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The other day we saw the June sales above $800,000, here is the chart for the $400,000 to $799,000 range, in alphabetical order:

2007/2008 June Sales of Detached Homes

In the higher-priced areas like Carlsbad and Encinitas, there appears to be squish-down in effect, and in Oceanside and Vista where the $400,000 to $799,000 is the high-end for those areas, sales must have dropped down into the lower ranges. La Jolla, Rancho Santa Fe, Del Mar, and Solana Beach had no sales under $800,000 either year.

Hat tip to yourkillingmelarry for pointing out this article in BusinessWeek:

The next wave of foreclosures is expected to gather strength when the million or so option ARMs start resetting in large numbers next spring. But it seems that many of these loans, which allow borrowers to make minimum payments that don’t even cover the accrued interest, are already going delinquent.

According to a recent analysis by Lehman Brothers, option ARMs that originated in 2006 performed about as well as fixed-rate Alt-A debt for the first 12 months. But by the time they were 2 years old, about 2.1% of performing loans were going 60-days delinquent each month. Compare that to a 1.2% of current loans going delinquent with other Alt-A loans. The rate of increase in delinquencies is even beginning to approach that of subprime, which is about 2.5%.

“It’s a better quality borrower but the rate of increase in delinquency is looking closer to subprime than Alt-A,” said Akhil Mago, the head mortgage credit strategist for Lehman Brothers, said.

Strange, right? The loans were generally given to folks with good credit, most of whom are still only making minimum payments.

Looks like these borrowers might simply be giving up on the mortgages because they have less and less of an incentive to keep paying. Option ARMs give borrowers a choice of making a minimum payment that only covers a small portion of the interest, the rest of which is added to the loan balance. With years of unpaid interest accumulating and house prices falling, some homeowners have seen their equity disappear and now owe more than their initial loan balance. The gap between the original loan balance and the value of their home is only widening as home prices fall. Many of these borrowers were given the loans with only a requirement that they “state” their income rather than verify it (The result: Lots of folks exaggerated their salaries). So, these borrowers might only be able to afford the minimum payment, which can increase by 7.5% a year and then more than double when the loan recasts.

A major concern is that 70% of option arms are concentrated in California and Florida – two states that have already been hard hit by the housing slump. Subprime mortgages, on the other hand, were dispersed across the country (about 60% of them were outside Florida and California) And as prices in those states continue to fall, refinancing options for these borrowers disappear even as recasts loom.

Option ARMs originated in 2006 make up about $140 billion of the $350 billion of outstanding option ARMs and 45% to 50% of them are expected to default. The 2007 option ARMs, which were originated just as home prices began falling, are expected to perform similarly badly.

Bold added

All types of homeowners are thinking about walking away - in this case, the builders of the seven new homes on Newland Ct. in Carlsbad formed an LLC so they'll probably dodge the ruining-of-credit problem. 

Too bad they didn't sharpen their pencil a little sooner on their prices.  When they started selling these in the summer of 2006, they were looking for $1.4 to $1.5 million, and when the first set of listings expired at the end of 2007, they were down to $1.2 million.  But buyer expectations were either dropping faster, or close to non-existent for 3,500 sf homes that back to Carlsbad Village Drive.

The current listings on the Newland Seven are on the range $895,000 to $995,000, but too little, too late.

The lender, United Commercial Bank, is foreclosing on their $6.4 million loan, and had their trustee sale scheduled for today - but it postponed to next month.  The profit was too tight - so their business decision became obvious - they decided to walk too.

The walkaway option will occur to many, and there's not much to stop people.  I think the LLC will be obligated to pay tax on the loss endured by the lender - wasn't the tax relief offered only to those who owner-occupied?

Should the government reverse the decision on not taxing the money lost by the banks by owner-occupiers?  That decision really opened the floodgates, and it's probably too late to turn back now.

This was left today on the previous thread started last week:

watuppp (Unregistered) commented on Data on Subprime and Alt-A:

I feel compelled to this string. I bought my home in 2005. My FICO score was over 750. I could document my income. I purchased my home financing 100% with 80% mtg. in the amount of 440,000 and a HELOC of 110,000. My household income is $175,000. My loan resets in 2010. As I sit here today I'm contemplating walking away from the home. I have no car payments. I have no credit card dept. 

I can afford the payments at the ceiling of the mtg. amount. When I took out the loan I looked at historical data for the vehicles my mtg. and HELOC's were tied to. My Mtg. has a max. ceiling. Using a worse case scenario I determined I could afford the payment. I would be living really tight, but could make the payments. The one thing I didn't take into consideration is the insane devaluation of the home. Given the current circumstances I believe when things level out in 3 to 5 years my home will be worth in the neighborhood of 200,000 less than the purchase price. Once things level out, appreciation will be about 1 to 3% a year. I simply can't afford to take that kind of hit. It could conceivably take 10 to 15 years to break even.

I'm not the only one looking at these numbers. I pay my bills. I always have. I consider myself responsible in that regard and my credit score reflects this. Regardless I have to protect myself and my family from financial ruin. I will be deciding this weekend if I'm going to walk away from my home. I'm meeting with a real estate lawyer and a tax accountant to make sure I have all the correct info. My research, which I will confirm, indicates that the bank cannot and will not come after me if the home goes into foreclosure. I'm pretty sure I will be taxed on the difference between the amount owned less the amount the home is appraised at when the bank takes possession. In other words the longer I wait the larger the tax burden will be if prices continue to decline. Does anyone here believe prices won't substantially decrease over the next 3 to 5 years?

Things are going to get much worse. People basically have to walk away. The government will set up programs to bail out the banks and they know that. I contacted my bank hoping to work something out but they aren't receptive. I have money in the bank I would be willing to put towards the principle if they were willing to refinance at a fixed rate for a lower principle amount. I wouldn't expect them to reduce the principle to the market price. I would be willing to take a hit in that regard, but I would expect them to take a hit also. They won't budge. What possible reason would I have to stay in the home.  I understood the terms of my loan. I understood the ramifications of the reset.I even was aware the value of my home may decrease. What I didn't understand and anticipate was the amount of the decrease in the value. It was my first home and admittedly made a mistake. Evidently it was the same mistake made by banks and Wall street who were much more educated and experienced than myself.

At the end of the day a home purchase and mortgage agreement is a business transaction. The bank who loaned me the money did so in a non recourse state.  They understood the terms of the contract and believed the risk of no down payment interest only was a good business decision. At this point it looks like I'll have to give the home back to them. I also have a credit line that is still available to me. I'm considering using it to compensate for the amount I'll lose when the government knocks on my door for what they consider "phantom" income for the difference between the amount owed on my loan the the value of he home. I consider the equity line phantom cash at my deposal.

I believe my real life example illustrates the individual vs corporations and government. I'm simply applying the same standards they apply when making a "business" decision. I guarantee I'm not the only one looking at this situation the same way.

Things are going to get much worse. Home prices will fall to 2000/2001 amounts.  Anyone who bought a home from 2004/2007 should get out now or risk losing their ass.

The bubbletalk didn't stop this sale. Note that he didn't rule out a run at the governorship:

Mitt Romney recently paid $12 million to buy a home on the ocean in La Jolla, Calif., near San Diego. His son Matt lives in the same area.  The former Massachusetts governor, whose main residence is in Belmont, Mass., says he has no plans to become a California resident, and the purchase has nothing to do with a possible future presidential run.

“I’ve always wanted to have a place on the beach where you could hear the crashing waves,” Romney says. “And you know, I’m 61; I’m not going to live forever. I said, ‘Ann, I want to get a place on the beach. I don’t care what size it is, but I want a place on the beach.’ And this spot, it’s not a huge home, it’s 3,000 square feet, but it is right on the beach, and you open the windows and hear the waves crash. It’s heavenly.”