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The California Social Contract

Sep 10th, 2007 by IrvineRenter 

It's the end of the world as we know it.
It's the end of the world as we know it.
It's the end of the world as we know it and I feel fine.

End of the World -- R.E.M.

Link to Music Video


Do you remember in Houses Should Not Be a Commodity, there was a long discussion on the stages of grief as they relate to the housing market? The market is shifting from denial into bargaining.

Jim Cramer has made news lately with his antics. The links below are to videos where he has demonstrated for us the following progression as it relates to the chart above:

Denial -- On housing, November 2006

Anger -- He is always angry. His show is Mad Money...

Depression and Detachment -- Plow under the Inland Empire

Dialogue and Bargaining -- Lobbying for a Rate Cut

When you think about it, isn't the whole discussion about a bail-out bargaining? We all know the government is not going to save the millions of overextended homeowners. They couldn't if they wanted to. Isn't this one last gasp before the market capitulates? I think so.

Empathy and compassion are at the core of my spiritual life. I feel the pain of all the effed borrowers (FBs) out there. To prove it, I want to share with you my meditation on the emotional bargaining of FBs everywhere: The FB Plea...



You fence-sitters are failing to fulfill your part of the California Social Contract. Your failure to continue buying homes is disrupting the social order, and it is causing those of us who bought before you psychological, emotional and financial damage. It is time for you to get off the fence and buy -- NOW!!!

In any social contract, you give up something personally for the greater good. When those of us who bought before you purchased our homes, we had to commit unrealistic percentages of our income to housing, lie on mortgage applications, and take out financing on unstable mortgage terms in order to do our part for the continuing social good. We made these sacrifices willingly because the benefits of maintaining the social contract are worth the price we paid. Look what those who bought before us received in return:

  1. Dramatic increases in wealth through home equity. I think we can all agree this is desirable. You want to be rich, don't you?
  2. The ability to spend more than what is earned through productive activities like work. Think of all the BMWs, Mercedes, vacations to Maui, Coach bags, designer jeans, Rolex watches and other items purchased with home equity lines of credit. Don't you want to double your spending power?
  3. The ability to buy furniture and home improvements without saving or spending income. Your house should be a self-sustaining asset which provides the ability to maintain itself with perpetual appreciation. Who wouldn't want that?

We provided all of this to the buyers who came before us, and all we ask is that you do the same for us. Isn't this a fair bargain? Don't you want the same for yourself? Won't the next generation of buyers we willing to do the same?

Some have argued it is our fault that the social contract is falling apart. If we recent homebuyers had simply made our payments, the contract would not have been broken. This is rubbish. The lenders failed us. They knew we couldn't make those payments when we took out the loans. They knew we were lying on our loan applications. They knew they were going to have to provide opportunities for serial refinancing of ever increasing amounts of debt. They failed us. They are the ones who broke the social contract, not us.

The tightening of credit just means you will have to make more significant sacrifices to keep the social contract. You may need to borrow money from family members or solicit larger gifts. You may need to become more creative in your attempts to inflate your income or assets. All we had to do was sign some fraudulent paperwork, but you may have to forge some documents or buy a seasoned credit line or find a hard-money lender who doesn't record the debt (loan sharks.) It is going to be tough, but look at the benefits listed above. Isn't it worth the sacrifice?

It is time for you to buy now. Trees really can grow to the sky; prices really can go up forever -- if you hold up your end of the California Social Contract. To paraphrase Winston Churchill,

Let us therefore brace ourselves to our duties, and so bear ourselves that if the {California Social Contract} last for a thousand years, men will still say, 'This was their finest hour.'

This is your chance to stand up for what is right and perpetuate a system that is beneficial to our society. History will remember what you do. Will you be the generation that lived up to its duties, or will this be the end of the world as we know it?

You decide.



If you don't know what an FB is, try this link.

Irvine Income Data

Sep 9th, 2007 by IrvineRenter 

This was posted in a thread on Thursday, but it is such important data, it deserves its own post. The blogging software does not do tables very well, so I apologize if it a bit difficult to follow.

The first column is the income range.

The second column is the percentage of the total in each income range.

The third column is the cumulative total. It shows you the percentage of households that makes at or less than the specified range. I find it interesting that 78% of the households in Irvine make less than $150K.

The fourth column is the most expensive house someone who makes the maximum in the range can afford with a total price of 4 times income. Some will argue this is too conservative, and some will argue it is too high. I think it is a bit too high, but the market bottomed at 4 times income last time, so it is a useful point of reference.

The fifth column is the downpayment that would be required assuming 20% down.

Data Set: 2006 American Community Survey
Survey: 2006 American Community Survey

Estimate -- Percentage -- Cummulative -- House Price Limit -- Downpayment

Total: 63,646
Less than $10,000 -------- 4,633 -- 7.3% -- 7.3% ---- $40,000 ---- $8,000
$10,000 to $14,999 ------ 2,015 -- 3.2% -- 10.4% -- $60,000 ---- $12,000
$15,000 to $19,999 ------ 1,159 -- 1.8% -- 12.3% -- $80,000 ---- $16,000
$20,000 to $24,999 ------ 1,973 -- 3.1% -- 15.4% -- $100,000 -- $20,000
$25,000 to $29,999 ------ 1,233 -- 1.9% -- 17.3% -- $120,000 -- $24,000
$30,000 to $34,999 ------ 1,069 -- 1.7% -- 19.0% -- $140,000 -- $28,000
$35,000 to $39,999 ------ 2,021 -- 3.2% -- 22.2% -- $160,000 -- $32,000
$40,000 to $44,999 ------ 2,071 -- 3.3% -- 25.4% -- $180,000 -- $36,000
$45,000 to $49,999 ------ 2,353 -- 3.7% -- 29.1% -- $200,000 -- $40,000
$50,000 to $59,999 ------ 3,108 -- 4.9% -- 34.0% -- $240,000 -- $48,000
$60,000 to $74,999 ------ 6,169 -- 9.7% -- 43.7% -- $300,000 -- $60,000
$75,000 to $99,999 ------ 8,666 -- 13.6% -- 57.3% -- $400,000 -- $80,000
$100,000 to $124,999 -- 7,924 -- 12.5% -- 69.8% -- $500,000 -- $100,000
$125,000 to $149,999 -- 5,279 -- 8.3% -- 78.0% -- $600,000 -- $120,000
$150,000 to $199,999 -- 6,495 -- 10.2% -- 88.3% -- $800,000 -- $160,000
$200,000 or more -------- 7,478 -- 11.7% -- 100.0% -- $-

Irvine's median income is approximately $85,000:

$85,000 * 4 = $340,000 house with a $68,000 downpayment.

I know I should modify this graphic to fix the title, but it is too much work. Just know it is 1986-2006.

I would like to thank a reader for updating this graphic for me. I am not sure if I can post your name, but thank you.

It is what it is. What do you think?




This is for households and not individuals. These are gross income numbers, not after tax or otherwise adjusted.

The ACS program was fully implemented in 2005 in every county of the United States and in Puerto Rico, with an annual sample of approximately three million housing units.

The ACS is conducted using the best mail self-response techniques of the decennial census combined with follow-up techniques that produce high-quality data. For households that do not respond by mail, the quality of data is improved by using well-trained, permanent interviewer staff using computerized interviewing, which incorporates edits into the collection process. Using a permanent coding staff provides additional improvements in data quality.

Households that receive the American Community Survey are required by law to respond. As with all other census answers, a Federal law, Title 13 of the U.S. Code, provides strong confidentiality protections for all individual information collected by the Census Bureau. Violating this law is a Federal crime with serious penalties, including a prison sentence of up to five years and a $250,000 fine. For more information, visit the American Community Survey Web page at

Nice Pictures… of the Neighborhood

Sep 8th, 2007 by IrvineRenter 

Gonna find my baby, gonna hold her tight
gonna grab some afternoon delight.
My motto's always been; when it's right, it's right.
Why wait until the middle of a cold dark night.
When everything's a little clearer in the light of day.
And you know the night is always gonna be there any way.

Sky rockets in flight. Afternoon delight. Afternoon delight.

Afternoon Delight -- The Starland Vocal Band

Link to Music Video

Or Not...

I don't know why, but this song popped into my head while writing this post. Enjoy...

All publicity is good publicity, right? Well, our seller at 14 Carnelian in Irvine has found a way to get some free publicity at the Irvine Housing Blog -- put something stupid on the MLS.

Aren't those pictures beautiful.


Is this house such a POS that you can't put any pictures of the house on the MLS? Is this supposed to pique our interest and make us arrange to see it? Well, here is the data, in case your interested...

Price: $999,900

14 Carnelian, IRVINE, CA 92614

Beds: 4
Baths: 3
Sq. Ft.: 2,600
$/Sq. Ft.: $385
Lot Size: 4,750 sq. ft.
Type: Single Family Residence
Style: Traditional
Year Built: 1985
Stories: Two Levels
Area: Woodbridge
County: Orange
MLS#: S504136
Status: Active
On Redfin: 2 days

From Redfin, "Your clients will love this highly upgraded immaculate home! Remodeled kitchen & baths, travertine & hardwood floors, plantation shutters, added walk-in closet in master. Excellent inside the loop location close to school, park, pool (salt water), lake & tennis. Fabulous Community with unmatched amenities named 'Best Place in America to Raise a Family' by Parents Magazine. Irvine has again this year been named 'Safest City in America'"



Why not some pictures of the ocean? How about Catalina Island? Yosemite? California is beautiful, you know.

Just to make this listing complete, I thought they could add some images they forgot...

The house is the on the planet earth...

In the Milky Way Galaxy...

Posted in News

Cry Me a River ** Update **

by IrvineRenter 

This property was taken back by the bank for $541,273. Since the first mortgage was originally $516,000, it looks as if our "owners" had a little problem with their Option ARM. Looks to me like we are 20% off the peak in this neighborhood...

Asking Price: $624,900

Purchase Price: $660,000

Purchase Date: 3/6/2006

Address: 2 Riverstone #36, Irvine, CA 92606

Beds: 3
Baths: 2.5
Sq. Ft.: 1,721
Year Built: 1985
Stories: 2
Type: Single Family Residence
View: Mountain
Neighborhood: Walnut
$/Sq. Ft.: $363
MLS#: U7001714
Status: Active on market
On Redfin: 7 days

From Redfin: "Outstanding detached sfr condo, next to the park with plenty of open s pace. Big backyard, and very private location. this is a three bedroom two and a half BATH home in the highly sought after city of Irvine. Outstanding schools and services. Home is sold 'as-is' and 'where-is' without warranty. Property is a 'Z-Lot' (Zero Lot Line). Home backs to a Rail Road and a Public Park and High Voltage Power Lines."

The brutal honesty of that descriptions makes one suspect it is a bank owned property. The current owner is listed as SBC Bank USA. There is a first mortgage shown at $516,000 and a second at $129,000 both from SBC. It looks as if the buyer originally put $15,000 down. Given that this property was purchased 14 months ago, and the foreclosure process takes 9 months, this was an early payment default, probably a flip gone bad. SBC probably has more on its books than the 545,000 due to lost interest payments and foreclosure costs. If they get their asking price, even with the reduced commissions banks are willing to pay, they still stand to lose over $50,000.

The bank will not be happy about losing $50,000+, but the neighbors trying to sell their homes are going to be really ticked off:

44 Riverstone #58, Irvine, CA 92606 asking $516/SF or $619,000 and

11 Millstone #2, Irvine, CA 92606 asking $546/SF or $655,000.

If 2 Riverstone #36 sets the new comps for the neighborhood at $363/SF, the above two properties just lost 30% or more of their value. Ouch!



This value drop will be particularly painful for the flipper who bought 11 Millstone #2 for $619,000 on 4/21/2006. This flipper is holding out for a breakeven sale, and they need to get $564/SF to do it. How many buyers are going to pay that price once a house in the neighborhood goes for 30% less? At least this flipper will not be alone. A quick scan of the neighborhood property records shows 5 properties purchased in 2005 or 2006 that will also be underwater. Cry me a river...


So you took a chance
And made other plans
But I bet you didn't think that they would come crashing down, no...

Your bridges were burned, and now it's your turn
To cry, cry me a river
Cry me a river-er
Cry me a river
Cry me a river-er, yea yea

Cry Me a River -- Justin Timberlake

Posted in House Flips

Rain, Sweet Rain

Sep 7th, 2007 by IrvineRenter 

You know I'm a dreamer
But my heart's of gold
I had to run away and hide
'Cause I couldn't go home
Just when things went right
Suddenly it all went wrong
Just take this song and you'll never feel
Left all alone

I'm on my way
I'm on my way
Home, sweet home
Tonight tonight
I'm on my way
I'm on my way
Home, sweet home

Home Sweet Home -- Motley Crue

Link to Music Video

" Just when things went right, Suddenly it all went wrong" The ode to the 2005-2007 homebuyer...

There are some neighborhoods in Irvine that are so charming, you really need to go see them. This is one of those. I took many pictures here for my community profile on Irvine’s Woodbridge. The houses are small, but very well kept, and there is not a garage door to be seen. Add a white picket fence, and you have the American Dream -- except for the prices of course...

Asking Price: $688,888

Income Requirement: $172,222

Downpayment Needed: $137,777

Purchase Price: $699,000

Purchase Date: 5/31/2006

Address: 15 Sweet Rain, Irvine, CA 92614

1st Loan $559,200
2nd Mtg. $69,900
Downpayment $69,900

Beds: 3
Baths: 2.5
Sq. Ft.: 1,571
$/Sq. Ft.: $439
Lot Size: 3,780 sq. ft.
Type: Single Family Residence
Style: Other
Year Built: 1980
Stories: Two Levels
Area: Woodbridge
County: Orange
MLS#: P585358
Status: Active
On Redfin: 69 days

From Redfin, "Outstanding Location! Inside Loop, backs to greenbelt, full driveway. Away from freeway noise, near park, pool, schools and lakes, walk to all amenities. Remodeled kitchen with hardwood cabinets, granite counter tops and mewer appliances. Updated powder room and guest bath with top of the line fixtures! Laminate wood floors, dual pane vinyl windows, French doors, textured ceilings. Custom speakers through out the house, extra storage spaces, No zero lot line (opportunity to add windows!)"

I want those mewer appliances. I hear they purr like a kitten.



These people bought at the peak, so they are being a bit optimistic to think they are only $11,000 underwater. If they manage to obtain their full asking price, they stand to lose $51,445. They have $69,900 in equity to lose, so there is a small amount of negotiating room before this becomes a short sale, assuming they haven't HELOCed or used an Option ARM. Unfortunately, the price is too high as evidenced by the over 60 days on the market. They are probably going to become a short sale.

William Blake - Dante's Inferno, Whirlwind of Lovers

Thus concludes yet another week at the Irvine Housing Blog. Join us next week as we continue to chronicle Irvine's journey to ‘the seventh circle of real estate hell.’

Posted in Price Rollback

Downpayment Blues

Sep 6th, 2007 by IrvineRenter 

I know that it's evil
I know that it's got to be
I know I ain't doing much
Doing nothing means a lot to me
Living on a shoe string
A fifty cent millionaire
Open to charity
Rock 'n' roller welfare

I've got holes in my shoes
And I'm way overdue
Down payment blues

Get myself a steady job
Some responsibility
Can't even feed my cat
On social security
Hiding from the rent man
Oh it makes me want to cry
Sheriff knocking on my door
Ain't it funny how the time flies

Down Payment Blues - AC/DC

Link to Music Video

Every once in a while, I come across a song that really captures the real estate bubble. How many fifty-cent millionaires out there bought homes with 100% financing so they could put the house to work for them and do nothing?

I think of all the people utilizing 50% DTIs: steady job, can't feed the cat, hiding from the rent (interest) man, Sheriff knocking on my door (REO)...

Now that the bubble has burst everyone has the downpayment blues. The horror of it. Getting a house will actually take sacrifice. The house will require an income rather than provide one. Do you think anyone will really want a house under these conditions?

Asking Price: $750,000

Income Requirement: $187,500

Downpayment Needed: $150,000

Purchase Price: $823,000

Purchase Date: 12/26/2006

Address: 3811 Claremont St, Irvine, CA 92614

1st Loan $658,400
2nd Mtg. $164,600
Downpayment $0

Beds: 5
Baths: 2.5
Sq. Ft.: 2,586
$/Sq. Ft.: $290
Lot Size: 5,166 sq. ft.
Type: Single Family Residence
Style: Contemporary/Modern
Year Built: 1970
Stories: Two Levels
View(s): Park or Green Belt
Area: Westpark
County: Orange
MLS#: S502078
Status: Active
On Redfin: 14 days

From Redfin, "Beautiful 5 bedroom executive home in desireable West Park. Large, corner lot with highly desired floorplan. Wonderfully remodeled kitchen with silestone counters, newer cabinets and appliances; wood floors in living and dining areas; scraped ceilings are accented by crown molding and recessing lighting; Anderson windows installed throughout. Walk to parks, pool, tennis, club house and schools. Motivated sellers- Call today for private showing. submit all offers."

A well-written MLS description. Amazing. Of course, there is a misspelling (desireable) and a sentence starting with a lower case letter, but there are no unnecessary capital letters, and no exclamation points. COOL!!!



Asking less than $300 / SF in Westpark? That is progress. When properties like this one get down under $200 / SF, we will be getting near the bottom.

Do you think these sellers really are motivated given that they have zero dollars into the transaction? Since they are selling after only 8 months ownership, I conclude this was a flip gone flop. The bank is looking at a $118,000 loss after a 6% commission.

The holders of second mortgages on properties here in California are getting wiped out. I can't say I feel bad for these lenders. Downpayments were one of the last barriers to entry into the housing market. The providers of these second mortgages were in large part responsible for allowing would be homeowners who are not responsible enough to save for a downpayment access to the housing market. This was supposed to be a good thing. However, since people with no money in the transaction don't care about defaulting, these second mortgage holders are bearing the brunt of the housing price decline. The grand experiment of increasing home ownership rates through eliminating downpayments has failed spectacularly.

Downpayments are back, and they are here to stay. The entire market has a severe case of Downpayment Blues.

Ridin’ The Storm Out

Sep 5th, 2007 by IrvineRenter 

Ridin the storm out, waitin for the thaw out
On a full moon night in the rocky mountain winter.
My wine bottles low, watching for the snow
Ive been thinking lately of what I'm missing in the city.

Ridin' The Storm Out -- REO Speedwagon

Link to Music Video

Have you been feeling like we on this blog are Ridin' The Storm Out? I do. Does anyone remember the final scene in Terminator? Sarah Conner is told by a gas station attendant that a storm is coming. She responds, "I know" with a deep reflective look of someone who has seen the future Armageddon. Can you relate?

We have broken an important psychological level for pricing in Quail Hill. Today's property is a bank REO that went for under $500,000 a few months ago. It is back on the market now, and the bank isn't even trying to get above the $500,000 mark.

Asking Price: $499,000

Bank Purchase Price: $477,000

Bank Purchase Date: 6/8/2007

FB Purchase Price: $551,000

FB Purchase Date: 6/30/2005

Address: 212 Dewdrop, Irvine, CA 92603

Beds: 2
Baths: 2.5
Sq. Ft.: 1,200
$/Sq. Ft.: $417
Lot Size: -
Type: Condominium
Style: Contemporary
Year Built: 2004
Stories: Two Levels
Area: Quail Hill
County: Orange
MLS#: S502633
Status: Active
On Redfin: 7 days

From Redfin, "BANK OWNED !!! Stunning 2 story Townhome with lots of top notch upgrades. Quiet interior street, large living room, dining room, guest bath downstairs, courtyard patio entrance, 2 car attached garage. Walk to Park, Playground and Shopping. Resort living !!"

Is being BANK OWNED something to get excited about? I guess it is worth ALL CAPS and three exclamation points!!!

What are top-notch upgrades? Are there bottom-rung upgrades?



Bear with me on this conjecture, but based on the REO purchase price, I am guessing this was an Option ARM that exploded. The primary mortgage should have been 80% of the original purchase price or $440,800. If the bank was willing to bid $477,000 at a foreclosure auction, this likely represents the outstanding balance on the first mortgage. Only an negative amortization loan with a low teaser rate would grow by $36,200 over two years.

Negative Amortization loans -- great innovation... Not.

Judging by the description, there is a realtor involved in this transaction. If the bank gets their asking price, and if they pay a 6% commission, they stand to lose $81,940. Although when you think of the other costs involved with the foreclosure, the real loss was likely much higher.

BTW, Do you like our new REO symbol?

Posted in Real Estate Owned
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