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Speed of Sound

Sep 14th, 2007 by IrvineRenter 

An ode to all of us waiting our turn to own a house in Irvine...

How long before I get in?
Before it starts, before I begin?
How long before you decide?
Before I know what it feels like?
Where To, where do I go?
If you never try, then you'll never know.
How long do I have to climb,
Up on the side of this mountain of mine?

Look up, I look up at night,
Planets are moving at the speed of light.
Climb up, up in the trees,
every chance that you get,
is a chance you seize.
How long am I gonna stand,
with my head stuck under the sand?
I'll start before I can stop,

before I see things the right way up.

All that noise, and all that sound,
All those places I got found.
And birds go flying at the speed of sound,
to show you how it all began.
Birds came flying from the underground,
if you could see it then you'd understand?

Speed of Sound -- Coldplay

Link to Music Video

Nearly every line of that song has meaning for those of us watching the deflation of the housing bubble from the sidelines. How long before you get in?

Well, if you are an entry level buyer, today's property is a market entry point. These are basically glorified apartments, but they typically represent the lowest priced properties in the marketplace. At $450,000 it provides a great example of how crazy our prices are.


Asking Price: $450,000

Income Requirement: $112,500

Downpayment Needed: $90,000

Purchase Price: $452,000

Purchase Date: 7/16/2004

Address: 17 Elderglen #15, Irvine, CA 92604

Beds: 3
Baths: 1.5
Sq. Ft.: 1,220
$/Sq. Ft.: $369
Lot Size: -
Type: Condominium
Style: Townhouse
Year Built: 1978
Stories: Two Levels
View(s): Park or Green Belt
Area: Woodbridge
County: Orange
MLS#: S503013
Status: Active
On Redfin: 14 days

From Redfin, "Great opportunity in desirable Community of Woodbridge. This home features laminate floors throughout the main living area, living room fireplace, kitchen with newer kitchen cabinets and counters, eating area in kitchen and large laundry area which doubles as a pantry. Master bedroom has huge mirriored closet. Large enclosed patio with storage area, and direct access to your own carport. Newer water heater, newer heater and A/C unit."

Direct access to your own carport? WTF? Is there another kind of access to a carport? Easy access to an insecure roof structure separated from your apartment condo where you can park your one car. Yea, that's a plus.



If you are making over $100K, is this your dream home?

This is a pretty deep Rollback in Woodbridge: a 2004 loser. I don't know which is more insane, the current asking price, or the fact that someone paid more than that in 2004?

I would estimate you could rent this for $1,800 based on the third bedroom; nothing more because the lack of a second bath. With a gross rent multiplier of 160, this place is worth about $288,000. This would put it within reach of someone making $72,000 a year, which is below the median.

If this seller gets their $450,000 asking price and pays a 6% commission, they stand to lose $29,000. Doesn't sound like a lot, but then again, this was a "sure thing" back in 2004. They should be figuring out how to spend their $100,000 in profit, not selling at a loss.

Posted in Price Rollback

The Market Bottom

Sep 13th, 2007 by IrvineRenter 

To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time for every purpose, under heaven

A time to be born, a time to die
A time to plant, a time to reap
A time to kill, a time to heal
A time to laugh, a time to weep

A time to build up,a time to break down
A time to dance, a time to mourn
A time to cast away stones, a time to gather stones together

A time of love, a time of hate
A time of war, a time of peace
A time you may embrace, a time to refrain from embracing

A time to gain, a time to lose
A time to rend, a time to sew
A time to love, a time to hate
A time for peace, I swear its not too late

To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time for every purpose, under heaven

Turn, Turn, Turn -- Pete Seeger / The Byrds / Bible (Ecclesiastes 3, verses 1–8)

Link to Music Video

Recent Concert Video

Like the change of seasons, real estate markets move in cycles. During the last cycle, the real estate market peaked in 1990, and the market bottomed in 1997. The primary reason the bottom formed was because incomes and rents finally caught up to housing prices.

They say a picture is worth a thousand words. These two images posted in our forums by Bubblegum speak volumes. These images are both from 1997. The first appears to be from a condo development in Orange. The actual pricing is not important: the relationship between the cost of a rental and the cost of ownership is very important. This is why the bottom formed.

The next time someone tries to convince you the cost of ownership is near the cost of rental, remember the simple calculation above. If someone has to apply rental increase rates, inflation rates, appreciation rates, tax benefits and other complicated nonsense to make the numbers work, the numbers really don't work. (Notice the simple numbers above work without the tax benefits figured in.)

As a rule, the use of advanced math to justify a house purchase is mental masturbation designed to make someone feel good about an emotional decision they already made. When the calculation above works, it will be time to buy, and not until then.

Since I began writing on this blog, I have stated I will buy when the cost of ownership equals the cost of rental. An advertisement like this -- when it reflects reality -- would motivate me to buy. How about you?



It has been suggested as prices drop people will perceive a bargain and start buying. This is true. This is where all the knife catchers come from. There are simply not enough of these people to support the market, particularly a market dominated by foreclosures like ours is going to be shortly.

Why aren't there enough knife catchers to support the market? Knife catchers are not buying because of the numbers, they are buying because of their emotions. Everyone is not going to get emotional at the same price point; thus, no support zone will form at any particular price point.

However, everyone who can do math will see when it is cheaper to own than to rent, and many rational people will act at the same time and at the same price levels. The collective actions of you, me and other like-minded individuals responding to these market conditions provides the market activity and transaction volume necessary to form a market bottom. It will not form before then.

So how much were properties in Irvine going for in 1997?

For all of you number crunchers out there that want to find the bottom of our current bubble, start with the pricing in 1997, and add 4% per year for inflation and wage growth (although wage growth has only been 3% per year.) Since I really like quick multipliers to simplify the math, below is a table to help:

1997 1.00
1998 1.04
1999 1.08
2000 1.12

2001 1.17
2002 1.22
2003 1.27
2004 1.32
2005 1.37
2006 1.42
2007 1.48
2008 1.54
2009 1.60
2010 1.67
2011 1.73
2012 1.80
2013 1.87
2014 1.95
2015 2.03
2016 2.11
2017 2.19

From this table you can see how much more a 1997 house should cost projected into the future. In 2007, a house purchased in 1997 should be 48% (1.48 times) higher. Pricing will intersect these values at some point, and when it does, we will be at the bottom.

I created the chart above in March for the post: Predictions for the Irvine Housing Market. I thought I was being somewhat aggressive in my predictions of such large quarterly losses. Such large declines are unprecedented. If the credit market is as challenging as it appears, the drop to fundamental valuations may be faster and more violent than anyone could have guessed. We will see.

In the end, the bottom will form because it will be less expensive to own than to rent, and everyone who watched houses depreciate from the peak will find the motivation to buy. We might overshoot fundamental valuations based on rental equivalent (which seems to be where the credit crunch may take us) and drop down to levels where properties produce a positive cashflow for investors. That chart is really ugly...

From How Bad Could Bad Get?

If any of you want to play with the numbers, below is a link to the spreadsheet I used to create the charts above:

Market Decline Extreme Spreadsheet



Where do you think the median will bottom out and when?

Get Over It

Sep 12th, 2007 by IrvineRenter 

A little advice from the Eagles on dealing with the market crash:

You say you haven't been the same since you had your little crash
But you might feel better if I gave you some cash

The more I think about it, old billy was right
Let's kill all the lawyers, kill 'em tonight
You don't want to work, you want to live like a king
But the big, bad world doesn't owe you a thing

Get over it
Get over it
If you don't want to play, then you might as well split
Get over it, get over it

Get Over It -- The Eagles

Link to Music Video


Asking Price: $525,000

Income Requirement: $131,250

Downpayment Needed: $105,000

Purchase Price: $549,000

Purchase Date: 8/10/2005

Address: 804 Maplewood, Irvine, CA 92618

1st Loan $439,200
2nd Mtg. $54,900
Downpayment $54,900

Beds: 2
Baths: 2.5
Sq. Ft.: 1,200
$/Sq. Ft.: $438
Lot Size: -
Type: Condominium
Style: Mediterranean
Year Built: 1999
Stories: Two Levels
Area: Oak Creek
County: Orange
MLS#: S503807
Status: Active
On Redfin: 9 days

From Redfin, "HIGHLY UPGRADED Townhome in Gated Oak Creek featuring 2bd/2.5 baths, Inside Laundry and 2-Car Direct Access Garage w/ Custom Storage System! Luxurious upgrades include HARDWOOD FLOORING * SOLID GRANITE SURFACES THROUGHOUT * Recessed Lighting * Custom Media Blt-In * Upgraded Carpet * Designer Window Treatments & Home Security System! Sparkling Kitchen features Granite Counters w/ Tumbled Stone Backsplash. All Baths Beautifully Remodeled w/ Travertine & Granite! Just Steps to Resort-Style Amenities!"

ALL CAPS, asterisks instead of periods, exclamation points, w/: an A+ in realtorese.



Another day, another losing property. Does anyone still dispute the crash anymore? Oh wait, some claim this is a minor correction. I guess that is as bullish as you can be these days.

Today's seller stands to lose $55,500 assuming they get their asking price and they pay a 6% commission. Since their downpayment is only $54,900, they will need to write a $600 check at the closing table or make the bank eat it. Which do you think they will do?

You get calloused to the market after a while. When I see a mere $50,000 loss, it doesn't have much of an emotional impact on me any more. Perhaps, I am "over it." I have to imagine it is a big deal to the specuvestor who lost everything on the deal -- lost money, lost sleep, lost sanity, etc. He will just have to Get Over It too.

Posted in Price Rollback

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
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