What's going into escrow - Irvine and maybe some Tustin too

[ipoplaya_IHB]

Did you ever "for a second" consider to put your condo on the market for $700k back in 2006?

Not seriously back in 2006. We had friends down the street that sold in Aug 2006 to move up to a VR plan 2 and I told them then the market was headed down...

First time we seriously considered selling was last summer when IR2 sold the same model is a worse location, for $655K. The wifey wouldn't think of it then but she has warmed up considerably to the idea now.

 

[PANDA_IHB]

IPOP,

Even in the worst situation possible I doubt your condo will sell below your purchase price so that's good, but right now assuming, you sell your condo for $575,000 you will preserve $283,000 in equity ( $575,000 - $365,000 ) + $73,000 (assuming 20% down). Man, I know moving can be very stressful, but with that kind of equity we are talking here it would totally be worth it. I would rent another 1600 house for two years and put down that $400k down on a 4000 square feet Irvine SFR in 2010.

Don't you think this scenario is better than selling one depreciate asset to buy another bigger depreciating asset in 2008?

I mean if we both had a crystal ball, you would of sold in 2006, rented for four years and bought your dream $1M home in 2010. Believe me, there are days when I wish I could invent a time machine and go back to Dec 12, 1993, Irvine, CA. I would go on a shopping spree buying one house in Newport Coast, one house in Turtle Rock, one house in Turtle Ridge, one house in Shady Canyon.... PANDA, stop fantasizing, WAKE UP!!!

 

[ipoplaya_IHB]

In April there were 146 closed sales in Irvine, CA which was LESS than March even though this thread makes it seem as sales are picking up. Let's assume for sake of argument that 150 units sold in May. Even if you just use the 991 listed unit number, the months of supply stand at 6 1/2 months. If we include only half the "shadow inventory" 350 + 991 = 1,341 properties and a months supply of 9 months. If we include both numbers into a total of 1,691 units for sale the months of supply is nearly 12 months! My gut feeling is that we are somewhere between 9 and 12 months supply right now in Irvine--the city that is immune from the housing bust.

Supply isn't supply until its supplied LM. You can't add shadow/supposed/maybe inventory to what is listed, compare that to current sales, and come up with a number that indicates much with relevance. Many things could happen before this "shadow inventory" hits the market. Maybe sales are higher when it comes on, maybe sales are way lower, maybe discretionary inventory winds down to nothing and only the formerly shadow inventory is listed...

If I took the future potential sales of my company and compared them with my expenses now, I wouldn't get a calc worth much of anything. Forecasted future sales as they compare to forecasted FUTURE expenses, now that might tell someone something. Data needs to be more relational to be meaningful IMO.

Using closed sales for Irvine via IR2's MLS data, which indicate more sales in May than in April and April being stronger than March, along with the ziprealty Irvine inventory figures for the beginning of each month (even if they are low, they are still useful for showing trend) for previous months, this is what I see:

Month Sales Inventory Ratio

jan 84 896 10.66

feb 73 938 12.84

mar 124 917 7.39

apr 137 902 6.58

may 148 900 6.08

For the past three months, sales up, inventory count down. This fact, at least with regards to Irvine, would appear to be indisputable.

Yes, the increase in sales is probably just seasonal, but typically there is a seasonal increase in inventory as well. That is why they call it the summer selling season. You don't see that increase in the market inventory do you?

It's okay though maestro my man, you don't need to go talking about shadow this that or whatever. Those units will very likely at some point enter available inventory, drive up the inventory count and IF/WHEN sales don't move up in corresponding fashion, you'll have your year of inventory on the market again.

 

[graphrix_IHB]

Damn, I almost came in to give some support to Ipo, but even the MSM is reporting about the "shadow inventory".

I skimmed the report, and I plan on tearing it apart more later, but here is one stat that makes them seem way, way behind the times...

After experiencing a decline in employment in 2002, the Orange County HMA has continued to add jobs since 2003. During the 12-month period ending June 2007, nonfarm employment increased to 1,526,400, an increase of 20,000 jobs, or 1.3 percent, compared

with the previous 12-month period.

Oops, a little late, and they really should make sure they use revised data, because since then the non-farm jobs have decreased by 2% since they made this report.

If they are this optimistic about jobs, then their pessimism isn't nearly pessimistic enough.

 

[awgee_IHB]

Just my take. Shadow inventory is analagous to "pent up demand". There is no such thing. There is supply and there is demand. There is supply at different price points and there is demand at different price points. If someone is waiting until a certain home sells for a particular amount, that is not pent up demand. Everybody will buy a home for the "right" price. That is not peint up demand. It is just demand at different price levels. Supply isn't supply until it is available for sale. As some supply goes on the market at lesser price levels, other supply will be retracted from the market because the price is unacceptable to the potential seller. There is no accurate way of predicting supply until it is actual supply. And the same with demand. As prices go down, there is usually less demand for real estate, oddly enough. People who refer to pent up demand are just demonstrating their lack of economic understanding and reality.

 

[Masterofdamoney_IHB]

Realty Trac now shows 701 properties in some state of foreclosure (NOD, Auction, or already Bank Owned.) That's a lot folks. I see a considerable amount of units in Northpark on here, but surprise surprise, when I ride my bike around I see NO for sale signs. NO bank owned signs. Not good.

A quick search of realtor.com shows 991 units for sale!

WTF!?

This can only mean two things, and neither one of them is good.

1.) 701 of the 991 units for sale are distressed properties. 70.7% of listed properties are distressed. We know that this number is way off. So what gives.......

2.) The number of units listed on MLS does NOT INCLUDE THE MAJORITY of distressed properties. Check out this MAY info from ocrealestate blog...

Currently there are 840 Active properties listed for sale in Irvine, CA., of which 414 are attached Condos, and 426 are detached single family homes. Of these 840 homes and condos for sale, 152 are Short Sales listed for sale, which represents 18% of the total inventory. 11 of these properties Active for sale are Bank Owner Foreclosures which represent just 1.3% of the total inventory of homes and condos for sale in Irvine, Ca.

Only 11 properties that are bank owned are active listings!!! OMG!

In April there were 146 closed sales in Irvine, CA which was LESS than March even though this thread makes it seem as sales are picking up. Let's assume for sake of argument that 150 units sold in May. Even if you just use the 991 listed unit number, the months of supply stand at 6 1/2 months. If we include only half the "shadow inventory" 350 + 991 = 1,341 properties and a months supply of 9 months. If we include both numbers into a total of 1,691 units for sale the months of supply is nearly 12 months! My gut feeling is that we are somewhere between 9 and 12 months supply right now in Irvine--the city that is immune from the housing bust.

I am going to start a post on this soon, but you are correct - something is fishy in Irvine, and that smell isn't coming from the PHO' restaurant.

I have been tracking this for sometime, and there is a MASSIVE amount of REO holding going on in Irvine by the banks right now. Last night a friend of mine sat down and did some calculations for ONE PARTICULAR IRVINE ZIP CODE. The findings were simply amazing.

This particular zip code had 26 recorded 'sales' last month. Those 'sales' included properties sold at auction and REO's sold back to the bank.

We took a look at the amount of properties CURRENTLY listed on MLS for sale in this zipcode, then looked at the NOD, NTS, and REO action (current) in the zipcode. Then we backtracked to look at the last 6 months of REO data, and compared via MLS/title records to see if the foreclosed homes were ever listed or sold. The final #'s, based on the amount of homes currently on the market plus CURRENT foreclosure data, shows a 2.25 year inventory 1 month out (it is actually HIGHER than this, due to the sales data being manipulated by auction/back to the bank transactions). When we started to really dig into the 'shadow inventory' (i.e. homes that went REO in the last 6 months that do NOT show up as listed currently, and they have NOT been sold/transferred according to title records), we arrived at a staggering 4 years of inventory currently for this one particular Irvine zipcode.

This process is not 100% accurate by any means, and takes tons of time to research properly. The huge variations in #'s out there between sources that are, in theory, supposed to report the SAME things, is amazing.

Bottom line - the banks are playing a dangerous game. Holding onto properties and unloading small amounts to try and manipulate the markets (prevent a crash). Unfortunately, there are many banks, and eventually one of them will get sketchy and 'show their hand'. When this happens, the others will HAVE to fold their cards and throw their homes in the ring to prevent monster losses. Whoever is left holding homes in their portfolio at that time is the loser.

 

[southoctracker_IHB]

I have noticed something similar in South County areas...many of the properties in foreclosure are not on the MLS for sale. By these I don't mean small NOD...we're talking 100% financing, HELOCed to oblivion properties that don't seem to stand a chance of not turning into foreclosures. And, a decent % of REOs are not for sale yet, either. Kinda fishy.

Then again, I'm testing out Realtytrac right now, so it could just be that the thing is that far behind. IPO, you should seriously switch to foreclosureradar - it's more user-friendly and has some great tools for analyzing data. One difference though is Realtytrac's mortgage data is more detailed than foreclosureradar.

 

[Anonymous_IHB]

Pulling back on supply is well and good ... assuming it's a good that never goes bad (more like a gold brick say, than a truckload of strawberries).

Houses go bad. Slower that strawberries, but still expensive to upkeep. In addition, if a bank hangs on to a bunch of houses, not only is there the loss in value or monthly upkeep fee, but that ties up cash that the bank could be lending out at a profit.

Just my take. Shadow inventory is analagous to "pent up demand". There is no such thing. There is supply and there is demand. There is supply at different price points and there is demand at different price points. If someone is waiting until a certain home sells for a particular amount, that is not pent up demand. Everybody will buy a home for the "right" price. That is not peint up demand. It is just demand at different price levels. Supply isn't supply until it is available for sale. As some supply goes on the market at lesser price levels, other supply will be retracted from the market because the price is unacceptable to the potential seller. There is no accurate way of predicting supply until it is actual supply. And the same with demand. As prices go down, there is usually less demand for real estate, oddly enough. People who refer to pent up demand are just demonstrating their lack of economic understanding and reality.

 

[tenmagnet_IHB]

Nice start to June closings, with deeper rollback prices.

3100sf Cantara former model sold for $880K...

Updated IPO-Shiller

Excellent observation!

By now, I’m sure you’ve noticed that some of the homes in Columbus Grove and Tustin Field are at $270/ft. for essentially brand new construction.

Meanwhile, in other areas prices remain firm or if they’re coming down it’s at the speed of molasses.

When will this whole thing spill over into the other areas?

I think you know what areas I’m referring to.

 

[irvine123_IHB]

IMO, CG and TF on average will be selling noticably lower on $/ sq ft basis vs. NP, NW, QH, & Woodbury for many of the reasons that were discussed in detail in the CG and TF trend.

 

[awgee_IHB]

Pulling back on supply is well and good ... assuming it's a good that never goes bad (more like a gold brick say, than a truckload of strawberries).

Houses go bad. Slower that strawberries, but still expensive to upkeep. In addition, if a bank hangs on to a bunch of houses, not only is there the loss in value or monthly upkeep fee, but that ties up cash that the bank could be lending out at a profit.

Just my take. Shadow inventory is analagous to "pent up demand". There is no such thing. There is supply and there is demand. There is supply at different price points and there is demand at different price points. If someone is waiting until a certain home sells for a particular amount, that is not pent up demand. Everybody will buy a home for the "right" price. That is not pent up demand. It is just demand at different price levels. Supply isn't supply until it is available for sale. As some supply goes on the market at lesser price levels, other supply will be retracted from the market because the price is unacceptable to the potential seller. There is no accurate way of predicting supply until it is actual supply. And the same with demand. As prices go down, there is usually less demand for real estate, oddly enough. People who refer to pent up demand are just demonstrating their lack of economic understanding and reality.

Sorry, I seem to have been more confusing than clarifying.

Maybe I can be a bit more clear.

All homes are supply and all potential buyers are demand.

The supply of homes, even those not on the market presently, on just higher on the supply curve. If the lenders are keeping homes off the market and waiting for a higher price, those homes are just higher on the supply curve. They are not shadow inventory. They are just inventory for which the price has not brought on to the market.

And vice versa for demand.

All potential buyers are demand. They just have different price points. When the time and price are right for each potential buyer, they become a buyer. They are not pent up demand. They are demand that is lower on the demand curve. And where the demand curve and the supply curve meet are where the buyers buy and the sellers sell.

The lenders may very well be keeping homes off the market in order to wait for higher prices. I do not know if it is a good business decision. My guess is that if they are withholding homes from the market, they will end up regretting their decision as they will end up selling the homes for much less. It is also my guess that if the lenders are withholding homes from the market, it may be for some strange accounting reason that enables the lenders to not realize their losses until the properties sell. The lenders may be holding real estate on their books as some mark to model value or mark to some previous value. I doubt if there is a conspiracy to keep prices high. I do not think they are organized enough to try that nor do I think they are brave enough to risk prison time. Just my opinion though. Who knows?

Using terms like "pent up demand" and "shadow inventory" are fine for the MSM, but I would like to think fellow IHBers are thoughtful and can see the facts clearly.

 

[PadreBrian_IHB]

Masterofdamoney,

I'm with ya on that. It's a dangerous game. BUT, the fed is allowing it to happen. The fed is making loans to investment banks at a super low interest using 100% of the value of the paper from their bad mortgages. So it's in the bank's interest just to slowly release the properties. Example: Bear Sterns bought some nasty mortgage paper in 2006...Prime/seconds/alt-a,heloc,sub-prime... all rolled up... good and the bad. Everyone on THIS board knows that paper is only worth half of what it was bought for. BUT, that's only if they sell the collateral/repos that are given back to them. If they hold the collateral the US Fed will give them a 1% loan on the FULL 2006 value... 100% of it!!

What the gov't wants is a nice soft landing. The last thing Bush wants is a run on the banks.

We still have 2-3 years of decline left. 2002 prices here we come.

 

[tenmagnet_IHB]

IMO, CG and TF on average will be selling noticably lower on $/ sq ft basis vs. NP, NW, QH, & Woodbury for many of the reasons that were discussed in detail in the CG and TF trend.

Yeah, I understand all the reasons behind the lower price per sq. foot in CG and TF.

Trying to understand the spill-over effect, shouldn’t that also drag the price/sq.ft. number in those other areas down to those levels as well?

 

[ipoplaya_IHB]

IMO, CG and TF on average will be selling noticably lower on $/ sq ft basis vs. NP, NW, QH, & Woodbury for many of the reasons that were discussed in detail in the CG and TF trend.

Yeah, I understand all the reasons behind the lower price per sq. foot in CG and TF.

Trying to understand the spill-over effect, shouldn’t that also drag the price/sq.ft. number in those other areas down to those levels as well?

Not without more inventory. There are few enough homes in the more premium areas that sellers are still getting enough buyer traffic. IMO inventory is too low to create that much spill-over...

One of your faves, 10 Fair Oaks, just got taken down ten. Nine properties in my limited search spec have hit escrow over the last two days. That is 1% or so of total Irvine inventory going under contract in a day. Yeah, 2002 prices here we come, NOT... We're more likely to see 2005 prices in the short-term than 2002 prices.

IPO's Site

 

[freedomCM_IHB]

How much do you think accounting has to do with it? Are the banks using this as a ploy to save their bacon?

Don't the banks have to "mark to market" their inventory ("a reo house") when they get an appraisal from the brokers?

Whereas before that time, they can continue to value the house at the loan amount?

 

[Cal's Caddy_IHB]

IMO, CG and TF on average will be selling noticably lower on $/ sq ft basis vs. NP, NW, QH, & Woodbury for many of the reasons that were discussed in detail in the CG and TF trend.

Yeah, I understand all the reasons behind the lower price per sq. foot in CG and TF.

Trying to understand the spill-over effect, shouldn’t that also drag the price/sq.ft. number in those other areas down to those levels as well?

Not without more inventory. There are few enough homes in the more premium areas that sellers are still getting enough buyer traffic. IMO inventory is too low to create that much spill-over...

One of your faves, 10 Fair Oaks, just got taken down ten. Nine properties in my limited search spec have hit escrow over the last two days. That is 1% or so of total Irvine inventory going under contract in a day. Yeah, 2002 prices here we come, NOT... We're more likely to see 2005 prices in the short-term than 2002 prices.

IPO's Site

IPO, Statistically, the June activity is not a large anomaly. Per your website, there were 82 opened escrows in May, 61 in April and 58 in March. That is 2.6, 2.0 and 1.8 per day respectively. For June we are at 2.16 per day of escrows opened. And the relation to price is still specious as we don't yet know what price they entered escrow at.

Still, I do agree prices in your small sample of higher end watched homes do not seem to be headed down as quickly as we would all hope they do. It has consistently surprised me to see the closing prices on some of these properties. Some down off list toward 2003 or 2004 prices and some above list and even above 2006 peak prices. I keep telling myself that the bloodbath we are seeing the lower end will continue and the mid- to higher-end housing will eventually capitulate and the domino effect of falling prices will bring them down to more comforting levels.

My perception is that the current inventory consists of the same tired, flawed and less desireable properties that are not quite priced to market. While these properties languish on the market, a less flawed and more desireable property comes onto the market that is priced at the same as existing properties. It then sees a flurry of interest and activity that sometimes results in an escrow opened. The bottom line is the same; Without more inventory, demand is meeting, and in some cases exceeding, supply.

If RE agents were real hungry, they would be knocking on doors finding new prospects to list their homes and creating more inventory. Of course, that's as likely as the Celts beating the Lakers. Go Lakers in five.

 

[lendingmaestro_IHB]

Every single vacant home should be included in supply. Hell, every home for that matter could be considered in supply. If you go to Tuttle Click Ford, you'd say all the vehicles on the lot with price tags on them are for sale and considered part of the supply, correct? Well what about the 150 vehicles of off-site inventory held in the "back-up"parking lot? Are those not considered supply? Or how about when you go to the grocery store and check out the 25 heads of lettuce for sale in the produce section? I guess the pallet full of 200 lettuce heads in the fridge in the back aren't considered supply huh?

 

[ipoplaya_IHB]

Every single vacant home should be included in supply. Hell, every home for that matter could be considered in supply. If you go to Tuttle Click Ford, you'd say all the vehicles on the lot with price tags on them are for sale and considered part of the supply, correct? Well what about the 150 vehicles of off-site inventory held in the "back-up"parking lot? Are those not considered supply? Or how about when you go to the grocery store and check out the 25 heads of lettuce for sale in the produce section? I guess the pallet full of 200 lettuce heads in the fridge in the back aren't considered supply huh?

Think about it this way maestro, does the car dealer count those cars in his inventory? Similarly, does the grocery store count the lettuce in their inventory? Of course they do... When it becomes invetory, a desired sale price is likely assigned to the good, and at that point, it really is supply. Supply is about the willingness to transfer ownership of a good or service for a particular price. The mechanics and process exist for me to purchase either of those items should I wish to offer an appropriate price.

How may I purchase homes that are not listed? If I walk out on my street and shout into the air, "I will pay $1M for a 3000sf 4/3 in North Irvine!!!!", will the lenders and investors hear my call? If I post on Craiglist, will they respond?

I think there are a great number of properties that are unattainable at this very moment no matter what the price someone is willing to offer for them because they sit in a stack of files on some over-worked loss mitigation person's desk... Neither I, nor my realtor, nor pretty much anyone, has any way to even make an offer to purchase one of these properties. Communication of desire to purchase at a particular price is essential to a market transaction. These homes are not supply today. They are effectively removed from the market equation and do not contribute to the equilibrium found between supply and demand... Tomorrow, or the next month, or the quarter after that, they will likely be supply.

 

[Irvine Allergy Dr_IHB]

Supply blah blah blah, demand blah blah blah. I think, Ipo, that a lot of the posts on this thread are off-topic. The topic is *what is going into escrow in Irvine and Tustin*. The point of this thread is to obtain, as much as feasible, up-to-date pricing data on these areas and not to, as many like to do, speculate on possibilities in the future. Plenty of threads are available for speculation. I appreciate your thread for the hard data.

 

[graphrix_IHB]

If I post on Craiglist, will they respond?

Dude, I dare you do this, hell no... I triple dog dare you to do this. In fact, you better get IR2 an assistant to handle the flood of calls you will get. Granted, 99.9% will be crap, but there is that .1% out there that would be legit. Actually just post IR2's phone number and email, and let him handle the calls. I wouldn't be surprised if you got some good leads for a home in your range.

But, do yourself a favor, do not tell me when you have posted it, because I will find it in less than a minute. Trust me, and if you don't, just ask the ever elusive Effenheimer if you doubt my google-fu skills.