Have a holly, jolly Christmas; It's the best time of the year I don't know if there'll be snow, but have a cup of cheer. Have a holly, jolly Christmas; And when you walk down the street Say Hello to friends you know and everyone you meet.
Oh, ho, the mistletoe hung where you can see; Somebody waits for you; Kiss her once for me. Have a holly jolly Christmas, and in case you didn't hear, Oh by golly, have a holly, jolly Christmas this year.
Beds: 2 Baths: 2.5 Sq. Ft.: 1,055 $/Sq. Ft.: $426 Lot Size: - Type: Condominium Style: Townhouse Year Built: 1986 Stories: Two Levels Area: Woodbridge County: Orange MLS#: R712474 Status: Active On Redfin: 10 days
From Redfin, "What a Charming 2 bedroom 2.5 bath Condo. Inside Loop, not near Freeway. Great location - walk to lake, schools, groceries & malls. Wrap-around Patio. It's a must to see!"
It's a must to see? A small condo for almost half a million dollars -- hurry before they are all gone!!!
It is different this time. At least that is what everyone thinks when there is a financial bubble. Of course, the statement is partially true because the circumstances of each bubble are unique; it is the outcome that is always the same. In prior housing bubbles, prices have been "sticky" on the way down as as bid/ask spreads widen and transaction volume withers. We have certainly been seeing this phenomenon, but prices on many properties have been showing a surprising lack of "stickiness" in the initial stages of this decline. It seems to be different this time. The reason: 100% financing.
Sellers loath to take a loss. That is the main reason prices are supposed to be sticky. Those that bought late in the rally hold to peak prices while the bids decline. However, this time around, there was a plethora of 100% financing deals like today's property. These sellers are not going to take a loss -- they are passing the loss on to the lender. In short, they don't care what the property sells for because they no longer have a financial interest in the outcome. We have been profiling numerous rollbacks on 100% financing deals on the blog. I have not been trying to find 100% financing rollbacks, they are just what is most common in the marketplace. It is the large number of these transactions in the market that is providing the impetus for the initial 20% drop we have been witnessing across Irvine. During the last bubble, peak to trough prices in Irvine dropped less than 20%, and that drop was stretched out over 6 years. It really is different this time...
For the record, this seller lender is going to lose $100,000 assuming a 6% commission and a sale at asking price.
Last week we discussed the implication of all the second mortgage losses on the market. It was the consensus of most posters that few people have saved up the downpayments necessary to buy a home. Some suggested the need for a first-time homebuyer downpayment assistance program. Who is going to fund it? Or put another way, who wants to lose their money this way? Will this be a government subsidy program where our tax dollars fuel more speculation?
Realistically, there is no solution to the problem of the lack of savings for downpayments. Lenders are not going to provide this money, and the government will not either. The market will not recover until people start saving and accumulate enough to amount to a 20% downpayment. The time will be long, and the amount will be small meaning the bottom will be later and lower than most currently imagine.
It has been a while since I have come across a truly jaw-dropping WTF listing price. When someone in Turtle Ridge prices that way, it can be written off as a mass delusion from the free-flowing kool aid dispensed in the area, but when someone lists at a ridiculous price in the midst of foreclosures and declining prices... well, that takes a special kind of greed and foolishness. Perhaps the silver and gold they were looking for in Rudolph the Red-Nosed Reindeer is buried in the back yard?
Beds: 2 Baths: 2.5 Sq. Ft.: 1,800 $/Sq. Ft.: $588 Lot Size: - Type: Condominium Style: Spanish Year Built: 2003 Stories: Three or More Levels View(s): City Lights, Hills, Mountain, Panoramic, Has View Area: Quail Hill County: Orange MLS#: S512657 Status: Active On Redfin: 6 days
From Redfin, "This superbly appointed single detached home was customized by a senior exec. w/ the homebuilder. Every detail was considered w/ the goal of making this home not just a notch above the rest, but THE BEST. An entertainer's delight, this designer-inspired home has commanding views, and an innovative flr plan that has every bldr & seller upgrade imaginable, incl. a 2nd fl. deck w/ custom blt-in furniture, stainless Viking BBQ, fully mature garden--the largest in the Ivy Wreath--spa, fountain, & fire ring! "
So let's put this in context: Quail Hill is getting killed. We have documented REOs (here, here), a group of three bedroom condos priced $350K to $400K less racing to the bottom, and more rollbacks than I can bother to link to (look here), and yet this place has more than doubled in value. Pricing in Quail Hill is falling below the $400 / SF mark and trending lower, but this property is supposed to be worth $588 / SF?
I can't fathom the metric they used to come up with this price. It clearly isn't based on comps. Perhaps it is an ego listing, or perhaps they commissioned their realtor for a special rectal extraction.
In fact, that is my challenge for you today: please tell me how someone could possibly arrive at this asking price.
The winner gets a free pitcher of kool aid.
Perhaps it is the $500K view of Quail Hill Boulevard and the apartment lights?
When I was growing up, the Christmas season usually kicked off in early December with classic Christmas movies. One that I looked forward to every year was Rudolph the Red Nosed Reindeer. Burl Ives sang all the tunes from that movie. Here we go...
Rudolph, the red-nosed reindeer had a very shiny nose. And if you ever saw him, you would even say it glows.
All of the other reindeer used to laugh and call him names. They never let poor Rudolph join in any reindeer games.
Then one foggy Christmas Eve Santa came to say: "Rudolph with your nose so bright, won't you guide my sleigh tonight?"
Then all the reindeer loved him as they shouted out with glee, Rudolph the red-nosed reindeer, you'll go down in history!
.Sometimes when I see what people did and how they lived during the bubble, it fills my Reservoir of Schadenfreude. Today's featured property has a story to tell, and I want to thank Brittney for providing me the detailed mortgage data that allows me to tell it.
Beds: 3 Baths: 3.5 Sq. Ft.: 2,629 $/Sq. Ft.: $475 Lot Size: 5,053 sq. ft. Type: Single Family Residence Style: Mediterranean Year Built: 2005 Stories: Two Levels View(s): City Lights Area: Turtle Ridge County: Orange MLS#: S512996 Status: Active On Redfin: 8 days
From Redfin, "Best deal around. Great plan 1 in private cul de sac location in the prestige Ledges at Turtle Ridge. Home shows as new very clean private location and great value for the Ledges estate. Nice rear yard area and great street appeal. Truly great deal here priced below most homes in area."
How can any "plan 1" be worth over $1,000,000?
This one isn't a rollback yet, but I doubt the owners care because they have already made their money on the deal. Let's look at the loan history on this property and see just how these people managed to live over the last 3 years.
The property was purchased in January 2005 for $1,157,000. The combined first and second mortgages totalled $1,156,730 leaving a downpayment of $270. Let's just call it 100% financing.
By April, they owners were able to find refinancing through Countrywide with a $999,999 first mortgage. This mortgage was an Option ARM with a 1% teaser rate. The minimum payment would be $3,216 per month.
Also in April of 2005, they took out a simultaneous second mortgage for $215,000 pulling out their first $58,000.
So look at their situation: They are living in a million dollar plus home in Turtle Ridge making payments less than those renting, and they "made" $58,000 in their first 4 months of ownership.
Apparently, these owners liked how hard their house was working for them, so they opened a revolving line of credit (HELOC) in August 2005 for $293,000. Did they spend it all? I can't be sure, but the following certainly suggests they did.
In December of 2005, they extended their HELOC to $397,990.
In June of 2006, they extended their HELOC to $485,000.
In April of 2007, the well ran dry as they did their final HELOC of $491,000. I bet they were pissed when they couldn't get more money.
So by April 2007, they have a first mortgage (Option ARM with a 1% teaser rate) for $999,999, and a HELOC for $491,000. These owners pulled $333,000 in HELOC money to fuel consumer spending.
Assuming they spent the entire HELOC (does anyone think they didn't?), and assuming the negative amortization on the first mortgage has increased the loan balance, the total debt on the property exceeds $1,500,000. The asking price of $1,249,000 does not look like a rollback, but if the property actually sells at this price, the lender on the HELOC (Washington Mutual) will lose over $300,000.
These owners will probably just walk away. I doubt they have any assets. They never put any money into the deal, they pulled out $333,000 in cash, and they got to live in Turtle Ridge for 3 years. Not a bad deal -- for them.
Karma will not leave these people alone though. They have become accustomed to a lifestyle far beyond their means. Their house was providing them with $111,000 a year in tax-free income. When they get forced out, their credit will be ruined, and they will have to go from living the life of the nouveau riche to being a destitute renter. We can only hope this transition is painful and the memory of what they lost lingers for years.
These people likely drank the kool aid and actually believed this kind of lifestyle could be sustained. That level of ignorance makes it hard to have much sympathy for them. However, when you see the excess of this lifestyle, you can't help but wonder if it was worth it.
If you knew prices were going to collapse, and the lifestyle was not sustainable (like many on this board did,) would you have done it anyway? When you see the lives led by people like today's owners, it is not difficult to see why so many chose that life.
Our contributing arithmetician, Zileas, has provided an analysis of Aliso Viejo's market for your study.
- Over the last 9 months, the typical 2 or 3 bedroom condo of 1000-1400 sqft in Aliso Viejo dropped roughly $123 in value per day.I personally think that this number has gotten worse, but I can only prove $123 a day with the data I have.This comes out to about a 1% drop in value per month for the condos I looked at.This is less than half the rate of decrease in Ladera, which you would expect since Aliso is closer to the beach, is more developed, and anecdotally has fewer toxic mortgages and what not.
- For every $1 you overprice your home, you LOSE $0.81 off the final sales price… So if your home is worth $400k, two choices you might consider are (based upon the data): price at $400, sell at $400, or… Price at $425, sell at $380K.This is because buyers tend to ignore overpriced houses in this market (which has so many choices!), and move on to someone who is showing they are willing to sell.Again, sellers: Price to sell!
- If you are going to buy a 2 bedroom condo, you may as well go high on the square feet and get a bigger living room or bedroom or whatever, in my opinion.The cost of buying a condo with a bigger living space (but the same # of beds/baths/basic features) is only $88 per extra square foot in Aliso, which makes those 1400 square foot 2 bedrooms seem a lot more attractive than the 1000 sqft ones…I’d sure pay 35K for 40% more living space!
- Older condos sell for less… About $1700-$2000 less for every year older they are.Note that homes get older as you own them…
- Compared to typical AV properties similar to them, Windflower condos are worth a bit more (about 20k, which is roughly 2%).Other developments may be worth more or less than the average development, but I couldn’t prove it with the data I had.
- I’d really love wider and better data.If any Realtors want to hook me up for my benefit, and for helping you persuade your sellers to price reasonably, look me up!
What Properties Did I Look At?
I used 77 condos sold in the last 9 months in Aliso Viejo, with 2-3 beds, and 1000-1400 square feet.The properties ranged in age from 6 to 18 years old.I performed this analysis on Nov 22nd, on data that is a week old.
How Did I Value Them?
I used statistical regression, which is a fancy way of drawing a line through a bunch of points, but instead of lines which only allow you to study one thing in relation to another, it can study a lot of things in relation to one thing all together.This is the same type of technique that they use in science, pharmaceuticals, and economic models.There are math notes on the specifics for the curious or mathematical inclined at the bottom.
I valued homes using several slightly different methods and selections of properties to make sure my conclusions were robust.The key factors that went into housing value were: when it sold, when it was built, # of square feet, # of bathrooms, # of bedrooms, and how much the seller overpriced/underpriced the property (final asking price – sold price).
How do you Interpret This?
- Use it to look at properties very similar to the condos I used – it would be lousy for looking at a 5 bedroom house in Aliso Viejo, or a condo in Newport Beach.
- It is most accurate right now.This sort of analysis can get stale, things change!
- DON’T use it as investment advice, I’m not a certified professional, just a guy with advanced statistics training, an MBA, and some spare time.
- I have included some valuations of “typical” properties below.A “typical” property has average view, has average upgrades/condition, has average selling circumstances, and so on EXCEPT for the specific details I lay out.You would have to judge if a property would command an “above average” price (e.g. diamond-inlaid bathroom mirror) or a “below average” price (mold growing on walls, neighbor owns meth lab, etc) and adjust accordingly.
2 Bed, 2 Bath, 1000 sqft, built 1990, closing dec 31: $379,000 +/- 25K for relative quality of property.
2 bed, 2.5 Bath, 1400 sqft, built 1996, closing dec 31: $433,000 +/- 20K for relative quality of property
(the +/- are a “95% confidence interval” – if 20 houses sold of each of the above types, I predict only one each would fall outside that range on average)
Where are the Graphs?
Because I am plotting several things vs price, I can’t make a graph.You can graph sqft vs price, but you can’t graph beds AND baths AND year built AND sqft vs price all at once.
How NOT to Interpret this:
- Do not read too much into the $/sqft number.When you see this figure on real estate sites, you are valuing the entire property by it’s square footage.My model considers sqft to be only a part of the overall valuation (instead of 100% of it), so the number you see is smaller.
- You may be tempted to compare this to my Ladera Ranch analysis.They use slightly different methodology and data ranges.Therefore, direct comparison requires some pretty serious knowledge of how these sorts of models work, and even then you are doing a lot of hand-waving.Treat them as stand-alone unless you have deep knowledge of this stuff.
Details of Research for the Curious or Mathematical:
Linear Ordinary Least Squares regression (which is indeed a BLUE regression) of various predictors on soldprice.Boxcox proved linearity with a theta of 7 (!!).VIFs, except where noted, were generally below 2 (beds and yearsagobuilt sometimes crested over it to like 2.35ish).No crazy weighting of data points or questionable pruning, no resampling my own error, no smoking crack, this is a pretty vanilla set of regressions.
All regressions were whitewashed of heteroskedasticity.And yes, there was significant heteroskedasticity because I had no 1 bedrooms and not that many 3 bedrooms in the sample.
This is in the basic “layman’s” posting, and trimming is described in the chart (to either 11 months (all), 9 months, or 6 months).
Predictors and Justifications Behind Using Them:
Daysago -- # of days ago the property was built, captures gradual constant pricing decreases which we know exist!
Daysagosquared – Same as above, but captures accelerating trends to a degree.
Beds – More bedrooms usually means more value, and it has regressed well in other housing studies.
Baths – Same logic as above.
Sqft – Larger houses sell for more, duh.
Yearsagobuilt – Newer homes sell for more – inherently they look better, have higher tech construction, less deferred maintenance problems, etc.
Overprice – In a buyers market, overpricing means you get less offers, which should reduce the price you get for the property… Asking too much means you artificially decrease demand away from yoru actual “willing to sell” point.
Fixed Effects – some communities are gated or have great views or better layouts or have a slightly better location or were more upgraded at initial construction by the builder.It is hard to know the specifics, but a general fixed effects model can capture some of these unobservable differences.I put condos that had 7 or more sales in the same development into a group, and all others into the omitted category.35 out of 99 condos were in this omitted category.
Regression 1, 99 condos:In this regression, I noticed that the regression was mediocre (borderline p-values on good predictors, though same signs and all that) unless I added in daysagosquared, which crudely captured an accelerating pricing trend with time.With it, the predictor coefficients became VERY good (daysago t-stat went from 1.98 to 4.48 for example).
Unfortunately, this regression was also highly multi-collinear between daysago and daysagosquared, though they tested for P<.01% for joint significance.Nonetheless, we don’t really care what houses went for in feb and march that much, so I decided to trim the data to get around having to use daysagosquared in future regressions.
Regression 2, 99 condos: This is pretty much the same regression, but I added in fixed effects as a robustness check and also to fish and see if any developments were obviously better or worse.Not useful for answering the question we all want answered, which is, what are houses worth today, but interesting nonetheless!It seems that windflower is worth 19k more (p <.1%).Nothing else could pass the null hypothesis, so I decided that, especially since I’m cutting data which would further strain it, I may as well dump fixed effects for this regression.Alas.
Regresion 3, 77 condos (Suggested):This is the regression I’m basing the majority of my conclusions on, and I think it is the best one in terms of predicting what you’d pay RIGHT NOW.The one variable that had weaker significance, baths, is one that we know does in fact have real-world significance, so I felt comfortable leaving it in with p=10.2%.Besides, the purpose of this analysis is to track price decrease more than anything, so its not doing much harm sitting in there adding a little bit of predictive power.
Regression 4, 37 condos:I trimmed the data to the last 6 months in this regression.My model started to get unstable from lack of data at this point.Among other things, beds and baths went deep into insignificance, and their predictive power appears to have gotten sucked up by other variables, especially sqft (the strongest predictor).It’s hard to make a good comparison of this to regression 3, though the general trends predicted in 3 are also predicted here.
Regression 5, 77 condos:this is for those of you who are skeptical about the overprice variable for a variety of reasons. I encourage you to think those through carefully and consider what it would mean for the variable to have different strengths, but I included this in case you consider it invalid.The regression is reasonably useful without the variable, you just drop R^2 a lot, and reach the same conclusions on the price trend.
I received an email from a reader providing more information on this listing:
Here is the deal on this property: Mr. Windfall Profits purchased the property for $330,000 direct from Shea Homes in Jun-2003. Just 14 months later, Ms. Greater Fool purchased the property for $500,000 in Aug-2004. Ms. G.F. encumbered the property with $475,000 in debt at the time of acquisition. Ms. G.F. apparently needed some money (new Mercedes lease? tropical vacation?), so she refinanced in Aug-2006--a $480,000 first and a $128,000 second, for a total of $608,000 in debt.
When Ms. G.F. refinanced, her original loan would have been paid off, enriching her with a whopping $133,000 in cash.
Ms. Greater Fool sold the property in Jul-2007--but unfortunately for the lender this was not sold by a grant deed, it was sold by trustee's deed! Deutsche Bank Trust Co America is the recorded owner at a price of $505,138. It's on Redfin for $469,900. With a full price offer and 6% in sales commissions, the total lender loss from the Aug-2006 refi will be $166,294 or 27%!
It is Black Friday today...I wonder what Ms. Greater Fool is doing with all that cash?
I am wondering the same thing. If I had just walked away with that much of the banks money, I would be very thankful...
I close my eyes, only for a moment, and the moment's gone All my dreams, pass before my eyes, a curiosity Dust in the wind, all they are is dust in the wind. Same old song, just a drop of water in an endless sea All we do, crumbles to the ground, though we refuse to see
Dust in the wind, all we are is dust in the wind
[Now] Don't hang on, nothing lasts forever but the earth and sky It slips away, and all your money won't another minute buy.
Dust in the wind, all we are is dust in the wind Dust in the wind, everything is dust in the wind.
The recent fires have reminded me of the helplessness of man to confront forces larger than himself. Many homeowners are hoping the FED or somebody can save the housing market. The forces in play are much larger than anyone can control. We are all powerless to change our real estate market, including the FED. All we can do at this blog is keep people informed of its progress, and hopefully keep of few readers from watching their hard-earned money consumed by the market or dissipate into the ethers.
Beds: 2 Baths: 2 Sq. Ft.: 1,200 $/Sq. Ft.: $417 Lot Size: - Type: Condominium Style: Townhouse Year Built: 2003 Stories: Three or More Levels Area: Quail Hill County: Orange MLS#: P606334 Status: Active On Redfin: 1 day New Listing (24 hours)
From Redfin, "END UNIT TOWNHOME W/ DIRECT GARAGE ACCESS IN 'QUAIL HILL' PRICED FOR IMMEDIATE SALE. FORMAL LIVING RM W/ FIREPLACE, UPGRADED DISTRESSED HARDWOOD FLOORS, GRANITE KITCHEN COUNTERS, BALCONY, PEDESTAL SINK IN GUEST BATH, INSIDE LAUNDRY AREA, NICE SIZE BEDROOMS. SUPER MOTIVATED SELLER WILL MAKE EVERY EFFORT TO WORK WITH YOUR QUALIFIED BUYERS. SUBMIT!!!"
CAPS LOCK, AGAIN.
SUBMIT!!! Sounds like a line from a bad bondage video...
Check out the sales history:
Sales History Date Price 07/24/2007 $505,138 08/26/2004 $500,000
This is actually a 2004 rollback and the second REO we have seen prices below $500,000 in Quail Hill. The first might be written off as an anomaly, the second is an ominous sign. At what point does this become identified as a trend?
Just in case you forgot why we are seeing all these REOs.
Beds: 3 Baths: 3 Sq. Ft.: 2,146 $/Sq. Ft.: $315 Lot Size: - Type: Condominium Style: Mediterranean Year Built: 2004 Stories: Two Levels Area: Northwood County: Orange MLS#: S490583 Status: Active On Redfin: 172 days Unsold in 90+ days
From Redfin, "Move in condition, highly upgraded spacious home. This gorgeous home offers 3 bedrooms and a huge bonus room. There are two master bedrooms, one down plus additional bedroom and another master upstairs with a huge bonus room and builtin computer area. Upgraded hardwood flooring and carpeting, plus plantation shutters. Formal dining room, spacious kitchen upgraded with granite counters and wood cabinetry and stainless steel appliances."
That is a well written listing. You don't see those very often...
Price Reduced: 08/07/07 -- $818,000 to $780,000 Price Reduced: 09/06/07 -- $780,000 to $760,000 Price Reduced: 10/13/07 -- $760,000 to $730,000 Price Reduced: 10/26/07 -- $730,000 to $699,000 Price Reduced: 11/02/07 -- $699,000 to $675,000
The asking prices started somewhere in Wonderland on the exact day the credit crunch took hold. From there, the seller has slowly and methodically chased the market down, always staying one step behind the drops necessary to make a sale.
George Winston's version of Carol of the Bells has been a favorite of mine for years. The somber tone captures the bleak beauty of December. The degree of difficulty to play this must be very high. You can hear each of his hands are playing something completely different and very complex. Beyond that, it is just beautiful. I hope you enjoy it.
First Mortgage $450,000 Second Mortgage $60,000 Total Debt $510,000 Downpayment $60,000
Beds: 3 Baths: 2.5 Sq. Ft.: 1,500 $/Sq. Ft.: $367 Lot Size: 1 sq. ft. Type: Condominium Style: Contemporary, Spanish Year Built: 2001 Stories: Two Levels Area: West Irvine County: Orange MLS#: S495371 Status: Active On Redfin: 135 days Unsold in 90+ days
From Redfin, “Stunning 3 bedroom, 2.5 bath luxury townhome with attached 2-car garage. Marble-look Italian porcelain tile floors, recessed lighting through-out, custom beech-wood cabinetry and durable Corian counter tops in kitchen. Romantic raised fireplace in living room, fire and security alarm, custom-finished floor in garage, slate hardscape in front and much more! ”
This is the first owner we have seen in a while that actually put money into the property. Of course, they are about to lose all of it, but the lender will not get hurt on this one. If this property sells for asking price — which doesn’t seem very likely after 135 days on the market — and assuming a 6% commission, the seller will lose $53,094. I guess with $6,906 in equity left over, they can afford to pay a mover to take them to their rental…