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Half of 2005-07 O.C. buyers owe more than home’s value
May 11th, 2008, 5:00 pm · 196 Comments · posted by Jeff Collins
Online market tracker Zillow reported that roughly half of O.C. homeowners who bought their residence in 2005 through 2007 owe more for their mortgage than their home is now worth.
Buyers who purchased in 2005 and 2006 were in the worst shape, figures by Zillow.com figures show. They bought at the peak of the market, and their median down payment was just 10% of their home’s value, hence they had less equity to begin with. (Equity is the amount of a home’s value above the amount owed.)
More than 56% of ‘05 buyers were upside down during the first quarter this year. For ‘06 buyers, the number increased to 71%, and 48% of those who bought a home in 2007 were upside down. Here is Zillow’s breakdown of equity numbers for Orange County homeowners in Q1 2008:
| Purchase Year | Median Owner Equity | Pct. Upside Down | Down Payment |
|---|---|---|---|
| 2003 | 55.9% | 0.4% | 20.0% |
| 2004 | 18.9% | 18.8% | 19.7% |
| 2005 | -3.2% | 56.3% | 10.0% |
| 2006 | -11.5% | 70.7% | 10.0% |
| 2007 | 0.7% | 48.1% | 15.0% |
Read these other recent stories on upside-down homeowners and distressed homesellers:
- Half of ‘07 low-end O.C. homebuyers are upside down
- Are you upside down in your home?
- Emblem of O.C.’s $600,000 home market, now a short sale
- Home appraisers can bite my butt
- Foreclosures seen as O.C.’s hottest-selling homes
May 11th, 2008 at 4:51 pm
“We’re seeing the low-end ones just fly out the door,” said Colleen Trujillo.
Just as it was the low end buyers who were unsophisticated enough to buy at the top of the market with 100% financing and other nonsense, the low end buyers are now going to be the biggest knife catchers.
May 11th, 2008 at 5:13 pm
Of course they are upside down…again, the register posting a column that the big shiny thing in the sky is the sun. With values down from the twin peak of 05 and 06, yes half would be upside down. You are only upside down if you are selling…otherwise, it is your home…enjoy it and do not worry about what homes are selling for…following it diligently will drive you batty.
May 11th, 2008 at 5:22 pm
And half are not upside down. I wonder what the percentage decline is that they are using. Applying a Santa Ana decline to an Irvine downpayment would be a tad ridiculous. In any event, as Muligan says: enjoy your home. It will rise again, as surely as the sun will come out tomorrow. Which is why we’re all here.
May 11th, 2008 at 5:22 pm
Though I would take Zillow with a grain of salt…accuracy is not their strong suit. The best part here was defining “equity.” My goodness…
May 11th, 2008 at 5:25 pm
Good point.
May 11th, 2008 at 5:37 pm
Case in point regarding Bullshizillow: I just searched my own home which is 2400 s.f. 4/2/5/2 in Mission Viejo with a very decent view, pool, outdoor firepit, totally remodeled, etc. Bullshizillow says mine is worth about $712,000. It says “similar home for sale” in Lake Forest, 3/2/2 for $440,000 and 1520 s.f. HOW ARE THESE SIMILAR HOMES? They are not. An appraiser could one for the other as a comp. Zillow: run by morons from Microsoft. Shocking…
May 11th, 2008 at 5:39 pm
An appraiser could not use one for the other…dang keyboard.
May 11th, 2008 at 5:47 pm
Thanks Mully for the advice.
I think I spend way too much time monitoring all this crap.
Just waiting to buy in the next year or so.
It’s driveing ME BATTY
May 11th, 2008 at 5:52 pm
You are only upside down if you are selling…And half are not upside down.
Denial is a river in Egypt. I’m gonna keep holding onto my Enron stock until the market comes back, around the same time that no-down NINJA IO loans do.
May 11th, 2008 at 6:03 pm
Not good, but not a disaster as long as those people wait out the storm and do not end up in foreclosure.
May 11th, 2008 at 6:12 pm
BHN: comparing owning SoCal RE to a defunct company which was run by crooks is comical at best. Sure some are upside down on paper. But you do not realize the loss you are forced to sell. Your logic is flawed BHN. If you think owning RE here even if purchased during the boom is equivalent to owning ENE, I suggest you never buy here.
May 11th, 2008 at 6:38 pm
So many people completely out of touch with reality. Prices are still way above their long term trend and above fundamental metrics of SoCal affordability. Housing will be a good investment but, we’ve got another 20% plus down… and then sideways for years….
Tell me why I’m wrong…
BD
May 11th, 2008 at 6:47 pm
Tell me the community you are interested in BD…
May 11th, 2008 at 6:51 pm
gilligan has already posted five times for
this thread I guess hes upside down too lloolll
I know thoughtless is lloolll @ribsplitter
May 11th, 2008 at 6:59 pm
Not sure about community…. I’ve got a condo in huntington harbour. with a dock… would like to have a house with a dock on the water. That said, if homes in the area don’t bottom for another 2 years then I’ll look elsewhere… I’ve already seen prices down $1M on the “ask”… turns out that the high end was also pushed up by crap financing. It’s actually funny…. I can rent a house that is for sale for 2.7M for $7K/month…. and they would like me to sign a 5 year deal! ha.. idiots… their costs are 3 times that much monthly….
May 11th, 2008 at 7:03 pm
BTW, all bets are off if we do hit a serious recession or have significant inflation. Either one will result in very significant declines from here in prices.
And, it is starting to look like inflation will be the bad guy. I suspect we will roll back to 2003 pricing if we don’t have a recession and we don’t have serious inflation. If either occur then pobre si!
BD
May 11th, 2008 at 7:08 pm
We are in the over-correction phase with respect to financing. There was funny money out there, it is gone for now, but it will return one day. Lenders need to lend. Once they public has tools to purchase, they will do just that. 10% down will prob be the norm for our area for a good while…and the overwhelming majority of homeowners pay their bills on time. Investors are a bit scared right now as they buy pools of REO’s in 20-30 million dollar blocks. They are then reselling these for min of …more money for the short term in their eyes I suppose. Just watch the pricing in your area…once you see about 3-6 months of increasing values…the bottom will be in your rear view mirror and you can then decide if those prices are right for you.
May 11th, 2008 at 7:18 pm
Wow. Cutting edge news!
May 11th, 2008 at 7:39 pm
That all maybe true… but now we are gaping lower. I would suggest that we are not in an over correction zone but, moving toward the historical support fundamentals. Although we will likely over correct.
I doubt seriously that we will see a return of the days of ‘innovative financing’. Most of us have what we have because the bank says we can… people have proven that if the banks allow them they will ‘buy’ things regardless of price. The legislation pending now for mortgage origination coupled with the serious stress that banks are under will mean a decade or more of serious problems in the banking and mortgage industry. Most RE investors in our area know that prices are not likely to recover until to the 2006 level until 2020. That suggests a long cycle of declines or flat prices in SoCal.
This is not unprecedented. In fact, it has happened before here… this time it (the bubble) was three times as large. My money is in energy, alternative energy, networking tech, and commodities.
Best of luck to all… but, everyone do yourself a favor and just be objective in your reasoning. If you are struggling it is natural to hope that this will be a “quick reversal”. But, many people say that same thing about the new ‘odd mole’ on their torso. Get professional help! Don’t pretend you don’t have cancer b/c you don’t want it to happen…. get yourself help….
BD
May 11th, 2008 at 8:17 pm
Only half? Could have fooled me.
May 11th, 2008 at 8:38 pm
It is all relative…each cycle is always different, and the downturns rarely last as long as the growth patterns.
May 11th, 2008 at 8:51 pm
Here’s a good article about the housing bubble in OC.
http://money.cnn.com/2008/05/01/real_estate/Regnier_Postcards_from_the_Edge.moneymag/index.htm?postversion=2008050818
It makes a few good points and includes an couple of interesting stories. Including a couple in Ladera Ranch who can’t sell their house and won’t lower their asking place even though homes nearby are listing for more than $80,000 below their asking price, “out of respect for the neighborhood.”
And a family renting a 5,000-square-foot home in Huntington Beach with a harbor for their backyard for just $2,800 a month. I wouldn’t call that a bitter renter.
May 11th, 2008 at 9:12 pm
I think the point of the article is to show that people are paying for a home that is worth far less than they paid for it. Look at 2006, almost 71% are upside down. The market will likely decline further before it levels out, it will go flat for awhile than begin to rise again. So how long will it take for those that bought in 2006 to see any real equity in their homes. It seems to me that it would be 5 to 10 years. This forces many people to stay in those homes. Their ability to move up is greatly crippled.
This data further shows that the increase from 2000 to 2006 were far from realistic and not based on any true value of what these homes should be worth.
I am a renter and I want prices to decline further so I can purchase at an affordable price…of course this is true. I dont however want to see families lose ther homes…but sadly it is the cure for the disease. I see it as the disease of greed.
Thoughtful, you cant be so flipant to say no big deal there are 50% who are not upside down. There is no prescident for this…For more than 1/2 the homeowners to owe more than their house is worth is a huge deal.
May 11th, 2008 at 9:17 pm
Dang
Guys, calm down.
Jon, you’re going to give truthi and other bubble buyers in here a heart attack by posting these sober facts.
Like truthi says, the $200,000+ loss is only on paper.
Other than losing a couple hundred thousand dollars, paying interest on it for 30 years and paying higher property taxes as a result, you should easily be able to break even in around 20 years.
“For ‘06 buyers, the number increased to 71%”
Considering record sales numbers during this time frame, there’s a lot of upside down buyers in OC charging up credit cards, not paying property taxes, emptying their 401K and a host of other desperate moves that will only make matters worse for them.
You would think they would learn from their mistakes, but they can’t even admit them.
May 11th, 2008 at 9:20 pm
BD made some good points today
this housing bubble is serious
it’s serious like cancer
those of you who are hoping for a quick turn around because you are in pain, i can not fault you…………… but the quicker you face reality the quicker you can recover…… 2006 prices likely won’t be seen until 2020
May 11th, 2008 at 9:29 pm
BD had this to speculate: “Most RE investors in our area know that prices are not likely to recover until to the 2006 level until 2020.”
You certainly are an opinionated son of a gun. NO, I repeat, NO local real estate investor KNOWS diddly squat about when future prices will be, at whatever level.
Sounds like you need to step away from the Peter Schiff tapes you bought on NationalBubble’s website.
May 11th, 2008 at 9:31 pm
Dood,
1988 prices were seen in 1998 in good neighborhoods in the OC in the last bubble
this bubble is twice as big
again i don’t fault you for your hope, but some people are better off dealing with reality
May 11th, 2008 at 9:35 pm
BD:
You are right. Both Thoughtless and Mulli need professional help. They need to get their head checked.
People who don’t see reality for such a long period of time are delusional and desparate.
It is funny to see that Thoughtless is scoffing off at these numbers and saying only half are under water. Real estate slowdown and pricess drop is a big elephant in the living room. Few clowns can not see the reality. That speaks for their intelligence and why they got into this trouble in the first place.
May 11th, 2008 at 9:49 pm
Sighburrmoron:
People who don’t know diddly squat about real estate are perma bulls like you.
Smart money is on the side line, waiting for further drop in prices.
Moody’s economy dot.com has been very precient on this downturn and their predictions of downturn have been very correct so far. (You won’t buy any argument for further decline in prices because you are just not used to logic and reasoning.) They are predicting bottom in Southern California in fall of 2009. You should read their analysis. (It was posted few times on this site by other posters last year when you writing under different name.)
May 11th, 2008 at 9:56 pm
One of my buddies I trade investor tips with who was actually around back in 1933 as a child joked with me about an obscure US law. A little far fetched that it will occur today - but something for the coffee room, if you will.
http://www.austincoins.com/confiscation.htm
I’m curious as to the repsonse this receives.
Before anyone gets their panties into a bunch, I’m right there with you - I am currently invested quite heavily in gold since 2000 - which is why he brought it up.
May 11th, 2008 at 10:09 pm
That was very interesting NBI…I would agree with you that it would be rare for it to occur today…but you never know with O’billary.
May 11th, 2008 at 10:46 pm
I heard from a local lender, that “in general’ most of the defaults today in South OC had a mortgage equal too what it would cost to carry a mortage, tax, insurance etc…using the current OC median. Defaults in other poorer parts are giving up much faster as their incomes are much too low to support their purchase.
He said its all about credit and the buyers ability to provide a real DP and service the monthly payment and at these prices the numbers just don’t look good, so everybody is waiting.
He said expect more declines in the second half and into next year and a flat period for a couple of years but much higher rates.
Dont know if this is true but the cycle thing sure is working agian.
May 12th, 2008 at 5:55 am
“Consumer Bankruptcies Up Almost 50% Since Last Year”
Consumer bankruptcies were up 47.7% in April compared to a year ago, with 92,291 Americans filing for bankruptcy last month.
The sharp spike in consumer bankruptcies reflects the growing financial stress faced by American families, saddled with household debt and mortgage woes.
http://www.financial-planning.com/asset/article/580951/news/consumer-bankruptcies-up-almost-50-since.html?pg=&topicName=news
May 12th, 2008 at 6:29 am
Yes Thoughtful and Mully must need professional help as we do not agree with a wagonful of renters. I realize some of you bears own homes out there and like to banter for sport. But if you are a current homeowner today, and you are wishing for prices to decline further for the “betterment” of our economy, you are being dishonest with yourself and the rest of this blog. I own my home…why on earth would I want prices to continue to decline? Tell me how I am wrong…
May 12th, 2008 at 6:49 am
If the market is down 20 percent since top, and the average downpayment is in the range of 10 percent, you would expect half the people who bought at the top to be technically “under water.” Why is this news?
May 12th, 2008 at 6:56 am
CB: the register is reaching here. The better headline would be: OF ALL OF THE HOMEOWNERS IN OC, APPROXIMATELY THERE ARE 1,000,000 HOMES IN OUR COUNTY…OF THESE LESS THAN 5% ARE UNDER WATER.
May 12th, 2008 at 6:58 am
c-balls, i think it’s news because we are seeing that being underwater is as big a driver as affordability in current foreclosures and thus as much of a leading indicator as price to income and price to rent ratios
pretty much every indicator shows an additional 20% drop in prices
as home prices drop and more people are underwater……. there is less of a desire for one to over extend themselves with 60% of their income going towards a depreciating asset each month……
TA TA
May 12th, 2008 at 7:05 am
In other news: oil is expensive, May gray is here, dogs bark, schools graduate next month, and the bears here will insult and name-call current homeowners who wish for appreciation vs. depreciation.
May 12th, 2008 at 7:20 am
Mav, You have no way of knowing these folks are a big driving force in the market. You have no idea how many of these “under water” folks are actually in the market selling their homes or what percentage of those that enter the market are of the entire market. 100 percent of people who bought their car new have an asset worth less than when they drove it off the lot. Unless they all decide to sell their cars at once as a result, it’s not going to trash the used car market.
May 12th, 2008 at 7:41 am
More “facts” from zillow. Oh brother…worthless cyber occupancy site…completely worthless.
May 12th, 2008 at 8:18 am
Great line, Mulli!
“Yes Thoughtful and Mully must need professional help as we do not agree with a wagonful of renters.”
On skipping, it is culturally acceptable in some places to do so. That will not cross over easily. In other news: pending sales continue their march upward, multiple offers rule the day, jumbo rates are fantastic and the FHA bill is imminent. Yeah!
May 12th, 2008 at 8:19 am
What would make anyone think that someone who moved into a new home in 2005, 2006 or 2007 is itching to move?
May 12th, 2008 at 8:23 am
hey folks, congratulations!!!
Orange County is once again in the national news!!
We are popular.
May 12th, 2008 at 8:25 am
Mully, good job calling out the fear mongers who like to equate Orange County real estate to a stock worth zero. That’s just a crude atttempt at psychological warfare. All these flippers simply can’t (and won’t) wait to own again.
May 12th, 2008 at 8:32 am
Thoughtful Says: “What would make anyone think that someone who moved into a new home in 2005, 2006 or 2007 is itching to move?”
How about job transfer, divorce, a new baby, downsizing…
There are so many reason people sometimes HAVE to move.
Also, a large percentage of the people who bought at the peak didn’t buy because they wanted a warm place they could call “home” for the next 20 years.
No, they bought because greedy people like you (and most real estate agents) told them that if they didn’t buy, they would be priced out of the market forever and greedy mortgage brokers told them there was no risk on buying and worst case, they could sell the house for a profit.
When you have a housing boom based on greed and not on economic fundamentals, of course you are going to have the corresponding housing crash.
May 12th, 2008 at 8:39 am
Bubbs: with all due respect, the reasons you gave will not be the majority of people who live here in OC. I would guess that less than 5% of the total homes owned in the county are upside down. But that is not a sexy headline is it Captain negativity?
May 12th, 2008 at 8:51 am
Bubble is so silly. Yes, bubble I am personally responsible for influencing families to buy real estate. I’m omnipotent.
May 12th, 2008 at 8:52 am
Bubble NEEDS divorce and death to be a big factor in the next few years. What a weenie!
May 12th, 2008 at 9:08 am
No, divorce and job transfers have always been a big factor for people selling homes within 2 years of buying.
However, in some areas, there might be some other reasons for the urgency to sell. How about foreclosures and short sales?
Take a look at all these people in Santa Ana that apparently are desperate to sell right now. It seems like they bought at the wrong time, don’t ya think? Almost every home now for sale in that area and bought in 2005-06 is upside down.
Ouch!!!
May 12th, 2008 at 9:12 am
Hey Bubbs…who in their right mind would want to live there? Could you pull Garbage Grove too while you are at it? The cherry picked spec map you have there is obvious as to why there are so many homes on the market. Your transparency is here for all to see…
May 12th, 2008 at 9:22 am
People, please. Before you get yourselves all worked up into a lather, remember this: there was a report released on this very blog which stated about HALF of the homes expected to be built over the last 15 years were actually built.
Because of environmental and local “free land” ordinances, there is far less land in Central and Northern Orange County available for building. In other words, you can’t create any more land for placing new housing. This means, eventually, home prices MUST return to their upward trajectory. It’s your basic law of supply and demand.
May 12th, 2008 at 9:23 am
Well, I wouldn’t in Santa Ana but Santa Ana is certainly a huge part of Orange County. Probably the largest city so the one who cherry picks the numbers is you because ignoring Santa Ana, Anaheim, and Garden Grove is just ignoring more than half of the county.
BTW, Lake Forest is also upside down for people who bought at the peak. Are you going to tell me that nobody wants to live in Lake Forest?
I live in Newport Beach and even here I see some upside down homes but you can’t measure OC by Newport Beach, CDM, or Laguna Beach. These cities are tiny compared to the rest of Orange County. So, who is the one cherry picking the numbers?
May 12th, 2008 at 10:01 am
for those who can handle the awful truth heres a great article
http://www.safehaven.com/article-10204.htm
May 12th, 2008 at 10:08 am
Here’s MY take on the headline of this thread, for what it’s worth.
According to recent articles from Steven Thomas, THE preeminent statistical guru talking strictly about Orange County real estate, and nowhere else, with more than 50% of houses NOW going into escrow, labled as “distressed” properties, I would humbly submit that of the “half” of the “upside down” former 05-07 buyers, at least 90% of them purchased for $750k, or less, and with less than 10% down.
( And not ALL of them are going to walk away from their financial obligations.)
The OTHER half of 05-07 buyers probably put AT LEAST 25% down, and are nowhere near being “under water”.
With this “correction” having OBVIOUSLY now reached its bottom, there is no need for any of them, or, any of us who bought before 05, to be worried about being ‘upside down”.
May 12th, 2008 at 10:13 am
Here is some data I found on price per square foot in four middle class cities. It’s very interesting to see that the largest percentage declines in these cities are in the 1 bedroom (especially) and 2 bedroom products. The 3 and 4 bedroom products are not seeing the same level of drop. Most of these larger products saw drops YOY in the low to mid teens, percentage-wise. There’s also a comparison to 2003. Enjoy!
Irvine
Beds / Apr-08 / Apr-07 / Apr-03 / $PSF-YOY / $PSF-03
1 / $314 / $427 / $276 / -26% / 14%
2 / $377 / $436 / $276 / -14% / 37%
3 / $366 / $419 / $271 / -13% / 35%
4 / $348 / $397 / $257 / -12% / 35%
Laguna Niguel
Beds / Apr-08 / Apr-07 / Apr-03 / $PSF-YOY / $PSF-03
1 / $277 / $440 / $284 / -37% / -2%
2 / $352 / $418 / $268 / -16% / 31%
3 / $354 / $409 / $280 / -13% / 26%
4 / $344 / $391 / $263 / -12% / 31%
Huntington Beach
Beds / Apr-08 / Apr-07 / Apr-03 / $PSF-YOY / $PSF-03
1 / $607 / $547 / $356 / 11% / 71%
2 / $426 / $496 / $307 / -14% / 39%
3 / $432 / $465 / $305 / -7% / 42%
4 / $373 / $461 / $293 / -19% / 27%
Rancho Santa Margarita
Beds / Apr-08 / Apr-07 / Apr-03 / $PSF-YOY / $PSF-03
1 / $284 / $384 / $257 / -26% / 11%
2 / $303 / $418 / $265 / -28% / 14%
3 / $292 / $353 / $255 / -17% / 15%
4 / $312 / $361 / $220 / -14% / 42%
Since we know the median home has 3+ bedrooms, taking a decline of 14% on these products, assuming a $600,000 median, yields a theoretical dollar drop of $84,000. Not chump change, but also not the wildly exaggerated $200,000 that Bill often cites.
May 12th, 2008 at 10:19 am
This just in; regarding the OC housing market forcast through 2012:
http://ca.youtube.com/watch?v=ZarmRLa2p9Q