Real Homes of Genius – 1 out of 7 homeowners not paying mortgage or in foreclosure. Examples in Pasadena. 672 square feet apartment for $385,000. 676 square feet home became equity machine.
Today we got more startling news that 1 out of 7 homeowners is either in foreclosure or has stopped paying their mortgage. With over 51 million mortgages in the U.S. that means we have 7.2 million mortgages in this distress pipeline. By the way, this is a new all time record yet somehow you still have people claiming that not paying your mortgage is somehow a sign of a healthy market? It isn’t and this just means the shadow inventory figures are enormous. We have enough in the pipeline for years to come. California is the king of shadow inventory. We have more properties in distress than we have on the MLS! Is this any surprise given the amount of Alt-A and option ARM junk still floating around the system?
Today we’ll take a look at lovely Pasadena. Our first apartment/condo/home shows us that even a 672 square foot place can have fun with easy financing. Today we salute Pasadena with our Real Homes of Genius Award.
672 to zero down
Back during the bubble glory days, there was a movement to convert apartments into condo units. Many “builders†merely slapped on some new paint, carpet, and added some granite countertops and that was all that was needed to justify the conversion to bring in the patrons. The place we are looking at today is a 672 square foot 1 bedroom and 1 bath place. It is listed as an apartment but someone bought this place back in 2006:
Last sale
July 2006:Â Â Â Â Â Â Â Â Â Â Â Â $385,000
And who made the loan? None other than “perfect quarter trader†JP Morgan Chase:
In fact, JP Morgan Chase financed this 672 square foot unit with 100 percent financing. Well guess what? This is now one of those “1 out 7†statistic that are keeping the housing market in the toilet. So how in the world can these banks make all this money when they have stuff like this on their balance sheet? What do you estimate this home would fetch in the current market? This place isn’t listed on the MLS for sale so add this puppy to the shadow inventory.
But this is only one place right? Let us look at another one:
Now this above place is a home listed with 2 bedrooms and 1 bath and is 4 square feet bigger than the apartment unit. This place is listed at 676 square feet.   Unlike the apartment unit that got funded 100% at the peak, this place was bought back in 2002 for $150,000:
Sales history
June 2002:Â Â Â Â Â Â Â Â Â Â $150,000
May 1997:Â Â Â Â Â Â Â Â Â Â $104,500
But after that, this place was used like a piggybank:
Countrywide and IndyMac Bank show up here (models of excellent lending practices). IndyMac thought it would be smart to put $400,000 in loans on a 676 square foot home! Didn’t have to be a genius to see this implosion coming down the 210 freeway.
This is another home that is not on the MLS and is part of the large shadow inventory data. Pasadena has the following stats:
Distress homes:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 677
MLS homes:                                     550 “resale non-distress and new homesâ€
So we still have more distress properties than actual natural resale homes even in prime areas like Pasadena. But let us assume the 1 out of 7 stats play out for the city. Keep in mind that banks have actually held off on even filing NODs on tens of thousands of homes. Are things even worse?
Pasadena Homes with a mortgage:Â Â Â Â Â Â Â Â 16,824
If the “1 out of 7†stats were applied to Pasadena we would have 2,403 homes. Of course you have some cities that skew the stats but it is obvious to anyone that has been following the market that there are many people in Pasadena not paying their mortgage and not showing up anywhere (aka shadow inventory). These are outside of the distress home figure and MLS data. We did a report showing that the MLS had 64,000 homes but the distress figures for Southern California were over 160,000.
$400,000 and $385,000 for 670 square feet in Pasadena. Was it worth it? These places should probably sell for $100,000 to $150,000 but I’m sure we have another genius looking for another quick flip that will be all the willing to pay for his/her chance to be on HGTV.
Today we salute you Pasadena with our Real Homes of Genius Award.
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15 Responses to “Real Homes of Genius – 1 out of 7 homeowners not paying mortgage or in foreclosure. Examples in Pasadena. 672 square feet apartment for $385,000. 676 square feet home became equity machine.”
Human beings are not entirely rational when it comes to buying cars or houses.
The emotional component is just as large as the rational “makes sense”
component. Car dealers have known this for years, and prey on a buyers insecurity. Real estate agents came late to this game, but now know how to push all the buttons.
“Buy now, or be priced out forever- Interest rates are low- You can get a tax deduction.”
“No one ever went broke underestimating the intellegence of the American public”- H.L. Menkien
If Obama doesnt cut loose with a bailout for the states, the fall out from Arnie having to make real cuts should do the trick for real estate prices throughout the state.
You wrote, So how in the world can these banks make all this money when they have stuff like this on their balance sheet?
From what I understand, the Federal Reserve purchased a lot of the really bad stuff on the banks’ balance sheets and parked it in one of the Maiden Lane “credit facilities” on the taxpayers’ dime. Recent reports indicate that the Fed is in no rush to sell this junk. But then again who would want to take a buzz haircut?
A search of Homes.com shows the house you feature might be worth $250,000; Zillow shows a comparable one at 292 W. Claremont, Pasadena, CA 91103 lists for $275,000.
Shadow inventory leads to squatting especially if the lender has both the first and the second and third loans.
Irvine Renter in article Government Sponsored Loan Modifications are the New Liar Loans, relates that (the banks) “are choosing squatting over foreclosure because when they foreclose, declining neighborhood values encourage too much strategic default. Of course, the squatting causes its own issues including moral hazard, but the banks are so desperate they are choosing moral hazard to stay alive — a zombie existence.â€
I comment that the zombie existence and squatting comes by the FASB 157 entitlement, where banks value assets at manager’s estimate rather than at market.
The question comes up, when will shadow inventory flow into the market? I see a black swan event, perhaps a failed Treaury auction, or war between Israel and Syria, where there will be a sudden evaporation of liquidity, and no money at the US Treasury for weeks.
Then there will be an interest rate vacume, and real estate prices will collapse, and the zombie banks will be faced with a predicament because most of their assets, the US Treasuries received via TARP are on reserve at the FED receiving 2.0% interest, and these will plummet in value; and the market value of the banks will plummet, resulting in the banks forcing the squatters out and commencing a leasing program. The new era of leasing will begin and the prior era of mortgage lending will cease. The concept of shadow inventory will fade from consciousness as the second Great Depression grinds on as people will have little interest in buying.
Real estate can certainly be effected by world events. At some point, Israel will want to take action against Iran. When that happens, the flow of oil from the Mideast will slow, and oil prices will skyrocket ($5.gas?), and supply will dwindle.
Some of you are old enough to remember the gas shortages in the mid-70’s.
If that happens just as the economy is recovering, all bets are off. Paying $5. gas would be painful, but in the 70″s, it was not availible at any price.If it is not even availiable, the economy will tank, taking real estate with it.
Seems like the mainstream is starting to catch on to this issue.
http://newobservations.net/2010/05/19/one-in-ten-mortgage-borrowers-will-lose-their-home/
What I notice in Pasadena is that people are shopping like it’s 1999. Could this be shopping the windfall one has when not paying the mortgage? The other thing I am noticing on the MLS is that a lot of short sales are coming to market. This suggests to me that the recently reported falling rates of defaults is due to banks now offering the homes as short sales. I also noticed that some of these are offered at what is (for Pasadena now) below market, probably in the hopes of starting bidding wars.
Is it possible title for all the fannie/freddy homes will just be given to those deemed deserving (based upon socio-economic, ethnic heiritage, etc) in lieu of building govt housing / section-8 rental assistance? The old “projects” here in So. LA county were torn-down and replaced by luxury condos a decade ago. HUD didn’t need them if they hold title to all these bubble properties, do they?? Who paid for housing in communist Russia??
Not related to current topic but Can someone make a sense out this listing?
http://www.redfin.com/CA/Torrance/5500-Torrance-Blvd-90503/unit-A110/home/7710312
Collapse-By Jared Diamond–
Powerful societies have risen and collapsed countless times thorugh the years. There have been several common threads. Most civilizations have collapsed for one or more of the reasons. Hostile enemies (Carthage-Rome) climate disasters (Ankor Wat, Maya’s, many. Often they have failed due to their own ruinous policies (Haitii). Is SoCal on the verge of collapse? Roubini spoke of houses built with no intention of ever being occupied. Not just a handful, but thousands. SoCal is in a world of trouble right now. Trying to roll over municipal debt when everyone knows Cal won’t pay their debt, They will soon be doing a videoconference with the Kindergarten Cop. And it’s not even 2011 yet.
Thank you for the blog, which is very instructive. I appreciate the graphs and tallys in particular, as well as the comments.
By dumb luck, I have not been caught in this latest housing euphoria. I admit that I was starting to feel left behind but the last two years have cured that.
Presently working in Europe, I see the same RE operatives peddling the granite counters and automatic window shades and tv´s in the bathroom. Lots of people have bought into the fantasy, as we see in Spain. The prices shot up and the banks were glad to lend money, even for the furniture! The problem is now, with all the indebtedness. Of course, prices are down. One does not see/hear out in the open about foreclosures but they are there. The banks have taken back lots of places. But very hush-hush.
I hate to finish my 1st comment with a nit, but here is: at the beginning of your post you use 672 and 676 square feet. There! My engineer soul feels better.
Time for some humble pie for me…
On my previous comment, please ignore the last part about the nit-picking. I jumped the gun. My mistake.
While houses have been ATMs for buyers/owners, they are mints/currency engines for the financiers and banksters.
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That’s the whole point of “money as debt,” and why debasers-of-the-coin IndyMac and Countrywide jumped all over this practice. The magic mill of fiat currency.
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Community scrip and barter seems to work well in the communities that practice that. This is why the stock market is tanking again: the only players are the Players, and people with sense invest in food stores rather than the shallow bubble/bust nonsense of the markets.
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rose
I can see the listing you linked to, but it is not a small home like the article discusses. It is a 3 bed, 2 bath which has a greater market niche and it is a nice size for a condo, almost 1300 s.f.
So I take it you are questioning the price, but it is close to the ocean and that’s why the price is so high.
The author incorrectly assumes that any mortgage over 30 days late should be part of real estate inventory for sale. Such a notion is not only patently incorrect, but absolutely ridiculous as well.
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