Mazzoni Aisle Flop

Asking Price: $547,500

Purchase Price: $542,239

Purchase Date: 12/5/2006

Address: 8 Mozzoni Aisle, Irvine, CA 92606

Beds: 3
Baths: 2.5
Sq. Ft.*: 1,676
Lot Sq. Ft.*: 1,623
Year Built: 1990
Stories: 3
Type: Condominium
Neighborhood: Westpark
$/Sq. Ft.*: $327
MLS: S469169
Status: Active on market
On Redfin: 124 days
Categories: Unsold in 90+ days

Sales History:
Date -------------- Price ---------- Apprec
12/05/2006 -- $542,239 -- -10.8%/yr
08/11/2005 -- $630,000 -- 15.5%/yr
09/24/1999 -- $270,500 -- 0.8%/yr
04/04/1991 -- $252,000

Redfin, Zillow

When I was looking for my most recent rental, I viewed one of the units in this community. The whole place is just too dense (a 1,623 SF lot, WTF?). When your in there, the claustrophobia is inescapable. The unit I viewed was completely updated. This one doesn't look like it has been touched since 1991.

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Some properties just have bad karma. This one was purchased at the peak of the last bubble for $252,000. The original homedebtor sold 8 1/2 years later and made a whopping $2,270 after a 6% sales commission. When adjusted for inflation and accounting for the stress of being underwater for 8 1/2 years, I consider this one a loss. The second buyer did well doubling their money in 6 years. The third buyer... well, they lost about $120,000 after commissions in just over a year -- a 20% loss. Here is where it gets strange; the fourth buyer appears to have put the unit up for sale almost immediately after purchase as it has been on the market for over 120 days, and the last sale was almost that long ago. If this fourth buyer sells at the current asking price, assuming a 6% commission, they will lose $27,589 in just 4 months. I would add in some carrying costs as the unit is empty, but does anyone think this flipper is actually making any payments? I doubt it.

This property has had 4 owners; 3 of them are going to lose money on it. Who says real estate always goes up?

Watermarke - You think RE agents/brokers have a clue?! - UPDATE #1

Originally posted January 29, 2007

Address: 2363 Watermarke Place, Irvine, CA 92612 (Jamboree/Campus)
Plan: 635 sq ft - 1/1
MLS: P555645 DOM: 14
Sale History: 3/14/2006: $417,000
2005?: $342,000?
Price Reduced: 01/22/07 -- $439,000 to $420,000
Current Price: $420,000

This flip is located in the Watermarke condo complex located near Campus and Jamboree (right behind The Plaza Irvine high rises). The 535 units of Watermarke were built by the Sares Regis Group from 2003-2005. It was originally supposed to be a luxury apartment complex (where it would be competing with Toscana and Villa Siena/Park Place). Halfway through they decided to do a condo conversion, PISSED off some people, and started selling the units instead of leasing them out.

There are several plans and the 635 sq ft Plan A is the smallest. I believe this plan started at around $300,000 back in late 2004/early 2005. I'm not 100% sure but from the property tax records, it seems this unit was originally purchased for about $342k. It was then flipped for a quick profit to the current owner who won't be as lucky.

The current owner purchased in March 2006 for $417,000 with a 100% financed loan. Yeah, we've seen this before. But by a Real Estate Broker? WTF?! There's no way this flipper can claim ignorance. This broker knew what they were getting into with 100% financing. Why did they decide to do it? My guess is GREED! Any other opinions?

I'm not sure if they occupied it for 6 months or not but in September 2006 they rented it out (MLS S457444) for $1850/month (furnished it seems). They listed it for sale on 1/14/2007 for $439,000 and then dropped the price to $420,000 a week later. If sold at $420,000 (and assuming 3% in selling costs - they are a BROKER afterall), they are facing a loss of $9600! That doesn't take into account the money they are losing each month.

Also there's probably more money to be lost in closing costs because the private remarks state: "Tenant has a lease through September 07 $1,850/month- willing to vacate with 30 days notice. Shows great! Plasma TV, washer, dryer, fridge, and some furniture negotiable. SHOWS GREAT! Possible credit to buyer for closing costs. Thank you. Seller is licensed real estate broker."

Will they be able to sell it? It'll be tough considering the other Plan A's listed on MLS are ALL cheaper:

• 2314 Watermarke Place - Plan A - $379,000
• 3237 Watermarke Place - Plan A - $382,000
• 3337 Watermarke Place - Plan A - $384,500
• 3216 Watermarke Place - Plan A - $389,000
• 3319 Watermarke Place - Plan A - $389,900
• 2235 Watermarke Place - Plan A - $399,999

UPDATE #1 - April 19, 2007

Thanks to dayday in the forums, I've come to learn the price here has dropped quite a bit. The MLS # is now U7000785 and this latest listing has been on the market for 59 days.

Price Reduced: 03/13/07 -- $429,000 to $409,000
Price Reduced: 04/12/07 -- $409,000 to $360,000
Current Price: $360,000

If sold at the current asking price and assuming 3% in selling costs, this investor is looking at a loss of about $68,000!

Here's what the other Plan A's are at now:

• 2314 Watermarke Place - Plan A - $369,000
• 2235 Watermarke Place - Plan A - $399,999
• 3267 Watermarke Place - Plan A - $409,000
• 3237 Watermarke Place - Plan A - Sold for $367,500 on 3/28/2007
• 3337 Watermarke Place - Plan A - Rented for $1,600 on 4/1/2007
• 3216 Watermarke Place - Plan A - Expired
• 3319 Watermarke Place - Plan A - Expired

Shadow Play

Asking Price: $888,000

Purchase Price: $855,000
Purchase Date: 11/24/2004

Address: 56 Shadowplay, Irvine, CA 92620

Beds: 4
Baths: 4
Sq. Ft.*: 2,492
Year Built: 2004
Stories: 2
Type: Condominium
Neighborhood: Northwood
$/Sq. Ft.*: $356
MLS: P571009
Status: Active on market
On Redfin: 6 days

When looking at the state of the Irvine residential real estate market, I am noticing two different segments of the market showing stress: small starter homes and condos, and new construction purchased since 2004. Below is a screen capture of Redfin's map of homes available for sale in Woodbury and Northwood. The area in red highlight was built after 2004, and the area to the left is older construction in Northwood. Notice the larger number of for sale homes in the newer construction areas? This is opposite of what we should be seeing.

This says something about the current market: recent home buyers are concerned. Asking prices would indicate they are not panicking yet, but the number of homes for sale are showing their concern. Each of these homeowners is hoping a greater fool buys them out at breakeven during the spring buying season. When that fails to materialize, we should begin to see panic.

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Giving hope to the FBs on this street is the recent sale of 58 Shadowplay, Asking $839,000, Paid $800,000 on 4/10/2007. It looks as if the original owner paid near $800,000 for this property as the assessed value was $812,940 which represents the original purchase price with some adjustment. This original owner lost the commissions ($48,000 @ 6%) and whatever carrying costs were put into the place. I hope the new owners are happy; despite the loss, I imagine the seller is happy.

The property at 56 Shadowplay is one of 3 properties for sale on this one spot of this one street. The others are not going to be so happy with the $363 / SF sale price of 58 Shadowplay:

62 Shadowplay, Asking $849,000, $396 / SF, Paid (unknown, assessed at $800,624), DOM 236

68 Shadowplay, Asking $850,000, $396 / SF, Paid $782,000 on 6/30/2005, DOM 49

Are our featured owners quixotically jousting with windmills, engaging in their own shadow play, or are they serious about selling. Since they are looking at a loss, I would say they are serious. If 56 Shadowplay gets the full asking price of $888,000, and assuming a 6% commission, this seller stands to lose $20,280. They will not like the loss, but better a small loss than being the bagholder for the big drop to come...

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P.S. Check this out Sichuan shadow play

Dew Drop Inn

Old Asking Price: $539,000

New Asking Price: $525,000

Purchase Price: $560,000
Purchase Date: 8/17/2006

Address: 239 Dewdrop, Irvine, CA 92603-0650

Beds: 2
Baths: 2
Sq. Ft.*: 1,200
Year Built: 2003
Stories: 3
Type: Condominium
Neighborhood: Quail Hill
$/Sq. Ft.*: $450
MLS: S476844
Status: Active on market
On Redfin: 22 days

Redfin, Zillow

When the owner of this property bought near the peak in August of 2006, she probably had visions of the fortune she was going to make flipping condos. Perhaps she even had visions of watching live jazz at the Dew Drop Inn during Mardi Gras. Apparently, she changed her plans. Now, she just wants out. After sitting vacant for six months (and burning a big hole in her wallet), she is trying to sell for whatever she can get. Good luck. Assuming a 6% commission, if she gets her asking price, she is looking at a $53,340 loss. However, a neighbor of hers is trying to sell 318 Dewdrop for $519,900, and it has been languishing on the market for over 240 days. Are these two properties comparable? Zillow thinks 239 is worth $572,000 and 318 is worth $586,385. It looks like our flipper is going to take a big loss.

Tragedy at Virginia Tech

As a mom, my heart goes out to all the moms (and dads) whose beloved children were murdered on campus this morning.

Take a minute out of your day today to reflect on your family, your children. They are what really matters.

irvinesinglemom

How Homedebtors Could Avoid Foreclosure

There was a recent article posted on MSN about mortgage companies working with FB's to save their homes from foreclosure. This particular article is most likely part of a public relations campaign from the lending industry to show they are working on the problem. They are bracing themselves for the inevitable congressional hearings which will happen next year. There is nothing quite like an election year crisis to bring out congressional grandstanding by our leading politicians. But I digress... the MSN article got me thinking about what really could be done about the foreclosure problem.

I have written in several posts about the serious foreclosure problem looming as several trillion dollars of mortgages reset to higher payments over the next 5 years. There is no way to effectively restructure payments when a borrower cannot even afford to pay the interest on the debt. Lenders cannot lower interest rates to near zero because then they will lose money on the loan. Any borrower who thinks the lender is actually going to forgive the debt and allow them to keep their home is really living in a fantasy world (I would wager many FBs believe this). Lenders will not take a loss on a property loan and allow borrowers to keep the home: it's as simple as that.

As much as it pains me to write this, there is a short to medium term solution to the foreclosure problem: convert part of the mortgage to a zero coupon bond. For those of you not steeped in finance, a zero coupon bond is a bond which does not make periodic interest payments. Think of it a zero amortization loan. You don't pay either the interest or the principal, and both accumulate for the life of the loan. The loan would be due upon the sale of the house.

Here is how it would work for our typical homedebtor: Assume our financial genius utilized 100% financing and took out a $500,000 interest-only mortgage with a 2% teaser rate that is due to adjust to 6%. Let's further assume his real income (not what he reported on his liar loan) could support a $1,500 payment on a $250,000 conventional 30-year mortgage at 6%. The bank could convert $250,000 to a conventional mortgage, and convert the other $250,000 to a zero coupon bond at 6% due on sale. The homedebtor can now make their payment, and they get to keep their house. But here is the catch: when they sell their house, they will owe the bank a lot of money. If they sell the house in 20 years, they will owe $800,000 on the zero coupon bond note. In other words, all the equity gain on the value of the home will go to the bank.

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This would solve a multitude of problems: First, it would provide a mechanism whereby people who were victims of predatory lending could keep their homes. This would make the homedebtor happy, and it would get government regulators out of the bank's business. Second, it would make the banks more money in the long run because they are still making their interest profit even if they don't see it until the homedebtor sells the home (many may not be aware of it, but lenders book income on the increase in principal on a negative amortization loan). Third, since foreclosures would be the primary mechanism facilitating the crash, it would keep home prices from crashing by reducing the number of foreclosures.

Sounds like a panacea, doesn't it? There are some problems.

The first problem will become apparent when people start selling their houses. People are greedy. They won't want to give the bank all their equity when they sell. They will conveniently forget the debt relief and avoiding foreclosure and all the problems they had earlier. All they will see is that they sold the house for a lot more than they paid for it, and they did not make any money. And what happens when the appreciation does not match the term of the note? Do they do a short-sale 20 years down the line? This will cause a huge uproar and more calls for congressional intervention. In other words, for everyone involved the day of reckoning is merely delayed, not avoided.

Second, it does nothing for the affordability problem. If prices do not crash, a great many people really will be priced out forever. To solve this problem, banks will make zero coupon bonds available to everyone, and eventually everyone will have them. Think about where we will be then: we will be a society of homedebtors who have collectively agreed to give all our equity to the bank for the pride of ownership. Starts to sound a bit like Pottersville from It's a Wonderful Life. Is that the way we all want to live?

Third, The zero coupon bond solution would effectively eliminate the move-up market because you won't have any equity to take with you from house to house. Unless you save money or get a big raise so you can afford a larger payment, you can't buy a more expensive home. This would result in a dramatic flattening of prices. In other words, the low end would be supported at inflated levels while the high end would stagnate or decline.

Fourth, Based on the problems above, it will be difficult to find a new equilibrium in prices. How would people figure out how much anything is worth? How would all price ranges be supported equally? Small changes in the interest rate on the zero coupon bond can make the difference between hundreds of thousands of dollars at the time of sale, particularly on a long-term hold. Does anyone think this will turn out in favor of the borrower? I suspect we would see a lot of short-sales as the banks graciously agree to take all the gains and forgive the rest of the debt. This takes us back to our first problem with angry, greedy sellers.

Finally, I think this is only a short to medium term solution to the foreclosure problem. For as much as we are addicted to credit in this country, there is a point where people will say "enough is enough." When a house fails to have any investment value, people will not be so excited about home ownership. People can blather on about pride of ownership all they want, but people want to make money on selling their houses. Inflated valuations are only supported by greed. If home ownership becomes less desirable, prices will end up falling back to their rental equivalent value because the demand will not be there. In the long run, we would end up with prices where they should be anyway, it would just be a much more prolonged and painful journey. Does anyone want to experience what the Japanese went through?

When faced with the prospect of more than a million foreclosures, some Wall Street genius (I am being facetious) is going to come up with a solution very similar to what I just presented. To be honest, zero coupon bond structures and other exotic financing terms are quite common in complex real estate deals like the ones I see on a daily basis in my line of work. Exotic loan terms are the exclusive purview of sophisticated investors who understand what they are doing. They are not intended for consumption by the general public. Given the profusion of interest-only, and negative amortization loans in the market today, is it any surprise we have such a big mess now?

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It's a Wonderful Life

West University Park Irvine

We have all heard the expression, "It's a great place to visit, but I wouldn't want to live there." One thing that strikes me about Irvine is that it is a boring place to visit, but it's a great place if you live there. Irvine is all about the joy of the mundane, and the happiness of daily life. For me life in Irvine revolves around the time I spend with my family in the various activities available in our great city. As a "bitter renter" I have lived in three different neighborhoods of Irvine, and I have friends in other neighborhoods. Through various family activities, I have become acquainted with several of Irvine's neighborhoods. If this post is popular, I may profile other parts of Irvine with which I am familiar. The following is about the West side of University Park.

University Park is defined by the roughly triangular shape defined by the 405, Culver Drive and University Drive. Michelson Drive is the major collector street ushering people through the area. The pictures in this post were taken in the neighborhood west of University Community Park and south of Michelson.

University Park is one of the first neighborhoods in Irvine. Most of the housing was built in the late 1960's. The architecture is a bit dated, but the houses tend to have more interior and exterior space and larger individual rooms. What really sets this neighborhood in Irvine apart is the quality of the land planning. Back in the 1960's, large master planned communities like Irvine were a relatively new phenomenon. Some innovative thinkers melded together some relatively simple ideas to create a wonderful place to live. The first of these ideas was to create a pedestrian walkway system linking the neighborhood in a way that creates a very safe place to get around with a minimum of interference from automobiles. One of the beautiful features of this community is its mature trees. It makes for a wonderful stroll down the winding pathways.

The backyard pedestrian walkway links a number of tot lots. It is quite common to see parents walking or biking with their young children to these parks. One of the unique features of these parks is their relative inaccessibility by car. If you drove through this neighborhood, you would never see these walkways or parks as they are all on the pedestrian system in the collective back yard.

The back yard pedestrian path is ideal for younger families with children who may be learning to ride bikes or roller blade.

The tot lots are generally of high quality. Kids really do enjoy playing on them. Sometimes when a tot lot is too small or lacks interesting climbing apparatuses, children will lose interest quickly. This is not usually a problem with these tot lots.

Near the center of the community, there is one location where the pedestrian pathways intersect a lightly traveled local street. Here is one of the many community pools in University Park. All of the pools require either a key or a code available only to University Park residents (and their friends).

University Community Park is the central feature of the master plan. It has something for everyone.

The Adventure Playground according to the City of Irvine website: "Since 1977, the City of Irvine’s Adventure Playground has been creating challenging programs for children to explore and learn in an environment that was once naturally available but is now virtually nonexistent. Adventure Playground, or A.P., is an enclosed area dedicated for children to develop, stir their imaginations and encompass the benefits of free and natural play. This living playground is constantly changing and always supervised. Maintained by trained and friendly staff, you are sure to have an enjoyable experience every visit."

The baseball field is lit, there are concrete dugouts and a fan seating area.

There are basketball courts, tennis courts, and racketball courts.

Did you know there is a professional disc golf association?

Univesity Park Elementary School is adjacent to the community park. It has one of the better childrens play areas.

Also at University Community Park but not pictured here is a branch of Orange County Public Library.

Obviously, Irvine has plenty of activities to keep every member of the family active. Irvine also has the great weather to make using these activities part of the daily lives of its residents. It is easy to step out your door and walk to any of a dozen parks or play areas and invest quality time with the family. On the weekends my family will often make day trips to enjoy the other activities Southern California has to offer; however, sometimes we choose to have an "Irvine Day," and just hang out at the parks and pools in our neighborhood and take it easy. It is great to live in a community with so much to offer.