Irvine Housing Blog

WOT 4-12-2008

Just in case any of you forgot, about 1/3 of all loans originated in 2005 and 2006 in California were Option ARMS. Very few if any of the people with those loans will be able to refinance.

Jefferson

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Thomas Jefferson believed "Financiers, bankers and industrialists make cities the cesspools of corruption, and should be avoided." It is hard to argue with him given it is the actions of lenders that enabled the Great Housing Bubble.

Today's property illustrates why something needs to be done to prevent irrational exuberance from creating volatility in our real estate markets. The family that bought this property put 25% down, and although they started with an Option ARM, they refinanced in 2006 into a fixed-rate mortgage. They tasted the kool aid and did not find it palatable. Families like this should not get screwed based on the timing of their purchases due to life's circumstances. From the photos, it appears they have young children. They probably bought this as a family house. People should be able to do this without losing their life savings. If lenders did not enable people to overborrow, prices would rise about 4.5% a year, and people wouldn't have to worry about when they bought or sold. Housing bubbles are not created with equity; they are created with borrowed money. People blow bubbles; lenders provide the air.

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Asking Price: $739,900

Income Requirement: $184,975

Downpayment Needed: $147,980

Monthly Equity Burn: $6,165

Purchase Price: $800,000

Purchase Date: 5/10/2005

Address: 11 Jefferson Ave., Irvine, CA 92620

Anyone want to comment on the decorative tastes of the owners?

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If the sellers get their asking price (it seems about 10% too high), and if they pay a 6% commission, they stand to lose $104,494 -- over half of their $200,000 downpayment. Realistically, they are going to lose almost all of it.

Just to provide a reminder of how overpriced homes still are, this property would probably rent for about $2,800 a month. A 160 GRM puts the value at $448,000. I you look back at the sale history, this property sold for $390,000 in 2001. Prices in 2001 were inflated, but not in bubble territory yet. A value of $448,000 is about where this house should be; it is where it would be if there was not a bubble, and it is about where it will be in 3-5 years... 

BTW, the featured song today wasn't written about real estate bubbles, but the lyrics offer that interpretation.

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The summer had inhaled
And held its breath too long.
The winter looked the same,
As if it had never gone,
And through an open window,
Where no curtain hung,
I saw you, I saw you,
Coming back to me.

A transparent dream
Beneath an occasional sigh...
Most of the time,
I just let it go by.
Now I wish it hadn't begun.

Comin' Back to Me -- Jefferson Airplane

American Idiots

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The National Association of Realtors hopes that the American sheople are American idiots. They control the media message nearly everywhere, and they constantly push their self-serving agenda: it is always a good time to buy or sell and generate a commission. Unfortunately, you can't even find the truth in newspapers anymore. Does anyone think the OC Register would be willing to write stories about how and why the market is tanking? If they did, I suspect their real estate advertising section would get a lot smaller. People come to the Irvine Housing Blog because we tell them the truth about falling prices, and we explain why prices will continue to fall. Last week I wrote a post called Inventory Panic. In that post, I mentioned that there are a large number of bank owned properties not yet for sale on the MLS. When these get listed and sold, they will continue to push prices lower. Currently, there are more foreclosures each month than there are sales, and Irvine is in the eye of the storm. How long can that continue before the banks start becoming even more aggressive? We better hope there is an increase in sales volumes soon, or the lenders will own all of Southern California.

Today's property is one of those I mentioned in the Inventory Panic post. It has just been listed for about 24% off its peak sales price back in 2005.

Asking Price: $499,900

Income Requirement: $124,975

Downpayment Needed: $99,980

Monthly Equity Burn: $4,165

Borrower Purchase Price: $655,000

Lender Purchase Price: $396,000

Purchase Date: 9/27/2005

Address: 14952 Greenbrae St. Irvine, CA 92604

Beds:	2
Baths:	1
Sq. Ft.:	1,192
$/Sq. Ft.:	$419
Lot Size:	5,256 Sq. Ft.
Type:	Single Family Residence
Style:	Ranch
Year Built:	1975
Stories:	One Level
Area:	El Camino Real
County:	Orange
MLS#:	P631342
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Well Taken Care of? It looks like pretty run down to me.

Bank is Known to Have Quick Response Times? LOL!

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Can you believe someone paid $655,000 for this place? That is $550 / SF. It is still ridiculously priced at $419 / SF.

Properties like this will be real bargains 2 or 3 years from now. IMO, a good way to buy is to find a run down POS like this one and renovate it to your taste (assuming there are not structural defects.) Everyone wants to personalize their home, but if you pay move-in-ready prices, you won't have much left over to renovate.

So how much is the lender going to lose today? Well, sadly, the buyer put 20% down, and they lost $131,000 -- funny how it is sad when the family loses money but not when the lender does. If this sells for asking price (it went for $100,000 less at auction), and if the lender pays a 6% commission, the total loss on the property would be $185,094. The homeowner would be out their 20% downpayment of $131,000, and the lender would be out $54,094.

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Welcome to a new kind of tension.
All across the alien nation.
Where everything isn't meant to be okay.
Television dreams of tomorrow.
We're not the ones who're meant to follow.
For that's enough to argue.

Don't want to be an American idiot.
One nation controlled by the media.
Information age of hysteria.
It's calling out to idiot America.

Welcome to a new kind of tension.
All across the alien nation.
Where everything isn't meant to be okay.
Television dreams of tomorrow.
We're not the ones who're meant to follow.
For that's enough to argue.

Idiot America -- Green Day

A New Season

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Today's property is an example of how the market crash hurts ordinary people. This property is owned by a couple, and although I do not know them, I suspect they are a young couple who purchased this as their first home and they were hoping to do a move up later. That is how the real estate game is played around here. I don't see any data on the first mortgage, but there is a HELOC for $116,850. Assuming this is 20% of the purchase price, I have estimated the purchase price at $584,250 which is consistent with the tax assessment. Therefore, they likely have a first mortgage for $467,400. I can't feel too sorry for them as they don't appear to have any money in the transaction. They are priced over the market and praying for a knife catcher to come bail them out. It probably is not going to happen.

Asking Price: $549,000

Income Requirement: $137,250

Downpayment Needed: $109,800

Monthly Equity Burn: $4,575

Purchase Price: $584,250 -- I think.

Purchase Date: 3/14/2006

Address: 18 New Season, Irvine, CA 92602

Beds:	3
Baths:	3
Sq. Ft.:	1,479
$/Sq. Ft.:	$371
Lot Size:	-
Type:	Condominium
Style:	Mediterranean
Year Built:	2006
Stories:	Two Levels
Area:	Northpark
County:	Orange
MLS#:	P608073
Status:	Active
On Redfin:	158 days
Unsold in 90+ days

Another CAPS LOCK attack.

Rich Walnut Flooring? Is the walnut wealthy? Can you say, Pergraniteel?

DESIREABLE END UNIT? If you desire being at the corner of the 5 and Culver, then this is very desirable. I hope you like noise and air pollution. And yes, it is LOCATED CLOSE TO TRANSPORTATION ROUTES.

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There is a time bomb in their neighborhood that is about to ruin the comps and remove any hope they had of selling this property. The neighbor at 34 New Season was a flipper, and he let the property go back to the bank on 4/2/2008 for $360,000.

34 New Season is not listed on the MLS, so I can't post any pictures for you. It is one of many bank owned properties in Irvine that are not offered for sale yet. It is not an exact match for 18 New Season, but the flipper paid $520,000 back in December of 2005, so the values are within $60,000. Some quick math says the property at 18 New Season is worth $420,000 in today's market not the $549,000 they are asking. The fact that 18 New Season has been on the market for 158 days strongly suggests it is overpriced.

Property traders -- people who bought and sold stucco boxes without doing any improvements to add value -- drove prices up and priced many families out of the market. Most of the properties we have profiled, the ones that have made priced plummet so far, are those being allowed to go into foreclosure by failed flippers. I would like to say they are getting their comeuppance, but it is really their enablers -- the lenders -- who are bearing the brunt of the destruction. I won't be shedding tears for either group.

This leads us back to today's featured property. The sellers are going to be ruined financially as they will have either a short-sale or a foreclosure on their credit. Was this couple a pair of hapless victims who were just doing what you are supposed to do get on the property ladder in California? Were they caught up in the whirlwind of speculation and burned by the market? They likely fit the profile of the family targeted for the various bail-out programs being discussed: do they deserve to be bailed out?

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I feel stupid - but I know it wont last for long
Ive been guessing - I coulda been guessin wrong
You dont know me now
I kinda thought that you should somehow
Does that whole mad season got ya down

I feel stupid but its something that comes and goes
Ive been changin - think its funny how now one knows
We dont talk about - the little things that we do without
When that whole mad season comes around

Mad Season -- Matchbox Twenty

Milestone

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We have reached a new milestone in our documentation of the price decline in the Great Housing Bubble: we have our first property closing at 40% below its previous sale price. That's right, 40% off in Irvine. The median has not declined 40% yet, but individual properties have. Will the median be far behind?

We have been watching this property for some time. It was the source for a post that first appeared on March 17, 2007, and was updated on Sep 15th, 2007. We followed up again with the post, Show Me, on January 15, 2008. It was purchased on May 26, 2005 for $565,000 with 100% financing. There was a first mortgage from New Century for $452,000 and a second from New Century for $113,000. Ordinarily, when a property goes up for auction, the lender will bid the property up to the value of the first mortgage, in this case $452,000. This property was purchased at auction by the trustee for a CDO (U S BANK NA, ; STRUCTURED ASSET INVESTMENT LOAN TRUST 2,) for $337,500. Think about what that means: 1. Lenders and CDO trustees are now letting properties go at auction for less than the value of the first mortgage. 2. At open auction, the highest bidder was 40% under the purchase price of this property. The flippers wouldn't even touch it. 3. If investors are losing 40% on Irvine properties now, how bad will it be for them in 2 or 3 years? 4. The neighborhood comps just got obliterated.

This last point warrants further examination. Let's say you are a homeowner who purchased at the peak, and you are still in denial about the market. In the minds of such individuals, the market is down artificially, and values will rebound soon. The reality is, the market for this property is 40% off the peak (Maybe a bit less if they can resell it for more than $337,500. They are trying.) Percentages can be a bit misleading when it comes to price declines. A 40% decline requires a 67% increase to get back to the peak. Assume for a minute we are at the bottom (which we are not,) how long will it take for this property to appreciate 67% in value?

At a 5% rate of appreciation, it will take 12 years for this property to get back to the peak. Of course, if you believe 15% yearly appreciation will be returning soon, it will get their quicker, but that takes a degree of denial that will be hard to sustain in the long term. It isn't going to happen. In reality, this property will probably decline further in value because less desirable condos always do fall further, so the appreciation does not start in 2008. It probably starts in 2013 from a lower base number. How long are people going to be willing to wait for values to return? Will people be trapped in their homes for another 20 years. I hope they like them.

Asking Price: $399,000

Income Requirement: $99,750

Downpayment Needed: $79,800

Monthly Equity Burn: $3,325

Purchase Price: $564,678

Purchase Date: 1/25/2008

Address: 1 Montgomery #46 Irvine, CA 92604

This property is very close to the freeway. It is practically on it.

BTW, the original asking price on this property was $610,000. LOL!

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It is hard to say who is losing money on this one. New Century is already bankrupt, so either some CDO is losing or the various creditors of New Century are losing. In either case, if we assume this one is on their books at $565,000 (it is probably higher with all the fees and lost interest), and if we assume they get their $399,000 asking price and pay a 6% commission, the total loss will be $189,940. That loss is on one small condo in Irvine. Does anyone really believe the lenders are finished writing down their losses?

So how far will prices drop? Will we see 1999 prices? The aggregate of the market will not, but we may see some of the undesirable condos go for very low prices. I have a sneaking suspicion we may see a 1990 rollback before this is done. I know, that sounds crazy, but 1990 was the peak of the last bubble, and that puts it on par with 1998 or 1999 prices. A small condo bought in 1990 that wasn't particularly well cared for might be a 20-year rollback. It could happen, and we will be watching for it.

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I was dreamin' when I wrote this
Forgive me if it goes astray

But when I woke up this mornin'
Coulda sworn it was judgment day

The sky was all purple
There were people runnin' everywhere

Tryin' 2 run from the destruction
U know I didn't even care

'Cuz they say two thousand zero zero party over
Oops out of time
So tonight I'm gonna party like it's 1999

1999 -- Prince

Turtle REOck

Welcome to the new Irvine Housing Blog. We have changed from Wordpress to Expression Engine as our blogging software. It is a more powerful platform, and it should allow us to introduce some new and exciting features. There will be some growing pains (as I am experiencing right now in getting to know the new blog entry interface) but in no time, we will all be enjoying the new and improved Irvine Housing Blog.

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Its been such a long time
I think I should be goin, yeah
And time doesnt wait for me, it keeps on rollin
Sail on, on a distant highway
Ive got to keep on chasin a dream
Ive gotta be on my way
Wish there was something I could say.

Well Im takin my time, Im just movin on
Youll forget about me after Ive been gone
And I take what I find, I dont want no more
Its just outside of your front door.

Foreplay/Long Time -- Boston

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Asking Price: $674,900

Income Requirement: $168,725

Downpayment Needed: $134,980

Monthly Equity Burn: $5,624

Purchase Price: $564,678

Purchase Date: 1/25/2008

Address: 4992 Paseo De Vega, Irvine, CA 92603

 I like Turtle Rock too, but I don't think it is fair to say it is "by far, this is one of the very best locations in Irvine."

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 An REO in Turtle Rock? How can this be?

As you can see, this property has changed hands many times. Perhaps there is a St. Joseph statue buried on the property? The lender must think they can still get peak prices in Turtle Rock. It will be interesting to see if they can. From the property records, it is not clear why the buyer let this property go into foreclosure. It appears as if he put 20% down. Maybe the lender won't lose on this property. That would be a first.

Upgrade Complete

From what I can tell, it looks like the upgrade went well.  All the content from the old platform was brought over and we even used some nifty tricks to make sure that links to the pages on the old platform are now linking to the new pages.

Our forums have been expanded and we should have a few more subtle changes on the way.  Your old forum username/password will work on the new software.  If it doesn't, request a new password through the system.  If you are still having trouble, send me an email.

As with any project of this size, there are bound to be some issues.  Please let me know if you come across any and we'll do our best to take care of them.

Thanks!

UPDATE

Thank you to those of you who have provided thoughtful responses and constructive criticism.  That being said, ungrateful rants will fall on deaf ears.