Don’t you understand, what I’m trying to say?
Can’t you see the fear that I’m feeling today?
If the button is pushed, there’s no running away,
There’ll be noone to save with the world in a grave,
take a look around you, boy, it’s bound to scare you, boy,
but you tell me over and over and over again my friend,
ah, you don’t believe we’re on the eve of destruction.
Eve of Destruction — Barry Mcguire
Do you get the sense that our real estate market is on the eve of destruction? Prices on the leading edge of the decline are already 20% off peak, credit is tightening and will continue to do so, the inventory is mounting, and the number of foreclosures keeps rising (We are behind San Diego, but on the same path.) There are no signs of any of these trends reversing.
What is really scary about the foreclosure trend is the fact that it does not include any of the homeowners represented in the chart above (remember the ARM reset problem?) The foreclosures and REOs we are seeing today were caused by people who started defaulting in 2006. Now that prices are clearly off the peak, most of the people needing to refinance will not be able to get it. In short, many of the homeowners represented on this chart are going to default and become REOs.
Since it takes at least 6 months to become an REO after the homeowner stops making payments, and since most people will exhaust all other forms of credit before they succumb to foreclosure, we can assume there will be a 1 year lag from the peak of the ARM reset chart to the peak of the REO problem. That puts us into March of 2009 before there is any hope of the number of REOs declining. Since it will also take some time to sell this inventory (we currently have a 20 month supply,) that puts the earliest possible bottom of the market in the Summer of 2010. Realistically, the selloff will continue into the 2011 buying season with the spring of 2011 being the earliest possible bottom.
If we are 20% off now, how low will we go?
We profiled another property near today’s recently: Run Away. They gave up on selling and pulled their property off the market. Today’s neighbor is in similar circumstances, but they have decided to get out — with a hefty loss…
Asking Price: $350,000
Income Requirement: $87,500
Downpayment Needed: $70,000
Purchase Price: $390,000
Purchase Date: 6/2/2004
Address: 131 Huntington #255, Irvine, CA 92620
1st Loan $316,000
2nd Mtg. $79,000
Downpayment $-5,000
Beds: 2
Baths: 2
Sq. Ft.: 1,000
$/Sq. Ft.: $350
Lot Size: –
Type: Condominium
Style: Cape Cod
Year Built: 1987
Stories: One Level
Area: Northwood
County: Orange
MLS#: S509250
Status: Active
On Redfin: 1 day
New Listing (24 hours)
From Redfin, “Short Sale! THis home has a newer kitchen appliances and flooring and is in good shape. Needs some paint but has a lot of potential. Come and get it won’t last long. Nice view of the trees and parking near the unit. Probably the best 2 bedroom 2 bath condo in Irvine.”
Probably the best 2 bedroom 2 bath condo in Irvine? This realtor is probably full of $hit.
Nice view of parking?
Nice picture of kitchen clutter. I particularly like how the bottle of Comet cleaner is prominently featured.
Check out the curio cabinet in the living room…
.
.
Look at that rollback: $40,000 or 10% off a 2004 price. Wow! (pardon the exclamation point.)
Another one of those surprising 100% financing deals going south. This buyer may have even obtained cash at the closing. Either way, they are walking and leaving the bank to hold the bag. If this property sells for asking price minus a 6% commission, the bank stands to lose $66,000.
This property has an interesting sales history:
Date Price Appreciation
06/02/2004 $390,000
08/03/2000 $180,000
04/01/1996 $122,500
12/13/1995 $120,000
09/25/1990 $159,000
Apparently, we have seen 20%+ drops before…
