Floplords

During the Great Housing Bubble, many speculators tried to make money through trading houses. The vast majority of these traders were not professionals but amateurs who thought they could be professionals. Most amateurs ended up losing money because they did not understand what it takes to be successful in a speculative market. The first and most obvious difference in the investment strategy between professional traders and the amateurs in the general public is their holding time. Traders buy with intention to sell for a profit at a later date. Traders know why they are entering a trade, and they have a well thought out plan for their exit. The general public adopts a “buy and hold” mentality where assets are accumulated with a supposed eye to the long term. Everyone wants to be the next Warren Buffet. In reality this buy-and-hold strategy is often a “buy and hope” strategy — a greed-induced, emotional purchase without proper analysis or any exit strategy. Since they have no exit strategy, and since they are ruled by their emotions, they will end up selling only when the pain of loss compels them. In short, it is an investment method guaranteed to be a disaster.

There is plenty of evidence houses were used as a speculative commodity during the Great Housing Bubble. Since the cost of ownership greatly exceeded the cashflow from the property if used as a rental, the property was not purchased for positive cashflow, and by definition, it was a speculative purchase. Confirming evidence for speculative activity comes from the unusual and significant increase in vacant houses in the residential real estate market.

National Homeowner Vacancy Rate, 1986-2007

If markets had not been gripped by speculative fervor, vacancy rates would not have risen so far above historic norms. If houses had been purchased for investment purposes to make money from rental income, the houses would have been occupied after purchase and vacancy rates would not have gone up. A rise in vacancy rates would have resulted in downward pressure on rents, and the investment opportunity – if it had existed initially (which it did not) – would have disappeared with the declining rent. There is only one reasonable explanation for increasing house prices and increasing rents during a period when house vacancy rates increased 64%: people were purchasing houses for speculative gains and leaving them unoccupied while the owners waited for prices to rise.

When house prices stopped their dizzying ascent, many speculators found themselves with large monthly debt service costs and no income to offset expenses. Many chose to quit paying their mortgage obligations and allowed the property to be auctioned at foreclosure. Many chose to rent the properties to reduce their monthly cashflow drain, and they became accidental landlords. In the vernacular of the time, they became floplords – flippers turned landlords.

Becoming a floplord was fraught with problems. First, they were not covering their monthly expenses, so the losses on the ”investment” continued to mount. This was a convenient form of denial for losing speculators because they believed they were buying themselves time until prices rose again allowing them to sell later either at breakeven or for a profit. Since they bought in a speculative mania, prices were not going to recover quickly and the denial soon evolved into fear, anger and finally acceptance of their fate.

Another problem floplords faced was their own inexperience at managing rental properties. Most had never owned or managed a rental property, and none of them purchased the property with this contingency in mind. They often found poor tenants who did not reliably pay the rent or properly care for the property. This created even more financial distress and greater loss of property value as the property deteriorate through misuse.

The problems of renting were not confined to the floplords. Sometimes the renters were the ones who suffered. Many floplords collected large security deposits and monthly rent checks from tenants and failed to pay their mortgage obligations. This situation is called “rent skimming,” and it is illegal in most jurisdictions, but this crime is seldom prosecuted. Most of the time, the first indication a renter had that their rent was being skimmed was finding a foreclosure notice on their front door. By the time of notification, several months of rental payments were gone and the renters were evicted soon after the foreclosure. Renters seldom recovered their security deposits.

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Valuations in Northwood for homes 2,000+ SF are still bubbly. Recently we featured a floplord looking to cover about 2/3 of his ownership cost (or ask 50% more than the property is worth depending on your point of view.) Today’s post features another floplord in the neighborhood with Secret Gold. The property is going to be a big loser for the owner, and since you can rent an identical property for $3,900, it doesn’t make much sense to spend around $5,500 a month to buy it, unless of course, you like the $7,400 a month equity burn on top of your oversized payment.

$3900 / 4br – Gorgeous home in Northwood

38 Secret Garden Front38 Secret Garden Kitchen

Asking Price: $888,000IrvineRenter

Income Requirement: $222,000

Downpayment Needed: $177,600

Monthly Equity Burn: $7,400

Purchase Price: $1,080,000

Purchase Date: 5/15/2006

Address: 38 Secret Garden, Irvine, CA 92620Rental

Beds: 4
Baths: 3
Sq. Ft.: 2,315
$/Sq. Ft.: $384
Lot Size:
Type: Single Family Residence
Style: Contemporary
Year Built: 2005
Stories: Two Levels
Area: Northwood
County: Orange
MLS#: P601385
Status: Backup Offers Accepted
On Redfin: 165 days

Unsold in 90+ days

Gourmet Kitchen Award WOW!! Take a look at this Beautiful home in Desirable gated commmunity of Northwood II. OUTSTANDING SCHOOLS, PARKS, POOL AND CLUB HOUSE. ! Beautiful quality upgrades. Gorgeous gourment kitchen with cherry cabinerty, stainless appliances includes, wine refrigerator. Island breakfast bar, beautiful granite counters. Prestine wood floors, upgraded carpet, window coverings. French doors lead to relaxing patio with soothing waterfall. Short distance to shopping, library and the NEW GREAT PARK IN PROGRESS. Move-in condition. Low homeowner association fee.

WOW!! This realtor can’t spell commmunity, gourment, cabinerty, or Prestine. I am not a stickler about spelling, and in fact, I am not a great speller, but when the computer puts a big red line underneath it, I have to go out of my way to ignore it. Please, someone at the MLS needs to get spell check software.Rollback

What does the Great Park have to do with anything?

Interesting that $120 a month for an HOA fee is considered low.

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{adsense-ir}

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This property was purchased at the peak, and now if they get their asking price, the sellers stand to lose $245,280 after a 6% commission. This is their best-case scenario. If they become a floplord and hold the property all the way to the bottom, they will lose close to $500,000. Of course, they could always hold it until prices come back… in 2030.

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Secret GardenLet your arms enfold us

Through the dark of night

Will your angels hold us

Till we see the light

Hush, lay down your troubled mind

The day has vanished and left us behind

And the wind, whispering soft lullabies

Will soothe, so close your weary eyes

Let your arms enfold us

Through the dark of night

Will your angels hold us

Till we see the light

Sleep, angels will watch over you

And soon beautiful dreams will come true

Can you feel spirits embracing your soul

So dream while secrets of darkness unfold

Secret Garden — Prayer

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112 thoughts on “Floplords

  1. George8

    It says back up offer accepted. So I suppose it is in escrow.

    I personally would entertain this new one instead:

    128 Long Grass
    Irvine, CA 92618
    Price: $614,880
    Buy with Redfin and Save $12,298*
    Beds: 3
    Baths: 4
    Sq. Ft.: 2,106
    $/Sq. Ft.: $292
    Lot Size: –
    Type: Condominium
    Style: Spanish
    Year Built: 2008
    Stories: Three or More Levels
    Area: Portola Springs
    County: Orange
    MLS#: S524595
    Status: Active
    On Redfin: 4 days

    http://www.redfin.com/stingray/do/printable-listing?listing-id=1543695
    —–

  2. IrvineRenter

    It looks like there have been some significant price reductions out in Portola Springs. I suppose a year without any sales will prompt that kind of thing. Interesting that the Irvine Company has allowed this. Perhaps they are waking up to the conditions in the market?

  3. AZDavidPhx

    Not to menation – You’ll be able to rent the $3900.00 unit for 3000.00 or less in the coming years as prices tank. That can’t be good for this seller on the 2030 exit strategy!

  4. Mr Vincent

    Someone is buying this place thinking they are getting a 200k discount. Thats probably what the agent is telling them.

    People also bought Etoys stock when it went from 80 to 30 thinking they were getting a discount.

    This is a nice house, there is no denying that. I hope the buyers are prepared to hold on for a very long time.

    Looking at the recent ask price, the seller was looking for asian people since 8 is a lucky number for them. I have seen countless asian families just not care about the price because they will do anything to get the kids into their desired school district. This has been going on in my area of San Marino for many years now.

    This situation also occurred more recently in Diamond Bar. They ran up prices there to the ridiculous and now there are plenty of foreclosures there.

  5. Larrygg

    $900K for an ugly house that’ll be worth $600K in 12 months, What a Great deal!! Actually, come to think about it, it’s probably only worth $600K now!

  6. ipoplaya

    This house hit escrow on March 4th. Same plan closed escrow across the street on 2/29/08 for $840K… Another one in this tract a block away went into escrow this week. It is slightly larger.

    People who were considering these at $1M+ are probably happy to get them for $850K.

  7. ipoplaya

    It’s worth $800-850K now. That’s how much a house just like this one sold for just two weeks ago…

    $600K in 12 months is pure drug-induced fantasy. In 12 months this will probably be worth $750-775K.

  8. HumpyDumpy

    “”It looks like there have been some significant price reductions out in Portola Springs. ”

    Probably because no one wants to live within 1/2 mile of the city landfill

  9. buster

    Yup, Floplords are screwed. Case in point: we own a 2-bed / 2-bath condo in Irvine that we bought in 1987. We moved out last December and started renting it in February of 2008. My neighbor across the walkway flamed me for renting the unit for $1,675. He bought in 2005 and needs $2,200 to make the mortgage, insurance, HOA and taxes. He said that I “screwed” a lot of the floplords (over 50% of the community is rentals) by renting it so low. “How the hell am I going to get $2,200 when everybody knows you rented it for $1,675. You really screwed us all” is his exact quote. His unit (as well as the one directly above it are vacant.)

    Sorry, floplord, I was responsible. Lived there for 20 years, paid off my 15-year mortgage and now need only $500 or so per month to cover monthly costs. My goal was to rent as quickly as possible at whatever price I needed to get a good tenant. You, my floplord neighbor, decided to speculate and are getting burned. If you gamble and win, good for you. If you gamble and lose, don’t whine or cry. Just suck up your massive loss and move on.

  10. Mr Vincent

    You did good. After being a landlord for 20+ years, my #1 rule became: Its not the rental amount, its the people you rent to.

  11. tenmagnet

    There are some nice price reductions happening in Northwood II.
    The competition on Secret Garden should bring prices down further.
    Sure wish this were happening in Northpark.

  12. Kirk

    You think a 25% decline from here is fantasy? I don’t. Inland areas have already had 50% declines. They are the leading edge. Irvine is merely lagging behind them. Not sure how much Irvine has to go just to catch up, but 25% seems about right.

  13. IrvineRenter

    At the rate at which equity is burning in the marketplace, it will take 2 1/2 to 3 years to get down to $600K. Have faith; it will get there…

  14. Chuck Ponzi

    I don’t know how many people can afford nearly 4k for rent.

    Rent should generally not be more than 25% of your gross… this ratio is more firm than the buying of a home since it’s not tax deductible, but that would mean the renter would need 187,200/yr income. That’s a fair bit of income. Would someone who makes that much really want to rent? And, really, how many people are there like that that will rent?

    Chuck Ponzi

  15. Mike C

    You have a surprisingly good grasp of a successful traders mindset. I assume you have some real trading experience or you are a great observer.
    I have been fighting with the “Buy and Hold” mentality with customers, friends and family. The number of people that think they can outsmart me and the market itself is amazing. I had one person that literally went and bought $20k worth of bank stock within a week of me spending TWO HOURS of my time explaining the current scenario for free. Now the investment is for “the long haul”. On a happier note a customer pulled out $200k from a mortgage pool a few days ago that is guaranteed to fail.
    I tell people that if this is not your job simply remove your money from the market. People are terrified of missing “the bottom” and dollar cost average themselves out of all their wealth.
    Nobody understands that although they have a 1% chance of calling bottom they have a 90% chance of calling a recovery. It gets shouted from every rooftop!
    The concept that if you lose 50% now you will have to earn a 100% return simply to break even is also completely lost on the retail investor.
    People quote Buffett constantly without bothering to look at what he is actually doing. He said in Berkshire’s latest report that if you are expecting 10% share growth this century you are on acid. The days of lazy investing are over. They have actually been over for 7-8 years but very few have noticed.
    I have made a return of 55% over the last four months (99% conservative positons). This market is a killing field for the proffessional.

  16. caliguy2699

    Wow, the arrogance and nerve of the guy is incredible – flaming you for being responsible and reasonable instead of idiotic and trying to get too high a rental rate…I’ll bet this happens all the time around here these days and it’s sickening.

  17. AZDavidPhx

    Excellent question.

    According the various posters on this blog, people earning below 250K are in the minority. If this is true then 187,200K should be quite easy to handle. Of course, we all know that is bunk as the census data from during the bubble peak puts the median household income around $103,604 (http://en.wikipedia.org/wiki/Irvine,_California_). Pretty far off from the figures that the blog Charlatans have been kicking around.

    Assuming that the census data is correct (some of the tin-foil-hat crowd have claimed the data to be “unreliable”) then 4K rent is pushing it.

    If you are earning 75K per year then you are probably beinging home around 2000.00 per week after taxes. Assuming two pay periods for most months – you will spend 100% of your income on housing.

    So obviously people that do this depend on a 2 income household where one earner pays the rent/mortgage and the other earner pays the rest of the bills. I’d call this scenario “house poor”, but others on here call it a “premium” for living on sacred land. Call it whatever you want.

    Either way, 4000$ payment each month would be significant for the majority of people living there. I can’t imagine there are droves of potential renters looking to jump on that deal even on artificially inflated California incomes.

  18. AZDavidPhx

    Correction, I meant to say 2000.00 every 2 weeks (not week) if you are earning 75K year.

  19. AZDavidPhx

    Absolutely – this is quite a bargain if you are still living in 2005/2006.

    If you are living in 2008 then this is just a falling knife that is only starting to gain momentum.

    You can’t save all lemmings from jumping off the cliff.

    The market has to re-absorb the bubble equity from the current move-up crowd that believes the bottom won’t catch them.

    Kick back and get ready for some good Schadenfreude to come in the next couple years.

  20. WTF

    LOL! Yeah only about $400 a month with two associations and $1,000 a month in taxes on a property that is going for $600,000. Oh, and don’t forget the “unique floorplan”. Three Stories!

  21. AZDavidPhx

    It’s worth $800-850K now. That’s how much a house just like this one sold for just two weeks ago…

    SUCKERS!

  22. AZDavidPhx

    How the hell am I going to get $2,200 when everybody knows you rented it for $1,675.

    Looks like you over-paid for your condo, SIR!

  23. SeattleGameboy

    This market is a killing field for the proffessional.

    Based on what is happening with financial industry stocks and margin calls on hedge funds, I agree that this is a killing field for money managers.

  24. AZDavidPhx

    Somewhere along the line, house “buyers” re-wrote the definition of home equity which is why you see these “buy and hold” morons all over the place.

    They are willing to kill themselves just to hold onto the house without actually paying down the mortgage principle because they think it is all going to magically turn around and the music is gonna start up again.

    They believe that house equity is nothing more than the appreciated value of the home. And since everyone knows that house values never drop, it’s all good.

    Either way, they are doing their part to soften the bank’s landing by pumping their money into the depreciating asset.

    We should give these people public service awards.

  25. WaitingForFiveYears

    People are terrified of missing “the bottom” and dollar cost average themselves out of all their wealth.

    Nobody understands that although they have a 1% chance of calling bottom they have a 90% chance of calling a recovery. It gets shouted from every rooftop!

    I must admit that I am not very knowledgeable about how the markets work but I am curious. Could you explain that bit in layman terms?

    Thanks,

  26. girlbear

    Kirk is correct.

    Thanks to blogs like this and CR I sold my 10 y/o 4/3 home on a big lot in Corona (closed in Feb ’08) for 38% below peak to a cash buyer. I was able to because I had a lot of equity and I feel I got out just in time. Friends, family and of course neighbors are telling me “you gave it away, why not wait unitll spring when prices go back up!” Many people upset at me. Me, I’m happy with 200k in the bank (though I don’t like the USD and am looking for shelter) and have already rented a 2/2 right on the river in Redding, CA. I’m am blowing this scene of So. Cal and might come back for a bargin in 2011 or 12…………

  27. jcaraway

    I’ve never read any blog comment that claimed people earning below $250K are in the minority, Making up facts doesn’t enhance your credibility.

  28. 7

    The houses in my community are renting out for about $2k for a 3br/2ba, and with 3 families per house, each of them just need to pay $700. Pretty reasonable consider that each family has about 4 people.

  29. 7

    If I am your neighbor, I will rent your place and sublet it to other people and pocket the difference…

  30. ipoplaya

    $600K from today’s price would mean a 28.5% drop and while I do think that could occur eventually, it won’t happen in the next twelve months. Not with the sales pace we are having today in Irvine and the lack of significant inventory overhang.

    Sales have dried up in the IE as a result of subprime going bye-bye IMO. Demand went away. Subprime buyers probably weren’t buying many homes in Irvine so the constriction in the Irvine buyer pool has not been as great. I think we need oversupply here to get big price reductions or significant unemployment to quash demand…

  31. Lucy

    Of course it makes sense to rent, regardless how much money you earn. It is not the amount of money you have, but whether it makes sense to throw it to a burning black hole, called “HOUSE OWNERSHIP.” I agree that spending 4k on rent is plain stupid, unless you have a very large family (4 kids+) Even if you have all the money in the world, you have to be a total idiot to rent something in Irvine for more than $3000 – 3200. My huband and I make about 300K/year and yes, we are renting a very beautiful 2500 sf Westpark 4 bdr house for $3000. Obviously, we could afford to buy a very nice house. Many of my law school classmates bought at the peak and gave me dirty looks when I told them that I am renting. Now they are stuck in their not-so-great 800K+ houses with no equity, paying twice as much to the bank than I am paying to my landlord for a better house. I am a happy renter and I am in no hurry to buy because it will cost me double to own it. I don’t need to own a house to prove to everyone that I am successful, just like I don’t need to drive a mercedes to impress other people. But to answer your question, I think there are not many people like me (high income and renting), because many got brainwashed that high income commands house ownership. It’s sad, but it is true.

  32. ipoplaya

    Waiting – Bottoms usually form and pass into recovery before most people, even the most astute investors, realize they occurred.

    For example, when the Dow touched the high 11,000 range early this week, some market watchers postulated this could have been the bottom of a six or so month contraction in the equity markets. If it was the bottom, very few realize it now and you won’t hear about it until the markets are well into a “recovery” period.

  33. ice weasel

    Ipop I really don’t get you sometimes. You cite one comp and act as though it’s some immutable natural law that said property is then worth what the comp sold for. Anyone who has read here for more than a week knows that’s not the case. Certainly not based on a single comp and even if it were based on half a dozen comps, there’s not a single bit of a data in those hypothetical comps that say said property will hold its value for any length of time.

    Ipop, you’re sounding more and more like a realtor every day.

    There’s this thing, it’s called a declining market. Check it out. Really.

  34. ice weasel

    And if I was your landlord, I’d have a no subletting clause in the rental agreement.

    Come on. You have to try harder than that.

  35. Mr Vincent

    “The houses in my community are renting out for about $2k for a 3br/2ba, and with 3 families per house, each of them just need to pay $700. Pretty reasonable consider that each family has about 4 people.”

    Thats pretty funny.

  36. tenmagnet

    It’s extremely difficult here in the OC, where status and social value reign supreme.
    I see your point; some people want approval so bad, they get caught up trying to buy it at all costs.

  37. ipoplaya

    In this case, and in my humble opinion, this house is worth what the last comp sold for to the prospective buyers.

    This featured house in nicer, i.e. more/better upgrades, shows better, spent more on landscaping, etc. Also, the last comp was distressed/pre-foreclosure and I don’t think this one is… I could be wrong about that though.

    Considering a very similar home a couple of blocks away listed at $949K just hit escrow as well, I feel pretty confident about my prediction. The realtor on the similar house, Roula Fawaz, would not take $840K on a $949K list IMO, so that house is probably in escrow for $885Kish

    My guess is this particular house sells for $840-850K, more than the last comp actually. Just because I don’t ignore closed sales doesn’t make me realtoresque. It makes me realistic…

    If you read through my What’s Going Into Escrow forum thread, you’ll find that I’m fairly decent at forecasting closing prices. Yes the market is declining, but not particularly fast in Irvine today, so to assume a house will automatically be worth less than the last comp is a mistake IMO.

  38. AZDavidPhx

    jcaraway – Good for you.

    Unfortunately, I am not going to backtrack every thread of every post to prove you wrong.

    Let’s just say that anyone who believes the majority make 250K up is a brain dead fool and if anyone wants to challenge that then speak up now so jcaraway can extract his head from his lower orifice.

  39. FairEconomist

    Ipop, San Diego was down 6% in one month alone. Higher end areas like Irvine lag but they do follow. The decline is much faster this time out and 28% is doable in less than a year.

  40. CapitalismWorks

    It’s called wishing the market down. Things are getting cheaper in Irvine, but the Overall pace is glacial.

    Some people are going to have to realize that increasing their income is the only sure-fire way of improving their digs.

  41. CapitalismWorks

    There are plenty of high income renters. I love how everyone ALWAYS thinks they are unique. I assure you are not.

  42. ipoplaya

    What month was that FE? Here’s what I see for SD, and nothing approaches 6%:

    July 2006 249.05 -0.22%
    August 2006 247.30 -0.70%
    September 2006 246.60 -0.28%
    October 2006 244.04 -1.04%
    November 2006 242.11 -0.79%
    December 2006 238.07 -1.67%
    January 2007 237.16 -0.38%
    February 2007 235.54 -0.68%
    March 2007 233.28 -0.96%
    April 2007 232.64 -0.27%
    May 2007 231.80 -0.36%
    June 2007 231.37 -0.19%
    July 2007 229.67 -0.73%
    August 2007 226.73 -1.28%
    September 2007 222.82 -1.72%
    October 2007 217.02 -2.60%
    November 2007 209.6 -3.42%
    December 2007 202.45 -3.41%

    I’m not saying it’s not possible things could fall 25-30% in a year. Of course it’s possible. Considering most of last year’s 14% decline came over five months, definitely possible.

    I’m just saying that it is absolutely not going to happen in 2008 for Irvine given the current inventory and sales volume.

    I think we’ll have a bit of a bounce here the next couple of months with price declines leveling off. If we get some big inventory coming online in the summer or mortgage rates really move up, that’ll hopefully squash the bounce and we could resume a more rapid pace of price declines later in the year…

    If I had to place a bet today on 2008 price declines vs. 2007, I’d probably take the under, i.e. less than the 14% decline of 2007. I wouldn’t feel real confident on that bet, but if you gave me the over/under on a 25% decline for 2008 in Irvine, I’d take the under in a heartbeat and put big money on it.

  43. tonye

    Let’s just say you better go backtrack and provide that proof that you claim exists because you’re lying.

  44. IrvineRenter

    I suspect he is making reference to the tendency of people to exaggerate their income when referencing it anonymously in a public forum — which they do…

  45. Lucy

    “There are plenty of high income renters.” I don’t disagree with that. My personal observation of people in the similar profession (law) has been that more people tend to buy than rent.

    “I love how everyone ALWAYS thinks they are unique. I assure you are not.”

    ??? I AM unique. If YOU think you are not, then you should change your nickname to “SocialismWorks.” 🙂

  46. Stupid

    Price is where the supply and demand curves meet … and there’s a lot of supply coming…

    http://mortgage.freedomblogging.com/2008/03/13/oc-foreclosures-fell-in-february/

    Lou Pacific Says:
    March 13th, 2008 at 11:38 am
    This data is somewhat skewed as I get the daily list from Dataquick for OC and I can tell you to LOOKOUT next month as I have seen an AVERAGE of 50 pages a DAY of NOD’s alone vs 8-9 pages last month. There are about 50 per page. The figures you have are way behind. It takes a month for them to update but I see the numbers on a DAILY basis!

    Lou Pacific
    Real Estate and Mortgage Company Consultant
    Serving OC for 30 Years

    By the way Matt, KEEP UP THE GREAT WORK!

  47. IrvineRenter

    Don’t worry, I imagine CW makes more than all of us 😉

    IMO, OC is going to have a “come to Jesus” moment during this recession. As tenmagnet points out, there is tremendous pressure people put on themselves to maintain an illusion of wealth and status. This illusion is going to be very difficult to maintain without borrowed money to fuel it. As Warren Buffet put it, we will see who has been swimming naked once the tide goes out.

  48. ipoplaya

    Yeah, and we all know that one month median’s are suspect when it comes to signifying real price movements. I think that February’s median for OC was the same as January. Does that mean we’re at a bottom? I think not…

  49. Mario

    Ipop is completely correct in his assessment. The price of the assett, right now, is exactly what you can get on the market. Not more, not less.

    That’s the whole point of mark-to-market. The reason we’re in this mess right now is b/c none of this stuff was mark-to-market only mark-to-model (which is a very fancy way of justifying anything).

    Now if you are going from a fundamental analysis or valuation thesis, it can make perfect sense that the current price doesn’t support the long term price or income stream of the assett… or it vastly understates the future price/income stream. This is how investors make money, by making some sort of intrinsic value judgement and buying the assetts that are under-priced and selling or shorting the ones that are over-priced.

    None of this changes the price today.

  50. CapitalismWorks

    LOL. Thanks IR, but I think that fact that I post on this board regularly is a clear indication that I don’t make enough!

    That said, in reference to the theory that there is a dearth of wealthy renters, I have to say that some of the wealthiest people I know rent. They rent for the very reasons espoused on this board. Interestingly (taking a quick mental catalog) the attoreys I know own, so I guess you (Lucy) are bucking the trend of your peers.

  51. ipoplaya

    Where’s my boy zoiky?! For Feb, OC sales were off 39% from the previous year. The median price was flat vs. January.

    For Jan, OC sales were off 46% vs. the previous year… Get it zoiky? Sales, while still far below last year’s pace, which was the tail end of bubble pricing, are increasing relative to previous months, i.e. the pace of sales are picking up.

    Heck, even on a county-wide basis it looks like a bounce. Feb had only 100 fewer sales in OC than November but November had approximately 1500 more units in inventory. The months inventory number across all of OC has declined since November…

    It’s not a bottom, but it sure looks like a bounce to me.

  52. 7

    Tough landlord like you are the reason you have to rent it out this cheap. I am better than that to be your tenant. You are fired!

    Seriously, I am not too sure how difficult it is to enforce no-sublet clause. Do you drop in once a while to check out the tenant or what?

  53. IrvineRealtor

    Nice job buster for holding your ground. Imagine the scathing-neighbor-syndrome intensified about 100-fold if you were selling the property instead of renting it.

    I’ve observed a very good learning experience in the current downturn: greed is no longer being fed and/or rewarded. Much different from a couple of years ago…

    When sellers walk from decent offers, they are instead met with the reality of even lower future offers, an increased carrying cost, and more frustration.

    I don’t know if I really think there is going to be a “come to Jesus” moment for OC (see the Spectrum on any given weekend night), but a little less greed is at least a start.

  54. AZDavidPhx

    http://www.irvinehousingblog.com/2008/03/07/2157/#comments
    Comment by ipoplaya
    2008-03-08 15:10:13
    You missed my point entirely Boston, likely because for you its about wealth building. So what if I have $500K between a saved down, 401k, brokerage accounts, etc? It doesn’t make me “rad”. That ain’t nothing around here… I don’t think it makes me anything, because I don’t define myself by the amount of dollars I have. I’m middle class, maybe upper-middle in Irvine, and happy to stay that way. I feel zero need to parachute out of a place I love so I can be upper class in some god forsaken locale. A comfortable middle class existence is perfectly fine for me.

    Comment by tonye
    2008-03-07 16:26:33
    They are (Households earning less than 250K a minority) in TR.

    I’m no charlatan, just stating the facts that statistical income generalizations for ALL of Irvine are faulty as they included the student body and faculty at UCI. All of which are subsidized by the state ( faculty ) or their parents ( students ).

    http://www.irvinehousingblog.com/2008/03/01/wot-3-1-2008/#comments
    Comment by tonye
    2008-03-02 11:40:48
    Bogus my man. My neighbors are all professionals and both husband and wife work At the very least you figure 70K per personmost likely 90K and plus.

    All in all, I concur that the median price in Irvine is dragged by the students at UCI. The meaningful are the ones by zip code and those show that the distribution of income in Irvine is not uniform.

    Truly, there are statistic and lies.

    http://www.irvinehousingblog.com/2008/02/29/a-new-drug/#comments
    Comment by CK
    2008-02-29 16:22:01

    I’ve set my watch to see how long it takes for a reply of “but…but…but the median income is $84,000!!” Yeah, the median income is $84k if you roll up all HS and UCI kids working PT at Target and In-N-Out, who should not be considered in “homebuying population” income numbers. One thing which seems obvious (just look around) is that Irvine has a much larger % of younger “underemployed” people who likely dilute reported W2 incomes.

    http://www.irvinehousingblog.com/2008/02/29/a-new-drug/#comments
    Comment by tonye
    2008-02-29 17:02:44
    I can tell you that were I live you’d be on welfare if you only made 85K a year per household.

    Even the retirees with their paid off mortgages make more than that.

    There are statistics and there are lies.

    Comment by CK
    2008-02-29 16:58:40
    I believe the household income is above $100k, but appreciate your comments.

    http://www.irvinehousingblog.com/2008/02/29/a-new-drug/#comments
    Comment by Beentheredonethat
    2008-03-01 09:30:04
    Even when we lived in our brand new condo on Irvine, I didn’t know anyone making less than 100K.

  55. AZDavidPhx

    The fools take it completely literally.

    If you can’t put two and two together then I can’t help you.

  56. tonye

    God help you. Only $50K a week. I make 1000 pesos a week which by my reckoning will soon be $100K a week.

    Que Viva La Orange County, eh?

    Soon we’ll rename Culver Drive to Avenida de Zapata.

  57. AZDavidPhx

    http://www.irvinehousingblog.com/2008/03/07/2157/#comments
    Comment by ipoplaya
    2008-03-08 15:10:13
    You missed my point entirely Boston, likely because for you its about wealth building. So what if I have $500K between a saved down, 401k, brokerage accounts, etc? It doesn’t make me “rad”. That ain’t nothing around here… I don’t think it makes me anything, because I don’t define myself by the amount of dollars I have. I’m middle class, maybe upper-middle in Irvine, and happy to stay that way. I feel zero need to parachute out of a place I love so I can be upper class in some god forsaken locale. A comfortable middle class existence is perfectly fine for me.

  58. AZDavidPhx

    Comment by tonye
    2008-03-07 16:26:33
    They are (Households earning less than 250K a minority) in TR.

    I’m no charlatan, just stating the facts that statistical income generalizations for ALL of Irvine are faulty as they included the student body and faculty at UCI. All of which are subsidized by the state ( faculty ) or their parents ( students ).

  59. AZDavidPhx

    http://www.irvinehousingblog.com/2008/03/01/wot-3-1-2008/#comments
    Comment by tonye
    2008-03-02 11:40:48
    Bogus my man. My neighbors are all professionals and both husband and wife work At the very least you figure 70K per personmost likely 90K and plus.

    All in all, I concur that the median price in Irvine is dragged by the students at UCI. The meaningful are the ones by zip code and those show that the distribution of income in Irvine is not uniform.

    Truly, there are statistic and lies.

  60. AZDavidPhx

    http://www.irvinehousingblog.com/2008/02/29/a-new-drug/#comments
    Comment by CK
    2008-02-29 16:22:01

    I’ve set my watch to see how long it takes for a reply of “but…but…but the median income is $84,000!!” Yeah, the median income is $84k if you roll up all HS and UCI kids working PT at Target and In-N-Out, who should not be considered in “homebuying population” income numbers. One thing which seems obvious (just look around) is that Irvine has a much larger % of younger “underemployed” people who likely dilute reported W2 incomes.

  61. tonye

    I was told I could sell my house for 400 per square foot, easily. That would shatter many dreams but put over 700K$ on my pocket.

    One of my neighbors tested the water with her 2900 sq foot home and got a couple of 1MIL offers right off the bat, but since she wants 1.4MIL or nothing ( no real rush to move ) she did not budge.

    The next house I want is on the Sierra Broadmoor. We want a plain plan 1 ( 1600 sq foot, 3b/2ba ) inside lot. Right now they go for around 750K, except no one is selling yet.

    My RE friend ( I trust him ) agrees prices are NOT going up for sure so there should be no hurry to buy. Perhaps next year or so I could buy that smaller house for 650K.

    Then I could put 300K downpayment, 300K into therebuild and end up with a 100K in the bank, a 350K mortgage and a 2700 dq foot home.

    My questions are:

    (1) What will mortgage rates be like next year? If I put 45% down, I want a conforming 350K 30 year at 5%? We got excellent credit and money in the bank. What would the payments be like?

    (2) My assumption is that we will return to early 2003 prices in TR.

  62. tonye

    Note- It would not shatter iour dreams – just those of the people in dilapidated little homes that think they are worth millions.

  63. tonye

    TRidge and Newport Coast are next to the old landfill.

    I guess you folks don’t remember the dump trucks on the old Bonita Canyon Road?

  64. ipoplaya

    Ah AZ, you can’t use my post. How much one has saved is not indicative of their income necessarily…

    My savings/investments are a function of almost a decade of steadily increasing double income household employment (most of those years without kids), a small inheritance, making many times my annual employment income during the IPO boom in ’98-99, buying a condo during the early bubble and having an obscenely low mortgage rate, and big stock market growth during 2006 and 2007.

    Up until 2005, my household income was perhaps only 40% or so over the median you are so fond of quoting but we were still able to pack away tens of thousands per year because we only had to spend $1200 or so after-tax in housing expense… A mortgage rate below 4% will do that for ya.

  65. tonye

    My scenario will net me $600K to $700K but my kids are at Uni and we have jobs so we gotta rent until we decide to buy again.

    And we have a LOT OF STUFF….. Yikes.

  66. tonye

    See? He’s at it again. He ignores the fact that I’m stating that in TURTLE ROCK people make more money than the AVERAGE for the CITY.

    Dude… maybe you should come down and visit Irvine one of these days and realize that GENERALIZATIONS such as yours are meaningless because the City is not HOMOGENEOUS and different villages have different socioeconomic foundations.

    Someone looking at buying in TR and/or TRidge would NOT consider NP.

  67. AZDavidPhx

    That’s just a random sampling I found in some older posts. I can’t go back and look at every word everyone has ever said.

    Those were just some of the gems I found while randomly picking some threads.

    Ipo – you are right. I picked yours for the “that ain’t nothing around here” part.

    Either way, my point which you guys are desperately trying to divert attention from was aimed you those of you who like to poo-poo the median salary data with B.S about how rich everyone around you is.

  68. Kirk

    Ipoplaya,

    I’ll match your nitpick: 25% off of the $800k you yourself suggested is $600k.

    Well, I can’t predict the future, but I think a good chunk of Irvine homes will sell at more than 25% off today’s comps within 12 months. Q4 for Los Angeles shows an 8.54% decline based on the Case-Shiller housing index. If this remains constant it would equate to a 30% decline in a year. But, I think it will accelerate some more and maybe decelerate near the end of the year.

    It’s reasonable to argue in either direction about whether we’ll pass 25%, but I think we all agree that the price declines in the next 12 months will be substantial. Irvine lags L.A. and a lot of Orange County, but I believe the real declines are just now starting to kick in.

  69. tonye

    I think the Walnut area is FOB Chinese central. They even have their own 99 market at Walnut and Jeffery, just a couple of miles from the one on Culver and Irvine Ctr.

  70. tonye

    In general, yes. However TRidge is not TR. As usual the devil is in the details.

    The aggregate drops will be 25%, but they may not be smoothly averaged. TRidge, for example will drop so that those homes will go for 900K or so because they were so overpriced, so in essence you’ll see 50% declines.

    TR, OTOH, may only drop 10 to 20% from current prices because it was not so crazily overpriced.

    As usual, I don’t care about anything on the other side of Campus and Culver/Bonita Canyon. I know specifically which neighborhood and which type of house I want because I already have the remodel in mind.

    So, where do you think mortgage rates will be next year? Assuming a 50% downpayment and a 350K loan.

  71. Laura Louzader

    There is another reason to avoid renting from floplords that is becoming more and more obvious with every suspicious fire in a subdivion of mostly unoccupied- new homes.

    Consider your personal safety. It may sound paranoid to some, but you definately don’t want to be living in a dwelling with a landlord deeply underwater on his mortgage when he starts to become frantic and decides he’s going to recover his losses no matter what it takes.

    During the last housing bubble bust, in the early 90s, a lawyer and amatuer landlord bought a stately old three-flat near me in Chicago’s Lakeview neighborhood. Beautiful place, with large units commanding high rents, fully occupied. But the rents were about half what the guy needed to cash-flow. It was known around the neighborhood that he had grossly overpaid for the place.

    One day I arrived home to see the place gutted, with blackened windows and soot stains allover it. The tenants lost thousands of dollars in personal belongings in addition to their homes. Thankfully, there were no fatalaties or injuries.

    The landlord was sent up for many long years, but that is no comfort when you come home and see your home gutted. After that, I always, when looking to rent, inquired how long the ownership possessed the property, and if it was a recent purchase, I looked elsewhere.

    Be careful- you never know what level of desperation you are dealing with, especially in this society of violence-prone people who are totally lacking in impulse control and feel entitled to Get Theirs by any means at their disposal.

  72. HAPPYHEART

    Well said IR. At least most of the naked swimmers will have their own personal set of “floaties” because of all the plastic body parts financed with HELOC’s over the past few years.

  73. NoWow!way

    Whole Foods market is in the process of layoffs/cutbacks.

    2k teachers are facing layoffs in OC. Restaurant closings in Santa Ana are up. Unrented commercial space is climbing.

  74. NoWow!way

    Floplords can stop paying the bank while collecting rent money before the renters even know that the house will be forclosed upon and they will have to move.

    It also seems like floplords will constantly be in the market to sell their losing ‘investment’, so you better be ready to move if he finally capitulates.

  75. Kirk

    I agree the declines aren’t necessarily going to be nice and even. You know, I’m surprised interest rates have remained as low as they are. Who is buying these mortgage securities? I guess people are willing to take a substantial risk to get a 1 or 2 point spread on a 30 year mortgage versus a 30 year treasury. I’m not going to take a guess on rates since I don’t understand why they are so low now.

  76. soapboxpolitico

    IR- Indeed. I get regular emails from the folks at Paloma, my wife and I were close to buying the plan 1. I’ve noticed that they’ve dropped prices on their largest units an average of $60K. Trouble is they’re still overpriced at about $345/sq.ft. Worse and even more compelling an issue in my mind is the roughly $345/month in combined HOA’s for most if not all of Portola Springs. (Don’t even get me started on Mello Roos.) That’s primarily why we walked away, along with my overarching concern about a collapse.

    Perhaps you can answer a little debate I’ve had with my wife as it relates to P.Springs… It’s my belief that the Irvine Company (or City of Irvine) will not allow the builders to sit on bare dirt forever, waiting for the market to come back. At some point either entity will force the builder to finish building out their tract regardless of whether the units are sold or not. Either it’s a contractural issue or perhaps more importantly an economic issue, the IC or city cannot collect fees on bare dirt. The wifey thinks I’m completely wrong and says the IC can’t force the builders into anything. Your thoughts?

  77. soapboxpolitico

    This just in from the LA Times:

    “Southern California Home Prices Still Dropping at Record Pace”

    http://www.latimes.com/business/la-fi-homes14mar14,0,696694.story

    On a side note … any comments or posts pending on the predicted (or predictable) effects of the recent Fed T-Bill auction attempt to bailout investment banks and brokerages?

    Thanks for all the great info folks, from both sides of the fence!
    Peas owt! 😀

  78. Mike C

    SeattleGameboy – I understand your cynicism. I did say professionals though. I don’t see 40-1 leverage cowboys (Bear Sterns etc) as professionals.

    WaitingForFiveYears – A lot of people buy shares they currently own to get a cheaper overall price. For example their Countrywide shares they bought at $40.00 they re buy at $30.00 so their average price is $35.00. Unfortunately for them the shares are now worth less than $5.00. This behavior is extremely common and is a terrible thing to do in a plunging market. If you are a retail investor your chances of buying at the magic down moment is very low. However a sustained uptrend is unmistakable.

    ipoplaya – I agree.

    IrvineRenter – Thanks for the link (if it was for me!). If people read and understood your work they would retire with at least double their average wealth.

  79. djd

    Either way, my point which you guys are desperately trying to divert attention from was aimed you those of you who like to poo-poo the median salary data with B.S about how rich everyone around you is.

    AZDavidPhx, you were specifically challenged on your claim “According the various posters on this blog, people earning below 250K are in the minority [in all of Irvine].” I have added the words “in all of Irvine” because the median income you cite in that post covers all of Irvine.

    First you said you would not attempt to defend this claim. Then later you provided a “random sampling” of posts of which not one single item supported your claim.

    I was also unable to find any posts claiming that people earning below 250K are in the minority in Irvine, although this one came close: “250K is not that much if both parents work and share the costs …” (Tonye’s 250k comment made that claim for Turtle Rock only.)

    (NB: for those who care and missed it the first time, actual 2006 Irvine City income data were discussed here.)

    Finally you attempted to shift the goalposts to “… B.S about how rich everyone around you is.”

    So, are we agreed that when you said “According the various posters on this blog, people earning below 250K are in the minority [in all of Irvine]. ” you were, in fact, wrong?

  80. djd

    And, in my rush to split hairs, I managed to overlook a very important distinction: “people” versus “households”. I was using them as basically identical in the context of this discussion; if “people” actually means “individuals” or even “individuals with income” it would seem that AZDavidPhx’s claim becomes even harder to substantiate.

  81. tonye

    I think the Fed is trying to make mortgages attractive to investors. That way money will flow into mortgages, rates will drop and there will be less foreclosures. A virtuous cycle ( as opposed to vicious).

  82. No_Such_Reality

    Eventually, the people think $200,000 off of peak is a deal, will run out. Then what’s left are the people that think $300,000 off peak is a deal, then they’ll run out. Eventually, you’ll get people that no longer think in terms of how much off of peak it is that took about two or three years last time. Then the discussion turned to was it cheaper than renting, because it was.

    Nobody will give a rat’s behind in another year how much off of peak it is, they won’t care because it won’t matter. They won’t think of it of how much off peak and a deal because it is cheaper than it was. They will then be in the mindset of will it go lower, not because they want to time the bottom, but because they don’t want to lose all their money.

  83. AZDavidPhx

    djd –

    I read a previous post some time back where the poster made a claim for 250K minority. Not sure where it is. I’m not going to go back through the past 6 months of posts to find it.

    Either way, you understand the point that I am making. You are just trying to make some noise and distract from the overall point and trying to create a “gotcha!” moment and it is obvious to anyone who reads it.

    Keep trying.

  84. Mr Duncan

    Unfortunately, it seems that the Fed is pursuing this buy-and-hold strategy with our money, offering to lend $200bn to banks using mortgage-backed securities as collateral.

  85. Woodbury Renter

    Maybe it was the October fire that ironically “dampened” interest in this development.

  86. Woodbury Renter

    most new houses in Irvine have internal sprinkler systems. floplord would have to disable the system, then set the place on fire – pretty diabolical.

  87. HM

    For example their Countrywide shares they bought at $40.00 they re buy at $30.00 so their average price is $35.00. Unfortunately for them the shares are now worth less than $5.00.

    But isn’t this called dollar cost averaging? which is considered a good thing?

    I have read it repeatedly that, for an average joe, the best idea is to pick an index fund and buy some shares regularly?

  88. Marsupial

    ‘Rent skimming’ is illegal? In California?? Not that I’m aware of. In fact, according to my attorney, it’s not even something that a TT could go after a LL for in civil court.

    (OTOH – if you happen to know the penal code reference for rent skimming, please share it!)

  89. Marsupial

    Well… never mind, I found it. Rent Skimming is covered under CC 890, BUT (& this is a big one), it is only unlawful during the first year of the mortgage. After that, everything is fair game, I guess. (It looks like Rent Skimming is more than likely to be used stemming from a lender complaint, like mortgage fraud, than a tenant complaint.)

  90. Lost Cause

    Isn’t it true that is the place is in foreclosure, you do not have to pay the rent? In other words, many months of potentially free rent, until the new owner or the bank formally evict you.

  91. Lost Cause

    Sadly, the rate of decline may be improving, but such metrics are bound to wobble. By most indications, this is a collapse of historic proportions, certain to set all time records. iPop, indeed.

  92. Mike C

    Author: HM
    Comment:
    For example their Countrywide shares they bought at $40.00 they re
    buy at $30.00 so their average price is $35.00. Unfortunately for them
    the shares are now worth less than $5.00.

    But isn’t this called dollar cost averaging? which is considered a good
    thing?

    I have read it repeatedly that, for an average joe, the best idea is to
    pick an index fund and buy some shares regularly?

    HM – I honestly don’t know what to say. If you think this makes sense by all means do it. My own and my clients wealth is booming and it sure isn’t being done by chasing losers down. I read every day in the news (usually right at the top of Yahoo) that now is a great time to buy a house. Houses = Equity Investment, Shares = Equity Investment.
    Did you read my initial post or just the second one?

  93. HM

    Mike, thanks for replying.

    I am glad that you and your clients “wealth is booming” :-).
    I did read both your posts but I guess I wasn’t able to express myself clearly.

    I am sure that there are some people who can make money in ANY market. But not everyone can become a trader let alone a good trader. My question was for the avergae joe/jane out there: the office secretary, the IT Helpdesk guys etc.

    Do these people have any investment strategy other than picking up a few mutual and/or index funds and quitly invest in them a set amount every month?

  94. Mike C

    Hi HM – The best way for someone who has little experience is through Exchange Traded Funds (ETF’s). These track specific industries and fields and cuts the risk of picking a bad company in a good field. For example if you think gold is going up you can choose a gold ETF.
    ETF’s trade like a stock which means easy buying and selling and have very low fees. Don’t buy mutual funds, they are fee monsters who only make their creators rich.
    The way to separate yourself from 99% of novice investors is to ALWAYS USE A STOP LOSS! There are very technical ways to set stop losses but a good rule of thumb if you are not familiar with these is to set a common sense stop loss of 10% below your purchase price.
    Novice traders keep their bad choices and often sell their good ones. It is common to see people hold onto bad stocks forever in the vain hope that they will break even. To go back to my Countrywide example all those that bought at $40.00 and are holding for break even have lost $35.00 per share. If you bought at $40.00 and set your stop loss at $36.00 you would have lost $4.00 per share. Still annoying but not potentially life changing like an 87% loss.
    Stop losses are very easy to set up. Ask your broker how do it the first few times to get it right. Don’t set them too close otherwise the normal daily fluctuations of the market can stop you out.
    Let your winners run. When you have a good gain simply move your stop loss up again. With some companies this can be done automatically (trailing stop loss).
    Your final point is a huge component of wealth creation. Regular contributions are key. However, and this is a big however, putting your regular contributions into something like a Fidelity mutual fund right now is like throwing the cash in a blender.
    If you work with someone or get advice from anyone demand to see their own six month trading history. Anyone that couldn’t pick the direction of the last six months (which is most investment advisers) has no business telling you anything.
    Investing is actually a lot simpler than people make it out to be. If an industry is good, sit in it. If the industry turns negative, move out. If you can’t work out what is happening, stay in cash.
    If you’re reading this site you have a huge edge in knowing what is working and not working. I wouldn’t pay too much attention to the comments section but the IrvineRenter blogs are first class work. I get the impression he would be honest enough to point out when the market ceases to be a disaster.

  95. djd

    AZDavidPhx –

    You started out by mentioning twice (here and in the comments for the 7th’s post) “According the various posters on this blog …” and “Some of the more vocal Charlatans on this blog …”.

    Now, instead of multiple people saying it (repeatedly?), it was “a previous post” – singular, by a single poster. I’ll grant you the benefit of the doubt on its existence – a single post would be much harder to find than a regular return to the subject.

    If this is unimportant to your overall point, why did you spend so much time in ineffective defense and attempts to change the subject instead of admitting you were exaggerating?

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