Memories made in the coldest winter Winter, winter
If spring can take the snow away Can it melt away all of our mistakes Memories made in the coldest winter
Kanye West -- Coldest Winter
In frontier times if you didn't prepare for winter, you died. The economic cycles has seasons, including a winter. The housing bubble was the endless summer of easy money. The declining market of fall lead to the economic crash and the long cold winter we are enduring now. It seems like the spring thaw will never come, and for most loan owners it won't. The overindebted are not fit to survive the winter, and overly-indebted real estate sellers will endure a very cold fall and winter to come.
A key index of home prices in 20 metropolitan areas rose 1.1% from May to June. Real estate experts say the improvement is seasonal and that prices could fall again as sales slow in the fall and winter.
August 31, 2011-- By Alejandro Lazo, Los Angeles Times
With an uptick in June, home prices in major U.S. cities have recorded three consecutive months of gains. But the glimmer of improvement is almost certainly seasonal in nature, real estate experts said, and prices could begin to fall again when the slower sales season begins.
The Standard & Poor's/Case-Shiller index of home prices in 20 metropolitan areas rose 1.1% from May to June when left unadjusted for seasonal variations. Prices fell 4.5% from June 2010.
Remember last April and May as buyers hurried to obtain the $8,000 tax credit? With prices down 4.5% any benefit obtained was washed away by falling prices in the aftermath.
Prices often increase in the warmer months because of changes in the types of homes selling, particularly in parts of the country that have harsher weather than Southern California. Foreclosures make up a higher proportion of sales during the winter as families take a break from home shopping and cash-rich investors dominate the market. Higher sales volumes in spring and summer also push up prices.
"A seasonal kick accounts for the recent strength in the indexes," Patrick Newport, a U.S. economist with IHS Global Insight, wrote in a note to clients. "This kick will wear off in the fall, when demand weakens and sellers have to give way on price, and prices will start dropping again."
Yes, that is exactly what will happen. During the winter buyers are scarce. The properties remaining on the market are sellers who missed the prime selling season. Many will take their properties off the market and wait until next year, but those who don't represent the most motivated sellers. When the market is characterized by a shortage of buyers and a plethora of motivated sellers, lower prices are sure to follow. That's the main reason prices go down in the fall and winter. This year, the circumstances are exaggerated because the GSEs will be selling whether or not discretionary sellers get into the act.
The Case-Shiller index also includes data that is adjusted for seasonal variations, but the experts who publish these numbers have cautioned that the large number of foreclosures on the market have distorted the statistics.
Foreclosures distort nothing. The liquidation of foreclosures are part of the market, and they will be for the next several years. A foreclosure-dominated market is not the old norm, but it is today's reality.
There were some signs of hope.
None of the cities tracked by the index posted new lows. In March, home prices dipped below their recession-era low of April 2009, confirming a much-expected double-dip in home prices, but that was short lived as the selling season pushed prices back above that mark.
This fall and winter the double dip should take out the 2009 lows in any remaining markets. Any signs of hope will be crushed.
Many experts, however, say that the level of job creation needed for steady home price gains is still elusive. For prices to make sustained gains, the market needs a steady supply of buyers and sellers. Holding people back from making purchases, experts say, are factors such as unemployment and the difficulties that people with less-than-stellar credit have getting mortgages.
The buyer pool is seriously depleted because so many have gone through foreclosure or short sale. This is what makes Las Vegas such a great cashflow property market. The disparity between the cost of ownership and the cost of rental is sending a huge buy signal, but since most of the potential buyer pool with jobs has poor credit, they have no choice by to rent. This keeps rental rates high even while the cost of ownership continues to plummet.
In addition, the decline in home equity brought on by the bust has discouraged move-up buyers, a traditional source of housing-market oomph.
Discouraged is the wrong word. It implies move-up buyers still have the equity necessary to move up. They don't. The move-up market is frozen because the ongoing price decline is removing the equity from the household balance sheets of all homeowners. This is more than discouraging, it is debilitating. There will be no move-up market until prices find their natural bottom and prices sustain appreciation for two or three years. Only then will buyers from the bottom have enough equity to cover transaction costs and move into a nicer home -- assuming they make more money to afford a larger mortgage.
Although foreclosures have slowed, repossessed properties continue to represent an unusually large proportion of home sales, and those houses tend to drag prices down. The number of foreclosures could increase again if the economy worsens and if banks pick up the pace after working through negotiations with regulators over their repossession practices.
Nineteen of the 20 regions measured by the Case-Shiller index were up in June over May, according to the data released Tuesday. Eight cities remain above their April 2009 bottom, including all of the metro areas in California: San Diego, San Francisco and the Los Angeles region, which also covers Orange County.
Home prices in the California cities are considered relatively healthy, despite the state's high unemployment rate, because they are markets that are close to job centers and near the ocean — where overbuilding was relatively constrained and demand remains healthy.
Wrong! The only reason these markets look healthier is because the foreclosures and resulting REO have not been processed here. Coastal California is the king of shadow inventory. A study by Foreclosure Radar has demonstrated that squatting time increases as loan balance increases. Since coastal California has the largest number of large loans, lenders are simply not foreclosing here in hopes a market rebound will magically produce enough buyers to absorb the inventory waiting in the shadows. It won't work out that way.
The index does not track prices in California's Central Valley or the Inland Empire, where housing is still weak.
"These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together," David M. Blitzer, chairman of the index committee at Standard & Poor's, said in a statement.
No. These shifts have shown that the uneven foreclosure behavior of lenders is bifurcating the maket by separating the squatters with large loan balances form the recently foreclosed who used to have less expensive properties.
Recent turmoil in the nation's stock markets also has shaken the faith of consumers in the future of the U.S. economy. A separate economic gauge released Tuesday underscored this fear. That measure of consumer sentiment dropped to its lowest level in more than two years.
The Conference Board's consumer confidence index now stands at 44.5, down from 59.2 in July, a drop of nearly 15 points. The last time the index was near this low was in April 2009, just after the financial crisis had sent markets into a free-fall that had ended that March, when it stood at 40.8.
The group's present-situation index, which tracks how people feel about the current state of the economy, fell to 33.3 from 35.7. The big decline came in people's views about the future of the economy, with the expectations index dropping to 51.9 from 74.9 last month.
Ian Shepherdson, chief U.S. economist for High Frequency Economics, said that consumer confidence should improve now that the gyrations of the stock markets have eased.
"The expectations number is always sensitive to stock prices, so it should now stabilize if the market remains close to current levels," he wrote in a note Tuesday.
Many analysts have tried to tie the lack of housing demand on consumer sentiment factors. I don't believe it. Very few people delay their home purchase decisions based on macro-economic factors. Perhaps many readers of this blog have, but the cautious readers of this blog are a small minority of the general homebuying population. Most people buy for emotional reasons because they are ready to do so. There are not legions of fence sitters waiting to buy at a later date. The fence-sitter meme is a realtor fantasy, not a market reality.
With prices falling below rental parity in many neighborhoods -- even here in Orange County -- many buyers will take advantage of the low cost of ownership caused by low interest rates and buy distressed property this fall and winter. It probably isn't the bottom, but for those with a longer holding time who can wait out the decline, taking advantage of the cost of ownership lower than comparable rent may be the right decision.
Paying for someone else's dream
During the bubble the easy access to HELOC money prompted many people to renovate their average homes into palaces. Everyone who creates their dream home falls in love with it and assumes everyone else shares their ideas of what makes a perfect home -- and these owners expect others to be willing to pay a premium for it.
In the real world, for every dollar spent on a renovation it adds about seventy cents in value. For those who go overboard and customize everything to their tastes, the actual value added drops off significantly. Of course, owners don't accept this, and most people in Irvine who spent money on renovations believe they added two dollars in value for every dollar they spent.
The owners of today's featured property started with a $473,800 first mortgage, and by the time they finished their renovations, they had a $555,000 first mortgage and a $150,000 HELOC. Of the $231,200 in mortgage equity withdrawal, at least some of it was spent on improvements. The owners hope that between the added value and the residual air of the housing bubble they will still make a profit on the deal.
Is this property worth a million dollars?
------------------------------------------------------------------------------------------------------------------------------------------- This property is available for sale via the MLS. Please contact Shevy Akason, #01836707 949.769.1599 sales@idealhomebrokers.com
Beds: 4 Baths: 2 Sq. Ft.: 2300 $435/SF Property Type: Residential, Single Family Style: Two Level, Traditional View: Pool Year Built: 1979 Community: Woodbridge County: Orange MLS#: P794914 Source: SoCalMLS On Redfin: 1 day ------------------------------------------------------------------------------ CALIFORNIA DREAM COME TRUE! Better than a New Model! This home is a rare gem!! Located on the corner of two very quiet streets. Totally remodeled in 2006 with nothing left out. This Sunny open floorplan welcomes you with custom features throughout. Travertine floors. High End Remodeled Kitchen with everything you can imagine: Large Island, Professional 6 Burner Gas Stove with 2 ovens & griddle, Wine Cooler, Bar Ice Machine, more Refrigerator Drawers in Island, Miele Espresso Station, Granite Counters with Tile Backsplash, even Dutch Doors to outdoor dining area! Butler Pantry with sink, disposal, 2nd Dishwasher & storage shelves. Open Dining Room with custom pillars. Custom Fireplace with Marble Hearth. Custom Swimming Pool & Large Spa with Pebbletech surface & Waterfalls surrounded by colorful raised flowerbeds. Large lot provides lots of backyard entertainment area with Large BBQ Island with sink & refrigerator. All bathrooms remodeled, New windows. .More, more, more. .Just come & see! -------------------------------------------------------------------------------------------------------------------------------------------
Proprietary IHB commentary and analysis
CALIFORNIA DREAM COME TRUE! Better than a New Model! This home is a rare gem!! -- We now know a great deal about the egos of the owners. They probably believe those statements.
Resale Home Price ...... $999,900 House Purchase Price … $592,500 House Purchase Date .... 11/15/2000
Net Gain (Loss) .......... $347,406 Percent Change .......... 58.6% Annual Appreciation … 4.8%
Cost of Home Ownership ------------------------------------------------- $999,900 .......... Asking Price $199,980 .......... 20% Down Conventional 4.26% ............... Mortgage Interest Rate $799,920 .......... 30-Year Mortgage $197,330 .......... Income Requirement
-$927 .......... Tax Savings (% of Interest and Property Tax) -$1100 .......... Equity Hidden in Payment (Amortization) $307 .......... Lost Income to Down Payment (net of taxes) $145 .......... Maintenance and Replacement Reserves ============================================ $3,523 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $9,999 .......... Furnishing and Move In @1% $9,999 .......... Closing Costs @1% $7,999 ............ Interest Points @1% of Loan $199,980 .......... Down Payment ============================================ $227,977 .......... Total Cash Costs $53,900 ............ Emergency Cash Reserves ============================================ $281,877 .......... Total Savings Needed -------------------------------------------------------------------------------------------------------------------------------------------------------
Wrong! The only reason these markets look healthier is because the foreclosures and resulting REO have not been processed here. Coastal California is the king of shadow inventory. A study by Foreclosure Radar has demonstrated that squatting time increases as loan balance increases. Since coastal California has the largest number of large loans, lenders are simply not foreclosing here in hopes a market rebound will magically produce enough buyers to absorb the inventory waiting in the shadows. It won't work out that way.
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