Wednesday, January 14th, 2009 at 11:10 AM
Look at the Undergarments
Reader Turnack suggested that we further investigate the street in La Costa Oaks. It would give a good sampling of what buyers can expect when considering the prospects of buying in newer tract development.
While some may equate such analysis to ’seeing the underwear’ of the current homeowners, the buyers considering a purchase nearby deserve to know the facts.
We’ve suggested that the builder’s lender has a lot to do with any future turbulence. Did they carefully qualify their buyers to ensure they received loans they could afford? Or did they get jammed into the highest-profit mortgages?
In this case, the builder’s lender was a smaller mortgage banking outfit, and because every house on the street was sold in 2006, we can guess that there were a fair amount of ARMs that might be resetting.
Of the twenty houses, five have been in trouble – three have been foreclosed, one has it’s trustee sale later this month, and a fifth has been sold on a short sale basis.
The house with Santa’s note on the door had its trustee sale last week and no biders were interested in the $625,000 opening bid – and the property is vacant. The last sale was the $695,000 REO sale next door, so we can probably guess that at least one of the other two sales will be in the $600,000s as well.
What will the others on the street do? We’ve seen that homeowners who are underwater have given up even when they can afford the payments – will it happen here?
How many are struggling with the choices of staying, despite no equity - or bailing?
A review of the tax rolls showed that 14 of the 20 homeowners have a loan amounts over $600,000, and half of those are over $700,000. Can they endure? Will they?
When they purchased in 2006 all but three paid over $900,000, and three paid $1,000,000 or more. Now that their equity is being whittled away, there will be temptation to walk away. At least one homeowner will attempt to break the trend and try to sell in the next six months for $800,000. They’ll justify it by saying that they “are further down the street where the RSF Rd. noise isn’t as bad, and besides, those were foreclosures/distressed sales, and don’t count.”
But they count to the buyers.
Today’s potential homebuyers should look carefully for over-encumbered neighbors that could lead to additional foreclosures.
Posted on Wednesday, January 14th, 2009 at 11:10 AM in Thinking of Buying? | 18 Comments » | 
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Hey old man! Cheesecake is my turf.
I think the issue of “encumbrances” will be the new issue. HOAs and M-Rs inhibit future value. Gosh, we’ve been discussing this for years. What are the HOA/M-R problems with these particular properties?
Interesting counterpoint. M-R is old enough that it may start going away soon for some properties. I smell opportunity.
Rob Dawg | January 14th, 2009 at 11:20 amJim,
Thanks for doing the research on this one.
I was LMAO at your “underwear” comparison. Clearly, the majority of these homeowner’s are “Going Mexican”!
14/20 is 70% and this street will be a mess in 2 to 3 years.
Turnack | January 14th, 2009 at 11:25 amThe ARM recasts might not be as frightening as they once seemed. In fact, in some cases they might actually increase staying power.
Look at the various ARM indexes, they are all being forced down.
As an example, I have a mortgage that is going to adjust soon. My rate is going to go down approximately 1.5%, putting me into the 3.x% range.
A large number people I was hoping were going to adjust and go under are probably going to see their rate go down as well easing pressure on them.
Right now the fight is against deflation. IMHO rates are going to be low for quite some time, until wage inflation eventually kicks in and unemployment reverses. That will probably be years away.
I have my eyes focused much more on unemployment then I do on ARM recasts at the moment.
sdnerd | January 14th, 2009 at 11:42 amClearly, the majority of these homeowner’s are “Going Mexican”!
what the hell does this mean?
puzzled
puzzled | January 14th, 2009 at 11:57 amDoes “going Mexican” mean that they’re going to start driving ice-cream trucks?
greenlander | January 14th, 2009 at 12:29 pmI enjoy racist jokes as much as the next guy but “going Mexican” doesn’t make much sense. Are you trying to imply that Mexicans only wear underwear?
shadash | January 14th, 2009 at 12:36 pmI took “Going Mexican” to mean the same thing as “Going Commando” – not wearing underwear.
Spotty | January 14th, 2009 at 12:42 pmThe expression “Going Mexican” means wearing no underwear at all.
Turnack | January 14th, 2009 at 12:42 pm“….“Going Mexican” means wearing no underwear at all”
did you just make this up? i’v never heard of such nonsense!
puzzled
puzzled | January 14th, 2009 at 12:50 pmJim,
Nice work. I still feel somewhat sorry for the LaCosta folks. If you look at a house as 1) a place to live and 2) an asset that can eventually be sold, the fact that its worth less (#2), doesn’t really distinguish it from any of the other assets. Everything is down. Its the #1 part. Let’s say someone buys that spiffy $900K new house and puts down 200K ish (20%). Ok, so now the house is nearly or is underwater. That happens. But, the fact that 1-4 of the hosues is vacant or in foreclosure or very distressed harms the neighborhood as a whole. That goes to point 1. If I lived here, I could tolerate the asset loss, but not the destruction of the neighborhood itself.
Former RB Resident | January 14th, 2009 at 12:52 pmRe: Going Mexican
I think he made it up. Here’s the street definition: http://www.urbandictionary.com/define.php?term=going+mexican
GameAgent | January 14th, 2009 at 1:42 pmFormer RB,
The house with Santa’s note on it is an interesting test case of your commentary.
She paid $835,000 (the cheapest sales price on the street) and put down 15%, or $125,000! She saw the two houses next to her get foreclosed, and with the last one closing at $695,000 she probably came to the conclusion that her equity was gone completely, or at least gone for a long time.
The payments on $700,000+ probably got old too, but for whatever reason she bailed out. I agree with you, the sight of others getting foreclosed probably had plenty to do with her decision to walk from her $125,000 investment.
Jim the Realtor | January 14th, 2009 at 3:13 pmRB,
Nice commentary and is probably the sentiment of folks that live in the newer neighborhoods.
Jim,
The house you mention has actually been empty for a long time and the owner was one of the first ones to leave. She fired her gardener many months ago…..
Puzzled
puzzled | January 14th, 2009 at 4:32 pmPuzzled, I’m puzzled too, because I saw it vacant about six months ago when the REO next door was an active listing. Maybe the other foreclosures didn’t have an impact on her decision, but if not, it means she just up and walked from the house and her $125,000 investment.
Wouldn’t you at least throw it on the open market to see if you recoup something? She didn’t get the full free-rent benefit either.
Jim the Realtor | January 14th, 2009 at 4:55 pmThis is why defaulted houses need to be foreclosed on as quickly as possible and resold to people who can afford them and want to buy them as homes and not investments. If my $700k home has become a $500k home, I want a new homeowner next door to me who is thrilled to be moving into a $500k home, not a vacant, unmaintained house belonging to a bank with a $600k-$700k value range “for sale, bank owned” sign on it, and certainly not a house occupied by a nonpaying, nonmaintaining deadbeat. It’s too late to “save” the subprime investor homeowners; the priority needs to be to preserve neighborhoods as places people will still want to live, whatever the current price falls to.
GeneK | January 14th, 2009 at 5:03 pmExactly, GeneK!
The sooner we transfer these homes from weak hands to the strong, the sooner we get out of this mess. BTW, getting out of this mess does NOT mean prices will begin shooting up. It just means that we can have fewer foreclosures and more stable neighborhoods where **residents** live (not flippers and assorted specuvestors). It would be nice to get back to normal, but the PTB seem dead-set against it. They’re just forcing us into a depression with all the delaying tactics, IMHO.
CA renter | January 14th, 2009 at 10:56 pmFair points Jim and Puzzled. If indeed the “Santa note” house really was a jingle mail, then shame on her. Its one thing if you hit financial distress (lost job, etc.) and can’t pay, but walking away is a pretty crappy thing to do to your neighbors. I think Puzzled is right: people who buy in newer neighborhoods seem more likely to act this way. I can’t quantify that, but I get that sense as well.
Former RB Resident | January 15th, 2009 at 7:36 amSDNerd
The issue was never the variable rate resetting. The issue the the Neg am mortgage recasting. The rate can fall and still yield a mortgage payment double or more than what the person is currently paying.
Jim can you spend some time examining Karvolls comments on the SD market not being in market distress. I believe he says b/c ARM rates are below fixed rates and people use fixed that is a good sign? Why?
LV Renter | January 15th, 2009 at 10:35 am