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This Photographers Life (Architecture + Interior Design)
The indelible symbols of the housing bubble are the empty towers left in its wake. We have them here in Orange County, and the Chinese have them in every major city.
If you feel so empty So used up so let down If you feel so angry So ripped off so stepped on You're not the only one Refusing to back down You're not the only one So get up
Let's start a riot, a riot Let's start a riot Let's start a riot, a riot Let's start a riot
Three Days Grace -- Let's Start a Riot
The Chinese have long known they have a problem with real estate values. Over the last several years, the Chinese government has enacted a series of half-hearted policies aimed to slow the increase in real estate prices. Unfortunately, the Chinese housing bubble is a runaway freight train heading for an awful crash.
A weekend scuffle in Shanghai over a drop in apartment prices adds to increasing evidence that China’s efforts to tame a surging property market are having an impact – even as it offers a hint of what could happen if the measures go too far.
A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.
Can you imagine? These people are on the verge of rioting over a small decline in prices -- at least it's small compared to what is coming.
I remember the fervor over rising house prices here and the hostility people exhibited at the mere suggestion that prices might go down. I had to blog anonymously for the first 18 months I wrote for this blog for fear of what the crazies might do. Given the behavior of these protestors in China ransacking a showroom, it appears my fears were well founded. When people realize they bought a steaming pile of crap rather than a pot of gold, they get pretty upset.
The local media reports said an unspecified number of people were injured. The property developer, a unit of China Overseas Holdings Ltd., didn’t respond to requests for comment. Photos of the event showed broken glass in the sales office, homeowners marching with banners and a phalanx of police watching over.
Chinese media separately reported that another group of Shanghai homeowners gathered on Saturday to speak with Longfor Properties Co., after it dropped asking prices to 14,000 yuan per square meter from 18,000 yuan per square meter at a residential development in the city’s Jiading district. Longfor didn’t return calls for comment. In an Oct. 20 release, it said it posted stellar sales following an aggressive sales strategy for three of its projects in Shanghai and in the city of Hangzhou.
It's time to line up the bagholders. Anyone who buys now in China will watch their investment turn to garbage overnight.
Beijing has been tightening control of the property market this year to tame surging property prices, amid fears that unaffordable housing could lead to greater social unrest. Measures include a massive 1.3 trillion yuan program to build about 10 million public housing units for low-income earners this year, as well as limits of purchases of second homes and other restrictions.
Data in recent weeks have suggested that the curbing efforts are having an impact. China’s housing prices were largely unchanged in September from a month earlier and grew at a slower pace than in September 2010, indicating Beijing’s efforts to cool the real estate sector are having an impact.
Speculation has turned to whether authorities will now relax restrictions. On Monday, China’s eastern city of Nanjing said it would let residents borrow more money from the city’s housing provident fund to buy “ordinary homes,” in a move designed to give the struggling property sector a boost. While it didn’t elaborate, such homes are often defined as no larger than 140 square meters.
In the southern city of Foshan earlier this month, local officials announced they would lift some property-market restrictions, then postponed that move the next day “to seek further public opinion and to make an assessment on the effects of such measures”, without giving further details.
Chinese Premier Wen Jiabao on Saturday stressed that all levels of government need to reinforce China’s controls of the property market, and that tightening efforts in the property market and the construction of public homes in China are at a pivotal moment.
It will be interesting to see how the Chinese react to this problem. They surrendered central control of all pricing and embraced a modified form of capitalism. With capitalism comes its associated ills, one of which is Ponzi viruses. Once a Ponzi virus in unleashed on the financial system it reproduces like a cancer cell until it grows so large it imperils the economy. China should have stamped out this virus years ago, but the ensuing development it created was highly sought after by the government, so they didn't recognize the danger in what they were doing.
They now have a Ponzi scheme so large it threatens everything. The civil unrest at this showroom is a minor skirmish in what could easily grow into a massive outpouring of violence when the crash wipes the illusions of wealth of the entire nation. If people are this upset over a 25% decline, they are obviously quite attached to their notion that prices only go up.
The Shanghai property-owner demonstration found little support on China’s Internet, where most still expressed worries that housing prices are too high. In an informal poll posted on the Twitter-like microblogging site Sina Weibo that had attracted more than 34,000 votes by Tuesday evening, 80% said they that thought it was normal for housing prices to fall and that the Shanghai protestors were just playing up the issue.
“This is an immoral action,” Weibo user Xiaobai Yeyou Naxieshi wrote in one of the 7 million property-related posts Sina had collected Tuesday on a special topic page. “Buying a house is a form of investment and every investment involves risk. If prices didn’t fall, people who can’t afford to buy an apartment would really have to wait forever.”
Interesting that your average Chinese citizen realizes people cannot be priced out forever, but the average Californian doesn't get the concept.
“Dear Government, can you please cancel my purchase of Petrochina shares? A refund based on the IPO price would be fine,” joked Linshi Renyuan. Petrochina, which debuted on the Shanghai stock market at 16.7 yuan per share in 2007, was trading at to 9.85 yuan per share at the end of the day Tuesday.
LOL! But real estate is different. Prices only go up. Real estate is an investment with no risk, right?
That said, a sustained drop in housing prices could spark its own displeasure. It could also spark criticism that Beijing’s policies don’t address long-term issues.
Outspoken Chinese real estate tycoon Ren Zhiqiang, whose properties haven’t been involved in the demonstrations, said on his microblogon Monday, “Does the government really want to solve the housing (issue) for the public or is it just using the property market as a tool to balance between economic growth and the public sentiment?”
The answer is obvious: the Chinese government doesn't care at all about providing affordable housing, it simply wants economic growth and the perception of wealth even if that wealth is an illusion based on a Ponzi scheme.
“Why doesn’t the government work on land supply, land prices and tax incentives? Why doesn’t it raise wages and lower home purchase taxes, and raise the affordability for the citizens?” Mr. Ren asked.
-- Esther Fung with contributions from Amy Li and Josh Chin
Yes, why doesn't the Chinese government work on those things. They demand they have created is artificial, just like ours was. They need to create real demand based on higher wages and increased worker productivity. The rest is an illusion.
North Korea towers in Irvine
Shanghai will be littered with empty housing towers built for high-end residents who simply don't exist. Orange County is also littered with empty housing towers built for high wage earners who simply aren't present. One of the most obvious examples of this phenomenon is the North Korea towers in Irvine, otherwise known as the Marquee at Park Place.
Most building and development happens in reaction to prices in the resale market. If developers believe they can sell a certain product for a certain price, they will provide that product if they believe they can do it profitably. Unfortunately, when the resale value is an illusion created by a housing bubble, developers build projects like these and either sell them to bagholders like the North Korea towers, or they become the bagholders like the Astoria across the street.
These false price signals sets in motion a great deal of wasted economic activity. The resources devoted to producing the worthless assets could have been, and should have been, diverted to other uses which would have had more societal value. This misallocation of resources is the problem with Ponzi viruses. For example, in the 16th century, the entire Dutch economy revolved around producing tulip bulbs. The misallocation of resources created a severe economic slump when tulip prices crashed.
Each dollar spent constructing an empty housing tower was robbed from a better use. Whatever this use might have been, it certainly would have helped the economy far more than the empty towers which serve as a testament to the folly of housing bubbles everywhere.
------------------------------------------------------------------------------------------------------------------------------------------- This property is available for sale via the MLS. Please contact Shevy Akason, #01836707 949.769.1599 sales@idealhomebrokers.com
Irvine House Address ... 3131 MICHELSON Dr #507 Irvine, CA 92612 Resale House Price ...... $390,000 Beds: 2 Baths: 2 Sq. Ft.: 1500 $260/SF Property Type: Residential, Condominium Style: One Level, Contemporary View: Yes Year Built: 2005 Community: Airport Area County: Orange MLS#: S677328 Source: SoCalMLS On Redfin: 6 days ------------------------------------------------------------------------------ The unit is on the 5th floor of the Marquee at park Place. This unit is a 2 bedroom plus den with 2 baths. View of surrounding office buildings. Two parking spots in the second level. Small storage locker. ------------------------------------------------------------------------------------------------------------------------------------------- Proprietary IHB commentary and analysis
Resale Home Price ...... $390,000 House Purchase Price … $817,500 House Purchase Date .... 1/20/2006
Net Gain (Loss) .......... ($450,900) Percent Change .......... -55.2% Annual Appreciation … -12.1%
Cost of Home Ownership ------------------------------------------------- $390,000 .......... Asking Price $13,650 .......... 3.5% Down FHA Financing 4.18% ............... Mortgage Interest Rate $376,350 .......... 30-Year Mortgage $136,919 .......... Income Requirement
-$289 .......... Tax Savings (% of Interest and Property Tax) -$525 .......... Equity Hidden in Payment (Amortization) $20 .......... Lost Income to Down Payment (net of taxes) $69 .......... Maintenance and Replacement Reserves ============================================ $2,813 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $3,900 .......... Furnishing and Move In @1% $3,900 .......... Closing Costs @1% $3,764 ............ Interest Points @1% of Loan $13,650 .......... Down Payment ============================================ $25,214 .......... Total Cash Costs $43,100 ............ Emergency Cash Reserves ============================================ $68,314 .......... Total Savings Needed -------------------------------------------------------------------------------------------------------------------------------------------------------
November's presentatations have been moved
Due to competing demands from holiday parties, we have decided to move the November and December presentations to the classroom at the offices of Intercap Lending.
It’s that time of year when you just can’t help but give thanks for all that you have and to give to those who need a helping hand. We at IHB would like to say thank you to our loyal readers by matching your charitable contributions to Laura’s House (up to a total of $1000).
Since 1994, Laura’s House has offered unduplicated domestic violence-related services to the residents of Orange County and beyond. It continues to be the only state-approved comprehensive domestic violence agency in South Orange County. Annually, Laura's House provides residential shelter services, counseling and legal services to hundreds of women and children. Thousands of crisis calls come in each year on their Crisis Hotline. Laura’s House’s target population is families experiencing the effects of domestic violence in need of emergency shelter, support, education and counseling. Their goal is to provide supportive service programs that will prepare clients and their children to live independent and violence free lives.
I want a girl with smooth liquidation I want a girl with good dividends At Citi Bank we will meet accidently We will start to talk when she borrows my pen She wants a car with a cup holder armrest She wants a car that will get her there She is changing her name from Kitty to Karen She is trading her MG for a white, Chrysler LeBaron I want a girl with a short skirt and a looooooooooooooooooooooooooooooooong jacket
Cake -- Short Skirt, Long Jacket
The foreclosure process in Florida takes a long, long, long time. Florida is a judicial foreclosure state, and with millions of delinquent mortgage squatters and the lingering impact of robo-signer, BofA has given up on forcing people to leave via foreclosure, and has started to pay people to get out. Second mortgage lien holders must be thrilled, after all, they are the ones who will end up with the money.
It's not mortgage principal reduction, but it's a start.
WTF? Do I really care about the bogus opinion of this reporter to start the story? He makes this statement as if mortgage principal reduction is the answer to the problems in housing. Principal forgiveness is the the worst policy option. I certainly hope it isn't the endgame.
Further, if BofA is desperate, this is not the start of anything good for loan owners. It's a sign BofA is going to start clearing out its foreclosure pipeline which will reduce prices.
Bank of America is quietly rolling out an incentive program in parts of Florida in which they'll pay distressed homeowners up to $20,000 if they successfully short-sell their home, according to The Palm Beach Post.
A short sale is an arrangement in which the lender agrees to accept less than what's owed on the mortgage to avoid a lengthy (and expensive) foreclosure process. Foreclosures in Florida take an average of 23 months to be processed -- nearly twice the national average, according to analytics firm RealtyTrac.
Therein lies the reason for this policy. The Florida court system is so bogged down with foreclosures, it is more cost effective for BofA to pay people to short sell rather than push them through the foreclosure process. If BofA doesn't get some of its capital back, they may not be around to complete the foreclosure process.
The pilot program, identified by BoA spokesman Rick Simon as the "short sale/relo incentive program," is only being tested in Florida at the moment, due to the state's high volume of foreclosures. If the program is successful, the program may be launched elsewhere, he said in an email to AOL Real Estate.
Sometimes referred to as "cash for keys," the money may be used to provide distressed homeowners "with the tools and resources necessary to transition out of their home with dignity," the press statement says. In other words, there will be less chance that the homeowner will be tempted to vandalize the property on the way out.
This is a cash-for-keys deal, pure and simple. The contentious part will be debating over who gets the money. In the real world, the second mortgage holder is going to demand payment, and the loan owner is not going to want to turn over the money. Most borrowers have the belief that paying a second mortgage is optional, and that the second mortgage holder should lose everything because they took on that business risk. Of course, this is completely wrong, but that's what most people think. Plus, people simply want the money for themselves whether it's justified or not.
Trouble Thrives in Vacant Homes
In the humid climes of Florida, short sales are far more desirable to lenders than letting the house sit vacant in a foreclosure. Mold can ravage even the best built homes, and empty houses are prone to squatters and vandals. The $20,000 payout could be a drop in the bucket in comparison to the cost of maintaining a rapidly deteriorating home.
But there may be a major downside to the program for severely underwater homeowners. In recourse-loan states like Florida, the lender can seek what's known as a deficiency judgment -- the unpaid balance left on the mortgage -- even after a short sale is completed.
In such cases, much of the money could end up back into the bank's pocket.
If the same bank holds both the first and the second mortgages, this is less of a problem, but if another lender holds the second, they will not give up this money easily.
BoA's Simon said that the bank's guidelines "allow for the deficiency judgment to be waived," but the bank reserves the right "to pursue collection" after the sale. That may not be a strong enough commitment, according to Broward County-based consumer defense attorney Margery Golant.
"The fact that they 'may consider' waiving the deficiency judgment means nothing to me," Golant told AOL Real Estate in a phone interview. "It just fosters false hope."
Hasn't everything the government and lenders done since the housing bubble burst been designed to foster false hope? I think so.
For Golant, who regularly sees homeowners with close to six figures of outstanding debt, even the full $20,000 would do little to get an owner out of the hole if they're still on the hook for the difference, she said.
"If they really were waiving the deficiency judgment, then I would think it could mean a meaningful approach," Golant says. "But to say we'll give you $20,000, yet reserve the right to sue for the difference is not only not meaningful but deceptive."
Yes, it is deceptive. Perhaps BofA doesn't want to write the debt off on their books, so they can retain at least some valuation for this bad loan if they can sell it to a zombie debt collector.
Could It Work?
There is already a national precedent for what BoA is attempting – the Home Affordable Foreclosures Alternative (HAFA) program, which offers a $3,000 short sale "relocation" incentive. But so far the results have been less than encouraging. Since April 2010, HAFA has only completed 15,531 short sales nationwide, The Palm Beach Post reports, and the program is scheduled to sunset at the end of 2012.
Results have been less than encouraging? LOL! Completing only 15,531 short sales in a year and a half is a complete and utter failure.
Still, if BoA can put up some impressive numbers in its trial run, there may yet be hope of more aggressive financing options for America's thousands of underwater homeowners – like the often-trumpeted, mostly dismissed notion of mortgage principal reduction.
Statements like that give more false hope than any government or bank program. the reason the notion of mortgage principal reduction is mostly dismissed is because it is a really, really bad idea.
For Florida homeowners interested in participating in the program, here are some key points:
The program offers $5,000 to $20,000 to qualifying homeowners who complete a bank-approved short sale. The amount is based on the unpaid balance on the loan as of Aug. 2011.
Short sale must be initiated between Sept. 26 and Nov. 30, 2011, and closed by Aug. 31, 2012.
To learn more about the program, call 1-877-459-2852.
This program will likely spread to other judicial foreclosure states where BofA is having a hard time getting its money out.
Doubled the mortgage plus got a big HELOC
Meny casual observers of the housing market believe Turtle Rock may not fall because the homeowners there are generally longer term owners so there is less mortgage stress. Perhaps that is true, but perhaps not. Turtle Rock still had Ponzis, and today, we are featuring one of them.
This house was purchased on 12/30/1999 for $400,000. The owners used a $320,000 first mortgage and an $80,000 down payment.
On 7/5/2000 the owner obtained a $60,000 HELOC.
On 6/10/2005 they cashed out with a $650,000 Option ARM with a 1% teaser rate. It was a fatal mistake.
On 11/16/2006 they refinanced again with a 1-year ARM at $680,000.
On 7/26/2007 they obtained a $139,000 HELOC.
The quit paying in April 2010 at the latest and squatted for at least 15 months.
Foreclosure Record Recording Date: 01/19/2011 Document Type: Notice of Sale
Foreclosure Record Recording Date: 09/03/2010 Document Type: Notice of Default
Foreclosure Record Recording Date: 09/03/2010 Document Type: Notice of Rescission
Foreclosure Record Recording Date: 07/27/2010 Document Type: Notice of Default
The 2005 Option ARM is what did them in. Once they doubled their mortgage, it looks as if they crossed the Ponzi limit. It was only a matter of time. They held out for five more years, but finally succumb to the weight of the accummulated debt.
------------------------------------------------------------------------------------------------------------------------------------------- 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.: 2011 $380/SF Property Type: Residential, Single Family Style: One Level, Ranch View: City Year Built: 1968 Community: Turtle Rock County: Orange MLS#: S676762 Source: SoCalMLS On Redfin: 7 days ------------------------------------------------------------------------------ Single level 4 bedroom home in highly desirable Turtle Rock. Large lot with views from backyard. Great location across from the park. Home has great potential. Great opportunity! ------------------------------------------------------------------------------------------------------------------------------------------- Proprietary IHB commentary and analysis
Resale Home Price ...... $764,900 House Purchase Price … $400,000 House Purchase Date .... 12/30/1999
Net Gain (Loss) .......... $319,006 Percent Change .......... 79.8% Annual Appreciation … 5.4%
Cost of Home Ownership ------------------------------------------------- $764,900 .......... Asking Price $152,980 .......... 20% Down Conventional 4.18% ............... Mortgage Interest Rate $611,920 .......... 30-Year Mortgage $150,523 .......... Income Requirement
-$699 .......... Tax Savings (% of Interest and Property Tax) -$854 .......... Equity Hidden in Payment (Amortization) $228 .......... Lost Income to Down Payment (net of taxes) $116 .......... Maintenance and Replacement Reserves ============================================ $2,680 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $7,649 .......... Furnishing and Move In @1% $7,649 .......... Closing Costs @1% $6,119 ............ Interest Points @1% of Loan $152,980 .......... Down Payment ============================================ $174,397 .......... Total Cash Costs $41,000 ............ Emergency Cash Reserves ============================================ $215,397 .......... Total Savings Needed -------------------------------------------------------------------------------------------------------------------------------------------------------
The Chinese have long known they have a problem with real estate values. Over the last several years, the Chinese government has enacted a series of half-hearted policies aimed to slow the increase in real estate prices. Unfortunately, the Chinese housing bubble is a runaway freight train heading for an awful crash.
It will be interesting to see how the Chinese react to this problem. They surrendered central control of all pricing and embraced a modified form of capitalism. With capitalism comes its associated ills, one of which is Ponzi viruses. Once a Ponzi virus in unleashed on the financial system it reproduces like a cancer cell until it grows so large it imperils the economy. China should have stamped out this virus years ago, but the ensuing development it created was highly sought after by the government, so they didn't recognize the danger in what they were doing.
