What's going into escrow - Irvine and maybe some Tustin too

NEW -> Contingent Buyer Assistance Program
[quote author="Irvine Allergy Dr" date=1210835423][quote author="ipoplaya" date=1210833444][quote author="Irvine Allergy Dr" date=1210833082]"I personally think we might hit mid 90?s price points."



Awesome. I'm going to be able to buy two properties and not even have to sell my current home. Rental income here I come!</blockquote>


Hey doc, did you look at Zielian Ct? Probably too small for you given the props you've been looking at... I through down an offer and as expected beat out by a higher bidder.</blockquote>


Which one on Zielian? I think there have been 2 or 3 for sale. I do remember keeping one in my Redfin list for a while before it went to escrow.</blockquote>


12160 Zielian. Hit MLS last Thursday for $934K list. They collected best and finals until Monday at 3pm. It's already gone pending. It went REO in April. Previous sale was Oct 2006 for almost $1.4M.
 
[quote author="ipoplaya" date=1210839742]Damn, another two properties went straight to pending... How is this buying binge being financed?!</blockquote>


The GSEs are insuring loans with 45% DTIs. Combine that with low interest rates, and you get the ability to borrow 5.5 times income. IMO, we are just creating a new round of defaults and foreclosures. People can't really afford 45% DTIs.
 
I know and understand that many refis are being denied.



In regards to purchase loans, the undeniable facts are houses are going to escrow slowly (though at a slower pace then years ago), but surely. IPO's recent data shows this rate is also accelarating also. As very few are falling out of escrow, makes me wonder about the actual credit tightening effect in Irvine.
 
just to put things into prospective, if you make $20,000 a month after tax, then DTI of 50% is not bad at all as you have enough money left for living and playing.



but if you make $8000 a month, then DTI of 30% appears too high, as you don't have enough money left for living and playing.



So, discussing DTI without considering the overall income level is misleading IMO.
 
[quote author="irvine123" date=1210831029]"However.... very few can get approved for the purchase. I am talking in the 3-5% of applicant range"



As you are in the "trench", I will take your word for it for 3-5% you mentioned above. I am curious though why the large % of irvine homes went into escrows are actually closing per IPO's data? Where is the disconnect between your 3-5% number and the large % in irvine?</blockquote>


Only 3-5% of all people whom come to me wanting to buy a house can actually qualify for financing to purchase that home.



Simple as that. Homes are still selling of course, people DO get financing. I have done several local sales in the past 2 months. The percentages are what they are... you can try to spin them anyway you'd like...



FNMA, FHA, Portfolio, hard money, etc... I cover the whole gambit. I am most definitely 'In' the trench... and it's filling up with water. I think my nose is just barely above the waterline, currently.



The reasons people can't qualify? Many do not have the required downpayment. For those who do not have it - they cannot usually qualify for FHA, due to the very restrictive income requirements. Others may have the income, but lack credit. It's like building a house from bricks. In the past, if you had even 1 brick, you were thrown 100% financing with whatever exotic terms you needed to make it work. Now, unless you have ALL the bricks, and they are made of gold, you will not be able to obtain what you need.



That's the short of it. I will maybe make a post and put this in detail later, if time allows.



A quick example - someone called me this week asking what it would take to buy an OC house with only 3% down. The house was around 750K. The only program that allows this is FHA currently (due to loan size/LTV). It is maxing out the FHA right against the temp limit, too. At about a $729,000 loan amount, taking into account property taxes, HOA, and the FHA insurance, you need to PROVE an income of over $250,000 a year for 2 years - current to qualify for this. That is just the front end DTI requirement. And you better hope you don't have too much credit card, auto loan, student loan, store credit, other loan, etc. debt out there either... the back end ratio will kill you.



Oh, and FNMA just released their new guidelines yesterday, which are effective June 1st, 2008. The new guidelines clip out about 1/3 or the people who can currenlty qualify for a loan. They are much stricter - lower LTV's and CLTV's, they have imposed steep credit score requirements, etc.... that should make it even more fun for Joe and Jane consumer!
 
[quote author="ipoplaya" date=1210833957][quote author="irvine123" date=1210832301]But if you look at the "down' analysis done by IrvineRealtor, large % of the purchases in Irvine are financed. So cash purchases are not really a key market driver here based on the data.



In terms of the investment houses asset backed mortgage, I know very few people take advantage of. Again, I have a hard time to believe that segment plays a key role in irvine. Also, for high net worth clients, why would they tie their assets to an otherwise non-recourse loan? This still leaves us with the question of why the folks in Irvine can still get financed.



I think understanding this is important as many of us (including myself) thought the credit is hard to obtain, therefore houses are not moving. The Irvine closing data doesn't support this "lack of credit" theory at this point.</blockquote>


Master and Maestro keep forgetting that "Irvine is different". Potential Irvineites are well-qualified, 27% down, high FICO buyers. They can afford whatever they want and aren't buying in droves right now because not enough houses have CaesarStone counters yet. When sellers figure out that yesterday's Pergraniteel is today's DistressedCaesarSteel, sales volumes will go through the roof!</blockquote>


Heh. Speaking as someone who has been looking at the real income #'s (W2's, 1040's, 1099's, IRA/401K statements, bank accounts, etc) of the people living in Irvine for the last 6 years (not to mention all the other OC cities. :) ), I can tell you - Irvine is definitely not different. No, they don't make more money. In fact, you would probably be SHOCKED by how few families have 6-figure incomes. I'm talking 6-figure household incomes here. People live well beyond their means. If anything, I would say Irvine is far worse off (debt wise) than many of it's neighbors. The typical Irvine profile I see averages far more revolving and installment debt than others... and not more income. Bad combo.
 
[quote author="irvine123" date=1210850090]I know and understand that many refis are being denied.



In regards to purchase loans, the undeniable facts are houses are going to escrow slowly (though at a slower pace then years ago), but surely. IPO's recent data shows this rate is also accelarating also. As very few are falling out of escrow, makes me wonder about the actual credit tightening effect in Irvine.</blockquote>


In Irvine, you are probably seeing a lot of large downpayments being put down on homes (lower LTV deals), due to the extreme difficulties involved with jumbo financing at the moment...



Just my guess.
 
[quote author="ipoplaya" date=1210839742]Damn, another two properties went straight to pending... How is this buying binge being financed?!</blockquote>


Ipo, I see that one of them is 16619 Sonora. Apologize if this is obvious, or has already been answered, but what does "straight to pending" really mean. I know that property has been for sale for a few weeks now and recently had a price drop to 999k from 1099K.
 
"Only 3-5% of all people whom come to me wanting to buy a house can actually qualify for financing to purchase that home."



To me, that's a really bad sign for those hoping for a faster drop in the market (like me). This implies there is huge pent-up demand for housing that is restricted only by price right now. I would rather hear that "No one is coming by to look for loans anymore." :)
 
It shouldn't.



A lot of people want Ferraris and Movoto watches. Used to be to get one of them you needed to have liquid cash. Anymore?



This credit bubble continues to deflate. Relax.
 
"This implies there is huge pent-up demand for housing that is restricted only by price right now"



I think IrvineAllergy hit the nail on the head on this. My neighbours told me this week that they have huge traffic on showings of their homes, and it seemed most of them have a target price they want to negotiate and reach - which is around 2004/2005 price. So it is not just lookers, they are many serious lookers who are willing to enter into contract if their target price is hit. The homes from sellers who are realistic on their price sells a lot faster right now - IPO's data reflects that.



If there is a "strong undercurrent" of not yet listed foreclosures, there is probably also a "strong current of buyer demands. I believe the price will continue to go down as the demand is smaller then the supply when those foreclosures hit the market later this year. However, in the near term before those unlisted forecloses hit the market, we probably will see a relatively stable price pattern due to the surprising willingness from the potential buyers. The wildcard here is the new demo policy post nov. election.



Master's statement of "3 to 5% can qualify" and "seen few six figure family income" makes me believe that his data pool is mainly in the lower price range market, i.e. condo and town homes. IrvineRealtor's "down" analysis shows that most single family purchases have a good down-payment. Given the price point, family income less than 100K just won't cut it. By the way, two family incomes in the field of science, finance can easily produce more than $100K of income couple years after college.
 
There is supply and there is demand. There is no such thing as pent up demand just as there is no such thing as pent up supply. Demand is satisfied at differnet price levels and supply is increased or decreased at different price levels. It is that simple. Pent up demand is a fallacy and a misunderstanding of economic reality.
 
[quote author="awgee" date=1210892110]There is supply and there is demand. There is no such thing as pent up demand just as there is no such thing as pent up supply. Demand is satisfied at differnet price levels and supply is increased or decreased at different price levels. It is that simple. Pent up demand is a fallacy and a misunderstanding of economic reality.</blockquote>


Bingo.



People are always going to be buying on the way down. They don't look at a house selling for 20% off as a knife catcher. They see it as a deal, even if it will fall another 20% in price. Sellers will eventually capitulate.
 
Perhaps there's a better term than "pent up demand" but what this statement implies is that there are quite a few people who wanted to own a home, but either couldn't afford mid 2005 pricing and beyond or just decided that at those prices, it's not worth it. In 2006 my husband and I decided to look at plan B as we concluded that we would never own here. We could afford a condo at the 2006 prices, but we said we wouldn't spend that kind of money just to have a condo.



We had the conversation with another couple we are close with and they concluded that they will never own at all as they couldn't move out of the area. Last month they closed on a condo and last Friday we closed on an SFR that after the tax break costs us LESS per month than if we were to rent it. Their condo costs them about $400 more per month than what their rent was in a 1 bd apt in LF. It took a 41% off of peak price to make that happen for us and a 35% off peak for them.



Neither one of us are stressed about whether our home values are going to go lower. We pretty much know that is distinctly possible. The reason we are not stressed is that we have been yearning for years to have our own place and we have been able to do so with it being affordable. I know many people right now that are qualified buyers who are starting to look and are so excited that they can finally afford to or justify owning. Just don't know exactlly how many of them are out there, but I suspect that there are more than the bears realize.
 
[quote author="rtlguru" date=1210889341][quote author="ipoplaya" date=1210839742]Damn, another two properties went straight to pending... How is this buying binge being financed?!</blockquote>


Ipo, I see that one of them is 16619 Sonora. Apologize if this is obvious, or has already been answered, but what does "straight to pending" really mean. I know that property has been for sale for a few weeks now and recently had a price drop to 999k from 1099K.</blockquote>


Straight to pending = Pending sale status in MLS with skipping of the customary "Accepting backup offers" status. Most places when they go into escrow will flip to accepting backup offers until the buyer has cleared their contingencies, i.e. loan, inspection, etc. Once a property hits "Pending sale" status, the likelihood of a close goes much higher.



Sonora is bank-owned I think. They will usually go into escrow and wait for the buyer to clear contingencies while keeping active on MLS. This allows them to keep trolling for a better offer. Once the buyer signs off and has their financing in place, the REO will switch from active to pending sale status.
 
[quote author="Irvine Allergy Dr" date=1210890048]"Only 3-5% of all people whom come to me wanting to buy a house can actually qualify for financing to purchase that home."



To me, that's a really bad sign for those hoping for a faster drop in the market (like me). This implies there is huge pent-up demand for housing that is restricted only by price right now. I would rather hear that "No one is coming by to look for loans anymore." :)</blockquote>


People are definitely interested in buying homes right now.



Unfortunately, there are not a lot of people looking to buy right now who have the trifecta - great credit, lots of money to put down, and great income.



Without the trifecta, you ain't getting a loan right now. Hence my earlier statement - Homes will depreciate way way down to the point when people can AFFORD them (i.e. obtain financing to purchase them).



Demand is there (albeit a lot less than in the previous 5 years), people definitely are looking for deals.
 
[quote author="irvine123" date=1210891478]"This implies there is huge pent-up demand for housing that is restricted only by price right now"



I think IrvineAllergy hit the nail on the head on this. My neighbours told me this week that they have huge traffic on showings of their homes, and it seemed most of them have a target price they want to negotiate and reach - which is around 2004/2005 price. So it is not just lookers, they are many serious lookers who are willing to enter into contract if their target price is hit. The homes from sellers who are realistic on their price sells a lot faster right now - IPO's data reflects that.



If there is a "strong undercurrent" of not yet listed foreclosures, there is probably also a "strong current of buyer demands. I believe the price will continue to go down as the demand is smaller then the supply when those foreclosures hit the market later this year. However, in the near term before those unlisted forecloses hit the market, we probably will see a relatively stable price pattern due to the surprising willingness from the potential buyers. The wildcard here is the new demo policy post nov. election.



Master's statement of "3 to 5% can qualify" and "seen few six figure family income" makes me believe that his data pool is mainly in the lower price range market, i.e. condo and town homes. IrvineRealtor's "down" analysis shows that most single family purchases have a good down-payment. Given the price point, family income less than 100K just won't cut it. By the way, two family incomes in the field of science, finance can easily produce more than $100K of income couple years after college.</blockquote>


I do not have a particular demographic that I deal with. I deal with individuals who own multi-million dollar companies, janitors, CEO's, retirees, etc. People want to but homes ranging from the cheapies (250K or so) all the way to million dollar mansions. Who do you think makes all this awesome income? Do you believe what people tell you they make? I see the hard documents (the truth). The truth is often FAR different from what people say/try to show they have.



In addition, MOST of the 'higher' income people I deal with are not for purchases, but for restructuring transactions. They already own homes, have loans, etc. If they had that 6 figure income over the last couple years (which they would need to have, and prove, to qualify right now), odds are they already bought a home during the boom.



All the buyers I talk to now are looking for deals. None have any idea if prices are headed lower, much lower, etc. They are simply buying what they consider to be 'sweet deals' as compared with a couple years ago.
 
[quote author="skek" date=1210899697]<em>skek winces at the avatar...</em>



Master,



Do you work with high-end buyers? I know some of the $2 million+ properties carry some obscene mortgages. Is the same dynamic at work? I could see that the high end would be even more negatively affected because there are fewer buyers in that category to begin with. But on the other hand, I could see how the high end might be more resilient because folks looking at a $2 million+ property probably have the trifecta, it's just a question of how much.



[<strong>EDIT:</strong> OK, your simultaneous post above kind of answers my question. I didn't want anyone to think I can't read...]</blockquote>


I do indeed work with people in this category, and it is indeed quite different. To start with, the values on these properties (for the most part) have been more stable. They are usually located in extremely desireable areas (beachfront, top of a mountain, etc.) with ammenities that are not available elsewhere. Also, there was NEVER any conventional financing available on these properties (due to the dollar amounts). Also, the income required on a monthly basis for the mortgage, taxes, insurance was always very high to start with... there are far fewer foreclosures and payment defaults. There are still loans available for these folks, they are pure portfolio products offered by a few of the niche banks... and since their value is holding better, it's a different situation.



Please note that I am talking about true million dollar homes with special ammenities. I am NOT going to include Irvine track homes that had their value pushed up into the millions in this category. They are already getting smashed.



Hope that helps!
 
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