For those planning on a long term of ownership, interest rates below 4% have made payment affordability the best its been in years, perhaps ever. The prices still seem ridiculously inflated, but record low interest rates make borrowing such large sums possible. Those low rates even drive the cost of ownership below the cost of comparable rentals, in some markets substantially below.
It should be no surprise that many of the bubble-era communities and the less desirable older communities have prices well below rental parity. The less desirable communities always have a slight discount to rental parity, so when mortgage distress is added in, prices get pushed even farther below. The bubble-era communities were loaded with toxic mortgages and HELOC abusing Ponzis. The foreclosure rates in those areas are much higher than more established desirable communities. However, this does create a unique opportunity today’s homebuyers should consider. For example, Columbus Grove in Irvine is much nicer than the pricing would suggest, and the same is true of Ladera Ranch. In fact, I would say Ladera Ranch is one of the best values for the money today in Orange County real estate.
The problem in Orange County right now is a lack of inventory. Discretionary sellers are unwilling to sell at current pricing (although they don’t mind polluting the MLS with their WTF asking prices), and lenders stopped putting REO on the market. Lenders approved a few more short sales, and fewer new short sale listings have come on to take their place. The result is an astonishing decline in for-sale inventory.
Ordinarily, the first business day of the year is the low for the year of for-sale inventory. The dramatic decline we have seen this year is unprecedented — and completely artificial. Lenders are not out of delinquent mortgage squatters they can foreclose on. They have just decided to slow their foreclosures and slow their release of MLS inventory until prices bottom.
Perhaps lenders hope they can cause people to up their bids or substitute to lesser quality housing and house prices will go up. Early signs are that a typical spring rally pattern has set in, but the rally is not as robust as realtors would lead you to believe.
The spring rally is more of a blip than a burst, not that sellers believe that. The kool aid flowing into the market is rather amusing. What’s actually closing is much less dramatic.
The result of the banks withholding inventory is many frustrated buyers. Prices may bounce for a while as lenders continue withholding supply, but prices will not go up too far too fast because buyers have limited ability to raise their bids. People today have to qualify based on their real and verifiable income, and very few have any equity or savings to put into the deal. Further, appraisers are not playing the “hit the numbers” game, so many deals are falling out of escrow because the appraised values are not there.
With so many houses falling out of escrow, the successful buyers in today’s market are putting in back-up offers on several properties. There is a good chance the buyer in first position will not be able to close the deal, so many back-up offers end up going into escrow later. With so many buyers bidding on multiple properties, and with so few available on the MLS, nearly every property is receiving multiple offers. In such an environment, few good deals are to be had. That being said, the closing prices on properties may not represent good deals in today’s market, but in areas where the market is undervalued, these sales are good deals in the big picture. The trick is knowing where the markets are undervalued. That’s where our monthly market newsletter comes in.
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Even the valuations in Irvine are becoming attractive.
For more Irvine news, market analysis and property profiles, please see the Irvine Housing News.
As I have expressed on numerous occasions, I doubt we have seen the nominal bottom in house prices. There are still thousands of bad loans to process. It will take 8.7 years to clear Orange County distressed inventory at a stable liquidation rate. While it’s possible this spring was the nominal low, it’s equally possible it will be next spring or the spring after that. Far too many headwinds face the market to start worrying about being priced out for another housing bubble.
From Ponzi, to squatter, to shadow inventory, to the MLS
The journey of this property is typical of many in Orange County. It was purchased by a Ponzi near the bottom of the last recession, and when prices started going up, the Ponzi borrowing began. After imploding, the bank let the owners squat in the house for a long time, then they finally foreclosed and took it back. Then the bank sat on it for a long time hoping values would come back. They haven’t. So now the bank is finally ready to liquidate. Nobody has made a payment on this house since 2008.
- Today’s featured property was purchased for $198,000 on 11/4/1994. The owners used a $188,100 first mortgage and a $9,900 down payment.
- On 1/4/2001 they refinanced with a $206,250 first mortgage.
- On 4/19/2006 they refinanced with a $400,000 first mortgage. They were probably good with the 2001 mortgage, but doubling it at the peak of the housing bubble caused them to implode.
- Total mortgage equity withdrawal was $211,900.
- They defaulted in 2008 and were served notice on 12/10/2008. They didn’t get booted until 9/8/2010 giving them at least two years without payments.
- The bank then sat on this property for 18 months while prices collapsed. It wasn’t their brightest move.
Anaheim Hills Overview
Median home price is $419,000. Based on a rental parity value of $548,000, this market is under valued.
Monthly payment affordability has been worsening over the last 1 month(s). Momentum suggests unchanging affordability.
Resale prices on a $/SF basis increased to $242/SF to $243/SF.
Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.
Median rental rates increased $33 last month from $2,266 to $2,300.
Rents have been slowly rising for 12 month(s). Price momentum suggests slowly rising rents over the next three months.
Market rating = 6
$410,000 …….. Asking Price
$198,000 ………. Purchase Price
11/4/1994 ………. Purchase Date
$212,000 ………. Gross Gain (Loss)
($15,840) ………… Commissions and Costs at 8%
$196,160 ………. Net Gain (Loss)
107.1% ………. Gross Percent Change
99.1% ………. Net Percent Change
4.1% ………… Annual Appreciation
Cost of Home Ownership
$410,000 …….. Asking Price
$14,350 ………… 3.5% Down FHA Financing
3.80% …………. Mortgage Interest Rate
30 ……………… Number of Years
$395,650 …….. Mortgage
$105,040 ………. Income Requirement
$1,844 ………… Monthly Mortgage Payment
$355 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$103 ………… Homeowners Insurance at 0.3%
$412 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
$2,714 ………. Monthly Cash Outlays
($281) ………. Tax Savings
($591) ………. Equity Hidden in Payment
$18 ………….. Lost Income to Down Payment
$123 ………….. Maintenance and Replacement Reserves
$1,982 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$5,600 ………… Furnishing and Move In at 1% + $1,500
$5,600 ………… Closing Costs at 1% + $1,500
$3,957 ………… Interest Points
$14,350 ………… Down Payment
$29,507 ………. Total Cash Costs
$30,300 ………. Emergency Cash Reserves
$59,807 ………. Total Savings Needed
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
We're sorry, but we couldn't find MLS # P820722 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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