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Scorched Earth

Aug 15th, 2007 by IrvineRenter 

Mine eyes have seen the glory of the coming of the Lord;
He is trampling out the vintage where the grapes of wrath are stored;
He hath loosed the fateful lightning of His terrible swift sword;
His truth is marching on.
Glory! Glory! Hallelujah! Glory! Glory! Hallelujah!
Glory! Glory! Hallelujah! His truth is marching on.

Battle Hymn of the Republic -- Julia W. Howe

Link to modern rock video version

During the civil war, Major General William Tecumseh Sherman of the Union Army took the city of Atlanta and proceeded to march to the city of Savannah destroying everything in his path (Sherman's March to the Sea.) He ordered his troops to burn crops, kill livestock, consume supplies, and destroy civilian infrastructure along their path. This ancient warfare technique is know as scorched earth. This policy is often also referred to as total war.

Flipper There is a class of warrior operating in our housing market: flippers. I say they are warriors because they are at war with regular families, coming in to buy any property perceived to be of value. They will be glad to sell the property to a regular family -- after a significant markup. The market has ways of dealing with flippers: its own scorched earth policy. It is called a bear market.

We have been profiling many flips recently. Some are REOs where the intention is not profit but loss mitigation, but many have been flips purchased by speculators. One of the memes floating around the MSM is that speculators have left the market. We have plenty of evidence to the contrary.

Actually, I rather like it. If I were going to pick two categories of property owners I would most like to see end up as bagholders for the decline over the next few years, it would be flippers and lenders.

24 Atlanta Front 24 Atlanta Kitchen

Asking Price: $729,000IrvineRenter

Purchase Price: $611,000

Purchase Date: 3/28/2007

Address: 24 Atlanta, Irvine, CA 92620

Beds: 4
Baths: 2.5
Sq. Ft.: 2,011
$/Sq. Ft.: $363Knife Catcher Award
Lot Size: 3,870 sq. ft.
Year Built: 1978
Stories: 2
Type: Single Family Residence
County: Orange
Neighborhood: Northwood
MLS#: S488429
Status: Active
On Redfin: 90 days

From Redfin, "BLOWOUT PRICE!Great double CDS location withing walking distance to al l Northwood facilities. Open, spacious 4 br floorplan w/ new remodeled kitchen and baths. Right out of Metropolitan magazine. .. !Impressive trio of schools, convenient central Irvine location ! GREAT VALUE!!Reduced. .. .BEST price home in Northwood."



Right out of Metropolitan magazine. -- LOL!



At almost 90 days on the market, I don't think this flip is working out as planned. They still have room to lower their price and get out before this becomes a loser. They are going to need it.


They call him Flipper, Flipper, faster than lightning,
No-one you see, is smarter than he,
And we know Flipper, lives in a world full of wonder,
Flying there-under, under the sea!

Video of opening theme song

Posted in House Flips

Ashton Green - Another Turtle Ridge Flip Gone Bad - UPDATE #3

Aug 14th, 2007 by zovall 

Originally posted on September 30, 2006

235 Danbrook Outside

Address: 235 Danbook, Irvine, CA 92603 (Turtle Ridge)
Plan: 1155 sq ft - 2/2.5
MLS: P537174 DOM: 18
Sale History: 04/21/2006: $625,000
Current Price: $619,000

The interesting thing here is that they listed it for less than what they purchased it only 5 months ago! They'll have to go lower if they want it to move. This plan 2 has PLENTLY of direct competition:

  • 205 Coral Rose – Plan 4 – 1181 sq ft - $619,000 – 57 DOM
  • 121 Jadestone – Plan 4 – 1181 sq ft - $619,000 – 3 DOM
  • 250 Coral Rose – Plan 2 – 1155 sq ft - $619,000 – 80 DOM (~125 DOM Before)
  • 266 Coral Rose – Plan 2 – 1155 sq ft - $625,000 – 183 DOM
  • 127 Jadestone – Plan 4 – 1181 sq ft - $625,000 – 123 DOM (~38 DOM Before)
  • 207 Danbrook – Plan 3 – 1185 sq ft - $639,000 – 44 DOM (~160 DOM Before)

Factoring in an estimated 6% to be paid out in commissions, the owner will be in the hole for at least $43,000. OUCH!

UPDATE #1 - October 31, 2006

I just noticed that the price on this home was reduced on 10/24 to $612,500. I don't know if the lower price will bring in (m)any offers considering the competition has also lowered their prices (notice that some have played the relist game):

  • 205 Coral Rose – Plan 4 – 1181 sq ft - $599,000 – 88 DOM
  • 121 Jadestone – Plan 4 – 1181 sq ft - $609,000 – 34 DOM
  • 250 Coral Rose – Plan 2 – 1155 sq ft - $619,000 – 111 DOM (~125 DOM Before)
  • 266 Coral Rose – Plan 2 – 1155 sq ft - $615,000 – 29 DOM (~188 DOM Before)
  • 127 Jadestone – Plan 4 – 1181 sq ft - $615,000 – 25 DOM (~170 DOM Before)
  • 207 Danbrook – Plan 3 – 1185 sq ft - SALE PENDING $639,000 SOLD at $610,000 – 56 DOM (~160 DOM Before)

How low could these go? Many of these sellers have a lot of wiggle room since their homes appreciated so much since they've bought. But our featured flipper at 235 Danbrook unfortunately does not have that luxury. If they sell at the current asking price, their loss including 6% in selling costs will be almost $50,000!

UPDATE #2 - November 15, 2006

We've got another price reduction on this home. On 11/13 the price was reduced to $599,000. The pricing by the competition is still the same as the last update. After 6% in selling costs, a sale at $599,000 will cause the flippers to lose almost $62,000! RiDiCuLouS!

UPDATE #3 - August 14, 2007

Well, 235 Danbrook finally sold about 8 months later on 5/21/2007 for $604,000. The loss was about $57,000 (assuming 6% in selling costs).

Here's what else is going on in the tract:

  • 110 Jadestone - Plan 4 - 1200 sq ft - $578,000 - 2 DOM
  • 239 Coral Rose - Plan 3 - 1181 sq ft - $580,000 - 73 DOM
  • 240 Coral Rose - Plan 4 - 1181 sq ft - $588,000 - 29 DOM
  • 127 Jadestone - Plan 4 - 1181 sq ft - $589,000 - 146 (+119 +41 + 129 + 42) DOM
    • Original asking price was $695,000
  • 234 Coral Rose - Plan 2 - 1181 sq ft - $594,000 - 193 DOM
  • 231 Danbrook - Plan 4 - 1200 sq ft - $599,000 - 82 (+180) DOM
  • 217 Danbrook - Plan 2 - 1155 sq ft - $599,000 - 22 DOM
  • 227 Coral Rose - Plan 4 - 1181 sq ft - $610,000 - 17 (+153) DOM
  • 105 Coral Rose - Plan 4 - 1181 sq ft - $619,000 - 109 DOM
  • 100 Coral Rose - Plan 2 - 1155 sq ft - $629,000 - 13 DOM
  • 107 Coral Rose - Plan 3 - 1181 sq ft - $648,000 - 21 DOM
  • 116 Jadestone - Plan 2 - 1155 sq ft - $659,000 - 109 DOM
  • 145 Danbrook - Plan 7 - 1400 sq ft - $659,900 - 39 (+379) DOM
    • Original asking price was $804,995
  • 226 Coral Rose - Plan 7 - 1400 sq ft - $669,000 - 49 (+92) DOM
  • 103 Jadestone - Plan 5 - 1324 sq ft - $675,000 - 120 DOM
  • 142 Coral Rose - Plan 7A - 1445 sq ft - $679,000 - 22 DOM
  • 126 Coral Rose - Plan 7A - 1445 sq ft - $689,000 - 120 (+27) DOM
  • 129 Jadestone - Plan 5 - 1500 sq ft - $729,000 - 25 DOM

Yes, there really are 18 properties on the market in this complex. I believe all the Plan information above is correct, although some of the square footage numbers are suspect.

The description for 129 Jadestone says: "Rarely on the market, largest floorplan with premium corner location. Highly upgraded with travertine flooring, crown mouldings, gourmet kitchen with stainless steel appliances, granite counters, back splash, custom paint and large master bedroom with gorgeous master bath. Enjoy the many amenities which include pool, spa, BBQ, hiking trails and parks. Model perfect!"

The Plan 5 is the only 3 bedroom and it is 1324 sq ft (not 1500) and it is not the largest. Hopefully the agent corrects this information soon.

Looking at the listings, I noticed that there are a few that continue to chase the market down. In this market, you really need to price aggressively if you want to sell quickly.

Posted in House Flips

Dewey, Cheatem & Howe

Aug 13th, 2007 by IrvineRenter 

Dark Side of the MoonThe love of money is the root of all evil.

The Bible -- Timothy 6:10

Money, its a crime.
Share it fairly but dont take a slice of my pie.
Money, so they say
Is the root of all evil today.
But if you ask for a raise its no surprise that theyre
Giving none away.

Money -- Pink Floyd

Link to Music Video

Have you heard about the new realty in town offering to help sellers move property in a declining market? Their name is Dewey, Cheatem & Howe.

OK, it is an old lawyer's joke, but it was the first thing that came to mind when I saw this WTF price on Dewey Street in Irvine...

27 Dewey Front 27 Dewey Kitchen

Asking Price: $940,000IrvineRenter

Purchase Price: $527,000

Purchase Date: 7/11/2003

Address: 27 Dewey, Irvine, CA 92620

Beds: 4
Baths: 2.5
Sq. Ft.: 2,500
$/Sq. Ft.: $376
Lot Size: 5,500 sq. ft.
Year Built: 1978
Stories: 2
Type: Single Family ResidenceWTF
View: Pool
County: Orange
Neighborhood: Northwood
MLS#: P586668
Status: Active
On Redfin: 41 days

From Redfin, "Completely remodeled home from inside & out. Enjoy approx. $200k in u pgrades including: travertine floors, custom paint, crown molding, granite, newer windows, & a resort style custom swimming pool. Main floor master bed w/ blt in vanity & private bath. Gourmet kitchen with granite, pantry, & upgraded fixtures & appliances. Open formal living room w/ vaulted ceilings & fireplace. Lg. secondary bedrooms. Gorgeous resort style swimming pool w/ waterfall. Attend award winning Northwood Sch's."

Another listing looking to justify an asking price by telling us how much they spent on upgrades. Who cares? Did you add any value with all that money you spent? Maybe the buyer will need to spend $200,000 to fix the mess. Who knows?

Oh, he added a gourmet kitchen. That explains it.



Kool Aid Man

So despite the rollbacks happening all around him, this seller believes his property has doubled in value since 2003. This is ridiculous. According to the property records, there is no mortgage on the property, so this seller can cling to his WTF asking price for all eternity -- which is how long it might take for valuations to justify this price.

For drinking way too much kool aid, bestow our WTF award on 27 Dewey!

Money, get away.
Get a good job with good pay and youre okay.
Money, its a gas.
Grab that cash with both hands and make a stash.
New car, caviar, four star daydream,
Think Ill buy me a football team.

Money, get back.
Im all right jack keep your hands off of my stack.
Money, its a hit.
Dont give me that do goody good bullshit.
Im in the high-fidelity first class traveling set
And I think I need a lear jet.

Money -- Pink Floyd

Posted in Price Rollback

Home Sales Data thru 7-25-2007

Aug 12th, 2007 by zovall 

From today's OC Register: "For the 22 business days ending July 25, sales for all types of Orange County home sales decreased 18.9 percent. The median sales price increased 1.1 percent. The median is where half the homes sold for more and half for less. Types of homes selling, as well as home value changes, cause the median to change."

Median sale price

Sales volume



prev. 4 weeks

% change

from ’06

prev. 4 weeks

% change

from ’06









































Source: DataQuick

Posted in News

Greystone Villas - Investment Gone Awry

Aug 11th, 2007 by zovall 

Address: 963 Somerville, Irvine, CA 92620 (Northwood)
Plan: 1481 sq ft - 3/2.5
MLS: S482981 DOM: 124
Sale History: 1/12/2006: $628,000
10/3/2002: $360,000
9/19/2000: $283,000
4/29/1999: $232,000
Price Reduced: 07/05/07 — $645,000 to $599,980
Current Price: $599,980

This is our third post featuring the Greystone Villas tract (#1, #2). We'll provide updates to those homes but first let's take a look at this one. Here we've got a 3bd/2.5ba Plan B that was purchased for $628,000 ($565,200 loan at 7%) on 1/12/2006 . It was immediately rented out for $2,350/month on 1/20/2006. How negative do you suppose that cashflow is?

It looks like a refinance was done on 7/31/2006 through PMC Bancorp - $536,000 First Mortgage at 1% (teaser rate?) and a $67,000 HELOC. The property was eventually listed for sale on 4/9/2007 for $645,000. A price drop on 7/5/2007 brought the price down to $599,980. If sold at the asking price of $599,980, the investor stands to lose over $64,000 (assuming 6% in selling costs and not including negative cash flow).

Soo.. what's the latest with the 3 bedrooms in this tract? First let's update the older posts:

Update on Post #1: 129 Islington was taken off the market on 10/19/2006.

Update on Post #2: 301 Rathbourne is accepting backup offers and is showing a price of $599,900 (loss of $61,000 assuming 6% selling costs).

  • 601 Newcastle sold for $615,000 on 4/12/2007 - 76 DOM (orig at $649,000).

  • 135 Islington sold for $610,000 on 3/17/2007 - 202 DOM. (orig at $669,900)

  • 161 Islington rented for $2,700 on 4/25/2007. (orig at $724,000)

Currently, these are the 3 bedrooms (same plan) on the market competing with our new feature, 963 Somerville:

141 Islington is Bank Owned and 39 Darlington as well as 963 Somerville could be headed in that direction. The tract high price of $680k compared to the $599.9k sale in escrow represents an 11.7% drop in prices has already occurred.



Posted in House Flips

Holy 2003!

Aug 10th, 2007 by IrvineRenter 

LimboEvery limbo boy and girl
All around the limbo world
Gonna do the limbo rock
All around the limbo clock
Jack be limbo, Jack be quick
Jack go unda limbo stick
All around the limbo clock
Hey, let's do the limbo rock

Limbo lower now
Limbo lower now
How low can you go

The Limbo -- Chubby Checker

These rollbacks are coming up so frequently these days, I am forced to wonder, "How low can you go?"

144 Saint James

Asking Price: $651,900IrvineRenter

Purchase Price: $735,000

Purchase Date: 5/4/2006

Address: 144 Saint James, Irvine, CA 92606

Beds: 3
Baths: 2.5
Sq. Ft.: 1,931
$/Sq. Ft.: $338
Lot Size: -Rollback
Year Built: 2002
Stories: 2
Type: Condominium
View: Park or Green Belt
County: Orange
Neighborhood: Walnut
MLS#: S498460
Status: Active
On Redfin: 15 days

From Redfin, "Spacious floor-plan in beautiful gated community of Parklane! Great curb appeal! A must see!!! Den or office off master suite! Corian counters! Center island! Clean white cabinets! Custom tile flooring! plantation shutters! enclosed patio! Best price detached home in the area for the square footage! Light & bright! sides greenbelt! Go direct!"

Three exclamation points: check.

No periods: check.

"Light and Bright:" check.

This realtor probably has an advanced degree in realtorese.



At first glance this seems like just another rollback, but wait... Check out the sales history:

Sales History
Date Price
05/04/2006 $735,000
07/11/2003 $667,000

This is a 2003 rollback!

I imagine this seller thought they were getting a good deal when they bought at the peak and only paid $68,000 more than the previous buyer. Oops! It doesn't seem to have worked out that way. If they get their asking price, minus a 6% commission, they stand to lose $122,214 in just over one year of ownership. I guess buying on St. James street did not bless this transaction.


These rollbacks have clearly wiped out all of the market gains through 2005 and 2006, and we are working our way through 2004. Now we even have the occasional 2003 debacle.

To be honest with all of you, I did not expect to see the market deteriorate this quickly. I was expecting real signs of distress in the fall and winter (I still think it will get much worse.) Real estate markets typically do not turn this fast. Of course, this is no typical real estate market.

The market decline of the early 90's was a slow deflation. There was no single period of intense panic selling; however, it really is different this time. These prices were bid up so high, with so little regard to fundamental valuations, and was played by so many people with so little to lose (100% financing) that it certainly appears as if it is going to behave like a traditional commodities market.

Irvine Housing Market Prediction

If you think it is bad now, wait until the crushing weight of inventory and the massive dump of REOs hits the markets this fall and winter. I predict we will see a full scale panic like the residential real estate market has never seen before. Watch for the psychological shift I described in Houses Should Not Be a Commodity. When we move from denial into fear, the bulls will go strangely silent. When we move from fear into panic and capitulation, we will see a massive inventory spike, and they will all be rollbacks. Watch for it. It is coming soon.

I hope you have enjoyed your week at the Irvine Housing Blog. I have enjoyed bringing it too you. See you next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

Posted in Price Rollback

Markets and the Sea

Aug 8th, 2007 by IrvineRenter 

. . . however baby man may brag of his science and skill, and however much, in a flattering future, that science and skill may augment; yet for ever and for ever, to the crack of doom, the sea will insult and murder him, and pulverize the stateliest, stiffest frigate he can make; nevertheless, by the continual repetition of these very impressions, man has lost that sense of the full awfulness of the sea which aboriginally belongs to it.Moby Dick

. . . these are the times of dreamy quietude, when beholding the tranquil beauty and brilliancy of the ocean's skin, one forgets the tiger heart that pants beneath it; and would not willingly remember, that this velvet paw but conceals a remorseless fang.

Moby Dick -- Herman Melville

Wall Street financiers came up with a number of financial instruments designed to minimize their risks (Collateralized Debt Obligations, Credit Default Swaps, etc.) In doing so, they created a false sense of security and moral hazard which caused huge sums of money to flow into residential home mortgages. Like the first quote from Moby Dick above, the market participants "lost that sense of the full awfulness" the markets can inflict upon them.

For all our wisdom and collective experience, none of us knows what the markets will do next. Like an ocean current or a raging river, a financial market charts its own course. It is fickle and feckless and flows without regard to our hopes and dreams. To forget this fact is to book your financial passage on the Edmund Fitzgerald (Link to great music video).

The ebbs and flows of financial markets are meaningful to us, but in reality they are just movements in price; nothing more. Price rallies make homeowners blissful and renters bitter, while price declines make homeowners gloomy and renters gleeful.

Sub Prime Move Up Chain

These feelings and emotions are independent of movements in price. The market just moves, that is all it does. It is benign, yet dangerous; it is indifferent, yet demonstrative; the market is a paradox which me must simply accept.

It has been argued -- convincingly in my opinion -- that the health of a real estate market starts at the bottom of the food chain. Like the plankton in the sea, the entry-level buyer is the base of the real estate food chain. If the organisms that make up the base of the food chain are not healthy, the entire ecosystem is in peril. So it is with our real estate market.

In several posts I have talked about the complete lack of sales at the low end of the market. It occurred to me I haven't profiled enough of these properties to show just how bad things are. Today I am going to profile three properties in "The Lakes:" a severe rollback, a bank REO and a peak buyer hoping to limit their losses. Enjoy...

79 Lakepines Front 171 Streamwood Inside

Asking Price: $270,000IrvineRenter

Purchase Price: $340,000

Purchase Date: 12/15/2005

Address: 79 Lakepines, Irvine, CA 92620

1st Loan $255,000
2nd Mtg. $51,000
Downpayment $30,000

Beds: 1
Baths: 1
Sq. Ft.: 934
$/Sq. Ft.: $289
Lot Size: 763 sq. ft.
Year Built: 1977
Stories: 2
Type: Condominium
View: Water
County: Orange
Neighborhood: Northwood
MLS#: S488313
Status: Active
On Redfin: 86 days

From Redfin, "Charming, Spacious two story Loft Bedroom home in resort like Lakes community. Best location. Tranquil Back patio faces serene stream and water features. Cozy fireplace, Catherdral scraped ceilings, Skylight, Garden Window, new lighting fixtures, designer paint, Newer appliances including stove, microwave, dishwasher. Walk in Closet in bedroom. Turnkey."



Look at this depth of this rollback: 20% off; even at this asking price it is still on the market after 77 days. Further price reductions will be necessary before this sells. If they manage to get the asking price, and assuming a 6% commission, this seller and their bank stand to lose $86,200 -- that is 25% off a 2005 price!

The lake, it is said, never gives up her dead
When the skies of November turn gloomy.

The Wreck of the Edmund Fitzgerald -- Gordon Lightfoot.

Real estate always goes up, or so our next seller hopes...

171 Streamwood Front 79 Lakepines Kitchen

Asking Price: $241,500IrvineRenter

Purchase Price: $191,826

Purchase Date: 6/11/2007

Address: 171 Streamwood, Irvine, CA 92620

1st Loan $178,500
2nd Mtg. $31,500
Downpayment $0

Beds: 0
Baths: 1
Sq. Ft.: 415
$/Sq. Ft.: $582Knife Catcher Award
Lot Size: -
Year Built: 1977
Stories: 1
Type: Condominium
View: Trees/Woods, Water
County: Orange
Neighborhood: Northwood
MLS#: S497917
Status: Active
On Redfin: 17 days

From Redfin, "Enjoy the sounds of meandering streams from one of the least expensive condos in all of Irvine. This studio unit is on the ground floor within a great community close to shopping, dining and transportation. Numerous association amenities including 2 clubhouses, 2 pools, 2 spas, and tennis courts make this a great place to live!!!"

The obligatory three exclamation points...



Look at this sales history:

Sales History
Date Price
06/11/2007 $191,826
03/21/2005 $210,000
04/16/1998 $57,500

This was a 2005 rollback foreclosed on by the Bank of New York in early June. Does anyone want to bet this will sell for less than the June sales price? And look at the 1998 price. If you calculated its rental value -- and at 415 SF, it is only useful as a rental -- the 1998 price is probably not far from is real worth.

Back to the behavior of lenders and our moral hazard:

By this, he seemed to mean, not only that the most reliable and useful courage was that which arises from the fair estimation of the encountered peril, but that an utterly fearless man is a far more dangerous comrade than a coward.

Moby Dick -- Herman Melville

3 Lakepines Front3 Lakepines Inside

Asking Price: $399,999IrvineRenter

Purchase Price: $427,000

Purchase Date: 3/2/2006

Address: 3 Lakepines, Irvine, CA 92620

1st Loan $340,800
2nd Mtg. $85,200
Downpayment $1,000

Beds: 2
Baths: 1.5
Sq. Ft.: 1,202
$/Sq. Ft.: $333
Lot Size: -
Year Built: 1977
Stories: 2
Type: Condominium
County: Orange
Neighborhood: Northwood
MLS#: U7003339
Status: Active
On Redfin: 1 day
New Listing (24 hours)

From Redfin, "Very spacious and open floor plan. Combination kitchen/dining/living room great room. Private patio area for a small animal, and or bbq area and relaxing. Vaulted ceilings with sky lights. Association area includes two pools & spas, tennis courts. Lakes and streams running all around complex."



Given the whopping $1,000 downpayment, I am not surprised this would be millionaire is walking from this stellar investment. If this property sells for its asking price, the seller bank stands to lose $51,000.94 after a 6% commission.

The Captain wired in he had water coming in
And the good ship and crew was in peril
And later that night when his lights went out of sight
Came the wreck of the Edmund Fitzgerald.

The Wreck of the Edmund Fitzgerald -- Gordon Lightfoot.

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