Swan Drive or Swan Dive?

There are plenty of people out there in Lake Forest, California who believe housing values will come roaring back to 2005 levels any second now.

Here's another textbook example of devastating value loss in the community suffered mainly due to a complete inability to accept reality:

23952 Swan Drive, Lake Forest, CA
Single family
4 bedroom
2 bath
1,471 sq feet
5,035 sq foot lot
Previous Sale 9/13/2005: $659,000
LISTING PRICE: $389,999

It boggles the mind to consider that only 5 years ago in 2005 some nitwit agreed to pay $659,000 (over 10 times the median income in the county) using what looks to be close to 100% financing - all not just for the pleasure of listening, but of facing 12 lanes of roaring traffic generously provided free of charge by the State of California and the 5 San Diego Freeway.

So what you're saying is I get the fortune of living right next to one of the busiest, smog-choked highways in the nation?

Where do I sign?

As if that were not enough comedy for you to consider, the home was listed for sale just two years later in October 2007. The proprietor has been chasing down the market ever since. The property is now in foreclosure and facing auction later this month at an estimated market value of $342,000 (Realtytrac). And the home is still up for sale (207 days?) listed at $389,999.

So what lending institution did their homework and looked at the appraisal data on this property? Express Capital Lending. Nice.

Just to add more insult to injury, the previous owner purchased this healthy lifestyle winner back in October 2001 for $198,500. Now think about this for a moment. The previous owner managed to successfully sell this carbon monoxide ranch only 4 years later for almost half a million more? With a $659,000 listing price today, one would believe the owner to be chronically high on highway 5 fumes!

It'll be interesting to see how this home fares at auction. $389,000 seems delusional to me. Now I know that "beggars can't be choosers" when it comes to buying homes and I like getting high as much as the next person, but I'd rather be a beggar than give myself and my kids emphysema living right next door to the damn freeway.

Greenacres: The Place to Be?

In 2005 life was obviously very good in Orange County, California. There were so many things you could see, do and achieve. It never really mattered how much money you actually earned from your employment or what you're disposable income looked like after all expenses and debt payments. All that mattered during this glorious slice of time was how much you could borrow. Banks throughout the land enabled all Americans - both rich and not so rich - to borrow heaps and heaps of dough.

It is shocking to consider the shear amount of money that Californians not only borrowed to buy their primary residence or investment property, which was sometimes $500,000 or even more, but also how much they borrowed on top of all of that in the form of HELOCs (home equity lines of credit) loans, which the consumer could use...well, for almost anything from a set of new kitchen counter tops, to a new Harley-Davidson motorcycle, to a vacation for two in the Azores. It didn't matter what you're net paycheck looked like, or your next paycheck for that matter.
The banks who gave lent the money did not care. So why should anyone have cared?

Here's a single family house in Mission Viejo that was first listed for sale June 20, 2005, a full three months after it was purchased in March 2005 for a whopping $930,000.

What's interesting is how this house was listed and then delisted over and over again in utter futility over a period of 4 years. Why?

Today (June 2010) it is listed once again for sale at $715,000. With a 20% down payment of $143,000, the income requirement to purchase this bad boy is $141,500 assuming 5% mortgage and zero other monthly debt liabilities (I've always been interested to know just how many people in Mission Viejo bought their cars for cash, i.e. have no auto loan(s)) This home is located in the Capistrano Unified School District, which is on it's 7th superintendent in just 4 years. Given the recent district turmoil from questionable past leadership and the impact of the California budget crisis might be something for prospective buyers with families to think long and hard about.

28861 Greenacres, Mission Viejo, CA 92692
4 bed
2.5 bath
2,800 sq. feet
6,000 sq. foot lot
457 days on market (technically speaking yes, but based on original list date)
Asking: $715,000 (Correction - MOVED UP TO $745,000 on day of post!)
Last Purchase: March 2005, $930,000

HEYYYY! Great to see you again! Where have you been!?

This is a beautiful house. The owners took good care of it. But given recent comparable sales (comps) of like size and features that have sold in the $650K range, Greenacres comes back to us somewhat (update: way) overpriced. This is common to see everywhere in Orange County, I believe, whenever sellers and banks try to place a tourniquet on monumental financial mistakes of the past.

The thing is, it's been 4 freaking years since the original purchase. I mean, I don't know what it was listed for in 2006, 2007, 2008 and 2009 (I wish Redfin kept a history of this), but hasn't the train sort of left the station already on $745,000?

We'll soon see.

A Few Tools for Prospective Orange County Homebuyers: School Locators and Performance Rankings

As if the uncertainty associated with the Orange County residential housing market weren't worrying enough on it's own with all of it's cookie-cutter home designs, HOA fees, high home prices, ridiculous FHA financing exceptions, as well as a tidal wave of shadow inventory and foreclosures ready to drench the streets, any prospective home buyers here that already have children or are planning to have children had better take time to consider the important question of schools.

When shopping for a home in OC, so much energy and stress is wrapped around the size of home and the ridiculously high prices one encounters here. This is natural because unlike the glory days of Orange County's Christmas past, today you sort of like have to be able to...wait for it....really afford the house you're going to live in.

During the home procurement process, school districts and school performance may end up being an oversight for some. But since buying a home is the single largest financial outlay of anyone's life, failing to consider schools could be a costly mistake not just for buying today, but also when trying to sell the same home later on.

Besides everyone by now should know that the California budget crisis is a very, very serious problem. The lack of past spending and budget accountability controls in Sacremento and throughout the state will not be resolved promptly nor thoroughly. Incredibly extend and pretend politics have this crisis already dragging on longer than necessary. The budget crisis is having devastating consequences for local schools and communities in Orange County school districts, such as Capistrano Unified, including Saddleback Valley Unified School District. Even after past school closings, program cuts, elimination of transportation, teacher layoffs, larger class sizes and new pay cuts, risks remain high that Orange County will see more of the same in coming months and years, including future school closings, redrafting school district boundaries, changing student transfer rules and more teacher layoffs.

Still, it is important to bear in mind those things outside of one's control and focus on those items that lie within one's control.

If we buy that house, which school(s) will our children attend?

How good is that school?

It's impossible to predict how this massive clusterfuck of a state budget will end up, for the Saddleback Valley Unified School District (as well as others in Orange county) there are some nice website tools already available that prospective home buyers can use to help them make a slightly more informed decision.

Tool #1 Saddleback Valley Unified School Locator
This tool allows you to simply type in the street name of the home you are interested in buying. The website then outputs the three main schools that are "resident schools" that your children would likely attend for elementary, intermediate (middle) and high schools. You can then look up the API ratings and Great School ratings for these schools.

Tool #2 California Public School Ratings
This website shows the API or Academic Performance Index for each elementary, middle and high school in the state. The API index is a scale from 200 to 1000, which 1000 being the best.
Good elementary, middle and high schools usually reside in the 800+ category

Tool #3 Great Schools California
This is more a subjective school rating site where parents and students can contribute their reviews and ratings of every school in the state. The site still shows scores for schools in Orange County that have closed, such as O'Neill in Saddleback Valley Unified (Lake Forest).

Unfortunately, specific, sorted information regarding the performance and/or ratings of special education programs (SDC) for children at Orange County schools is not unavailable today. For answers to such questions one must turn to the specific special education director and program specialists for the school district.

Seller at Open House Was Actually A Realtor

I went to an open house two weekends ago in Mission Viejo, California. It was a really nice house not on my original list of must-see interesting properties. It was one I just noticed while driving around. The yard sign said "Open House", so I decided to pull over and take a quick look. No realtor was present to greet me. Instead, the proud owner showed me the home throughout and did a pretty good selling job too. Then I glanced at the crisp, glossy brochure. This home was priced over $890,000, so I was already thinking to myself "no fucking way". I mean, some of the homes in that same area had been price much, much cheaper, but this was a really nice home. A lot of nice extras added in. It was the kind of place that just screamed "HELOC!" at you.

The owner knew it was out of my range. Don't ask me how, but it was cool.

I said thanks and was making my way to the door to leave when the owner started to ask me a series of questions, like whether I was working with a Realtor already. When I answered "yes", the owner didn't say "I'm a realtor too", but then proceeded to ask me a lot of questions about what I was looking for in a home and when I intended to buy, and then whether he could start to send me listings.

I'm like, WTF, I just told you I'm "working with a Realtor". I thought that was universal code for Realtors meaning: "Does not compute. No commission opportunity. Say Goodbye and Thank you. Seek New Target to Destroy."

But no.

This is not the first time this has happened to me either. I'm sort of new to home shopping in Orange County California, but maybe it shouldn't surprise me to see the amount of client poaching going on out there these days. It doesn't matter how forthright you are, or whether you state clearly "Yes, I'm already working with a Realtor!". I've noticed that many Realtors - and I'd say 1 out of every 2, will still try to sell you their agency over others.

This is probably fine as an attempt to get more business. I understand that completely. But if you're a Realtor, I can't imagine this approach working very well. And for me, you better damn well come prepared with some pretty impressive references. For example. I want to see references from your last 7 to 10 clients (homebuyers), because I'm going to call on them and ask them about your services and performance. I'm also going to ask them about your bedside manner and what sales tactics you employed. Did you pressure them into buying more house than they could afford? Did you tell them the truth about the value of the home they were buying despite what the liar loan "comps" were at the time? Did you recommend the buyer to a favorite, skid-greasing lender of yours, and if so, were they happy with the mortgage product they wound up with?

I think these are fair questions to ask. And no, I'm not expecting many Realtors to cooperate with such requests and voluntarily open closets to me like this. Too many bones might come flying out.

But sales is all about building customer relationships. It's also about building trust.

Why Don't Renters Receive A Tax Deduction In Kind?

Following the wildly successfully Open House Weekend in Southern California and Orange County, I was taking inventory of all the cash being thrown around by our federal government ($8000 federal tax credit) and the now de facto bankrupt state of California ($10,000 tax credit over 3 years) and I asked myself a silly question:

Why are any American taxpayers supporting or subsidizing this approach?

I think the answer is that as human beings, beliefs inform our actions. If you believe that the national and/or state economy will only turnaround by re-invigorating and re-inflating a collapsed asset bubble like real estate instead of subsidizing local jobs and new industries, then you will no doubt support such real estate tax subsidies. If you only get paid when a home is sold (due to the lure of such tax subsidies), then you'll also no doubt lobby support for such subsidies to continue.

My question is why can't renters receive similar tax benefits and subsidies?

Is it because Realtors don't get paid a commission when a renter extends his lease contract?

I can't think of any reasons why renters should receive fewer benefits on the national and state tax front. Or conversely, I can't think of why renters should suffer more under the current federal and California state tax codes.

Renters also have tight household budgets. They have work obligations. They pay federal and state incomes taxes. Many also have families, as well as short- and long-term financial goals that they strive to meet. Renters also volunteer and serve local communities. It might also surprise people to know that renters also happen to vote. The President of the United States, members of the US Congress, the Governor of California and the entire state legislature in Sacramento would be wise to remember this last point.

The suggestion I keep hearing is that renters don't pay property taxes, and therefore are equivalent in some way to a second-class citizen on par with extortionists and tax evaders. It is argued that renters sidestep responsibilities to the greater good and the community at large. By not paying property taxes directly, renters don't help to fund local schools and keep cities and towns "nice" and "safe". Because they do pay property taxes directly, homeowners (most of them actually homedebtors) meanwhile are to be commended and rewarded by both state and federal government (and thus by taxpayers everywhere) in the form of tax breaks and loopholes.

Is this fair taxation?

I consider it unfair and I would continue to believe so even as a homeowner (homedebtor) myself someday.

Maybe I'm old-fashioned, but I prefer to pay my own way. I don't like freeloaders. And I dislike the idea of anyone portraying me as such just because I didn't buy a $700K single family home when I first moved here five years ago.

The property tax argument is also ridiculous. Any landlord who is a landowner (or landdebtor) who pays property taxes himself, but fails to apply or distribute such costs to his tenants via the monthly rent charge might be a nice person, but he'd also be considered a financial imbecile, or both. Renters do pay property taxes. It's embedded in the rent they pay.

So I just don't get it. As a renter, I'm already accustomed to paying my fair share of income taxes both state and federal. But why are home debtors afforded greater protections under the United States federal and state tax codes?

Can someone explain to me why this is? How is this arrangement fair and equitable, and more importantly, what convinces people that these $8000 and $10,000 tax break arrangements are money well spent, benefiting the greater good to such an extent that no other options or subsidies be considered?

Seriously, I'd really like to know an answer or two.

A Challenge to America's Realtors

Yeah, I remember you.

I would like to issue the following challenge to every single active Realtor(R) in the United States of America to make a series of phone calls this coming week to your top five (5) home sales clients (home buyers) in terms of highest sales transaction value for each of the following three years: 2005, 2006 and 2007.

1. Ask them how they are doing? Job? Family? Finances?

2. Are they still happy with their new home?

3. Are they happy that they bought the home when they did?

4. Is there anything they would have done differently?

5. How has the financial meltdown and housing crash affected their lives?

6. Would they accept your Realtor services in the future?

Good luck.

Please add responses in the comments section.

Thank you.

Markus Arelius

Principal Reduction Plans: Obama's "Screw You!" To Responsible Taxpayers and Savers

You were wrong.

You were wrong not to leverage yourself into oblivion along with everyone else between 2003 and 2008.

You were wrong to try and save money for your retirement, your children's education, and that not too distant "rainy day" your parents told you about as a kid.

You were wrong to wait for rental parity.

You were wrong to keep scraping just enough money together month after month in order to stay current on your upside down mortgage.

You were wrong to rent, and no, you'll receive no taxpayer-funded financial relocation incentive. That privilege is reserved for financially inept home debtors only, not smart, hard working savers.

You were right to game the mortgage lending system and lie about your income.

You were right to throw caution to the wind because real estate never goes down in value and even when it does, there's a safety net bought and paid for by your stupid tax-paying neighbors to catch your dumb ass when you come careening downward.

You were right to siphon the hundreds of thousands of dollars out of your home with home equity lines of credit (HELOCs) so you could buy those granite countertops, trips to Hawaii and that pathetically stupid looking white Lexus SUV for your wife.

You were right to follow the advice of corrupt real estate sales people and all of their army of duplicitous, REIC-bribed economists, because the effort and value associated with marketing a $500,000 house versus a $700,000 really is really worth the extra $6,000 you paid them in transaction commissions.

You were stupid to believe anyone in government, least of all a Harvard Law Review student come President, would defend U.S. contractual law or defend against moral hazard.

You were dumb to believe Barrack Obama would utilize common sense, prudence and a sense of fairness to govern

The United States of America is already headed for strategic default at 200 miles per hour. Obama's principal reduction plan just slammed the heel on the accelerator.

This really is change you can beLIEve in.

California Homedebtors Punished for Their Arrogance and Financial Ineptitude

Look, it's not a state or federal crime to be incredibly arrogant and financially inept, but you've got to admit it sure can cost a pretty penny.

How can so many people be up to their eyeballs in financial distress?

One would have to hit the rewind button back to 2004 and 2005 with our favorite Realtor sales schtick:

1. "15% (appreciation) is in the bag!"
2. "Get in now while you still can!"
3. "They aren't making any more land!"
4. "Buy now or be priced out forever!"
5. "It's a great time to buy a home!"
6. "Interest rates have never been this low!"

Oh man. I get all woozy when I think about these jewels of Realtor wisdom.

I really wish somebody would force every single Realtor in Orange County to send out a 360 degree survey to their past clients between 2005 and 2008. I think that would make very, very interesting reading. Alas, I cannot do this, as I'm not a Realtor.
And Realtors don't have the guts nor the integrity to do this. Oh, the rage that would pour off those survey pages!

I don't blame them. It would be too disheartening to realize just how many lives can be derailed financially as a result of one's own greed - that drive to see the transaction exchange take place, regardless of the foreboding consequences.

Many of the individuals who fell for lines 1 through 6 above have or soon will foreclosure on their expensive southern California properties. They will have to pay income taxes on the amount of debt forgiven by the financial institution or bank.
Lost home. Lost credit score. Massive income tax liability.

There are those who believe these individuals deserve financial aid from state and federal government. I cannot count myself among them. You signed the dotted line. You made your bed. Many of these people scoffed at renters and savers, and those who chose not to leverage themselves into oblivion. I can only salute them for their arrogance and naivete.

The Jeronimo Zone in Lake Forest

So what's the deal with the "Jeronimo Zone" in Lake Forest, California these days?
This seems to be the only freaking area in the entire community where single family homes are up for sale at a reasonable price.

Oh, wait a minute. It must be that Amtrak line. Yeah, that's it! Dammit if young families with children settling down in Orange county don't just love to live within busted earshot of a howling locomotive.

And what about my wildfires?? I distinctly remember requesting a single family home located as precariously close as possible to one of the more hot, windy and dry areas where wildfires most easily commence in Lake Forest!

Realtors and foreclosing debt freaks, please don't disappointment me now! What do I see here but a few SF homes available in Foothill Ranch!!!!! Sweet!



Hmm, raging wildfires or eardrum bursting train horns? Eardrum bursting train horns or raging wildfires?

Aww Gee, it's so difficult to choose!

Well, according to Redfin.com, there are a whopping 16 single family homes for sales in Lake Forest between the prices of $350,000 and $600,000 (4 bed, 2 bath).

But let's just see what Realtor.com has to say:


Realtors(R) of the NAR hate Redfin.com because Redfin capriciously states the previous sales history data of listings on their site. Realtors have the MLS, and apparently much more additional information and wisdowm that Redfin could ever dream of having. This is the only conclusion I can come to because Realtor.com indicates that there are not 15, but 55 freaking single family homes priced between $350,000 and $600,000 (4 bed, 2 bath) in Lake Forest today.

Meanwhile Zillow.com thinks Redfin and Realtor.com are both full of shit, because there are not 15, and not 55, but 57 single family homes available for sale between the prices of $350,000 and $600,000 (4 bed, 2 bath).

Jesus! Get it right, Realtor.com!



All I can say today is thank goodness for two things:

1.) For Jeronimo (or Geronimo) that merciless Apache medicine man, and
2.) The high level of data accuracy and integrity that is simply flooding the real estate numbers in south OC these days.

Doctor, I have a bad case of Schadenfreude

I re-read this article today from Dr. Housing Bubble again. If you're considering buying a home in Orange County California, I highly recommend it to you.

I think it's interesting to consider such an article when laid next to the very recent views (January 2010) of realtors like this one, who has stated he believes that home prices will increase 7.5% in Orange County in 2010.

I'm not saying prices won't increase by 7.5% in Orange County. However, given the long laundry list of suspiciously errant opinions on the direction of the housing market in California over recent months, I think the Orange County register needs to demand evidence and facts, not just subjective stated opinions of realtors. I don't care if a realtor has been in his/her profession for 17, 20 or even 2 years. Answering the "what" question is not good enough. Let's start demanding that the "why" questions be answered as well.

What evidence suggests to us that the Orange County residential housing market will increase by 7.5% in 2010? I just don't see it.

Zombie Banks!

So when is the government actually going to do something about all of these zombie banks? Jesus, I thought 2008 and 2009 was bad enough. According to TheStreet.com, 2010 could be even worse in terms of bank failures and pounds of taxpayer flesh to keep them alive and kicking.

Have you checked recently whether or not the institution you bank your funds today might in fact be a walking, undead, taxpayer brain-eating abomination? I did. I bank at a credit union and it's surprisingly doing alright, financially stable. Definitely not a zombie.

Without the taxpayers whom they've royally screwed, many of the banks in America that we see today would have otherwise failed and been no more. But thanks to top tier bribery of our elected officials in Washington under the auspices of the 1st Amendment, we get....ZOMBIE BANKS!

They should be gone. New market entrants with better management, better and more competitive services and higher financially stability should have taken their place to serve the market. But no. We can't have that.

We taxpayers are the eternal host of the party to zombie banks!

Even after Lord of the Rings, I couldn't fully understand and appreciate Peter Jackson. Only after watching Braindead can one witness his true genius and apply it to our daily life. Zombies sure are scary.

CAR: A Positive Impact to the Market in Coming Months

California home sales increased 4.7% in November 2009 vs. 2008, and median home prices increased 5.8% in November as well.

This sounds fantastic. The residential housing market in California is getting revved up for a jaw-dropping recovery.

Right?

C.A.R. President Steve Goddard:

“Efforts by lenders and the government to assist homeowners at risk of foreclosure have led to fewer homes available for sale, and an increase in the state’s median home price. California’s median home price increased year over year in November for the first time since August 2007."

So government and lender actions have restricted market supply ("homes available for sale") in California resulting in "an increase in the state's median home price". So the market has actually not truly corrected itself yet. Without foreclosure moratoriums and government and lender finger fumbling, we might see a different set of circumstances. Higher volume supply of homes for sale and higher pressure to lower prices perhaps?

Mr. Goddard again:

“The extension and expansion of the tax credit until April 30, 2010, along with low interest rates, should continue to positively impact the market in coming months."

Is it just me or does it seems like Mr. Goddard and the California realtors he represents generally view a "positive impact" on the housing market in California to include following:

- low interest rates
- low market supply of homes for sale
- high sales prices
- federal tax incentives to encourage people to buy a home now

So I ask you:

Are low interest rates really a good thing?
For the short term home affordability? Maybe. But what happens, my realtor friends, when rates increase and the people who have been encouraged to buy now at $500K and $600K with these low rates decide to or must sell their homes in 2, 3 or 5 years and rates are significantly higher? I don't think they'll share your present views on this subject. The time to buy a home is not when rates are at their lowest, but when rates are at appropriate or even high levels. When rates go up, sale prices (and asking prices) typically must and do decline. When rates are low, sale prices are normally quite high (as they remain to be in Orange County California, for example). If I buy a $550K SF home today at 4.75%, in 5 years when rates are 8% or 9%, if I have to sell, I'm going to be f%$#ed.

Is a low market supply of homes for sale a good thing?
If you like to see high sales prices per home, then of course. This is great news for home sellers. As for potential buyers, well, this is the part where you're told to get in and pay now, miss the train, or piss off.

Are high home sales prices a good thing?
For sellers, definitely. Who doesn't want to sell a $230K piece of shit single family home in Lake Forest, California for $550K or $600K? Most homedebtors who live here already have this expectation. You'd have to be out of your mind not to love such a scenario. But why in the world would realtors be in favor of high home sales prices?
Gee, I wonder.

Are federal tax incentives to encourage people to buy now a good thing?
Government intervention certainly has it's place in both micro- and macroeconomic market scenarios. It can be a highly effective catalyst for stabilization and regulation, leading to economic recovery of either ailing and devasted (past tense) markets. The residential housing market has almost been reduced to ash in California. In some parts of the state (you know, since Real Estate is LOCAL!!), there is more incineration in store (in places such as Orange County once the tens of thousands of Alt-A and Option ARM mortgages come tap, tap, tapping at our tax-paying, chamber doors). Realtors want the government to provide the market these incentives to keep the market on life support, because if the government doesn't to this, then realtors either get lower sales commissions (from lower market sale prices per unit sold) or won't get paid at all (from far fewer home sales and transactions). I not only think this is a morally wrong position for realtors to take (as government incentives cost everyone a lot of tax dollars). It's economically unsupportable as well.

The housing market in California has been made sick by a combination of irrational exhuberance, irresponsible lending, irresponsible sales tactics, and irresponsible borrowing. What the residential real estate market in California really needs to do is take a freaking bath. First in its own blood, then in lye.

Government incentives should be withdrawn completely. $8,000 is a ridiculously small amount of money for California anyway. No more moratoriums and price baiting would spur a different market response. The supply of homes in the market would likely increase, the sales prices would decline for a time, but you would have higher affordability, good competitive bidding and more stable single family home prices over a longer term. Plus, the market would correct itself a lot faster. This would be a good thing for sellers, buyers and realtors alike - but over the longer term.

On the face of it, it just seems to me like the majority of people in the Real Estate industry have not accepted reality. They desperately want the market circumstances of 2004 and 2005 to somehow return on a white horse with wings, and the believe the government is the friend that's going to take them there.

If I were a realtor or a homedebtor today, then I can certainly understand this rather self-centered and rather delusional thinking.

As a renter, I'm going to wait a few more months. There's just way too much sewage upriver (toxic loans that will foreclose) that the CAR and its members are apparently unwilling to table and discuss openly with prospective buyers like me.