Mortgage Loan Resets to Explode in April and May. And Just In Time For Summer Home Selling Season!

I simply can't wait for the April and May spring flowers to bloom.

And for the next wave of ARM mortgage resets to go KABOOM!!!

Sweet mother of god, look at April and May 2009 for mortgage loan resets!

Weeeee, this is going to be an the "funnest" summer ever!

This Just In: Housing Prices Actually Linked to Income, Jobs and Mortgage Rates

Holy cow! I mean, if you had been listending to a Realtor the last 8 years, you might never have suspected this 2x4 of obviousness across the face. But it's true.

Wait a minute, you mean, income, jobs and mortgage rates determine..... Yep, there's this complicated thing called "fundamentals".

This is a fantastic article by Susanne Trimbath which restates the critical success factors for prospective homebuyers.

1.) Do I have enough income (take home after expenses and debts) to purchase a home at the market prices?

2.) Will I have a job in 6 months?

3.) How do current and future mortgage rates coincide with local home prices and my monthly take home budget?

This is the part where our hall monitor Realtor friends step in and remind us, in that I-never-sold-anyone-into-foreclosure-ever condescending manner, "real estate is local".

True.

But so too are jobs and incomes.

And last Friday, California and Orange County got some interesting news:

California, the worlds' 9th largest economy according to GDP numbers, has an unemployment rate of 10.1%.

Orange County California's unemployment has reached an all-time high since 1993 of 6.5%

So why is it that a 4 bedroom, 2.5 bath, single family home in Lake Forest, CA is priced at $650,000, or 6 times the median income here of approximately $100,000 per family?

If you were to go to Redfin, Trulia, RealtyTrac, or Zeus forbid, Realtor.com, you'd be surprised as to the homes available for sale in Lake Forest.

And you would be far from impressed.

In a word, almost all single-family homes in Lake Forest, California are over-priced pieces of crap. I'm dead serious here. Most of the homes for sale right now in February 2009 in Lake Forest are foreclosures, or trashed out short sale properties. Nobody who doesn't have to sell is trying to sell their home right now. The availability of quality homes for families with children, for example, to consider purchasing are few and far between. Most fence-sitters must not only cope with still unbelievable home prices (between $450,000 and $750,000), but also the reality that the home they might buy will be riddled with defects and necessary repairs. It's just a fact. And this I'm reporting AFTER the housing crash has supposedly occurred.



Paseo Verdura, Lake Forest, California, 350 days later, still $650,000.
Bank get's an A for stubborness, and an F for creativity.

I submit that parts of Orange County are still living in a dream world in terms of their asking prices.

Why?

Well, because the local real estate market is screwed up. Yes, Orange County is a nice place to live. A beautiful place. Perfect weather, oceans nearby, mountains nearby. I mean OC living has its' merits, and those should be priced at a premium of some measure. But single-family homes remain overpriced.

Earned incomes in OC are higher than the rest of the country. However, I suspect that job market uncertainty combined with ridiculous home prices that bear no relation to incomes will keep many on the sidelines through a difficult 2009.

California's Crisis in Waiting: The 2008 Option Arm Implosion

Dr. Housing Bubble takes us all to school for an important lesson on the next phase of the greatest housing crash in American history: $500 billion of option ARM loans waiting to go *POOF* - 60% of which were signed for homes in sunny and delightful California.

True to form, most Americans (and Californians) apparently chose option 1: Minimum monthly payment.

Come on, think about it. How else can one afford the monthly payments to "own" that 7-times-your-annual-salary-home price?

A lot like making that minimum payment on your credit card every time, but not paying down the balance borrowed, so interest charges accrue into a 600 lbs. hungry and angry Silverback gorilla. Oh, nevermind that menacing figure in your rear view mirror. That's just your collossal unpaid loan balance waiting to destroy your future financial livelihood!

Man, I wish they would come out with auto loans structured like this! I would buy a fucking Ferrari!

Oh California! You thought you could have your state budget crisis cake, educational cuts, and housing crash too?

This is goddamned scary.

Orange County & Irvine Slammed by Slate.com Article

Mr. Daniel Gross of Slate.com unleashes a rancid torrent of truth about the Orange County housing market, with a special dose of vitriol - nicely delivered - for that carefully planned OC McCity called Irvine, which Mr. Gross generously dubs "a center of reckless real estate lending and borrowing" and "the nation's capital of real estate folly".

Until recently, Orange County was New Jersey to Los Angeles's New York -- upscale but generally ignored, and not nearly so chic or happening as its urbane neighbor. Television helped change the image with glitzy offerings such as "The O.C.," "Laguna Beach" and "The Real Housewives of Orange County." These shows portray the county's glittering beach communities as the capital of plastic surgery and extreme consumption. But inland, just over the hills, the massive planned community of Irvine has become the nation's capital of real estate folly.

Wow. Ouch.

Yeah, see that gaping wound I have right over there? Yeah, I'd like you to throw a fistful of salt in it please. What? No salt? Well, do you have terpentine?

Indeed sub-prime mortgage loans (even prime loans), irrational exhuberance for real estate of any shape, color or size, and financial illiteracy are indeed biting the OC middle class and even the more well-to-do.

OC California: "Unbelievable how many people were conned into taking these mortgages"

State of California homeowners, as of July 2007, rank second to only Nevada with the most frequent use of the f-word.

Foreclosure, that is.

The OC Register reports that in Orange County foreclosure filings totaled 1,647 in June, or one for every 589 households. That's down about 8 percent from May, but more than doubled the total compared to June 2006.

There were over nine thousand filings in Orange County, California over the first six months of 2007, over three times the number of foreclosure filings during the same period in 2006.

The OC Register article quotes Dr. Walter Hahn, an Irvine-based real estate economist and consultant, who says that foreclosures will increase going into 2009. Hahn says millions of subprime borrowers and real estate speculators will see their introductory "teaser rates" adust and will not be able to afford higher payments.

"It is just unbelievable how many people were conned into taking these mortgages," Hahn said.

Would we call it that?

Dr. Walter Hahn, 40 years of real estate experience in Southern California

I mean, being "conned" into taking a mortgage? That sounds like pretty strong language, while admittedly probably not as strong as the other f-word being used with just as high frequency in 1 out of every 589 OC households right about now. I don't know. Being conned into doing something sounds so criminal!

There are hundreds of OC mortgage brokers out there still touting the merits of interest-only and pay option ARM loans. Is it OK that people are still being "conned"? Maybe these mortgage brokers are just trying to do their part and contribute to the greater good of Orange County society because they know something most of us do not. Perhaps the rate of interest that the layperson sees today are at an all-time high, while OC mortgage brokers sees lower rates on the horizon?

And what role did Realtors play in selling these homes to home debtors in Orange County?
Did they assuage home debtor concerns about the balloon mortgages, saying it would all be OK and that they could "just refinance in a couple of years"?

Let's remember that the OC median home price was around $600,000 per unit in 2005.
Median gross incomes for families in Orange County, CA hovered at around $75,000 per annum. Those two market variables (some like to call them fundamentals) don't always make good bedfellows, unless you can get creative. Real creative. To buy a home with such an income, well, let's just say it would take "some doing". And some outside of California, where home values tend to be a little more grounded with reality, might call creative home financing "cheating". But let's not use that word. Let's just say the OC realtor found a homebuyer, and just referred them to a "great contact" of theirs in the mortgage business, and, abracapocus, deal is sealed. The homebuyer is now a glorified OC homedebtor and welcomed to the exclusive club! Over there is my accountant Skippy, and over there is my broker, Scooter, and next to the hearth, my realtor-niece Buffy! See you at the martini bar! Don't forget, tee off at 10:00 sharp!

Now fast forward to July 2007. A number of those better-than-median incomed OC homedebtors are falling hopelessly behind with their mortgages. Notices of default are three times what they were a year ago. Lending standards have tightened dramatically in most corners. Inventory of OC homes are increasing. Several large mortgage lenders (many based in Orange County) have gone out of business entirely. Some smaller lenders are trying desperately to stay in business. Meanwhile, Realtors are left scrambling on deck, unsure what message should be relayed to prospective clients: "What are we supposed to say again? 'It's a great time to buy' or 'houses are staying on the market longer than they used to'? "Oh God, what do we say now? What do we say!?"

And the pay option arms and interest-only loans? Hey, whether you need them or not, these same mortgage financing intruments that were used to "con" millions of OC home debtors? They are still in the front window of most banks and lending institutions here, here and here.
Fact is, the instruments might very well make sense to prospective homebuyers who have money to burn, strong cashflow, financial flexibility, and are somehow not averse to interest rate risk of any kind.

"Unbelievable how many people were conned into taking these mortgages".

True. Very true, but nobody put a gun to anyone's head.

And so it is. Caveat emptor, Orange County. Caveat-freaking-emtor!

It's a great time to buy a house in Orange Count.....wait, no it's not.

The OC Register reports today what many have suspected for some time - that the OC housing market is in serious trouble. As of June 21, 2007 home sales are down by a total of 29% from 2006 (including single family homes, condominiums and new homes).

In Lake Forest, CA year to date home sales are down 48.5% in June 2007 compared to June 2006, but the median home price skyrocketed to $647,500.

John Lansner correctly points out that while the total OC median home price is the same as this time last year at $640,000, it is impossible to discern whether actual home sale concessions in 2007 are up or down compared to last year's exchanges (concessions include paying out closing costs and buyer agent commissions, etc.).

It's now July. The summer home sales spectaculars must be in full swing.

Can OC Realtors now, after 6 shaky months, look at prospective buyers in the eye - in that oh so"special way" that a mere computer cannot- and still proclaim: "Hey, it' still a great time to buy"?

They can't.

429 Housing Units For Sale in Lake Forest, CA

According to ZipRealty as of June 28, 2007 there are now 429 inventory units for sales in Lake Forest, CA (Orange County). Not too shabby when you consider we have a population here of approximately 69,000 people (2005 stat).

223 of these 429 units in Lake Forest are single-family home units.

On May 24th OC Prudent Bears reported that Mission Viejo, California, our affluent neighbors to the south of Lake Forest, was now witnessing home inventory of over 1,000 units.

Now OC Prudent Bears shares with us that Newport Beach, Calfifornia has achieved the same notoriety.

Wow! Now just stand back and watch the numbers grow.

But the Realtor told me everyone wants to live here

Think again.

Mr. Esmael Adibi, the Director of Chapman University's Anderson Center for Economic Research, and Mr. James Doti, the president and Donald Bren Distinguished Chair of Business and Economics of Chapman University, both claimed today that over the short-term fewer people will be migrating to Orange County, California.

Why? Here's the article from the Daily Pilot.

Mr. Adibi:

"Orange County is going to be a strong economy no matter what, but there will be fewer people moving in because of high housing prices and unaffordability," said Doti, the president and Donald Bren Distinguished Chair of Business and Economics at Chapman. "But we hope in the coming years, that will subside because of the natural amenities this county offers."Those amenities, Doti said, included the county's landscape, its educational system and its bustling arts scene.

Also, he said, the increased reliance on exports would turn the area into a trading hub."Global trade will be greatest with Asia, Southeast Asia and the trading port for much of that will be Southern California," he said.

A problem for the county, according to Doti and Adibi, was the housing market, which was slowing due to high mortgage rates and a decrease in the population — between the ages of 25 and 49 — that usually bought homes. Adibi said the average Orange County family paid 49.8% of its gross income on mortgage payments last year, a record amount.

While we keep reading how the National Association of Realtors and the California Association of Realtors wish to position themselves and staunch advocates of affordable housing, it's not quite making it happen on the streets of Orange County.

Median home prices in Orange Country rose again in May by 0.8% to $635,000.

I mean, when you think about it, why would realtors want home prices to come down to affordable levels when that would have an adverse affect on their income (6% of the home value sale)? I guess, you'd have to assume then that a home sale at any price, even if it's lower, is better than no sale at all. And a commission check is better than no commission check at all.

OK.

Good to be clear about what's important to realtors - and to what extent they are truly interested in affordable home prices in Orange County.

How Do You Read A N.A.R. Forecast?

Have you found that "greater fool"?

The OC Register in southern California reports today that Realtors in the area (California Association of Realtors) are forecasting for 2007 a 14% decline in unit home sales over 2006 actual results.

So if we know that this is a realtor forecast, and we know that for the most part realtors are duplicitous and lie to make income for themselves and cannot be trusted, then what use is such an article to potential homebuyers and real estate consumers?

OK, I'll admit it. That last paragraph was way too cynical and shamelessly rhetorical.

Is anybody else just pissed off about the complete lack of objective real estate data (prices, sales in units, etc.) available to consumers. The entire real estate industrial complex has become a pathetic joke.

Denial California-Style

Don't worry, Californians.

California is not in a real estate crisis and doesn't figure to be in one soon.

Mr. Tom Elias of the Daily Breeze (L.A.) asserts that you can hardly go wrong when investing in California real estate. So if you are holding on to that home, or have recently purchased a home in the Golden state at top dollar, you're investment is surely "safe as houses". Indeed, California has experienced it's share of booms in it's history, but rarely are these booms followed by serious busts. Usually the declines are gradual and take many years to reach bottom.

Mr. Elias suggests also that "in-migration" will eventually save California's downward spiral housing market and preserve real estate values. Everyone wants to live here and this feeds the rational exhuberance of California housing demand. Rising tides float all boats. Soon renters earning $75,000 per year will be able to move up the proverbial California housing food chain and afford a home of their own. Though how this phenomanon is theoretically achieved is not precisely explained.

I thought I'd post this article by Mr. Elias to demonstrate the level of denial out there in the state about the California housing market. It is, in a word, quite unbelievable.

Mr. Elias' assertions might hold water if it weren't for some annoying little tidbits of fact facing potential homebuyers in California. The 2006-2007 housing crash, Mr. Elias, is different from previous boom-bust chronologies in California. What we are seeing is home financing for families with median to upper median-level income drying up almost completely. Lending standards are becoming more and more restrictive. While your "in-migration" may very well be increasing slightly each year in California, the incomes of those new residents are unfortunately not increasing proportionately with housing costs in California.

Overbuilt areas and non-overbuilt areas face similar music - that real median incomes in communities like Newport Beach, Long Beach, Irvine, Lake Forest, combined with the California-spend-it-if-you-got-it-lifestyle, simply do not support the magnitude of debt required to leverage a home. Becoming a homedebtor is still possible, but it's not something anyone in there right mind should consider right now. Mr. Elias' article fails to account for the mass emigration of people from the state of California due to housing costs (U.S. Census Bureau and U.S. Department of Finance) being "out of control", among other important reasons.

Even if Mr. Elias' assertion about "in-migration" were true, the notion that this influx of people searching for the good life would contribute to an economic rising tide in the state under which all boats would float, is fantasy. If anything, the result of such a theory would be that demand for rental housing in California would skyrocket to unprecedented proportions in the short run, but homes would remain unaffordable. In the medium to long run, housing values will fall substantially.

An almost perfect storm is brewing in Southern California real estate. Even those that would make the most from selling and financing homes, and who would walk over dead bodies and lie during the entire trek to preserve that earning potential, know this truth.

If you now own a home in Southern California, then you should be using every recourse to sell the living shit out of it. Drop your drawers on price, incentivise like no tommorrow, just get the f*#$ out!

If you are thinking about buying a home right now in Southern California, you should dunk your head in a cold bucket of water and then think again. Now is the worst time ever to purchase a home. Changes in the U.S. economy, the job market, the U.S. dollar, lending standards and price trends are aligning themselves to suggest one thing: Wait.

OC Unemployment Increased Slightly in April

The Orange County Employment Development Department recorded a slight uptick in unemployment for the county, rising from 3.4% in the month of March to 3.5% in April 2007.

According to EDD stats the labour pool of OC (all jobs) is 1.63 million. Out of that number 1.57 million are employed. Approximately 56,300 don't have work.

April 2007's rate of 3.5% signifies a 0.3% increase in unemployment over April 2006, when unemployment was just 3.2%.

California's statewide unemployment also increased to 5.1% in April, compared to 4.8% unemployment in March 2007 - this despite the addition of over 7,400 nonfarm jobs in April.

On the face of it, not an earth-shattering increase. But it is mid May. The OC economy is considered one of the strongest in the state of California, if not the world. Do these minor increases in unemployment indicate the beginning of something far more ominous brewing in the OC economy for 2007? May's unemployment numbers will be critical. Typically April and May have been extremely robust months for employment figures even when one seasonally adjusts the employment stats.

Californians More Frequently Using F-Word

As in "foreclosure".

It's not looking good folks.

Landlord informs MarkusArelius of Rancid Truth: "No Rent Increase" in '07!

YES!

And there was much rejoicing!

Yes, some sweetness to life can be found, even during a colossal Orange County California real estate industry meltdown!

CANNONBALL!!!!