Fools who speculated in our housing market had no idea the risks they were taking on. To them, you simply bought property and resold it later for easy profits, or better yet, you set up an ATM machine HELOC on the property and live off the unlimited spending money.
The measure of a market’s speculative folly is the drop in prices required to restore sanity; how much lower is the market clearing price than the peak? Well, for these units, I believe we will see 75%-80% off the peak.
The remaining owners in this building have to feel like they are in free fall and they have no choice but to accept the fate that awaits them. I suspect they will not like their results…
Current Asking Price: $499,900
Old Sale Price: $442,000
Income Requirement: $83,683 Downpayment Needed: $88,400
Beds: 2 Baths: 2 Sq. Ft.: 1,520 $/Sq. Ft.: $329 Lot Size: – Property Type: Condominium Style: Modern/Hi-Tech Stories: 1 Floor: 6 View: City Lights Year Built: 2006 Community: Airport Area County: Orange MLS#: P704475 Source: SoCalMLS Status: Active On Redfin: 1 day
Sixth floor of the Marquee Park Place High-rise. Granite counters,upgraded counters, high end wood floors, stainless appliance. Refrigerator included. 24 hour guarded service. Entertainers delight. Outdoor covered patio with views of pool and Laguna Mountains. Stackable Washer/dryer included. Special doors, windows & closet doors are solid wood! Check last sale on this one! This won’t last!
I cannot locate the loan information on this property to determine how the $584,520 loss was apportioned. Does it matter?This entire complex is full of $500,000+ losers.
Extreme ways are back again Extreme places I didn’t know I broke everything new again Everything that I’d owned I threw it out the window; came along Extreme ways I know will part the colors of my sea perfect colored me
Extreme ways they help me They help me out late at night Extreme places I had gone That never seen any light Dirty basements, dirty noise Dirty places coming through Extreme worlds alone Did you ever like it planned?
During the Cold War, we were taught to believe that centrally-planned economies like Communist Russia or China were bad. The Cold War economy in Communist countries was certainly awful, and the Great Leap Forward did cause millions of people to die a preventable death of starvation. The toll a centrally-planned economy takes on its citizens is enormous.
We like to think our economic system is superior here in capitalist America. Capitalism is certainly superior to Communism at delivering goods and services to the populace, and it is unlikely that millions of people will die of starvation during the Great Recession; however, we have our own version of central planning with the Federal Reserve. We do not have a free market, we just have a lesser degree of central planning and regulation than Communism.
We are starting to look more Communist every day:
Federal Reserve is holding interest rates far below free-market levels.
The US Government through the GSEs and FHA are also holding down mortgage interest rates.
The US Government is providing tax credits to buyers to stimulate demand.
Private lending outside of Government insured entities has declined dramatically.
Where is the free market? Don’t expect to see its return any time soon.
US Federal Reserve 1913-Present
The Federal Reserve in the US was formed in 1913. It was thought that central control of the currency would provide greater stability to our economic system and soften the extremes of the boom and bust periods the United States endured in the 19th century. The Federal Reserve didn’t prevent the Great Depression; some would argue it didn’t even mitigate the effects and may have even made it worse.
There is one thing the Federal Reserve has accomplished that is not in dispute; since 1913 the Federal Reserve has inflated away about 95% of the value of our currency as evidenced by the Consumer Price Index. Inflation is the theft of savings; it is a stealth tax on everyone. When money loses buying power, wealth loses value.
Price and Wage Inflation
When the Government measures inflation, they use the Consumer Price Index (CPI). The CPI measures the change in price of a representative basket of goods that is supposed to reflect the general level of price change in the whole economy (it isn’t very accurate). It is not measuring money supply (another measure of inflation), economic growth or anything else; the CPI measures changes in consumer prices. So what causes prices to go up?
Prices can rise for many reasons, but there are two I want to examine closely today; currency devaluation and wage increases. If the currency declines in value, foreign goods become more expensive to import, and prices rise. If wages go up, people have more money to bid on goods and services, and prices rise. A wage and price spiral coupled with a devaluation of its currency is a dangerous economic trap. Argentina, Brazil, Chile, and Mexico experienced these conditions in the 1980s, and Argentina experienced another in 1998-2002.
Devaluation of currency has the biggest impact on a population’s standard of living. A decline in foreign buying power means fewer imported goods for consumption. Without increases in wages, people learn to live with less. This is the road we are heading down.
Deflation
When the credit crunch hit in August 2007, the Federal Reserve responded by lowering the interest rate from 4.75% to 0%. When interest rates first went down, so did the value of our currency. This caused a brief episode of inflation followed by the ravages of deflation due to the losses in the lending industry from The Great Housing Bubble.
The primary cause of deflatioin is the destruction of money through bank losses. When banks lose money, it ceases to exist. Fewer dollars chasing the same amount of goods and services makes for an increase in buying power; deflation. Greater buying power sounds good, but the spectre of a deflationary spiral like the one that caused the Great Depression is very real.
If we assume the Federal Reserve will allow inflation to take off — something which it is not supposed to do — then how bad will they let inflation get, and why would they do that?
The first argument the Federal Reserve will make is that the CPI is “behind.” In other words, the deflation we experienced has left the CPI at too low a value. We need inflation to revive the economy with inflation just like we did in 1933. I think this argument is specious, but the Federal Reserve will make it anyway. It is unlikely the FED will be afraid of inflation until well after the crisis passes.
To “catch up” with what inflation should be — at least in the eyes of the Federal Reserve — how high might inflation get?
The actual rate of inflation at the peak is anyone’s guess. The Federal Reserve will allow it to go up until long-term inflation expectations begin to rise significantly or until the member banks of the Federal Reserve are solvent again. Solvency should take until the first or second quarter of 2010; if banks earn $250,000,000,000 per quarter, it will take them a year to make the $1,000,000,000,000 is is speculated they lost in total.
Making Up for Deflation
I am projecting a 12% rate of inflation as measured by the CPI in the summer of 2011. It will not peak until the Federal Reserve raised the Federal Funds Rate, and I as I outlined above, that is not going to happen soon. This will lead us to the second argument I believe the Federal Reserve will make; we need to “make up” for deflation.
Since we were behind the desired rate of inflation for so long, the Federal Reserve will justify the high inflation rate by claiming we need to get back to normal levels. This argument is also ridiculous, but it is what I believe the Federal Reserve will sell to us.
The result will be medium-term price inflation.
Long-Term Inflation Expectations
The Federal Reserve does not want to allow the world to believe that they have lost control of inflation again. If long-term inflation expectations become elevated, interest rates will go sky high just like they did in the 1970s. Unfortunately, when Timothy Geithner went to China to make the case that we will not inflate away our debts, the Chinese actually laughed at him. Can you imagine that? A US official has to tell a lie so transparent that the audience actually laughs?
Homedebtors will like inflation because the value of the currency they will be repaying has declined in value. Lenders hate inflation, and so do the wealthy. The Federal Reserve will do everything in its power to control long-term inflation expectations.
Impact of Medium-Term Inflation Spike
High inflation will burn off the mountains of bad debt we created during the Great Housing Bubble. We have a problem of insolvency. The only ways to solve it are (1) to increase people’s ability to pay, or (2) decrease the value of the money repaid. Since wages are not going up in the Great Recession, the value of currency must decline for the insolvency problem to be solved.
The net effect will be a lowering of our standard of living. When inflation is running at 8% and you get a 3% raise at work, your buying power has actually decreased by 5%. It looks like you are getting ahead because your pay increased, but in reality, you are falling behind and your standard of living is declining. The slow erosion of US buying power will be transferred to China as the country develops and local wages move higher there.
Since home prices are linked to wages, high inflation as measured by the CPI will not cause home prices to rise.
Real Estate is not necessarily an Inflation Hedge
The old adage about real estate being a hedge against inflation needs to be refined. Real estate as an asset class is a great hedge against wage inflation but not necessarily against price inflation. Since price inflation can be caused by wage inflation, people do not see that there is a distinction between the two. It is possible to have price inflation without wage inflation — which is what we will see from 2011-2014. When there is price inflation without wage inflation, our standard of living declines.
Government Conspiracy
I find most conspiracy theories to be crazy, but there are times when our Government lies to us, and we feel good about it. Every national recession is greeted with denial until the crisis is past. As a people, we like being lied to; if we didn’t, we would stop electing politicians we know to be liars. There must be a greater good that comes from the nonsense.
For instance, the Warren Commission reported that John F. Kennedy was assassinated by a lone gunman, Lee Harvey Oswald. Many people believe this is not true. Why would the Government lie? Well, let’s assume that JFK was assassinated by a Cuban-led hit squad, and that we learned the truth almost immediately. If the government lets this information out, we would probably have invaded Cuba (rather then embargoing them for 50 years). In the wake of the Cuban Missile Crisis, this would have started World War III. Do you tell the American public a flimsy lie about a President’s death? or do you start WWIII?
When we look back on the actions of the Government and the Federal Reserve in their handling of this crisis — which has either been necessary lies or gross incompetence — some will conclude the lies told by our officials was necessary and appropriate. The general public cannot handle the Truth.
Asking Price: $649,000
Income Requirement: $122,873 Downpayment Needed: $129,800
Purchase Price: $530,100 Purchase Date: 9/4/2009
Net Gain (Loss): $79,960 Percent Change: 22.4% Annual Appreciation: 390.1%
Beds 3 Baths 2 baths Size 1,506 sq ft ($431 / sq ft) Lot Size 5,100 sq ft Year Built 1976 Days on Market 7 Listing Updated 9/18/2009 MLS Number P703830 Property Type Single Family, Residential Community Woodbridge Tract Pt
This is a beautiful 3 bdrm/2 ba home with all new interior/exterior paint, new carpet, new kitchen appliances and new landscaping. Home is ready for move-in.
Do you wonder what happened to the bigwigs from IndyMac? Some of them have gone into flipping houses…
Every time I look in the mirror All these lines on my face getting clearer The past is gone It goes by, like dusk to dawn Isn’t that the way Everybody’s got their dues in life to pay
Yeah, I know nobody knows where it comes and where it goes I know it’s everybody’s sin You got to lose to know how to win
Half my life is in books’ written pages Lived and learned from fools and from sages You know it’s true All the things come back to you
I have known Zovall now for three years, and in all that time, he has been consistent about his dream to build a website and community. He started with a vision, and now he is enjoying watching the IHB grow and evolve.
It all started three years ago today when Zovall and IrvineSingleMom set out to write about Irvine housing. With the fascination with housing caused by The Great Housing Bubble, the Internet was fertile for growing a blog about housing. From its humble first post, the IHB enjoyed a steadily increasing readership and a greater sense of community.
Ideal Home Brokers
We have grown into something more now. It is easy to be an armchair quarterback and criticise the way real estate is bought and sold. We are taking action to do something about it with Ideal Home Brokers.
For those of you who like the IHB the way it is, nothing will change here at the blog. I will continue to write what I believe to be true about market conditions, and during the week, there will always be posts featuring properties in Irvine. Look at Ideal Home Brokers as an add-on; it is an extension to the service you receive when you come to read the IHB.
Some people will want our reports and our advice when buying and selling homes; some will not. We are here to fill what we perceive to be an unmet need. Only time will tell if that need is real or imagined. We are here to serve.
I have to admit something here. When I first read the IHB, I thought Zovall and IrvineSingleMom were tops. When they first asked me to write with them, I did not feel worthy….
Asking Price: $459,900
Income Requirement: $87,071 Downpayment Needed: $91,980
Beds: 2 Baths: 2 Sq. Ft.: 1,656 $/Sq. Ft.: $278 Lot Size: – Property Type: Condominium Style: Other Stories: 1 Floor: 1 Year Built: 2005 Community: Quail Hill County: Orange MLS#: S589265 Source: SoCalMLS Status: Active On Redfin: 4 day
Highly upgraded home! Kitchen with granite countertops and back splash,oversized bar area, stainless steel appliances, 18X18 diagonal tile, walnut cabinets and more! Computer niche off kitchen. Designer paint throughout with suede finish in some areas, large crown moldings, base boards and door casings all around. Upgraded carpet, recessed lighting and fans. Balcony off the master has been transformed into a chic sitting area with white curtains all around.
This property was purchased for $541,000 on 11/30/2004. The owner used a $400,000 first mortgage, a $100,000 second mortgage, and a $41,000 downpayment. On 9/16/2005 the first mortgage was refinanced for $500,000. The records show three HELOCs for $62,500 all recorded at different times. It is unclear if this is a single HELOC reopened three times or three different HELOCs.
Foreclosure Record Recording Date: 05/13/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000240832
Foreclosure Record Recording Date: 02/13/2009 Document Type: Notice of Default Document #: 2009000066139
It looks like the buyer extracted their equity plus some extra, but it is difficult to be sure.
According to the listing agent (she has worked with the IHB before, and we trust her), this property has over 20 offers, and several of them are over the asking price. She is no longer taking bids. Let’s take a look at an IHB property valuation report and see what the fuss is all about.
Beds 4 Baths 2 full 1 part baths Size 2,245 sq ft ($289 / sq ft) Lot Size n/a Year Built 2001 Days on Market 4 Listing Updated 9/24/2009 MLS Number S590041 Property Type Condominium, Residential Community Northwood Tract Ard
According to the listing agent, this listing is a bank owned (foreclosed) property.
What a beauty! Shows beautifully! Laminate wood flooring, plantation shutters, granite countertops in the kitchen. Master bedroom balcony, bathtub has spa jets, tile flooring in baths and more! Separate living and dining rooms, fireplace in living room. Kitchen opens to family room. Low maintenance front and backyards. Two car garage plus a long driveway. Walking distance to the assocation pool. Be sure to see this home!
Here we sit in tombstones in the mud, like it’s where we want to be. It’s impossible to feel sacred in this lie, in this aerial fantasy.
If this streets air ain’t up to par, I’ll take my clothes, and take this strange behaviour. Not only liked but loved as well.
It’s only been a year, English garden, and you’re farther away, English Garden — Silverchair
I like this neighborhood and its English Garden. It must be popular with foreign cash buyers (FCB) too. Who else would pay $435/SF to live in this neighborhood?
The owners of today’s featured property bought in 2002 for $399,000, but they only used an $82,000 mortgage… although, I am a bit suspect. My record may only have the second mortgage. Either that, or the owners put 80% or $317,000 down. Was this owner part of the first wave of FCBs to hit Northwood? He probably will not be the last.
Asking Price: $639,000
Income Requirement: $120,980 Downpayment Needed: $127,800
Purchase Price: $399,000 Purchase Date: 8/20/2002
Net Gain (Loss): $201,660 Percent Change: 60.2% Annual Appreciation: 8.5%
Beds: 2 Baths: 2 Sq. Ft.: 1,468 $/Sq. Ft.: $435 Lot Size: 3,367 Sq. Ft. Property Type: Single Family Residence Style: Cottage Stories: 1 View: Hills Year Built: 1998 Community: Northwood County: Orange MLS#: S589057 Source: SoCalMLS Status: Active On Redfin: 6 day
MODEL VERY RARELY ON THE MAEKET FOR SALE, BEAUTIFUL ONE STORY HOME, ONLY GARAGE ATTACHED WITH THE OTHER HOUSE’S GARAGE, NO INTERIOR WALL HAS ATTACHED. TWO BEDROOMS PLUS A SMALL OFFICE OR DEN, LARGE SIZE LIVING AND DINGING ROOM,NICE KITCHEN WITH OPEN TO DINING ROOM, BREAKFAST COUNTER, AND A LOTS CABINETS. MASTER BEDROOM HAS FRANCH DOOR TO THE BACK YARD, SPICEL DESIGNED TILE IN LIVING ROOM, DINING AND KITCHEN, CARPET IN BEDROOMS, WOODSHUTTERS. IT IS A VERY BEAUTIFUL HOME, NICE, CLEAN, WELL KEPT. JUST LIKE A DETACHED HOME.TWO CARAGE.
MAEKET? DINGING ROOM? FRANCH DOOR? SPICEL? A LOTS CABINETS? SPICEL? TWO CARAGE?
ALL CAP
Conventional wisdom says you should not paint with “custom” colors because it turns off potential buyers. This is true; however, if you are a “special” buyer who likes the colors, it can make you fall in love with the place. I really like the green in this house…
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And so concludes another week at the Irvine Housing Blog, chronicling the Irvine home market since September of 2006.
Asking Price: $639,000 
