The one market with the fewest foreclosures relative to its mortgage delinquency is New York City — the homes of banksters are being spared foreclosure and the resulting declines in value.

Irvine Home Address … 208 MONROE #152 Irvine, CA 92620

Resale Home Price …… $415,000

Start spreading the news, I'm leaving today

I want to be a part of it – New York, New York

These vagabond shoes, are are longing to stray

Right through the very heart of it – New York, New York

Frank Sinatra — New York, New York

One of the most irritating behaviors I have witnessed during the deflation of the housing bubble is the way banksters have chosen to foreclose in some markets and allow delinquent mortgage squatters to flourish in others. The worst market in the entire country for shadow inventory, the place with the most delinquent mortgages and the lowest foreclosure rate is where the banksters live: New York City.

There is only one plausible explanation for this phenomenon: banksters are choosing not to foreclose in places where it would negatively impact the value of their personal real estate.

If pressed on the issue, they would likely spout some nonsense about New York City being different. It's special, everyone wants to live there, and so on. Markets obey laws of supply and demand, and right now, demand for overpriced NY real estate is very low, and the supply of shadow inventory is very high. Of course, that is shadow inventory. If they simply leave that inventory in the shadows, they can balance supply and demand and meter out these properties as the market can absorb them — at least that's the theory.

Strategic default will take over

There is one basic flaw with their plan. As more and more people stop paying their mortgage and don't get foreclosed on, the people who are paying their mortgage realize they are being foolish, so they stop too. Think about it; if you can possess property forever with or without paying for it, why would you pay? Moral obligation? On Wall Street?

Strategic default is usually associated with a beaten down market like Las Vegas where it is foolish to continue paying a $300,000 mortgage on a $100,000 house. However, at the other extreme is New York City where all consequences for default have been removed. And mortgage default has major benefit to someone putting 40% or more of their income toward a mortgage. Each person who decides to quit paying gets to keep their house, and they get to keep the money they used to put toward paying down the mortgage. For many it's like a 40% raise in pay.

We are quickly approaching a tipping point in New York City where residents recognize it is in their best interest to default and pocket the payments. Once that becomes common wisdom, strategic default will become the norm just as it has in Las Vegas. If lenders continue to allow these borrowers to squat, it will eventually rise to the level of entitlement on Wall Street. Everyone who works in New York City in finance will look to their company's REO for their housing and expect it to be free. If nobody else has to pay, why wouldn't they expect it for nothing?

Strategic default is not only a phenomenon of beaten down markets. If mortgage delinquency becomes rampant because borrowers know the repercussions are non-existent, strategic default will take over there too.

Why New York City Home Prices Are Headed for Collapse

By Keith Jurow May 31, 2011 12:15 pm

Editor's Note: Keith Jurow is the author of the MVP Housing Market Report.

Readers of mine know that I have written two articles about why a collapse in Queens home prices was almost certain (see A Housing Price Collapse in Queens New York Is Almost Certain and Queens Housing Market, Like Much of NYC, Is Headed for a Crash). Yet no collapse has occurred. Was I wrong?

I never stated that the collapse was imminent. I said I had no way of knowing when the banks would start foreclosing on all those delinquent borrowers. But they will. Now is a good time to take a look at why the entire New York City (NYC) market is headed for collapse.

Based on the volume of shadow inventory in New York City, the housing market should collapse, but the banksters are determined to prevent this from happening even if that means giving away properties to delinquent mortgage squatters. New York City may be on its way to a decade-long slow deflation. If they sell the properties slowly enough, incomes will eventually come back. Right now it would take an astounding 129 months to clear out their backlog.

First, let’s see what’s happened to home prices around the country since the expiration of the first-time buyer tax credit. The best source for this is Clear Capital and its excellent Home Data Index (HDI) Market Report.

Since the end of last summer, home prices nationwide have plunged by an average of 11.5% through April 2011. Some of the worst major metros have fallen even more. Talk of home prices bottoming has stopped. For a year, I’ve been saying that there is no housing recovery in sight.

Yet NYC median home prices have held up pretty well during this period. Why?

Prices have held up in New York City for the same reason they are holding up here in Orange County: lenders are not foreclosing on delinquent mortgage squatters.

In my two articles about Queens, I pointed out that the servicing banks are simply not foreclosing on delinquent homeowners. They aren’t even putting them into default (NOD). Take a look at this chart from the first article showing the rise in serious delinquencies in that borough.

A year ago, 11.2% of all Queens homeowners with a mortgage were delinquent by 60 days or more. I obtained these figures from TransUnion, the credit-reporting firm which puts out a quarterly mortgage delinquency report based on its database of 27 million anonymous credit reports. In the first quarter of 2008, that figure was only 3.9%.

That 11.2% figure equaled roughly 25,000 seriously delinquent homeowners. This number was confirmed by a fairly recent NY Federal Reserve Bank report which stated that 10% of all first liens in Queens were delinquent by 90 days or more. Remember, these figures are for only one of five boroughs in NYC. The NY Fed’s report also showed a 90+ day delinquency rate of 11.8% for the Bronx and 9.5% for a Brooklyn.

The delinquency rates in the New York City boroughs are higher than the rest of the nation. With 25,000 delinquent mortgage squatters in Queens and a liquidation rate of less than 250 per month, it will take over 100 months to clear out the existing inventory.

Are the banks making any attempt to foreclose on all these delinquent homeowners who are living rent-free? You judge.

Let’s take a good look at this amazing graph. New York City has roughly 8 million residents, easily the largest city in the nation. The graph from PropertyShark breaks down the new foreclosure auctions (actually sheriff sales) scheduled by borough. You can see that the vast majority scheduled are for Queens. None of the other four boroughs exceeded 150 scheduled auctions in any month since the end of 2008.

Notice carefully that the peak number for Queens starts to decline well before the robo-signing mess occurred last fall. Sorry, that problem had nothing to do with the bank’s refusing to foreclose on delinquent homeowners. It did provide some cover for the banks, though.

Lenders will use whatever news story that's available to continue to put off foreclosure. They are trying to buy time because they know prices will crash if they liquidate. If they don't liquidate, their borrowers will figure it out and strategically default.

The plain truth is that for more than two years, the servicing banks have made no effort to foreclose on these seriously delinquent borrowers throughout the Big Apple. Take a look at these incredible figures for the number of NYC REOs for sale on foreclosure.com on May 30.

Repossessed Properties on the Market in NYC — May 30

• Queens: 232
• Brooklyn: 95
• Bronx: 76
• Staten Island: 75
• Manhattan: 27

I’m not making these numbers up. Go to foreclosure.com and check for yourself.

So what does all this mean for the NYC housing markets? Homeowners in any of the five boroughs do not have to compete with foreclosures for sale as they do in every other major metro. So can they list their property for anything they want. And they do. Every once in a while, like the Venus flytrap, a seller is fortunate enough to catch a buyer.

That is the Orange County experience as well, particularly at the high end. I see delusional sellers all the time on Redfin who bought at the peak and think their property value has gone up. Occasionally, they are right. Of course, it requires borrowers to come up with enormous down payments, and as a result sales volumes are very low, but if lenders are willing to drag this process out for ten years, they might be successful. In the meantime, they will be supporting a lot of squatters.

Sellers don’t catch many, though. In Jonathan Miller’s thorough quarterly report on the Queens market put out by Prudential Douglas Elliman Real Estate, he counted a total of 2,483 1-3 family houses, coops, and condo units sold during the fourth quarter of 2010. That is roughly 830 per month. This is for a borough with roughly 2.2 million residents. These buyers paid a median price of $363,000. If you weren’t aware of what I’ve explained, you would think that the Queens market has held up fairly well. No way. The overwhelming majority of properties on the market in all five boroughs just sit … and sit … and sit.

That also sounds like Orange County.

Where All Five Boroughs Are Headed

At some point, the banks will be under tremendous pressure to foreclose on the huge number of seriously delinquent properties that are now either vacant or occupied by “walkaways” who have been enjoying the free ride longer than anywhere else. Look at this shocking chart from Lender Processing Services.

It shows that In New York State, homeowners with a notice of default (NOD) on their property have not made a mortgage payment for an average of 644 days. That is more than 21 months. Nice deal, isn’t it?

That is the best deal in the country. People who quit making their loan payments get two years of free housing. If they save that money, after the lender finally does foreclose, they can wait two years and buy another property. Since prices will likely continue to fall, particularly at the high end, they will repurchase at a lower price and have equity from their down payment. The people who don't strategically default will make payments and fall further and further behind.

When the banks begin to foreclose and dump the REOs on the market, prices in all five boroughs will completely collapse. This is almost as certain as night follows day. Ignore it at your own risk.

Keith will be focusing on the entire NYC housing market and the suburbs in the seventh issue of his Housing Market Report due out in mid-July.

For much more from Keith Jurow, see his Housing Market Report. Keith provides actionable data, charts, in-depth analysis and specific advice to help investors and sellers make better property decisions. Learn more. Also, watch Keith talk about why he launched the Housing Market Report.

Looking at the continuum of lender liquidation behavior, Las Vegas is on one extreme and New York is on the other. Desirability has nothing to do with it. Las Vegas has been pummeled by foreclosures and liquidation selling. New York has been spared any meaningful price declines because there are very few foreclosures and almost no liquidation selling.

Both Las Vegas and New York have a huge problem with mortgage delinquency and strategic default, but for opposite reasons. In Las Vegas, borrowers are hopelessly underwater and see continued payment as pointless. In New York, borrowers are offered two years of free housing if they quit paying, so many are taking advantage. Both markets have a huge shadow inventory.

Orange County has been somewhat more balanced in its foreclosure and disposition efforts. Lenders have foreclosed and process more homes at the low end than at the high end, so high end prices are still inflated while low end prices are nearer the bottom. Only time will tell which path is the correct one for lenders. For future borrowers, the tiny mortgages in Las Vegas will be a huge benefit. For buyers in the slowly deflating markets like New York, the huge mortgages will be an economic dead weight.

Get out while you can

With the leading edge of prices now in 2003 in Irvine, many 2003 buyers are chosing to bail while they still can. The owner of today's featured property paid $353,500 on 3/28/2003. She borrowed $282,000 and put $71,500 down. She opened a HELOC for $35,200 on 11/17/3003, but didn't add to her mortgage again until 1/8/2007 when she took out a stand-alone second for $80,000. Her total property debt of $362,000 is only slightly more than she paid. That's conservative by Irvine standards.

She must have fallen on hard times because she stopped paying the mortgage and decided to sell.

Foreclosure Record

Recording Date: 05/18/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 01/26/2011

Document Type: Notice of Default

She could be one of many working in a real estate related industry who succumb to the long recession. With no history of HELOC abuse, and what appears to be a relatively small mortgage, she could be an innocent casualty of the housing bubble.

Irvine House Address … 208 MONROE #152 Irvine, CA 92620

Resale House Price …… $415,000

House Purchase Price … $352,500

House Purchase Date …. 3/28/2003

Net Gain (Loss) ………. $37,600

Percent Change ………. 10.7%

Annual Appreciation … 2.0%

Cost of House Ownership

————————————————-

$415,000 ………. Asking Price

$14,525 ………. 3.5% Down FHA Financing

4.49% …………… Mortgage Interest Rate

$400,475 ………. 30-Year Mortgage

$86,862 ………. Income Requirement

$2,027 ………. Monthly Mortgage Payment

$360 ………. Property Tax (@1.04%)

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

$86 ………. Homeowners Insurance (@ 0.25%)

$461 ………. Private Mortgage Insurance

$190 ………. Homeowners Association Fees

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

$3,123 ………. Monthly Cash Outlays

-$325 ………. Tax Savings (% of Interest and Property Tax)

-$528 ………. Equity Hidden in Payment (Amortization)

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

$72 ………. Maintenance and Replacement Reserves

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

$2,366 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,150 ………. Furnishing and Move In @1%

$4,150 ………. Closing Costs @1%

$4,005 ………… Interest Points @1% of Loan

$14,525 ………. Down Payment

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

$26,830 ………. Total Cash Costs

$36,200 ………… Emergency Cash Reserves

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

$63,030 ………. Total Savings Needed

Property Details for 208 MONROE #152 Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 1495

$278/SF

Property Type: Residential, Townhouse

Style: Two Level

Year Built: 1985

Community: 0

County: Orange

MLS#: H10122016

Source: CRMLS

Status: Active

————————————————-

GREAT PRICE FOR THE LARGEST FLOOR PLAN TOWNHOME IN TIMBERLINE. 3 BR 2.5 BA 1495 SQ. LAMINATED FLOORING THROUGHOUT. OPEN FLOOR PLAN IN PRIME LOCATION. LOW HOA FEES.

Thank you, IHB readers

I want to thank everyone for the kind words of support yesterday. I hope to put the issue behind me, but depending on how foolish and vindictive the Orange County Association of realtors wants to be, we may see this story resurface again. Wouldn't that be fun? Perhaps they will quietly go away and drop their complaint. I'm not holding my breath.

The Orange County Association of realtors has accused IrvineRenter of “knowingly telling lies about competitors.” They demand I appear in front of their grievance committee for disciplinary action.

Irvine Home Address … 1 SOLANA Irvine, CA 92612

Resale Home Price …… $550,000

Father please forgive me

You know you'll never leave me

Please will you direct me in the right way

Liar liar liar liar

Liar that's what they keep calling me

Liar liar liar

Queen – Liar

The Orange County Association of realtors is after me. They claim I am a liar. Today, I will present the facts and let you decide.

Realtors go after blogger who says they lie

June 6th, 2011, 12:00 pm — Marilyn Kalfus, real estate reporter

The Orange County Association of Realtors has filed a grievance against an Irvine real estate broker who writes a blog that takes critical looks at the housing crash, homebuyers and real estate agents.

.

Larry Roberts, who writes the IrvineHousingBlog.com, freely admits going “over the top” in his posts, which are particularly harsh on homeowners who default on loans. He frequently shows MLS photos of properties that have gone into foreclosure. He also has accused real estate agents, in general, of being dishonest.

I sometimes do go over the top. It's part of my sense of humor, and It's one of the reasons I don't single out individuals. Sometimes it takes going over the top to draw attention to important issues and get people to think.

The grievance says Roberts and two other people have violated a code of ethics rule stating that “Realtors must not knowingly lie about competitors” as well as a general set of regulations governing how MLS information is used on the internet.

Roberts says OCAR is trying to impinge on his freedom of speech, and that the organization has no standing to keep him from posting in his blog.

This is clearly an attempt to silence my free speech because OCAR does not like the content of my speech. Why else would they bring this complaint? The complaint filed by OCAR is “anonymous” — nobody at OCAR has the guts to stand up and publicly accuse me. To make it worse, OCAR has not even notified me of what specific actions I took which violate their rules.

They want to drag me before a biased kangaroo court made up of its own members and keep the hearing secret and non-public. Anonymous accusations, secret trials, and refusal to substantiate charges sound more like the political trials of the Soviet Union, Cuba or North Korea than American notions of due process. Joseph Stalin from the old Soviet Union would be proud of OCAR and their methods.

He has a broker’s license, he says, but he doesn’t run a brokerage or sell real estate, and he is not a Realtor or a member of OCAR.

The complaint, which Roberts furnished to the Register, was accompanied by a printed version of a post he ran saying that real estate agents lie.

“Realtors take advantage of their status as trusted experts to manipulate buyers, and they feel no responsibility when their statements are exposed as lies,” the statement said.

Roberts says he believes he wrote it as an introduction to an article in the blog by a University of Arizona law professor. The piece, entitled, “Trust, expert advice and Realtor responsibility,” was later removed from the blog at the professor’s request because it was going to be published elsewhere, Roberts said.

In an interview, Roberts elaborated, saying, ” …Many Realtors make representations about investment value and appreciation without regard to whether or not such statements are true. Most make these statements in ignorance, which technically isn’t lying, but some make these statements knowing better, which is lying.”

Roberts added that while he has been hard on real estate agents in general, ”I have never singled any Realtor out and called them a liar.”

I don't focus on individuals. The behavior is the problem, not the person doing it. People make mistakes. I have. I don't seek to shame people, I try to point out what people do whether it be borrowers or realtors so people can see the wisdom or the foolishness in the behavior for themselves.

OCAR’s Rena Budesky, who signed the grievance, declined to answer questions from a reporter seeking specifics about what Roberts did to prompt the action. “Everything that relates to grievance complaints, it’s all confidential,” she said.

OCAR president Jean Tietgen did not respond to a reporter’s call.

They want to call me in front of their Kangaroo court of realtors, keep me in the dark regarding their trumped up charges, find me guilty, then keep everything quiet.

Roberts’ attorney Scott H. Sims sent a letter to Budesky and OCAR demanding they withdraw their complaint, which he called “frivolous .. and a clear effort to interfere with Roberts’ right of free speech.”

“Even if Roberts had engaged in wrongdoing, which he has not, any disciplinary action taken by an OCAR grievance panel would carry no legal force and effect and OCAR would be exposing itself to liability for any and all damages to Roberts,” the letter read in part.

“If OCAR or any of its members disagree with Roberts’ opinions they are free to dispute them in ‘the marketplace of ideas,’ ” the letter says, “and leave it up to the public to decide who is right .. We recognize that engaging in a civil debate about the health of the housing market may not blindly pad the pockets of OCAR’s members who are paid on commission — and thus have no incentive to tell their clients to do anything except to ‘buy,buy,’buy” — but such is the risk of doing business in a free market.”

Hallelujah! The IHB has always been an open forum. People are free to come here and put forward their ideas and opinions of the housing market. I have always encouraged differing points of view as evidenced in the daily astute observations. Ideas with merit are scrutinized, and the collective wisdom of the group separates the good ideas from nonsense. That's how a healthy debate should work.

PDF of full attorney response letter

What does OCAR think about free speech?

The allegations brought against me include (1) knowingly lying about competitors, and (2) violating MLS rules. Yet OCAR won’t tell me how I did either. Isn't it obvious these are silly attempts to shut down one of the few truthful and accurate sources of real estate information and analysis in Orange County? They are pissed about my public comments, and they hope they can find some MLS violation to shut me down. In their complaint, they provided absolutely no evidence of any MLS violations. If there are any legitimate violations, they should tell me and give me the chance to correct them. Unfortunately, OCAR is more interested in keeping me in the dark, holding some secret proceeding and then trying to shut down the IHB and infringe on free speech.

Do any of you believe the information presented on the IHB is inaccurate or misleading in any way? Does OCAR need to sue the IHB to ensure the data presented is accurate and useful? Who do you believe is more concerned with accuracy, the IHB or OCAR?

This is really embarrassing for OCAR. I criticize the national association for knowingly providing inaccurate information to buyers — which they did — and the local association accuses me of lying and providing bad information. Unbelievable! I cringe when I think of the thought process that was behind this complaint. OCAR should be asking itself what the hell is going on. They want to call a non-member in front of their secret panel, and then make up bogus charges designed solely to infringe on someone's freedom of speech. Brilliant!

Isn't this America? Perhaps OCAR might be more comfortable in Communist China? Oops, I better be careful. I wouldn't want to get called in front of a disciplinary board in China for my statements….

What is wrong with the association of realtors?

My issues with the association of realtors is well documented:

5-23-2011 — More self-serving bullshit from the National Association of realtors

5-13-2011 — NAr: sales decline in 78% of markets and prices fall 4.5% nationwide

3-26-2011 — The future of IHB news and real estate analysis.

3-9-2011 — The OC Register Says California had no real estate bubble.

2-24-2011 — National Association of realtors caught lying about home sales

4-9-2010 — The National Association of realtors Latest Scare Tactic: Rising Interest Rates

1-26-2010 — Urgency Versus Reality: realtors Win, Buyers Lose

I don't like how this trade association operates. As I stated in More self-serving bullshit from the National Association of realtors,

Since Barry Ritholtz post on How to Read National Association of Realtors News Release, I have been contemplating the utter disrespect the NAr demonstrates for its customers through its constant manipulation of data for the sole purpose of convincing buyers to act even if it isn't in the buyers best interest to do so. It angers me that such a corrupt and self-serving philosophy of business is at the core of the NAr because their actions harm so many people.

How many buyers from the bubble rally were soothed by the comforting advice of their expert realtors who were telling them house prices only go up? How many of those buyers relied on their realtor's statements and now find themselves financially destroyed by the purchase they made? Are realtors responsible for the financial ruin of those buyers who believed their representations of financial performance?

On 3-23-2011, I wrote the post As trusted experts realtors are responsible for their bad financial advice. That post was a reprint of Dr. Brent White's paper, Trust, Expert Advice, and Realtor Responsibility. From the abstract:

Real estate agents benefit from the trust associated with portraying themselves as real estate experts, yet are generally not legally responsible for the advice that they give. This lack of legal responsibility is at odds with psychological propensity of individuals to trust perceived experts. It also creates a genuine moral hazard, fueled the housing market bubble and contributed to the suffering of homeowners whose real estate agents encouraged them to buy as the market began to burst. This article proposes that real estate agents be required to accept legal responsibility for their advice or be required to represent themselves as mere salespersons.

My post is no longer on the IHB. As mentioned in the OC Register’s article, I emailed Dr. White when my post came out, and he requested I take it down because the paper was about to be published in a major journal, and he didn't want problems with his publisher. Since I was trying to help Dr. White by calling attention to his paper and not cause him grief, I took the post down per his request.

The post containing Dr. White's paper is apparently part of the the OCAR complaint against me — A post that was 90% someone else's writing. I was drawn to Dr. White's paper because he was making the same argument I was in The Great Housing Bubble and in many posts on the IHB: realtors should stop making representations of financial returns in real estate as an inducement to buy.

In The Great Housing Bubble, I wrote this:

Since one of the goals of regulatory reform is to inhibit the behavior of irrational exuberance, the sales tactics of the National Association of Realtors should be examined and potentially come under the same restrictions as securities brokers through the Securities and Exchange Commission. After the stock market crash which helped precipitate the Great Depression, Congress created the Securities and Exchange Commission to regulate the sales activities of securities brokers. There are strict regulations in place governing the representations made concerning the future performance of investment opportunities. These protections were put in place to protect the general public from the false promises made by stockbrokers in the 1920s which many naïve investors believed. The same analogy holds true for Realtors. The National Association of Realtors has launched numerous advertising campaigns suggesting erroneously that residential real estate is a great investment and appreciation will make home buyers wealthy.

Some people mistakenly believe that realtors are regulated by the SEC and need a securities license to make representations about returns in real estate. Not true. They say whatever they want, and if a buyer relies on that information, too bad for the buyer.

In the complaint against me, the post with Dr. White's paper is singled out as evidence that I “knowingly lied about my competitors.” In an amazing example of cognitive dissonance, OCAr is accusing me of lying.

I believe this is an attempt to silence my voice and undermine my business. What other explanation could there be?

OCAR should leave me alone

Is spending OCAR resources on this complaint in the best interest of the organization? If OCAR is trying to vault me to national attention through its frivolous lawsuit, they just might succeed if they don't let their complaint drop. Dr. Brent White, the author of the paper that was the subject of the post they objected to, was on 60 minutes for his controversial stance on strategic default. My attorneys represented Tyler Hamilton on his recent 60 Minutes appearance. Producers at 60 Minutes are contacts of both Dr. White and my attorneys. Is attacking my freedom of speech on the issue of realtor responsibility newsworthy enough for 60 minutes? If they keep pushing, we might find out.

I am not looking for a fight. Personally, I would rather focus my energy on developing my own business and holding to a higher standard. If the people behind the complaint against me were to put a fraction of that energy toward raising their own standards and creating their own success, they might serve their clients better and make more sales.

Shevy is a personal friend and we speak regularly about the market and ways that real estate services can be improved. Shevy is a member of OCAr, NAr, and participates in LGrS through OCAr. He participates in these groups to bring perspective and hopes of influencing positive change for consumers through OCAr and NAr policy improvement. He was very surprised and disappointed that OCAr chose this path. Open forums like the IHB should be embraced by groups like OCAr and NAr as an opportunity to gain insight and address important real issues.

What is a lie?

First, let's dispense with their allegations. In order to tell a lie, someone must know the facts of a situation and knowingly state something contrary to fact. Let's look at my statements and contrast that with statements of some realtors and representatives of their association.

I have stated uncomfortable truths (see links above), but I have not lied about anything. Like Dr. White and Barry Ritholtz, I happen to believe that realtors do at times make misleading statements about house price appreciation to induce a buyer to act. My statement is my reality. If I am mistaken, and if no realtor has ever made an intentionally misleading statement as to future value of a house, then I am mistaken, not a liar. That being said, I don't think I am mistaken:

In the video above featuring NAr representative Tom Adkins above from 2008, he is embarrassingly wrong, and as Peter Schiff points out, he was just as wrong the year before. But why does he keep saying it? Does he know better and chooses to lie? Is he ignorant to the truth and merely passing on his foolish opinion?

Not every instance of a realtor making representations of financial rewards is intentionally misleading. Sometimes they are merely delusional and genuinely believe what they are saying. The post The OC Register Says California had no real estate bubble documents that phenomenon rather clearly.

As I pointed out in Urgency Versus Reality: realtors Win, Buyers Lose,

… it was fascinating to watch the realtor mind at work. The presentation included many “reasons to buy” realtors could use in their own manipulations consultations with customers. There was little or no regard for the veracity of the claims, it only mattered that realtors have something, anything to create urgency in buyers. Many realtors see their job as presenting buyers with reasons to buy, any reason, and hope the buyer is gullible enough to believe them.

The lack of concern for the truth is the defining characteristic of bullshit. When the bullshit is being offered to obtain a sales commission, the bullshit is self serving. How would you characterize the ad below from the peak of the housing bubble in 2006? It was the worst possible time to buy real estate as an investment. Everyone who did so lost money, yet the NAr claimed real estate was a great investment in 2006.

How would you characterize the behavior of the NAr when they put out advertising like this? They were obviously totally wrong.

1. Were they lying?
2. Were they delusional?
3. Or were they bullshitting showing an indifference to the truth?

And are any of those answers acceptable to you?

So what does the general public think of OCAR's complaint?

The following comments were culled from the many on Marilyn Kalfus's post yesterday:

Who's Dat says: It’s given that Realtors are liars. How many times have we been told “Now is the best time to buy…”?

NueeArdente says: All salesmen do their best to make a sale, yes that means manipulation… and while many might not lie outright.. I can see truth stretched like taffy quite a bit. Then theres a whole pack of them that knowingly sold homes to families that could not afford it while the banks enabled that behavior.

BigLandlord says: I will double the vote that 90% of Realtors LIE all the time! I know, I was a Realtor from 1976 to 2006. LEFT A VERY BITTER TASTE IN MY MOUTH Dealing with so many LIARS. That’s why Escrows are so complicated & take so long!

jules says: It’s true… Realtors do lie. And, it’s not just one life…it’s one lie after another. I have experienced it myself. Why do you think so many people fell for these overpriced homes over the last several years? I realize that realtors weren’t the only factor, but I experienced it myself. The realtor kept lying and lying. Inside I was thinking “Wow…” I can’t believe that anyone would behave this way… Amazing…

jon says: Realtors are getting DESPERATE. They can’t stand the truth. 6% is above God and morality. IHB is nice enough not to call them names, but I will. Realtors = Rodents.

mojoj says: The statement in question about investment values of homes was exposed in the book Freakomics. In the book, they had a real life example of a real estate agent that urged the home buyer to purchase the home because it was a good investment. Shortly thereafter (with no measurable shift in the market, the buyer sought out the same agent to plan on selling the house to benefit from the “investment”. The agent then told him that it was a down market and that it wasn’t a good time to sell a home. The book also shows that real estate agents don’t have enough of an incentive to maximize the sale price of your home so they settle on what gets them the most amount of money with the least amount of effort without regard to your best interests. We all know this, but it looks like some local buffoons want to sue someone for blogging about it.

ocbear says: During the housing bubble, the National Association of Realtors were huge cheerleaders getting people in over their heads, and are a big cause of the whole mess. The post cards that I received from realtors during those years contained so many lies I couldn’t believe it!

And my favorite:

Surprised says: The only thing I am going to say is that there needs to be a new industry trade group.

I challenge the NAr to raise their standards

There is a simple reason the local realtor association wants to harm the IHB: Their customers prefer the higher standard we set, and we are taking their business. I offer a series of challenges to the association of realtors.

1. Stop presenting inaccurate data to suit your purposes.

Back in 2007, realtors changed their methods of data collection to get the data they wanted to present rather than be accurate to what really occurred in the market. I documented this in National Association of realtors caught lying about home sales. This behavior needs to stop.

2. Stop manipulating accurate data with spin and bullshit to influence buyers.

In the post, The future of IHB news and real estate analysis, I called out the NAr for their intentional manipulation of data to influence buyer psychology. I challenge them to stop.

Zillow's Stan Humphries among other real estate economists, has demonstrated a willingness to tell a dark truth about home prices or sales regardless of how this will impact Zillow's business in the short term. Telling potential customers the truth generates more sales in the long term than ceaseless bullshit.

3. Stop encouraging agents to create a false sense of urgency.

In Urgency Versus Reality: realtors Win, Buyers Lose, I documented what everyone already knows — realtors rely on creating false urgency to sell homes. Shouldn't people be given accurate information and be encouraged to make their own decisions? I think so. And so do the customers we have served. realtors need to stop creating false urgency in buyers.

4. Place the needs of your clients above your own.

Since I announced the IHB would help people buy and sell real estate, I have remained truthful to my view of the housing market. The IHB has consistently advised caution, while realtors were consistently calling the bottom and telling people they have nothing to fear. Many people have chosen to rent because of our advice, and since prices are still falling five years after the peak, our advice has served clients well. The IHB could have generated more sales if we had “gone realtor” and put our own financial interests above our clients. We chose not to do that because we believe it is the right thing to do. I challenge realtors to do the same.

5. Admit the sales techniques encouraged by the organization hurt millions of customers — and apologize.

Some lenders feel bad about their role in the housing bubble and the millions of resulting foreclosures, but realtors don't feel responsible. realtors encouraged millions of people to buy houses they couldn't afford, and now those buyers are financially ruined. I haven't read a remorseful confession from any realtors acknowledging their role in the bubble. Is that too much to ask?

realtors can serve their clients better

Most realtors who read this — and they all will with the attention this issue is getting — will dismiss my challenges as the ravings of a hater. Nothing could be further from the truth. I would rather see everyone who buys real estate be treated the way IHB treats its clients. I rant and rave to foster change, not hate.

Many good agents don't like how their trade association works, but they feel powerless against the machine. They aren't powerless. Many secretly agree with me, but feel compelled by the pressure of the group to say nothing. Now is the time to stand up and be heard. Good agents need to raise their standards and demand the same of everyone else in the organization. Clients everywhere would benefit from that.

Better and more useful data

The property profile below is typical of an IHB post. It has two links to MLS sources for more information than is presented here. From the MLS data, which gets much of its information from the County Assessor's office and other public records, I break down the cost of ownership and acquisition. It's a shortened version of an IHB Fundamental Value Report. The data presented is accurate, and I provide more information that is useful to borrowers than other sites.

Learning what not to do

In addition to the basic property data, I provide purchase and loan information on the property from public records. Prior to the housing bubble, this information was dry data, but with the mass financial insanity that became common during the bubble, the public records now contain interesting stories of foolish borrowing that cost people their homes.

When I first began writing about this behavior, people didn't believe me, and for the first several posts, most dismissed it as cherry picking. Over the last four years I have profiled hundreds of HELOC abuse cases to show how widespread this activity really was. And for the record, I don't print the owner's names. It is public record, but I want to expose the behavior, not the person caught up in it.

Understanding HELOC abuse is important. It's a behavior that cost thousands of people their homes, hundreds here in Irvine alone. The desire for mortgage equity withdrawal was the primary motivator for buyers during the bubble. Borrowers who don't understand this will repeat the mistakes of the past, and they may end up a foreclosure statistic themselves.

How to make $140,000 and still be a short sale

The owners of today's featured property paid $377,000 on 12/14/2001. The first mortgage information is missing, but they needed a $75,000 second to close the deal. Their down payment probably wasn't very large. It doesn't really matter because on 4/16/2003 they obtained a new first mortgage for $436,500 which refinanced their previous mortgages, got back their down payment, plus gave them over $50,000 for spending money.

Over then next four years they took out various loans and refinances, and ended up with $674,260 in property debt. Hence, we have a short sale. The total mortgage equity withdrawal was around $300,000. Not bad for doing nothing.

Irvine House Address … 1 SOLANA Irvine, CA 92612

Resale House Price …… $550,000

House Purchase Price … $377,000

House Purchase Date …. 12/14/2001

Net Gain (Loss) ………. $140,000

Percent Change ………. 37.1%

Annual Appreciation … 4.0%

Cost of House Ownership

————————————————-

$550,000 ………. Asking Price

$110,000 ………. 20% Down Conventional

4.54% …………… Mortgage Interest Rate

$440,000 ………. 30-Year Mortgage

$95,995 ………. Income Requirement

$2,240 ………. Monthly Mortgage Payment

$477 ………. Property Tax (@1.04%)

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

$115 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$384 ………. Homeowners Association Fees

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

$3,215 ………. Monthly Cash Outlays

-$375 ………. Tax Savings (% of Interest and Property Tax)

-$575 ………. Equity Hidden in Payment (Amortization)

$186 ………. Lost Income to Down Payment (net of taxes)

$89 ………. Maintenance and Replacement Reserves

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

$2,540 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,500 ………. Furnishing and Move In @1%

$5,500 ………. Closing Costs @1%

$4,400 ………… Interest Points @1% of Loan

$110,000 ………. Down Payment

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

$125,400 ………. Total Cash Costs

$38,900 ………… Emergency Cash Reserves

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

$164,300 ………. Total Savings Needed

Property Details for 1 SOLANA Irvine, CA 92612

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 2000

$275/SF

Property Type: Residential, Condominium

Style: Two Level

View: Park/Green Belt

Year Built: 1975

Community: Rancho San Joaquin

County: Orange

MLS#: S657444

Source: SoCalMLS

Status: Active

——————————————————————————

A superb opportunity to acquire this stunning and spacious Two-Story Home with Just One Common Wall for a great price. It truly feels like a Single Family Residence. This home boasts an elegant front yard leading to the tastefully upgraded interior. The gourmet kitchen with granite countertops and matching appliances is a delight for every Chef. The crownmolding complements the high quality tile floors and the newer carpet throughout this bright and spacious home.

A special thanks to Barry Ritholtz of the Big Picture: Orange County Realtors vs IrvineHousingBlog.com.

House prices volatility, both up and down, results from residential real estate appraisers using the comparative sales approach without considering a properties potential rental income.

Irvine Home Address … 14 ROCKY Gln #22 Irvine, CA 92603

Resale Home Price …… $450,000

Of our elaborate plans, the end


Of everything that stands, the end

The Doors — The End

Most people would agree that preventing financial bubbles is preferable to cleaning up the mess in the aftermath. The ups and downs of housing prices must end. The housing bubble shattered the dreams and aspirations of a generation. Some of the wealth lost was an illusion, but those who lost their family homes lost something tangible and real.

Great Britain is trying to recover from its fourth housing bubble in the last 40 years. That rivals California's three bubbles during that span. They too are looking for answers to prevent bubble number five from wiping out their wealth and their economy.

'Cap mortgages at 90% of value' to prevent bubble

Price stability should be government priority

Bloomberg — June 3, 2011

London: UK lenders should cap mortgages at 90 per cent of the property's value and no more than three-and-a-half times a household's annual income to prevent another housing bubble, the Institute for Public Policy Research said.

In The Great Housing Bubble, I proposed capping lending at a 90% loan-to-value ratio just as this group has done. I like the idea:

There are a number of reasons why high combined-loan-to-value lending is a bad idea: (1) it promotes speculation by shifting the risk to the lender, (2) it encourages predatory borrowing where borrowers “put” the property to a lender, (3) it promotes a high default rate because borrowers are not personally invested in the property, (4) it discourages saving as it becomes unnecessary, and (5) it artificially inflates prices as it eliminates a barrier to market entry. This last reason is one of the arguments used to get rid of downpayment requirements. The consequences of this folly became readily apparent once prices started to fall.

Also in The Great Housing Bubble, I explored capping the loan-to-income ratio, and I found the approach lacking:

Another proposed solution is to regulate the loan-to-income ratio of the borrower. When 30-year fixed-rate mortgages first came out, mortgage debt was limited to two and one-half times a borrower’s yearly income. It was an artificial limit that made sense when interest rates were higher and people were accustomed to putting less money toward housing payments. A legislative cap on the loan-to-income ratio would prevent future housing bubbles, if it was enforced. This would not work for the same reason lenders went away from the two-and-one-half-times-income standard years ago: it does not reflect changes in borrowing power due to changes in interest rates. This idea of regulating loan-to-income ratios is actually an evolution of the idea of regulating interest rates. If the total loan-to-income ratio is limited, very low interest rates do not cause dramatic price increases, but since low interest rates were not really the cause of the bubble, limiting the loan-to-income ratio is not addressing the real cause of the bubble. Plus, there are ways to get around a cap on home loan borrowing by obtaining other loans not secured by real estate. It would be relatively easy for a borrower to obtain bridge financing to acquire a property and then obtain a HELOC to pay off the bridge financing. In the end, the borrower would have borrowed more than the cap amount thus rendering any cap meaningless. To close the various loopholes, more regulations would be required, and a regulatory nightmare would ensue.

Back to the article:

The UK's “addiction to house-price inflation” is damaging the economy and the Conservative-led coalition government should make price stability a priority, the London- based advisory group said in a report.

“Britain has suffered four housing bubbles in the last 40 years, each of which contributed to major economic and social problems,” Nick Pearce, a director at the IPPR, said in the statement. “We need tougher mortgage-market regulation from the FSA, especially caps on loan-to-value and loan-to-income ratios.”

The Financial Services Authority regulates UK mortgage providers and other lenders. House prices tripled in the ten years through 2006, rising by 12 per cent a year, IPPR said. Mortgage lending is 81 per cent of GDP in the UK compared with 73 per cent in the US.

No deposit

The average loan for a first-time buyer was 3.15 times annual household income in March, IPPR spokesman Richard Darlington said by e-mail. In 2007, when the UK's real estate market peaked, 28 per cent of all advanced mortgages had loan-to- income ratios of 3.5 or more. First-time buyers regularly took out mortgages of 100 per cent of the property's value.

Great Britain was doing the same stupid things we were in the United States.

… Fall in demand

Mortgage applications in the US fell for the first time in five weeks as refinancing cooled.

The Mortgage Bankers Association's index of loan applications dropped 4 per cent in the week ended May 27. The group's refinancing index declined 5.7 per cent and the purchase gauge was unchanged.

Falling home prices are keeping more buyers on the sidelines while making it harder for homeowners to refinance current mortgages. Unemployment at 9 per cent and the prospect of more foreclosures in the pipeline mean housing will take time to recover.

“Nobody wants to buy an asset they think will go down in value,” Neil Dutta, an economist at Bank of America Merrill Lynch in New York, said before the report.

Capping lending and tethering it to a reasonable and affordable percentage of borrower income is essential to prevent future housing bubbles, but the problem is more complex because capping a loan at 90% value requires understanding what value is. Our current approach to residential property valuation relies exclusively on comparative sales, and it is a flawed system.

The income approach appraisal

When lenders underwrite investment property loans, they have an appraiser establish fair-market rents, and they generally consider between 65% and 75% of that income toward qualification for the loan. In places were properties are trading 25% or more below rental parity, the net income of the property will cover the payment, taxes, and insurance. These are low risk loans for lenders that provide them higher interest rates.

If applied to a typical residential real estate transaction, an income approach appraisal would reveal which properties generate sufficient cashflow to cover the loan in the event the lender had to take the property back. If lenders had the income information to compare to comparable sales, they would quickly see which properties are inflated in price and are thereby the riskier loans.

Loans on properties in Orange County with a negative cashflow should require larger down payments and more borrower income and assets. In contrast, a Las Vegas property with a positive cashflow would require smaller down payments and no other collateral to cover the loan. In the event of foreclosure, a lender could rent out the cashflow positive property and receive their desired income stream which effectively mitigates their risk. Lenders take on more risk than they realize when they loan on cashflow negative properties.

I wrote about income approach appraisals in The Great Housing Bubble:

There is one potential market-based solution that would require no government regulation or intervention that would prevent future bubbles from being created with borrowed capital: change the method of appraisal for residential real estate from valuations based exclusively on the comparative-sales approach to a valuation derived from the lesser of the income approach and the comparative-sales approach. … In the current lending system, the income approach is widely ignored.

… When the fallout from the Great Housing Bubble is evaluated, it is clear that the comparative-sales approach simply enables irrational exuberance because the past foolish behavior of buyers becomes the basis for future valuations allowing other buyers to continue bidding up prices with lender and investor money. Prices collapsed in the Great Housing Bubble because prices became greatly detached from their fundamental valuation of income and rent. This occurred because the comparative-sales approach enables prices to rise based on the irrational exuberance of buyers. If lenders would have limited their lending based on the income approach, and if they would not have loaned money beyond what the rental cashflow from the property could have produced, any price bubble would have to have been built with buyer equity, and lender and investor funds would not have been put at risk. There is no way to prevent future bubbles, and the commensurate imperilment of our financial system, as long as the comparative-sales approach is the exclusive basis of appraisals for residential real estate.

When I wrote those words, the deflation of the housing bubble had not overshot to the downside in any market. My focus above was on preventing prices from going up too much, but this approach can also address problems we are seeing in markets like Las Vegas where prices have gone down too much.

In a declining market, lenders are cautious because nobody knows what anything is worth, and if lenders underwrite big loans that subsequently go underwater, borrowers walk away from their debts and leave lenders holding collateral worth less than their loan balance. As a consequence, lenders want to be conservative, so they rely on appraisers to keep values comfortably within range of recent comps, no matter how low those comps may be.

There comes a point when recent comps are so low that a property is undervalued based on its potential for cashflow, but since lenders don't use the income approach when evaluating residential real estate, they are not aware of these key price support levels and they approve short sales and REO resales at very low prices. An example comes from a recent community I saw in Las Vegas:

I discovered this neighborhood while looking at another auction property nearby. The property of interest is in a cluster product neighborhood in a nice part of Henderson, Nevada. All the properties were built in 2005 and sold new in the mid 200s.

The list of comparables below are all in the cluster neighborhood, and they are arranged in descending order of closing dates. Take a careful look at the sales price in the column second from the right.

The properties in the above list would all rent for about $1,000 to $1,100. The properties that sold in the $110,000 to $115,000 range represented good cashflow investments yielding 8% or more. In an environment of 1% CD rates and 4.5% mortgage interest rates, an 8% yield is fantastic. The resale value of this neighborhood did not need a 40% reduction to attract buyers. Lenders should never have approved those sales.

If the lender had merely rented their property out instead of dumping it for 40% under comps, the cashflow from the rental would have been nearly double the cashflow from the subsequent loan on the property. A lender in Las Vegas trying to finance its own REO would be well served by renting the property instead. Lenders can get $450 per month in a loan payment if they sell it and underwrite the new loan, or they can net about $750 a month on the rental if they keep it.

Of course, banks aren't REITs, and they don't want to own property long term, but in the short term, they would be much better off renting property. The could dispose these assets through a special home investment trust. An entity receiving the positive cashflow from the millions of rentals would have significant value, and it would provide better asset recovery than lenders are getting now.

Sell with new debt or keep as rental?

For example, B of A and other major banks try to sell their REO to people who take out loans from them. B of A gets capital out of a non-productive asset and converts it to loan payments. They can hold this new loan on their balance sheets or they can sell it in the secondary market. With Bernanke giving them free money, most banks are keeping the best loans for themselves.

However, instead of converting this non-performing asset to a performing stream of income by selling the property and underwriting a loan, the bank could retain ownership and rent the property. Banks would get more value from these properties by selling off the shares of a cashflow property REIT than they will by underwriting loans with much smaller cashflow.

If lenders also looked at cashflow values in terms of rental yields, they could see when they are selling undervalued properties and chose to rent those out instead. The amend, extend, pretend policy they are using to prop up prices in some markets is an attempt to hold on to what they believe to be undervalued assets. But since they are not looking at cashflow, they have no idea which markets have undervalued properties and which ones are overvalued.

In Las Vegas, some version of amend, extend, pretend is the best course of action for lenders because they can rent the properties and obtain better cashflow than if they sold them and put new debt on them. In Orange County, most properties are still reselling for more than rental parity, so lenders cannot rent them out for better cashflow than selling them and putting on new debt.

If lenders were basing their decisions on rental cashflow value — something they could do if they were obtaining appraisals using the income approach — they would quickly realize (1) they are selling properties they should be holding, and (2) they are holding properties they should be selling.

In a recent article, Dean Baker pointed out the foolishness of current government policies toward housing:

As far as the housing market, a little clearer thought would get policy to distinguish between markets where the bubble is still deflating (e.g. Seattle, Los Angeles, Boston) and markets where prices are likely overshooting on the low side (e.g. Los Vegas and Phoenix). It might make sense to have policies to boost prices in the latter set of cities. It makes no sense to have policies to boost prices in the former.

Mr. Baker proposes the right-to-rent as a public policy to address this problem. I believe income approach appraisals would give lenders better valuation tools so they could make better decisions concerning property liquidations on a market by market basis. Any lender looking at rental parity would liquidate their holdings where prices were inflated and hold properties where prices have overshot to the downside. Currently, that is the opposite of what lenders are doing, and their failure to understand valuation is going to cost them billions of dollars while the liquidations go forward over the next several years.

Large down payment lost

The owner of today's featured property paid $645,000 using a $417,000 first mortgage and a $228,000 down payment. He obtained a $100,900 HELOC on 1/15/2008, but there is no indication he used it. If this property sells for its current asking price, the owner will get a check for $6,000 of his remaining equity. That's $228,000 put in and $6,000 coming out. This was probably not the real estate investment this owner was looking for.

Irvine House Address … 14 ROCKY Gln #22 Irvine, CA 92603

Resale House Price …… $450,000

House Purchase Price … $645,000

House Purchase Date …. 4/16/2007

Net Gain (Loss) ………. ($222,000)

Percent Change ………. -34.4%

Annual Appreciation … -8.6%

Cost of House Ownership

————————————————-

$450,000 ………. Asking Price

$15,750 ………. 3.5% Down FHA Financing

4.54% …………… Mortgage Interest Rate

$434,250 ………. 30-Year Mortgage

$94,741 ………. Income Requirement

$2,211 ………. Monthly Mortgage Payment

$390 ………. Property Tax (@1.04%)

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

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

$499 ………. Private Mortgage Insurance

$497 ………. Homeowners Association Fees

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

$3,691 ………. Monthly Cash Outlays

-$356 ………. Tax Savings (% of Interest and Property Tax)

-$568 ………. Equity Hidden in Payment (Amortization)

$27 ………. Lost Income to Down Payment (net of taxes)

$76 ………. Maintenance and Replacement Reserves

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

$2,870 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,500 ………. Furnishing and Move In @1%

$4,500 ………. Closing Costs @1%

$4,342 ………… Interest Points @1% of Loan

$15,750 ………. Down Payment

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

$29,092 ………. Total Cash Costs

$43,900 ………… Emergency Cash Reserves

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

$72,992 ………. Total Savings Needed

Property Details for 14 ROCKY Gln #22 Irvine, CA 92603

——————————————————————————

Beds: 2

Baths: 2

Sq. Ft.: 1600

$281/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

View: Trees/Woods

Year Built: 1978

Community: Turtle Rock

County: Orange

MLS#: P779770

Source: SoCalMLS

Status: Active

——————————————————————————

BEAUTIFUL OPEN, LIGHT AND BRIGHT HOME ON A CUL DE SAC WITH A GREAT VIEW. TWO MASTER SUITES, ONE WITH AN ATTACHED OFFICE OR RETREAT AREA. FRENCH DOORS, PLANTATION SHUTTERS, UPGRADED KITCHEN, HARDWOOD FLOORS DOWNSTAIRS. SKYLIGHTS, CUSTOM PAINT. PATIO AND BALCONY OVERLOOK A LANDSCAPE OF TREES AND NATURAL HABITAT. ASSOSIATION POOL, SPA, TOT LOT, SPORTS FIELD, AND ENDLESS WALKING TRAILS. AWARD WINNING SCHOOLS, CLOSE TO UCI, SHOPPING, AND THE FRWYS. PLEASE PARK IN VISITOR PARKING. THANK YOU. PROPERTY CAN BE SHOWN NOW. CALL AGENT 2HRS AHEAD TO SET THE APPOINTMENT. THE HOUSE HAS SOME HOLES IN THE WALLS, BUT THEY WILL BE REPAIRED BY THE ASSOCIATION.

ASSOSIATION?

BTW, you may find this interesting: Realtors go after blogger who says they lie. Freedom of speech?

Eighty percent of North Las Vegas loan owners are underwater and unable to relocate to find a better job.

Home Address … 6388 BRIANNA PEAK Ct Las Vegas, NV 89142

Resale Home Price …… $95,900

Life springs eternal

On a gaudy neon street

Not that I care at all

I spent the best part of my losing streak

In an Army Jeep

For what I can't recall

Oh I'm banging on my TV set

And I check the odds

And I place my bet

I pour a drink

And I pull the blinds

And I wonder what I'll find

Sheryl Crow — Leaving Las Vegas

Many people leave Las Vegas broke. Most of them lost their money in games of chance, but the latest casualties of Las Vegas were ordinary home owners who bought homes.

Unlike many markets where only the most indebted late buyers and HELOC abusers have been washed out by falling prices, in Las Vegas, prices have fallen so low that ordinary buyers from before the bubble who paid down their mortgage find themselves deeply underwater, unable to move, and hopeless. Those owners are the true victims of the housing bubble because they didn't do anything foolish. They happened to buy in the wrong place at the wrong time purely by chance.

Now these ordinary citizens are trapped in their underwater homes unable to move to seek employment elsewhere. Las Vegas is the only desert where people routinely drown.

Leaving North Las Vegas no option for many 'underwater' homeowners

In parts of North Las Vegas, more than 80% of homeowners owe more on their mortgages than their homes are worth. Staying is expensive, but many can't afford to move.

By Ashley Powers and Alejandro Lazo, Los Angeles Times — May 31, 2011

Reporting from North Las Vegas, Nev.— Charles Mills can barely afford to stay here. But he also can't afford to move.

That's why the 44-year-old heavy-equipment operator was preparing to leave his wife and young daughter here and go where he could find work — the Oklahoma oil fields. Mills has a mortgage to pay, even if its size pains him.

He purchased his house in 2006 for $308,500. Current value: $105,797.

“We talked about it: What can we do with the house?” Mills said. “Nobody's going to buy it. Nobody's going to rent it. If we walk away, my credit's shot. We're stuck.”

You can see why these people feel helpless. What's unfortunate is that this family isn't considering strategic default. Is his credit score really worth $200,000?

Think about this rationally. How long will it take for the value of a North Las Vegas house that currently sells for $105,000 to appreciate to $308,500? Realistically, it won't happen in the next 25 years.

It will take at least three years and probably closer to five before the housing stock turns over at the new lower values. Most people will default or short sale and move on with their lives. The constant pressure of all this distressed inventory is going to keep prices near $100,000 for quite a while.

Then after the inventory pressure abates, there will likely be a period of rebound appreciation, but at best that only will restore the market to its long-term trendline. Let's say that brings the price back up to $150,000 seven to ten years from now. At that point, prices still have to double which will take another 15 to 20 years with a 3% rate of appreciation.

For owners in that circumstance, they would be far better served by strategically defaulting, waiting the ever-shortening required waiting period to get a new loan, and repurchase. That is by far the shortest path to having home equity again.

In some parts of North Las Vegas, more than 80% of homeowners have plunged “underwater,” meaning they owe more on their mortgages than their properties are worth — a stunning concentration of aborted plans and upended lives.

Mobility in search of new opportunity has long been a cornerstone of the American economy, much the way homeownership has long offered a path to firmer financial footing. But the housing bust has left tens of thousands of homeowners across Nevada essentially trapped.

They're considered the new normal here. They turn down higher-paying jobs elsewhere because they can't move. They tidy the yards of houses left vacant by foreclosure. They realize it's unlikely their children will receive tidy inheritances from the sale of their suburban homes.

Look at what the crash has done to homeowner expectations in Las Vegas. They don't believe they will have any equity in their lifetimes to pass on to their children. Compare that to the droves of kool aid intoxicated fools who believe they will be cashing HELOC checks soon from the double-digit appreciation sure to follow this brief correction.

Orange County will not become as desperate as Las Vegas, but we have a long way to go before the market psychology has changed enough to signal we are near the bottom.

When they look about their neighborhood, they question things they never questioned before. Are dead plants a sign that someone forgot to water? Or did the water get turned off? Does a garage sale mean more neighbors are about to bail?

“We don't even walk around our own neighborhood anymore,” Mills said. “Why? To say hi to strangers?”

Elsewhere on Midnight Breeze Street are Steve and Gay Shoaff, who once talked of selling their house and retiring somewhere pretty. Gay, 57, even toured a place in Wyoming.

But the Shoaffs have been living mostly off savings since the construction industry sputtered. Steve, 60, worked as a drywall taper and foreman.

“I'd say, 'Gay, we're going to become millionaires on this house,' ” Steve recalled one day as he and his wife unwound in the backyard they'd spent thousands of dollars sprucing up. Gay mustered a smile.

I give this man credit for the courage to admit his kool aid intoxication.

Their $187,980 home is now assessed at $99,220.

“This house won't be worth what we paid on it until after we die,” she said.

Some economists would agree, predicting that a full recovery in parts of the West's “foreclosure belt” — California, Nevada and Arizona — won't occur until at least 2030.

They are right. It will take longer than they have to live for prices to come back.

Nationwide, 23.1% of homeowners with mortgages are underwater. No state is more underwater than arid Nevada, with about two-thirds of borrowers holding such mortgages, according to CoreLogic, a Santa Ana research firm.

Some economists argue that, in a way, these homeowners are worse off financially than those who lost their houses through foreclosure and were forced to move on. Those borrowers often were able to live rent-free for years because of the snail's pace of foreclosure proceedings.

The people who bail and take their medicine are far better off than the people trapped in their homes. That's why strategic default is so common in Las Vegas. It's the wise thing to do.

Meanwhile, their underwater neighbors poured money into mortgages, not savings or investments. They couldn't chase higher-paying work. Homeowners with negative equity are at least a third less mobile than other homeowners, according to a recent study in the Journal of Urban Economics.

I feel sad for those who emptied their savings accounts and retirement accounts to pay mortgages. The poured their money down a rat hole, and now they are trapped in it.

But abandoning their homes was an option that appeared too dicey. “Walking away, it does wreck your credit history for a while and you can't get another mortgage for seven years,” said Richard Green, director of the USC Lusk Center for Real Estate. Defaulting also makes it harder to rent an apartment. “The other thing is, there is also some sense of obligation to repay your bills,” he said.

I'm sure the mortgage industry likes to see those comments from “experts” on these matters. Too bad it is totally inaccurate. The GSEs are letting people get new loans two years after a foreclosure. Further, the ramifications for people's credit scores, ability to get a lease or a job is hugely exaggerated. Plus, the whole notion of moral obligation to repay debts has been washed away. Mr. Green is wrong on every point.

Indeed, some North Las Vegas residents would rather forge a community here. Some feel blessed to have held on to their homes when so many people lost theirs.

… Mills, who was lured here from Los Banos, Calif., in 2006 by good-paying work and cheap housing, started seeing more neighbors padding around during the day, suggesting they had lost their jobs. Suddenly, they would vanish — sometimes after ripping out their toilets and sinks.

A family who lived near Mills, whose little boy played with his daughter, recently moved after his secretary mom and construction worker dad were laid off.

“I told my wife we don't have friends anymore. They all move away,” he said.

Actually, most of them moved into a rental in the same neighborhood. Unless they can't afford a rental, most who strategically default will rent a place in the same school district so their children can maintain friendships and they can keep their same social circle. In Las Vegas where unemployment is very high, particularly in construction, the neighborhoods are becoming much more fragmented.

Mills' wife, Maria, was let go by the entertainment department of a casino. He bounced from job to job, sometimes trucking cooking oil around Utah and Nevada, sometimes juggling security and janitorial work.

Determined to hang on to their four-bedroom house, he and his wife returned two new Nissans. “The cars, those are toys. Those are material things,” Mills said. “This is home.”

They waded through a mound of paperwork — and instructions to temporarily stop paying their mortgage — to cut their $1,600 monthly payment to about $900. The total amount they owe, however, remains the same.

The got a loan modification that essentially turns their mortgage into an Option ARM. They are staying in their underwater house, but have they really benefited from the arrangement?

James R. Follain, a senior fellow at the State University of New York's Rockefeller Institute of Government, argued in a recent study that former home-building hot spots, such as Las Vegas and California's Inland Empire, may crumble in the manner of Rust Belt manufacturing towns.

“There is a different mechanism leading to a similar outcome,” Follain said. “It was built on this upbeat set of assumptions about the future of house price growth, of population growth.”

That scenario is more likely to play out in Riverside County than in Las Vegas. Las Vegas has the gaming industry as a core economic driver. Riverside County has cheap houses and an economy based on providing cheap houses. What will bring back the economy there?

So last month, while Mills was gearing up for Oklahoma, the Shoaffs tried to keep their neighborhood from looking like so many in the Las Vegas Valley, the ones marred by one decaying home after another.

Drive down Midnight Breeze, and you'll spot few obvious signs of the real estate bust: no bank-owned signs, no broken windows, no doors jammed with unclaimed pizza fliers. That's partly because Gay busies herself yanking weeds from yards and ripping foreclosure notices from garage doors so the vacant homes won't tempt vandals.

This woman is tearing legal notices off neighboring properties. Sounds like a new foreclosure defense: the owners didn't receive notice because a neighbor tore it down.

On a recent evening, however, the Shoaffs took a walk through the neighborhood. In a backyard a few blocks away, someone had shoved over a foosball table, smashed a computer, tossed around stuffed animals and ruined the hot tub with what appeared to be white paint.

Gay's face fell. This house was likely another foreclosure casualty, its owner long gone.

The Shoaffs aren't going anywhere.

ashley.powers@latimes.com

alejandro.lazo@latimes.com

Picking up the pieces

The housing market in Las Vegas is a disaster. The enormous imbalance of supply and demand has pushed prices back to the mid 1990s.

I now make a living recycling the debris left over from the housing crash. Most of the homes I buy now are empty, and like this one I purchased in April, they are modest single-family homes selling near the median. These are the quickest and easiest to prepare and sell.

Between March 2 and April 23, I bought ten houses. Of those ten, this is the only one not in escrow or closed.

I will have about $80,000 into this property, and if it sells for its current asking price, my fund will make about $10,000. In all likelihood, I will have to negotiate a lower price or offer to pay the closing costs of an FHA buyer, but it will likely be a good flip like the other nine.

House Address … 6388 BRIANNA PEAK Ct Las Vegas, NV 89142

Resale House Price …… $95,900

House Purchase Price … $69,000

House Purchase Date …. 4/12/2011

Cost of House Ownership

————————————————-

$95,900 ………. Asking Price

$3,357 ………. 3.5% Down FHA Financing

4.54% …………… Mortgage Interest Rate

$92,544 ………. 30-Year Mortgage

$20,190 ………. Income Requirement

$471 ………. Monthly Mortgage Payment

$83 ………. Property Tax (@1.04%)

$20 ………. Homeowners Insurance (@ 0.25%)

$106 ………. Private Mortgage Insurance

$94 ………. Homeowners Association Fees

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

$775 ………. Monthly Cash Outlays

$0 ………. Tax Savings (% of Interest and Property Tax)

-$121 ………. Equity Hidden in Payment (Amortization)

$6 ………. Lost Income to Down Payment (net of taxes)

$32 ………. Maintenance and Replacement Reserves

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

$691 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$959 ………. Furnishing and Move In @1%

$959 ………. Closing Costs @1%

$925 ………… Interest Points @1% of Loan

$3,357 ………. Down Payment

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

$6,200 ………. Total Cash Costs

$10,500 ………… Emergency Cash Reserves

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

$16,700 ………. Total Savings Needed

Property Details for 6388 BRIANNA PEAK Ct Las Vegas, NV 89142

——————————————————————————

Beds: 4

Baths: 2

Sq. Ft.: 1673

$057/SF

Property Type: Single Family Residential, Detached

View: Strip

Year Built: 2000

County: 0

MLS#: 1146598

Source: GLVAR

Status: Exclusive Right

On Redfin: 21 days

——————————————————————————

Not SS or REO. Great 4 bedroom house. Freshly painted. Carpets will be professionally cleaned. Very nice covered stucco patio with ceiling fans and electrically wired. Home boast a nice array of ceramic tile, hardwood floors and carpet. Appliances, including refrigerator to be installed by 05/20/11. Great strip view from front yard. Home is located on a great cul-de-sac street.

Have a great weekend,

Irvine Renter

Despite the best house price payment affordability on record, housing demand and mortgage demand is near record lows.

Irvine Home Address … 2 SOLANA Irvine, CA 92612

Resale Home Price …… $465,000

Get on up when you're down

Baby, take a good look around

I know it's not much, but it's okay

Keep on moving anyway

Five — Keep on Movin'

Despite gargantuan efforts by government policy makers and the federal reserve to prop up the US housing market, low prices in many markets, and low interest rates, buyer demand is still very low. The reason is simple, the buyer pool is depleted, and many who would ordinarily be in the market for housing are unable to qualify for the loan necessary for them to purchase.

Tighter lending standards are often blamed, but it is both a combination of higher lending standards and fewer people who meet those standards because they have credit or savings problems due to unemployment, short sale, or foreclosure. The only fix to this problem is time. People need to go back to work, pay their bills, save money, and wait for their credit score to improve. Until all of those things happen, mortgage demand will remain low, and sales will suffer.

House Affordability in U.S. Rises to Record Levels, Tight Financing Still Constrains Sales

Posted by Michael Gerrity 05/25/11 10:27 AM EST

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) report released this week, nationwide housing affordability during the first quarter of 2011 rose to its highest level in the more than 20 years it has been measured.

The HOI indicated that 74.6 percent of all new and existing homes sold in the first quarter of 2011 were affordable to families earning the national median income of $64,400. This eclipsed the previous high of 73.9 percent set during the fourth quarter of 2010 and marked the ninth consecutive quarter that the index has been above 70 percent. Until 2009, the HOI rarely topped 65 percent and never reached 70 percent.

Low interest rates are making houses in most markets in the US very affordable on a payment basis. Of course, prices in many markets are still too high, but the ability to obtain extremely cheap debt is making the large mortgage balances manageable.

Despite how inexpensive it is to borrow money right now, nobody seems to be doing it.

Mortgage originations down 35% in first quarter

by KERRI PANCHUK — Tuesday, May 31st, 2011, 3:08 pm

Mortgage originations in the first quarter fell 35% to $325 billion, breaking three consecutive periods of growth and threatening to plunge the market back to 2000 levels, according to a report from Inside Mortgage Finance.

The first-quarter drop is the worst experienced since the onset of the recession when mortgage originations plummeted 31.5%, according to a new research report from Federal Reserve Bank of Cleveland researchers Yuliya Demyanyk and Matthew Koepke.

The same report cites Mortgage Bankers Association projections which estimates mortgage originations could fall to $1.05 trillion in 2011, the lowest level in 11 years.

The report blames a decline in refinancings for the dip in originations. Since refinancings generally contribute to higher origination activity, a drop-off in that segment negatively impacts originations as a whole.

The Cleveland Fed Bank report concludes that the only way around declining activity in the refinance segment would be to generate more activity in new home originations—a development the report doesn't foresee when considering the current lull in home starts and the state of the overall housing market.

Write to Kerri Panchuk.

With a long and deep recession at the conclusion of a massive borrowing binge my US consumers, very few people qualify for mortgages. Since interest rates have been low for a long time now, everyone who can refinance already has. As the Cleveland Fed noted, the prospects for increasing new home originations isn't very promising.

Americans Shun Cheapest Homes in 40 Years as Ownership Fades

By Kathleen M. Howley — April 19, 2011, 9:12 AM EDT

April 19 (Bloomberg) — Victoria Pauli signed a one-year lease last week to stay in her rental home in Fair Oaks, California. She had considered buying in the area, where property prices have slumped 57 percent since a 2005 peak.

In the end, she decided it wasn’t worth it.

“I know people who have watched their home values get cut in half, and I know people who are losing their homes,” said Pauli, 31, who works as a property manager for a real estate company. “It’s part of the American dream to want to own your own home, and I used to feel that way, but now I tell myself: Be careful what you wish for.”

Those are the kind of statements that bring out my contrarian instincts. In markets down more than 50% from the peak, prices are generally much lower than rental parity. People in those markets are paying a premium to rent to avoid what they fear is downside risk. Most of the decline has already occurred, and saving money versus renting is a strong inducement to purchase a home. People in beaten down markets are reacting in fear when they should be seizing opportunity.

In markets like Irvine where prices are off by about 25% and most properties are still trading above rental parity, renters still save money, and the likelihood of further declines is higher. An attitude of wait-and-see is appropriate particularly since the financial incentive favors renting rather than owning.

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

After five years of falling prices, I am amazed that 64% of respondents still perceive a house as a safe investment. What would it take for those people to say it's unsafe?

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”

Worse Than Depression

Historically, homes have been a safer investment than equities. During 2008, the worst year of the housing crisis, the median U.S. home price declined 15 percent, compared with a more than 38 percent plunge in the Standard & Poor’s 500 Index.

Americans stay in their homes for a median of eight years, according to the National Association of Realtors in Chicago. Someone who bought a home in 2002 and sold in 2010 saw a 4.8 percent increase in value, based on the annualized median price measured by the group. The average annual gain in the past 20 years was 4.2 percent.

There is another NAr statistic that serves their purposes now, but in years to come, it will not. Wait until we have the 2006 to 2014 comparison. That one will be brutal.

Falling prices have made real estate the best buy in at least four decades. Housing affordability reached a record in December, according to National Association of Realtors data that go back to 1970. The group bases its gauge on property prices, mortgage rates and the median U.S. income.

Despite the fact that much of the NAr data is manipulated bullshit, housing affordability is near its record high, particularly in markets like Las Vegas where you have the unique combination of prices from 15 years ago and very low interest rates.

The median U.S. home price tumbled 32 percent from a 2006 peak to a nine-year low in February, data from the Realtors show. The retreat surpassed the 27 percent drop seen in the first five years of the Great Depression, according to Stan Humphries, chief economist of Zillow Inc., a Seattle-based real estate information company.

For real historical accuracy, the big plunge in real estate prices occurred prior to the Great Depression during the severe recession of the 1910s. They fell again during the mid 20s when the Florida land boom went bust. And during the Great Depression, many people lost their homes in foreclosure, but prices were already beaten down from the turmoil of the two decades preceding. The Robert Shiller chart shows the decline of the 1910's clearly.

Ironically, it was financial innovation of a sort that propelled prices back to their historic trendlines after World War II. What was that innovation? The widespread use of the 30-year fixed rate mortgage with a 20% down payment. Prior to that most loans were interest-only with a 50% down payment requirement. If the real estate community is complaining about 5% down payments, imagine what would happen to the housing market if 50% down became the norm.

Not Risk-Free

“If we’ve learned anything from this mess, it’s that housing is not a risk-free investment,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York. “Everyone knows someone underwater in their mortgage or struggling to sell a home.”

About 11 million U.S. homes were worth less than their mortgages at the end of 2010, according to CoreLogic Inc., a Santa Ana, California-based real estate information company. An additional 2.4 million borrowers had less than five percent equity, meaning they’ll be underwater with even slight price declines, according to the March 8 report. The two categories add up to 28 percent of residences with mortgages.

Nearly one in three. It reminds me of the speech they give incoming freshmen in college. Look at the person sitting to your left and to your right. One of those people will not graduate. Well, any homeowner who isn't underwater need only look at his neighbor to the left or neighbor to the right to see someone who is underwater.

… Improving Employment

“We expect that purchase activity will pick up slowly as the improvement in the job market eventually leads to greater willingness to buy,” the mortgage bankers group said.

Willingness isn't the problem: meeting the qualification standards is. The unemployed must find work, then they must maintain it for two years before someone will give them a loan. And that assumes they didn't wipe out their reserves while they were unemployed and damage their credit.

Borrowing costs are at historic lows. The average U.S. rate for a 30-year fixed mortgage was 4.69 percent last year, the lowest in annual data going back to 1972, according to mortgage financier Freddie Mac, based in McLean, Virginia. The rate in March was 4.84 percent, the company said.

By 2012’s fourth quarter, the average fixed rate may rise to 6 percent, according to the Mortgage Bankers Association.

I've been predicting higher interest rates for quite some time, but the lack of demand and ongoing mortgage debt deflation is forcing rates downward.

I have been contemplating the meaning of the chart above. As long as mortgage debt levels are elevated about collateral value, banks have two options: (1) write off the debt to reduce it to the value of the housing stock, or (2) make debt so inexpensive that people can afford to keep their bad debt alive. Obviously lenders are choosing the latter. It's the approach the Japanese took since the early 90s, and housing has been deflating there ever since.

Since lenders are trying to minimize their losses on paper, they are offering debt at super low prices. They can underwrite loans at low rates as long as the federal government guarantees it all and investors don't find a better place to park their money. Right now, competing investments with more risk are not attractive to investors, so they are putting their money into 4.5% loans. Investors will probably stop doing that once there are more economic opportunities. I thought the October 2010 selloff was a sign that the economy was mending and interest rates would keep rising. So far, that has not been the case.

“If you can jump through the hoops to get a mortgage, and there will be hoops, then this is an amazing time to purchase real estate,” said Robert Stein, a senior economist at First Trust Portfolios LP in Wheaton, Illinois, and the former head of the Treasury Department’s Office of Economic Policy. “There are going to be a lot of people kicking themselves a few years from now because they didn’t take advantage of the low prices and the low mortgage rates.”

Tighter Lending

Cheap financing hasn’t done enough to boost home sales in part because lenders are being more selective with applicants, according to Federal Reserve Chairman Ben Bernanke. Fed policy makers have described the housing market as “depressed” in statements following their last eight meetings.

More selective with applicants! LOL! You mean banks aren't loaning home to anyone with a pulse? Shocking!

“Although mortgage rates are low and house prices have reached more affordable levels, many potential homebuyers are still finding mortgages difficult to obtain and remain concerned about possible further declines in home values,” Bernanke said in Congressional testimony last month.

The share of banks reporting tighter mortgage standards in the first quarter rose to 16 percent, the highest since 1991, according to the Fed’s Senior Loan Officer Survey.

Standards are tightening and will continue to tighten until houses are affordable under conservative lending metrics. Bankers don't become aggressive until they stop losing money. The credit cycle exacerbates the economic cycle by making booms larger and busts worse.

Federal regulators are proposing rules that may make lending even more stringent, including a requirement that banks and bond issuers keep a stake in home loans they securitize if the mortgage borrowers have imperfect credit and down payments of less than 20 percent. Borrowers who don’t meet the criteria would pay higher rates to compensate lenders for risk.

Fannie Phase-Out

As mortgage requirements rise, rates could follow as Congress and the Obama administration consider phasing out government-controlled Fannie Mae and Freddie Mac. The companies hold federal charters mandating they increase the availability of mortgages through securitization. In Fannie Mae’s case, that order goes back to the Great Depression, when it was created as part of President Franklin D. Roosevelt’s New Deal.

“There are a lot of unsettled policy issues on the table right now that, if they’re not handled right, could further set back the housing market,” said Richard DeKaser, an economist at Parthenon Group in Boston. “Fannie and Freddie have historically lowered interest rates, and eliminating them will increase the cost of home ownership.”

I'm not sure if that is an argument to keep them or eliminate them. I think he was trying to make the case for keeping them around, but providing artificial props to the housing market with risk to the US taxpayer is a bad idea, and the GSEs should go away.

Lowest in Decade

The U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade, according to the Census Department. The rate probably will retreat another percentage point by 2013, according to Meyer, of Bank of America Merrill Lynch, and Lea, the finance professor. That would put it back to a 1997 level.

“People will still aspire to own their own homes,” Lea said. “They’ll just be a lot more practical about it.”

Pauli, the California renter, said she has no such aspirations, at least for now. She pays $1,500 a month for her three-bedroom, single-family home with a two-car garage, granite kitchen countertops and stainless-steel appliances. Her neighbors who bought before the housing crash typically have mortgage payments of about $2,800 a month, Pauli said.

“I don’t see myself purchasing, even with all the great prices I see,” Pauli said. “Going to bed every night worrying about your home value doesn’t sound like a good time to me.”

And Pauli will continue to feel that way until owning becomes less expensive than renting. Rental parity is a tipping point, and once prices fall below that level, fence sitters get off the fence and buy properties. The specter of price declines is less powerful than the desire to lower monthly housing costs, except for those people with a short ownership tenure.

Not a short sale… yet

A property owned for the last 15 years by one family would not ordinarily be a short sale candidate. With the $169,000 sales price and a $152,100 first mortgage, it is reasonable to believe their mortgage balance should be less than $100,000.

Of course, this is Irvine, California, so their loan balance is over $100,000; in fact, the last mortgage on the property was for $399,000. Instead of having $300,000+ in equity, these owners have limited ability to lower their price before they will be a short sale statistic.

When a HELOC abuser makes a sale for a $268,100 profit and only gets a $26,810 check at closing, how do they feel? Does it cross their mind that they pissed away a quarter million dollars? Any regrets?

Irvine House Address … 2 SOLANA Irvine, CA 92612

Resale House Price …… $465,000

House Purchase Price … $169,000

House Purchase Date …. 10/1/1996

Net Gain (Loss) ………. $268,100

Percent Change ………. 158.6%

Annual Appreciation … 6.9%

Cost of House Ownership

————————————————-

$465,000 ………. Asking Price

$16,275 ………. 3.5% Down FHA Financing

4.54% …………… Mortgage Interest Rate

$448,725 ………. 30-Year Mortgage

$97,899 ………. Income Requirement

$2,284 ………. Monthly Mortgage Payment

$403 ………. Property Tax (@1.04%)

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

$97 ………. Homeowners Insurance (@ 0.25%)

$516 ………. Private Mortgage Insurance

$384 ………. Homeowners Association Fees

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

$3,684 ………. Monthly Cash Outlays

-$368 ………. Tax Savings (% of Interest and Property Tax)

-$587 ………. Equity Hidden in Payment (Amortization)

$27 ………. Lost Income to Down Payment (net of taxes)

$78 ………. Maintenance and Replacement Reserves

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

$2,836 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,650 ………. Furnishing and Move In @1%

$4,650 ………. Closing Costs @1%

$4,487 ………… Interest Points @1% of Loan

$16,275 ………. Down Payment

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

$30,062 ………. Total Cash Costs

$43,400 ………… Emergency Cash Reserves

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

$73,462 ………. Total Savings Needed

Property Details for 2 SOLANA Irvine, CA 92612

——————————————————————————

Beds: 2

Baths: 2

Sq. Ft.: 1404

$331/SF

Property Type: Residential, Condominium

Style: One Level

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

Year Built: 1975

Community: Rancho San Joaquin

County: Orange

MLS#: S659422

Source: SoCalMLS

Status: Active

——————————————————————————

Location!Location! Enjoy warm southern sun exposure, amazing golf course views, magnificent large old trees and endless golf course lawns. Charming home in the prestigious golf course community of Rancho San Joaquin. Premium private corner, ground location on the Green Belt single story home boasting amazing views and a very light spacious open floor plan. Two spacious Master Bedroom Suites. Two patios to enjoy while entertaining and relaxing. Enjoy a quiet Community Pool and Spa, inside washer and dryer and detached two car garage. Close to Mason Park, Shops, Restaurants, UCI, University High and much much more. Award Winning School District! Washer, Dryer and Refrigerator included. STANDARD SALE! A MUST SEE!