Orange County California Real Estate Blog

Shevy Akason and Associates is proud to announce a beautiful new lease listing

2009-05-12T13:20:00.000-07:00

1125 West Olive Avenue in Fullerton is listed at $2500/month. If you are looking for a beautifully remodeled home, with a huge yard, conveniently located near parks, schools, in a fantastic neighborhood, this is it! This completely remodeled home features a fantastic floor plan with dual pane low-E, energy efficient windows throughout, hardwood floors, and designer paint inside and out. The Kitchen features a breakfast bar, new appliances, Slate floors, a beautiful backsplash, and new cherry Cabinets. The bathrooms were remodeled with beautiful slate tile. The garage is fantastic and has been finished with drywall and Epoxy floor coating. The master bedroom and guest room feature new carpet. The large back yard includes a fantastic Avocado tree and fruit trees. Copper plumbing, 100 amp electrical panel. This home is a must see and will not last.

Shevy Akason and Associates is proud to announce two new listings

2009-05-11T21:33:00.000-07:00

Listed at $159,9000 23298 Orange Ave. 11 is by far the best priced regular sale for a 2 bedroom 2 bathroom property in Lake Forest. It is NOT A SHORT SALE but is a bargain. This property can close quickly. The home has two bedrooms with two full bathrooms and includes a walk-in closet in the mater bedroom. It is a short distance to Lake Forest Golf Course and El Toro Park! Located on the first floor with greenbelt and pool views it is hard to find a better location than this and it includes a fenced patio. Bright home with neutral carpet and nice floor plan. Close to major shopping centers. Unique association, HOA fees include gas, water, and trash! This is a great opportunity, lower than the cost of rent! This is the best deal in south Orange County and will not last, hurry!

Listed at $129,900 23288 Orange Ave. 1, is by far the best priced regular sale for a 1 bedroom 1 bathroom in Lake Forest. This property is a fantastic end unit with a private fenced patio off of the kitchen and dining area. The home features new ceramic tile, carpet, and paint throughout and includes a walk in closet in the master bedroom. Nestled in a great area of the tract surrounded by green belts and a short walk to two community pools. The tract is adjacent to the Lake Forest Golf course as well as a park including numerous baseball fields. In addition, it's close to major shopping centers. Unique association, HOA fees include gas, water, and trash! This too is a great opportunity.

For more information and pictures of both properties visit Orange Ave Villas

Shevy Akason and Associates is proud to announce our new lease listing

2009-04-09T15:14:00.000-07:00

Property Highlights

Catalina View
Granite counter tops
City Lights view
Huge back yard
Cul-de-sac
high ceilings
Wood floors
Crown molding
Remodeled kitchen
recessed lighting

For more infomation click on this link

You do not want to miss this fantastic view home high in the hills of Yorba Linda. This home has a huge back yard and is located in a cul-de-sack. With upgraded wood floors, a fully remodeled kitchen with granite countertops, and high ceilings, this is a fantastic place to live and will not last. Client recently installed brand new appliances and they will stay with the property. Do not miss this fantastic home!

Solving the Housing Crisis - John Mauldin's Weekly E-Letter

2009-03-22T07:01:00.000-07:00

A friend sent this to me, I'm going to reserve my thoughts on this for now. However, I would love to hear some opinions.

Thoughts from the Frontline Weekly Newsletter
Solving the Housing Crisis
by John Mauldin
March 21, 2009
In this issue:
Solving the Housing Crisis
Housing Could Drop Another 20% in Pricing
Buy A Home, Get a Green Card
A Real Stimulus Package
Las Vegas, La Jolla, and the OC

This last Tuesday the Wall Street Journal published an op-ed by my friend Gary Shilling and Richard LeFrak. They offer a simple solution for the housing crisis: give foreigners who will come to the US and buy a home resident status (green cards). This is a very important proposal and one that deserves national attention and action. Gary was kind enough to send me two lengthier white papers offering more facts. In this week's letter we are going to look at this proposal in more detail than the small space that an op-ed can offer. And while this letter will be somewhat controversial in some circles, I ask that you read it through, giving me the time to make the case. I will also add a few thoughts as to why this could not only help solve the housing crisis, but help put the nation back into growth mode.

Long-time readers know that I have been growing more and more bearish of late. I have been writing for a long time that we are in for a long period of slow Muddle Through growth as the twin crises of the housing bubble and credit bubbles require time to heal. Today we look at a serious proposal for cutting the time to healing for at least one of those bubbles (housing), and at least keep the other (credit) from getting worse. This is the most serious idea I have seen that could actually make a real positive contribution to the economy and help put us back on a growth path.

I will post Gary's papers and a link to the actual op-ed piece for those who want to do further research, but let me make one point at the beginning that he did not emphasize: the US is already allowing roughly 1 million immigrants a year into the country (which for a variety of reasons I and most serious economists of all stripes believe is a very good thing). We are suggesting that we simply change the nature of what constitutes the conditions for acceptance, so as to jump start the housing industry and the economy. We are not suggesting additional immigrants, although nothing would be wrong with that. I will also post a link for you to send this e-letter to your congressmen and senators.

Let me put up front a few benefits of a program that would allow legal status to immigrants buying a home. Housing values would stabilize and in many cases rise. The massive losses because of bad loans that are being subsidized by US taxpayers would be stemmed, saving many hundreds of billions, if not a trillion or more dollars. The excess inventory of homes would quickly disappear and the millions of jobs that were lost as home construction fell into a deep depression would come back. If housing values rise, many families would be able to refinance their homes at lower rates and have more income left over after paying their mortgages. $12 billion in commissions would end up in real estate agents' pockets, helping a very battered and bruised group. Hundreds of billions will flow into local businesses, as these new immigrants will need to furnish their homes. This could mean as much as a half trillion dollars in sorely needed stimulus in the next few years, without one penny of taxpayer money and actually adding taxes back to governments from local to national. And we are not bringing in 1 million foreigners, we are attracting 1 million mostly middle-class new Americans, which, if we are smart in how we do this, will result in more jobs for all Americans. So let's jump right in and look at the details.

Housing Could Drop Another 20% in Pricing
Let's review the situation as it will be if we do nothing. Shilling shows that we built 6.7 million more homes in this country between 1996-2005 than the normal trend would have projected, partially because we underbuilt the decade before that. New housing starts average about 1.5 million in normal times but have fallen to 500,000 recently, and could fall further as unemployment rises and demand declines. Even so, Shilling estimates that we still have about 2.4 million excess homes.

This compares rather well with estimates by independent analyst John Burns, which I cited in the e-letter early last year. What they both agree on is that it will take at least until 2012 to work through this excess inventory, and that assumes that foreclosures do not increase as housing prices drop.

Excess supply of anything means lower and continuously falling prices, and that has certainly been the case in housing. Here is what Shilling writes:
"We believe that if nothing is done to eliminate surplus housing, prices will fall another 20% between now and the end of 2010 for a total peak-to-trough decline of 37% (Chart 1 below). The resulting further negative effects on the economy will be devastating. At that point, almost 25 million homeowners, or almost half the 51 million total with mortgages, will be underwater… That's also a third of the 75 million total homeowners, with the remaining 24 million owning their houses free and clear. It would take a little over $1 trillion to reduce their mortgages to the value of their houses, compared to $449 billion for the almost 14 million currently underwater."

This is not inconsistent with similar projections by other acknowledged experts and independent analysts like John Burns and Professor Robert Shiller of Yale. If nothing happens to stimulate buying, there is a great deal more pain ahead for American homeowners.

For the great majority of Americans, their homes represent the largest portion of their assets. This is particularly true of Americans of more modest means, who have been hit the hardest. Watching their single biggest assert drop another 20% will be devastating and for many will mean they will not be able to retire as they had planned. More Americans own homes (68%) than own stocks (50%). This helps explain a recent poll which shows more Americans are worried about house prices than about the decline in stock prices.

Falling home prices means that consumers have to save more for retirement, which results in lower consumer spending, which translates into lost jobs and more homeowners coming under stress -- a vicious spiral that is increasing unemployment. Realistic estimates of unemployment rising to over 10% within the year abound.
Two years ago I and a few others foresaw the current housing crisis (and an accompanying credit crisis), predicting a protracted recession and a slow, multi-year Muddle Through recovery. Sadly, I was right about the housing crisis. Without some intervention, there is little to suggest that the prediction of a long, protracted recovery will not come true.

Lowering rates, as is being discussed in various circles, will help homeowners who can make their payments, but it does nothing to really bite into excessive inventory. Until we reduce the inventory, housing prices in many neighborhoods all across America are going to continue to come under pressure. And as Barry Habib points out, while the Fed may be lowering rates for securitized packages of loans, those low rates are not available to the average home buyer. The cost of packaging and securitization adds considerable cost.

Shilling discusses the "traditional" options for reducing home inventories, but in the end there is no real solution other than time, or massive amounts (read trillions) in taxpayer money being given to homeowners, which will be very unpopular, as homeowners who were responsible and are paying their mortgages would get no benefits. Waiting another two and a half years for the excessive inventory to sell will keep this country in a very slow or no-growth economy, and devastate the wealth of millions of homeowners.

But there is a solution. There are millions of foreigners throughout the world who would like to come to live in the US. In 2006, there were 1.1 million immigrants allowed into the US, some 63% of whom were allowed in simply because they already had relatives here. Only 13% of visas were granted to people because of their skills. While allowing relatives of current residents to come to the US may be a humane and reasonable policy, it does nothing to assure they bring more than that relationship to help them make their way in the US.

Buy A Home, Get a Green Card
What if we changed the rules for a few years? Starting as soon as possible, we should allow anyone to come into the country who would buy a home. They would be given a temporary visa which would become permanent if they had no problems after, say, five years.

While Gary proposes that they be allowed to borrow against the value of their homes, I lean toward suggesting that initially we take those who buy their homes outright (with a few exceptions). That means they have enough capital to purchase a home to begin with, which probably means they are educated and have skills. In fact, if they have enough cash to buy a home, that means they would have more actual savings than most US citizens. We would be attracting future citizens with the capital to invest in job-creating businesses and/or who have useful skills to assist in the recovery of the US economy.

Of course, there should be some rules that go along with this proposal. Background checks and references should be required. The home could not be rented for a period of time (at least two years), to help reduce the supply of available housing, and could not be resold for at least two years unless another home was purchased. There should be a minimal price, which could be somewhat different for various regions, but $100,000 would seem to be a good minimum for most areas, with higher minimums in certain areas.

The immigrant should demonstrate the ability to support himself and his family for a period of time (at least one year, preferably two), including the purchase of health insurance. Cash or letters of credit or other guaranteed commitments would be required. Only immediate family members (spouse and children) would be allowed to come with the immigrant. Cousins and siblings must buy their own homes. The permanent visa should be contingent on not having gone on welfare or public assistance at any time in the past five years. We are trying to solve a housing problem, not looking to create others.

I would make an exception in having 100% financing for immigrants with advanced degrees or special skills, especially those who did their schooling in the United States. If the US is to remain competitive in an increasingly technological world, we need more scientists and engineers. But getting permission to stay is becoming increasingly difficult. We are seeing a brain drain of those who would like to stay and create new jobs and technologies (and buy houses) here in the US. Shilling and Le Frak write:

"The authors of this report believe that a number of people have given up waiting for those visas or don't want to put up with the hassle and are leaving the country. This "brain drain" is unfortunate since many of these foreigners are highly productive. In 2006, foreign nationals residing in the U.S. were named as inventors or co-inventors on 25.6% of the 42,019 international patent applications filed from this country, up from 7.6% in 1998. Studies of the authorship of academic papers show the same trend.

"U.S. educational institutions are considered the best in the world by many and are magnets for foreign students, especially at the graduate level. Many of them are inclined to settle and work in this country after completing their studies, if they can obtain permanent resident status.

"The Council of Graduate Schools survey revealed that in the fall of 2007, 241,095 non-U.S. citizens were enrolled in graduate programs. Technological progress and the productivity it generates depends on people educated in biological sciences, engineering and physical sciences, but only 16% of U.S. citizen graduate enrollment was in these three disciplines. In contrast, 55% of total non-U.S. citizen enrollment was in those fields. Conversely, 53% of graduate enrollment by Americans was in education, business and health sciences while those three fields accounted for only 24% of foreign graduate students."
(There is a great deal more background detail in the second white paper. See link below.)

Much can be learned from similar programs already in place in immigrant-hungry countries such as Canada, Australia, and New Zealand. The United Kingdom has recently added new programs. Many countries realize that in the coming years there is going to be increasing competition for the best and brightest of the world. Again, there are more details in the white papers, but let's turn to the effects that would result from such a program.

A Real Stimulus Package
First, upon Congressional approval, it would almost immediately stop the seemingly inexorable slide in house prices, as initial demand would be significant. Let's assume one million new immigrants would buy homes. At an average price of almost $200,000, that would be $200 billion injected into the economy. And each of those homes has to be furnished, food has to be bought, clothing will be needed, local taxes will be paid. Airplane tickets to research potential areas, hotels needed during the interim period, and other related expenditures would add up. Over two years, this could easily be another $100 billion.

Couple 1 million new buyers with current US demand, and the excess inventory would be worked through within a year, and possibly faster. This puts a floor under the housing market, and home values could once again to begin to rise in line with a growing economy.

Such a program would have a salutary effect on the value of the dollar, as not only the initial purchases of homes and materials would need to be converted to dollars, but it is likely that immigrants would bring even more capital into the country.

By stemming the fall of home values, it would decrease the likelihood of foreclosures and help homeowners get refinancing at lower rates. Refinancing now is difficult because most lenders want a substantial slice of equity to go along with any new mortgage. If your home value has dropped 20% and is likely to fall another 20%, it is hard to have enough equity to qualify for a new mortgage. Stopping the fall in prices is critically important; and maybe if prices rise in some areas, homeowners will be able to refinance at better rates, giving them more cash each month to save or spend.

As I have written in previous letters, the psyche of the American consumer is permanently scarred. We are on our way back to a savings rates that will look more like 1987 than 2007, when it was almost zero. Just a few decades ago, we saved 7-10%. Consumer spending was only 64% of US GDP in 1987. It was 71% in 2007. It is on its way back to that lower level.

Lower consumer spending will be a drag on growth for years. But bringing in 1 million already middle-class new immigrant families will help make up for a lot of that reduced spending. If you can spend $200,000 on a home, you are likely skilled at something and well-educated. You will find a job, or create one, as many immigrants do, and then you will add to our total consumer spending.
If you are a real estate agent, you should love this proposal, as it would result in an additional $12 billion in commissions.

If you are a home builder, what a great way to reduce inventory and get back to the conditions where there is a demand for your product. This would help put back to work those who have lost their jobs in the home construction collapse. Home Depot and Lowe's and local stores? It would help them to increase sales, which leads to more jobs.

We are on the cusp of the Baby Boomers beginning a huge wave of retirement, both in the US and elsewhere in the developed world. There is going to be a need for skilled workers to replace those Boomers, as well to provide services to the retirees. Further, the promised Social Security and Medicare expenditures are going to start increasing at a significant rate. We are going to need immigrants to help pay for those benefits. Given the controversy over immigration, we will look back with some irony in ten years when we find we are in a serious competition with other nations to attract skilled immigrants. We should start now. I think the concept is, let's not waste a good crisis.

Let's look at some of the potential critics of this proposal. I was on Yahoo Tech Ticker yesterday talking about this, and got a few irate emails and phone calls.
"Why," I was asked, "do I hate American workers? Isn't there enough unemployment? Why do we need more immigrants taking American jobs?" And there was considerable angst about illegal immigrants.
First, I am suggesting we transform the already existing legal immigrant flow, which is going to happen anyway, into a form which helps us solve a major crisis. I am not talking about adding another 1 million immigrants on top of the current legal inflow. Just change the nature of that inflow until the excess housing inventory is settled, and then we can go back to the current program, if that is what is wanted (more on that below).

Second, I am not suggesting we bring in or condone illegal immigrants. That is another issue altogether, for another debate at another time.
If we do nothing, unemployment is going to rise to at least 10%. That is certainly not good for the American worker. Home values are going to continue to fall. That is certainly not good for the American worker. The economy is likely to be stagnant for an extended period of time, which means job growth in a Muddle Through recovery will be slow and stagnant. That is not good for the American worker.
Hundreds of billions more of taxpayer dollars will have to go to banks to keep them solvent as falling home prices and increasing unemployment increase foreclosures. That is not good for the American worker and taxpayer.
And further, I am not talking about bringing 1 million foreigners to this country. I am talking about bringing 1 million future Americans, who want to work hard and live the American dream.

Let me say a few words to those who are opposed to immigration -- and I have heard from you. With few exceptions, US citizens reading this have an immigrant in their genealogies. Some of mine go back to the 1600s. Some of mine were not exactly considered welcome. "No Irish and Dogs allowed" read the signs. But immigrants and their children have been the driver for growth in this country for generations. It is hard-working immigrants who leave their homes for the dream of being Americans that have been the backbone of the building of the nation -- the hewers and shapers, if you will.

It is precisely that melting pot of human diversity that is the strength of the American idea. Each new wave of immigrants has been viewed with trepidation or scorn, yet within one generation they have become American. And in turn, their children's children forget that their forebears had to deal with discrimination.
America -- the US -- is not so much a country as it is an idea, the idea that anyone, regardless of race or religion or gender, can come here and with hard work and determination make their own way. Some end up owning the local deli, and some end up founding Google. Some 25% of Silicon Valley start-ups, I am told, are by immigrants, creating jobs at the bleeding edge of technology. They see the US as a land of opportunity. That is why so many want to come and that is why we can attract a new generation of affluent, self-reliant immigrants who can help us solve a problem that we created.
I can see no downside to changing our immigration policy for a few years. We solve the housing crisis, stabilize home values, brings hundreds of billions in stimulus to the US, and with no taxpayer outlay. For a short time, we substitute one class of immigrant for another, to solve a serious crisis. It is not a matter of immigrants or no immigrants, just which immigrants
So which do you want? 10% unemployment and a decade of lower home values and increasing foreclosures, with a slow, Muddle Through, jobless recovery, or a stable housing market and home construction back to trend?
If you agree with me, I suggest you contact your Congressman. You can go to http://www.visi.com/juan/congress/ (selected at random from many such sites) and type in your address and get the name of your congressperson and senators. Just tell them you like this idea, and cut and paste the link where you read this into the letter. And tell them to get into gear! I would like to point out that this proposal is not Republican or Democrat, it is just common sense. I hope we can get broad bipartisan support.
The link to the Wall Street Journal editorial is: http://online.wsj.com/article/SB123725421857750565.html
The links to the white papers are:
http://www.frontlinethoughts.com/pdf/Housing_Whitepaper_1.pdf
http://www.frontlinethoughts.com/pdf/Housing_Whitepaper_2.pdf

Las Vegas, La Jolla and the OC
I expect I will get a few new readers from this letter. Normally, at the end of my regular weekly letter, I make a few personal comments. I write this free weekly letter to my 1 million closest friends, and you can add yourself to the list at www.frontlinethoughts.com. You can find out more about me at www.johnmauldin.com.
Parts of this letter have been written in New York and Dallas, and as I write this I am on a flight to Las Vegas to speak at a conference on natural resources. I am sure the recent Fed actions will be at the center of conversation. There is not enough space now to comment on that; but I did do a few segments on Yahoo Tech Ticker (one of which evidently made the Yahoo home page), which you can listen to at the following links.
Links to the Yahoo segments:
D.C. to America: You Can't Handle the Truth
http://bit.ly/10rUiF

Plan to Solve Crisis: Let Immigrants Buy Houses
http://bit.ly/W0XLq

Fed Strategy: Spread Economic Pain Over Multiple Years
http://bit.ly/wgGjA
I will be in La Jolla for my annual Strategic Investment Conference in two weeks, as well as hosting the Richard Russell Tribute Dinner. The dinner is shaping up to be a big event, with hundreds of attendees and many of the brightest lights in the investment writing world present to honor Richard for 50 years of brilliant commentary.

I really enjoyed my trip to NYC. I had a great steak dinner with Art Cashin, everybody's favorite commentator on CNBC. Breakfast with Tom Romero and then a meeting with Jim Cramer, who I found to be very personable and genuinely likeable. Meetings in the afternoon with business partner Steve Blumenthal, then breakfast the next day with Barry Ritholtz, Yahoo at the NASDAQ, and then a speech at noon, back on the last flight and up writing -- and then this plane, which I hope ends up in Las Vegas.

In addition to being with old friends Doug Casey and David Galland (and their posse), I intend to see the inside of the gym and spa. I need it. Tiffani has been gone for two weeks, working on our book, and will get back on Monday; and the new chapter I was supposed to have for her has disappeared in a reboot from this laptop. I am quite distressed, but evidently the book gods decided it needed a major rewrite.

Have a great week, and find a few friends and share some laughs and your adult beverage of choice.

Ok, the computer crashed again, and this letter is going out on Saturday rather Friday night. But I did get to see the Jersey Boys (The Story and Music of Frankie Valli and The Four Seasons) here in Vegas last night. One of the best shows I have seen in years. See it when it comes near you.
And if you are in Las Vegas, eat at Wolfgang Puck's new place, called Cut. One of the best pieces of steak I have inhaled in years. And now it really is time to hit the send button and go attend the conference.
Your wondering if we can actually get some action analyst,

John Mauldin
John@FrontLineThoughts.com
Copyright 2009 John Mauldin. All Rights Reserved

Note: The generic Accredited Investor E-letters are not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for accredited investors who have registered with Millennium Wave Investments and Altegris Investments at www.accreditedinvestor.ws or directly related websites and have been so registered for no less than 30 days. The Accredited Investor E-Letter is provided on a confidential basis, and subscribers to the Accredited Investor E-Letter are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private investment offerings with other independent firms such as Altegris Investments; Absolute Return Partners, LLP; Pro-Hedge Funds; EFG Capital International Corp; and Plexus Asset Management. Funds recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor's services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore

Shevy Akason and Associates Proud To Announce 22 Sierra Blanco Closes for $633,500 after only 8 days on the market

2009-03-20T22:31:00.000-07:00

22 Sierra Blanco, Foothill Ranch, sells for $633,500 after only 8 days on the market!

Shevy Akason and Associates uses broad marketing strategies, well researched pricing techniques, and superior buyer knowledge to sell homes faster and for more money. 22 Sierra Blanco in Foothill Ranch was originally listed on February 11, 2009 and closed escrow on March 20th, 2009. It spent only 8 days as active, recieved 5 offers, and sold for full appraised value.

For more information on listing your home with Shevy Akason and Associates click on this link. http://findmylandmark.com/contact.php

Find out how are strategies can help you sell your home quicker and for more money!

Shevy Akason and Associates featured on the Irvine Housing Blog!

2009-03-14T20:09:00.000-07:00

I would like to thank Lawrence Roberts aka Irvine Renter who featured a couple of pages from my web site that I have featured nice cash flow investments on. I am happy that I discovered blogging about 6 months ago and have been fortunate enough to become acquainted with Lawrence Roberts and his blog. His knowledge of the real estate market is something to be admired.

If every high school in America had a class on real estate, I cannot imagine a better book to use as the foundation of the course than his book "The Great Housing Bubble, Why did prices fall?" If everyone had the knowledge he shares in this book we would not be in the situation we are in today.

If you are not familiar with his blog or if you would like to see his recent posting today featuring Shevy Akason and Associates web section that features cash flow investment property visit;

Irvine Housing Blog

My letter to NAR

2009-02-26T18:47:00.000-08:00

I recently wrote a email to NAR, an organization that I am a part of. The email spoke out against bailouts that use tax payer dollars to subsidize and artificially support home prices. Although many colleagues have brought it to my attention that these types of blogs will not help me to get business, I also do not believe that not being honest is good business either. Howoever, I do know that keeping my opinions to myself may be! This is my real estate blog and this is my opinion. Plus very few actually read my blog anyways! Most of which are not my current clients anyways, plus if my current clients ask my opionion I will tell them regardless if it it costs me short term business. Nevertheless, I still believe that real estate is a great investment, in fact, to me it is still the best investment. However, it's only the best if done right. Moreover, bad policy is not good for anyone. My latest email to NAR is below.

I do not mean to bombard you with information, however, it is important that I clearly demonstrate my point.

Hence, I wanted to put together some facts to better demonstrate my position regarding home prices and affordability and why prices still need to come down in some areas. Moreover, why I believe that government subsidization in these areas will actually hurt affordability, the economy, and agents.

Moreover, that by giving people the ability to purchase past government policy made it irresponsible to purchase for a whole group of American’s that could not; and possibly still cannot responsibly afford a decent home in many areas of the country. Furthermore, by passing legislation and promoting policy that “stalls foreclosures” and artificially props up prices they are making another mistake.

For example, the zip code 92620 is a relatively average zip code in Irvine, CA.

· Between 2000 and 2006 the average home went up 260%

· During the same period the average income only went up 17%

· Although to date prices have fallen nearly 25% from the peak prices are still 93% higher than they were only 9 years ago while incomes have only increased 17%

· Is it really so bad if the people that bid up prices to begin with have to rent?

· Is it really so bad if the homes come back to market levels so that those that have been renting, paying their taxes, and savings can be rewarded and purchase a home for the right price?

Moreover, to demonstrate my contention regarding rental paridy I’m going to use real numbers. There is a home in my neighborhood currently for sale for $535,000

. The exact same floor plans rents on average for $2400. You can see using my preferred Rent versus Own calculator if a buyer is making a rational choice between renting this home and buying this home, he will choose to rent it. As the total cost over ownership is nearly $600 more per month than renting it. If the housing stimulus package is successful, home prices will stabilize at this level and instead of buying it at a price that would allow for a total cost of $2400 and allowing the buyer to have an extra $600 to spend to stimulate the economy it will get sunk into mortgage payments and go the bank.

The rent versus own calculator does not work on here, however you can access it your self and check for rental paridy at: http://www.irvinehousingblog.com/calculator/

Furthermore the home in this example is a relatively average 1700 square foot condo. Using the tempo (our MLS conduit) buyer’s qualification form for a conventional mortgage with 20% down, the average income family in Irvine earning $99,015 per year with 20% down only qualifies for a mortgage of $227,000. Do you know how many 3 bedroom homes sold in Irvine for less than $300,000 in 2008? Zero.

Buyer's Qualification Calculations for Conventional Mortgage:
The following data is for estimation purposes only and the accuracy of the figures is not guaranteed. The actual costs with respect to each transaction will vary depending on the circumstances.

Gross Monthly Income
$
8250.00

Appropriate Percent for Mortgage

28.00

Max PITI $ 2310.00

Appropriate Amt for Total Debt ( 36%)
$
2970.00

Total Monthly Long Term Debt
$
1000.00

Max PITI $ 1970.00

Maximum Mortgage

Maximum PITI (lower of above)
$
1970.00

Monthly Real Estate Taxes
$
557.29

Monthly Homeowner Ins
$
6.67

Monthly PMI
$
0.00

Monthly HOA
$
150.00

Estimated Max P&I
$
1256.04

Estimated Maximum Mortgage Amount
$
227132.31

Note: A Maximum Mortgage Amount that says "Unqualified" or a MaxPITI of 0.00 means that a calculation resulted in a negative number.

Mortgage for Desired Loan Amount

Desired Loan Amount
$
534980

Annual Interest Rate

5.25 %

Term of Loan

30 years

Monthly Payment for Desired Loan (P&I)
$
2954.18

Monthly Real Estate Taxes
$
557.29

Monthly Homeowner Ins
$
6.67

Monthly PMI
$
0.00

Monthly HOA
$
150.00

Estimated Monthly Payment for Desired Loan (PITI)
$
3668.14

Quite simply prices will quit falling when they are back in line with income and rents. Moreover, the housing market will stabilize and our country will begin to move forward. Policies that stall and prevent this simply delay the necessary but somewhat painful process in exchange for a desired quick fix and instant gratification. The best case scenario based upon current policy is hyperinflation which will erode the dollar and cause incomes and rents and to catch up to home prices. Moreover, it angers me that our policy makers have not learned from their mistakes. The current economic situation is due in large part to policy makers that thought it would be a good idea if everyone in America owned a home. As a result they put into motion a chain of events that led the sub-prime melt down, the great housing bubble, and possibly the next great depression.

On the surface the idea that everyone should own their home is a great idea, however, one does not have to look too far ahead to see that it is not a good idea to borrow money to people that cannot manage it, to allow someone to take a negative amortization loan, to borrow $500,000 to someone that cannot save $5000 to pay for closing costs. Now, our policy makers irrational thought that the only way out of the mess is to artificially keep prices high and reward those that made horrible decisions.

Do not get me wrong, as an agent there is no better feeling than helping someone to purchase their dream home. Beyond the fact that if this works it will simply drag this mess on indefinitely, if he is successful, many responsible, hardworking people, that by any standard should be able to purchase, will not be able to and will be left holding the bag. Worse yet, this group will end up subsidizing the people that the irrational policies support and NAR has stood up in favor of this.

NAR’s policy is to make the dream of homeownership possible; however, by supporting this type of legislation it is actually stripping the dream from the most deserving people. Moreover, it is unforgivable that NAR has failed to take note of past failures and is asking those that these policies have hurt the worst to pay for these mistakes through their tax dollars. NAR has essentially caused the dream of responsible homeownership to disappear for this group and NAR continues to beat them over the head as they fights for the preservation of the failed experiment of homeownership for all, well most, ummm well, at least those that have not earned it.

Is Irvine a Buyers or a Sellers market?

2009-02-24T21:57:00.000-08:00

If you say buyer's market, you are not alone, however, currently you are wrong. Moreover, until you have tried to buy a home in Irvine you will not understand how much of a seller's market it truly is! Don't take my word for it, the numbers speak for themselves. Let's take detached homes in Irvine between 2000 and 2800 square feet, with at least 4 bedrooms and 3 bathrooms, built since 1990, and listed since June 1, 2008.
•The average home in this range sold for $802,979
The average sales price was $344/square foot
•The average home sold for 96.83% of original asking price
•The average home sold for 98.43% of list price (price the property was listed price at the time the deal was reached)
•The average home sold in only 34 days, this includes any short sale listings that were listed since June 1st and closed escrow on or before February 22, 2009.
*a buyers market occurs when there is 6 months worth of inventory. Current inventory is misleading because there are a number of short sales on the market listed as active that have multiple offers but are waiting for bank or investor responses.

•The average home that was listed and sold in this time frame was on the market for only 34 days.

If those stats were not telling enough;
•16 out of the 52 homes, nearly 31% sold for at or above asking price.
•3 for exactly 100%
•7 for 100.01%-103.9%
•5 for 104%-109%
•The highest sold for 110% above original asking, in 12 days, at $408/square foot

Where are the screaming deals that should be out there in this housing meltdown? Of course, homes that back to major roads, need copious amounts of work, and have strange floor plans will sit on the market longer and sell for lower prices. If 2009 is anything like the end of 2008 in Irvine those looking for a smoking deal need to consider the following options.

•Cash on the court house steps, that is if Obama's housing plan is unable to prevent these foreclosures (Shevy Akason and Associates can assist you with this for a buyers premium)
•Study the best deals of the past and develop a strategy.

To buyers reading this article I have just showed you the worst deals in Irvine
In the last half of 2008 for the property types described above. Now where are the best deals? Ironically but not surprisingly 3/5 best deals were included in the numbers above and sold for over asking price.

•A total of 5 or 10% of the homes on this list sold for under $300/square foot.
•3 out of the 5 sold for over asking price
•105.36% of original asking
•103.95% of original asking
•102.5% of original asking

I am not implying that there are not going to be great opportunities for those that want to buy in 2009 because there are. Moreover, I am not implying that there is not strong downward pressure on home prices because there is. Nevertheless, the buyers that are ready and have a plan of attack will benefit.

What can the best deals of the past teach us to help us find the best deals in the future? Do find out read the rest of the report on my web site

The current housing debacle was predicted in 1999!

2009-02-24T15:24:00.000-08:00

"From the perspective of many people, including me, this is another thrift industry growing up around us. If they fail, the government will have to step up and bail them out in the way it stepped up and bailed out the thrift industry." - Peter Wallison a resident fellow at the American Enterprise Institute, New York Times article by Steven A Holmes September 30, 1999

This quote comes from an article entitled "Fannie Mae Eases Credit to Aid Mortgage Lending" by Mr. Steven A. Homes that was published in the New York Times September 30, 1999. Mr. Holmes is currently a professor at NYU School of Law. Needless to say Mr. Holmes demonstrates tremendous foresight and leaves me wondering why our country does not elect more people like him to office. In the article he cites pressure from "the Clinton Administration to expand mortgage loans among low and moderate income people and (Fannie Mae) felt pressure from stock holders to maintain its phenomenal growth and profits."

Moreover, he quotes Peter Wallison from the American Enterprise Institute who correctly predicted the current bailouts, "From the perspective of many people, including me, this is another thrift industry growing up around us. If they fail, the government will have to step up and bail them out in the way it stepped up and bailed out the thrift industry."

I'm sure that many are impressed by the articles foresite and frustrated that his warnings fell on deaf ears. Mr. Holmes' predicts the center of today’s economic crisis 10 years, tens of thousands of sub prime loans, and millions or billions of tax dollars prior to the great housing bubble. I have emailed Mr. Holmes for permission to post the article in its entirety.

What does Mr. Holmes think about today’s current bailouts, the idea that tax payers should subsidize and create an artificial floor for home prices? In my opinion, any government subsidization beyond allowing those that can afford a 30 year fixed fully amortized loan at market rate to refinance is too much. First, most of the modifications will be back in foreclosure in less than twelve months. Second, subsidizing home prices with the thought that keeping prices high and stopping foreclosures will help the overall economy is short sighted. If the government successfully keeps home prices 10% higher through subsidization than the market otherwise would all future buyers will pay 10% more than they should and have that much less disposable income to spend on things besides housing.

Moreover, there is a whole generation of people that have overpaid for homes and if current housing stimulus policy is successful there may be a whole new group of people that will overpay for housing. When people over pay for housing they do not save enough for retirement, they do not have disposable income to spend and stimulate the economy, they may not have time to spend with their family, or the money to send their kids to college. Is using people’s tax dollars to subsidize and artificially inflate the price of housing a good idea?

I find this article particularly interesting because I wonder how many other people out there recognized that stated sub prime, interest only, and negative amortization loans were a bad idea and how did our best and brightest not? Moreover, I wonder if there are political science professors, economic experts, or others that share my opinion regarding government, subsidization to artificially inflate home prices? Foremost, I wonder if these voices will be hear and win out so that a larger crisis is not created.

I remember asking my wife many Sundays while reading the real estate section of the Orange County Register when the crazy over inflated prices will end. It was apparent that prices could not continue to rise at such unsustainable levels while people were barely able to afford payments using interest only and negative amortization loans. I often wondered how and why it was not apparent to others, particularly the banks giving the loans. One question I posed to people in the height of the crisis was what can banks do to go beyond the negative amortization loan? The bank pays you loan? Today I ask, when will they see that using people’s tax dollars to artificially inflate the price of the very homes those people have been saving to buy (at a reasonable price) is not a good idea.

While I was cautioning against over exuberance my warnings fell on deaf ears and in the back of my mind I wondered if maybe I was wrong. Fortunately, I trusted my beliefs and was able to avoid direct damage from the housing bubble, however, the collateral damage has been felt by all. Let’s hope that wiser voices prevail in regards to the current debates regarding housing bailouts. To this point, it seems that they are not.

I hope to hear from Mr. Steven A. Holmes soon.
_________________________________________________________________________
previous article published on my blog November, 2008

America is quickly becoming desensitized to its moral obligation and duty to repay debts. In fact, many American’s now feel that they are owed something regardless of their behavior and actions. This moral path could lead to an economic crisis far worse than anything we have seen.

In the movie Cinderella Man Russell Crowe plays James Braddock, a.k.a Cinderella man. This movie is a story about a poor ex-prizefighter during the great depression. Unable to pay his bills struggling to feed and clothe his family he is forced to go on public relief. Driven by love and honor James Braddock returns to the ring to become a legend and a symbol to many American’s during the time, proving that hard work and sacrifice, pay off when he defeats the heavyweight champion. In a memorable scene, James Braddock returns to the public assistance office to return the money he was lent when he was down and out.

This brings me to today's economic crisis, a majority of Americans did not lose their homes trying to feed, clothe, and keep their children warm. In fact, of the entire country 6% of homeowners are behind on their mortgage, most of them are losing their homes as a result of irresponsible behavior that has caused many others that did not participate in the irresponsible behavior to lose their jobs, 401k's, and retirements. As Larry Roberts author of The Great Housing Bubble puts it, a majority of American’s are losing their homes because they “were lured by the free money accumulating as appreciation and took out an additional $400,000 in home equity lines of credit and refinancing and lived the good life. This neighbor was driving around in new cars, taking vacations, buying expensive toys and pretending to be rich,” while others sacrificed, even spent less time with family and friends in order to pay down their mortgage and in hopes of a better future. Now, current legislation endorsed by John McCain, Arnold Schwarzenegger, and others seeks to use the tax dollars of the prudent to pay for the imprudent and worst of all the imprudent are beginning to feel entitled and even proud of the plunders. Furthermore, this legislation leads to others saying why not me and the potential for the number of bad loans to increase exponentially as the banks tell people that they need to quit paying their mortgage to qualify for the modification.

“When the thirteen colonies were still a part of England, Professor Alexander Tyler wrote about the fall of the Athenian republic over two thousand years previous to that time:A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship.The average age of the world's great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage.”1

1Alexander Tyler http://www.mcsm.org/democracy1.html In accordance with Title 17 U.S.C. Section 107, any copyrighted work in this message is distributed under fair use without profit or payment for non-profit research and educational purposes only. http://www.law.cornell.edu/uscode/17/107.shtml

Shevy Akason and Associates is proud to announce 22 Sierra Blanco is in Escrow! Under 1 week! Multiple bids

2009-02-19T21:44:00.001-08:00

Shevy Akason and Associates takes pride in understanding the market, getting homes sold, and getting our clients top dollar in any market. We are proud to announce that we opened escrow on 2-19-09 in only 8 days on the market, with multiple offers! A one week marketing blitz, proper pricing, and great cooperation from the sellers keeping the home clean, clutter free, and allowing us to hold open houses and show it freely made this a quick sale!

The housing plan--- I still don't think we get it

2009-02-19T20:28:00.000-08:00

Is the government's plan only looking one step ahead? Hoping for Hyper inflation? How do you feel about paying other people's mortgage?

Opportunity- HUDS 203K program offers many buyers a fantastic opportunity

2009-02-16T13:33:00.000-08:00

Tired of looking at homes that need a bunch of repairs that you do not want to pay for? Tired of looking at newer construction with high HOA and high mello roos or homes that have been done nicely but not to your taste? This program allows home buyers to obtain permanent financing when purchasing a home that will cover certain rehab costs. This could be a huge benefit to many buyers out there that have been looking at beat up bank owned homes or homes with $10,000s of thousands of upgrades done to someone else's taste. Or buyers that are not buying because of lack of funding for necessary improvements and repairs without dipping into important reserves. This could be a great option for buyers considering puting 10% down but hate the thought of PMI!

This loan can be used to fund up to $35,000 in improvements and can be done as part of an FHA loan. Therefor, it limits out of pocket expenses to a 3.5% down payment as an FHA loan. This could be an important tool to allow buyers to purchase a fixer (hopefully priced under market), and gain sweat equity. Here is my recommendation on how to best utilize this program.

Example

Buy a fixer worth $500,000+ after repairs for $400,000 or less preferably ($396,000) so that with 3.5% down + $35,000 for rehab, your loan balance stays under $417,000 and request the seller pay 5% towards closing costs.

Take a loan for $415,915

Put $15,085 down

Put another $5000 towards repair out of your pocket

You are now in the property for $440,000

New appriased value= $500,000

Cash on cash return= 290%+ that's tough to beat!

Moreover you now have $74,085 equity nearly 15% (nearly $60,000 in sweat equity)

If you were previously planning on puting 10% down, if you put the other 5% down you will have put a total of 8.5% down and about 9.5% invested (including extra $5000 pitched in for rehab) and have 20% equity and no mortgage insurance (speak with your lender)!

for more information visit:

HUD information on 203K

Shevy Akason and Associates proudly present 22 Sierra Blanco, Foothill Ranch

2009-02-12T11:59:00.000-08:00

Do not miss this, relocation forces sale. Unbelievable views

22 Sierra Blanco
Foothill Ranch, CA 92610
Offered at US$599,000 to US$640,000
MLS Number S563452

Type: Residential
Year Built: 1993
Bedrooms: 4
Baths: 3
Living Area: 2043 Sq. ft.
Lot Size: 4695 Square Ft.

Property Highlights

Catalina Views
3 car garage

Master bedroom view deck
Low HOA

community Pool
Community spa

1st floor bedroom
Nice yard

Cul-de-sac street
Dual paned windows

Property Description
Relocation forced sale of this beautiful view home on a cul-de-sac! This is dream home and an equity seller. First floor bedroom and full bath, 3 car garage. This home offers unbelievable views perched high in the hills of Foothill Ranch overlooking the city lights below. Views include Catalina Island, all the way to Dana Point and the Irvine Spectrum along with beautiful mountains! Plus a spacious back yard, gorgeous view balcony off of the master. The back of the home faces west allowing for fantastic sunsets. In addition, the master bedroom, dining room, kitchen, and living room have fantastic westerly views. The huge windows make this home bright and highlight the large back yard and views. Dual paned windows throughout, double sinks in master bath and 2nd upstairs bathroom, plus association pool and spa! Walking distance to Whiting Ranch hiking and biking trails. If all this is not enough, low tax rate and low HOA.

Shevy Akason 949.769.1599 shevy.akason@evergreenrealty.net

The Wall or the Wave

2009-02-07T07:46:00.000-08:00

The Wall or the Wave

Will the wall that the government is building to keep our country from drowning in the wave of foreclosures be too big? I set out this morning to write an article about the 4% plan that I’ve been hearing about. However, I was conflicted, as a realtor I saw huge potential for what this could do to help my clients to purchase homes, nevertheless, I also knew that in Orange County this might go too far and cause government subsidized increases in Orange County home prices, similar to the ones that got us into this mess in the first place, if not property regulated.

First, I’ve seen the inventory drop steadily in Irvine since the extra 90 day waiting period/ foreclosure moratorium passed, I’ve also been waiting for the wave of product that’s been left off of the market (read more about the moratorium). Of course, for those looking to buy in the past three months less inventory means higher prices. Even though the moratorium simply delayed the inevitable, if you want to buy a place today, more inventory coming in three months does not help you. Nevertheless, more inventory is coming and lawmakers are scared. With today’s realistic financing terms and the ARM and Alt-A loans adjusting there may be more price declines. Although price declines should mean more affordable housing which is exactly what we need, the government is against price declines because declines mean more to our economy than simply better affordability.

As crazy as it sounds, the government will do everything that they can to prevent more affordable housing as a result of more reasonable prices. Hence, we will surely see some huge measures in the stimulus bill to subsidize housing. The question is which will be bigger; the wall that the government is building or the wave of foreclosures that is bearing down on California. If the 4% mortgage idea passes and it is not heavily restricted I argue that the wall may be much bigger in Orange County and we may even see price increases for the two years this program is in place. Those that will benefit this most will be those that buy with today’s financing terms and prices and refinance using the new government subsidized loans. In fact, if 4% rates or subsidies similar may pass I will encourage my clients to buy as soon as possible and never sell. Especially as I see properties coming up at rental parity pricing using 5.5% and 6% loans, it’s tough to beat 4% thirty year fixed, even if we’re not at the bottom. However, with this type of subsidization in place it will be hard to imagine price declines. Moreover, as we know housing is a great hedge against the potential inflation that this “stimulus” plan has the potential to create down the road.

I am against government subsidization of housing that artificially increase prices. However, I am also against a complete economic collapse of our country. As a result, I’m going to play devils advocate and here is the argument. If properly regulated a 2 year period of 4% 30 year fixed interest rates will stabilize the housing market. Forget about inflation, the government doesn’t seem to care right now. If properly regulated this plan could be effective. In order to be effective the following provisions would need to be added.

1) debt to income must be below 50%
2) No stated income
3) Minimum 10% down for purchase
4) Loan amounts to be capped at 4x average income for the zip code the home is in -20% (for purchases)
5) Looking for other ideas that will keep this from sending prices artificially high

In conclusion, it’s tough to say which will be bigger, the wall or the wave.
What do you think?

To read more about the foreclosure moratorium and a great article about the 4% plan click on these links: foreclosure moratirium 4% loan proposal

Income opportunity in Lake Forest

2009-02-06T08:32:00.000-08:00

Visit my website to see the latest income opportunity in Lake Forest. It's in a fantastic community that includes a pool, spa, and tennis courts. It's bank owned and well priced at $339,000 but not well priced enough. Visit Lake Forest,3/3, bank owned to see what I would recommend. This could be a great income opportunity and a fun project!

$80,000 below rental parity!

2009-02-05T14:52:00.001-08:00

This home is a fantastic value. Click on link for full report.

http://findmylandmark.com/Costa-Mesa-3-4-luxury-home-Value-buyer-opportunity-n25931.html

Investor opportunities in Costa Mesa

2009-02-05T11:49:00.000-08:00

I recently featured a property that just sold in Costa Mesa below rental parity. To see this information please visit the page dedicated to this property on my website at http://findmylandmark.com/Costa-Mesa-n25918.html .

Irvine Inventory

2009-01-31T11:27:00.000-08:00

If you are a buyer and you are getting frustrated because you feel like there are not many options in Irvine you are right. The following link charts the inventory in Irvine over the last 24 months, you can see it is way down.

http://www.irvinehousingblog.com/inventory/irvine.php

Barney Frank hear this- the housing market will stop collapsing when you quit artificially inflating prices! (Well, maybe not now that your poor poli

2009-01-27T22:42:00.000-08:00

Barney Frank hear this- the housing market will stop collapsing when you quit artificially inflating prices! (Well, maybe not now that your poor policies have lead us into a complete economic crisis) Regardless---

If I had unlimited amounts of disposable income, I would do everything in my power to get the following point across. “B Frank- The housing market will stop collapsing when you quit artificially inflating prices!” In fact, there would not even be a collapse if you didn’t push policies that artificially inflated prices to begin with! I would pay for planes to fly over Franks house with banners expressing my point, take out full page spreads in the NY Times, the Washington Post, and the Wall Street Journal. In short I would make it my mission for the jokers in Washington to understand this very simple point. Moreover, that by giving people the ability to purchase they made it irresponsible to purchase for a whole group of American’s that could not; and possibly still cannot responsibly afford a decent home in many areas of the country. Moreover, by passing legislation and promoting policy that “stalls foreclosures” and artificially props up prices they are making another mistake.

First, Mr. Barney Frank along with some of his colleagues thought it would be a good idea if everyone in America owned a home. As a result they put into motion a chain of events that led to the sub-prime melt down, the great housing bubble, and possibly the great depression II. On the surface the idea that everyone should own their home is a great idea, however, one does not have to look too far ahead to see that it is not a good idea to borrow money to people that cannot manage it, to allow someone to take a negative amortization loan, to borrow $500,000 to someone that cannot save $5000 to pay for closing costs. Now, Franks incredible genius thinks that the only way out of the mess is to artificially keep prices high and reward those that made horrible decisions.

Do not get me wrong, as an agent there is no better feeling than helping someone to purchase their dream home. However, the feeling is much better if you know that they can afford it. The best case scenario from these policies that artificially inflate prices is that a new round of buyers will jump in and pay inflated prices , prices that can only be supported artificially. Beyond the fact that if this works it will simply drag this mess on indefinitely, if he is successful, many responsible, hardworking people, that by any standard should be able to purchase, will not be able to and will be left holding the bag. Worse yet, this group will end up subsidizing the people that Mr. Barney Frank’s irrational ideas support.

Mr. Frank a proponent of apparent reckless loan modification proposes principle reduction and other methods meant to artificially keep prices high. Ironic, the purpose of Mr. Barney Frank and his cohorts was to make the dream of homeownership possible; however, it is actually stripping the dream from the most deserving people. Moreover, it is unforgivable that he has failed to take note of his past failures and is asking those that his policies have hurt the worst to pay for his mistakes through their tax dollars. He has essentially caused the dream of responsible homeownership to disappear for this group and he continues to beat them over the head as he fights for the preservation of his failed experiment of homeownership for all, well most, ummm well, at least those that have not earned it.

52 offers in less than 5 days, a unique opportunity for buyers and sellers

2009-01-23T10:45:00.000-08:00

Buyers and sellers can both take lessons from a home in Huntington Beach that came on the market on January 13th, 2009. Less than 1/2 mile to the beach, over 3000 square feet, on 6500 square foot lot, and priced at $712,500. Based upon comps there is over $100,000 in equity in the property at that price. Recently I found that the property was on hold. I called the agent to get the details; he informed me that they had accepted an offer and that they were just waiting for the signed contract. I asked if they would be accepting back up offers and he said that he did not think that would be necessary and that he had 52 offers in less than 5 days. This property demonstrates the unique opportunity that buyers are faced with that is causing many buyers to get back into the market, properties down 20%+ from their peak and historically low rates. In addition, sellers that purchased their homes 10+ years ago are also presented with a unique opportunity, they still have lots of equity, rates are still low (bringing many buyers back into the market), and if they price their home correctly there are plenty of buyers!

52 offers in 5 days demonstrates one of the biggest challenges in today’s market, contrary to what most believe, it is not unusual for a properly priced property to get double figure offers in less than a week. When homes are priced appropriately for today’s market and they do not have any major issues such as foundation, structural, or other they sell quick and with multiple offers. It should not be a surprise, people still want to live in California, particularly in Orange County. Both buyers and sellers need to take note of this and use it to dictate there strategy.

First, buyers need to be able to recognize and take advantage of opportunities when they arise. In order to do this they need the following.

1) Write an offer quick when the right property comes to the market.
2) Hire a full time real estate professional that they trust (unless they have unlimited free time and access to all of the tools that the professionals do and have experience acquiring property in today’s market)
3) The willingness to take their agents advice. This occurs by listening to one’s agent, asking them questions, and trusting in their advice. Of course, a good agent will back their advice up with CMA reports and other market data that will support their advice. This is invaluable if one listens. Moreover, agents will tell you what today’s market value is and what the trends are for the community. Most agents will not speculate on what the prices will be in 6 months or one year from now. However, if you feel like they will be a lot lower and only want to buy based upon prices in 6 months to one year from now wait. It is very rare that a property will sell for more than 10% below market unless you are purchasing it all cash at the court house steps or there is something wrong with it. (I can help purchase properties at the court house.)
4) The ability and willingness to drop everything within hours to go and see an opportunity and write an offer
5) Ready to write an offer- The single biggest mistake that buyers make is waiting to write an offer when the right opportunity presents itself. If the property is right for you and a great deal, be rest assured others buyers will be ready to take advantage of the opportunity.
a. Pre-approval letter ready
b. Proof of funds ie. Bank statements that prove the buyers down payment is ready and in their account
6) Understand that banks have methods and procedures that they follow when selling property. One rule for most banks is that the home must sell within 10% of market value. As a result if buyers are not satisfied with getting a home 10% under current market value because they feel like prices are going to drop more than 10% they need to wait. In addition, buyers looking for elegant turn key homes must understand that most people prefer these types of properties, therefore, there is competition and with competition they will not get a steal.
7) Understanding that the best opportunity is not always an REO or short sale.

Where most buyers go wrong

Most buyers deal with a lot of unnecessary stress and frustration as a result of the following.

1) False sense of the market as a result of the media
a. Just as the media falsely led people into purchasing when they shouldn’t by creating TV shows about the vast amounts of wealth created buy purchasing real estate regardless of experience or fundamentals, made it appear that real estate would appreciate at 20% indefinitely, the media has made people believe that they can get homes for 30% below market value, in prime areas, and at the drop of a hat. Although this may be true in some areas, buyers looking in Newport Beach, Irvine, or other choice areas of Orange County need to recognize that in most of these areas the supply is less than 6 months, most homes are selling with 10% of the original asking price, and there is a lot of competition out there in the form of other buyers that want to purchase. A great deal in today’s market is 5-10% below current market value. Deals over 10% below today’s market value happen at auctions with all cash, when a buyer buys in bulk, or the rare opportunity when one can work with an equity seller that is extremely motivated and the buyer listens to the advice of their professional agent.

2) Think that a bank owned or short sale is the best way to acquire a property.

3) Waiting to think about it. Buying a home is the biggest decision of one’s life, it is important that when one decides it’s time to purchase that they have thought long and hard, created a budget, consulted with a lender, determined a comfortable payment and amount they want to spend on a home. In addition, it is important that they have decided where they want the home to be, size of the home, and the features of the home. Once a buyer has decided to purchase and made determinations about all of the other important aspects of the home and purchase that they are ready to react when the right opportunity comes along.

During the peak of the boom common sense dictated that a home selling for $650,000 and renting for $2100 was way over priced, that purchasing a home with a negative amortization loan was a recipe for disaster, that serial refinancing would eventually catch up to people. Moreover, common sense dictates that if prices are currently falling, even with interest rates historically low that when rates are forced up with inflation that prices will come down. That being said there is a big difference in the cost of a home if one has a 5% rate versus a 6% rate and even if history dictates that purchasing a home is historically best when rates are at the peak, most look at a home as more than just in investment and do not want to wait 5+ years for the possibility that rates will go to 9% and prices will come down.

Moreover, common sense also dictates that if there are 52 offers on a home that properly priced that there are currently 50 people competing for a home priced at $712,500, that needs work and will rent for somewhere in the high $3000 to low $4000 range. If we are going to achieve rental parity in California, it will happen as a result of a combination of factors and may not happen anytime soon.

Sellers can see this and know that there is a huge market of buyers out there ready to purchase their home if it is priced right for today’s market. As a result of the large number of ARM loans set to adjust over the next two years any buyer planning on selling in the next 3-5 years should not wait with the thought that they might get 2006-2007 pricing any time soon. Historically low interest rates will not last forever and although many are buying with plans to keep the house for a long time to come and take advantage of todays rates, it does not make sense to hold hoping for higher prices anytime soon unless you plan on holding the home for over 5 years. When the market starts to recover and inflation starts to catch up with us, the rates will rise and prevent major appreciation anytime soon. If you are planning on selling and definitely want to sell in the next 5 years it is advisable to list your home now, for a few percent below market, make sure it shows better than any of your competition, and use a professional agent that understands this market and is internet savvy.

In conclusion, there are a number of factors that go into purchasing and selling a home. One must be prepared for a challenging process when purchasing in today’s market. There are plenty of buyers out there and this market offers a unique opportunity for both buyers and sellers.

Holding Title in a Family Trust

2008-12-05T09:27:00.000-08:00

How to hold tilte in real property

2008-12-05T09:15:00.000-08:00

Shevy Akason | www.findmylandmark.com launches Newport Beach Real Estate Page

2008-11-29T17:17:00.001-08:00

Shevy Akason and Associates, www.findmylandmark.com, launched Newport Beach Real Estate page at the Newport Beach real estate link. The page includes links to some of the best things that newport beach has to offer including Newport Back Bay, Newport Harbor, The Newport Pier, The Orange County Museum of Art, Newport Sports Museum, The Balboa Bay Club, The Crab Cooker, Pelican Hill Golf Club, Corona Del Mar State Beach, Crystal Cove State Park, and the Catalina Flyer. In addition, the page offers a link to the exclusive search page that allows visitors to search thousands of property listings available throughout Orange County. Watch for coming pages including community pages for Corona Del Mar, East Bluff, Lower Newport Bay, Balboa Island, Newport Heights, The West Bay, and West Newport- Lido. These pages will include information on schools as well as fun things that the communities have to offer.

Shevy Akason and Associates Launches new web site

2008-11-28T12:56:00.000-08:00

I hope that this web site can be a tool for past, present and future clients. I'm looking forward to feedback that can help me to improve the site. There are some features that I would like to point out that can be great tools. The site address is: http://www.findmylandmark.com/

1) The MLS search tool this feature allows clients to search for properties in specific cities and communities. In addition, it allows them to filter properties by size and allows them to set up a search that will automatically notify them when properties that meet their criteria come available.

I believe that this is one of the most important tools that I can provide my clients and I'm currently experimenting with a couple of different search tools. My goal is to provide the best search tools to past, present, and future clients.

2) The community link
This link is a work in progress. It will eventually feature detailed information on all of the communities that I work in. Including floor plan information, school information, comparative market analysis, and much more. It also connects to the National Center for Education Stats and Greatschools.net which provide valuable tools for researching schools.

3) Buyer/ investor services: I am often asked. "What do your services include or what is the benefit of having an agent" this section answers that question. In addition, it gives helpful advice on what to do and what not to do prior to purchasing a home.

4) Seller Services Agents must truly be marketing professionals. This section addresses why Shevy Akason and Associates are the best agents to handle the sale of your property if you want to get top dollar in the shortest period of time possible.

5) Calculator
This feature allows one to calculate what their monthly payment will be based upon current rates.

Huge drop in interest rates!

2008-11-28T12:54:00.001-08:00

In previous articles I wrote about the signifigant impact of having a loan at 5.5% versus 6.5%. I just received this email from Dan Hrey of Chase. If one is thinking about buying in the near future there is a great opportunity now with these fantastic rates.

From Dan Hrey of Chase

Wednesday morning CNN Money posted the following information in regards to
an $800 billion infusion of federal funds into credit markets having an
immediate impact on mortgage rates.

Mortgage rates fell sharply yesterday after the administration announced
that it will pump another $800 billion into credit markets to free up
frozen consumer and mortgage lending.

That number dwarfed previous government actions aimed at bolstering the
mortgage lending market.

"The feds agreed to spend a half a trillion dollars to buy up mortgage
backed securities and another $100 billion to fund lending for Fannie and
Freddie; we're not talking chump change anymore," said Keith Gumbinger of
HSH Associates, a publisher of mortgage information.

Rates averaged 5.77% for the day on a 30-year, fixed rate loan, down from
6.06% Monday, according to Gumbinger.

This rate drop amounts to huge savings for homebuyers. Hence, many experts
think that this drop in rates will surely help spark our real estate
market.

If you need any assistance please contact me at: 949.769.1599.

Solid Video a friend sent me

2008-11-23T11:17:00.003-08:00

Solid Video a friend sent me

2008-11-23T11:17:00.001-08:00

Deal of the week---- look at this

2008-11-21T13:09:00.000-08:00

City: Orange County!!! wow---- Call 949-769-1599 for more information or to schedule a showing
Asking Price: $209,900
Downpayment needed: $6300-$42,000
Interest rate 6%
Number of years 30 year fixed fully amortized
Property tax and
special taxes/levies (estimated) 1.25%
HOA: $310
Maintenance and replacement
reserves 1%= 175$/month
Income Requirement: $60,000

Total Cost of ownership= $1643.63

Rent comps estimated= $2200/month

Address: Contact Shevy Akason at 949-769-1599
Beds: 3
Baths: 2
Sq. Ft.: 1600 square feet
$/Sq. Ft.: $128.93
Lot Size: 0
Year Built: 1967
Stories: 1 story second level

Listing agents description:
This is a private upper corner Condo that features 3 bedrooms, 1 3/4 baths. Master bedroom has its own bathroom with dual sinks and walk-in closet. Condo overlooks lush green landscaping in a courtyard. Big windows throughout, open floor plan, good size rooms, walk in closets, and fireplace in living room. Close to Metro, fwys, parks, schools, shopping and entertainment.

Shevy's analysis: I have had an opportunity to preview this home. It is in a solid B area witha mix of owners and renters. I spoke with a few people that lived there and they all really like it. It has huge green belts and is very quiet. The community was build in the 60's and it's a bit old, however, this is a fantastic investment opportunity for a buy and hold investor. This home could use between $10,000- $20,000 in upgrades to modernize it, however 0 upgrades are necessary. This property could make an excellent lease for an investor looking to purchase for the long term using a 30 year fixed fully ammortized loan or for a first time homebuyer.

Look at these numbers, this property could be a great hedge against the potential inflation that current policy could bring. In addition, because of the cashflow it's a relatively safe investment. Take advantage of todays really low interest rates before they're gone!

Learning from our mistakes- markets are indeed cyclical

2008-11-14T08:00:00.001-08:00

The lessons that can be learned from the Great Depression, The Savings and Loan Crisis, as well as Japan's economic collapse of the 1980's, are essential if we wish to move forward to a stronger economy and better country. When the last up cycle was in full swing I remember trying to communicate that the market is cyclical and that we cannot have 20% appreciation forever, that interest rates are historically low and that the risk of financing a home using an ARM loan with a teaser rate is greater than most should take. Explaining that when appreciation dies down and rates eventually go up one has no insurance,no protection, and very few options. While with a 30 year fixed loan and an amortized payment that one can afford today there is a level of protection. Generally rents and incomes will rise, however, your payment will never change. Nevertheless, many were caught in the herd mentality and wild appreciation of the market. Of course we now see that the market is cyclical. Unfortunately, when in an up cycle people believe that the upswing is different. The link below was produced by National Public Radio offers a fantastic comprehensive overview of what created the credit crisis.

That being said, great fortunes are made in recessions, especially at the end of recessions. Many of the smartest investors have prepared themselves for the opportunities that will arise over the next two to three years. Orange County has a lot going for it including the relative affluence of the county, fantastic weather, and relatively strong economy. The question is how many people are living beyond their means? In general, I have seen a large number of foreign investors coming in and purchasing homes in Orange County, many call cash. Moreover, there was a home 3 weeks ago that was priced correctly and received 17 offers in 3 days. Will Orange County ever reach rental parody as some argue? That's a question that only time will be able to answer. Home prices will rebound, however it is important to take lessons from the current market and make sure we do not repeat the same or similar mistakes again.

http://www.thisamericanlife.org/Radio_Episode.aspx?episode=355

This program regarding the housing crisis explains the correlation between wall street and the credit crisis, why banks made half-million dollar loans to people without jobs or income, and why everyone is talking so much about the 1930s, and the giant pool of money that created this. Ironically the first interview was completed at an awards dinner for finance professionals who created the instrument that nearly brought down global economic system.

The Great Depression and the Present Economic Crisis

2008-11-13T13:45:00.001-08:00

America is quickly becoming desensitized to its moral obligation and duty to repay debts. In fact, many American’s now feel that they are owed something regardless of their behavior and actions. This moral path could lead to an economic crisis far worse than anything we have seen.

In the movie Cinderella Man Russell Crowe plays James Braddock, a.k.a Cinderella man. This movie is a story about a poor ex-prizefighter during the great depression. Unable to pay his bills struggling to feed and clothe his family he is forced to go on public relief. Driven by love and honor James Braddock returns to the ring to become a legend and a symbol to many American’s during the time, proving that hard work and sacrifice, pay off when he defeats the heavyweight champion. In a memorable scene, James Braddock returns to the public assistance office to return the money he was lent when he was down and out.

This brings me to today's economic crisis, a majority of Americans did not lose their homes trying to feed, clothe, and keep their children warm. In fact, of the entire country 6% of homeowners are behind on their mortgage, most of them are losing their homes as a result of irresponsible behavior that has caused many others that did not participate in the irresponsible behavior to lose their jobs, 401k's, and retirements. As Larry Roberts author of The Great Housing Bubble puts it, a majority of American’s are losing their homes because they “were lured by the free money accumulating as appreciation and took out an additional $400,000 in home equity lines of credit and refinancing and lived the good life. This neighbor was driving around in new cars, taking vacations, buying expensive toys and pretending to be rich,” while others sacrificed, even spent less time with family and friends in order to pay down their mortgage and in hopes of a better future. Now, current legislation endorsed by John McCain, Arnold Schwarzenegger, and others seeks to use the tax dollars of the prudent to pay for the imprudent and worst of all the imprudent are beginning to feel entitled and even proud of the plunders. Furthermore, this legislation leads to others saying why not me and the potential for the number of bad loans to increase exponentially as the banks tell people that they need to quit paying their mortgage to qualify for the modification.

“When the thirteen colonies were still a part of England, Professor Alexander Tyler wrote about the fall of the Athenian republic over two thousand years previous to that time:A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship.The average age of the world's great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage.”1

1Alexander Tyler http://www.mcsm.org/democracy1.html In accordance with Title 17 U.S.C. Section 107, any copyrighted work in this message is distributed under fair use without profit or payment for non-profit research and educational purposes only. http://www.law.cornell.edu/uscode/17/107.shtml

Education from IrvineRenter----

2008-11-13T10:30:00.000-08:00

By Irvine Renter

Gross Rent Multiplier
Was developed by landlords seeking a method to quickly evaluate the purchase price of a property to see if it would be a profitable investment. When performing such an evaluation, a cashflow investor will typically look for a GRM near 100 to find a property with positive cashflow. This method can also be easily adapted to calculate the breakeven point where an owner/occupant would break even compared to renting. As you can see, when you consider the full cost of ownership -- including those costs often ignored -- the gross rent multiplier is lower than most think. The Gross rent multiplier is a convenient measure of value because it spares you the brain damage of performing, detailed calculation for every property you wish to evaluate.

Renting Versus Owning
Renting versus owning is both an intellectual, financial decision and an emotional one. The financial decision is first and foremost an analysis of the comparative cost of renting versus owning. The cost of a rental can be determined fairly easily as there are usually a number of comparable properties on the market to establish a realistic rental rate for any given property. Of course, it is easy to justify in one's mind a comparative rent that is higher than the market will bear. A house someone is in love with will almost certainly rent above market in their minds. Also when looking at similar products the rental rates may not be realistic in the marketplace. It is probably a good idea to take 5% to 10% off comparable rental rates on properties offered on the market. Once you have established what you believe to be a comparative rental rate, and you have gone through a realistic evaluation of the true costs of ownership as outlined above, a simple comparison of the two figures will tell you if a property is overvalued, undervalued or just right.
This point-in-time analysis of the relative worth of a house does leave out a couple of important financial factors: inflation and transaction costs. Inflation is the erosion of purchase power of money over time, or looked at another way, it is the increase in the price of some set of goods and services in a given economy over a period of time. It is measured as the percentage rate of change of a price index. The effect of inflation on housing costs is that it tends to increase the cost of renting over time, and theoretically, it will increase the value of a house over time as well. If the cost of rent is increasing, but your cost of ownership is fixed (assuming a fixed-rate mortgage,) then owning a home becomes less expensive over time and serves as a hedge against the impact of inflation. If you are a homeowner, inflation is your friend. There is one big cost of home ownership that works against the positive impact of inflation: transaction costs. When people buy a house, they pay some closing costs, but many of these get rolled into your loan and forgotten. When people sell a house, they generally go to a realtor to help them market the property and complete the paperwork necessary for the transaction. Real estate commissions for many years have been held at an artificially high 6% in the United States, and the seller is the one who pays this commission. From the time of purchase to the time of sale, inflation (or irrational appreciation) must have increased the value of the house enough for the sales price to cover the real estate commission or the seller will lose money. This is why it is often recommended for people who are not going to live in a given area for more than 2 or 3 years to rent instead of own. Renting is freedom -- freedom to move when you wish (within the terms of your lease.) As I noted in America’s Debtor Prisons, homeowners who go underwater lose this freedom of movement. This advantage of renting is nullified during a price rally as owners have this same freedom during those times, but this forgotten benefit becomes readily apparent once prices start to fall.
Some people spend a great deal of effort evaluating the costs of ownership to determine if is a correct decision, but many people do not. Some people make the decision to purchase the most expensive asset they will ever own with no analysis at all. The decision to buy a house is primarily an emotional one. Even those who go through all the analysis generally only do so to provide rationalizations for their emotional decision. During price rallies, greed becomes a powerful emotion motivating people to fudge their financial analysis in order to justify their emotional purchase. Another factor often called the "nesting instinct" causes both men and women to want a place to call their own, particularly when there are children in the family. There is nothing wrong with deciding for emotional reasons. Most people pick a spouse this way. The real challenge is to have the emotions and the intellect working together to make a decision that is both fiscally sound and emotionally satisfying. This is easier said than done.

North County Deal of the Week: Huntington Beach Condo

2008-11-12T10:35:00.000-08:00

Analysis done using IrvineHousingblog.com
RentVsOwnulator™ read about calculator here: http://orangecountycaliforniarealestate.blogspot.com/2008/11/introducing-irvine-housing-blog-rent-vs.html

City: Huntington Beach
Asking Price: $255,000
Downpayment needed: $1650-$51,000 (used $51,000 for calculations)
Interest rate 6%
Number of years 30 year fixed fully amortized
Property tax and
special taxes/levies (estimated) 1.25%
HOA: $188
Maintenance and replacement
reserves 1%= $212.50/month
Income Requirement: $65,000

Total Cost of ownership= $1643.63

Rent comps estimated= $1800/month

Reverse calculation $1800/month rent
Estimated ownership costs 18%

Estimated purchase price $291,899
Estimated down payment $58,380
Estimated loan $233,519.17

Address: Contact Shevy Akason at 949-769-1599
Beds: 2
Baths: 2
Sq. Ft.: 860 square feet
$/Sq. Ft.: $296.51
Lot Size: 640
Year Built: 1963
Stories: 2

Listing agents description:
PRICE REDUCED TO SELL FAST! Great opportunity! Tile floors in living room and kitchen. Laminate floor in upstairs bedrooms and hallway. Appliances include stove, microwave, refrigerator, washer and dryer. Close to shopping, schools. Cool ocean breezes - less than 2 miles to the beach!

Shevy's analysis: I have not had an opprotunity to preview this home, however, it appears to be in a good location in the track walking distance to the community pool and hot tub. This home could use between $10,000- $20,000 in upgrades to modernize it. However, this property could make an excellent lease for an investor looking to purchase for the long term using a 30 year fixed fully ammortized loan or for a first time homebuyer that wants to live in the wonderful city of Huntington Beach.

Introducing The Irvine Housing Blog rent vs own calculator

2008-11-12T09:48:00.000-08:00

The Irvine housing blog is often referred to as a "bubble blog". I have been following the blog for a mere 10 days, however, I have met with the primary writer for the blog twice and the founder of the blog once. They are both extremely intelligent and knowledgeable professionals. Apparently most agents are not fans of their blog, I am. They offer a refreshing perspective on real estate in Irvine and knowledge that can be gained from their blog can apply to real estate all over the country. Although some would argue that they are overly bearish on real estate, I found that they take a well educated value approach to the market. They would probably be the first to tell you that they do not have a crystal ball, that no one can be 100% correct, and and that there are some aspects of demand such as the amount of buyers coming in from overseas in Orange County and particularly Irvine that makes the bottom really hard to predict. Irvine and Orange County still offers fantastic employment opportunity, unbeatable weather, some of the best real estate in the country, and they are still not making anymore land. Nevertheless, it is clear that they saw the affects that sub-prime and and ARM loans would have on prices long before Gary Watts who's widely seen the premier real estate forecaster in California.

For a long time, I too have wondered why ARM loans were offered to so many when rates were historically low. Once prices rose to a certain level one of the few benefits of purchasing was the ability to finance the property using a 30 year fixed loan at historically low interest rates. As the prices rose the loans became more outrageous, I remember asking friends, "where can you go beyond a negative amortization loan?" Our only idea was the bank pays you loan. Of course neither loan makes sense. That being said we are now returning to responsible financing and more and more good deals are beginning to spring up every day. How can purchasing a home for $650,000 be justified when renting the same house only costs $2100/month? If only people were educated and had the tools to understand. The calculator created by the Irvine Housing blog is one of the better calculators I've seen. Furthermore, it seems to me that if a deal can punch using the calculator developed by the Irvine Housing Blog, the blog that is widely seen as the premier bubble blog in Orange County, we might be on to something. Below you will find Larry Roberts (IrvineRenters) description of the calculator. To access it click on the link.

The wheels of progress keep turning here at the Irvine Housing Blog. Some of you may have noticed that we have introduced a new rent versus own decision calculator. It is still a work in progress, but it is good enough to put on the main site. We hope to add some formatting and create a stand-alone version for people to download and use.

Our goal was to create an accurate and detailed accounting for the true cost of ownership. This is a point-in-time calculator. You are not asked to make assumptions about inflation or appreciation. There are no projections for the future. People who invest in real estate (I am not talking about stupid amateur speculators) always look at the stabilized cash flow in the first year of ownership. If it doesn't make sense in year 1, then it isn't an investment, it is a speculative gamble. There are a variety of rent versus own calculators out there. Most are put up by realtors. They are totally biased and ignore costs and exaggerate benefits. Some are put up by bubble bloggers that are biased the other direction. We want to be accurate.
window.google_render_ad();

Most of the underlying assumptions are documented in the post Rent versus Own. Most of the inputs are in the left-side column, and most of the outputs are on the right (the exception is the HOA fees which are plugged in directly on the cost side). Play with these assumptions at your own risk. As I documented in the Rent versus Own post many of the costs are underestimated, and many of the benefits are overestimated. The most common mistakes are to ignore maintenance and replacement reserves and to overestimate the tax savings. The true tax benefit is not the highest marginal tax rate you pay.

The primary function of the calculator is to determine the true cost of ownership to compare to a base rent. However, we have added a reverse calculation that allows renters to put in the rent they are currently paying and show them how much house they can afford. Since this is not a spreadsheet calculation and we could not iterate to run the calculations backward, we cheated: we use a percentage of rent that goes to the cost of ownership beyond the payment and subtract this from the rent to compute the purchase price, downpayment and loan amount. You will see the two methods produce very close results both forward and backward.
Any comments or suggestions for improvement will be appreciated.

The moral hazard of modifications

2008-11-11T16:44:00.000-08:00

It was brought to my attention that my post regarding CitiGroup does not correctly communicate my views. I would like to invite others to share their thoughts regarding loan modifications.

Banks are only thinking one step ahead

2008-11-11T06:40:00.000-08:00

Although loan modification saves the bank money on one particular bad loan it creates 4 more. If banks don't start thinking past step one the worst is yet to come................ Game over.... read this article http://news.yahoo.com/s/ap/20081111/ap_on_bi_ge/citigroup_homeowner_assistance

Interesting perspective on Democracy

2008-11-08T07:18:00.000-08:00

“When the thirteen colonies were still a part of England, Professor Alexander Tyler wrote about the fall of the Athenian republic over two thousand years previous to that time:A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship.The average age of the world's great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage.”1

1Alexander Tyler http://www.mcsm.org/democracy1.html In accordance with Title 17 U.S.C. Section 107, any copyrighted work in this message is distributed under fair use without profit or payment for non-profit research and educational purposes only. http://www.law.cornell.edu/uscode/17/107.shtml

Uncle Sam and prudent tax payers offering $150,000+ to anyone that quits making their payments

2008-11-07T14:52:00.000-08:00

Uncle Sam and prudent tax payers offering $150,000+ to anyone that quits making their payments

If I told you that the government wanted to give you $150,000 and all you needed to do was quit making your mortgage payment, be willing to have bad credit for a period of 3-7 years would you accept the money? If you say no, you may be in the minority soon. As a result of current legislation and the prodding of the government loan modification is as out of control as exotic mortgages were 3 years ago.

While allowing modifications of loans at current market rate on 30 year fixed loans makes sense the modifications that are occurring in droves in no way resemble this type of prudent modification. Instead, many of the modifications are reducing principle by hundreds of thousands of dollars and offering exceptional terms that are only available to those that were imprudent when they purchased and stopped paying their mortgage. This is exacerbating the problem and could easily increase the amount of bad loans exponentially. Let me offer a real life example;

A friend of mine purchased a new home near the peak for around $450,000. At the same time many others in his neighborhood purchased as well. My friend and his neighbor were both paying their mortgage. However, his neighbor called his mortgage company requesting a loan modification. The mortgage company explained that he is not in default and therefore they will not complete a loan modification. My friend’s neighbor decided to quit paying his mortgage while he continued to make payments on his four-wheeler, quad, and other toys and make trips to the desert weekly. He called the mortgage company back a couple of months later and received a principle reduction of circa $100,000. My friend, makes excellent money, did not lose his job, and expresses to his neighbor that he is upset that his home is worth $100,000 less than he paid for it, however, his neighbor explains that he received a $100,000 principle write down by not paying his mortgage and negotiating a loan modification. Speaking to my friend a few weeks ago he explained this to me and said he that he is considering getting a modification as well. Who can blame him? This is only one example of what this type of legislation is creating.

I could tell you ½ dozen similar stories each more egregious and unbelievable than the last. Whether it be the real estate agent in San Diego that purchased her home for $200,000, pulled $400,000 equity out, hasn’t paid her mortgage in months as is being foreclosed on but not without a fight and the support of community groups fighting to keep her in the home. Some would consider her actions bank robbery; while her supporters have a different opinion. What about the millionaire living in Newport Beach that a friend of mine whose company completed 400 loan modifications last month told me about? The millionaire stopped paying his mortgage because he wanted a modification, saw others doing it, and could use the extra cash each month. What about the homeowner in Costa Mesa that realized they could not afford a $642,000 mortgage and opted for the short sale? Instead of a short sale Countrywide rejected a short sale offer of $450,000 and elected to reduce their principle to $382,000. There are hundreds of stories like this and their will be hundreds of thousands more if something is not done about this issue.

Loan modification of this kind is a moral hazard, exacerbates the problem, and has the potential to be a larger disaster than the original exotic loan problem it’s trying to solve. Something must be done to stop these types of modifications quickly or this country will likely feel the effects for generations. There is no easy solution to the current problem, however, legislation that encourages the type of loan modifications explained above and legislation that delays the foreclosure process are not the answer and only make the problem worse. Most would agree that the problem started with housing and that the problem needs to end with housing. The debate is how the problem should be solved. Current legislation seeks to reduce foreclosures and supply instead of addressing affordability and demand. Affordability needs to reach sustainable levels in order for a stabilization of the housing market. The quicker affordability is reached the quicker we can start to recover. Politicians are currently trying to swim up stream fighting hard against lowering prices while their legislation is only making the current stronger and the problem worse. If we really want to move forward legislation needs to pass that will allow everyone that currently owns a home or has good credit the opportunity to refinance into or take a new loan at 5% fixed and fully amortized for 30 years. Of course this will not help many people that purchased more home than they could afford and they will face foreclosure, an assistance program to help these people find a rental, learn about credit, repair their credit, and prepare them to purchase a home responsibly in the future should be provided.Current legislation is attempting to solve the problem by decreasing supply and slowing the rate of decline. Basic economics indicates that until affordability reaches a sustainable level, prices will continue to decline. Current legislation and bank strategy will temporarily slow the rate of decline, cause the problem to last longer, and cost our country more.

Of course the solution offered in this editorial will increase supply in the short term, drive prices down to affordable levels, and thus has not been considered viable. Supply will increase until demand catches up which will occur once homes reach the proper level of affordability. Using this method we will reach proper affordability levels quicker and begin to recover quicker. Nevertheless, if the pain becomes too great and the government insists on providing assistance to dull the pain it should come in the form of legislation that increases demand rather than by attempting to artificially decrease supply. Legislation that increases demand encourages people to stay in their homes, and helps to solve this problem quicker has been sent to numerous politicians and is looking for support. The bill will allow prospective homeowners to put money into a designated HEA (Home equity account) and if used within the 360 day period will allow them to write the money off for income tax purposes, similar to a SEP IRA, if used for the down payment or closing costs on a primary residence. In addition, this legislation will allow current homeowners that have less than 10%-30% equity to place money into an HEA account designated for homes they purchased after January 1, 2002 and before Jan 1, 2009 or 180 days after this legislation takes affect, whichever is later. Finally, it allows current homeowners that participate in this program and remain current on their mortgage to go back as far as 2002 and claim an income tax deduction on any money paid toward the principle of their home including their original down payment. To participate in this program homeowner must be in or re-finance into a fully amortized fixed rate 1st mortgage. The legislation should take affect immediately upon passing and be limited to 360 days with options for extensions. The writer of this legislation believes that housing is already over subsidized and also proposed a future cap on mortgage interest write off, however, it has not been determined if this will be included in the bill.Although this is only a brief summary of the legislation you can learn more about the legislation and current housing issues and contribute to the discussion by visiting http://www.orangecountycaliforniarealestate.blogspot.com/.

How much a house really costs by Irvine Renter

2008-11-06T15:10:00.000-08:00

How Much a House Really Costs
A useful way to look at the total cost of housing is to evaluate the monthly cost of ownership. An ownership cost is any expenditure required for the possession of property. A working definition is important because there are many hidden or forgotten costs people overlook. These costs are borne by owners and not by renters. There are 7 costs to owning a house. Although some of these costs are not paid on a monthly basis, they can be evaluated on a monthly basis with simple math. These costs are:

Mortgage Payment
Property Taxes
Homeowners Insurance
Private Mortgage Insurance
Special Taxes and Levies
Homeowners Association Dues or Fees
Maintenance and Replacement Reserves
Mortgage Payment

The mortgage payment is the first and most obvious payment because it is the largest. It is also an area where people take risks to reduce the cost of housing. It was the manipulation of mortgage payments that was the focus of the lending industry “innovation” that inflated the housing bubble. The relationship between payment and loan amount is the most important determinant of housing prices. This relationship changes with loan terms such as the interest rate, but it is also strongly influenced by the type of amortization, if any. Amortizing loans, loans that require principal repayment in each monthly payment, finance the smallest amount. Interest-only loan terms finance a larger amount than amortizing loans because none of the payment is going toward principal. Negatively amortizing loans finance the largest amount because the monthly payment does not cover the actual interest expense.

Property Taxes
Property taxes have long been a source of local government tax revenues. Real property cannot be moved out of a government's jurisdiction, and values can be estimated by an appraisal, so it is a convenient item to tax. In most states, local governments add up the cost of running the government and divide by the total property value in the jurisdiction to establish a millage tax rate. California is forced to do things differently by Proposition 13 which effectively limits the appraised value and total tax revenue from real property. Local governments are forced to find revenue from other sources. Proposition 13 limits the tax rate to 1% of purchase price with a small inflation multiplier allowing yearly increases. In California, the first half of regular secured property tax bills are due November 1st, and delinquent after December 10th; the second half are due February 1st, and delinquent after April 10th each year. If the delinquent date falls on a Saturday, Sunday, or government holiday, then the due date is the following business day. Often the lender will compel the borrower to include extra money in the monthly payment to cover property taxes, homeowners insurance, and private mortgage insurance, and these bills will be paid by the lender when they come due. If these payments are not escrowed by the lender, then the borrower will need to make these payments. The total yearly property tax bill can be divided by 12 to obtain the monthly cost.

Homeowners Insurance
Homeowners insurance is almost always required by a lender to insure the collateral for the loan. Even if there is no lender involved, it is always a good idea to carry homeowners insurance. The risk of loss from damage to the house can be a financial catastrophe without the proper insurance. A standard policy insures the home itself and the things you keep in it. Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets. Damage caused by most disasters is covered but there are exceptions. The most significant are damage caused by floods, earthquakes and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners' responsibility.

Private Mortgage Insurance
Mortgages against real property take priority on a first recorded, first paid basis. This is known as their lien position. This becomes very important in instances of foreclosure. The 1st mortgage holders gets paid in full before the second mortgage holder gets paid and so on through the chain of mortgages on a property. In a foreclosure situation, subordinate loans are often completely wiped out, and if the loss is great enough, the first mortgage may be imperiled. Because of this fact, if the purchase money mortgage (1st lien position) exceeds 80% of the value of the home, the lender will require the borrower to purchase an insurance policy to protect the lender in event of loss. This policy is of no use or benefit to the borrower as it insures the lender against loss. It is simply an added cost of ownership. Many of the purchase transactions during the bubble rally had an 80% purchase money mortgage and a “piggy back” loan of up to 20% to cover the remaining cost. These loan pairs are often referred to as 80/20 loans, and they were used primarily to avoid private mortgage insurance. There were very common during the bubble.

Special Taxes and Levies
Several areas have special taxing districts that increase the tax burden beyond the normal property tax bill. Many states have provisions which allow supplemental property tax situations. The State of California has Mello Roos fees. A Mello-Roos District is an area where a special tax is imposed on those real property owners within a Community Facilities District. This district is established to obtain public financing through the sale of bonds for the purpose of financing certain public improvements and services. These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The taxes paid are used to make the payments of principal and interest on the bonds.
Homeowner Association Dues and Fees
Many modern planned communities have homeowners associations formed to maintain privately owned facilities held for the exclusive use of community residents. These HOAs bill the owners monthly to provide these services. They have foreclosure powers if the bills are not paid. It is given the authority to enforce the covenants, conditions, and restrictions (CC&Rs) and to manage the common amenities of the development. It allows the developer to legally exit responsibility of the community typically by transferring ownership of the association to the homeowners after selling off a predetermined number of lots. Most homeowners' associations are non-profit corporations, and are subject to state statutes that govern non-profit corporations and homeowners' associations.

Maintenance and Replacement Reserves
An often overlooked cost of ownership is the cost of routine maintenance and the funding of reserves for major repairs. For example, a composite shingle roof must be replaced every 20-25 years. It may take $100 a month set aside for 20 years to fund this replacement cost. Also, condominium associations often levy special assessments to undertake required work for which the reserves are insufficient. In the real world, most people do not set aside money for these items. Most will attempt to obtain a Home Equity Line of Credit (HELOC) to fund the repairs when they are necessary. Of course this assumes a property has appreciated and such financing will be made available.

Tax Savings
There are two other variables people often consider when evaluating the cost of ownership that is not included in the prior list: income tax savings and lost downpayment interest. When a borrower takes out a home loan, the interest is tax deductible up to a certain amount. For borrowers in the highest marginal tax bracket, the savings can be significant, and this can make a dramatic difference in the true cost of ownership. However, this benefit diminishes over time as the loan is paid off and the interest decreases. Plus, contrary to popular belief, it is never good financial planning to spend $100 to save $25 in taxes. Also, these benefits are almost universally overestimated by people considering a home purchase. A renter considering home ownership will need to remember they will be giving up the standard deduction when they itemize to obtain the Home Mortgage Interest Deduction (HMID). A "married filing jointly" taxpayer will forgo a $10,700 deduction in 2007. This reduces the net impact of the HMID. Anecdotally, even those in the highest tax brackets usually do not get more than a 25% tax savings.

Hidden Savings
This is the forgotten benefit of a conventionally amortizing loan: forced savings. Most people are not good at saving. The government recognized this years ago when they started taking money out of peoples salaries to pay income taxes because they knew people would not do it on their own. People who become homeowners during their lifetimes often have the equity in their home as their only source of retirement savings other than social security. To accurately calculate the cost of ownership, this hidden savings amount needs to be deducted from the total cost of ownership because this money will generally come back to the borrower at the time of sale. Since taxpayers in the United States get a capital gains exemption up to $250,000, this savings amount does not need to be adjusted for taxes.

Lost Downpayment Interest
Unless 100% financing is utilized, a cash downpayment will generally be withdrawn from an interest bearing account to purchase a house. The monthly interest that would have accrued if the downpayment money was still in the bank is a cost of ownership. This is perhaps the most overlooked ownership cost. For instance, if you are putting 20% down on a $500,000 property, you will be taking $100,000 from a bank account where it would have earned 5% in 2007. This $5,000 in interest comes to $417 in lost interest the moment this money gets tied up in real property. If someone chooses to rent rather than buy, they would earn this interest income. Of course, this earned income is also taxed, so 75% of this number is the net opportunity cost of a downpayment.

To establish the cost of ownership, each of these costs, if applicable, must be quantified. When the total monthly cost of ownership is equal to the rental rate, the market is considered to be at fair value for owner-occupants. In fact, this is the equilibrium in most real estate markets across the nation. In a strange way, the bubble did not upset this equilibrium. The use of negative amortization loans with artificially low teaser rates allowed borrowers to obtain double the loan amount with the same monthly payment: double the loan; double the purchase price. This is how prices were bid up so high so fast without a commensurate increase in wages. The elimination of these loans is also the reason prices collapse.
Ownership Cost Math
Below is a typical cost of ownership for a $500,000 Irvine property:
$500,000 Purchase Price
$100,000 Downpayment @20%$400,000 Mortgage @ 80%
$2,528.27 Mortgage Payment @ 6.5%$416.67 Property Taxes @ 1%$104.17 Homeowners Insurance @ 0.25%$104.17 Special Taxes and Levies @ 0.25%$100.00 Homeowners Associate Dues or Fees @ $100$625.00 Maintenance and Replacement Reserves @1.5%_________________________________________________________________________$3,878.27 Monthly Cash Cost
..................$2,166.67 Interest on First Payment$(567.71) Tax Savings @ 25% of mortgage interest and property taxes$(361.61) Equity hidden in payment$312.50 Lost Downpayment Income @ 5% of Downpayment_________________________________________________________________________$3,261 Total Cost of Ownership
Notes:
The mortgage payment assumes a 30-year fixed-rate conventionally amortized mortgage at 6.5% interest.
The property taxes are set at the 1% limit imposed by Proposition 13.
The homeowners insurance is estimated at one-quarter of one percent per year.
Private Mortgage Insurance is estimated at one-half of one percent per year. It is not included in the calculation above because this example utilized 80% financing. If the financing amount required PMI, the costs would have been over $200 a month higher.
Special Taxes or Levies (Mello Roos) is estimated at one-quarter of one percent per year. Some nieghborhoods do not have Mello Roos as the bonds have been paid off. Some Mello Roos fees are as high at 1%.

HOA dues are estimated at $100: some are lower, and some are much higher.
Maintenance and replacement reserves are estimated at 1.5%. This may be the most contentious estimate of the group because most people assume they will simply borrow their way around these costs when they are incurred. This certainly has been the pattern during the bubble years when credit was free flowing. This method of home improvement and maintenance may be significantly more difficult as the credit crunch and declining values make financing much more difficult to obtain. In any case, these costs are real, and failing to acknowledge them denies the realities of home ownership.

The sum of the above costs are the monthly cash costs of ownership. A homeowner may not write a check for each of these costs every month, but the costs are still incurred, and renters do not pay them.

The tax savings are based on the maximum interest payment at the beginning of a loan amortization schedule. This tax savings will decline each month as the mortgage is paid off. Contrary to popular belief, this is not a bad thing. Also, the property taxes are also deductable, but Mello Roos are not fully deductible (even though most people mistakenly deduct it.)
The opportunity cost of lost interest assumes a 5% interest rate on the downpayment reduced by 25% for taxes on this earned income.

So there you have it. The actual cost of ownership on a typical $500,000 property in Irvine would be approximately $3,250 per month. Some will be higher and some will be lower, but the calculation above, when adjusted for the specific property details being examined, will yield the cost of property ownership.

Gross Rent Multiplier
So what general relationships can be inferred from the ownership cost breakdown provided above? First, notice the relationship between monthly cost and price. This property is worth 154 times the monthly cost when you fully examine the cost of ownership. This is the basis for the Gross Rent Multiplier (GRM). The GRM is a convenient way to evaluate whether or not a rental rate will cover the monthly cost of a particular property. It was developed by landlords seeking a method to quickly evaluate the purchase price of a property to see if it would be a profitable investment. When performing such an evaluation, a cashflow investor will typically look for a GRM near 100 to find a property with positive cashflow. This method can also be easily adapted to calculate the breakeven point where an owner/occupant would break even compared to renting. As you can see, when you consider the full cost of ownership -- including those costs often ignored -- the gross rent multiplier is lower than most think. The GRM of 154 is very close to the 160 I have been using in my posts here. The Gross rent multiplier is a convenient measure of value because it spares you the brain damage of performing the above, detailed calculation for every property you wish to evaluate.

Renting Versus Owning
Renting versus owning is both an intellectual, financial decision and an emotional one. The financial decision is first and foremost an analysis of the comparative cost of renting versus owning. The cost of a rental can be determined fairly easily as there are usually a number of comparable properties on the market to establish a realistic rental rate for any given property. Of course, it is easy to justify in one's mind a comparative rent that is higher than the market will bear. A house someone is in love with will almost certainly rent above market in their minds. Also when looking at similar products the rental rates may not be realistic in the marketplace. It is probably a good idea to take 5% to 10% off comparable rental rates on properties offered on the market. Once you have established what you believe to be a comparative rental rate, and you have gone through a realistic evaluation of the true costs of ownership as outlined above, a simple comparison of the two figures will tell you if a property is overvalued, undervalued or just right.

This point-in-time analysis of the relative worth of a house does leave out a couple of important financial factors: inflation and transaction costs. Inflation is the erosion of purchase power of money over time, or looked at another way, it is the increase in the price of some set of goods and services in a given economy over a period of time. It is measured as the percentage rate of change of a price index. The effect of inflation on housing costs is that it tends to increase the cost of renting over time, and theoretically, it will increase the value of a house over time as well. If the cost of rent is increasing, but your cost of ownership is fixed (assuming a fixed-rate mortgage,) then owning a home becomes less expensive over time and serves as a hedge against the impact of inflation. If you are a homeowner, inflation is your friend. There is one big cost of home ownership that works against the positive impact of inflation: transaction costs. When people buy a house, they pay some closing costs, but many of these get rolled into your loan and forgotten. When people sell a house, they generally go to a realtor to help them market the property and complete the paperwork necessary for the transaction. Real estate commissions for many years have been held at an artificially high 6% in the United States, and the seller is the one who pays this commission. From the time of purchase to the time of sale, inflation (or irrational appreciation) must have increased the value of the house enough for the sales price to cover the real estate commission or the seller will lose money. This is why it is often recommended for people who are not going to live in a given area for more than 2 or 3 years to rent instead of own. Renting is freedom -- freedom to move when you wish (within the terms of your lease.) As I noted in America’s Debtor Prisons, homeowners who go underwater lose this freedom of movement. This advantage of renting is nullified during a price rally as owners have this same freedom during those times, but this forgotten benefit becomes readily apparent once prices start to fall.

Some people spend a great deal of effort evaluating the costs of ownership to determine if is a correct decision, but many people do not. Some people make the decision to purchase the most expensive asset they will ever own with no analysis at all. The decision to buy a house is primarily an emotional one. Even those who go through all the analysis generally only do so to provide rationalizations for their emotional decision. During price rallies, greed becomes a powerful emotion motivating people to fudge their financial analysis in order to justify their emotional purchase. Another factor often called the "nesting instinct" causes both men and women to want a place to call their own, particularly when there are children in the family. There is nothing wrong with deciding for emotional reasons. Most people pick a spouse this way. The real challenge is to have the emotions and the intellect working together to make a decision that is both fiscally sound and emotionally satisfying. This is easier said than done.

North Tustin Opportunity

2008-11-06T14:55:00.000-08:00

Square footage: 2600 square feet
Lot size: 11,200 square feet
Bedrooms: 4
Bathrooms: 4
Asking Price: $599,000
Address: 12552 Carmel Way, North Tustin

This is a short sale that has been approved numerous times at numerous prices, however, each time the bank took too long and the buyers walked a way. This is a nice ranch syle home. There is not much time left before the foreclosure is complete. The home has a large lot with lots of privacy. The mid-50s ranch has been updated with an expanded great room/kitchen featuring Corian Counters and breakfast bar that seats 4, beautiful wood floors and matching beamed cathedral ceilings. Downstairs features three original bedrooms including an oversized Master with double closets and attached bath. The two additional downstiars bedrooms are Jack-and-Jill and share an updatd bath. Upstairs, the Master Bedroom Addition features a Master Bath with walk-in closet, plus a separate, huge bonus room/loft with catherdral ceilings.Hardwood floors and New designer paint throughout. Cul-de-sac street is filled with kids & Award-winning Panorama Elementary is walking distance!

Great comments regarding Legislation-- Does anyone know how to get these to decision makers?

2008-11-01T18:56:00.000-07:00

I am new to blogging so I'm going to put a link to the Irvine housing blog and also copy and paste all of the comments below. I would like to thank everyone that has commented. Although I have not had any major sponsorship yet, some of the comments shared were the first I had heard with any level of opposition and are well taken.

If anyone knows how I can enable comments on here please let me know.

Thanks!

_______________________
comments from the Irvine housing blog below

link: http://www.irvinehousingblog.com/blog/comments/open-thread-11-1-2008/#comments

The proposal is not a fix for the foreclosure crisis. There is no fix. It does address the problem of saving for a house and the use of exotic financing, and I like that.
I also received an email from MalibuRenter:
As I was looking at your model of the cost of buying vs renting, I realized the potential of a simple policy change: make the standard deduction much larger. For example, instead of the current $10,200, go to $20,000 for a married couple. About 75% of all home mortgages are for $300k or less (see http://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07draft.pdf , page 53). For someone with a new $300k loan at 6.5% and no other itemized deductions, they would no longer have to itemize. For people with a few other itemized deductions like income taxes and property taxes, they still might take the higher standard deduction with a $200-$250k loan. That would mean more than half of all mortgageholders would have no reason to itemize.

This has some nice implications. 1. For anyone whose itemized deductions including mortgage interest fits under the new limit, they are no worse off. Usually, they will be better off. Many more people with modest incomes will not have to keep records or have to understand the code in order to itemize. It is a way to both reduce and simplify taxes for people with modest incomes. 2. Paying off your loan earlier, or starting to pay faster, would not lower your income tax deductions for people under the $20,000 standard deduction. 3. There would be more incentive to refinance to lower interest loans, because the Federal Govt would subsidize less of the interest cost, frequently they would subsidize none of it. 4. There would be less marginal incentive toward larger homes, higher loan to value ratios, home equity loans, and cashout refis. 5. In general, homes would be financed with less leverage.
I like the idea. The following was my response:
This would also make interest-only loans less appetizing because you would get less bang for the buck. It would certainly be more politically feasible than trying to eliminate the HMID. I wonder, would this create a tipping point where you would have incentive to jack up your mortgage. Once you crossed the threshold, the larger your deduction the better. I suppose you could always lower the cap as well. You could make the window of opportunity to benefit from the HMID so small that only a small band of middle to upper income homeowners get any benefit. Also, for our new Democratic president and Congress, raising the personal exemption lowers the taxes on the most needy and trickles its way up to the middle class. They would like that.
The Home Mortgage Interest Deduction is a direct government subsidy of ownership that encourages excessive debt loads. It would be very difficult to get rid of politically, but since excessive debt was the primary cause of the house price collapse and huge lender losses, it is something that should be examined.

I have my own proposals for preventing the next housing bubble. The following is the last chapter of my book The Great Housing Bubble:
Preventing the Next Housing Bubble.pdf
When the new administration comes into office this January, the housing crisis will be one of the most important issues facing the new President. There will be many ideas floating around. Some of them good; most of them bad.
What do you think of these ideas? What do you think should be done?
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Astute Observations

Astute Observation by CapitalismWorks
2008-11-01 08:27 AM
How much impact could loan modification have on the pace of the decline and the ultimate destination in terms of pricing. It seems that banks, recognizing the huge downside to foreclosing in such massive numbers, as working in earnest to modify loans.
From my perspective these efforts are not beneficial to us renters.
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Astute Observation by IrvineRenter
2008-11-01 08:45 AM
All these events are designed to slow the rate of price decline, and in that regard, they may have some impact. I still think it is trying to put out a forest fire with a garden hose. The number of distressed homeowners is much too large, and these programs do nothing to address affordability. The greatest declines for Irvine are in front of us rather than behind us. Irvine is not quite half way to the bottom, IMO. Some other areas are much farther along, and some of the most beaten down markets may actually be at the bottom.
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Astute Observation by dafox
2008-11-01 01:49 PM
IR- What would you classify Irvine as? Alt-A or Prime (I highly doubt its subprime)? I’m looking primarily in south Huntington and its still WAY out of affordable according to median incomes on the redfin/onboardnavigator demographics.
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Astute Observation by IrvineRenter
2008-11-01 02:20 PM
Ordinarily, I would say Irvine was Prime, but the prices were so high, and there was so much refinancing going on that much of it is now Alt-A.
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Astute Observation by Hormiguero
2008-11-01 08:36 AM
I think you guys are being a bit naive - the whole idea is to keep the taxpayer in a state of serfdom, with maximum debt and maximum income. that’s how you keep them on the treadmill paying for those congressional pensions. their worst nightmare is a citizen with a free and clear home, a nice pool of stable, balanced savings and a good long-term care insurance policy. a person like that doesn’t need to make much income, nor need much of anything from the federal govt, and that is their worst nightmare.
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Astute Observation by Surfing in Newport
2008-11-01 09:13 AM
Don’t forget that housing is the only asset you can sell at a profit and reinvest without paying taxes...and every 2 years you can even pocket a few hundred thousand tax free. The differences in capital gains treatment made investing in homes ripe for a bubble.
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Astute Observation by JoeSez
2008-11-01 06:52 PM
I disagree with motivations. Capital gains is only 15% - right? Tax rates we’re NOT major driver for the bubble.
People bought homes as financial investments because they could get highly leveraged on an asset, a home, with little exposure and lending standards were lax.
If capital gains was 0.0%, there would have been the same housing bubble.
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Astute Observation by brea
2008-11-01 10:35 AM
Why can’t we just keep things simple. When the prices fall, downpayments should be no problem for a disciplined saver. If someone is not disciplined, what are they going to do about the 30 years of payments. Downpayments are the test.
I am not a fan of savings accounts that lock the money into a specific purposes. What if you want or need to spend the money in a different way. What if your kid won’t go to college or you inherit the house of your dreams.
If they do this, there will be a guy that will go buy a house just so he can apply is tax free downpayment money, and then in the next breath pull it out in an equity withdrawal.
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Astute Observation by Landmark
2008-11-01 03:15 PM
Brea- I agree with you, when prices fall downpayments should not be a problem for many and they are not, however many need an extra push in this type of market.
In addition, in a perfect world the government would not tinker. However, that’s not the case, they have committed to tinkering. Since that’s the reality we’re dealing with, at least they could encourage and reward positive behavior rather than negative. If mine/our/your tax dollars are going to be used for this bailout, would you rather it make the situation better or worse? Would you prefer your money be given to those that were part of the problem when they bid up a home in the first places and took exotic loans they couldn’t afford or someone that was responsible and chose to save, sacraficed and waited? (see entire PDF version to understand the dangers of the curren proposals)
The question is not whether the goverment is going to get involved and use our taxes to do it. It’s how wisely they are going to use this money and who’s going to benefit.
There are hundreds/ thousands of potential buyers out there waiting for prices to come down to reasonable levels. The foreclosures need to flush through the system the quicker the better. Do you think that it’s possible that this or similar legislation may get these buyers into the market and help prevent legislation that rewards irresponsible behavior?
Great point regarding the equity withdraw, provisions would need to be added to prevent that.
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Astute Observation by brea
2008-11-01 04:15 PM
landmark,
Regarding your comment: “Would you prefer your money be given to those that were part of the problem when they bid up a home in the first places and took exotic loans they couldn’t afford or someone that was responsible and chose to save, sacraficed and waited?”
I would prefer that tax money not be used for anyone’s personal interest. So far, the modifications I have read about, don’t look like a windfall to the reckless borrower. I just don’t see were a banker/investor will give up anything unless it is in his own best interest to do so. The talk of the politicians just disgust me, but it may just be pandering to voters.
Your proposal is a separate matter. Why should income taxes not be paid on downpayments? It is income. We have deficits. In the case of retirement IRA’s, the withdrawals are taxed when the money is withdrawn. I assume the Home Equity Accounts would not be taxed when the money is pulled out at the house purchase, otherwise, you would just be postponing taxes for just a few years. Why bother. The while the housing market’s has been extreme, it will eventually return to a buyer’s market with prices tied to wages. That is when buyer’s should come back and they will.
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Astute Observation by Landmark
2008-11-01 06:42 PM
Brea--- Frist, again, I agree- tax money should not be used for personal interest. However, we have a problem that was started with housing. The general belief is that it will end with housing. If people believe that and goverment is set on doing anything they can to shore up the housing market there has to be better plan that modifying loans through principle reduction. “So far, the modifications I have read about, don’t look like a windfall to the reckless borrower.” -I do not do loan modifications, so I cannot speak to the average modification, however I have heard numerous stories of modification that I would consider reckless. For example, a good friend of mind lives in Victorville, he’s a vice principle, makes over 100k/year, bought a new home for circa 400k. His neighbor bought his home at a similar time for a similar price. His neighbor went to the bank for a modification, they said no because he was making his payments. So he quit making his payments and asked them again a few months later. They took $100,000 off of his principle. What makes this even worse is that his neihbor quit making his mortgage payment but kept paying his payment on his quads and “toys”. I would consider that a “windfall to a reckless borrower” do you agree? I have heard at least 1/2 dozen stories like that. Guess what my friend wants--- a modification.
Great point regarding the money when it is pulled out of the home. My thought is that it would be treated similar to a 1031 exchange. If the money is then put into another home it can be tranferred tax free. However, once the home is sold taxes will be paid.
In addition, I do not think that legislation should go on forevor, I believe the government is trying to create a softer landing and avoid a major catostrophe. If we are in as bad of a spot as they are saying and something needs to be done I think we need to explore every avenue.
Do you have any ideas besides do nothing. Which again, I tend to agree with you that the market will work itself out and the goverment should only step in if the situation is incredibly extreme.
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Astute Observation by IrvineRenter
2008-11-01 04:09 PM
Mortgage equity withdrawal is one of the big problems with this proposal. As I read it, someone could pay down their mortgage, get a tremendous retroactive tax break, then HELOC the money right back out again after they got their check from the government.
The best solution to that problem would be to tax HELOC money. In fact, I think HELOC money should be taxed as income since defaulting on it is not taxed now. The way our current tax system is set up, people are strongly encouraged to take on this debt. The money is essentially tax free, and the service on the debt is tax deductible.
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Astute Observation by brea
2008-11-01 04:50 PM
IR,
I am torn between reading your book and reading this site. What I have read is very interesting and useful. I am so glad you wrote it.
I hate when politicians make sweeping rules just to look like they care. IMO, this tax relief on debt forgiveness could have been handled on a case by case basis. When they can’t pay, harass them and then write it off.
Based on the IRS website:
http://www.irs.gov/irs/article/0,,id=179073,00.html
HELOC money used to improve the home, would qualify for the tax relief. When they bought cars and still claim they used it to improve the home, they are cheating. Maybe they will audit some of the returns. I still believe that we need to tax income and not loans. The real issue it that they get relief from the forgiveness of debt and isn’t that why we are in deep trouble now.
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Astute Observation by JoeSez
2008-11-01 06:47 PM
Case-by-case relief is ideal but apparently impractical. The financial system has repackaged these loans as investments and apparently it is hard to find paperwork and expensive to do case-by-case assessment.
The problem with NOT doing anything is debtors can’t cope and walk away from **all** their debt. We all lose in that scenario.
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Astute Observation by zoiks
2008-11-01 11:26 AM
Yeah, right, what we need is a more complicated tax code. How about we simplify the tax code to “zoiks pays no taxes, every one else can eff off”.
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Astute Observation by Gray
2008-11-01 11:31 AM
Feeling so special after the robocall? Just wait for national TV on November 7th, this would be a “special” experience: http://www.cnnbcvideo.com/index.html?nid=fY3TWTZfHXOfejIU2sfzwjkzMjc4OQ--&referred_by=13429144-ae0dQ5x
Sry, IR, I couldn’t resist! :D
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Astute Observation by IrvineRenter
2008-11-01 02:23 PM
That is really funny. LOL!
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Astute Observation by brea
2008-11-01 02:35 PM
Thanks for that laugh. That was great.
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Astute Observation by Dean
2008-11-01 11:35 AM
Probably the best thing to do is figure out a way to keep as many fully-employed, tax-paying families in their homes as possible, while limiting the assistance to pure price speculators. I seriously doubt that there is much to be gained “helping” renters by letting prices fall all the way to their natural price support levels.
That said, now really is the time to take some steps to prevent another bubble from inflating. Here are my thoughts: 1) I like the idea of a “luxury tax” or cap on the interest deduction. I’d set it at the interest on $415,000 for sole property, $533,850 for a home owned jointly by a married couple and bump the cap $26,000 for every dependent under 17. 2) This would encourage equity. Let’s take an average sizes house of 2,300 square feet, assume a per square foot rental price in the area of $2.00 and the 30 year average Irvine rent multiple of around 200. That house has a market price of $920,000. A married couple with one child would only able to write off the interest on the first $559,000 in debt, or 60% of the market price. If they are going with a traditional 20% down, then it raises the effective interest rate on the last $184,000 borrowed from, say, 6% to 8%. That would slow the use of leverage. 3) As long as mortgages are being converted into securities and re-sold, there needs to be a method for folks to do work-outs with a third-party. Bankruptcy courts are not ideal, but it is better than having mass foreclosures.
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Astute Observation by Landmark
2008-11-01 03:27 PM
Dean--- I agree--- if a fully employed family can afford their payment by refinancing into a 30 year fixed, fully ammortized loan, at 5 or 6% but as a result of too little equity the banks won’t help them a govermnent gaurantee could be in order.
For most others, they may need to short sell, or may be faced with foreclosure and have to rent. This will not be the end of the world for them. As I repsonded to Brea above, if the goverment weren’t committed to being involved that would be plenty, however, since the goverment seems to be committed, there has to be better options than what they are proposing.
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Astute Observation by Dean
2008-11-01 04:47 PM
I’d be a bit more generous. Anyone who put their own cash money into a purchase and has lost 100% of that equity plus some of the bank’s money should have a chance to get the principal brought down. Also, the interest rate could get tweaked to a fixed rate that matches an appropriate percentage of their W2 income.
Clearly, there need to minimums. Like, say 10% of the purchase price. Also, there needs to be some kind of real penalty. Like, no further access to credit for, like, seven years. No new Lexus, or fancy colored AmEx Cards, would be a real penalty for OC debtors. That would keep folks in their homes, the broader economy out of free-fall and punish the irresponsible.
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Astute Observation by Landmark
2008-11-01 06:51 PM
Dean-- you are more generous than me. First, I do not see any room for principle write down without creating more issues than it solves. Although, I agree with your comment regarding a penalty or consequence. Second, I do not think it’s fair to give a certain percentage of the poppulation and special interest rate because they bought when they shouldn’t have and took a loan when they shouldn’t have. Many people are renting and gave up on buying as a result. Are those people going to be given special rates when they choose to buy based upon their W2 income?
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Astute Observation by brea
2008-11-01 12:34 PM
I like MalibuRenters’s idea of increaseing the standard deduction. A 20k deduction would be apropriate of the high cost of living areas, but that would be to high for the midwest and such.
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Astute Observation by MalibuRenter
2008-11-01 05:37 PM
I’m ok with the idea that in some cities and states almost everyone would be below the standard deduction. People who live in expensive places would have an added complexity in their lives: itemizing for their taxes.
I’ve had some related discussions with IrvineRenter. Under the current tax code, in places where most people have lower tax rates, or where most of them have mortgage interest below the standard deduction, the price to rent ratios should be lower.
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Astute Observation by WEJ
2008-11-01 02:14 PM
Couldn’t all the modifications backfire and encourage otherwise solvent borrowers to stop paying? If I’m living next door to a guy who has his loan written down by $100,000 I’d want to get in on that action, even if I were otherwise able to continue making payments on a higher loan.
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Astute Observation by Landmark
2008-11-01 03:29 PM
Exactly-- if you download the PDF- you are example 1 and you’re are not alone. Modifications only make the problem worse.
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Astute Observation by MalibuRenter
2008-11-01 05:30 PM
IR writes, regarding increasing the standard deduction “I wonder, would this create a tipping point where you would have incentive to jack up your mortgage. Once you crossed the threshold, the larger your deduction the better.”
While I am not sure how many people would be astute enough to run the calculations, an interesting thing occurs. If you have a mortgage which is just moderately over the standard deduction limit, you won’t get an interest deduction in a few years. Why?
1. Assuming a fixed rate amortizing loan, the amount of your fixed payment which is interest drops over time.
2. The higher standard deduction would also rise over time.
The combination of these two can act pretty fast. For example, take a couple with at $400k mortgage at 6% and no other itemized deductions. The first year the interest is about $24k. By the 5th year it’s $22,672. If inflation is 3.5% per year, the standard deduction the 5th year is $22,950. They are no longer getting any tax break for their mortgage interest.
Take another example, $500k loan and similar terms. By the 9th year, they get no break for their mortgage interest either.
For any loan size, the mortgage interest deduction gets smaller each year, until it reaches zero.
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Astute Observation by MalibuRenter
2008-11-01 05:44 PM
IR - I hadn’t realized the full effect of my proposal on bank liquidity and foreclosures. It’s starting to sound even better.
For someone who isn’t getting any marginal benefit from itemizing their mortgage interest, the aftertax return on paying down their mortgage is the same as the pretax return. That means a return of 5.5-8.0%. In the current investment environment, that’s pretty good.
If more people start paying down their loans, they also increase bank liquidity, are less likely to have their loans go underwater, and are less likely to default on their mortgages.
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Astute Observation by Rebarbarian
2008-11-01 06:49 PM
For every government action there is an equal and opposite market reaction.
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Thank you IrvineRenter for including the following on your blog!

2008-11-01T18:55:00.000-07:00

The election is coming up in a few days. Has all the bull$hit being thrown around left you dazed and confused? I got a call from Robo-Bill Clinton today. I felt so special. I am planning to sit down with my California General Election voter information guide this weekend and make up my mind on how I plan to vote on the various initiatives. Since the topic of the weekend is politics, I thought it would be good to explore some of the politics of the housing bubble.
There are many ideas floating around the blogosphere regarding what can and should be done about the housing crisis. I have received a couple of emails recently from people with ideas on changes to our current system. One is from a local realtor named Shevy Akason who is championing legislation that would help the flagging housing market and get it on more solid ground (His blog is here). This isn't a bailout, and although I think there are some issues, it is a proposal worth examining:
Homeowner taxpayer relief act.pdf
The proposed bill adds provisions to the current IRS code that allows for SEP IRA deductions outlined in IRS Publication 560 to be expanded to cover HEA (Home Equity Accounts). The bill will allow prospective homeowners to put money into a designated HEA (Home equity account). This money must be used for the down payment or closing costs on a primary residence. In addition, this legislation will allow current homeowners that have less than 50% equity to place money into an HEA account designated for homes they purchased after January 1, 2000 and before Jan 1, 2009 or 180 days after this legislation takes affect, whichever is later. Finally, it allows current homeowners that participate in this program and remain current on their mortgage to go back as far as 2000 and claim an income tax deduction on any money paid toward the principle of their home including their original down payment. To participate in this program homeowner must be in or re-finance into a fully amortized fixed rate 1st mortgage. The legislation should take affect immediately upon passing and be limited to 360 days with options for extensions.
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Above is merely the summary. The PDF contains more information. It is an interesting proposal. Personally, I like the idea of a tax advantaged savings account for downpayments. However, I don't believe expanding our subsidization of real estate through the tax code is a good idea. We already oversubsidize real estate with the home mortgage interest deduction. Encouraging debt in this way is part of the problem. I do like how the proposal encourages saving and paying down mortgage debt. I do think this program would not do much for those on the margins who are likely to go into foreclosure. The problem these people have is too much debt and too little income. To qualify for the program as outlined, people would need to refinance into a fixed-rate mortgage. I like that idea, but very few marginal borrowers can afford to do this, and those who are distressed are underwater and could not obtain fixed-rate financing even if they could afford it. Basically, this proposal would help those who need it least.
The proposal is not a fix for the foreclosure crisis. There is no fix. It does address the problem of saving for a house and the use of exotic financing, and I like that.Read the rest of this entry »

Weekly Lender News from Dan Hrey of Chase

2008-10-31T17:21:00.000-07:00

Although experts have speculated that the US may already by in a recession,the first hardcore signs appeared in Wednesday morning’s 3rd QuarterAdvance Gross Domestic Product report. The report showed that consumer spending declined at the fastest pace in 28 years. The report also reflected the largest quarterly decline since the end of the last recessionin 2001.

In other news, as expected, the Fed cut the Fed Funds Rate by .50% thisweek, lowering it to 1.00%. Initially, both Stocks and Bonds had little reaction to the Fed cut, but eventually Stocks had the second highest increase in history and Mortgage Bonds finished much lower on the day. Industry News According to Inside Mortgage Finance, new mortgage originations fell anestimated 33% between 2Q08 and 3Q08, to $300 billion; this is the lowest quarterly level in over a decade. On a year-over-year basis, 3rd quarter mortgage production was down 47%. IMF attributes the entire drop in the quarter to a decrease in agency loans – those ultimately sold to Fannie and Freddie.

FHA lending, on the other hand, continued to climb in the quarter, reaching a share of 25% of the total market. This compares to a14% share in 2Q08 and just a 3% share for all of 2007. During the first three quarters of this year FHA originations totaled $176 billion, up 225% from the same period in 2007. On a good note, there are pockets throughout the country that are starting to show increases in home sales. Dennis and Sunshine Smith, terrific realtors in San Diego California recently inserted this information into their September newsletter.“San Diego Home Sales Up Year-over-Year 2nd Month in a Row". The sale of single-family, re-sale homes rose 11.6% in August compared tolast August. This is the second month in a row home sales have been upyear-over-year.”

Interest write off deductions- Is real estate over subsidized?

2008-10-31T15:03:00.000-07:00

Mortgage debt write-off serves a great purpose, to encourage home ownership and potentially make home ownership more affordable. Unfortunately, it has not worked out this way, as people have taken into account the money saved from the interest write-off to justify paying more and more for the home and taking larger and larger loans. The amount allowed for mortgage interest write off should be capped at $417,000 for a 2 person household and tiered based upon number of dependants with an overall cap of $555,000. All of these numbers should be adjusted for inflation using 3%/year for the history of the legislation. For example,Household

Size Cap

2 $417,000

3 $458,700

4 $504,570

5 $555,027

In addition, smaller caps should be placed in particular zip codes based upon income tax data from those zip codes. For example, if a zip code has an average income of $100,000, the interest write should be $100,000 x 3 (or 4,5) – 20%= $240,000. In this case mortgage interest would only be allowed to be deducted on $240,000 worth of a loan. Of course, this legislation will encourage more equity, and help to prevent some of the out of control price increases we saw recently that moved the dream of home ownership out of the grasp of many responsible potential home buyers. Of course this is not the time to put this type of legislation into affect, however, this legislation should be phased into action in a set date in the future ie. 5 years. In addition, this has potential to create more tax revenue and acts as a type of luxury tax on those buying above average homes using leverage. The interest write off cap should be limited to principle residents and should not affect investment properties so that it does not discourage investment.

The affect a raise in interest rates has on the cost of a home

2008-10-31T06:12:00.000-07:00

Mark Twain said, "don't wait to buy real estate, buy real estate and wait". Real estate will continue to be a great long term investment when purchased correctly. The root of the problem we are facing today is the exotic mortgages that allowed borrowers to leverage more than they could afford. As people leveraged more and more prices increased higher and higher doubling and even tripling in a 7 year time frame in many areas of the country. The rapid, unsustainable increase in prices as a result of increased leverage is a major factor in the issues we're facing today. However, interest rates are still historically low and although, in my opinion, we are not at the bottom of the market, I also do not believe that the fed can keep interest rates this low indefinitely without major inflation. One factor in the cost of a home that some people overlook is the cost of the money. Let me explain, a home purchased for $1,000,000 with 10% would leave a loan balance of $900,000. $900,000 at 5.5% will cost approximately $893,600 over the life of the loan while at 6.5% will cost $1,147,885. This demonstrates important points. First, negotiating for a good loan is just as important and negotiating for the right price on a home, sometimes more important as seen in this example 1% of interest made over $250,000 in difference over the life of the loan. Second, when rates rise when they eventually will, even if they only rise one percent, when putting 10% down the loan will cost over $200,000 and nearly 20% more. Many smart investors and buyers that do not believe that the housing market will drop more than another 20% are watching rates, getting approved, shopping lenders and prepared for the right opportunity, and getting 30 year fixed, fully amortized loans.

The current status of Irvine real estate

2008-10-30T19:59:00.000-07:00

According to DQnews.com DataQuick information systems three zip codes in Irvine actually appreciated from September of '07- September of '08! Zip code 92602 now has an average price of $653,500 a 5.4% increase, zip code 92604 increased 17.8% to $543,000, and zip code 92612 increased 19.7% to $580,000.

Prices down 25.4% and sales up 62.3% in Orange County

2008-10-30T14:37:00.000-07:00

Prices are down 25.4% since September of '07 and sales are up 62.3%. Source http://www.dqnews.com/ DataQuick Information Systems

Loan modification is a slippery slope

2008-10-30T14:13:00.000-07:00

Loan modification is a slippery slope that has potential to exacerbate the current economic crisis.

Example: Homeowner A and B are paying their mortgage. However, homeowner B calls his mortgage company requesting a loan modification. The mortgage company explains that he is not in default and therefore they will not complete a loan modification. Homeowner B quits paying his mortgage and calls the mortgage company back and gets a $100,000 principle reduction. Homeowner A expresses to homeowner B that he is upset that his home is worth $100,000 less than he paid for it, however B then explains that he received a $100,000 principle write down by not paying his mortgage and negotiating a loan modification. This encourages homeowner A to stop paying his mortgage and the problem grows.

Example two, perspective homeowner A and B both earn $100,000/year, have 20% to put down, have dreamed of owning a home and are actively looking in 2005. Perspective homeowner A and B both like the same neighborhood and look at two neighboring and identical homes, one home is for sale for $550,000 and the other is for lease for $2000. Perspective homeowner A, realizing that he would have to take an exotic mortgage and that his payment would be over twice as much as it would be if he leases chooses to submit an offer for $500,000 so that he can take a 30 year fixed fully amortized loan while perspective homeowner B knows that there are others interested in the home and offers $600,000 and takes an exotic loan knowing that’s the only way he can afford it. Perspective homeowner B gets the property and tax write off and other benefits that come with home ownership. As a result of the inflated prices perspective homeowner B, frustrated that even though interest rates are historically he can’t take advantage of them and is forced to rent, as prices have become too inflated, and rents the home next door for $2000.
Homeowner B, pays twice the taxes as A as he waits for prices to come down. In 2008 prices are coming down but still not affordable and the legislation that helps A to stay in his home through principle write down is passed and essentially makes homeowner B pay for it. Homeowner B is left wondering who’s looking out for him, it seems no one.

Tax incentives to create homeownership and re-strengthen the housing market

2008-10-30T14:04:00.000-07:00

Loan modificatios appear to be a slippery sloap. Shevy Akason from Evergreen realty is surveying homeowners, legislators, attorney's, perspective homeowners, and others to see if there is support and to gain feedback regarding legislation that provides tax incentives to those that purchase and stay in their homes. The bill will allow prospective homeowners to put money into a designated HEA (Home equity account). Money placed into this account will be deducted from their tax returns for income tax purposes, similar to a SEP ira. Example: If a perspetive homeowner has $100,000 saved to buy a home and they place it into this account and purchase a home within the designated period of time they will be refunded $30,000 (if they are in the 30% tax bracket) This money must be used for the down payment or closing costs on a primary residence. In addition, this legislation will allow current homeowners that have less than 50% equity to place money into an HEA account designated for homes they purchased after January 1, 2000 and before Jan 1, 2009 or 180 days after this legislation takes affect, whichever is later. Finally, it allows current homeowners that participate in this program and remain current on their mortgage to go back as far as 2000 and claim an income tax deduction on any money paid toward the principle of their home including their original down payment. To participate in this program homeowner must be in or re-finance into a fully amortized fixed rate 1st mortgage. The legislation should take affect immediately upon passing and be limited to 360 days with options for extensions.

This is only a proposal and we are looking for support, sponsors, and for people to share this with others.