[HenryPP]

I’m the first to admit that I am no expert when it comes to the housing market. But I thought it was the period BEFORE the auction date that had become very long, and that once a house actually went to auction it was only a matter of a few weeks or months before it hit the MLS. Either the bank took back the home at the auction and put it up for sale as an REO, or an investor bought it at the auction and sold or rented it out. (And for the larger and more expensive properties, investors usually go for a profitable flip).

If I understand you correctly, you’re saying there’s a third option – the house goes to auction and … then what? The bank takes it back and just keeps it in shadow inventory? But then why would the bank go through the hassle of foreclosing and having to deal with owning a now empty home where who knows what might happen?

Now I’m confused.

[HenryPP]

I too played by the rules. Other than my mortgage, I have almost no debt (except credit card that always gets paid off before month-end). According to my last credit report, my debt to income ratio is about 10% and that includes the mortgage. I’ve never been late and I am not underwater. Will I get a principal reduction? I don’t feel I really need it, but if I don’t, what does it mean when the people who were careful and played by the rules are forced to subsidize those who went ponzi?

As for the tsunami, here’s one for you: As I wrote elsewhere, I’m looking for a 2,500 to 3,000 sqft house in 4S. Well, according to RealtyTrac, there are a whole bunch of such houses with auction dates from Dec 2011 to Feb 2012. Presumably these will hit the MLS in the next few months, right? Would that not qualify as at least a small and local tsunami? 🙂

[HenryPP]

I’m not going defend the morality of it, but think of it from the bank’s point of view. Maybe the property had dropped in value even more than $200K. You said it’s a “high end house” in OC, which probably means over $1 million. Maybe it was worth $1.5 million when the loan was made, and it’s only worth $1 million now. So it might have been worth it for the bank to save what they could out of the debacle, eating a $200K loss rather than a $500K loss (or more, with all the costs of foreclosure). Like I said, I’m not arguing the morality of it, just the business sense.

A guy I know used that argument to get a $130K principal reduction on a 2nd mortgage. And he had never even missed a payment. His credit got banged up a bit, but he sleeps better at night.

[HenryPP]

EarlyRetirement,

Thanks for the clarification.

I drove and walked all over 4S today during my lunch break (yes, in the rain). I had not realized just how big 4S really is. Thankfully it was a slow day at work.

At $700K, these 3,000 sqft homes would be WAY over-priced. Even at $600K they’re still a bit too high. $550K and they get really interesting. Definitely under $200/sqft.

Well, thanks everyone for your thoughts.

[HenryPP]

Thanks OCR and SD Realtor.

I think the really brutal MR is in Del Sur. 4S has high MR, especially north 4S, but it seems mostly less than 1% of purchase price/year.

The thing that really got me was looking at RealtyTrac. The whole of 4S was clusters of the big red dots signifying some stage of the foreclosure process. There look to be about three or four times as many homes in foreclosure as there are listed in the MLS, once you go above 2,000 sqft. And this is for both north 4S and south 4S. Most of these show auction dates from Dec 2011 to Feb 2012. Lord knows when these will hit the MLS.

Actually, considering how over-priced these homes were when they were first built and sold in 2004-2007, I’m almost surprised there aren’t more red dots. Here is my best guess as to why it’s not a total disaster zone:

Lots of homeowners have kids in local schools, and like the schools and the area. Plus they have good jobs, so >$100K for single-income families, maybe $200K for dual-income. That’s enough to continue paying the mortgage if you absolutely refuse to leave and move the kids. Plus there are few good family homes available for rent close by. So even though a lot of these families are probably barely hanging on financially, they are still able to make it by cutting all unnecessary expenses.

[HenryPP]

Oh, I agree completely that Shelter In Place doesn’t mean a What Me Worry attitude. Sometimes the best course really is to run from the danger.

It’s just that in previous threads, I had noticed that some commenters said specifically that 4S construction quality is poor. I was just using the fact that 4S seems to have done well during the 2007 fires to raise a potential counter-argument: Zero damage from a major natural disaster –> Maybe construction quality wasn’t that bad after all.

And that’s really my main question: How good is the quality of homes in 4S, Del Sur, etc? Plumbing, craftmanship,…

Thanks for your thoughts.

[HenryPP]

As a follow-up, I found this in Wikipedia. Not sure if it’s an indicator of good construction quality or clever marketing:

“4S Ranch is one of only five communities in San Diego designed and built according to strict “fire safe” construction standards. These standards resulted in not a single home being lost or even damaged in any of these communities during the October 2007 fires which affected much of Southern California and burned over 2000 homes…”

[Author]

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