Monthly Archives: November 2008

Open Thread 11-29-2008

I would like to make an announcement. Irvine Renter will be on the radio again this weekend. I will be a guest of John McCauley on KBPK FM 90.1. I can be heard on Sunday November 30, at 6:30 PM. The streaming internet broadcast can be found here. I invite you all to tune in.

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AZDavePhx has been busy at the IHB. Last weekend I featured several of his works, and this weekend we have even more.

Like many people, he saw the rampant expansion of credit and a debt-fueled lifestyle to be a problem. It was a problem encouraged by our government and the purveyors of credit.

Many people used their homes as ATM machines, and this money was a huge stimulus to the economy.

Like many of us, AZDavePhx wonders where all this money went…

The lure of real estate was all the free money is generated.

Of course not all these purchases worked out as planned.

Some people are finding their purchase is very scary and painful.

Now our government wants everyone to step up and buy an overpriced house to bail out the banks.

The loan modification terms are good. With the fear of death, the lenders are suddenly willing to negotiate.

Are these companies too big to fail?

Has our government given them a get-out-of-fail-free card?

The Skinny on the Housing Crisis

Author Interview — Jim Randel

I would like to introduce you to a new book by bestselling author, Jim Randel, called The Skinny on the Housing Crisis, What Every Homeowner and Homebuyer NEEDS TO KNOW.

Jim Randel takes the complex issues related to the housing crisis and presents them in an easy-to-understand manner. The book is well written, it can be read in under an hour, and the reader is left with a basic understanding of the mess we are in today. If you or someone you know wants to understand the housing crisis, but you don’t want to spend several hours reading a 250 page book, I highly recommend The Skinny on the Housing Crisis.

The basic presentation is similar to the stick-drawing joke circulating the internet. The story is presented through the eyes of Billy and Beth, a typical couple who trusted the “experts” and were duped into a disastrous financial transaction. In a series of cartoon-like scenes, the author takes us through the buying process and shows how all the parties involved had incentives to push Billy and Beth into a transaction they did not understand. The average buyer can easily relate to Billy and Beth’s plight, and all of us can empathize with what people went through as they got caught up in the housing crisis.

Many of you who have been reading the IHB and have purchased my book, The Great Housing Bubble, have commented on how I am able to take complex subject matter and make it understandable. Jim Randel takes this one step further. His simple presentation is understandable to everyone. This book will serve as education to teenagers preparing for adulthood and the personal finance decisions they will face. He is planning a series of books using the same methods to explain other personal finance issues. I look forward to seeing them.

Today’s featured property is typical of what I see on the market today. Long-term homeowners who are selling in today’s market in Irvine have on average doubled their mortgages since they purchased. There was so much HELOC abuse and housing ATM dependancy during the bubble years, it should come as no surprise that consumer spending has fallen off a cliff, and our entire economy is in shambles. Today’s owners will likely still make a profit on their home and pay off their mortgage. They won’t have much to show for it, but at least they will not face bad credit for their free-money spending spree.

23 Washington Kitchen

Asking Price: $839,000IrvineRenter

Income Requirement: $209,750

Downpayment Needed: $167,800

Monthly Equity Burn: $6,991

Purchase Price: $302,000

Purchase Date: 4/29/1998

Address: 23 Washington, Irvine, CA 92606

Beds: 4
Baths: 3
Sq. Ft.: 2,500
$/Sq. Ft.: $336
Lot Size: 4,628

Sq. Ft.

Property Type: Single Family Residence
Style: Contemporary
Year Built: 1998
Stories: 2
Floor: 1
Area: Walnut
County: Orange
MLS#: S555490
Source: SoCalMLS
Status: Active
On Redfin: 1 day

New Listing (24 hours)

Gourmet Kitchen Award

This is a great find! Desirable four bedroom Centennial Home in the
private gated community of Harvard Square. Ideal interior tract
location. Spacious and functional floor plan with high ceilings, lots
of natural light, beautiful hardwood floors and neutral plush carpet.
Custom gourmet family kitchen, granite counters, maple cabinets and a
kitchen window, which looks out to the oversized back yard. Yard is
half grass and cement patio, perfect for entertaining. The BIG Park is
a big selling feature. Residents love the holiday events, community
gatherings, pool, basketball court and tot lots. A dog walkers dream!

A dog walkers dream! Do people really place a high importance on where their dog takes a dump?

  • This property was purchased on 4/29/1998, very near the bottom of the last cycle. The owner’s paid $302,000. They used a $226,150 first mortgage, a $45,200 second mortgage, and a $30,650 downpayment.
  • On 6/2/1999 they refinanced with a $316,000 first mortgage. This pulled out their downpayment plus $14,000.
  • On 9/11/2000 they obtained a HELOC for $35,000.
  • On 10/11/2001 they refinanced for $365,000.
  • On 10/31/2002 they refinanced for $370,000.
  • On 11/3/2005 they refinanced for $485,000.
  • On 4/20/2007 they opened a HELOC for $60,000.
  • Total mortgage debt is $545,000.
  • Total mortgage equity withdrawal is $288,200 including their downpayment.

I am amazed at how often I see this. Many, many Irvine homeowners doubled their mortgage obligations during the bubble. These aren’t the flagrant abusers, these are the average homeowners living their pretend lives built on a mountain to cheap debt. The payments are coming due. Do you think most of these people doubled their incomes over the last 10 years? I doubt it.

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Happy Thanksgiving

Thanksgiving — George Winston

I hope you all are having a wonderful Thanksgiving. Despite all the bad news, we all have much to be thankful for. No matter how bad things look for us, Americans still have life far better than most people on this planet. We here in California have a great climate, plenty of activities to enjoy, and a peaceful existence. I am thankful for a loving family, a roof over my head, continued employment, and of course, Thanksgiving turkey.

Since we have been looking at Turtle Ridge properties this week, I wanted to show you the crumbling base of the property pyramid. Apparently Turtle Ridge is not immune, and the stress at the low end is taking its toll there too.

133 Danbrook Front 133 Danbrook Kitchen

Asking Price: $320,000IrvineRenter

Income Requirement: $64,000

Downpayment Needed: $80,000

Monthly Equity Burn: $2,666

Purchase Price: $445,000

Purchase Date: 3/25/2005

Address: 133 Danbrook, Irvine, CA 92603

Beds: 1
Baths: 1
Sq. Ft.: 822
$/Sq. Ft.: $389
Lot Size:
Property Type: Condominium
Style: Other
Year Built: 2004
Stories: 1
Floor: 1
View: Park or Green Belt, Has View
Area: Turtle Ridge
County: Orange
MLS#: S521349
Source: SoCalMLS
Status: Active
On Redfin: 288 days

Unsold in 90+ days

Best deal in Turtle Ridge! Better then a model, granite counters,
designer paint, berber carpet, upgraded bathroom, and much more. There
is a garage with direct access, a fireplace, and air conditioning. This
is a primo location with access to Newport Beach, Fashion Island, The
Spectrum and the Beach! There is a really nice community pool and spa
with clubhouse and nearby walking trails. only way to be in the area
for this price! Only one of a few 1 bedrooms every built!

Better than a model? Bull$hit.

every built?

This property was purchased from the builder on 9/15/2004 for $358,000. It was flipped to our current owner on 3/25/2005 for $445,000. The owner used a $400,500 Option ARM with a 2.62% teaser rate and a $44,500 downpayment. He opened a HELOC on 4/5/2006 for $60,000. Hopefully, he took out his money.

If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $144,200. That seems like a lot to lose on a property measuring only 822 square feet.

This property is being offered at 28% off its 2005 purchase price in Turtle Ridge.

I hope you are having a happy holiday. 🙂

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The Summit of Hubris

Terror & Hubris in the House of Frank Pollard — Lamb of God

It is a recurring theme in our culture that the rich and famous live by a different set of rules than the rest of us. Once you achieve wealth and fame, people treat you differently. They look up to you with respect and envy. Many people desire wealth and fame for the status it brings — at least in their own minds. Some people want to be envied, they want to believe everyone wants what they have, and they find it very empowering to be able to put themselves above others. For these people, the lure of a prestigious neighborhood is their belief that living there makes other people envy them. The pretense of owning a McMansion in Turtle Ridge or Shady Canyon makes some people do whatever it takes to purchase there — including paying ridiculous prices. There are people who buy in these neighborhoods because they are nice places to live, and they want a beautiful home just for their own enjoyment. Many people do not care what others think, and they do not base their home buying decisions on those considerations. However, there is a significant group that does, and these people often have artificially inflated opinions of themselves and the value of the properties they own.

Kill my hopeless life I cannot be hypnotized. You owe me.
Push aside the veil to welcome in the visitors.

I don’t know the owners of today’s featured property, and I have no idea why they bought in Turtle Ridge. They may be very nice people who bear no resemblance to the profile above. However, the asking price they have put to their property says something about them: they do not live in a reality-based real estate market. The high-end of the Irvine market has shown the least stress so far. Very little is selling, but those few properties that do sell do not show large losses. I recently profiled a $5,000,000 property selling for 10% off in Shady Canyon, so prices are starting to fall, but by and large, the high end has not seen the carnage witnessed at the low end so far. However, these properties are certainly not appreciating, and to believe they have doubled in price, well… that is a little crazy. The kool aid still flows in Turtle Ridge.

28 Blue Smt Front 28 Blue Smt Kitchen

Asking Price: $2,860,000IrvineRenter

Income Requirement: $715,000

Downpayment Needed: $572,000

Monthly Equity Burn: $23,833

Purchase Price: $1,433,000

Purchase Date: 9/29/2004

Address: 28 Blue Summit, Irvine, CA 92603

Beds: 5
Baths: 6
Sq. Ft.: 4,450
$/Sq. Ft.: $643
Lot Size: 9,388

Sq. Ft.

Property Type: Single Family Residence
Style: Tuscan
Year Built: 2004
Stories: 2
Area: Turtle Ridge
County: Orange
MLS#: S546325
Source: SoCalMLS
Status: Active
On Redfin: 83 days

Absolutely Exquisite, Gorgeous Estate in the prestigious Turtle Ridge
gated community. One of the best and most comfortable floor plans with
large family room, open kitchen area, breakfast nook, large private
master suite with extended study room, all five bedrooms with own
bathrooms, three fireplaces, an added music room, and a floorplan that
opens to courtyard gardens. Excellent lighting throughout. Highly
upgraded from top to bottom with granite kitchen counters, crown
moulding, wood trims, built-in cabinets, travertine and wood flooring
and a newly added music room, plus many more… Exceptionally
landscaped yard with natural stone patio, beautiful water fountains,
outdoor fireplace, lush green trees, wrought iron accents, and a large
multi-car driveway. Private and quiet backyard facing open hill side.
Private and open side courtyard facing single story neighbor.

prestigious Turtle Ridge… of course it is.

Did you notice all the meaningless adjectives? Exquisite, Gorgeous, prestigious, comfortable, Excellent, Highly
upgraded, Exceptionally,
beautiful, and lush.

This property was purchased on 9/29/2004 from the builder for $1,433,000. The owners used a $250 first mortgage and a whopping $1,183,000 downpayment. They were not pretending about that part. Later they opened a HELOC for $500,000, but it doesn’t look like they spent it. They did refinance the first mortgage twice. Each time it was for $1,000,000. Since this is the tax deductible limit, this was probably a tax decision used to free up capital for other purposes. They still have the $500,000 HELOC. In short, these people really are rich, and they are not in financial distress.

So why are they selling now?

They’re not. They have put a WTF asking price on their property that will never sell. They have no need to sell, and since they are priced so far above the market, they will not sell it. I am sure most owners in Irvine would sell tomorrow if they could get twice what they paid.

So why are they listing now?

That is an item open for speculation. I have no idea.

{book}

All the f@#$%ed up things trap & punish me I cannot explain my problem.
Kill my hopeless life I cannot be hypnotized. You owe me.
Push aside the veil to welcome in the visitors.
Eyes like halogen illuminate the soma peering out of spherical night mask.
Paleolithic subconcious icons lumber through dreamscape archetype of archangel.
Topside its far worse- infants painted gauze peer through murky jars; soon I’m wearing the skin
of the morning star.
Green locks my name fills an empty banner. Frank, what have you gotten me into now?
I am not afraid to speak my heart & mind it cannot be saved sell me over. F@ck your hopeless
world, I am blacker than the sun. Tragedy. Have you seen the speedy, yes?
Bleeds through the sleep onto the page. I’m sailin’…

Terror & Hubris in the House of Frank Pollard — Lamb of God