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Irvine Housing Blog

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Fiserv Case-Shiller: after five years of record declines, slow grinding bottom ahead

Posted: 10 Feb 2011 02:30 AM PST

Fiserv Case-Shiller is now calling a bottom in most housing markets over the next 18 months followed by years of grinding along the bottom.

Irvine Home Address ... 1 LANCEWOOD Way Irvine, CA 92612
Resale Home Price ...... $395,000

I'm trying to scream but I can't exhale
The world seems to spin as I'm left on this square
With no will to hold on
Am I the only one crushed by the weight of the world?

Antimatter -- The Weight of the World 

When a bubble bursts, sellers compete to bail out before prices fall further. Strategic defaults and the inevitable foreclosures plus those who purchased at higher price points form an overhead supply that must be liquidated before prices can go back up. The weight of this inventory if left unchecked will push prices well below the previous equilibrium as is now happening in Las Vegas. Over time this inventory is sold, and the weight of this inventory lessens, and prices can slowly begin to rise. It is only after all this inventory is purged can prices resume a level of appreciation equal to wage incomes.

Fiserv Case-Shiller Home Price Insights: After Five Years of Record Declines, U.S. Home Prices Begin To Stabilize

Source: Business Wire
Publication date: February 1, 2011

Fiserv, Inc. (NASDAQ: FISV) today released an analysis of home price trends in more than 375 U.S. markets based on the Fiserv® Case-Shiller Indexes®. The indexes are owned and generated by Fiserv, the leading global provider of financial services technology solutions, and data from the Federal Housing Finance Agency (FHFA).

In the third quarter of 2010, U.S. single-family home prices saw an average decrease of just 1.5 percent over the year-ago quarter, as a growing number of metro area housing markets begin to stabilize after five years of record home price declines. Fiserv and Moody's Analytics report that home prices have already leveled out in one out of four metro areas. They estimate that price stability will characterize 75 percent of U.S. metro markets by the end of this year and 100 percent of markets by the end of 2012.

Even as metro markets stabilize, the Fiserv Case-Shiller data analysis indicates a slow recovery in home prices with many false starts, especially in markets with large amounts of foreclosed properties.

"Large supplies of foreclosed properties will continue to be the biggest downside risk for home prices and metro area housing markets," said David Stiff, chief economist, Fiserv. "Foreclosure activity declined at the end of 2010, but sales activity of bank-owned homes increased. In bubble and crash markets, the uncertain timing and volume of bank liquidated properties will cause home prices to bounce around their lows for many years."

I described this same phenomenon in Shadow Inventory Signals Three Years of Falling Prices.

The weight of overhead supply stops prices from moving upward in any meaningful way because as soon as prices start to rise, sellers come out to liquidate inventory and blunt any price increases.

Expected stabilization in specific markets include:

Markets where prices have already stabilized include San Diego, Washington, D.C., and San Francisco.

I think coastal California is far more at risk than lenders are willing to admit.

Markets where prices will stabilize by the end of 2011 include Minneapolis, New York City and Portland, Ore.

Markets where prices will not stabilize until 2012 include Miami, Phoenix and Las Vegas.

Data from the Fiserv Case-Shiller showed that improved housing affordability is luring many buyers into the market, as the huge decline in home prices and low mortgage interest rates have reduced the cost of owning a home to pre-bubble levels. Other factors, however, are dampening demand.

"Since a significant number of households no longer have access to mortgage credit, improving affordability does not necessarily translate into sustained housing demand in every metro market," added Stiff.

The depleted buyer pool is one of the biggest obstacles the market faces. There simply aren't enough qualifying people to absorb all the inventory at all price points. Far too much of our real estate is considered high end based on its price-to-income ratio.

Every house on the MLS is affordable to someone, but the low end in Orange County is generally depleted of supply so 10 buyers compete for one property, but the high end is depleted of demand, so 10 sellers compete for one buyer. Most of the high end inventory sits there waiting to see if they are that lucky homeowner who gets out while prices are still inflated.

The Fiserv Case-Shiller Indexes forecast that average single-family home prices will fall another 5.5 percent over the next 12 months, with steep home price declines expected to continue in markets that have been hurt most by the housing crisis. These markets, including many in Florida, California, Nevada and Arizona, will begin seeing prices stabilizing throughout this year and through the end of 2012. Factors weighing on the housing market continue to include chronic high unemployment and the large number of distressed properties that remain in many of the bubble markets.

The Fiserv Case-Shiller Indexes, which include data covering thousands of zip codes, counties, metro areas and state markets, are owned and generated by Fiserv. The historical and forecast home price trend information in this report is calculated with the Fiserv proprietary Case-Shiller indexes, supplemented with data from the FHFA. The historical home price trends highlighted in this release are for the 12-month period that ended September 30, 2010. One-year forecasts are for the 12 months ending on September 30, 2011. The Fiserv Case-Shiller home price forecasts are produced by Fiserv and Moody's Analytics.

More information on the Indexes can be found at the Fiserv Case-Shiller website at

Mortgage equity withdrawal that exceeds the current purchase price

They spent the whole house... and then some. The owners of today's featured property purchased back in 1995, and by the time of their last refinance ten years later in 2005, they had already pulled out nearly half a million dollars -- a number that exceeds the resale price of that house today.

  • Back on 5/13/1995, the owners of today's featured property paid $180,000. They used a $171,000 first mortgage and a $9,000 down payment. Nine thousand got them five hundred thousand. Not bad.
  • On 5/15/1998 they refinanced for $193,000. Almost three years to the day later, and they have withdrawn their down payment, and they picked up another $13,000 for Ponzi money.
  • On 10/29/1998 they refinanced for $192,500.
  • On 7/2/1999 they needed another $15,000, so the got a HELOC.
  • On 6/26/2000 the obtained a stand-alone second for $65,000.
  • On 7/12/2002 they obtained a $134,475 stand-alone second.
  • On 9/24/2003 they refinanced with a $356,000 first mortgage.
  • On 8/11/2004 the got a $140,000 HELOC.
  • On 8/18/2005 they refinanced the first mortgage for $540,000
  • Finally, on 6/20/2006 in a last gasp of desperation, these owners refinanced with a $548,000 Option ARM and took out a $68,500 HELOC.
  • Total property debt is $616,500 plus negative amortization.
  • Total mortgage equity withdrawal is $445,500.
  • They quit paying last year.

Foreclosure Record
Recording Date: 11/30/2010
Document Type: Notice of Default

It shouldn't be surprising that so many think California real estate is a pot of gold. It certainly was for this couple. They put down less than $10,000 and nearly pulled out half a million. That is living the California dream.

Irvine Home Address ... 1 LANCEWOOD Way Irvine, CA 92612    

Resale Home Price ... $395,000

Home Purchase Price … $180,000
Home Purchase Date .... 5/12/95

Net Gain (Loss) .......... $191,300
Percent Change .......... 106.3%
Annual Appreciation … 5.0%

Cost of Ownership
$395,000 .......... Asking Price
$13,825 .......... 3.5% Down FHA Financing
4.99% ............... Mortgage Interest Rate
$381,175 .......... 30-Year Mortgage
$81,696 .......... Income Requirement

$2,044 .......... Monthly Mortgage Payment

$342 .......... Property Tax
$0 .......... Special Taxes and Levies (Mello Roos)
$66 .......... Homeowners Insurance
$110 .......... Homeowners Association Fees
$2,562 .......... Monthly Cash Outlays

-$337 .......... Tax Savings (% of Interest and Property Tax)
-$459 .......... Equity Hidden in Payment
$27 .......... Lost Income to Down Payment (net of taxes)
$49 .......... Maintenance and Replacement Reserves
$1,842 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$3,950 .......... Furnishing and Move In @1%
$3,950 .......... Closing Costs @1%
$3,812 ............ Interest Points @1% of Loan
$13,825 .......... Down Payment
$25,537 .......... Total Cash Costs
$28,200 ............ Emergency Cash Reserves
$53,737 .......... Total Savings Needed

Property Details for 1 LANCEWOOD Way Irvine, CA 92612  
Beds: 3
Baths: 2
Sq. Ft.: 1493
Lot Size: 3,441 Sq. Ft.
Property Type: Residential, Single Family
Style: One Level, A-Frame
Year Built: 1966
Community: University Park
County: Orange
MLS#: S646211
Source: SoCalMLS
Status: Backup Offers AcceptedThis listing is under contract, but the sellers are looking for additional offers in case the current offer falls through.
On Redfin: 8 days

Lowest price 3 bed in University Park. Beautiful end unit in a desirable location. Huge living room with cozy fireplace. Enclosed front patio with private backyard. Easy access to freeways, outstanding schools and association amenities. Low association fee, NO MELLO ROOS.

real estate home sales


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