Some people when thinking of shadow inventory have images of poor rundown homes in suspect neighborhoods. Yet the reality of shadow inventory sometimes include some of the most priciest and beautiful real estate in the world. Take for example the Wells Fargo executive who was using an exclusive Malibu foreclosure for private parties. The initial […]
Some people when thinking of shadow inventory have images of poor rundown homes in suspect neighborhoods. Yet the reality of shadow inventory sometimes include some of the most priciest and beautiful real estate in the world. Take for example the Wells Fargo executive who was using an exclusive Malibu foreclosure for private parties. The initial owners in Malibu invested some of their money with Bernard Madoff only to have their home taken over by Wells Fargo. Talk about trading one positive partner for another.
In recent days many articles have come out talking about shadow inventory and have silenced the tiny crowd that somehow believed that it was somehow a myth. It was fun for them to believe but that argument is now over. In fact, the shadow inventory amount is larger than one would have imagined:
“Sept. 23 (Bloomberg) — The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.
The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.”
If that isn’t enough to satisfy the doubting Thomas in you, take the word from Bank of America:
“(WSJ) we are going to see a spike from now to the end of the year in foreclosures as we take people out of the running” for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman. Foreclosure sales had dropped to “abnormally low” levels in response to government efforts to stem foreclosures, she adds.”
In other words, gear up for round two of the housing bubble burst courtesy of the shadow inventory. 7 million homes may seem like a gigantic number. The reason the number will be huge is because we are now seeing problems in housing due to more historical reasons like unemployment. Obviously a loan modification is pointless if someone doesn’t even have a job. When you have banks openly acknowledging that more inventory will be hitting the market it is time to prepare and get your facts straight on Alt-A and option ARM products.
Today we have a very special Real Home of Genius. It was once rare to see foreclosures reaching into the million dollar range but today’s home is a perfect example of the California gold rush mentality and living off of borrowed time. Today we salute you Santa Monica with our Real Home of Genius Award.
Santa Monica Million Dollar Foreclosure
Now for those living in Los Angeles or in Southern California, we realize that a large portion of the population lives under the “fake it until you make it” mantra of economics. The housing bubble fed into this mentality perfectly. Easy credit allowed people to buy homes and cars beyond their means. Being that many people are still guided by high school insecurities, they had to keep up with the Joneses and buy the latest car and home otherwise they would face the wrath of being called a loser. Here in Los Angeles the Westside brings out the best in many.
Today’s home in Santa Monica is a good example of this lifestyle. In fact, let us take a look at the place:
This home is a 2 bedroom and 1 bath home. Initially built in 1936 this place has 1,515 square feet. The current list price is $784,900. Let us look at some sales history here:
03/25/2005: $800,000
02/01/2006: $1,075,000
First, the 2005 sale was overpriced but the 2006 sale just put it over the top. Given that this home is now bank owned, we realize that something went astray. Let us look at some of the loan history:
Do the quick math:
$732,300 + $215,000 = $947,300
Buying a million dollar home with 10 percent down as you can tell is not a good plan if you are buying in an epic bubble. In fact, whoever bought this home has now seen some $127,700 in an actual down payment money evaporate into thin air. That is why all you folks itching to buy should think twice about jumping in before the second leg down hits in 2010. Even a modest 10 percent decline in the mid to upper tier markets can wipe out $100,000 to $200,000 of your down payment. And don’t bet on another bubble to rescue you.
If you want to see problems just look at the notice of default line above. Notice of defaults are normally filed after 3 missed payments. So let us do the numbers:
$36,285 / (3 months) = $12,095 monthly nut
Does this home look like a $12,095 per month home? You can rent a nicer place in Beverly Hills for that amount. Clearly whoever bought this home was unable to carry that amount and lost the home in August.
This home is viewable to the public and not part of the shadow inventory. On the MLS I’m seeing 4 foreclosures listed for Santa Monica including this home. But guess what is in the shadows?
Pre-foreclosure: 104
Bank owned: 25
And there are some bigger fish in the shadows that I’ll bring to you in the near future. The public is only seeing 4 houses in the foreclosure column while the distress number is much larger. Now who really knows what this home will fetch once it sells. I doubt it will get the million in this market and so does the current bank owner.
Today we salute you Santa Monica with our Real Homes of Genius Award.
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Real Homes of Genius: When a $127,000 Down Payment Evaporates in Santa Monica. Living the good life for 3 Years Courtesy of Easy Debt in the Westside.
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