Why Orange County Home Prices Are Soaring

Robert Shiller says: recovery for housing is in process.

With the numbers of foreclosures, and notice of defaults shrinking in Orange County the real estate market is soaring.

 

Keep growing Orange County Real Estate Prices!

The shortage of homes for sale and rising home sale prices are being driven by three forces: 1. Banks and Wall Street Investors 2. Foreign buyers and 3. Fearful owner occupants who wait to sell or can’t sell because they are upside-down.

The major banks and Wall Street good old boy firms, (many were subprime lenders five years ago) now have reorganized themselves into real estate “investors.”  These all-cash investors are buying distressed property at the low end of the price scale, muscling out first-time homebuyers and smaller mom-and-pop investors. Big investors, like Blackstone, Colony and others, are snatching up low-priced housing units in bulk and renting them out to people who can’t buy. By amassing thousands of rentals, the Wall Street landlords are putting a crunch on housing supply, driving up prices and making millions of dollars. Thank you stodgy bankers for hoarding all the homes under $200000.

The second influence is the increase of foreign nationals buying investment properties in California, Arizona, Florida and Texas. Foreign investors driven by a multitude of Ponzi seminars and gurus who wrote a book on “get rich quick flipping properties in the United States” are buying cheaper housing units sight unseen. I see more Canadian investors than in the past fifteen year cycle. Right behind them are Chinese, Taiwanese, Australian, and Middle Eastern buyers all eager to find properties on the internet and make all cash offers.

As a mortgage lender I am getting several calls a day about our foreign investor loan programs. The biggest problem with these buyers is they have been told nonsense ideas to vest each property in separate LLC’s or entities. They often have complex financials with one parent trust. Unfortunately, with layered financials, their package appears often too complicated to actually show income enough to close on a traditionally priced loan. Canadians don’t have to go through all the fiery paperwork hoops that Americans do to get a home loan. They send in about twenty percent of the information and begin to argue about why so many items are required. The obvious solution is for foreign investors to close with a low documentation loan. Foreign investors are not required to go through the income tests that Americans must complete, but the cost is not in the four percent range. These loans cost around eleven percent and have larger upfront fees due to the high level of risk.

Unfortunately for stability in the market:  home sales and prices are up, but home ownership is down because it’s investors  — not first-time homebuyers —  who are buying up the majority of homes. RealtyTrac  shows  3.5 percent of all home purchases in the first quarter of 2013 were closed by “institutional investors.” Institutional purchases are up 34 percent from a year ago.

Meanwhile, the housing “scarcity” is a result of two factors: 1) borrowers who are “upsidedown”  -they can’t sell, but have hung on making payments out of pride or job reasons, and 2) banks refusing to modify underwater mortgages. Since more than 25 percent of all borrowers — or 11.3 million homeowners— are underwater, these homeowners can’t sell, can’t refinance and can’t get a loan modification.

Many homeowners are waiting to sell because prices are rising in many markets. In Laguna Beach the single family house under a million dollars is gone. A home on Santa Ana that I looked at sixteen months ago listed for $ 850000. They did not get an offer and took it off the market. This month they re-listed for $ 950000 and received multiple offers for larger than full price. No improvements where done to the home.

Sitting vacant are 14.2 million homes, this creates hardship, crime and a giant sink hole in a community. Would you want to live next to the vacant house that squatters are making a fire out of scraps to keep warm in Detroit?

Mortgage Blue Jay in my window, he is ready to soar.

(Curbside appeal of these two planters with waterfalls of flowers in Corona Del Mar)

Still buyers are interested in homeownership.  We all dream big.

 

Orange County California has turned the corner with few foreclosures and a trickle of notice of defaults. Most notice of defaults are located inland Orange County. A number of these properties are unimproved land. Here is a list of the locations that still are upside-down often with two lenders and not listed for sale:

East hill, Coto De Caza

W Martha Lane, Santa Ana

San Antonio, Fountain Valley

N Genesse St, Orange

Mount Neota, Fountain Valley

Mohave Way,  Rancho Santa Margarita

Granada, Newport Beach

N Fairview, Santa Ana

Walker Lane, Fullerton

Cabrosa, Mission Viejo

Foxtail Drive, Yorba Linda

W Palmyra, Orange

E Altura, Orange

Avon Cir, Westminster

Durango River Circle, Fountain Valley

San Angelo, Westminster

Poindexter, Garden Grove

Kings Place, Newport Beach

E Avenida Cornelio, San Clemente

Hopping St, Fullerton

Laguna Beach distressed or foreclosed homes on the market:

Smithcliffs Rd

Wave St

Rockledge Ter

Terrace Way

Wesley Dr

Van Dyke Dr

432 1/2 Jasmine St

Jasmine St

N Portola

432 & 432 1/2 Jasmine St

 

 

 

Garden gate in Corona Del Mar California, one niche market that is soaring

Candians Buying Real Estate In American Jungles?

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I am seeing an increased interest from Canadians who want to purchase real estate in the United States. There are many “experts” out there providing seminars (for a fee) on how to get rich off the American Mortgage and Real Estate Crash. The problem is the advice doesn’t often fit the practical steps to actually make any money.  Holding title in tricky structures will not work with an American mortgage lender. Investing your hard earned money in a jungle, requires careful planning. Canadians must be aware of the differences in state and local laws, as well as restrictions some cities have about weekly or monthly rentals.  Having a home town expert you can trust is vital. Purchasing property is all about the location. Buying rental property is also tricky when rents can be siphoned in cash. The key is to have safe stop gaps, honest /reliable management and manage costs. The ability to obtain low rate mortgages, locate expert hazard insurance and negotiate costs are advice a Realtor lender and tax advisor can help guide. Canadian mortgages are different from those available in the US.   Americans prefer a thirty year fixed rate loan where they can count upon low payments and know exactly what to budget for in the future. Canadian loans are typically five or seven years. Since the crash, obtaining a loan in the United States is a complex number of papers. Two years Canada revenue taxes (showing that you own rental properties already) current paystubs, the past sixty days bank statements and two forms of photo identification are only the start. There are other decisions such as how to hold, or vest the property. Setting up an entity such as LLC  or Corporation is expensive, adds to ongoing costs and many lenders will not allow this. Conventional mortgages are held in Joint Tenancy so complex strategies that guru get rich quick in real estate experts advise, is not going to work with getting a low rate on a mortgage.

In addition to adjusting to the rules and crazy regulations that Dodd Frank set forth to mortgage loans in the United States, Canadians need to understand all U.S. income tax considerations of owning U.S. real estate. Canadians are subject to American rule as to how rental income and the capital gain on the sale are taxed.

The American Internal Revenue Service (IRS) imposes estate taxes on Canadians who own U.S. property at the time of their death. This tax may apply when the value of the Canadian individual’s estate exceeds five hundred thousand dollars and the U.S. property is valued at more than $60,000. These numbers are U. S. dollars, not Canadian. The estate tax currently has a top rate of 35%. Taxes in the U.S. are likely to only increase.

There are also state specific forms of taxation. For example some States do not charge State Income tax but they collect huge transfer tax fees, require attorneys to handle transactions and on and on.

 
Direct ownership is the simplest avenue to hold U. s. real estate, such as Joint Tenancy or Sole tenancy. However this individual ownership has its own liability risks  for a Canadian individual, who is neither a U.S. citizen nor a U.S. resident, to own U.S. real estate.

Because each individual is allowed his or her threshold amount, ownership of the property can be split between spouses and others (children or family members).

 
In the past Canadians owned personal-use real estate in the U.S. through a single-purpose Canadian corporations. This strategy dos not avoid the U.S. estate tax since the property wouldn’t be held by the individual. In 2004, the Canada Revenue Agency (CRA) indicated that the shareholder of such a corporation would be taxable on the deemed benefit of using a property owned by a corporation,

Ownership through a Canadian trust is another method to eliminate exposure to the estate tax. The Canadian trust alternative can be beneficial for a married couple. Under this form of ownership, one spouse (the settlor) creates the trust for the benefit of the other spouse and children. The settlor funds the trust with cash to purchase the real estate and cannot be a beneficiary or trustee nor have an interest in the capital of the trust. This creates difficulty in opening matching trust bank accounts,

The disadvantages to this type of ownership start with the settlor’s inability to control the trust or to benefit from any trust distributions of money or property. Also, if the settlor is predeceased by the spouse and ownership of the property is continued by the trust, the settlor must pay rent to the trust in order to remain at arm’s length from it so that the IRS cannot deem that the settlor owns the trust property personally

United States citizens can borrow money or acquire a mortgage in a Living Trust but Canadians cannot. Only Living Trusts that are revocable and approved by the lender are suitable. Canadians setup Canadian Trusts for the purpose of avoiding the I. R. S. and providing all the ins and outs of your structure are counter to the purpose.  

Mortgage lenders, banks and financial institutions will freely provide your information to the I. R. S., when asked to do so in the future. The largest lender in the United States is actually the U. S. government, (transparency is the key word).

My advice is to research the risks, ask for advice, and like the elephant above learn from your mistakes.

 

Low Payment Condo Orange County California

10 Mira Mesa Rancho Santa Margarita California
Condominium for Sale $ 539,500.00

 

1750 Square Feet Three Bedrooms 2 3/4 baths
Listing Agent Jared Ricco  (949) 677-2791
Sausalito Tract

Conventional Loan five percent down payment =$ 26975.00

30 Year Fixed Rate mortgages rates are still at amazing lows!

$512,500.00 loan amount    payment principle and interest  $ 2409.96
                                                                     property taxes                     585.00
                                                                     hazard HO6 policy                35.00
                                                                     HOA fee
This low payment is cheaper than renting.

 

 

 

This condo is in the Sausalito tract. It has a lovely community pool.