Without knowing the details this transaction looks suspiciously like a case of an inside deal. The bank gets screwed and the investor makes $100k (maybe).
17789 Scottsdale rd in Riverside was a foreclosure. It went back to the bank in August 2011 when they found no takers at the asking price of $391k. It does not seem to list until Dec 28th and then there is a record of the sale posted on Dec 30th? Even all cash deals don't happen in 2 days. So this property may have never been listed, listed out of area or who knows. But regardless it sells for $326k, which is well below comps for this area. Now looking at the pics I don't see any indication the property was thrashed. It's obviously the original kitchen because no flipper would put in that kitchen. The floor tile is horrific too. The only thing that might have been done is new carpet and paint. It's now listed for $420k after a couple of price reductions. That's a tidy profit of $95K if they can find a buyer. It's probably still $30k too high given the lack of landscaping and the low quality finished inside. I've seen much nicer homes nearby sell for $400k so he may still need to come down a bit. The only thing that might help him is the lack of inventory.
Flat line
I thought I would throw up a few charts to show the price trends in the IE. Basically the prices have been flat since late 08. There are of course minor fluctuations due to the season. Sale prices fall in the winter and rise in the summer. There was a small bump in mid 2010 when the homebuyer tax credit caused the prices (and sales numbers) climb a bit. But overall the prices seem to be bouncing along "the bottom". Price to income ratios are back in line where they should be. Price to rental ratios are far, far in favor of buying. It's WAY cheaper to buy versus renting similar properties. The only "gotcha" is that you need to be sure you are going to stay put. You cannot rely on appreciation to cover selling costs if there is a need to sell. So if you need to sell within say 5 years of buying you may not come out ahead versus renting.
Looking at inflation adjusted prices, the IE is about the same level it was in the late 80's. However, the crazy low interest rates make payments actually less, even when not adjusted for inflation. For example I own a rental that sold new in 1988 for $110k. Payments on that home back in 1988 were $1200/mo (PITI). Today that home is worth approx $150k. Buying that home today would result in a payment (PITI) of approx $900/mo. Adjusted for inflation today's payment is MUCH lower than the 1988 payment for the same home.
Obviously there are still loads of distressed properties. This will hold prices low for until those are worked through the system. But can prices go lower? It's hard to imagine that will happen. With the rental values and the home prices at these levels, investors can make more money buying and renting properties than they can in the markets or the banks. This alone should keep the prices from falling. I now have two rentals and would pick up a few more if I had the cash. I'm under no illusion of making money on appreciation of these properties but the rental income is a welcome addition to the monthly bottom line.
Here's a few of those charts
This one is the median sales price for Riverside. As you can see it's been relatively flat for a few years now.
The price per square ft char is also pretty flat since late 08
And finally the long term chart with the inflation adjusted prices.
Looking at inflation adjusted prices, the IE is about the same level it was in the late 80's. However, the crazy low interest rates make payments actually less, even when not adjusted for inflation. For example I own a rental that sold new in 1988 for $110k. Payments on that home back in 1988 were $1200/mo (PITI). Today that home is worth approx $150k. Buying that home today would result in a payment (PITI) of approx $900/mo. Adjusted for inflation today's payment is MUCH lower than the 1988 payment for the same home.
Obviously there are still loads of distressed properties. This will hold prices low for until those are worked through the system. But can prices go lower? It's hard to imagine that will happen. With the rental values and the home prices at these levels, investors can make more money buying and renting properties than they can in the markets or the banks. This alone should keep the prices from falling. I now have two rentals and would pick up a few more if I had the cash. I'm under no illusion of making money on appreciation of these properties but the rental income is a welcome addition to the monthly bottom line.
Here's a few of those charts
This one is the median sales price for Riverside. As you can see it's been relatively flat for a few years now.
The price per square ft char is also pretty flat since late 08
And finally the long term chart with the inflation adjusted prices.
Mortage mod madness
Mortgage mods are touted by both the government and the so called "help" organizations. But are these mods really helping anyone. I think if you've read this blog for any length of time you know how I feel about this mod business. Mods are helping banks and that's it! All mods do is keep people paying for a an asset that is worth less than they owe on it. They become trapped by this debt.
Here is a perfect example of why loan mods suck for most people. I have one friend that did a short sale in 2008 to get out from under his upside down house. He is now free, happy and his credit score has fully recovered. He could easily buy any house he wanted (and could afford). I have another one that did a mod in 2009. He did the loan mod for a couple of reasons. He liked his house and had spend a fair amount of money upgrading (although he did use a heloc to do these upgrades). He also foolishly believed that prices would rebound enough to where he could sell if he needed to. Over 2 years later he still owes way more than his house is worth. Although he can afford the payments he now needs to sell and move due to an impending divorce. Unfortunately for him this means either a short sale or just letting the house go. The loan mod probably added a year or two to his marriage but it also trapped him in that house. So who is better off? Had he let the house go two years ago he would probably be single and free of debt, possibly able to buy another home already.
To anyone considering a loan mod I would encourage them to consider the possibility that they may want or need to move in a few years. If there is even a remote chance of that then don't do a loan mod. No matter how much you love the house, get the hell out of it. You can rent for a couple of years and then if you desire you can purchase another home that you will not be a thousand feet under water on.
The whole mortgage mod thing is absurd when you stand back and look objectively at it. Someone has sold you something at an inflated price, but because they are willing to change the loan terms slightly you agree to keep paying on that inflated price. That might be reasonable if you bought a TV (although even on TVs most retailers will give you a refund if you find that TV cheaper) but I digress we are talking houses here. We are talking about tens or hundreds of thousands of dollars depending on how long you pay the note for. It's not an insignificant amount of money, yet most people only look at that monthly payment and that's about as far ahead as they look too. No thought is given to next year or 5 years from now.
Mortage mods will only serve to extend this fiasco of a market!
Here is a perfect example of why loan mods suck for most people. I have one friend that did a short sale in 2008 to get out from under his upside down house. He is now free, happy and his credit score has fully recovered. He could easily buy any house he wanted (and could afford). I have another one that did a mod in 2009. He did the loan mod for a couple of reasons. He liked his house and had spend a fair amount of money upgrading (although he did use a heloc to do these upgrades). He also foolishly believed that prices would rebound enough to where he could sell if he needed to. Over 2 years later he still owes way more than his house is worth. Although he can afford the payments he now needs to sell and move due to an impending divorce. Unfortunately for him this means either a short sale or just letting the house go. The loan mod probably added a year or two to his marriage but it also trapped him in that house. So who is better off? Had he let the house go two years ago he would probably be single and free of debt, possibly able to buy another home already.
To anyone considering a loan mod I would encourage them to consider the possibility that they may want or need to move in a few years. If there is even a remote chance of that then don't do a loan mod. No matter how much you love the house, get the hell out of it. You can rent for a couple of years and then if you desire you can purchase another home that you will not be a thousand feet under water on.
The whole mortgage mod thing is absurd when you stand back and look objectively at it. Someone has sold you something at an inflated price, but because they are willing to change the loan terms slightly you agree to keep paying on that inflated price. That might be reasonable if you bought a TV (although even on TVs most retailers will give you a refund if you find that TV cheaper) but I digress we are talking houses here. We are talking about tens or hundreds of thousands of dollars depending on how long you pay the note for. It's not an insignificant amount of money, yet most people only look at that monthly payment and that's about as far ahead as they look too. No thought is given to next year or 5 years from now.
Mortage mods will only serve to extend this fiasco of a market!
Will 2012 be the "real" year of the short sale?
If you have an underwater house you are thinking about dumping you might want to get off your duff and list the thing. You see normally when you sell a house for less than you owe on it you get a nasty little surprise from Uncle Sam, a tax bill for the difference. During the bust legislation was passed to put this tax on hold to make it easier for people to short sell. However that legislation expires at the end of 2012. Both the Federal government and the California State gov passed these acts so currently there are no tax consequences from a short sale.
Of course the debt forgivness act could be extended. But what if it isn't? This would probably mean fewer short sales and a lot more foreclosures. There are no tax consequences from foreclosure because in Cali most of those loans are non-recourse (but I'm no tax expert so don't listen to me).
The unfortunate thing is that most people have no idea about this tax thing and may not feel the need to hurry up and get out while the gettin's good.
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