With prices falling during the prime season, market watchers are looking ahead to steeply falling prices this fall and winter.

Irvine Home Address … 10 ROCKWREN Irvine, CA 92604

Resale Home Price …… $999,900

Memories made in the coldest winter

Winter, winter

If spring can take the snow away

Can it melt away all of our mistakes

Memories made in the coldest winter

Kanye West — Coldest Winter

In frontier times if you didn't prepare for winter, you died. The economic cycles has seasons, including a winter. The housing bubble was the endless summer of easy money. The declining market of fall lead to the economic crash and the long cold winter we are enduring now. It seems like the spring thaw will never come, and for most loan owners it won't. The overindebted are not fit to survive the winter, and overly-indebted real estate sellers will endure a very cold fall and winter to come.

Home prices notch third straight monthly gain

A key index of home prices in 20 metropolitan areas rose 1.1% from May to June. Real estate experts say the improvement is seasonal and that prices could fall again as sales slow in the fall and winter.

August 31, 2011– By Alejandro Lazo, Los Angeles Times

With an uptick in June, home prices in major U.S. cities have recorded three consecutive months of gains. But the glimmer of improvement is almost certainly seasonal in nature, real estate experts said, and prices could begin to fall again when the slower sales season begins.

The Standard & Poor's/Case-Shiller index of home prices in 20 metropolitan areas rose 1.1% from May to June when left unadjusted for seasonal variations. Prices fell 4.5% from June 2010.

Remember last April and May as buyers hurried to obtain the $8,000 tax credit? With prices down 4.5% any benefit obtained was washed away by falling prices in the aftermath.

Prices often increase in the warmer months because of changes in the types of homes selling, particularly in parts of the country that have harsher weather than Southern California. Foreclosures make up a higher proportion of sales during the winter as families take a break from home shopping and cash-rich investors dominate the market. Higher sales volumes in spring and summer also push up prices.

“A seasonal kick accounts for the recent strength in the indexes,” Patrick Newport, a U.S. economist with IHS Global Insight, wrote in a note to clients. “This kick will wear off in the fall, when demand weakens and sellers have to give way on price, and prices will start dropping again.”

Yes, that is exactly what will happen. During the winter buyers are scarce. The properties remaining on the market are sellers who missed the prime selling season. Many will take their properties off the market and wait until next year, but those who don't represent the most motivated sellers. When the market is characterized by a shortage of buyers and a plethora of motivated sellers, lower prices are sure to follow. That's the main reason prices go down in the fall and winter. This year, the circumstances are exaggerated because the GSEs will be selling whether or not discretionary sellers get into the act.

The Case-Shiller index also includes data that is adjusted for seasonal variations, but the experts who publish these numbers have cautioned that the large number of foreclosures on the market have distorted the statistics.

Foreclosures distort nothing. The liquidation of foreclosures are part of the market, and they will be for the next several years. A foreclosure-dominated market is not the old norm, but it is today's reality.

There were some signs of hope.

None of the cities tracked by the index posted new lows. In March, home prices dipped below their recession-era low of April 2009, confirming a much-expected double-dip in home prices, but that was short lived as the selling season pushed prices back above that mark.

This fall and winter the double dip should take out the 2009 lows in any remaining markets. Any signs of hope will be crushed.

Many experts, however, say that the level of job creation needed for steady home price gains is still elusive. For prices to make sustained gains, the market needs a steady supply of buyers and sellers. Holding people back from making purchases, experts say, are factors such as unemployment and the difficulties that people with less-than-stellar credit have getting mortgages.

The buyer pool is seriously depleted because so many have gone through foreclosure or short sale. This is what makes Las Vegas such a great cashflow property market. The disparity between the cost of ownership and the cost of rental is sending a huge buy signal, but since most of the potential buyer pool with jobs has poor credit, they have no choice by to rent. This keeps rental rates high even while the cost of ownership continues to plummet.

In addition, the decline in home equity brought on by the bust has discouraged move-up buyers, a traditional source of housing-market oomph.

Discouraged is the wrong word. It implies move-up buyers still have the equity necessary to move up. They don't. The move-up market is frozen because the ongoing price decline is removing the equity from the household balance sheets of all homeowners. This is more than discouraging, it is debilitating. There will be no move-up market until prices find their natural bottom and prices sustain appreciation for two or three years. Only then will buyers from the bottom have enough equity to cover transaction costs and move into a nicer home — assuming they make more money to afford a larger mortgage.

Although foreclosures have slowed, repossessed properties continue to represent an unusually large proportion of home sales, and those houses tend to drag prices down. The number of foreclosures could increase again if the economy worsens and if banks pick up the pace after working through negotiations with regulators over their repossession practices.

Nineteen of the 20 regions measured by the Case-Shiller index were up in June over May, according to the data released Tuesday. Eight cities remain above their April 2009 bottom, including all of the metro areas in California: San Diego, San Francisco and the Los Angeles region, which also covers Orange County.

Home prices in the California cities are considered relatively healthy, despite the state's high unemployment rate, because they are markets that are close to job centers and near the ocean — where overbuilding was relatively constrained and demand remains healthy.

Wrong! The only reason these markets look healthier is because the foreclosures and resulting REO have not been processed here. Coastal California is the king of shadow inventory. A study by Foreclosure Radar has demonstrated that squatting time increases as loan balance increases. Since coastal California has the largest number of large loans, lenders are simply not foreclosing here in hopes a market rebound will magically produce enough buyers to absorb the inventory waiting in the shadows. It won't work out that way.

The index does not track prices in California's Central Valley or the Inland Empire, where housing is still weak.

“These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together,” David M. Blitzer, chairman of the index committee at Standard & Poor's, said in a statement.

No. These shifts have shown that the uneven foreclosure behavior of lenders is bifurcating the maket by separating the squatters with large loan balances form the recently foreclosed who used to have less expensive properties.

Recent turmoil in the nation's stock markets also has shaken the faith of consumers in the future of the U.S. economy. A separate economic gauge released Tuesday underscored this fear. That measure of consumer sentiment dropped to its lowest level in more than two years.

The Conference Board's consumer confidence index now stands at 44.5, down from 59.2 in July, a drop of nearly 15 points. The last time the index was near this low was in April 2009, just after the financial crisis had sent markets into a free-fall that had ended that March, when it stood at 40.8.

The group's present-situation index, which tracks how people feel about the current state of the economy, fell to 33.3 from 35.7. The big decline came in people's views about the future of the economy, with the expectations index dropping to 51.9 from 74.9 last month.

Ian Shepherdson, chief U.S. economist for High Frequency Economics, said that consumer confidence should improve now that the gyrations of the stock markets have eased.

“The expectations number is always sensitive to stock prices, so it should now stabilize if the market remains close to current levels,” he wrote in a note Tuesday.

alejandro.lazo@latimes.com

Many analysts have tried to tie the lack of housing demand on consumer sentiment factors. I don't believe it. Very few people delay their home purchase decisions based on macro-economic factors. Perhaps many readers of this blog have, but the cautious readers of this blog are a small minority of the general homebuying population. Most people buy for emotional reasons because they are ready to do so. There are not legions of fence sitters waiting to buy at a later date. The fence-sitter meme is a realtor fantasy, not a market reality.

With prices falling below rental parity in many neighborhoods — even here in Orange County — many buyers will take advantage of the low cost of ownership caused by low interest rates and buy distressed property this fall and winter. It probably isn't the bottom, but for those with a longer holding time who can wait out the decline, taking advantage of the cost of ownership lower than comparable rent may be the right decision.

Paying for someone else's dream

During the bubble the easy access to HELOC money prompted many people to renovate their average homes into palaces. Everyone who creates their dream home falls in love with it and assumes everyone else shares their ideas of what makes a perfect home — and these owners expect others to be willing to pay a premium for it.

In the real world, for every dollar spent on a renovation it adds about seventy cents in value. For those who go overboard and customize everything to their tastes, the actual value added drops off significantly. Of course, owners don't accept this, and most people in Irvine who spent money on renovations believe they added two dollars in value for every dollar they spent.

The owners of today's featured property started with a $473,800 first mortgage, and by the time they finished their renovations, they had a $555,000 first mortgage and a $150,000 HELOC. Of the $231,200 in mortgage equity withdrawal, at least some of it was spent on improvements. The owners hope that between the added value and the residual air of the housing bubble they will still make a profit on the deal.

Is this property worth a million dollars?

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 10 ROCKWREN Irvine, CA 92604

Resale House Price …… $999,900

Beds: 4

Baths: 2

Sq. Ft.: 2300

$435/SF

Property Type: Residential, Single Family

Style: Two Level, Traditional

View: Pool

Year Built: 1979

Community: Woodbridge

County: Orange

MLS#: P794914

Source: SoCalMLS

On Redfin: 1 day

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CALIFORNIA DREAM COME TRUE! Better than a New Model! This home is a rare gem!! Located on the corner of two very quiet streets. Totally remodeled in 2006 with nothing left out. This Sunny open floorplan welcomes you with custom features throughout. Travertine floors. High End Remodeled Kitchen with everything you can imagine: Large Island, Professional 6 Burner Gas Stove with 2 ovens & griddle, Wine Cooler, Bar Ice Machine, more Refrigerator Drawers in Island, Miele Espresso Station, Granite Counters with Tile Backsplash, even Dutch Doors to outdoor dining area! Butler Pantry with sink, disposal, 2nd Dishwasher & storage shelves. Open Dining Room with custom pillars. Custom Fireplace with Marble Hearth. Custom Swimming Pool & Large Spa with Pebbletech surface & Waterfalls surrounded by colorful raised flowerbeds. Large lot provides lots of backyard entertainment area with Large BBQ Island with sink & refrigerator. All bathrooms remodeled, New windows. .More, more, more. .Just come & see!

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Proprietary IHB commentary and analysis

CALIFORNIA DREAM COME TRUE! Better than a New Model! This home is a rare gem!! — We now know a great deal about the egos of the owners. They probably believe those statements.

Resale Home Price …… $999,900

House Purchase Price … $592,500

House Purchase Date …. 11/15/2000

Net Gain (Loss) ………. $347,406

Percent Change ………. 58.6%

Annual Appreciation … 4.8%

Cost of Home Ownership

————————————————-

$999,900 ………. Asking Price

$199,980 ………. 20% Down Conventional

4.26% …………… Mortgage Interest Rate

$799,920 ………. 30-Year Mortgage

$197,330 ………. Income Requirement

$3,940 ………. Monthly Mortgage Payment

$867 ………. Property Tax (@1.04%)

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

$208 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$83 ………. Homeowners Association Fees

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

$5,098 ………. Monthly Cash Outlays

-$927 ………. Tax Savings (% of Interest and Property Tax)

-$1100 ………. Equity Hidden in Payment (Amortization)

$307 ………. Lost Income to Down Payment (net of taxes)

$145 ………. Maintenance and Replacement Reserves

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

$3,523 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$9,999 ………. Furnishing and Move In @1%

$9,999 ………. Closing Costs @1%

$7,999 ………… Interest Points @1% of Loan

$199,980 ………. Down Payment

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

$227,977 ………. Total Cash Costs

$53,900 ………… Emergency Cash Reserves

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

$281,877 ………. Total Savings Needed

——————————————————————————————————————————————————-

Irvine Home Address … 3922 ALAMO St Irvine, CA 92606

Resale Home Price …… $589,000

Ain't nothin' gonna to break my stride

Nobody's gonna slow me down, oh-no

I got to keep on movin'

Ain't nothin' gonna break my stride

I'm running and I won't touch ground

Oh-no, I got to keep on movin'

Matthew Wilder — Break My Stride

As most of you know, I have been operating a flipping fund buying auction properties in Las Vegas and selling them on the local MLS. The business has had its ups and downs, and I have learned a great deal about Las Vegas and operating in the local business culture.

One of the reasons I selected Las Vegas was due to my own research on the housing bubble. Prices have crashed well below rental parity to price levels where cashflow investors find the returns attractive just as I have described in many posts going all the way back to my first week of writing for the IHB in What is Past is Prologue:

… market prices enter the range of fundamental valuations where they find support. Prices may continue to decline somewhat, perhaps even overshooting the fundamentals due to the foreclosure inventory, but if prices fall low enough, cashflow investors will enter the market in force and create a durable bottom. However appreciation will not return quickly. The market will flatten at the bottom as the Rent Savers and Cashflow Investors absorb the market inventory. The inventory will remain high.

Does that description from March of 2007 sound like what we are seeing in Las Vegas today?

I first wrote about my desire to do something substantial in the Las Vegas market in the May 2010 post How Gaming Interests Could Save the Las Vegas Housing Market, and Why They Should.

I am personally buying property in Las Vegas. I intend to keep buying them as long as I can obtain more loans to do so. My parents have bought a second home in Las Vegas. My father is about to close on his first cashflow property, and I have convinced both of my parents to buy properties until they reach their loan limits. With each one returning an average of $300 per month in positive cashflow after financing, they are thrilled to buy these properties to supplement their retirement income. My family is going “all in” on our bet on Las Vegas. I believe in it that strongly.

Now that I have been operating in Las Vegas for a year, I am in a position to help readers like you take advantage of the investment opportunities I see each day. Last week I showed some of these properties in the post Using rental parity to find bargain properties. We have also recently added a new tab to the IHB titled Cashflow. You can find all the properties available as cashflow rentals through my investment fund.

Four ways to invest in Las Vegas cashflow properties

There are four ways I can help you invest in Las Vegas cashflow properties:

• Direct investment at the auction
• Referral to local agent
• Purchase pre-packaged rental from Apple Blossom Arbitrage LLC
• Invest in new fund, Radiant Homes

Depending on how much work you want to put in and how much cash you have, you can select any of the above options. The more work you are willing to do, the greater your returns will be.

Auction investment is the most lucrative. Capitalization rates of 12% or more are quite common. I can refer you to a service to facilitate these sales for a fee, or I can work with you through this service to buy properties for cash directly from the auction site. I have two active investors I am working with in this manner currently, and two who I referred to the service I use. If you have cash and want to select your own properties, perform all necessary renovations and find renters, you will get the best price and make the highest returns. If you have the cash and want me to manage the process, I can do that for a fee.

Another method is to work with a local agent to find your own deals. If you have the time to scour the MLS, make multiple offers, manage your own renovations, and work with the agent or a management company to find renters, you can easily find deals with 10% to 12% capitalization rates. I have two local agents I find reliable I can refer you to. You will have to find your own help to manage the renovations. I keep my own people busy and I need them, so you can't use my project manager or crews.

For those with less time to search for deals — which I suspect is most people — you can buy one of the properties offered by Apple Blossom Arbitrage LLC detailed on the Cashflow tab. Currently, none of these properties are rented, but I am seeking renters for all of them to eliminate that concern and give greater certainty to the cashflow. I can recommend local insurance companies and property managers whom I have interviewed. It's a pre-packaged deal, and although they may not be the best deal on the Las Vegas MLS, the returns are generally between 8% and 10% all-cash and 15% to 30% for financed purchases, and many of the headaches and uncertainties are removed.

For those who don't want to deal with any of the headaches of management issues related to rental properties but would like to obtain the great current cashflow these properties offer, i have formed a new fund to buy and hold these investments: Radiant Homes. Investors in Radiant Homes are projected to make 6% to 8% returns, obtain quarterly checks, and get a K-1 tax statement at the end of the year. There are no management decisions or issues to deal with. If you want to learn more, come to the presentation on Monday, September 12, 2011, or email me at larry@idealhomebrokers.com.

I am not the only one who thinks this business model is a good idea. Others have formed simiar funds, and pension funds are beginning to get involved.

Waypoint Homes buys, fixes, rents foreclosed homes

Carolyn Said, Chronicle Staff Writer

Sunday, August 21, 2011

Rental agent Philip Zulueta drives around Antioch and Pittsburg in a Toyota Prius emblazoned with the message: “Less than perfect credit – You can still own a house.”

It's among eight such vehicles owned by Oakland's Waypoint Homes, which buys foreclosed and short-sale houses, rehabs them and rents them out, often as a lease with an option to buy – and often to people who recently lost their homes to foreclosure or short sale. It now owns 707 properties, mainly in Contra Costa and Solano counties, although it's recently expanded to Southern California.

Waypoint exemplifies a new wave of foreclosure investors who deal in big quantities and are pioneering management of scattered single-family homes.

This is the biggest hurdle for this business plan. It is difficult to scale. It's also why the government shouldn't even consider renting out the GSE portfolio.

The solution to this problem is really to break it down into manageable pieces and use many local property managers who report to a regional manager who oversees the work of the many local ones. My job as manager of Radiant Homes will be primarily to manage the management companies and individuals I use to oversee the properties.

The advantages of using the regional manager approach is the lack of staff overhead, and the ability to easily change out managers who don't perform well. There are many part-time property managers who do excellent work for very small fees. When you have problems with one of them, they are easy to replace. Using larger management companies is often not effective as they merely hire low-cost staff and try to make money on a thin margin. Forming an in-house management staff often ends up turning into a large overhead expense and doesn't necessarily ensure better performance.

As foreclosures continue apace, many experts think such large-scale investors will play an important role in keeping foreclosed houses occupied so they don't contribute to blight. Underscoring that, the government is now seeking ideas from investors on how they could buy and rent out foreclosed properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration.

Insight for the feds

In fact, Waypoint plans to respond to the government Request For Information with a proposal.

“We now have as much experience as anyone in this space,” said Doug Brien, a former New York Jets placekicker who co-founded Waypoint with Colin Wiel, a former engineer.

That's true enough. Since nobody has any experience with anything like this, anyone with experience acquiring auction properties and managing individual rental homes is ahead of the curve.

“We feel that our insights can help solve a problem that is currently holding back the entire country.”

That problem is the glut of foreclosed homes; its flip side is that people who lost their homes to foreclosure still need a place to live.

That simple fact is why the opportunity exists in Las Vegas. Not everyone in Las Vegas lost their jobs, but nearly the entire housing stock has turned over due to job loss and strategic default. The local buyer pool is very thin which is why prices keep going lower and lower. However, rents haven't declined near as much as house prices because the local workers still need a place to live. The enormous imbalance between the cost of ownership and the cost of a rental would ordinarily prompt renters to buy, but since most of the renter pool has a recent foreclosure on their credit report, they can't buy. Thus we have this unique opportunity.

Harvard's Joint Center for Housing Studies is among those warning that the country soon may face a housing shortage, ironically enough.

“There is a looming housing shortage on the horizon as new household formation continues at full speed while the construction ramp-up happens slowly,” Brien said.

We won't have a housing shortage any time soon.

That equation motivated Brien and Wiel to start Waypoint in early 2009.

“What Colin and I saw early on was that home values had fallen so much yet rents were stable, so they gave better returns than any asset class,” Brien said.

That is exactly why this opportunity is so good. Right now, few asset classes offer much for cash returns. Bank deposits pay next to nothing, bond yields are very low, and the stock market has been very volatile. Real estate prices have been beaten down so much as to make them attractive based on cashflow valuation alone.

Developed software

Waypoint has developed comprehensive software to identify, evaluate, renovate, rent out and manage the properties. Brien said that will allow it to scale up its operations.

You can tell these guys recently made a pitch to raise money. One of the questions I have been asked is how do you scale this operation. I have proprietary spreadsheets I use to evaluate auction properties. These spreadsheets take basic property information and data on recent comps to generate reports I use to evaluate the purchase and establish budgets for repairs. That part of scaling up the operation is not a problem. The more difficult issue is trying to manage 200, 2,000 or 20,000 single-family detached homes across a broad area.

It has put about $100 million to work in the market so far and has another $50 million in capital. Most of its backing came from high-net-worth individuals, but an Ivy League endowment (it declines to name the school) recently invested. It has 65 employees plus scores of third-party contractors who do rehabs for it.

They must have formed their own management company to have 65 employees. If they are operating with a fee for total assets under management, they can afford some staff. That seems like a big operation to me, certainly bigger than I would build and manage.

In the Bay Area, the company pays about $130,000 a house and spends about $20,000 for renovations – paint, landscaping, flooring and kitchen upgrades are the main expenses. On average, Waypoint houses bring in about $1,700 a month in rent, Brien said.

A typical Las Vegas house costs far less than that, but it brings in less rent as well. A prototype property Radiant Homes would purchase is detailed below.

Many of its tenants are what Brien calls “forced renters” – people who would like to own but don't currently have the credit, income or down payment.

That is typical of the Las Vegas renter pool as well.

Tenants have average incomes of $80,000 and an average credit score of 550; many mortgage lenders now require 630 or higher. Waypoint has dedicated credit-repair counselors to help tenants improve their financial profiles.

Most of its renters have chosen a lease-option plan, so they pay extra to lock in a future ownership opportunity. Other renters who stay current on their rent and follow a financial fitness plan can earn monetary credit toward a future home purchase.

The reasons are not just altruistic.

“We focus on creating an alignment of interest with our residents to have them care about the house and take care of it,” Brien said.

I outlined the same approach in How Gaming Interests Could Save the Las Vegas Housing Market, and Why They Should.

This approach is not without its problems with moral hazard. The Radiant Homes fund is not offering this incentive to former owners.

Housing advocates were positive about Waypoint's approach.

“A lease-purchase structure makes a ton of sense in this market,” said Ellie Carothers Kelly, project manager at Self-Help, a nonprofit community development financial institution in Oakland that may partner with Waypoint in Self-Help's own program to buy and renovate properties that Self-Help would immediately sell to low-income buyers.

While Kelly said she's not familiar with the details of Waypoint's lease-option plan, she said Self-Help has also explored lease-option and Waypoint's general parameters seem reasonable.

“They are taking vacant, blighted properties, rehabbing them and filling them, while giving families the opportunity to lock in a (future) ownership opportunity with the time to repair credit issues to qualify for a mortgage and build savings for a down payment,” she said.

When Darren Gates' house in Antioch was foreclosed upon last year, Waypoint bought it at a courthouse auction and sent a representative to knock on the door and offer to rent it to Gates and his family for less than half his mortgage payment.

“I couldn't believe it was going to be true,” he said. “We were preparing ourselves to get out. This opened a door that I thought was closed to us.”

So far I have approached around half a dozen former owners of properties I have purchased. Most were unemployed and couldn't afford the rent. None have taken me up on the offer to stay in their former house.

Now he pays extra rent each month so he eventually can buy it again at market value. Moreover, Gates, who owns a construction company, ended up working for Waypoint to renovate the houses it buys.

'Home rescue'

While Waypoint wants to promote “home rescue” – keeping former homeowners in their house as renters – Gates is a relatively rare success story.

About 200 of the homes Waypoint bought were still occupied by the foreclosed-upon homeowners. Some did not want to stay and many were unable to afford the rent or otherwise couldn't qualify. Only 30 families stayed on as renters; nine of those subsequently fell behind on rent payments and moved or were evicted.

That is the same problem I have had. Apparently, those who strategically default make arrangements to move on long before the auction date. The people left in their properties have so many issues of financial distress, they must move out to a much cheaper rental and endure a major fall from entitlement.

“We are working on new strategies to be more effective at keeping people in homes – they need to be able to afford it,” Brien said. “Buying short sales on the retail channel is one possible option.”

The U.S. is seeking ideas on how to rent out thousands of foreclosed properties owned by federal mortgage giants.

E-mail Carolyn Said at csaid@sfchronicle.com.

This is the future of auction market investing. Funds like Radiant Homes will buy up these properties and hold them until investors are redeem their money after values have appreciated up to stable rental-parity levels ten years from now.

Properties in Las Vegas are currently undervalued. Will they rise back up to their historic relationship to rental parity? Probably. How soon will this happen? I don't know. How long will it take for the city to restore their credit and bid prices back up again?

Further, what do you think will happen when it becomes widely believed that the Las Vegas market has bottomed and investors know they can get 10% cap rates there? Wouldn't that prompt more investor purchases? And what happens later when the market still has good cap rates and has appreciated 10% in the prior year? I foresee a phase of strong price momentum in Las Vegas's distant — but not too distant — future.

Perhaps I am wrong. Perhaps Las Vegas's house prices will never recover. I'll be happy to hold properties giving me great current cashflow that will increase with rising with wages over time. Wouldn't you?

A foolish retail flip

Flipping in a declining market is hard. Appreciation is not there to bail you out if you make a mistake. Flipping is difficult purchasing at auction where properties are discounted from retail. Flippers paying full retail for a property really have the odds stacked against them. Despite the difficulties, some people still try it.

The flipper of today's featured property paid $475,000 on 7/13/2011. The made some quick improvements and got the property back on the market asking for a $114,000 markup over what they paid two months ago.

ROFLMAO!

Good luck with that. I hope they added huge value with the pergraniteel lipstick they put on this old pig.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 3922 ALAMO St Irvine, CA 92606

Resale House Price …… $589,000

Beds: 3

Baths: 2

Sq. Ft.: 1385

$425/SF

Property Type: Residential, Single Family

Style: One Level, Other

Year Built: 1973

Community: Walnut

County: Orange

MLS#: S671682

Source: SoCalMLS

Status: Active

On Redfin: 6 days

——————————————————————————

Beautiful home in the GREAT community of COLLEGE PARK. New exterior paint, landscpaing in both front and back yard. New interior paint, new paint on cabinets with new fixtures. Fireplace in Living room. Dual pain windows and slider. Custom shower in master bath with dual sink. New Kenmore appliances, New front door. Air Condtioning. 2 car attached garage with work bench, sink and ceramic tile on floor. Its a Must see!

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Proprietary IHB commentary and analysis

landscpaing? Condtioning?

Resale Home Price …… $589,000

House Purchase Price … $475,000

House Purchase Date …. 7/13/2011

Net Gain (Loss) ………. $78,660

Percent Change ………. 16.6%

Annual Appreciation … 136.3%

Cost of Home Ownership

————————————————-

$589,000 ………. Asking Price

$117,800 ………. 20% Down Conventional

4.26% …………… Mortgage Interest Rate

$471,200 ………. 30-Year Mortgage

$116,089 ………. Income Requirement

$2,321 ………. Monthly Mortgage Payment

$510 ………. Property Tax (@1.04%)

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

$123 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$45 ………. Homeowners Association Fees

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

$2,999 ………. Monthly Cash Outlays

-$382 ………. Tax Savings (% of Interest and Property Tax)

-$648 ………. Equity Hidden in Payment (Amortization)

$181 ………. Lost Income to Down Payment (net of taxes)

$94 ………. Maintenance and Replacement Reserves

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

$2,243 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,890 ………. Furnishing and Move In @1%

$5,890 ………. Closing Costs @1%

$4,712 ………… Interest Points @1% of Loan

$117,800 ………. Down Payment

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

$134,292 ………. Total Cash Costs

$34,300 ………… Emergency Cash Reserves

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

$168,592 ………. Total Savings Needed

——————————————————————————————————————————————————-

With the ongoing failure of all other potential remedies to the excessive debt hangover from the housing bubble, a growing chorus of experts are starting to endorse foreclosure as the best remedy for the woes of loanowners.

Irvine Home Address … 339 DEERFIELD Ave #20 Irvine, CA 92606

Resale Home Price …… $360,700

Don't you know promises were never made to keep?

Just like the night, dissolve in sleep

I'll be your savior, steadfast and true

I'll come to your emotional rescue

Rolling Stones — Emotional Rescue

Borrowers need tough love. The truth of their suffering is rooted in their attachments to the house they occupy and the excessive debts they applied to it. These people need emotional rescue. Unfortunately, loan modifications are not the answer, and free-money gifts of principal reduction are not forthcoming. The rescue they need is a foreclosure.

Back in May of 2009, I asked if foreclosures were a crisis or a cure. I made the following observation:

The only rational method of principal reduction is through foreclosure. As a society, we need to stop viewing this as a “foreclosure crisis.” There is no foreclosure crisis; there is a debt disease, and foreclosure is the cure.

I followed that post in May 2010 with a detailed argument: Foreclosure is a superior form of principal reduction.

Ever since the Great Housing Bubble began to deflate, everyone has incorrectly identified the problem as foreclosure. The real problem is not foreclosure, the real problem is that borrowers have excessive debts due to the huge loans lenders underwrote that inflated the housing bubble. Foreclosure is not the problem, it is the cure. Further, there is only one reason foreclosure is seen as the problem: people have to move out of their homes after a foreclosure, and I have demonstrated how private hedge funds and other parties could solve that problem.

One way or another, the banks are going to write down huge amounts of bad debt. Nothing can save them, and we shouldn't try. Principal reductions are the worst possible solution to the problem of excess debt left over from the Great Housing Bubble. Principal reductions merely gives foolish borrowers a pass. If the borrowers go through foreclosure, they have consequences that minimize moral hazard:

1. Borrowers will be forced to rent, at least for a time.
2. Borrowers will have reduced access to consumer credit as the foreclosure lowers their FICO score.
3. Borrowers will have to save and be prudent in order to meet the standards of home ownership and get another loan.

All of those consequences — inadequate though they may be — are eliminated if the GSEs merely reduce principal. The borrowers who have the most to gain are those who borrowed most foolishly, and the people paying the price are (1) prudent borrowers and (2) those who didn't borrow at all. Next time around, there will be no prudent borrowers, and everyone will participate. Who is going to pass on free money?

To further make the point, I wrote the post Foreclosures are essential to the economic recovery. The excessive debts and the diversion of income to lenders reduces disposable income and serves as a drag on the economy.

As long as the debt on real estate is excessive and capital is tied up in non-performing assets, the economy will suffer. It's really that simple. The solution is equally simple: foreclose on delinquent borrowers wiping out the debt and extract the remaining capital value. With the excess debt removed, borrowers can use their wage income to buy goods and services rather than giving it to the bank. When the mis-allocated capital is returned to the market, new investment will be spurred in areas where capital is most needed. Right now, we don't need more real estate.

Since all the previous solutions people have come up with have failed, the voices of reason are beginning to be heard in the mainstream media.

How to rescue the housing market: Foreclosures!

By Tami Luhby August 31, 2011: 5:27 AM ET

NEW YORK (CNNMoney) — If the Obama administration really wants to save the housing market, it should speed up the foreclosure process — not prolong the inevitable, experts say.

Four years into the housing crisis, the real estate market is still teetering on the edge. The Obama administration has tried one program after another to stem the tide of foreclosures with limited success.

Limited success? Loan modification programs have been a complete and utter failure. There is no measure of performance by which these programs can be considered even a partial success — except perhaps to the banks who merely hope to buy time.

And it is continuing to look for ways “to ease the burden on struggling homeowners,” though no new initiative is imminent, the White House said this week.

If you want to ease the burden on struggling loanowners, foreclose on them and purge the debt. Foreclosure does that. Everyone keeps groping for a solution that allows those who have borrowed excessively to stay in their homes. That is wrongheaded. Loan modifications are the only viable alternative. Without debt reduction — and there should be no debt reduction — loan modifications still leave the borrower with a debt burden they will never pay off. That serves the bank, and for a time, the borrower might feel good about it. But over time, the borrower will come to realize they will never have equity, and they are merely renting money from the bank. Worse yet, the cost of rent on the money far exceeds the cost of renting a comparable property directly, and the money-rentership arrangement leaves them trapped in their homes.

But some housing experts argue that the administration should go in a different direction than it has in the past. Instead, they say it's time to focus on pushing many of those delinquent borrowers through the foreclosure process and putting foreclosed properties back into use.

We can't allow squatting to go on forever. Squatting is not a viable long-term solution to the housing crisis. If banks allow the squatting to continue, they have given away free homes. Lenders will have strongly rewarded the worst possible borrower behavior. It's moral hazard on steroids.

While some of the 2.2 million loans in foreclosure can still be saved, many are too far gone, they say. Some 37% have not made a payment in more than two years, while another 34% have not made a payment in 12 to 23 months, according to Lender Processing Services.

71% of delinquent loans in shadow inventory have been delinquent more than a year. Those are huge numbers. Millions and millions of homes are yet to go through the foreclosure process. These loans will not be cured through loan modification, and unless they win the lottery, none of the borrowers are going to become current by making up past payments.

“Loans enter into foreclosure, but never come out,” said Thomas Lawler, founder of Lawler Economic & Housing Consulting. “If this keeps going on, you have a continual overhang that never goes away.”

Delaying foreclosure increases the percentage of homeowners who'll likely never catch up, Lawler said. In 2009, only 6% of delinquent borrowers were more than two years behind. And it means vacant properties still in limbo could fall even further into disrepair, hurting the value of the surrounding housing market.

Thomas Lawler is exactly right. I know he has been working closely with Calculated Risk, and he has a thorough understanding of the problem and the implications of the solutions presented. The best case for resolving overhead supply is very slow appreciation as lenders sell into any price rallies. The most likely scenario is a slow deflation while lenders liquidate at a measured pace.

Lawler is not the first to warn about the consequences of slowing the foreclosure process. Since the housing crisis began, several experts cautioned that foreclosure prevention efforts may only prolong the pain.

Accelerating foreclosures is tricky, however, especially since it is largely the purview of the states. But the administration could work with state officials to speed the process, especially on vacant homes, he said.

I watch the foreclosure flow through the Las Vegas auction site every day. Whenever I see lenders postpone the auction on an empty property, I ask myself why. The only plausible answer is that they are managing the MLS inventory because if the auction happens the property will either be an REO or a flipper resale. Even with the legions of squatters gaming the system, lenders have a huge inventory of empty homes they could be processing if they wanted to.

The push would come at a time when many mortgage servicers have slowed foreclosure efforts as they resolve shoddy paperwork practices. Foreclosure filings in July dropped to their lowest level since November 2007, due to processing delays and foreclosure prevention measures, according to RealtyTrac.

That is a red herring. The foreclosure delays are caused by lenders wanting to delay recognition of losses and to slow the double-dip in home prices brought about by the excessive inventory. Foreclosure prevention measures are responsible for delaying foreclosures, but with the high failure rates, they do little to actualy prevent foreclosures.

Getting rid of the glut

Another key to helping the housing market is facilitating the resale of homes that have already been foreclosed upon, experts said. This glut of vacant properties will continue to weigh on home values until they are sold.

“They can't be a glacier hanging over the market with everyone waiting for it to fall,” said Jim Gaines, research economist at The Real Estate Center at Texas A&M University. “Those properties have to clear the market.“

Most in the general public don't understand this. Properties witheld from the market temporarily do not help the market bottom. It may hold prices up for a short time, but these properties will eventually need to be liquidated. As they are sold, prices will fall. It does not need to be an avalanche which takes prices down quickly. It may be a slow bleed which takes prices down slowly over a long period of time.

A slow bleed is not better for the market. It traps more people underwater for longer periods of time, and it stops any buyers from having move-up equity to facilitate a move-up market. A speedy and steep decline followed by slow appreciation is much better for the overall health of the housing market.

A first step could be to sell off the foreclosed properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration. Collectively, they own 248,000 homes, about 31% of the foreclosure inventory.

The administration and the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, are already looking for ways to unload these foreclosed homes. Earlier this month, they put out a request for ideas, including possible bulk sales of inventory. Also, they are interested in turning many of these properties into affordable rentals, which are sorely lacking in many communities. Experts interviewed agree this would be a good move for the market.

Apparently, the reporter interviewed some “experts” who have no idea what they are talking about. Turning REO into rentals is a very bad idea. The government has already proven to be a terrible landlord. There is little reason to believe they could effectively and efficiently manage a portfolio of millions of individual homes. Can you imagine the service requests they will get and what their response will be?

To entice investors to purchase these homes, as well as other foreclosed properties owned by banks, the administration could advocate for changes to the tax code, Gaines said. For instance, more favorable capital gains or depreciation rules could attract buyers.

The case against foreclosure

Of course, not everyone agrees that pushing people through the foreclosure process is the best solution to the housing crisis.

David Min, associate director for financial markets policy at the Center for American Progress, argues that there are many homeowners who can be saved if their payments can be adjusted to affordable levels or if some of their principal is forgiven.

Another pinhead who wants to encourage moral hazard by giving away free money to people who can't afford the houses they occupy. This solution is undoubtedly appealing to those who are squatting in houses they don't deserve to be in, but for those of us waiting to buy these properties, these are bad solutions that keep the undeserving in these properties at our expense.

This particularly applies to those who are only a few months behind.

Foreclosure is very costly for servicers, homeowners and neighborhoods, he said.

“There are a lot of other options that make more sense” than foreclosure, Min said. “It's just so destructive to value. We should be pulling every lever we can.”

No we shouldn't. It's fools like this who influence public policy. I'm sure he means well, but his dumb ideas are preventing an economic recovery.

Mediation, for instance, could help some homeowners avoid foreclosure, he said.

No. This merely delays foreclosure and allows people more time to squat in houses which should be put on the market for a new buyer who will pay less, have less debt, and likely be able to sustain ownership.

Some 23 states and the District of Columbia currently have programs that require mortgage servicers to sit down with borrowers and discuss the homeowners' options, though many began only in the last year. More than 70% of mediations end in a settlement, often restructuring the mortgage to a sustainable level, according to the center.

Helping those still current with their payments can also give the housing market — and the economy — a lift, albeit a somewhat marginal one, experts said.

Bullshit. The best thing for the economy is to purge the bad debt and get a new owner to occupy the property with less debt and more disposable income.

For instance, the administration could revamp its refinancing program aimed at allowing underwater homeowners to take advantage of today's lower interest rates.

No, this is an expensive idea that merely promotes imprudent borrowing.

Improvements could include reducing some of the upfront costs and underwriting requirements.

Lowering borrowers' monthly payments would give people more money to spend. And, for those on the edge, it could make it more likely that they will stay in their homes.

“It would be helpful to some borrowers with high rates,” Lawler said.

It would be helpful to borrowers with higher rates — at taxpayer expense. Foreclosure is still the best solution to the problem.

As someone who has argued for more foreclosures to clear the market and stimulate the economy, I am not surprised at the economic doldrums we are experiencing now or the wrongheaded policies which make our problems worse. Everything which has transpired over the last few years was easily foreseen by those who clearly understood the problem. Dean Baker among others has been consistently right about the housing bubble and the problems resulting from its deflation. It is gratifying to finally see the rest of the country awaken to the reality of our problems and the solutions required. If policymakers can overcome the emotional arguments favored by those who want to do the wrong thing, we might get back on the right track.

$264,880 of free money and over two years squatting

It should be apparent to anyone who reads this blog frequently that many California home owners managed their finances through Ponzi borrowing against the increasing equity in their homes. Most of these people didn't see the folly in what they were doing, and the rewards of this behavior was so great, the desire to own for free bank money will likely endure to inflate future housing bubbles.

Nowhere else do ordinary citizens put $35,000 into an investment and obtain over $250,000 in cash returns over a five-year period. California real estate is truly special.

Lenders inflated this bubble. By giving people free money, they made houses very desirable. This prompted the buying which kept the Ponzi scheme growing. When borrowers finally stopped paying lenders back, lenders stopped making loans, and the entire Ponzi scheme came abruptly to an end in a massive credit crunch.

Lenders deserve to bear the full brunt of the losses for their behavior. It's only through massive pain will they be cautious about inflating another bubble. If the rewards exceed the pain, lenders will do this again. The bailouts we gave lenders lessened this pain. Only time will tell if the pain has made them too cautious to repeat their mistake.

• The former owner of today's featured property paid $219,000 on 5/1/2000. She used a $175,120 first mortgage and a $43,880 down payment.
• On 6/1/2001 she obtained a $193,000 first mortgage and withdrew $18,000 of her down payment.
• On 4/7/2003 she refinanced with a $240,000 first mortgage and obtained a $57,000 HELOC. $100,000 more to spend.
• On 12/26/2003 they enlarged their HELOC to $126,000
• On 11/12/2004 they obtained a $200,000 HELOC.
• On 11/2/2005 discovered the virtues of innovative financing. They obtained a $440,000 Option ARM with a 1.37% teaser rate.
• The quit paying in late 2008 and squatted until 3/11/2011.

Foreclosure Record

Recording Date: 06/14/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/15/2009

Document Type: Notice of Default

The bank lowered their opening bid at auction to $351,000, but it wasn't enough to attract a third party.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 339 DEERFIELD Ave #20 Irvine, CA 92606

Resale House Price …… $360,700

Beds: 2

Baths: 3

Sq. Ft.: 1367

$264/SF

Property Type: Residential, Condominium

Style: Two Level, Spanish

View: Park/Green Belt, Tree Top

Year Built: 1984

Community: Walnut

County: Orange

MLS#: P789308

Source: SoCalMLS

On Redfin: 47 days

——————————————————————————

Let's Make a Deal! Seller wants this Home Sold Today & they Mean Business. Bring your paint brush & decorating ideas as this Windwood Townhome offers lots of upside potential. Featuring a Main Floor Office-Den or Bedroom option with bathroom & laundry room, you'll be pleasantly surprised with 2 large bedrooms upstairs with private bathrooms in approx. 1,367 Sq. Ft. In addition, your kitchen with travertine counters & breakfast bar opens to your dining room & family room with vaulted ceilings & a cozy fireplace. If you love to entertain then move the party outdoors to your Large Wrap-Around Patio Backyard that is perfect for BBQ's. Conveniently located near Irvine schools, pools, tennis & basketball courts, tot-lots, parks, walking & bike trails, shops, restaurants, theatres & more. Hurry, this won't last!!!

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Proprietary IHB commentary and analysis

Resale Home Price …… $360,700

House Purchase Price … $219,000

House Purchase Date …. 5/1/2000

Net Gain (Loss) ………. $120,058

Percent Change ………. 54.8%

Annual Appreciation … 4.4%

Cost of Home Ownership

————————————————-

$360,700 ………. Asking Price

$12,625 ………. 3.5% Down FHA Financing

4.26% …………… Mortgage Interest Rate

$348,076 ………. 30-Year Mortgage

$108,015 ………. Income Requirement

$1,714 ………. Monthly Mortgage Payment

$313 ………. Property Tax (@1.04%)

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

$75 ………. Homeowners Insurance (@ 0.25%)

$400 ………. Private Mortgage Insurance

$288 ………. Homeowners Association Fees

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

$2,790 ………. Monthly Cash Outlays

-$271 ………. Tax Savings (% of Interest and Property Tax)

-$479 ………. Equity Hidden in Payment (Amortization)

$19 ………. Lost Income to Down Payment (net of taxes)

$65 ………. Maintenance and Replacement Reserves

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

$2,125 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,607 ………. Furnishing and Move In @1%

$3,607 ………. Closing Costs @1%

$3,481 ………… Interest Points @1% of Loan

$12,625 ………. Down Payment

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

$23,319 ………. Total Cash Costs

$32,500 ………… Emergency Cash Reserves

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

$55,819 ………. Total Savings Needed

——————————————————————————————————————————————————-

The emotional toll of financial distress is causing health problems for many in the aftermath of the housing bubble.

Irvine Home Address … 1 GREENFIELD #18 Irvine, CA 92614

Resale Home Price …… $363,000

If I was sick like you,

I would feed the fire

I would light it up

And watch it all drop down

Adelitas Way — Sick

Not long ago, I wrote the post The housing bubble and crash is causing great psychological harm. It isn't only emotionally that people are being hurt by the collapsing housing bubble. The emotional distress is leading to real physical symptoms.

Tying Health Problems to Rise in Home Foreclosures

By S. MITRA KALITA — AUGUST 31, 2011

The threat of losing your home is stressful enough to make you ill, it stands to reason. Now two economists have measured just how unhealthy the foreclosure crisis has been in some of the hardest-hit areas of the U.S.

New research by Janet Currie of Princeton University and Erdal Tekin of Georgia State University shows a direct correlation between foreclosure rates and the health of residents in Arizona, California, Florida and New Jersey. The economists concluded in a paper published this month by the National Bureau of Economic Research that an increase of 100 foreclosures corresponded to a 7.2% rise in emergency room visits and hospitalizations for hypertension, and an 8.1% increase for diabetes, among people aged 20 to 49.

Each rise of 100 foreclosures was also associated with 12% more visits related to anxiety in the same age category. And the same rise in foreclosures was associated with 39% more visits for suicide attempts among the same group, though this still represents a small number of patients, the researchers say.

Teasing out cause and effect can be delicate, and correlation doesn't necessarily mean foreclosures directly cause health problems. Financial duress, among other issues, could lead to health problems—and cause foreclosures, too.

Foreclosures are a symptom of overall financial distress. Many people quit making payments because they lost their jobs. However, many people couldn't afford the houses they were in because the loans they took out. Lenders who peddled Option ARMs and other toxic loan products are directly responsible for the financial distress and foreclosures these loans caused.

The economists didn't find similar patterns with diseases such as cancer or elective surgeries such as hip replacement, leading them to conclude that areas with high foreclosures are seeing mostly an increase of stress-related ailments.

Tuesday brought news of further weakness in the housing market as the closely watched S&P/Case-Shiller home-price index came in 5.9% lower for the second quarter from a year earlier. Continued job losses and economic uncertainty could weigh on home prices and make for another wave of foreclosures, economists say.

The double dip will make for another wave of foreclosures, but it won't be from the newly unemployed, it will be from the legions of overextended borrowers who finally capitulate. The bear rally of 2009-2010 was the last gasp of denial these people had. The ugly truth of a weak economy and a huge overhang of supply is becoming common knowledge, and the market bulls are having difficulty maintaining their denial.

It may not just be foreclosure victims arriving at hospitals—but neighbors also grappling with depleting equity in their biggest investment.

“You see foreclosures having a general effect on the neighborhood,” Ms. Currie says. “Everybody's stressed out. There is a connection between people's economic well being and their physical well being.”

The situation got so bad for Patricia Graci, a 51-year-old Staten Island, N.Y., resident, that she canceled a recent court appearance related to the foreclosure on her house because she couldn't get out of bed. After her husband lost his job as a painter in 2008, the Gracis relied on savings to pay their mortgage for two years.

“Everything was going downhill. My savings were going down to nothing,” says Ms. Graci. “When I realized the money wasn't there anymore, I started getting very anxious and depressed.”

Being broke will do that.

She says her lender advised her to default on her mortgage to qualify for a loan modification. Ms. Graci, who was an assistant bank manager and already had rheumatoid arthritis, says she began seeing a therapist and landed in the hospital with difficulty breathing in December 2009. A few weeks later came the foreclosure notice from the bank.

“They told me it was more anxiety and stress that made me wind up in the hospital than the arthritis,” Ms. Graci says. After repeatedly missing work due to illness, Ms. Graci went on long-term disability.

Sad case. She should feel better once the foreclosure is complete. Her attachment to her old home which is causing her so much suffering will be broken. Perhaps it sounds heartless but I believe the foreclosure is the most compassionate outcome for this woman now. She and her husband can no longer afford their home.

The areas that have the highest foreclosure rates also tend to have a large portion of their population unemployed, underemployed or uninsured. Ms. Currie says the research accounted for this by instituting controls for persistent differences among areas, such as poverty rates, as well as for county-level trends. Much of the 2005-2009 period examined came before unemployment peaked, too, she says. The researchers examined hospital-visit numbers and foreclosure rates in all ZIP Codes that had those data available.

They found that areas in the top fifth of foreclosure activity have more than double the number of visits for preventable conditions that generally don't require hospitalization than the bottom fifth.At the local hospital in Homestead, Fla., a city of mostly single-family, middle-class homes about 30 miles from Miami, the emergency room has been bustling. Emergency visits to the hospital in 2010 more than doubled from 10 years earlier to about 67,000, and emergency department medical director Otto Vega says they will surpass 70,000 this year. Homestead has the highest rate of mortgage delinquencies in the U.S.—in June, 41% of mortgage holders in the hardest-hit ZIP Code of Homestead were 90 days or more past due on payments, according to real-estate data firm CoreLogic Inc.

Nearly half the city is delinquent on their mortgage and squatting in their homes. That's an astonishingly high number.

While the most common ailments are respiratory problems and pneumonia, Dr. Vega notes an increase in psychosomatic disorders, such as patients with chest pain and shortness of breath, and others who feel suicidal. “A lot of young people, less than 50 years old, have chest pain. You know it's anxiety,” he says.

Nationwide, overall emergency-room visits have also been rising, growing 5% from 2007 to 127.3 million in 2009, according to the American Hospital Association. But inpatient stays have largely kept pace with population growth over the last decade, says Beth Feldpush, a vice president for policy and advocacy at the National Association of Public Hospitals.

The number of people covered by employer-sponsored insurance has been falling, she says. “When people don't have insurance, they put off seeking care for too long and end up in the emergency room.“

The lack of preventative care is likely the real cause for the dramatic increase in emergency room visits.

And some of those seeking treatment had medical conditions before foreclosure—but the stress of losing their homes has exacerbated their ailments.

In 2008, Norman Adelman of Freehold, N.J., called his lender to ask for a forbearance of three or four months, saying he was about to undergo knee-replacement surgery. The lender complied and Mr. Adelman, who runs a home-energy business, says he began scaling back his work. He underwent needed tests and doctor visits.

After two months of not paying his mortgage, he successfully applied for a loan modification, taking his monthly payment from $2,700 to $1,900. But then the loan was sold—and a new servicer didn't recognize the terms of the arrangement, he says.

Whether he deserved the modification or not, if the lender sold the loan to a new lender who didn't honor the agreement, this borrower has good cause to be angry.

Mr. Adelman is fighting the new lender but says he has been in and out of the hospital for the last two years. He never had his knees replaced and is now on antidepressants and antianxiety medication.

“He's deteriorated. He's had sleepless nights,” says his wife, Shulamis. “You always have this fear of being thrown out. He's just gotten worse and worse from not sleeping.”

Earlier this month, after working with the nonprofit Staten Island Legal Services, Ms. Graci received a trial loan modification. “I'm happy but I am still scared,” she says. “I want a permanent solution. I don't know if I am in the clear.”

Write to S. Mitra Kalita at mitra.kalita@wsj.com

There is unquestionably an increase in anxiety caused by the recession, and foreclosures are a part of that problem. These reports leave me with mixed emotions. Part of me feels bad for the circumstances these people find themselves in. But part of me gets annoyed at the typical American whiner who can't put on a stiff upper lip and deal with the problems life throws at them.

Financial distress is self inflicted — I know because I inflict it on myself as well. Giving up attachments and entitlements makes financial distress go away. People who are unwilling to accept a decrease in their standard of living when their income declines create their own misery. At least this story wasn't the lead in for a proposal for a massive government subsidy designed to preserve the entitlements of borrowers at the expense of the rest of us.

$8,000 in; $193,000 Out

The foreclosed former owner of today's featured property demonstrates why California housing is so appealing to commoners. This property was purchased for $160,000 on 5/12/1999. The owner used a $152,000 first mortgage and a $8,000 down payment. That's 5% down.

On 11/27/2002, the owner refinanced with a $212,000 first mortgage, and on 7/31/2003 refinanced again with a $211,000 first mortgage. With only $50,000 in mortgage equity withdrawal, the owner was at least attempted to manage the growth in their mortgage.

On 6/29/2004 the owner obtained a $150,000 HELOC. Any prudence was abandoned.

On 5/15/2007 Bank of America gave this borrower a $345,000 first mortgage. I say gave because this loan was really stupid, and the borrower defaulted a few years later.

Foreclosure Record

Recording Date: 03/29/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 12/22/2010

Document Type: Notice of Default

Bank of America moved quickly through the foreclosure process once they issued the NOD. They tried to lower the bid to get a third party to buy the property at auction, but their $257,200 opening bid still resulted in another REO.

I suspect Bank of America listened to an exuberant listing agent who led them to believe the property is worth $363,000. If it really were worth that much, a third party would have stepped up to buy it. Expect to see discounts on this one before it finally sells. Recent model-match comps are selling for $30,000 to $40,000 less.

$324,900 2 GREENFIELD #17

0 miles 2 bd / 2 ba 1,140 Sq. Ft

$320,000 42 WOODLEAF Sold on Jul 26, 2011

0 miles 2 bd / 2 ba 1,140 Sq. Ft.

$330,000 23 GREENFIELD Sold on May 12, 2011

0 miles 2 bd / 2 ba 1,140 Sq. Ft.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 1 GREENFIELD #18 Irvine, CA 92614

Resale House Price …… $363,000

Beds: 2

Baths: 2

Sq. Ft.: 1140

$318/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1984

Community: Woodbridge

County: Orange

MLS#: S670865

Source: SoCalMLS

Status: Active

On Redfin: 13 days

——————————————————————————

This lovely upper, corner Alders condo features 2 bedrooms, 2 full bathrooms, a spacious kitchen with newer appliances, recessed lighting, crown molding throughout, newer paint and carpet, indoor laundry, and an enclosed exterior storage space near entrance. The community features a swimming pool and beautiful, well-maintained grounds, and is conventiently located to John Wayne Airport, shopping, schools (UC Irvine), parks and more!

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

Resale Home Price …… $363,000

House Purchase Price … $160,000

House Purchase Date …. 5/12/1999

Net Gain (Loss) ………. $181,220

Percent Change ………. 113.3%

Annual Appreciation … 6.6%

Cost of Home Ownership

————————————————-

$363,000 ………. Asking Price

$12,705 ………. 3.5% Down FHA Financing

4.26% …………… Mortgage Interest Rate

$350,295 ………. 30-Year Mortgage

$114,788 ………. Income Requirement

$1,725 ………. Monthly Mortgage Payment

$315 ………. Property Tax (@1.04%)

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

$76 ………. Homeowners Insurance (@ 0.25%)

$403 ………. Private Mortgage Insurance

$447 ………. Homeowners Association Fees

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

$2,965 ………. Monthly Cash Outlays

-$273 ………. Tax Savings (% of Interest and Property Tax)

-$482 ………. Equity Hidden in Payment (Amortization)

$19 ………. Lost Income to Down Payment (net of taxes)

$65 ………. Maintenance and Replacement Reserves

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

$2,296 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,630 ………. Furnishing and Move In @1%

$3,630 ………. Closing Costs @1%

$3,503 ………… Interest Points @1% of Loan

$12,705 ………. Down Payment

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

$23,468 ………. Total Cash Costs

$35,100 ………… Emergency Cash Reserves

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

$58,568 ………. Total Savings Needed

——————————————————————————————————————————————————-

I use rental parity analysis to find neighborhoods where cashflow properties abound in Las Vegas. Owner occupants can also take advantage of this analysis to narrow their search to the cities and zip codes with the best bargains.

Irvine Home Address … 214 TUBEROSE Irvine, CA 92603

Resale Home Price …… $704,900

The power of equality

Is not yet what it ought to be (ought to be)

It fills me up like a hollow tree (hollow tree)

The power of equality

Right or wrong

My song is strong

Red Hot Chili Peppers — The Power of Equality

Equality has power. Rental parity is a powerful price point because the cost of ownership is equal to the cost of rental. Theoretically, buyers should be indifferent at rental parity, but in the real world kool aid intoxication prompts many buyers to bid prices up above rental parity. The true power of this threshold doesn't become apparent until prices fall and owners find themselves paying far more than comparable rentals for properties worth less than they paid.

Today's post will be heavy on math, but I want to give everyone a look inside the black box of aggregate rental parity calculations. I use this analysis in Las Vegas to locate neighborhoods with the best rental property deals, but owner occupants can also take advantage of this analysis to narrow their search for properties to those cities or zip codes with the best bargains. In our deflating housing market, rental parity analysis is a useful tool for identifying which areas have deflated and which ones have not. I will be presenting the data for Irvine and select Orange County cities in my September 12 presentation at JT Schmids.

Rental Parity defined

Rental parity is the price point where the cost of ownership is equal to the cost of rental. Rental parity is an important price level because buyers who pay more than rental parity risk being trapped in a negative cashflow situation if they should need or want to move before the resale value has appreciated enough to cover their transaction costs on the sale. When people pay more than rental parity, they don't have a viable plan B to get out of their property.

Because rental parity is such an important threshold, evaluating the costs of ownership relative to rentals is an excellent way to measure value. If a property is trading above rental parity, the price is inflated above reasonable valuation. Perhaps in a few of the most desirable communities where move-up buyers bring equity from previous sales, properties can trade consistently above rental parity. However, for the vast majority of the housing stock, valuations at or below rental parity are the norm and define fundamental value.

If a property is reselling below rental parity, it can be rented for a profit. If it selling well below rental parity, it may be a good cashflow investment. The only way to be certain is to perform a property-specific analysis taking account of recent comps for both resales and rentals and inputting specific property information for HOAs, Mello Roos, and other costs.

I developed the analysis I will cover today to identify areas in Las Vegas where cashflow properties are common. Rather than try to analyze all 40,000 properties on the MLS, I developed this technique to narrow my search to specific areas of town or specific zip codes. It also enables me to give a rough idea of cap rates and cash-on-cash returns in any area based on aggregate numbers.

Using Rental Parity Analysis to find bargains

I performed a detailed analysis of the Las Vegas housing market (PDF of analysis here). I use it to identify which zip codes and which areas of town provide the greatest returns to cashflow investors. However, this is a useful tool to anyone looking for a home, not just investors. Nobody wants to overpay, and its difficult to get a broad overview of prices and values across the whole of Orange County by browsing properties on Redfin.

A rental parity analysis will reveal if a specific property you are looking at is a good deal or just average for the area, it may prompt you to look in areas you previously never considered, or it may reinforce your desire to keep looking in your area of choice. It's one more tool you can use to be sure you have made the correct decision on buying a home.

Patrick.net has a great rental parity calculator you can use to analyse properties. Check it out.

Rental parity analysis and the returns on real estate

Rental parity analysis gives me a broad overview of the market, but the point of the analysis is to direct me toward individual properties which yield results equal to or better than the rest of the neighborhood. Once I have identified the property, I put the information into an IHB Fundamental Value Report to calculate the cost of ownership and returns from the property as an investment.

The return on real estate is measured in three ways: capitalization rate, cash-on-cash return, and internal rate of return. Each of those is described in detail below.

Calculating capitalization rates

The basic calculation I perform is the capitalization rate, the net operating income divided by price. The capitalization rate is the return an all-cash investor would obtain from the property. It is always wise to examine the unleveraged returns of any investment as extreme leverage can exaggerate the returns of nearly any investment and disguise the underlying risk.

To obtain the capitalization rate for an entire zip code, I obtain four values from the MLS:

• Average rents over last 30 days
• Average square feet of rentals
• Median sales price
• Average square feet of resales

The square footage is necessary to normalize the numbers. Although not perfect, normalization by square footage is far superior than simply taking the raw rental number and dividing it by the median home price.

From these four pieces of data, I calculate the capitalization rate as demonstrated below.

Below is an example from the 89031 Zip Code in Las Vegas:

Cap Rate	Avg Rent	Avg Rent SF	Avg Rent Per SF	Avg Sale Price	Avg Sale SF	Avg Sale Per SF
8.0%	$1,148	1,751	$0.66	$116,335	1,817	$64.04

So how does that compare with the reality of individual properties in that zip code?

The capitalization rate analysis correctly predicted where I could find properties with desirable characteristics.

Cash-on-Cash return calculations

The cash-on-cash return is more important than capitalization rates for the average investor who uses debt to acquire real estate. The cash-on-cash return compares the down payment to the cashflow remaining after interest is paid (includes positive cashflow plus amortization).

The calculation for cash-on-cash uses the capitalization rate calculated above and magnifies it — both up or down — based on the financing terms. The lower the down payment, the greater the returns are magnified. This is why speculators were keen to use 100% financing when it was made readily available during the bubble. Returns were infinite, and the risk of loss was passed on to the lender.

The debt ratio is the magnifying factor of leverage. The down payment is divided into 1 to obtain the multiplying factor.

The fulcrum point of leverage is the interest rate. The interest rate must be lower than the capitalization rate for debt to have a positive effect. This was one of the key mistakes investors made during the bubble. People were buying properties with 4% capitalization rates using 6.5% debt. That's crazy. No sane investor would apply debt that is more expensive than the capitalization rate — insane speculators do this all the time, but the moment prices go down, and the property cannot be sold for a profit, the negative cashflow of inappropriately leveraged real estate eats people up.

The above property with a 7.7% capitalization rate yields 17.3% to an investor using leverage.

Internal Rate of Return

Current cashflows are not the only ways investors profit from real estate. The housing bubble was characterized by an overly exuberant opinion of future appreciation, and I have consistently decried considering appreciation as a reason to buy real estate in direct response to the foolishness of bubble-buyer attitudes. However, real estate can and does appreciate, and resale at a higher price in the future does have value. The best way to calculate this value is through a discounted cashflow analysis. When examining the rate of return of real estate, the internal rate of return is the best method available.

I won't attempt to walk anyone through the math of the internal rate of return calculation. Like everyone else in finance, I use a spreadsheet to calculate it for me. The concept of internal rate of return is not nearly as difficult to understand as the math used to calculate it.

Imagine you are buying a house for $123,000 you believe will be worth $215,000 10 years from now. What is the current value of the $93,000 profit you will obtain in 10 years? It depends on the interest rate. That calculation is what finance people call net present value.

Now Imagine you could put $123,000 in a bank account earning a high interest rate (I know you can't today, but just imagine). What interest rate would be required to have your $123,000 grow into $215,000 at the end of 10 years? That interest rate would be like the internal rate of return on the property that increased in value by the same amount over the same period.

Internal rate of return considers more than just the lump sum at the end. Internal rate of return compares the amount and timing of all the cash inflows and compares it to the initial investment amount to compute an overall rate of return on the investment. Internal rate of return is the most accurate measure of the financial performance of real estate.

A Las Vegas investment property

The property below is an property offered by the investment fund I manage. The second presentation on September 12 will focus on how investors can get involved with cashflow properties in Las Vegas. One of these methods is direct ownership and management of rental properties such as the one below.

Most properties in Las Vegas are trading below rental parity, even in the nicest neighborhoods in Summerlin. If you invest in areas outside of the ones most desired by owner occupants, the prices fall off quickly, but the rents do not. This creates opportunity to pick up properties with outstanding current cashflow and potential for rebound appreciation to rental parity many years from now.

The first page of the report shows the asking price and the rate of return as an unleveraged investment. This is followed with a detailed look at the returns on a financed purchase. Many properties in Las Vegas generate such good cashflow they can cover the payment on a 15-year mortgage.

The second page of the report gives greater detail on the cost of ownership. It provides a list of comparable resales and rentals to verify current value.

The third page examines the current valuation relative to rental parity, and it considers the possibility of rebound appreciation over 10 years taking prices back to rental parity (nowhere near the peak, but to where prices should be). Assumptions on appreciation impact the internal rate of return, but not the current cashflow. If you don't believe Las Vegas housing prices will ever recover, it will not impact the cash returns you receive while owning the property.

The final chart is a graphical representation of the thousands of scenarios you can run to test different financing terms. If you develop your own spreadsheet and go through the exercise, you will find lower interest rates increase returns, and lower down payments increase returns — assuming the interest rate is lower than the cap rate.

Nicer and newer properties typically don't provide the best cashflow. The property above is an 1814 SF 4/2 built in 2003. Owner occupants have kept these prices up to where cap rates are near 8%. An 8% cap rate is unheard of in Orange County, except perhaps for undesirable properties in Santa Ana, but 8% cap rates are quite common in Las Vegas.

If you are willing to own a smaller, older property in a less desirable but not bad neighborhood, the returns in Las Vegas are truly outstanding.

If you are interested in learning more about rental parity analysis and investing in cashflow properties, I suggest you come to the presentations on September 12. I will be available before and after the presentations to answer any questions you might have.

It didn't go up enough to Ponzi the payments

The former owners of today's featured property paid $534,000 on 9/26/2003. They used a $421,900 first mortgage, a $79,000 second mortgage, and a $33,100 down payment. They withdrew their down payment about 5 months later when they refinanced with a $555,000 first mortgage. They also got $21,000 in HELOC booty to go with their down payment. The refinanced again on 4/29/2004 for $563,000 and obtained another $8,000. They were foreclosed on 7/22/2011 with a balance due of $652,500.

Apparently the bank hasn't gotten the memo about prices being back at 2003 levels. Like a delusional seller of the post-bubble era, they have priced this property to get everything they are owed on the deal after commissions. Good luck with that.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 214 TUBEROSE Irvine, CA 92603

Resale House Price …… $704,900

Beds: 4

Baths: 3

Sq. Ft.: 2100

$336/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 2003

Community: Quail Hill

County: Orange

MLS#: S671457

Source: SoCalMLS

Status: Active

On Redfin: 1 day

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Excellent corner location in Solstice – Quail Hill. Two story home with one bed/bath downstairs. Numberous highlights including custom neutral paint and carpet. Granite countertops in kitchen, walk in pantry, light, bright and open floor plan. .. Upstairs has large loft and balcony as well as upstairs laundry room. One of top school districts in the state.

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Proprietary IHB commentary and analysis

Numberous?

Resale Home Price …… $704,900

House Purchase Price … $534,000

House Purchase Date …. 9/26/2003

Net Gain (Loss) ………. $128,606

Percent Change ………. 24.1%

Annual Appreciation … 3.5%

Cost of Home Ownership

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$704,900 ………. Asking Price

$140,980 ………. 20% Down Conventional

4.19% …………… Mortgage Interest Rate

$563,920 ………. 30-Year Mortgage

$152,599 ………. Income Requirement

$2,754 ………. Monthly Mortgage Payment

$611 ………. Property Tax (@1.04%)

$200 ………. Special Taxes and Levies (Mello Roos)

$147 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$230 ………. Homeowners Association Fees

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$3,942 ………. Monthly Cash Outlays

-$645 ………. Tax Savings (% of Interest and Property Tax)

-$785 ………. Equity Hidden in Payment (Amortization)

$211 ………. Lost Income to Down Payment (net of taxes)

$108 ………. Maintenance and Replacement Reserves

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$2,831 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$7,049 ………. Furnishing and Move In @1%

$7,049 ………. Closing Costs @1%

$5,639 ………… Interest Points @1% of Loan

$140,980 ………. Down Payment

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$160,717 ………. Total Cash Costs

$43,300 ………… Emergency Cash Reserves

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$204,017 ………. Total Savings Needed

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