Sometimes I feel I've got to Run away I've got to Get away From the pain that you drive into the heart of me The love we share Seems to go nowhere And I've lost my light For I toss and turn I can't sleep at night
(chorus) Once I ran to you (I ran) Now I'll run from you This tainted love you've given I give you all a boy could give you Take my tears and that's not nearly all Oh...tainted love Tainted love
Does this song describe every homeowner's and speculator's relationship with the housing market? Everyone was so enamored with real estate during the bubble. However, now the fickle real estate market has turned, and speculators are losing money, losing sleep, and losing their love of real estate: tainted love.
Today, I am going to continue the great work done by Effenheimer (formerly OC Fliptrack) on the Brio Community. Nowhere is the silliness of the bubble more apparent than the pricing of 1 bedroom units in this development. Sorry if this post is a little long, but it is worth reading. Carry on.
Asking Price: $319,000
Income Requirement: $79,750
Downpayment Needed: $63,800
Purchase Price: $232,000
Purchase Date: 11/21/2002
Address:2304 Ladrillo Aisle, Irvine, CA 92606 Beds: 1 Baths: 1 Sq. Ft.: 800 $/Sq. Ft.: $399 Lot Size: - Type: Condominium Style: Mediterranean Year Built: 1994 Stories: One Level Area: Westpark County: Orange MLS#: S505561 Status: Active On Redfin: 52 days
From Redfin, "PRICE REDUCED TO SELL FAST!!!, Rare direct access to Garage, Newer Carpet, Central A/C, Ceiling Fan, Cozy Fireplace, sandstone color paint, Lighting under Kitchen Cabinets, and Water Purifier/Filter system. Very QUIET inside location, peaceful neighborhood, close to shopping, Association POOL and TENNIS courts for Brio only. Also, access to two other Master association pools and 5 tennis courts. Will go Quickly!!!! Entertaining ALL reasonable offers."
Will go Quickly!!!! There's an optimist. Is the four exclamation points a manifestation of wishful thinking?
INTERMITTENT caps LOCK again.
There were several transactions on these units in 2006 for over $400,000, despite the fact that the rental value is about $150,000. Prices have held up reasonably well in Brio, although the transaction volume has dropped off considerably.
So why is this seller dropping their price so radically to sell it? Perhaps the REO has something to do with it...
Beds: 1 Baths: 1 Sq. Ft.: 784 $/Sq. Ft.: $451 Lot Size: - Type: Condominium Style: Contemporary Year Built: 1995 Stories: One Level Area: Westpark County: Orange MLS#: P589581 Status: Active On Redfin: 109 days Unsold in 90+ days Fixer-upper
From Redfin, "BEST VALUE IN ALL OF WESTPARK, GREAT LOCATION, SELLER MOTIVATED, HERE IS A GREAT OPPORTUNITY TO OWN IN WESTPARK, NEEDS SOME TLC BUT WORTH A LOOK, BRING INVESTORS OR FIRST TIME BUYERS, FIREPLACE, ATTACHED ONE CAR GARAGE, GOOD SIZE BEDROOM W/ WALK-IN CLOSET, DUAL SINKS."
This appears to be a HELOC implosion. The former owner took the money, trashed the place, and left. Nice.
It looks to me that our featured seller has seen the light. This REO was purchased for $319,850 which coincidentally is the asking price of our featured property. The seller knows the bank is going to reduce their price until this unit is sold, and they know that $319,850 is where the market is at (actually if the bank bought it at auction the market is probably lower.) I think this is a smart move by our featured seller. If they can get in front of the bank, they may get the only buyer in the market. They still have some equity left, so if they move quickly, they might actually see some of it.
There are a few other sellers in this neighborhood who will not be too happy because of the properties profiled above...
Beds: 1 Baths: 1 Sq. Ft.: 800 $/Sq. Ft.: $488 Lot Size: - Type: Condominium Style: Other Year Built: 1995 Stories: One Level Area: Westpark County: Orange MLS#: P598440 Status: Active On Redfin: 62 days
From Redfin, "* * * * HIGHLY desirable and upgraded ground level in exclusive neigborhood with direct access garage. White fireplace highligts cozy living room. Beatiful laminate flooring througout the house. Designer paint, new crown moulding and baseboards. Association pool, tennis courts, and parks. Close to shopping, movies, restaurants, parks. THIS IS A MUST SEE!!!
neigborhood, highligts, Beatiful, througout, moulding: I count 5 misspelled words in that description. Doh! BTW, what does this realtor have against the letter "h" after a "g"?
Do you like how they got the flower in the corner of the picture? Of course, it throws off their exposure and makes for an awful photo, but it has a flower in it.
This is going to be a rollback. The competition is already under their 2004 purchase price. This isn't good for them, but others have it worse...
Beds: 1 Baths: 1 Sq. Ft.: 784 $/Sq. Ft.: $496 Lot Size: - Type: Condominium Style: Contemporary Year Built: 1995 Stories: One Level Area: Westpark County: Orange MLS#: S505997 Status: Active On Redfin: 48 days
From Redfin, "This unit in BRIO is exceptional. Recently refurbished and super clean. Well-designed floorplan offers super living space that is easy to maintain. Idyllic walkway offers a somewhat secluded home that is nevertheless walking distance from shops and eateries! Well managed complex offers great amenities without the sky-high fees (as in local highrises) Motivated seller can respond to offers quickly. Make it yours today!"
This seller is in a world of hurt.
Think about their state of mind. They were in a state of apprehension and denial hoping to get out near breakeven. Their competition was priced in the same general range, so they hoped they could convince a buyer that their place was "better" and somehow they would get out from under.
Then the REO happened, but this was just one property, so it shouldn't be a big problem, they would just have to be patient while the bank got rid of the competition. Then, suddenly, the featured property drops their price 20%. Talk about a disaster. They just lost $80,000! Yikes!
With two properties selling for $320,000, it is no longer an aberration, it is the new neighborhood property value.
Beds: 1 Baths: 1 Sq. Ft.: 800 $/Sq. Ft.: $506 Lot Size: - Type: Condominium Style: Contemporary Year Built: 1996 Stories: One Level Area: Westpark County: Orange MLS#: S482836 Status: Active On Redfin: 209 days Unsold in 90+ days
From Redfin, "BEAUTIFUL TURNKEY CONDO!! This condo has it all. Entrance has designer tile leading to beautiful laminate wood floors. Glass block divider between kitchen and living adds a distinctive touch. Modern track lighting in kitchen with new designer ceiling fan in dining room. Soft designer colors throughout. Bathroom has new cast iron tub & glass slider. Designer tile in bath/dressing area. New hot water heater. Direct entry to garage from kitchen. Beautiful home!!!"
What do you think of the glass block divider? I don't get it. Wouldn't you rather just have it be open? Glass block is great for letting exterior light into bathrooms, but I am not so sure about its use as an interior dividing wall.
Here is the last of our dreamers holding out for over $400,000. It is not going to happen.
Can you see the disaster playing out? Today's series of properties illustrates exactly how a price collapse proceeds. We are witnessing the first leg down of price drops: 20% off the top, and folks, we aren't even half way there yet...
People who bought during the rally must feel like they have been hit in the head. Do you think anyone who bought in 2004 thought they would be selling at a loss? Since most people are adverse to taking responsibility for their own decisions, many will blame the market itself. They wonder, why did you do it? That evil market, who can predict it?
93 Tarocco Irvine, CA 92618 Beds: 3 Baths: 2 Sq. Ft.: 1,000 $/Sq. Ft.: $390 Lot Size: - Type: Condominium Style: Other Year Built: 1983 Stories: One Level Area: Orangetree County: Orange MLS#: S503783 Status: Active On Redfin: 63 days Located adjacent to Irvine Valley College this unit with three bedrooms is ideal for investors as the areas location makes it attractive for student leasing. Originally a two bedroom unit, the owner added a very nice third which increases the income potential. The property is close to all major roads and convenient for the post office, parks, golfing, eating and entertainment.
Notice how they are trying to sell this as investment property. Unless this is getting about $3,500 a month rent to turn a positive cashflow, only a speculator betting on appreciation would pay this price. It is worth about $180,000 to an investor demanding positive cashflow.
. Sales History Date Price
As you can see, this is another 2004 rollback. In the race to the bottom, this property has surpassed the competition. From the old post...
Beds: 3 Baths: 2 Sq. Ft.: 1,150 $/Sq. Ft.: $370 Lot Size: - Type: Condominium Style: Other Year Built: 1978 Stories: One Level Area: Woodbridge County: Orange MLS#: S486749 Status: Active On Redfin: 139 days Unsold in 90+ days
From Redfin, “* * FANTASTIC BUY * * 3 BR 2 BA single level with HUGE backyard, come see the rose garden. Great Location. Everything has been upgraded, from the neutral tiled floors to the granite counters, kitchen cabinets & appliances. 3 Large bedrooms & 2 upgraded bathrooms also with granite & newer cabinets . Newer mirror closets with organizer. It is very lite and brite and definately a 10++ Newer water heater. Walk to all the fantastic amenities, pool, spa, park, tennis, basket & volleyball, schools & shopping.”
HUGE backyard. It is a freakin’ patio! Give me a break.
A 10++? Maybe on a scale from 1 to 100.
” lite and brite and definately” Three misspellings in 5 words, congratulations. I hope she is thankful for the word “and.”
Beds: 3 Baths: 2 Sq. Ft.: 1,110 $/Sq. Ft.: $386 Lot Size: - Type: Condominium Style: Other Year Built: 1972 Stories: Two Levels Area: El Camino Real County: Orange MLS#: S495498 Status: Active On Redfin: 78 days
From Redfin, “BEST PRICED & MOST REMODELLED UNIT ON THE MARKET. BRAZILIAN CHERRY WOOD FLOORS, RECESSED LIGHTING, REFURBISHED CABINETS, NEW APPLIANCES, MAYTAG STOVE, SCRAPED CEILINGS, NEW PAINT, BRAND NEW GORGEOUS DECORATIVE BATHROOM HAS TILES/BORDER ON WALLS & GRANITE SINK. SURROUND SYSTEM IN LIVING ROOM, MASTER WITH WALK IN CLOSET & CLOSET ORGANIZERS. SPACIOUS LAUNDRY ROOM. EXTRA STORAGE OUTSIDE. BEAUTIFUL SLATE FLOORS IN LARGE BACK PATIO. OPEN FLOORPLAN. SEE THE VIRTUAL TOUR!! PRICE REDUCED”
WHY THE ALL CAPS? I find all caps to be very hard on my eyes. It is painful to read that description.
Are any of you impressed by Brazilian Cherry Wood floors? Sounds rare and exotic, doesn’t it?
As you can see, we are now below the $400,000 barrier for 3 bedroom 2 bath homes in Irvine. Another milestone on our journey to the bottom.
You could hear women lamenting, children crying, men shouting. There were some so afraid of death that they prayed for death. Many raised their hands to the gods, and even more believed that there were no gods any longer and that this was one unending night for the world." —Pliny the Younger, circa A.D. 97 to 109, describing the Vesuvius eruption.
Ancient Pompeians, “poured their savings into their houses. Wealthy people enriched their homes with elegant courtyard gardens decorated with frescoes of plants and flowers and an abundance of modern conveniences…” Similarly, denizens of the O.C. take much pride in their modern day villas.
Herculaneum has been described as, “…a dream town. Overlooking the Bay of Naples, it was the aristocratic dwelling of a wealthy elite, a cluster of fabulous villas and gardens.” The residents there must have felt lucky and privileged, not unlike residents in some modern day Irvine Ranch villas…with option ARMs…the dream will end suddenly…
I posted about the ugliness of the option ARMs in the forums, but it was suggested that I post about it on the blog as well. I think this is the most misunderstood loan in the industry which makes it even more misunderstood by the victims borrowers. Worse yet, the lenders who made these loans failed to properly assess the interest rate risk by overdosing on Kool Aid.
Most borrowers thought that short term interest rates wouldn't increase 2%-3% in less than three years. This loan has a mandatory recast in year five, but if rates increase at a faster rate that recast happens sooner. A recast is when the loan will reset and the borrower will have to start paying principal and interest. It also will be amortized over 25 years if the recast happens in year five.
Lenders thought it was a good idea to let anyone sell this loan... and sell it on the fact that they can make 3% yield spread premium on the back end. Yield spread premium is paid by the lender to the broker. The amount is determined by the broker by adjusting the rate higher or lower. The higher the rate the more YSP the broker will make. However, with option ARMs it is how high the margin is. The real interest rate is the margin plus the index. Option ARMs use many different indexes, but a common index it the MTA.
Like volcanologists, who ask, “…How large will the eruption be? We ask, how big will the option ARM disaster be? Explosive, like Vesuvius, or effusive like Kilauea?
Volcanologists believe that technology will enable them to predict when an eruption is about to occur. But, they are still unable to pinpoint the eruption’s likely size or character. However, the impending Option Arm disaster is quite easy to predict…
These data point towards a Vesuvius sized disaster...
For the first example, I used a $500k loan amount, 2.75% margin, 1% minimum start payment and calculated the approximate MTA index with the first payment starting in January 2005.
As you will notice, the minimum payment only goes up 7.5% a year. That is, in year two, the payment went from $1608.20 X 7.5% = $1728.82 but the real interest rate increased nearly a full 1% higher. The minimum payment doesn't even cover the interest and this deferred interest has added over $9200 to the loan balance.
Year 4... the OMFG year:
In August 2008, the payment recasts because the loan has reached the maximum negative amortization of 110% of the original $500k loan amount. Now the victim's borrower's payment more than doubles from $1997.86 to $4132.53 because they are forced to pay principal and interest on the new balance of $550k.
I don't know about you, but if my house payment were to double it would be one hell of shock. Some in the business will say that some of these loans had a max of 115% of negative amortization. Great! That only delays the pain until December of 2009-- one month before the mandatory five year recast. However 115% means the balance is now $575k and the payment will be $4393.27 and that is assuming interest rates do not change.
Here is what the loan looks like after 30 years. As if someone would actually be able to keep it:
In January, of 2005 it would be fairly easy to get a 30 year fixed rate loan for 5.75%. The total interest paid would be $550k for a total of $1.05mil. The option ARM loan costs about $336k more than the 30 year fixed over the life of the loan. However, that is if interest rates stayed the same as they are now. Of course, it could go down but it can just as easily go up over that time frame.
Some will argue that they will sell or refinance before any problems arise. I say good luck with either right now, but that is another story. If the home could be sold for $625k this December, the option ARM owner has a loan balance of roughly $540k and has made payments of roughly $62k. This would equal (excluding fees and commissions) a net of $23k. The the thirty year fixed owner would have a loan balance of roughly $479k and made payments of roughly $105k. This would equal (excluding fees and commissions) a net of $41k.
Now here is what this loan looks like when the victim borrower got whacked. To get the 3% YSP (this is the $15k rebate the lender pays the broker for the loan and has to be disclosed) the broker needs to up the margin to about 3.85% and stick them with a three year prepayment penalty. I cannot even begin to tell you how many chop shop brokers that used the 3% YSP as motivation for their "loan officers" to sell this loan. I moved the first payment up to July 2005 because this is when people really started to sell this loan. It also shows a more accurate adjustment of the MTA index.
The first six months and 2006:
Take a look at when the loan recasts. I wouldn't want to be at their house for Christmas:
This is what it must look like when that reset hits:
Now here is the rub. Let's pretend this victim borrower bought this place for $625k, put 20% down, and today it still is worth $625k. I know it's pure fantasy, but play along with me. Since December is month 30 they still have their three year prepayment penalty of about $25k, $5k of loan fees and $50k added to the balance making the LTV 93%. Anyone know a lender doing jumbo cash out refi's up to 95% LTV?
Of course, they could wait until July when their prepay is up and pay $26k+ in monthly payments but their loan balance hasn't changed much and they still would be at 90% LTV. Anyone know of a lender doing jumbo rate an term refi's at 90% LTV and do you think they will be doing it in July 2008? What happens if the price of the home goes down 5% or 10%?
Worse yet, what if they only put 10% down? Then they would be upside down right now. If the price went down 10% they would owe $50k more than the home is worth. Get the jingle mail ready, because the only other choice here is to pay more than everyone else for a depreciating asset.
This is just the beginning of a scenario that is about to get a lot worse. I think that after reading this you will think that this chart underestimates how soon the option ARMs are going to start recasting.
Also, for some more info on the acceleration in the default rates Calculated Risk has a great post on the subject and as usual some great charts. All I can say when I see those charts is: "Ground, she movin' under me. Tidal waves out on the sea. Sulphur smoke up in the sky. Pretty soon we learn to fly."
Weekends are a bit different at the Irvine Housing Blog. We don't get as much traffic as during the week because everyone has a life, and hopefully, they are out living it on the weekend. We are. It is a good time to try out different things and see how people like it.
Today, you will probably think I am a realtor. Today's property I am profiling simply because I think it is beautiful. It is ridiculously priced, and it has been on the market a long time, but it is a beautiful home. I will probably never be in a position to own something like it, but it is nice to dream...
7 Meryton Irvine, CA 92603 Beds: 5 Baths: 4.5 Sq. Ft.: 3,400 $/Sq. Ft.: $721 Lot Size: 0.41 acres Type: Single Family Residence Style: Traditional Year Built: 1995 Stories: Two Levels View(s): Hills, Panoramic, Trees/Woods, Has View Area: Turtle Rock County: Orange MLS#: S491216 Status: Active On Redfin: 151 days Unsold in 90+ days Opportunity knocks! This elegant estate offers the ultimate in privacy and resort-like grounds. Situated on a cul-de-sac & w/ only one neighbor, this spectacular home showcases incomparable detailing & sophistication thruout. Perfect for entertaining, it even includes putting greens w/ 6 holes! Granite countertops in kitchen, powder & thruout master, custom wall color, sculpted carpeting & more. It's in a great location and is incredibly private. Move in for the holidays!
Opportunity knocks! An opportunity to overpay for real estate.
Actually, this house has a good lesson about sales and marketing. This house is well presented and it has everything someone could want in a home, and yet it isn't selling. THE PRICE IS TOO HIGH!!! It appears that all the marketing in the world cannot overcome a price tag that is simply too high.
Everyone on Grandview street in Turtle Ridge sees nothing but blue skies, hears nothing but birds singing, and thinks nothing but happy thoughts. Nothing is going to interrupt their rosy view of the housing market -- not even reality. Apparently there is nothing that cannot be overcome by a positive attitude and large doses of kool aid.
Perhaps I pick on Turtle Ridge too much. It is certainly an easy target. Whenever I want to profile a WTF home, I need look no further than Turtle Ridge. There are so many to chose from, and the prices are so ridiculously high, that I have to stop myself from profiling every home for sale in this neighborhood. Perhaps it really is that valuable? Perhaps not.
Today I am going to look at two more properties on Grandview. The 25 Grandview property I skewered back in September has lowered the price by $500,000. He must be experiencing some severe kool aid withdrawals. The two neighbors are still on the sauce.
Beds: 5 Baths: 5.5 Sq. Ft.: 5,700 $/Sq. Ft.: $877 Lot Size: 0.3 acres Type: Single Family Residence Style: Mediterranean, Other
Year Built: 2006 Stories: Two Levels View(s): Catalina Island, City Lights, Coastline, Ocean, Panoramic Area: Turtle Ridge County: Orange MLS#: S507242 Status: Active On Redfin: 30 days
From Redfin, "Fabulous panoramic view of city lights, ocean & Catalina Island is this Luxury Estate built by Luxury Laing builder, featuring Dual master Suites(junior on main floor). 5 bedrooms suites with thier own baths. Huge upstair's Bonusroom/balcony. Richly appointed Gourmet Kitchen/center island with top of the line granite slab counter top, complete with elegant cabinets. L. room, F. room, D. room open into gorgeous courtuyard /F. place creating an excellent flow for all your entertainments. Sparkling pool & spa"
top of the line granite slab counter top? Now we have to distinguish these granite tops from the run-of-the-mill granite tops everyone else has.
L. F. D. room? Is that where they do their kool aid?
Beds: 5 Baths: 5.5 Sq. Ft.: 5,900 $/Sq. Ft.: $881 Lot Size: 0.36 acres Type: Single Family Residence Style: Mediterranean
Year Built: 2006 Stories: Two Levels View(s): City Lights, Coastline, Ocean, Panoramic, Has View Area: Turtle Ridge County: Orange MLS#: S500308 Status: Active On Redfin: 83 days
From Redfin, "Incredible Panoramic Views from Ocean to City Lights. One of the Nicest Plan 2AX to come on to the Market. Extra Deep Backyard with a Spectacular Pool, Sunken Sit-Down Firepit and a Covered Outdoor Kitchen for Entertaining and Enjoying Spectacular Sunsets and Views. Large Expanded Jr Master Suite Downstairs with an Tranquil Expanded Loggia. Rare and Large Wine Rm. Upstairs the Main Master Suite with its Sitting Rm and Extra Long Deck, 3 Other Bedrms w/ Baths + Bonus Complete this Fabulous Home."
This second kool aid drinker can probably hold out forever. He will need to in order to get this asking price, but with 50% down, he shouldn't be facing near the financial distress of his neighbor above who borrowed 90% of $3.4M. How would you like to make that mortgage payment? Yikes!
As a departure from my normal Friday sign off, I would like to leave you with the words of Frank Sinatra (and the link to the music video.) They express how I feel when writing for the Irvine Housing Blog.
Now this could only happen to a guy like me And only happen in a town like this So may I say to each of you most gratef'lly As I throw each one of you a kiss
The summer wind, came blowin' in from across the sea It lingered there to touch your hair and walk with me All summer long we sang a song and then we strolled that golden sand Two sweethearts and the summer wind
Like painted kites, those days and nights, they went flyin' by The world was new beneath a blue umbrella sky Then softer than a piper man one day it called to you I lost you, I lost you to the summer wind
The autumn wind and the winter winds, they have come and gone And still the days, those lonely days, they go on and on And guess who sighs his lullabies through nights that never end My fickle friend, the summer wind
Today, I am coming out of the closet: I am a Frank Sinatra fan. I have been carrying this secret shame since high school. When everyone else was blasting some obnoxious noise from their car stereo for all to hear, sometimes I would roll up my windows and crank Frank Sinatra. I am so white.
Back to the song...
Isn't the market like a fickle summer wind? Doesn't everyone have fond memories of great summer selling seasons gone by? So what happened in 2007?
Beds: 2 Baths: 2.5 Sq. Ft.: 1,508 $/Sq. Ft.: $365 Lot Size: - Type: Condominium Style: Mediterranean Year Built: 2000 Stories: Three or More Levels Area: Oak Creek County: Orange MLS#: S506892 Status: Active On Redfin: 30 days
From Redfin, "Absolutely Pristine Detached 2 BDRM + LARGE LOFT w/ Elegant Upgrades in Gated Oak Creek! Enjoy the RICH HARDWOOD FLOORS * NEW CARPET * HUNTER DOUGLAS SILHOUETTES * PLANTATION SHUTTERS & CUSTOM PAINT! Fantastic Floor Plan has 1st Floor Bdrm/Bath * Spacious Family Room w/ Terrace * Dining Rm * Spacious Kitchen w/ Corian Counters & SS Appl * Main Floor Laundry Rm & Pituresque Backyard! Enjoy the Award Winning Schools & Resort Style Amenities!"
Even the best still have issues with their CAPS LOCK sticking INTERMITTENTLY.
What is Pituresque? Is this place a Pit?
A bit slash happy, and fond of asterisks, but only 2 exclamation points...
If this seller gets their asking price, they stand to lose $105,000, assuming a 6% commission. Will they get it?
The selling season has past. Fall is here, Halloween is coming, and the winter doldrums are right around the corner. Buyers are hard to find. Good luck.
The falling leaves drift by the window, the autumn leaves of red and gold, I see your lips, the summer kisses, the sunburned hands, I used to hold. Since you went away, the days grow long, and soon I'll hear old winter's song But I miss you most of all, my darling, when autumn leaves start to fall