You” in the future if things collapse which is highly likely.
I think we are in for a major global crash here within 2-3 years. Sovergin Default has started in Europe. First we will see blowup of European Union, then Euro, tide will turn to Japan, and soon to US. No one has money or appetite to buy Govt. debt and this spiral is going to get a lot worse in coming months to years.
Something to think about. I know Mega Tsunami is heading our way, I just want to taste homeownership while I can without risking too much capital. If I end up in dumps, I will recover my downpayment by squatting. Situation of inventory will get a lot worse.
I smile when I hear “Cash investor scooped the house” these folks are going to be bag holders in years to come.
ochomehunter,
Are you kidding? See my prior formula on the ROI on the BO FHA stimulus package for free rent via squatting. Maybe a name change to FHA unemployment insurance might be more appropiate. But then again, the insurance would be free. FHA bonus package (no unemployment necessary for squatting benefits).
“I smile when I hear “Cash investor scooped the house” these folks are going to be bag holders in years to come.”
Touché.
Irvinerenter, another thing I forgot to mention. THe reason I want to buy in next 6-months is that I am still employed and get paid well, future looks bleak in construction industry. If I can get into a home now, it will guarantee on thing for sure, if I stop paying in the future due to loss of employment, at least one thing is for sure that my eviction will come after millions of folks who have been squatting ahead of me. THe clogged pipeline will allow me to stand in line and laugh all the way.
Immoral or not, we should all get into expensive homes (at least what we can afford) and not wait for things to come to us. THe thing is that by the time we get inventory and affordability, we may not have a job. LOL
Brilliant idea. In today’s environment this is about the best hedging I have heard so far. If price goes up, you win. If price goes down, you recoup the loss on 3.5% down payment (or even make a few bucks) by squatting. You can’t lose.
Question for the group…
What if the US and CA in particular enter a long term (think Japan) deflationary cycle? There is no hurry in my mind to buy anything. I think prices for housing – even in Irvine could be flat or grind lower for 10 yrs plus! In Japan it has been 20+. The Nasdaq is half its value from 2000! How fast time flys…
What do you think?
my .02 – B
“This home features a unique Casita with it’s own entrance and it’s own full bathroom.”
Really? It comes with it is own entrance and it is own full bathroom?
Yeah… we toured those models when they were new.
The Casita is a stupid idea in such a small house. In essence, as you walk up you can go left or right. If you go one way you come into a small room with its own baths. The other way you walk into the house proper. Thus, to go from the main house to the Casita you have to go right outside the front door.
This may make sense at the Hearst Castle when you got your basic 50000 main house and some 10 2000 bungalows (casitas now), but in a McMansion like this it’s ridiculous. Unless, of course, you plan to rent it out to some rich UCI student.
I that as the designers moved from Mexico to Italia they went with “loggias”.
Stupid is as stupid does.
The only difference between foreclosure houses and normal houses is the price and foreclosures are a great investment opportunity for real estate.