The following headlines suggest the market will not bottom in 2012:

• Chapman: Excessive supply prevents appreciation in 2012
• Mortgage delinquencies expected to rise into 2012
• Surge in discounted REO expected next year

I am not the only market observer who has come to this conclusion.

Home Address … 90 LEHIGH AISLE #58 Irvine, CA 92612

Asking Price ……. $449,000

Real estate recovery in limbo until 2013, experts say

This year was supposed to be the bottom for the housing market and 2012 was supposed to mark the turnaround.

Really? Is that on the authority of realtors who call the bottom every year? Nobody with any credibility was calling the bottom in 2012, and anyone who did no longer has any credibility.

In reality, even the improvements sound like bad news, and some forecasters are saying we'll have another year of gloom before the clouds break.

Yes, the forecasters who have a clue what's really going on are looking at the buildup of inventory, weak sales, increasing delinquencies and forecasting continued falling prices.

“It's unlikely prices will rise next year in most markets,” said Jed Kolko, chief economist at real estate information site Trulia. “By that measure most local markets will not recover next year, but prices are only one measure of how the housing market is doing.”

While it's true that price recovery is only one measure of the health of the housing market, it is the only one most loan owners care about. Sales volumes will likely increase in 2012, but that is going to come from investors buying low-priced houses.

American home values are likely to shed $681 billion this year, according to Zillow. That's better than the $1.1 trillion lost in 2010, but hardly worth breaking out the bubbly.

In a nutshell, that's the problem with the housing market today. Even the good news is relative, and a true recovery is still at least a few quarters away.

“[T]he unabsorbed pool of housing supply, dragging levels of consumer confidence, high unemployment and negative equity will continue to put downward pressure on the housing market, pushing our expectation for a potential recovery into late 2012 or early 2013,” Stan Humphries, chief economist at real estate research company Zillow Inc., said in a statement.

Data company CoreLogic estimates there is a “shadow inventory” of 1.6 million homes, which is the biggest drag on prices.

Basically, supply of motivated sellers is going to overwhelm the weakened demand. No matter how you describe it, aggressive supply meeting weak demand results in lower prices.

“Foreclosures lead to very motivated sellers, which will have a destabilizing effect on prices,” said Nicolas Retsinas, professor of real estate at Harvard Business School. The sluggish pace of foreclosures — hampered by the robo-signing scandal, ongoing investigations and litigation — have stalled the movement of those homes back into the market.

None of the market props or processing delays have helped the market bottom. In fact, these circumstances have done nothing other than delay the bottom.

Data on the number of sales is more promising.

In November, sales of single-family homes hit a seven-month high. Sales rose 1.6 percent for the month, and 9.8 percent over the past 12 months.

But these figures are climbing back from abysmal depths; the National Association of Realtors thjs week lowered its figures on the number of homes sold between 2007 and 2010 by nearly 3 million, down to 17.7 million.

The silver lining in the NAr revisions is that sales comparisons now look better. Volume is improving which is to be expected with lower prices. Further increases in sales volumes are required to clear out the supply.

“With a highly leveraged housing bust, you haven't seen that increase in residential investment in spite of low interest rates,” said Ted Gayer, a senior fellow at Brookings Institution.

Slack demand for existing homes also means fewer buyers for new homes. Home building has traditionally been the tow truck that pulls the economy out of the mud, but with so many empty houses and so few people moving into them, that's not the case this time around.

With an entire industry sitting on the sidelines, our economy continues to suffer. Employment in homebuilding and related industries is not improving much.

“It's not a demand problem,” Gayer said. “When you have such a huge excess supply it doesn't really get at the problem.”

Even though interest rates are at record lows, a tight credit market is keeping people who do want to buy on the sidelines, said Retsinas. Lower rates of household formation — fewer immigrants and more adult children still living with their parents — also quash demand.

The tight credit meme is consistently reported incorrectly. While it's true that people who want to buy can't, it's only the people who want to buy who aren't qualified that are being denied. They should be denied credit. They won't pay it back. We have credit standards to establish who will repay loans, not to see who wants a home.

Despite these headwinds, there are glimmers of hope.

Have you noticed that hope only comes in glimmers? The light at the end of the tunnel is not very clear or bright.

Kolko said an uptick in multifamily construction and remodeling, while not as strong as the traditional home building engine, will still provide construction-sector jobs in the near term. Longer term, more multifamily dwellings on the market will alleviate the increase in rents happening now, potentially giving people more breathing room to save for a home purchase in the future.

I can assure you, the people developing multifamily right now are not anticipating a weakening in rents. Further, weakening rents will keep more buyers on the sidelines because it impacts rental parity. Without the pressure of increasing rent, many potential buyers will simply wait and continue to rent.

And a few parts of the country might catch a break next year. Kolko said California's Silicon Valley, along with much of Texas and New England, are starting to recover due to their employment levels or because the housing bubble wasn't as pronounced there in the first place. The rest of us will just have to hope for better luck in '13.

The housing bubble was not as pronounced in California's Silicon Valley? LOL! Failure to deflate is not a sign that prices didn't bubble.

The housing market will likely not bottom in 2012. Fall 2012 or the winter of 2013 perhaps, but the spring rally of 2012 — if we get one — will not mark the bottom of the housing bust.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 90 LEHIGH AISLE #58 Irvine, CA 92612

Asking Price ……. $449,000

Beds: 2

Baths: 2

Sq. Ft.: 1682

$267/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

View: Tree Top

Year Built: 1988

Community: University Town Center

County: Orange

MLS#: S653494

Source: CRMLS

On Redfin: 270 days

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If you favor contemporary design, are creative & imaginative, then you will fall in love with the open, airy atmosphere that this modern 2BR/2BA + loft/office/guest/game room provides. You will appreciate the modern, angular lines in this centrally located townhome & will enjoy highlighting your artwork, sculptures & furnishings within this unique space. The living, dining, & kichen areas are open and can accomodate both intimate & large gatherings. The loft skylights have retractable shades to provide as much sunlight & /or shade as the occasion calls for(as a guest room or game room). The oversized master bedroom w/ large picture windows views out to treetops & greenery below bringing the outside in. The spacious junior bedroom can accomodate a queensize bed if needed. There are doors out to a large covered balcony from both the living & secondary bedroom areas for al fresco dining or a quiet moment after a day's work. Walk to Trader Joe's, the Farmer's Market, the Cinema, shops & eateries

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Proprietary commentary and analysis

Asking Price ……. $449,000

Purchase Price … $224,000

Purchase Date …. 7/22/1994

Net Gain (Loss) ………. $198,060

Percent Change ………. 88.4%

Annual Appreciation … 3.9%

Cost of Home Ownership

————————————————-

$449,000 ………. Asking Price

$15,715 ………. 3.5% Down FHA Financing

4.02% …………… Mortgage Interest Rate

$433,285 ………. 30-Year Mortgage

$135,001 ………. Income Requirement

$2,074 ………. Monthly Mortgage Payment

$389 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$94 ………. Homeowners Insurance (@ 0.25%)

$498 ………. Private Mortgage Insurance

$433 ………. Homeowners Association Fees

============================================

$3,488 ………. Monthly Cash Outlays

-$322 ………. Tax Savings (% of Interest and Property Tax)

-$622 ………. Equity Hidden in Payment (Amortization)

$22 ………. Lost Income to Down Payment (net of taxes)

$76 ………. Maintenance and Replacement Reserves

============================================

$2,641 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$4,490 ………. Furnishing and Move In @1%

$4,490 ………. Closing Costs @1%

$4,333 ………. Interest Points

$15,715 ………. Down Payment

============================================

$29,028 ………. Total Cash Costs

$40,400 ………… Emergency Cash Reserves

============================================

$69,428 ………. Total Savings Needed

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Personal writing

I have written my last real estate post for the Irvine Housing Blog. My last four posts will not focus on real estate. If reading about my feelings of community and experiences growing up interests you, please stop by over the next four days. If not, it was a pleasure serving you over the last five years. I hope to see you on my new blog the OC Housing News.

Bankers foster the idea that strategic default on a primary residence is immoral. Bankers want borrowers to continue to repay loans even when it is not in the borrower's best financial interest to do so. I and many others have argued borrowers have a greater moral duty to do what's in the best financial interest of their family. Obviously, bankers disagree.

Home Address … 1229 ABELIA Irvine, CA 92606

Asking Price ……. $319,900

In reality, this isn't a moral issue at all. It's all about money. Bankers want to make money, and making moral arguments is a stigma of convenience. If they were on the other side of the transaction, they would make the opposite point. I know this because they were on the opposite side recently, and they did make the opposite choice. The mortgage banker's association defaulted on the loan on their own headquarters! So much for the greater moral duty to keep their word and their written agreements.

Living By Default

by James Surowiecki December 19, 2011

We normally say that a company “went bankrupt,” implying that it had no choice. But when, recently, American Airlines filed for bankruptcy, it did so deliberately. The airline had four billion dollars in the bank and could have kept paying its bills. But it has been losing money for a while, and its board decided that it was foolish to keep throwing good money after bad. Declaring bankruptcy will trim American’s debt load and allow it to break its union contracts, so that it can slim down and cut costs.

American wasn’t stigmatized for the move. Instead, analysts hailed it as “very smart.” It is now generally accepted that when it’s economically irrational for a company to keep paying its debts it will try to renegotiate them or, failing that, default. For creditors, that’s just the price of business. But when it comes to another set of borrowers the norms are very different. The bursting of the housing bubble has left millions of homeowners across the country owing more than their homes are worth. In some areas, well over half of mortgages are underwater, many so deeply that people owe forty or fifty per cent more than the value of their homes. In other words, a good percentage of Americans are in much the same position as American Airlines: they can still pay their debts, but doing so is like setting a pile of money on fire every month.

These people have no hope of ever making a return on their investment in their homes. So for many of them the rational solution would be a “strategic default”—walking away from the mortgage and letting the bank take the house. Yet the vast majority of underwater borrowers keep faithfully paying their mortgages; studies suggest that perhaps only a quarter of all foreclosures are strategic. Given how much housing prices have fallen, the question is why more people aren’t just walking away.

Part of the answer is practical. Defaulting (even in so-called non-recourse states) is still a lot of trouble, and to most people it’s scary.

In addition, homeowners are slow to recognize how much the value of their homes has dropped, and have inflated expectations of how much it will rise in the future.

The biggest hurdle, though, is social: while companies get called “very smart” for restructuring their contracts, there’s a real stigma attached to defaulting on your mortgage. According to one study, eighty-one per cent of Americans think it’s immoral not to pay your mortgage when you can, and the idea of default is shaped by what Brent White, a law professor at the University of Arizona, calls a discourse of “shame, guilt, and fear.” When the housing bubble burst, the banking industry was terrified by the possibility that homeowners might walk away en masse, since that would have stuck lenders with large losses and a huge number of marked-down homes. So strategic default was portrayed as the act of dishonorable deadbeats. David Walker, of the Peterson Foundation, waxed nostalgic about debtors’ prisons, and John Courson, the head of the Mortgage Bankers Association, argued that defaulters were sending the wrong message “to their family and their kids and their friends.”

Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.

When it comes to debt, then, the corporate attitude is do as I say, not as I do. And, while homeowners are cautioned to think of more than the bottom line, banks, naturally, have done business in coldly rational terms. They could have helped keep people in their homes by writing down mortgages (the equivalent of the restructuring that American Airlines’ debt holders will now be confronting). And there are plenty of useful ideas out there for how banks could do this without taxpayer subsidies and without rewarding the irresponsible. For instance, Eric Posner and Luigi Zingales, of the University of Chicago, suggest that, in exchange for writing down mortgages in hard-hit areas, lenders would take an ownership stake in a house, getting a percentage of the capital gain when it was eventually sold. Lenders, though, have avoided such schemes and haven’t done mortgage modifications on any meaningful scale. It’s their right to act in their own interest, but it makes it awfully hard to take seriously complaints about homeowners’ lack of social responsibility.

Of course, many borrowers made bad decisions and acted irresponsibly. But so did lenders—by handing out too much money and not requiring sensible down payments. So far, banks have been partially insulated from the consequences of those bad decisions, because Americans have been so obliging about paying off overinflated mortgages. Strategic defaults would help distribute the pain more evenly and, if they became more common, would force lenders to be more responsible in the future. It’s also possible that a wave of strategic defaults—a De-Occupy Your House movement—would get banks to take mortgage modification more seriously, which would be all for the better. The truth is that banks have been relying on homeowners to do the right thing. It might be time for homeowners to do the smart thing instead.

Underwater borrowers who are paying more each month than a comparable rental have a choice to make. Either accept the arguments of bankers, keep paying the mortgage, and flush the money down the toilet; or they can do what's best for their family and tell the bankers to shove that mortgage up their a$$.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 1229 ABELIA Irvine, CA 92606

Asking Price ……. $319,900

Beds: 1

Baths: 2

Sq. Ft.: 1310

$244/SF

Property Type: Residential, Condominium

Style: 3+ Levels, Contemporary

Year Built: 2006

Community: Columbus Grove

County: Orange

MLS#: P806493

Source: CRMLS

Status: Active

On Redfin: 5 days

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A charming 1 Bedroom, 1.5 Bathroom Townhome in Irvine. On the second floor of this home you will find the 1.5 bath, living room, kitchen and den/office. On the third floor you will find the large master bedroom with wood like flooring, spacious master bathroom and walk in closet. This home features a balcony on the second floor and an attached 1 car garage.

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Proprietary commentary and analysis

Asking Price ……. $319,900

Purchase Price … $222,500

Purchase Date …. 11/10/1997

Net Gain (Loss) ………. $78,206

Percent Change ………. 35.1%

Annual Appreciation … 2.6%

Cost of Home Ownership

————————————————-

$319,900 ………. Asking Price

$11,197 ………. 3.5% Down FHA Financing

4.02% …………… Mortgage Interest Rate

$308,704 ………. 30-Year Mortgage

$90,242 ………. Income Requirement

$1,477 ………. Monthly Mortgage Payment

$277 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$67 ………. Homeowners Insurance (@ 0.25%)

$355 ………. Private Mortgage Insurance

$155 ………. Homeowners Association Fees

============================================

$2,331 ………. Monthly Cash Outlays

-$229 ………. Tax Savings (% of Interest and Property Tax)

-$443 ………. Equity Hidden in Payment (Amortization)

$16 ………. Lost Income to Down Payment (net of taxes)

$60 ………. Maintenance and Replacement Reserves

============================================

$1,734 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,199 ………. Furnishing and Move In @1%

$3,199 ………. Closing Costs @1%

$3,087 ………. Interest Points

$11,197 ………. Down Payment

============================================

$20,682 ………. Total Cash Costs

$26,500 ………… Emergency Cash Reserves

============================================

$47,182 ………. Total Savings Needed

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Borrowing costs are likely to increase in 2012 for a variety of loans. The lower conforming limit will push many borrowers to either the FHA or the jumbo market where borrowing costs are higher. The FHA may also raise its borrowing costs again to cover the inevitable losses from the ongoing decline in home prices. Further, the new rules on conforming mortgages will push up costs on loans which do not conform.

Home Address … 44 BLUE HERON Irvine, CA 92603

Asking Price ……. $13,900,000

The result of higher borrowing costs will be greater pressure on home prices. If borrowing costs go up, affordability declines, and it's only affordability which will put a floor beneath home prices.

New rules would raise mortgage costs

By JEFF COLLINS / THE ORANGE COUNTY REGISTER — December 16, 2011

Cameron Findlay is the chief economist at LendingTree.com, working out of the Charlotte firm’s Irvine office. responsible for risk management, hedge strategy and analytics. He is the firm’s principal representative in Washington, D.C., involved in mortgage industry reform. We asked him for his take on the mortgage market these days …

Us: What’s going on with the current mortgage market?

Cameron: There is a battle ensuing between Fannie Mae and Freddie Mac vs. the Federal Housing Administration in terms of market share.

Just take loan limits as an example. For Fannie and Freddie loans, the local loan limit is set at $625,500. For FHA loans, those limits are actually $729,750.

The translation for high-cost regions like Orange County, the government is committed to reducing the number of Fannie and Freddie loans, and the volume we expect will be diverted to FHA as consumers look to secure higher loan limit loans. In short, there is confusion for both lenders and borrowers which inhibits the loan origination process and increases cost.

The reduction in Fannie and Freddie loan limits from $729,750 to $625,500 on Oct. 1 was particularly significant because 28 percent of the homes impacted nationally are located right here in California.

I don't believe this is competition or confusion. The government wants to pull back from its subsidies to stop from losing even more money, by leaving the option open to use FHA financing, they can provide some support for the more expensive homes, but at a higher borrowing cost. This should encourage private lending in the jumbo loan market to enter this space.

FHA loans with their insurance premium of 1.15% is more expensive than a competing jumbo loan. Of course, the jumbo loan will require 20% down and the FHA loan only requires 3.5% down, so many will chose FHA loans anyway because they won't have another choice.

Whatever choice the borrower makes, it will carry a higher cost which will reduce the size of the available mortgage. Smaller mortgages make for lower prices.

Us: What’s the outlook for mortgages in 2012?

Cameron: Qualification will continue to play a central role in the first half of the year when regulators are expected to release the definition of a “Qualified Residential Mortgage.”

The cost of borrowing may rise as much as 1.25 percent for those who do not qualify for a QRM. Clearly this would be detrimental to existing home prices and reduce the market’s ability to clear existing inventory.

That is only half true. It is detrimental to existing home prices, but it doesn't reduce the market's ability to clear the inventory. Lower prices will do that.

Being an election year, there may not be much new policy agreed to. We expect policies already in place to be central to election results. This may drive government intervention to further stimulate improvement or at least stability in housing.

I agree that legislation in an election year is not likely, particularly since the two parties can't agree on much. But given the perceived need in Washington to support home prices, something may emerge from Washington which further distorts the market.

Us: UCLA forecast that these historically low rates will last two more years? Do you agree? How long do you think they’ll last?

Cameron: Mortgage rates have bottomed out despite additional monetary easing from the Federal Reserve. Any additional efforts by the Fed to stimulate mortgage rates lower will have only a marginal improvement on increasing the number of borrowers who are eligible for a loan or refinance.

We expect low rates to prevail for less than 24 months, by which time it is expected regulatory influence will begin to push rates higher. The increased transparency any private label investment in mortgages would require implicates a risk premium that will be passed onto borrowers.

That's a reasonable assessment. Over the next 18 to 24 months, interest rates will likely remain low. Just when it looks like prices have found a bottom, higher interest rates will reduce affordability and stop any meaningful appreciation.

People say that mortgages were too easy to get in the boom, and now they’re too hard. Has the pendulum swung too far?

The pendulum for qualification was previously built on the concept of creative and unstable loan. Existing loan types today are primarily Fannie, Freddie or FHA-qualified loan types, meaning lenders are very cautious about qualifying a borrower.

For sustainable, long-term growth, you need a solid foundation. Today, the market, in collaboration with government oversight, is still clearing the rubble and defining that foundation.

In other words, no, the standards are not too tight.

Standards are finally reasonable again. Only if lenders get stupid, take on excessive risk, or innovate again will we see stupid loan standards and possibly another bubble.

The concern we have expressed is the constant market shock of changing rules will result in adverse market condition premiums that will be passed onto borrowers in the form of higher rates.

Us: How long will this tight-money climate last?

Cameron: The “tight-money climate” will remain in place until private label investment deems mortgages are a risk-worthy investment, which cannot happen as long as the government is buying all of the supply at a market premium to synthetically suppress mortgage rates.

Exactly. The entire mortgage market today is government backed. Private lenders are unwilling to loan at the interest rates backed by government loan guarantees, so we have a completely artificial government-backed interest rate sustaining current pricing.

The government is fully aware that consumption (which is about 70 percent of GDP) is driven by confidence, and without support for housing initiatives, this will risk reducing growth targets not only for mortgages but the broader economy.

Clearly, underlying this issue is the labor market. Jobs creation will be central to any improvement. Focus will need to be on both the cyclical unemployment rate and the structural unemployment concerns that takes into account the skills loss that results in lower-paying jobs and reduced income.

Job creation and household formation are essential to the recovery of the housing market. We need qualified borrowers taking on plain-vanilla debt to absorb the homes being vacated by toxic mortgage holders.

Us: Who’s getting these historically low interest rates, the rich, or cash-strapped homeowners who need them the most?

Cameron: Qualification has mainly been restricted by loan to value or FICO score constraints vs. a focus on debt to income, or higher-income households. Access to credit is being restricted by the loss of equity and home devaluation over the past five years.

The recent Home Affordable Refinance Program 2.0 program was designed specifically to focus on high loan-to-value borrowers. Although it is expected to help, it will still only assist less than 10 percent of the market.

He didn't answer the question about who benefits, so I will. The primary beneficiaries of the low interest rates are prudent borrowers who were able to refinance, and new buyers purchasing in areas like Las Vegas where prices are well below rental parity.

The people who have not benefited from the low rates are the buyers who paid much more than rental parity to take advantage of the low rates. Those knife catchers have watched the values continue to decline despite the bargain rate they got.

The other group that has not benefited are the deeply underwater who did not strategically default because they got a loan modification or took advantage of the new GSE program allowing deeply underwater borrowers to refinance. This group believes they've been helped, but they have merely extended their pain.

The bottom line is that increased borrowing cost is going to continue to put pressure on home prices. With the additional inventory coming next year from B of A and other lenders, I expect prices to continue to decline.

Did Shady Canyon appreciate 35% since 2008?

The owner of today’s featured property believes his property has appreciated 35% since early 2008 when he bought. The rest of the market has declined about 20% since then. Is it reasonable to think this house went the other way?

Some say the rich get richer, but only if a greater fool comes along to pay a lot more for an already overpriced house.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 44 BLUE HERON Irvine, CA 92603

Asking Price ……. $13,900,000

Beds: 5

Baths: 8

Sq. Ft.: 11441

$1215/SF

Property Type: Residential, Single Family

Style: 3+ Levels, Farm House, Mediterranean

View: Canyon, City Lights, City, Golf Course, Mountain, Panoramic

Year Built: 2006

Community: Turtle Rock

County: Orange

MLS#: U11003550

Source: CRMLS

On Redfin: 127 days

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This Shady Canyon custom home resides upon one of the community s most desirable elevated lots and captures breathtaking panoramas of the canyon, golf course, and mountains in the distance. Its preferred siting affords wonderful privacy throughout the residence and its grounds. Extraordinary design and materials have been brought together, creating the substance and distinction that are the hallmark of this home. Throughout the spacious interiors, the carefully selected finishes contribute to a feeling of quality, warmth and comfort. Impressive, yet eminently livable, no other home offers such a unique combination of setting, space, views and privacy. The house is complemented by nearly an acre of amazing gardens, terraces, multiple outdoor living areas, and an outdoor kitchen facilities ideal for entertaining or enjoying the exceptional views and tranquil setting.

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Proprietary commentary and analysis

Asking Price ……. $13,900,000

Purchase Price … $10,250,000

Purchase Date …. 4/8/2008

Net Gain (Loss) ………. $2,816,000

Percent Change ………. 27.5%

Annual Appreciation … 8.2%

Cost of Home Ownership

————————————————-

$13,900,000 ………. Asking Price

$2,780,000 ………. 20% Down Conventional

4.02% …………… Mortgage Interest Rate

$11,120,000 ………. 30-Year Mortgage

$2,685,524 ………. Income Requirement

$53,217 ………. Monthly Mortgage Payment

$12047 ………. Property Tax (@1.04%)

$667 ………. Special Taxes and Levies (Mello Roos)

$2896 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$550 ………. Homeowners Association Fees

============================================

$69,376 ………. Monthly Cash Outlays

-$4311 ………. Tax Savings (% of Interest and Property Tax)

-$15965 ………. Equity Hidden in Payment (Amortization)

$3892 ………. Lost Income to Down Payment (net of taxes)

$1758 ………. Maintenance and Replacement Reserves

============================================

$54,750 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$139,000 ………. Furnishing and Move In @1%

$139,000 ………. Closing Costs @1%

$111,200 ………. Interest Points

$2,780,000 ………. Down Payment

============================================

$3,169,200 ………. Total Cash Costs

$839,200 ………… Emergency Cash Reserves

============================================

$4,008,400 ………. Total Savings Needed

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The loan limit on FHA loans is now $729,750. The venerable FHA which was founded to provide loans for low to middle income Americans is now being used to subsidize the mortgages and the house prices of high wage earners in places like Irvine.

Home Address … 76 VINTAGE Irvine, CA 92620

Asking Price ……. $499,000

The government should get out of the housing market. Even the government knows this, but when removing its support causes house prices to weaken, so does the resolve of those in government to get out of the housing market.

Obama signs extension for higher FHA loan limits

Should you or shouldn't you?

On principle, I wouldn't want to use an FHA loan above $417,000. In reality, I might.

Even now, I take advantage of government-backed loans to buy properties being rented to government subsidized renters. My moral aversion to government intervention aside, if that is the only game in town, I will play it if necessary. And it is necessary to buy a property these days.

In late 2013, I will probably buy a house, hopefully in Irvine. Since I am spending all my money on cashflow properties, I probably won't have 20% to put down on a property. I may use an FHA loan.

I recognize this is one more government prop which when removed will likely result in diminished demand and lower prices, but if I don't have 20% to put down, it may be the only option I have. I know I am not alone in this regard.

At low interest rates, many people who live and rent in Irvine could afford a mortgage greater than $417,000 or even $625,000. Many of those people will use FHA loans over the next two years, and their buying will provide some artificial support to prices.

Sometimes I wonder if the government props will ever be removed. If I wait until they all are, I may not buy a house in my lifetime. Many of these props may never go away. It's not the market I want to operate in, but it is the only housing market we have. If you want to own, you have to deal with it.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 76 VINTAGE Irvine, CA 92620

Asking Price ……. $499,000

Beds: 3

Baths: 4

Sq. Ft.: 2100

$238/SF

Property Type: Residential, Condominium

Style: Two Level, Spanish

View: City Lights, Park/Green Belt, Trees/Woods

Year Built: 2005

Community: Woodbury

County: Orange

MLS#: P802615

Source: CRMLS

On Redfin: 41 days

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ELEGANT 2 STORY TOWNHOME IN WOODBURY COMMUNITY. 2 MASTER BEDROOMS WITH RETREAT & SPACIOUS BATHROOMS, OVERSIZE BATH TUB & SEPARATE SHOWER. WOOD FLOORING THROUGH-OUT, GRANITE COUNTER TOPS, CHARMING FORMAL LIVING ROOM WITH COZY FIREPLACE. CONVENIENT LOCATED WITH LOT OF COMMUNITY AMENITIES, NEAR BY MARKETPLACE, AIRPORT & UCI.

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Proprietary commentary and analysis

Asking Price ……. $499,000

Purchase Price … $800,000

Purchase Date …. 5/12/2006

Net Gain (Loss) ………. ($330,940)

Percent Change ………. -41.4%

Annual Appreciation … -8.1%

Cost of Home Ownership

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$499,000 ………. Asking Price

$17,465 ………. 3.5% Down FHA Financing

4.02% …………… Mortgage Interest Rate

$481,535 ………. 30-Year Mortgage

$154,155 ………. Income Requirement

$2,304 ………. Monthly Mortgage Payment

$432 ………. Property Tax (@1.04%)

$317 ………. Special Taxes and Levies (Mello Roos)

$104 ………. Homeowners Insurance (@ 0.25%)

$554 ………. Private Mortgage Insurance

$271 ………. Homeowners Association Fees

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$3,982 ………. Monthly Cash Outlays

-$511 ………. Tax Savings (% of Interest and Property Tax)

-$691 ………. Equity Hidden in Payment (Amortization)

$24 ………. Lost Income to Down Payment (net of taxes)

$82 ………. Maintenance and Replacement Reserves

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$2,886 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$4,990 ………. Furnishing and Move In @1%

$4,990 ………. Closing Costs @1%

$4,815 ………. Interest Points

$17,465 ………. Down Payment

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$32,260 ………. Total Cash Costs

$44,200 ………… Emergency Cash Reserves

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$76,460 ………. Total Savings Needed

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In Los Angeles and Orange Counties, the conforming loan limit dropped from $729,750 to $625,000 on October 1, 2011. Many market bulls claimed this would have no effect on sales. In November sales of houses with loans between $625,000 and $729,750 declined 84% as compared to last November. So much for having no impact.

Home Address … 25 WILD Trl Irvine, CA 92618

Asking Price ……. $622,990

In other news, the falling prices are beginning to motivate some buyers as evidenced by the small increase in sales volume. Falling prices and increasing sales are prerequisite to forming a durable market bottom.

SoCal home sales rise on declining prices

Back in August when the lowering of the conforming limit was all but certain, Jaysen Gillespie a the Global Decision Analytics blog took a look at its impact: New lower conforming loan limit impact on Irvine, CA.

The above chart shows the distribution of home prices for all sales under $2M in Irvine, CA from 1/1/2010 through 7/31/2011. Irvine, CA is an expensive sub-market of an expensive region (Southern California). As a result, it is likely to feel any impact from lower conforming home limits more than most other places.

With that in mind, we’ve identified two potential price ranges that could be most impacted by the new limits. The green band represents homes that have selling prices where a 3.5% down payment represents a loan between the old limit ($729,000) and the new limit ($625,000). These properties represent 13.0% of all home sales in Irvine, CA. For the taxpayer’s sake, let’s hope that not many of the buyers in this price range are using only a 3.5% down payment. Those buyers are likely to be underwater soon as we predict continued downward drift in higher end home values in Southern California. These buyers represent one end of the spectrum.

On another point (but not the end, which would be “all cash” buyers) of the spectrum, we have buyers who put down 20%. At current Irvine, CA valuations, this is a substantial down-payment of around $170,000. For this level of royalty, we’ve used a purple band in the chart above. Using a 20% downpayment, 8.4% of sales in Irvine, CA would be impacted by the gap between the old and new conforming loan limits.

These are estimates — buyers in the green and purple bands have a few options. In order of long-term common sense for the buyer they are:

1. Pay less. Leverage seller fear that the loan limits really will reduce demand and correspondingly demand a lower price.

2. (tie) Put more down. Buy down the loan amount so that it becomes conforming.

2. (tie) Delay the purchase. The price-lowering impact from this change will be slight, but will occur over time. With an ongoing slow economy and prices above rental parity, there are no upward drivers for Irvine, CA home values.

3. Use “creative” financing. Pay the asking price but increase your monthly carrying cost for the term of the debt obligation.

As Jaysen noted, 20% of the Irvine market is impacted by the lowered limits, and that band just experienced an 84% decline in loan origination. No wonder prices are falling in the $700,000 to $900,000 price range.

New construction for $257/SF

New home sales in November fell to the lowest level recorded by DataQuick since it began keeping records in 1988. To ignite sales, KB Homes is lowering its price. Will it work?

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 25 WILD Trl Irvine, CA 92618

Asking Price ……. $622,990

Beds: 4

Baths: 3

Sq. Ft.: 2423

$257/SF

Property Type: Residential, Condominium

Style: Two Level

Year Built: 2011

Community: Portola Springs

County: Orange

MLS#: I11091805

Source: CRMLS

Status: Active

On Redfin: 156 days

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This is a brand new never been lived in home that is located in a beautiful master planned community. This beautiful 4 bedroom, 3 bathroom has many upgrades which include granite countertops and stainless steel appliances. This home is energy star qualified and comes with a 10 year limited warranty! This is a must see.

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Proprietary commentary and analysis

Asking Price ……. $622,990

Cost of Home Ownership

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$622,990 ………. Asking Price

$124,598 ………. 20% Down Conventional

4.02% …………… Mortgage Interest Rate

$498,392 ………. 30-Year Mortgage

$149,582 ………. Income Requirement

$2,385 ………. Monthly Mortgage Payment

$540 ………. Property Tax (@1.04%)

$415 ………. Special Taxes and Levies (Mello Roos)

$130 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$394 ………. Homeowners Association Fees

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$3,864 ………. Monthly Cash Outlays

-$552 ………. Tax Savings (% of Interest and Property Tax)

-$716 ………. Equity Hidden in Payment (Amortization)

$174 ………. Lost Income to Down Payment (net of taxes)

$98 ………. Maintenance and Replacement Reserves

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$2,869 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$6,230 ………. Furnishing and Move In @1%

$6,230 ………. Closing Costs @1%

$4,984 ………. Interest Points

$124,598 ………. Down Payment

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$142,042 ………. Total Cash Costs

$43,900 ………… Emergency Cash Reserves

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$185,942 ………. Total Savings Needed

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