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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.

Any Way The Wind Blows

Aug 7th, 2007 by IrvineRenter 

Bohemian RhapsodyIs this the real life? Is this just fantasy?
Caught in a landslide, No escape from reality
Open your eyes, Look up to the skies and see,
I'm just a poor boy, I need no sympathy
Because I'm easy come, easy go, Little high, little low
Any way the wind blows doesn't really matter to me, to me

Bohemian Rhapsody -- Queen

Link to Music Video

Despite the obvious headwind facing the housing market, there are always those who think it is about to turn around. Today's property is a highly-leveraged knife-catcher who is risking their credit plus a few dollars to gamble in the residential housing commodity market.

43 Windchime Front 43 Windchime Kitchen

Asking Price: $739,500IrvineRenter

Purchase Price: $685,000

Purchase Date: 4/26/2007

Address: 43 Windchime, Irvine, CA 92603

1st Loan $548,000
2nd Mtg. $68,400
Downpayment $68,600

Beds: 4
Baths: 2.5
Sq. Ft.: 1,500
$/Sq. Ft.: $493Knife Catcher Award
Lot Size: -
Year Built: 2004
Stories: 2
Type: Condominium
View: Hills, Mountain, Trees/Woods, Other
County: Orange
Neighborhood: Quail Hill
MLS#: S493857
Status: Active
On Redfin: 44 days

From Redfin, "LARGEST DETACHED SAGE PLAN 4 w/ 4BR (1BR--now a den--DOWN); UNCOMMON PRIVACY W/ HILLS VIEWS FROM ALL BR'S!18 inlaid ceramic tile flring down Upgraded carpeting; Plantation Shttrs; Gourmet Kitchen w/ white-on-white appliances:LR W/ custom lited ceiling fan!Formal DR w/ custom liting & doors out to prof. landscaped bkyd (NO HOME BEHIND!)OPULENT MASTER W/ WALK-IN CLST; CUSTOM PAINT!ATT. 2 GARAGES; WALK TO ALDERWD BASICS+ ELEM; NR ASSN. COMMONS FACILITIES! AMENITIES!"

I have a difficult time reading through the schizophrenic use of capital letters, slashes and unusual abbreviations. Also, I question the validity of marketing this as a 4 bedroom.



If they get their asking price, with a 6% commission, these flippers stand to make $10,130. My guess is they are paying less than a 6% commission. In any case, it doesn't seem like they have a very good risk/reward ratio for this trade, and it is a trade, after all. As long as people like this are trading the housing market, a normal family will never find a good deal. Of course, the crash will rid the market of flippers in a most painful manner. Also, what does it say about the health of the market when the only transactions we are seeing are flippers?

We will watch this property for an update.

Posted in House Flips

Crimson and Clover

Aug 6th, 2007 by IrvineRenter 

Crimson and Clover Now I don't hardly know her
But I think I could love her
Crimson and clover

Crimson and clover, over and over
Crimson and clover, over and over
Crimson and clover, over and over

Crimson and Clover -- Tommy James and the Shondells

Link to Video

Joan Jett's Version

If your a bear, and you have been waiting for the sign of the apocalypse, this is it. Get ready because I suspect we will see this over and over...

30 Crimson Front 30 Crimson Kitchen

Original Purchase Price: $1,722,000IrvineRenter

Original Purchase Date: 12/23/2005

Auction Sale Price: $1,400,000

Auction Sale Date: 8/1/2007

Address: 30 Crimson, Irvine, CA 92603

Beds: 4
Baths: 4.5
Sq. Ft.: 3,403
$/Sq. Ft.: $558
Lot Size: -
Year Built: 2005
Stories: 2
Type: Single Family Residence
County: Orange
Neighborhood: Turtle Ridge
MLS#: S451259
Status: Active
On Redfin: 378 days
Unsold in 90+ days


I guess the big price reduction and the ALL CAPS didn't inspire many buyers...

I bet that 89' TV is cool (I suspect that is inches and not feet though.)



If this were just a listing I was writing about, I would be wishing it a happy birthday. A full year on the market.

For any of you who don't want to break out your calculators, this is a sales price at $411 / SF in Turtle Ridge. This doesn't bode well for the argument that the high end is immune.Mushroom Cloud

This is a scenario we are going to see a lot of over the next few years: Homedebtors unable to sell because they are above the market, and unable to lower their price because they don't have the cash to buy their way out. They put the property on the market at breakeven and hope they get lucky. In the meantime, the carry costs destroy them, they stop making payments, they go into foreclosure, and in the end, their whole financial empire is obliterated in a crimson mushroom cloud.

Evict the Squatters

Someone asked me recently if we should feel sorry for people like this, as if they were victims of circumstance. No we shouldn't.

These people were victims of their own greed and ignorance. The circumstances which lead to this debacle were visible to those willing to see. Greed blinds people to the truth just like denial is blinding them now. There is an element of Shakespearian Tragedy to all of this, but at the root of every morality play is the idea that people are responsible for their own choices in life. These people are no less responsible for theirs.

The sad part, if there is one, is that these people were led to believe they could have this home in the first place. Obviously, they could not afford it, or they would still be there. A great many people in this market have set up a circumstance where they rent from the bank on temporary terms. Now, they are surprised when the bank evicts them. It was "their" house in their own minds. It was all one great illusion they set up for themselves (with some enabling from a lender.) It is a dream which has since turned into a nightmare.Squatter

In essence these people are all squatters. They are in possession of real estate they don't really own, and they are crowding out those of us who really could own. Real ownership requires an understanding of what you can and cannot afford. It requires financing terms which provide stability and security (Financially Conservative Home Financing.) Most homebuyers during the rally overlooked this simple fact. When someone is making less money than you are, and they take possession of property that is of superior quality to what you can obtain, they are crowding you out. They are squatting in your house. Would you feel bad evicting a squatter from your property? I don't think so.

Do I feel sad for these people? Sure. It is very sad when someone's dream evaporates into the ethers, but that is part of life. You deal with it, and you move on. I feel compassion for their plight, but it is tempered by the knowledge that they created their own circumstances, and in life, you have to accept the consequences of what you do whether you want to or not.

Squatters Cartoon

I would like to thank GavriloPrincip for providing the auction sales information in our forum.

Home Sales Data thru 7-30-2007

Aug 5th, 2007 by IrvineRenter 

Median sale price

Sales volume



prev. 4 weeks

% change

from ’06

prev. 4 weeks

% change

from ’06









































The bulls can find some confirming data points here. The action in 92612 and 92618 is very bullish. Whenever there is increasing price and increasing volume, things are looking up. Of course, this could be foreclosure sales of high-end properties (which would not be bullish), but the data shows bullish activity.

The rest of the market... not so much, particularly 92606 where a dramatic increase in sales volume at much lower prices signifies fire-sale pricing. This is very bearish.

Posted in News

Changing Loan Terms

Aug 4th, 2007 by IrvineRenter 

With the dramatic changes we have been witnessing in the lending arena, it was suggested in the forums that I link to an old analysis post which discussed the implications of what we are seeing in great detail. If you are new to this site, or if you need a refresher on what this change in loan terms is going to do to the housing market, I suggest you follow the links below.

2007-05-07 — Your Buyer’s Loan Terms – The precursor to The Anatomy of a Credit Bubble. It discusses house prices from the perspective of the future buyer of your home. It demonstrates the impact changes in loan terms will have on future buyers and how this will impact the amount your future buyer can bid for your home.

Posted in News
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