Cherry Picking?

ns2524_IHB · Jun 28, 2007

There are those who still think that the trouble we are facing in housing industry is not a big deal or not as bad as we say it is. Reason and WaWaWeeWah's, accusation of cherry picking is simply not true.see <a href="http://www.irvinehousingblog.com/2007/06/28/leaves-of-grass/#comments">http://www.irvinehousingblog.com/2007/06/28/leaves-of-grass/#comments</a> . Search for cherry picking

So here are some numbers:

Irvine inventory: 4/11/07 1045

6/24/07 1245

An increase of 200 units. I check every single listings personally. I can not get purchase information for about 20% of them so I can't tell if they are losing orgaining based on the information available. That leaves 160. Out of 160, 42 are asking for less than purchase price (assuming 6% closing cost) see list below. That leaves us with 120. Another 50 are asking for minimal profit or brake even. That leaves us with 80. 50 are in WTF range and 30 are reasonably priced and selling with 2004 prices. The story is the same for Aliso viejo, mission viejo, lake forest, laguna hills and laguna niguel if not worst. Is this cherry picking 

 MLS # Listdate Purchdt Listprc purchprc Address Loss

1 S489280 05/21/07 02/18/05 690000 729000 19 THREE RIVERS (-4740)

2 S487971 05/11/07 08/17/05 855000 869900 48 DECLARATION (-37294)

3 S489588 05/22/07 08/18/04 509000 529000 20 TAQUITZ (-11740)

4 S491684 06/07/07 12/14/05 740000 734900 58 DEERMONT (-49194)

5 S491713 06/07/07 05/31/06 712500 649999 75 BURLINGAME (-101501)

6 S492047 06/09/07 03/30/04 1085000 1150000 2 MONROVIA (-4000)

7 P585080 06/22/07 02/17/06 610000 564000 18 SAGAMORE (-79840)

8 S488721 05/16/07 11/23/05 660000 699000 83 VERMILLION (-2940)

9 S489918 05/26/07 07/15/05 583500 615000 70 DOVETAIL (-5400)

10 S490530 05/31/07 09/23/05 710000 749000 38 MORNING STAR #43 (-5940)

11 S491709 06/07/07 06/06/06 888000 835000 48 PAPERWHITE (-103100)

12 K07084046 06/07/07 09/13/04 750000 719900 213 LONETREE (-73294)

13 P578333 05/17/07 12/12/05 642500 679000 14651 DEER PARK STREET (-4240)

14 S489460 05/23/07 12/16/05 595000 599900 15 MARSALA (-31094)

15 U7002468 06/06/07 10/28/05 795000 789900 14911 SUMAC AVENUE (-52494)

16 P582566 06/09/07 10/31/06 1300000 1213000 11 SANTA RIDA (-159780)

17 S486275 05/01/07 07/01/05 520000 549000 87 LEHIGH AISLE #60 (-3940)

18 F1716162 05/23/07 08/23/05 545000 559900 17252 CHESTNUT (-18694)

19 S490049 05/27/07 08/23/05 565000 589000 17316 PEACH (-11340)

20 P580173 05/29/07 12/21/05 600500 590000 2341 WATERMARKE PLACE (-45900)

21 S488320 05/14/07 05/28/04 480000 499000 24 WOODLEAF (-10940)

22 P564452 03/06/07 03/14/06 570000 539900 40 GREENMOOR (-62494)

23 S486654 05/03/07 02/01/06 516000 519900 23 HEATHERGREEN (-27294)

24 C07071321 05/15/07 04/21/06 775000 799800 15 LILIANO (-23188)

25 M106609 05/14/07 04/21/06 775000 799800 15 LILIANO (-23188)

26 S490243 05/28/07 11/22/05 403000 417000 103 ROCKWOOD #51 (-11020)

27 C680909 01/15/07 10/24/05 469000 449900 3 WOODLEAF (-46094)

28 S489532 05/23/07 09/09/05 620000 649000 3 MADAGASCAR (-9940)

29 S489605 05/24/07 07/29/05 605000 600000 9 ALEVERA (-41000)

30 S489835 05/25/07 10/10/06 610000 598000 55 DANBURY LANE (-47880)

31 S491814 06/08/07 05/10/04 565000 599900 38 DANBURY LANE (-1094)

32 S493537 06/20/07 06/23/05 650000 624900 8 LILAC (-62594)

33 S494103 06/24/07 06/06/05 630000 639777 73 ALEVERA STREET (-28610)

34 S486596 05/03/07 08/27/04 474000 440000 1520 TIMBERWOOD (-60400)

35 S487326 05/07/07 04/26/06 575000 598500 34 MAGELLAN AISLE (-12410)

36 S488817 05/17/07 09/22/04 630000 665000 30 APPOMATTOX (-4900)

37 S488313 05/15/07 12/15/05 340000 335000 79 LAKEPINES (-25100)

38 P577361 05/11/07 04/13/05 964000 999999 65 BAMBOO (-24001)

39 S489497 05/23/07 01/30/06 575000 570000 54 PAISLEY (-39200)

40 P579283 05/22/07 03/20/06 410000 404900 10 VAN BUREN #308 (-29394)

41 S490076 05/28/07 02/02/06 660000 699800 51 FULTON (-2188)

42 U7002328 05/30/07 12/13/05 335000 314900 132 PINEVIEW (-38994)

reason_IHB · Jun 28, 2007

Ns2524

Huh? The comments were from "Curious" and "Wawaweewah". You think Curious = Reason? Oh my....hahaha. Sorry, that wasn't me.

reason_IHB · Jun 28, 2007

Although, in that discussion. I do somewhat agree with "Tonye" regarding Irvine prices have always been higher than most surrounding cities in the County. As I have stated before, since the 80's I was always shock that an Irvine condo cost more than a SFR in other cities. It still hold even after 27 years.

reason_IHB · Jun 28, 2007

ns2524, 

Thanks for the research. But my position have been this. Sure you can show me all the numbers regarding the decline. I am still not convince because a house purchase back in 2004 for 600k and now is 1.2 million is not going to fall back to 600k. I haven't seen that. To further exaggerate my point, a SFR back in the mid 80's went for 70 - 80 k is now worth 590k is not going to fall back to 70 - 80k. Just like you're not going to expect a hershey bar which cost $1 - 1.50 to fall back to a quarter.

I see it here where people say there's going to be a 40% correction. That's almost half. So you're telling me a house purchase for 700k minus 40% (280k) would = 420k?? If that's the case, please show me that house.

reason_IHB · Jun 28, 2007

Ns,

In your listing of "decline". I see you have properties that have a loss of 1k, 5k, 10k 20k. Maybe it's just me. But those are not big losses. Out of your list of 42, I do agree that maybe 5 have big losses. But please show me the 40% loss and I will be convince.

reason_IHB · Jun 28, 2007

Ns,

Since this is Irvine Housing Blog. Hence, when you show me that loss of 40%. Please show me an Irvine property that has that kind of loss. Don't show me some beat up houses out in the boon dock in the Inland Empire. I am awaiting your research.

reason_IHB · Jun 28, 2007

Ns,

One last thing. And don't be choosing an Irvine house that was purchase a couple of years ago. Find me something that was purchase 5 years ago. Or even 4 years ago. And show me that 40% loss on that house. Otherwise, you are cherry picking. I am still waiting for your research.

buylowsellhigh_IHB · Jun 28, 2007

Reason, I think you're not getting the point that NS is trying to get across. The homes he is posting, are mostly botched flips. The other ones are probably poor purchasing decisions that lead to financial difficulties. The main point is to illustrate a trend that has been occuring over the last 2 years. The fact that this 6-7 year "run" is over, and prices are beginning to "correct" themselves. A home bought in on/after 2005 and sold today will most likely be a loss.

The homes listed above are a random sampling of the purchases between 04 and 07. 92 out of 160 homes of this random sampling are being sold for break even or at a loss, that gives 58%. He factored in a 6% sales commission, but that doesn't even count sellers rebate that doesnt get reflected in the selling cost, or even the interest that sellers have been losing over the years. Make a small adjustment for turnover (normal people moving in and out because of issues other than financials) and the end result proves that a majority of homes bought in irvine, after 04, are sold at a loss.

And your comment regarding a 40% correction. I agree, thats not going to happen. Why? Because this is not a "free" market. The real estate market is HIGHLY regulated. How? Mainly interest rates.. The homes may drop a little bit. 10 or 15% for the long term homeowner isn't going to hurt. It'll sting, but its not going to hurt. If house values drop 40%, people are going to be upside down in their finances, and the domino effect starts... Therefore, interest will go down to control the house prices. Our economy depends on the wellbeing of the real estate industry because a home gives people security. When home values plummet and people start feeling the panic, consumer spending goes down and there will be major problems.

I see the run that housing had between 2001 and now. I've had friends that made off big. I also see a lot of people stroking theselves with HELOC's. Before then, I was still in college. For me, im happy I rented last 3 yrs. No way I can buy a home. Because of this forum, im more educated on the pricing trends of the RE market, I dont trust the media. Too much speculating. Too many people buying a home based on emotion. This is fact, and focuses on the primary market. Irvine.

graphrix_IHB · Jun 28, 2007

Wow some one is sensitive. 

By the way reason you can't claim you bought and held a home from the 80s when you have admitted on the forums here that it was not you that bought a home in the 80s.

Why are you so defensive when someone points out people selleing for a loss?

oc-conservative_IHB · Jun 29, 2007

I've said it before and will probably say it again a million times.

We live in a fiat based monetary system with a government deeply in debt. 

There is only one out, and that is to print money like there is no tomorrow.

That is the number one reason for buying a home and holding onto it as long as you can.

Darin_IHB · Jun 29, 2007

Can't we all just get along and drink from the Kool-Aid and wear Nike's and follow comets and be one big happy family blog...

I keep coming back because of all the different views and takes as opposed one boring homogenous agreement.

IrvineRenter_IHB · Jun 29, 2007

reason,

Let me try to address your points/questions one at a time:

"Irvine prices have always been higher than most surrounding cities in the County"

Yes, and that will continue to be so. Irvine is relatively more desirable than other areas of Orange county.

"To further exaggerate my point, a SFR back in the mid 80's went for 70 - 80 k is now worth 590k is not going to fall back to 70 - 80k. Just like you're not going to expect a hershey bar which cost $1 - 1.50 to fall back to a quarter."

Your exaggeration misses the point on valuation. The underlying value of a house is based on rents and incomes. Rents and incomes today are much greater than the mid 80's, so the fundamental valuation of a house is much greater; however, houses today are 80% over their underlying fundamental value. When we talk about a 40% decline, we are describing a decline back to the underlying value of income and rent. That is how these cycles play out. Never before have housing prices become so far detached from their underlying value. This occurred because of exotic financing terms. These terms are going away, and with them goes the inflated house prices.



"But please show me the 40% loss and I will be convince."

The 40% losses will take time. The market is moving down now. This is a slow process which goes on over several years.



"Find me something that was purchase 5 years ago. Or even 4 years ago. And show me that 40% loss on that house. Otherwise, you are cherry picking."

That statement us just silly. If there were houses on the market today showing a 40% loss from 4 or 5 years ago, we wouldn't be discussing a housing bubble, we would be discussing the crash. The rally is behind us, the crash is in front of us.

Look, none of this debate really matters. The housing market prices are going to do whatever they are going to do. Our discussions here will not impact that. You can set up your arguments with conditions that guarantee you will win the argument. That does nothing to deduce the future direction of housing prices. The point is not to win or lose an argument, the point is to try to figure out what is happening with housing prices so people can make wise decisions of whether to purchase or sell a property.

Joyce_IHB · Jun 29, 2007

IrvineRenter -

Thanks again for the clear and rational explanation. Couldn't have said it better myself 

Reason -

While everyone is entitled to their opinion, ignorance is not bliss in this particular case. Anyone can find sources that supports their views/opinions if they look hard enough, but doesn't mean it's real. I sense bitterness (maybe I'm wrong?) - I don't think this blog was made to inflict pain and agony to homeowners who bought during the recent boom, but to educate them and other potential home owners of the state of the market. As IR said, the 40% drop will take time so you won't see that data for another couple of years. Thank you for posting your views; it gives balance to the forum.

mino2126_IHB · Jun 29, 2007

BuyLowSellHigh

"Therefore, interest will go down to control the house prices. Our economy depends on the wellbeing of the real estate industry because a home gives people security. When home values plummet and people start feeling the panic, consumer spending goes down and there will be major problems."

I could be wrong here, Graphix / IrvineRenter please correct if I am, but mortgage rates do not necessarily follow the Feds Fund Rates...per se. Mortgage Rates typically follow the 10 yr T-Note, therefore when consumption of T-Notes increases smaller yields are seen and smaller yields typically decrease Mortgage Rates and vice versa. Investors will start buying into T-Notes when the stock market starts to decrease to protect the principal on their investments.

This should be interesting to follow over the summer b/c the market seems to be tedder-toddering a little bit right now and you have alot of risky loans out their where something is going to have to be done to help cover the risk...ie charging higher rates on mortgages to cover their buttocks. Anyways, I could be way off base here but from everything that I have read and researched I think I fairly covered it.

Major Schadenfreude_IHB · Jun 29, 2007

buylowsellhigh,

"The real estate market is HIGHLY regulated. How? Mainly interest rates."

Read "How Inflated are House Prices" and "Anatomy of a Credit Bubble" located under the Discussions "Be Nice to Newbies" for excellent explanations about what regulates the RE market. Interest rates are part of the equation, but lending practices played a bigger role in this boom.

"Therefore, interest will go down to control the house prices."

The short term interest rates are controlled by the Fed Chairman, Ben Bernake. He has been described as a rather academic, bookish kind of guy. So, if he sees that inflation is rising, he will raise the rates to combat it and he has said so many times. He doesn't care if people have loans that will be re-setting, as he doesn't serve at their pleasure. In fact, he has previously made comments about the market place being the most efficient mechanism for rectifying credit problems. That is a tacit way of saying, hey Mr. Government, don't interfere with the markets! 

I imagine this time next year the housing problem will be even bigger and it will be a political issue. You will have politicians who will be saying "we must help those poor little homeowners who got their tails in wringers, because everyone deserves a home..." So, if politicians get elected with these promises and legislation gets passed, the "remedy" will be the printing of HUGE amounts of money. This will create inflation and Ben will counteract it by raising rates, which, in turn, will hurt the housing market further. Another consequence is that the cash-rich governments which have been buying our T-bonds (which dictates the long term interest rates, like with 30 year loans), will have another reason to continue the trend of limiting their investments in that product. So, long term rates will also clime, thus hurting the housing market.

There is really not much anyone can do. It will be like watching a slow moving train wreck.

"Our economy depends on the wellbeing of the real estate industry because a home gives people security."

I don't know if that statement is true. I believe Germany's economy is doing pretty well, but their RE market is notoriously poor. In any event, the success of a healthy economy will not depend on how many over inflated assets are traded between its citizens.

"And your comment regarding a 40% correction. I agree, thats not going to happen."

The fundamental measure of a home's cost is the dept-to-income ratio. It got all out of joint during the boom because of creative financing. At the bottom of this crash, it will most likely go down to 28% DTI levels, like it was during 1994-1997. Whether this entails a 10% correction or 40% correction is almost irrelative (unless, of course, you are trying to sell your home!).

Personally, looking at the depreciation of units featured this week, a 50% decline wouldn't surprise me. If short term and long term rates go up, you can almost bank on it.

biscuitninja_IHB · Jun 29, 2007

I smell a RE agent.... Wow are your arguments auspecious (SP?). Housing prices are declining, I challenge you find a nice irvine house, find its comps and watch the housing prices in the area. I'm sure you'll be doing the cherry picking then. The data and the facts don't lie, they can be skewed, but only for so long.

good luck

-bix

IrvineRenter_IHB · Jun 29, 2007

I posted this on the Headlines thread, but it warrants reposting here.

No matter how low the FED funds rate gets, if investors and banks demand a higher risk premium, mortgage interest rates will rise.

<a href="http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+July+2007.htm?ref=patrick.net" linkindex="187" set="yes">Looking for Contagion in All the Wrong Places</a>



 

The right places to look for contagion are therefore not in the white-washed Bear Stearns hedge funds, but in the subprime resets to come and the ultimate effect they will have on the prices of homes – the collateral that’s so critical in this asset-backed, and therefore interest-sensitive financed-based economy of 2007 and beyond. If delinquencies lead to defaults and then to lower home prices, then we have problems and the potential for an extended – not a 27-day Paris Hilton sentence. Take a look at Chart 1, which graphically points out the deterioration in subprime ARM delinquencies.



<img src="http://www.pimco.com/NR/rdonlyres/D1F01FBD-786F-4CF7-811C-EBCDB7B6CCE1/4184/chart1.gif" alt="" />

Escalating delinquencies of course ultimately lead to escalating defaults. Currently 7% of subprime loans are in default. The percentage will grow and grow like a weed in your backyard tomato patch. Now I, the curmudgeon of credit, am as sure of this as I am that the sun will set in the west. The uncertain part is by how much. But look at it this way: using the current default rate of 7% (3-4% total losses), the holders of some BBB investment grade subprime-based CDOs will lose all of their moolah because of the significant leverage. No need to worry about fictitious 100 cents on the dollar marks here. One hundred percent of nothing equals nothing. If subprime total losses hit 10% then even some single-A tranches face the grim reaper. AAA’s? Folks the point is that there are hundreds of billions of dollars of this toxic waste and whether or not they’re in CDOs or Bear Stearns hedge funds matters only to the extent of the timing of the unwind. To death and taxes you can add this to your list of inevitabilities: the subprime crisis is not an isolated event and it won’t be contained by a few days of headlines in The New York Times. And it will not remain confined to a neat little Petri dish in some mad financial derivative scientist’s laboratory. Ultimately through capital market arbitrage it will affect risk spreads in markets completely divorced from U.S. housing. What has the Brazilian Real to do with U.S. subprimes? Nothing except many of the same bets are held in hedge funds that by prudence or necessity will reduce their risk budgets to stay afloat. And the U.S. economy? Of course it will be affected. Consumption will be reduced to say nothing of new home construction over the next 12-18 months. After all, attractive subprime pricing has been key to the housing market’s success in recent years. Now that has disappeared. Importantly, as well, and this point is neglected by most pundits, the willingness to extend credit in other areas – high yield, bank loans, and even certain segments of the AAA asset-backed commercial paper market should feel the cooling Arctic winds of a liquidity constriction.

 

If not taken too far – and there is no hint yet of a true “crisis” – these developments may be just what the Fed has been looking for: easy credit becoming less easy; excessive liquidity returning to more rational levels. Still, PIMCO looks for the Fed to issue an insurance policy in the form of lower Fed Funds at some point over the next 6 months. And what happened to our glass half-full secular thesis of last month? We still believe in strong global growth, but…as we also suggested…that the U.S. housing downturn will affect growth and short-term yields over the next year or so. We remain consistent and resolute. Contagion? Maybe, but you won’t be finding it at “99.9%” pure Bear Stearns. Look for it instead, in the subprimely financed homes of Las Vegas, Rockford, Illinois, and Miami, Florida. This problem – aided and abetted by Wall Street – ultimately resides in America’s heartland, with millions and millions of overpriced homes and asset-backed collateral with a different address – Main Street. 

 

William H. Gross

Managing Director

mino2126_IHB · Jun 29, 2007

IrvineRenter....great article. Do you ever read Calculate Risk?

nirvinerealtor_IHB · Jun 29, 2007

ns2524,

Where did you pull these data?

I compared your first 6 MLS listings using realtor's real time MLS database. All showed Purchase Price and List Price are "swapped". Listings #2 and #6 are in escrow. Could you please verify. Thanks.

awgee_IHB · Jun 29, 2007

oc-conservative - "There is only one out, and that is to print money like there is no tomorrow. That is the number one reason for buying a home and holding onto it as long as you can."

Do you also feel this way about incuring a mortgage during an inflationary period, considering that most folks do not buy a home, but rather incur debt in the form of a mortgage?

At first thought, it would seem logical to pay off a mortgage with inflated dollars, but what if wages do not rise, but prices on neccessities do?

And before a significant inflationary period, there exists a real possiblity that a derivatives meltdown could initiate a severe credit contraction.

Cherry Picking?

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