Amber Nasrulla

Canadian in California
MAY 4, 2011 10:02PM

California real estate: foreclosures & shadow inventory

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San Simeon - someone paid the mortgage
My husband and I stared at the terracotta-tiled roof, palm trees and bird of paradise and pictured living in the house. I rang the bell. A sleepy teen in a cut-off T-shirt and wrinkled blue shorts opened the door and looked at us like we were the police come to cart him off to prison. No wonder: the dining table had several huge bongs on it shaped like a toadstool, a pineapple, and a stick of dynamite. The listing said the master bedroom boasted a two-way fireplace overlooking a sunken bathtub. Instead I was startled by the toilet that looked as if someone had sprayed brownie batter on it.

 

This home visit is part of an experience I’ve dubbed the “Pride of Orange County” tour. It’s got nothing to do with Southern California’s bisexual, gay, lesbian, and transgendered community, although I sometimes wish it did, because that would be uplifting. Instead, the tour represents my family’s quest to buy a new home and Pride refers to the phrase “pride of ownership”, which I’ve seen in numerous real estate ads. 


California accounts for something like 25 per cent of all foreclosures in the U.S. right now, and listings for distressed properties are popping up like spring crocuses. Those pride-filled ads describe gorgeous homes with kitchen counters made of the finest granite, stainless steel microwaves and fridges, and exquisite faucets by Porcher. But, when I read the word pride, I don’t just envision home upgrades, I expect to witness heartbreak or meet angry residents who want to trash their houses before they are evicted.

 

You see, the people who proudly purchased maisons five, 10 and even 15 years ago, often used home equity to finance renovations, buy BMW 7 Series sedans, Range Rovers, and second homes on Lake Havasu, AZ. And they can no longer afford to live here. Such as the home with the bongs, whose owners bought it in 1992 for $220,000 (USD) but owe $650,000 today. It’s priced at $435,000 as a short sale.

 

One realtor I spoke to, who has worked in north Orange County for 22 years, told me there will be a flood of houses for sale in coming months and, potentially, years, because of “shadow inventory”. These delinquent loans are anticipated to become foreclosures and are yet to be put on the market for sale. The National Association of Realtors recently estimated the shadow inventory in the U.S. is 2.49 million. And it’s rising. 

 

From January 1 to March 31, there were 68,239 notices of default (aka foreclosures) in Orange County, according to San Diego-based research firm, DataQuick Information Systems. And according to RealtyTrac.com, the average sales price of houses here was $528,833, while the average sales price of a foreclosed home was $424,702. Cha-ching, the buyer saves $104,131. 


I’ve seen newlyweds at open houses and they’ve got a shot at getting it right from day one.  I'm suggesting that, if buyers get a deal on a house today and save $104,131, they shouldn’t blow it on a built-in outdoor BBQ and a $90,000 car. Living within your means, shouldn’t just mean something, it should mean everything. It's time to take pride in restraint.

 

Confession: at times, I contemplated taking equity from our house so we could redo our nest. It’d be nice to show off - "Hey, check out these awesome new doorknobs!" Ultimately, I was too chicken to spend money we didn’t have in our wallets. The upgrades we made to our 1,300 sq-foot loft (that we bought at the top of the market) were practical ones. The floor-to-ceiling windows in the living room face west and we didn’t enjoy sizzling at sunset so we had efficiency windows installed. Then we got custom closets… Of course, I’m not immune to temptation.

 

A few weeks ago, we looked at a 1,900-sq-ft duplex. It was bright, had vaulted ceilings, and a little garden out front. An open Bible and a pad filled with handwritten notes sat on the kitchen table next to a laptop. The owner, a pastor, walked in, and raised one arm to heaven. “Look,” he said, “the ceilings have been scraped.” He’d done just enough renovations, he said, to make the place comfortable. He looked so content I wondered what was luring him away. We love California, he said, but we just can’t afford to live here anymore. After eight years, the pastor and his wife were moving to Wisconsin. I admired his candor and his resoluteness. I didn’t ask him about pride of ownership, because it was obvious he already knew that when it comes to real estate in Southern California: "Pride goes before destruction, and a haughty spirit before a fall."  

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When such occasions appear you have to make everything possible to buy those properties because they are worthy. A couple of months ago I saw cheap http://www.primusgrp.com/ and I did not think twice about this, I bought a condo the next day.