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Irvine Housing Blog

Irvine Housing Blog

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Housing bubble causes mobility to fall to record low

Posted: 04 Nov 2011 03:30 AM PDT

The weak economy and crashing house prices has left many trapped in their homes unable to move.

Irvine Home Address ... 40 ATHERTON Irvine, CA 92620
Resale Home Price ......  $423,000

I'm holding you captive
(You can't be released)
Captive, holding you captive
(I won't let you go)
Holding you captive, you captive
(You leave?)
Holding you captive, captive
(The answer is no)

Chris Brown -- Captive

Americans are captives in their own homes. The economic malaise and the abundance of underwater loan owners has immobilized our country. The mobility rate has recently fallen to its lowest reading every recording -- and records go back as far as 1948.

Mobility falls to record low as Americans stay put

Published October 27, 2011 

WASHINGTON –  Yet another symptom of the economic downturn: Americans aren't moving.

Young adults are staying put, often with their parents. Older people aren't able to retire to beachfront or lakeside homes.

And loan owners are trapped underwater in the bank's house. Underwater borrowers are the root of population immobility.

U.S. mobility is at its lowest point since World War II.

New information from the Census Bureau highlights the continuing impact of the housing bust and unemployment on U.S. migration, after earlier signs that mobility was back on the upswing. It's a shift from America's long-standing cultural image of ever-changing frontiers, dating to the westward migration of the 1800s and more recently in the spreading out of whites, blacks and Hispanics in the Sun Belt's housing boom.

Rather than housing magnets such as Arizona, Florida and Nevada, it is now more traditional, densely populated states — California, Illinois, Massachusetts, New York and New Jersey — that are showing some of the biggest population gains in the recent economic slump, according to the data released Thursday.

Residents have been largely locked in place. Families are stuck in devalued homes and young adults are living with parents or staying put in the towns where they went to college.

Population mobility has always been a key aspect of American society. People can more freely and easily move from state to state to take a better job or start a business. Without population mobility, America does not get the most value from its workforce creating a drag on the economy.

"The fact that mobility is crashing is something that I think is quite devastating," said Richard Florida, an American urban theorist and professor at the University of Toronto's Rotman School of Management. He described America's residential movement as an important element of its economic resilience and history, from development of the nation's farmland in the Midwest to its coastal ports and homesteading in the West.

"The latest decline shows we are in a long-run economic reset and that we never really recovered — we've just been stagnating along," Florida said.

There are other reasons than mobility that are contributing to our economic stagnation. The huge mortgage debt overhang which drains our economic resources and dampens household buying power is the real culprit. This debilitating debt also causes much of the social immobility.

About 11.6 percent of the nation's population, or 35.1 million, moved to a new home in the past year, down from 12.5 percent in the previous year. The current level of low mobility comes after the recession technically ended in mid-2009, beating a previous low of 11.9 percent in 2008.

It is the lowest in the 60-plus years that the Census Bureau has tracked information on moves, dating to 1948.

The share of people moving has been declining for decades, due in part to increases in two-income families that are more tied down by jobs and to an aging population that is less mobile. The peak for U.S. mobility came in 1951, when it hit 21.2 percent. The rate had leveled off at around 13 percent before falling off notably in 2008 during the recession.

Among young adults 25 to 29, the most mobile age group, moves fell to 24.1 percent from 25.9 percent in the previous year.

Longer-distance moves, typically for those seeking new careers in other regions of the country, remained largely flat at 3.4 percent.

The biggest drop-off occurred in local moves, down to 15.4 percent from 17.7 percent in 2010. It's a sign that young adults in the prolonged slump weren't even willing to venture outside their counties, continuing instead to live with relatives or on college campuses.

People most often cite a desire to live in a new home as the main reason for moving, as well as reasons of family or economy such as marriage or a new job. But analysts say with many young adults delaying marriage while struggling to find employment and aging baby boomers expressing financial worries about retirement, the current mobility freeze could continue for several more years.

There is no reason to think the problems with mobility will go away until we deal with the issues of underwater loan owners and excessive mortgage debt. Foreclosures and short sales are the way ahead.

An Associated poll this month found that more than half of baby boomers born between 1946 and 1964 say they are unlikely to move somewhere new in retirement; about 4 in 10 say they are very likely to stay in their current home throughout all of their retirement.

The annual growth of retirement-destination counties, typically in Sun Belt states such as Florida, Arizona and New Mexico, has fallen sharply since the recession that began in late 2007. It's down nearly half compared with the period 2000-2007, according to recent census data.

I think Nevada and Arizona will see a resurgence in retirees moving in over the next several years. The baby boomers are just starting to retire, and house prices in Nevada and Arizona are relatively cheap.

As I mentioned in a previous post, my parents have purchased three homes so far in Las Vegas. One is going to be empty half the time as they split between their Florida home and the one in Las Vegas. The other two homes are investment properties which provide enough excess cashflow to cover the expenses of the one they use half the year. Basically, a retiree with $50,000 and the willingness to own rental properties can obtain a modest primary residence with no monthly costs. It's a sweet deal that won't go unnoticed by other retirees.

In all, the mid-decade housing boom and subsequent bust took a toll on virtually all age and race groups.

Homeownership declined in 47 states and the District of Columbia while the national ownership rate fell by its largest amount since the 1930s. Hispanics who moved and purchased homes in new destinations in the Southeast were hit especially hard, with bigger drops in average income and increases in poverty after low-wage construction jobs dried up in states such as South Carolina, North Carolina, Alabama, Kentucky and Tennessee.

In contrast, middle-class blacks from the North who migrated to Southern states such as Georgia, Florida and Texas fared better, maintaining higher incomes than African-Americans who remained in declining industrial centers such as Michigan and Ohio.

Other bright spots in the housing bust included urban, high-tech college meccas that are proving to be a draw for young, college-educated adults of all races and ethnicities.

The data covering 2008-2010 show that Raleigh, N.C.; the Texas cities of Austin, San Antonio and Houston; Denver; Pittsburgh; and Baltimore and Washington, D.C., had some of the biggest gains in residents. All of them tend to promise specialized tech jobs and hip lifestyles.

Pittsburgh is hip now?

William H. Frey, a Brookings Institution demographer who reviewed the education and race data, said many of these cities will continue to attract new residents after the economy fully recovers. He said other cities must seek ways to diversify their industries, draw new investment and build partnerships with local universities to attract young talent, much like Pittsburgh has been striving to do after the collapse of its steel industry.

"Right now, the 'cool' cities are serving as way stations for the small number of adventurous young people who are willing to move in a down economy. But when the broader economy picks up, a much larger group of people will move to wherever the jobs spring up," Frey said, noting that people are staying put for now because they have to, not because they want to.

"We are now just in a lull, albeit a hyperextended one," he said.

Other findings:

— Texas posted increases in average income across all race groups even after the housing bust. The District of Columbia had the biggest overall gain in average income between 2005-2007 and 2008-2010 time periods, increasing 9 percent to nearly $60,000. Thirty-six states had declines.

— The district, New York, Connecticut, Louisiana, Mississippi, Texas, Alabama and California have levels of income inequality that rise above the national average. Broken down by large metropolitan areas, New York City, Miami, Los Angeles, Houston, Memphis, Tenn., New Orleans, San Francisco, and Birmingham, Ala., each had wider-than-average gaps between rich and poor.

— Across smaller areas of geography, Fountainhead-Orchard Hills, Md., just north of Hagerstown, had the greatest measured income inequality. Country Knolls, N.Y., near Albany, registered the least.

— Suburban and rural homeowners were more likely to stay put than others. Some 93.5 percent of the suburban and 93.7 percent of the rural population in owner-occupied units are residing in the same house as one year ago, up from the 2005-2007 time period, according to Kenneth Johnson, senior demographer at the University of New Hampshire.

Renters were more mobile: Overall, 68.8 percent lived in the same rental unit one year ago.

Besides not losing hundreds of thousands of dollars, being a renter for the last ten years has given me the freedom to move wherever and whenever I wished.

John R. Logan, a sociology professor at Brown University, described consequences for mostly minorities should U.S. mobility stay frozen for extended periods. His research on neighborhood segregation has found that the average black or Hispanic household earning over $75,000 lives in a poorer neighborhood than the average white resident earning under $40,000.

"Being locked into place has its most severe effects on blacks and Hispanics, who are often segregated into disadvantaged neighborhoods regardless of their own incomes," he said. "Many middle-class homeowners in these neighborhoods have lost home equity, making it harder to move to communities with better schools and safer streets. Even the slow decline in black-white segregation that we've seen in the last 20 years will be hard to maintain under these conditions."

The lack of mobility kills the move up market. It's not that people are moving shorter distances, it's that they are not moving at all.

The census findings were based on the Current Population Survey as of March 2011, as well as comparisons of the 2005-2007 and the 2008-2010 American Community Survey to provide a snapshot of every U.S. community with at least 20,000 residents. Figures on income inequality come from a census analysis of survey data from 2005-2009.

A few weeks ago, I noted that an entire generation is trapped in their starter homes. This is a big problem, and it will be with us for a long time.

She went Ponzi

The owner of today's featured property bought near the end of the last housing recession on 11/17/1998. She paid $226,000 using a $180,800 first mortgage and a $45,200 down payment. It didn't take her long to start making withdrawals.

  • On 12/7/1999 she obtained a stand-alone second for $50,000.
  • On 7/9/2001 she refinanced with a $251,500 first mortgage.
  • On 11/21/2002 she refinanced with a $269,160 first mortgage.
  • On 7/28/2003 she refinanced with a $285,000 first mortgage.
  • On 4/19/2004 she obtained a $60,000 stand-alone second.
  • On 4/29/2005 she got a $90,000 stand-alone second.
  • On 4/20/2005 she refinanced with a $388,000 first mortgage.
  • On 8/22/2006 she refinanced one last time with a $564,000 first mortgage.
  • Total mortgage equity withdrawal is $383,200.
  • Total squatting time is more than a year so far.

Foreclosure Record
Recording Date: 04/25/2011 
Document Type: Notice of Sale   

Foreclosure Record
Recording Date: 01/18/2011 
Document Type: Notice of Default

This woman pissed away nearly $400,000. The shocking part is how ordinary she seems. I have profiled many larger cases, and despite how obvious it was that this woman had gone Ponzi, her lenders didn't seem to care. After profiling nearly a thousand of these cases, $400,000 in mortgage equity withdrawal hardly registers. It doesn't even earn my half-million dollar club graphic. No, this is an ordinary borrower living an ordinary Irvine life. That's what's so shocking.

Larry Roberts is hosting a Las Vegas cashflow properties presentation at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618) on November 9, 2011. Please RSVP at Register online here: Las Vegas cashflow property - Intercap Lending

This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707 

Irvine House Address ...  40 ATHERTON Irvine, CA 92620
Resale House Price ......  $423,000

Beds:  3
Baths:  2
Sq. Ft.:  1668
Property Type: Residential, Single Family
Style: Two Level, Cape Cod
View: Park/Green Belt, Trees/Woods, Faces South
Year Built:  1980
Community:  Northwood
County:  Orange
MLS#:  S677776
Source:  SoCalMLS
On Redfin:  3 days
Charming 3 Bedroom Townhome Located In The Desirable Sheffield Manor Community. Light & Bright Floor Plan Features Laminate Wood Flooring, Vinyl Slider, Custom Baseboards, 6 Panel Doors, Plantation Shutters, Ceiling Fans & Mirrored Wardrobes. Upgraded Kitchen Includes Granite Enhanced Counters, Stainless Steel Appliances, Breakfast Counter Bar & Garden Window Overlooking The Private Patio Area. Large Master Bedroom Suite With Raised Ceiling, Greenbelt Views & An Upgraded Bath With Granite, Travertine Tile & Shower. Wonderful Association Amenities & Steps To Award Winning Elementary & Middle Schools. Centrally Located Near Walking Trails, Restaurants & Shopping. Low HOA Dues & No Mello Roos 

Proprietary IHB commentary and analysis 

Resale Home Price ......  $423,000
House Purchase Price … $226,000
House Purchase Date .... 11/18/1998

Net Gain (Loss) .......... $171,620
Percent Change .......... 75.9%
Annual Appreciation … 4.9%

Cost of Home Ownership
$423,000 .......... Asking Price
$14,805 .......... 3.5% Down FHA Financing
4.18% ............... Mortgage Interest Rate
$408,195 .......... 30-Year Mortgage
$121,375 .......... Income Requirement 

$1,991 .......... Monthly Mortgage Payment 
$367 .......... Property Tax (@1.04%)
$0 .......... Special Taxes and Levies (Mello Roos)
$88 .......... Homeowners Insurance (@ 0.25%)
$469 .......... Private Mortgage Insurance
$220 .......... Homeowners Association Fees
$3,136 .......... Monthly Cash Outlays

-$313 .......... Tax Savings (% of Interest and Property Tax)
-$570 .......... Equity Hidden in Payment (Amortization)
$22 .......... Lost Income to Down Payment (net of taxes)
$73 .......... Maintenance and Replacement Reserves
$2,348 .......... Monthly Cost of Ownership 

Cash Acquisition Demands
$4,230 .......... Furnishing and Move In @1%
$4,230 .......... Closing Costs @1%
$4,082 ............ Interest Points @1% of Loan
$14,805 .......... Down Payment
$27,347 .......... Total Cash Costs
$35,900 ............ Emergency Cash Reserves
$63,247 .......... Total Savings Needed

Larry Roberts and Shevy Akason are hosting an OC housing market presentation at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618) on November 9, 2011. Please RSVP at Register online here: OC Housing Market - Intercap Lending.

real estate home sales


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