$89 sq/ft REO in Eastvale

Before you jump all over my butt, I know this will probably sell for more. But, the mere fact that it has listed for $89 sq/ft as an REO will encourage more and more listings to go low.

12492 Feather Dr. This home is actually on the East side of Hamner ave putting it in Mira Loma but it is still in the Eastvale area. It's a big one at 4220 sq/ft and it has 5 bedrooms and 4 baths. It has just listed as an REO for $375k or $89 sq/ft. There's also another REO that listed today at $93 sq/ft in the same tract (12245 Ashcroft). It says that ones a fixer so it may have some damage inside.

Over in the Corona side of Eastvale we have one hitting the market today at $98 sq/ft. 13840 Peach grove is the adress if anyone wants to run over. This one is listed nearly 50% off it's previous sale of $750K. Also an REO.

Hearthside Lane in Corona in default

Potential buyers beware

One of the new communities in Eastvale is in trouble. Irvine builder California Coastal Communities is in default on a loan that is secured by several properties. One of those is Hearthside Lane in Corona. They are currently negotiating with the lender to turn over these properties to them. So it you are currently looking at a Hearthside home you might want to hold off. There's no telling what will happen once the lender takes the project.

Here's part of the press release

Impairment charges of $29.1 million recorded during the third quarter of 2008 primarily reflect fair value write-downs for the Hearthside Lane project in Corona and Las Colinas project in Lancaster of $24.1 million and $1.5 million, respectively, and a $3.4 million charge related to our Woodhaven project in Beaumont. Subsidiaries of Hearthside Homes, Inc. are currently in default on the loans secured by the Hearthside Lane and Las Colinas projects and they are attempting to negotiate a consensual resolution of the loans which is likely to involve turnover of the properties securing these loans to the lender. Therefore, under GAAP the Company was required to reduce the carrying value of the Hearthside Lane and Las Colinas projects to their estimated fair values during the quarter ended September 30, 2008. After these impairment charges, the related debt exceeds the carrying value of these assets by approximately $18.5 million. If the Hearthside Lane property is transferred to the lender in full settlement of that loan, the Company will recognize a substantial gain as a result of debt cancellation. If the gain is equal to the amount that the recorded debt exceeds the carrying value of the assets, the $18.5 million pretax gain would result in a gain of $10.9 million after tax, or $1.00 per share. Both of these loans are guaranteed by Hearthside Homes, Inc.; however, they are not guaranteed by and do not otherwise constitute obligations of California Coastal Communities, Inc. There can be no assurance that the lender will agree to a consensual resolution of these loans.

More bailout talk

The housing news seems to be about nothing but bailouts these days. The latest round of bailout news has been hitting the wire for the last couple of days. The more I look at these bailout ideas the more I believe the bankers and politicians are living in a fantasy world. They seem to believe that people want to stay in homes worth 1/2 what they paid for them. They think people will take on 40 year mortgages with little hope of making any money when they do sell. These bailouts might be of some help in Texas or Kansas. Places where the bubble was not so large and people were actually buying homes to LIVE in. In those locations there is a reasonable chance that prices ay recover before the turn of the next century. In bubble locations like California, Florida, Nevada and Arizona the prices were so inflated that prices may not recover for many decades. In addition many of the buyers were only buying houses because there was a chance of making a large profit. With the profit possibility gone does anyone think these people care to stay in these homes? Would you take on a 40 year loan with a balloon payment at the end just to stay in a house? Financially most would be far better of to default, take the credit hit, rent and buy again in 5 to 7 years. Prices will probably be about where they are today in 5 years. So they can buy low as opposed to taking some crazy low interest 40 year loan on a home worth 1/2 of the loan amount.

I just get more angry every time I hear of another bailout. When do the rest of us get our bailout? Why are current home buyers getting stuck with 6%, 7% or higher loans while those that bought more than they could afford get 0% bailouts. It's not the people that are being foreclosed on that should be screaming. It's the rest of us that should be in the news protesting about these unfair bailouts. It's BS I tell ya!

Viva Las Vegas

I spent the last weekend in Vegas. As you can see from the picture the hooker hawkers are not just handing out cards anymore. Now they walk around with lit billboads strapped to their backs! Freaking amazing. I don't quite understand why the city allows these guys on the street. Most of their handouts end up littering the streets. I took this picture out in front of the Paris Hotel.

On a housing note I went and took a look at some homes. I was a little surprised to see that there are still plenty of new housing tracts trying to sell homes. I stopped in at a half dozen to see what the prices were. I was a little surprised to see what they were trying to get. The prices still seemed high to me. I'm not sure what they would actually take but they were still asking well over $100 s/f on everything I saw.

I didn't see another soul looking when I was there. I was the only person at looking at all the tracts I stopped at. Not a good sign considering I was out between noon and 2 on a nice Saturday afternoon. One thing I noticed at the tracts I looked at. All of them had 4 or 5 cars parked out in front. One was the sales person, but who's driving the other cars? I thought that they might be parking cars out front to make it look like people were looking.

On an economy note, even though Vegas was quite busy it was noticeably quieter in the casinos. Also the restaurants were much quieter than usual. On Saturday evening we walked into a nice place, were immediately seated and found the place to be 2/3 empty. It sure made for great service from the waiter (the lobster bisque was awesome!). I wish I could remember the name of the place but after a bottle of wine I don't remember much. Obviously I didn't hit any jackpots because I'm still here typing.

Hawarden Hills, under $500k

You don't often see a Hawarden Hills home for under $500k. This is the best area in Riverside. Most of the homes are large and many of them are mini castles. In Riverside, this is where the real rich folk live.

2114 Westminster Dr is in the older section of the hills. It's still a very nice area but the homes are smaller than those farther up the hill. This particular home was built way back in '65. It says it got a complete remodel in 2006. The house is 3200 sq/ft with 3 bedrooms and 2.5 baths siting on over 3/4 of an acre. The biggest drawback about this home is it has no garage, only a carport. Makes me think that at at some point the garage was converted to living space. Purchased in 2006 for $725k and then remodeled, the owner is into this home for a chunk of change. I imagine this was attempt at a remodel and flip. Bad timing though. It listed way back in May for $789k. After several price reductions it's now sitting at $449k. This could be a short sale, although it does not indicate this in the listing. If you want to live in Hawarden hills this might be worth looking at.

When dove's cry

14324 Dove Canyon is a 2802 sq/ft 3 bed, 2.5 bath home with a pool, sitting on nearly an acre. The home is located in the Mockingbird Canyon area of Riverside. The home last sold in Nov 2005 for a whopping $670k. Today it's owned by some unfortunate bank. It's currently listed for $285k. That is a fall of 58%! A loss of $385K.

$285k sounds like a decent price for this home and it would be if there were some decent roads into it. I'm not sure how many people reading this have been in that tract. It's an absolute maze. You need GPS, a guide dog and a sherpa to find your way in and out of there. Still for a newer home (built in 2002) with a pool, on nearly an acre it looks like a decent price.

(please forgive the Price reference, it just popped into my head when I say the address)

River...slide

Anyone remember the delusional seller in Riverside that listed his "professionally decorated" home for 1.4 million when the comps were around $500k? That thread was memorable because the seller or friends of them found it and posted.

Tonight I checked that tract again. It's a nice gated tract off Victoria Ave just below Lake hills. My wife has a doctor friend that lives in there. It's a nice area, but how are the prices holding up. Well, they're not. There are currently 6 homes in the tract listed on Redfin and 5 of those are under $400k! The lowest, and it's an REO is $324k or $89 sq/ft. Unless the house is gutted, that's probably a decent price.

It looks like the dellusional seller asking $1.4 million (he later reduced it to 1 million) is really in a world of hurt now.

The price leader in the tract is 17027 First Light Ln. It is a 3655 sq/ft home with 4 bedrooms and 2.5 baths. It was built in 2003 and last sold in Sept 2006 for $750K. It's currently listed for $324k and has been on the market for 117 days with 3 weeks of that at the current price. At $324k this sure seems like a pretty good deal. If they get asking price that's a loss of 57% or $425k from the last sale.



The next lowest price is 16398 Hidden Pk. This home is larger at just under 4000 sq/ft and has 4 bedrooms and 3.5 baths (same floor plan as Mr. 1.4 mil). This one is also an REO. It last sold in May of 2007 for $715k. Wow and it's already an REO! It's been listed for a month and has already had 1 price reduction. It's currently listed for $398K or $102 sq/ft. Also not a bad deal in my opinion (currently). If it sells at asking the loss on this one is "only" 45% or 317K.



Another one is 17243 Bluff Vista Dr. This is the same floorplan as the first house. It sold last in Aug 2005 for $668k. It's now listed as an REO for $385k or $105 sq/ft. Again, this is a decent price currently for this home. This one has only been on the market 2 weeks.

Housing Crisis, what housing crisis

I finally had enough with our government and it's bailouts when I read the latest "idea" that they are kicking around. I wrote a letter and fired it off to Feinstein and Boxer (a lot of good that will do). This is a more editorialized (blog worthy) version of what I sent.



Housing Crisis, what housing crisis?

Hello…..Congress…we don’t have a housing crisis. Why is it so hard for our elected leaders to comprehend this mind numbingly obvious fact. The housing crisis was between 2002 and 2006. When regulations and lending standards were thrown out the window, allowing houses to become ATM machines instead of “homes”. What we have now is a consequence crisis, brought about by doing nothing during the real housing crisis.

The real housing crisis went like this. Strawberry pickers making $14k a year bought $720k homes. People bought new homes and sold them for $100k profit weeks if not hours after taking ownership. Foreign college students were buying half-million dollar homes with no income and no job, and getting paid to do it. Banks looked the other way as real estate agents, mortgage brokers and appraisers conspired to inflate prices, fabricate documentation and do what ever was required to close a deal. All of them making a healthy profit along the way.

That was the real housing crisis. Our leaders did nothing to stem the tide back then. There was no one listening as young families complained about not being able to afford housing. Home ownership had never been higher, Hummers were flying off the lots and governments were raking in record property and sales taxes. Life was good!

Did our leaders think that all was well with the world when my neighbor, the Taco Bell counter girl was driving a $50k Denali? Did they think the entire country had hit the lotto? None of them thought to ask who was going to pay for all this consumption. They know now!

Congress is running around trying to solve a problem that has long since been solved. The financial markets, banks and hedge funds that created this train wreck have already imploded. Like a pyramid scheme those that stayed in too long or bought in too late are losing everything. Those people that bought a bigger house than they could afford are losing it. Problem solved!

If congress wants to help they should enact legislation to hurry this process along. They should enact legislation that speeds up the foreclosure process, not slows it down. They could offer low interest loans to responsible people that would like to purchase “affordable” homes. Possibly even using down payments (I know, a novel concept. But I’m a “maverick”). There are millions of responsible families out there that would love an affordable home. Why are they being punished with interest rates of 7%, 8% or higher. The government is giving the banks billions of dollars to bail them out. Surely they can put some conditions on that money to ensure low interest loans are available to responsible Americans.

Our bleeding heart leaders seem hell bend on saving the financially inept at the expense of the rest of us. Those that over spent and possibly (probably) lied or cheated in order to purchase that grand house are being rewarded with a multitude of government bail-outs. People the used their homes as ATM machines and lived like rock stars are now being rewarded. They get to keep the Escalade running on 24” spinners, the big screen TV, the boat. The rest of us, well, we get to pay for it. Is that the American dream?

A cool website for you potential RE investors

I ran across this website several months ago and then forgot about it. Tonight while searching an address I ran across it again. It's called Krunching.com and it analyzes properties based on rental value. Basically you type in an address and it tells you what you need to pay for it based on average rents of comparable homes in the area. It's pretty cool although it uses only numbers to calculate the data. It doesn't know if a home is up in a glitzy area on a hill or in a ghetto behind a sewage treatment plant. So your results may vary depending on what you are looking at.

I typed in that house in "The Retreat" from the last post and got this.

Investment Summary

This investment summary assumes a 30-year fixed loan, 20% down, 7% APR. It uses operating assumptions of 10% management fees, 9% vacancy allotment, 3% repairs. This investment summary assumes that rents increase each year by 5%. This property would need to be purchased for $267,520 in order to generate a break-even cashflow based on prevaliing market rents.

	1 Year	2 Year	3 Year	4 Year	5 Year
Break-even Purchase Price	$267,520
Rents	$25,140	$28,332	$34,131	$36,251	$38,773
Cashflow Before Taxes	$-2,238	$252	$4,776	$6,429	$8,397
Cash-on-Cash Return	-4.18%	0.47%	8.93%	12.02%	15.69%

The above purchase amount is based on a rent of $2095/mo. That is the average for homes it used as comparables. I think this home would rent higher. The high rental value in the comparables was $2900/mo. I'm not sure if you could get that or not but if you could fetch that kind of rent then this home would be priced about right. Using the asking price, the numbers come out similar to those above when the rent is $2900/mo and the purchase price is $380k.

Cashflow

	1 Year	2 Year	3 Year	4 Year	5 Year
Net Operating Income	$20,384	$25,080	$30,588	$37,049	$44,628
Debt Service	($24,264)	($24,264)	($24,264)	($24,264)	($24,264)
Cashflow Before Taxes	$-3,880	$816	$6,324	$12,785	$20,364

I don't totally agree with their assumption that rents will increase 5% per year however. I think rents are more likely to go the other direction in the near future. Those numbers look great but only if the rents go up. If they go down or stay flat then you start to bleed red ink.

The site is cool and offers a wealth of information. Some of it good and some fairly useless. But it does offer a glimse into the probable future of prices. Chances are they will fall to, or close to comparable rental values.

The Retreat goes Sub-400K

My favorite bubble whipping post has gone Sub-$400k.

Last week before hitting the high seas I saw this listing. I honestly figured it would have sold by the time I got back. But it hadn't and there was an open house on it this weekend. I drove over to take a look with my wife. I expected a stripped home or another thrasher where the owners trashed it on the way out. But no, the home was actually quite nice. The fixtures and flooring were all basic stuff. No upgrades here folks. But the house was in good shape. The only bad thing was the back yard was tiny and I do mean tiny. I think you could stand in the door and touch the back wall with a broom.

The home is 8775 Gentile Wind drive. An address my wife found strangley amusing. Gentile Wind she said with a snicker.... "that's a perfect address for you". The home is a 4 bedroom 3 bath with 3333 sq/ft of living space. This is a KB home built in 2005 and selling new for $718K. They tried to get $390k for it on the courthouse steps but there were no takers so the bank now owns it. There asking price is $380K. A couple of months ago I would have said this will sell in a heart beat. But there are several other homes in this tract listed very close to $400k. If those are upgraded or have larger lots then this home may still have trouble at this price. Another huge problem for this tract is the ungodly high property tax. On top of the normal CA property tax you have about another $4500. If that's not bad enough the HOA is currently running about $120 a month ( I was quoted $230 by another agent at another open house). All together that adds another $500 to $600 a month to the monthly nut. (the picture above is the home next door but they look alike and are the same basic floorplan. This one is listed at $417k as a short sale).

I've received a few nasty-grams over the months about me being a poor, bitter, jealous renter who can't afford "The Retreat". They said sales were picking up and prices would soon recover, etc, etc. Funny stuff really, obviously from homeowners in "the retreat". Please if you feel the need to send me another one, just go get a stiff drink and skip it.

Charge it!

Today I was looking at some 3rd quarter numbers and I started to wonder why they were not as bad as I expected. Where is all this spending coming from. Unemployment is way up, especially in California. Mortgage equity withdrawal is way down, down about 95% from over 200 billion per quarter in the bubble years to 9 billion last quarter. That's a lot of billions to take out of the economy yet sales only drop a tiny bit.

The second quarters numbers were helped by the "stimulation" package that uncle George and the Congrettes mailed out. But the 3rd quarter numbers are a little confusing. After all, stores are closing, companies are going belly up but the sales numbers are only down a few percent. What gives?

Poking around I think I have the culprit. People still have credit cards, and they are using them at an alarming rate. Credit card use is way up (WAY, WAY UP!). In addition credit card defaults are now starting to soar. It's looking more and more like those people that lived off home equity have now turned to credit cards. In addition the people being squeezed by the increasing cost of food and energy are also turning to plastic to make ends meet. I think we all know where this will end up. Like the equity fairly, the credit card fairly will eventually run out of magic pixy dust. Then the banks will get stuck with another round of defaults. These may be much smaller than the trillions lost on home loans, but when you are on life support already a tiny infection could mean the end.

What does this have to do with housing you ask? Know anyone paying the mortgage with credit cards? I do! That same person is paying credit card bills with other credit cards. How long can that last?

There's now talk about another stimulation package. That would help the numbers for another quarter but then what. What are the 4th quarter numbers going to look like or the 1st quarter next year. How long before the credit card users start to max out their cards and start defaulting in droves.

I hate to end this on such a pessimistic note so here's a picture of doggy saying it's bedtime prayers ;-)

Building Equity?, don't count on it for a while

The Center for Economic and Policy Research has released its latest report. It's a good read and perfectly illustrates what I harp on about on this blog. It reaches the conclusion that prices still have a way to fall in the bubble markets because they are still out of line with traditional ratios of price to income and price to rent.

The Changing Prospects for Building Home Equity: An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas

The Prospects for Accumulating Equity

Despite the collapsing housing bubble and consequent fall in house prices in bubble markets, the prospects for accumulating equity still look grim for homeowners as prices are still far from reaching their historical norm. The relative merits of owning and renting will be affected by the extent to which homeowners can accumulate equity. Even with the general increase in house prices at the same rate as the overall rate of inflation, homebuyers are at risk of facing plunging home values in bubble inflated markets.

Table 1 below shows that more than 60 metropolitan areas will accumulate less equity in 2012 for a recently purchased home than a home owned from six-months ago. Out of 100 metro areas, 33 are projected to accumulate negative equity in 2012, as opposed to 34 metro areas in our previous report. In fact, all 33 metro areas are in bubble markets as indicated by Table 1 below. They will generally accumulate slightly less negative equity in 2012 than our previous report predicted, due to the decline in house prices and the modest increases in rents assumed in this analysis which is returning the annual rent to price ratio to historical levels. Nevertheless, house prices across the bubble markets still have a long way to fall. In comparison, metro areas without housing bubbles will likely accumulate positive equity in a relatively short period of time.

(part of Table 1)
Major Metropolitan Areas Projected to have Negative Equity in 4 years (2012)

San Jose-Sunnyvale-Santa Clara, CA
San Francisco-Oakland-Fremont, CA
Los Angeles-Long Beach-Santa Ana, CA
Bridgeport-Stamford-Norwalk, CT
Oxnard-Thousand Oaks-Ventura, CA
Riverside-San Bernardino-Ontario, CA
Honolulu, HI
Sacramento-Arden-Arcade-Roseville, CA
Seattle-Tacoma-Bellevue, WA
San Diego-Carlsbad-San Marcos, CA
New York-Northern New Jersey-Long Island, NY-NJ-PA
Portland-Vancouver-Beaverton, OR-WA
Washington-Arlington-Alexandria, DC-VA-MD-WV
Salt Lake City, UT
Baltimore-Towson, MD
Fresno, CA
Stockton, CA
Bakersfield, CA
Boise City-Nampa, ID
Modesto, CA
Poughkeepsie-Newburgh-Middletown, NY
Boston-Cambridge-Quincy, MA-NH
Worcester, MA
Ogden-Clearfield, UT
Providence-New Bedford-Fall River, RI-MA
Denver-Aurora, CO
Minneapolis-St. Paul-Bloomington, MN-WI
Madison, WI
Chicago-Naperville-Joliet, IL-IN-WI
Colorado Springs, CO
Allentown-Bethlehem-Easton, PA-NJ
Phoenix-Mesa-Scottsdale, AZ
Miami-Fort Lauderdale-Pompano Beach, FL