There is a raging bull market in 92603! 92620, not so much.
It is said that speculative manias like the one gripping our housing market are a form of mass insanity. I have speculated it is a manifestation of Southern California’s Cultural Pathology. Whatever the truth, the results of herd mentality can be seen in our local housing market.
Asking Price: $639,800
Purchase Date: 2/2/1995
Address: 29 Marsala, Irvine, CA 92606
Sq. Ft.: 1,070
Lot Sq. Ft.: 2,975
Year Built: 1995
Type: Single Family Residence
$/Sq. Ft.: $598
Status: Active on market
On Redfin: 36 days
From Redfin, "Desirable End of Cul-De-Sac Private Location. Single Level. Highly Upg raded with Hardwood & Designer Ceramic Tile Flooring, Upgraded Wall-to-Wall Carpeting, Tile Kitchen Counters, Microwave, Dishwasher & Oven Included, Plantation Shutters, Custom Drapes, Window Blinds, Mirrored Wardrobes, Rollup Garage Door, Vaulted Ceilings, Recessed Lighting, New Custom Paint, Built-in Entertainment Center and Large Private Backyard"
Two bedrooms, 1000 SF and they want $598 SF? WTF! They didn't even update the old white tile with granite tops.
(No Pictures Available, but it is identical to the other two listings)
Asking Price: $599,900
Purchase Date: 12/16/2005
Address: 15 Marsala, Irvine, CA 92606
From Redfin, "Single level detached home with 2 private yards. Cathedral ceilings, p lantation shutters, designer carpeting, travertine flooring in the kitchen. Living room with fireplace. Mirrored wall in living room. Mirrored wardrobe doors and built-in shelves in closets."
IMO, this is the buyer / flipper / seller who started this mess, but more on that later...
Asking Price: $619,900
Purchase Date: 5/25/1999
Address: 6 Marsala, Irvine, CA 92606
Sq. Ft.: 1,000
Year Built: 1995
Type: Single Family Residence
$/Sq. Ft.: $620
Status: Active on market
On Redfin: 36 days
From Redfin, "BEAUTIFUL TWO BEDROOMS AND TWO BATHROOMS SINGLE STORY DETACHED HOME IN WEST PARK 2, LOCATED IN A QUITE AND INTERIOR NEIGHBORHOOD. LAMINATE WOOD FLOORING IN LIVING ROOM, DINING ROOM, AND KITCHEN. PLANTATION SHUTTERS AND NEW CUSTOM PAINT, THROUGHOUT THE HOUSE. NICE BACKYARD AND SIDE YARD, VERY OPEN FLOOR PLAN. SHORT WALK TO SCHOOL, THREE ASSOC. POOLS AND SPA, TWO TENNIS COURTS AND PARKS. TWO CAR ATTACHED GARAGE."
ALL CAPS IS REALLY ANNOYING! This is another tiny, 2 bedroom unit where they didn't bother to update anything.
Let's look at these three properties and see what we can determine. First, the $600 SF pricing is ridiculous. Most of Westpark is priced in the $400s per SF, and even the overpriced smaller products are in the low $500s. There is no justification for thinking $600SF is a good price. For the same $600,000 asking price, one could buy 37 Alcoba, 1407 SF, 3/2. For $500,000, one could by 6 Marbela, a 1083, 2/2. Both of those Westpark properties give much more for much less, and they have been on the market for over 280 days. So why do the sellers on Marsala believe they can get $600 SF?
Perhaps this is an instance of setting one's own comps. The seller at 15 Marsala paid almost $600 SF at the end of 2005. I would imagine when the other two properties went on the market last month, they used 15 Marsala as a comparable, and they figured their properties must be worth $600 SF.
Are you starting to get a sense for how the "greater fool" theory operates? 15 Marsala was a fool when they paid $600 SF at the end of 2005, now they and two of their neighbors (dumb, dumber, and dumberer) all need to find a greater fool to buy them out.
For their collective greed and stupidity, for believing their little neighborhood is "different," and for setting their prices 20% to 30% above the market, all three sellers on Marsala get our WTF Award.
Purchase Price: $495,000
Purchase Date: 6/04/2004
Address: 34 Springacre #5, Irvine, CA 92614
Sq. Ft.: 1,362
Lot Sq. Ft.: 1,348
Year Built: 1980
$/Sq. Ft.: $315
Status: Active on market
On Redfin: 119 days
Unsold in 90+ days
Sale Date 04/30/2004
$/Sq. Ft. $363.44
Sale Price $495,000
1st Loan $396,000
2nd Mtg. $74,250
Lender Cal Coast Mtg Corp
From Redfin, "Welcome home to this exquisite end unit, in the sought out community o f Woodbridge. Built in 1980 and completely upgraded in the past 2 yrs. Marvel @ the detail put N2 top of the line flooring, recessed lighting, cabinets in both baths & the kit, stainless steel appliances, jack & jill bedrooms with dual sinks, no stone left unturned, it is an absolute must 2C! Enjoy the ambiance of a cold winter night around a cozy fireplace or the privacy of tanning on your own private sun deck. Short Sale!"
I think this realtor has been sending too many text messages...
The theory has been floated by some that these short sales are deliberately priced low to generate interest and create a bidding war. In the heyday of greater fool market psychology this might have worked. At 119 days on the market, the bidding war is off to a slow start. This is priced about $40,000 lower than more recent comps for smaller units. It is $80,000 below comparables of similar size. At this price point, that is nearly 20% off!
It has to be hard for sellers to maintain denial when a property can be priced 20% below comps and sit on the market for 119 days. I don't have the asking price history, so maybe this was a recent drop, but it still sits there unsold. It goes back to the point I was making in the post The Day the Market Died, the lower end of the market is dead -- there are almost no resales at any price. The builders get to cheat with financing incentives, etc., but resellers have to find qualified buyers with downpayments: none are available.
There has been plenty of discussion on the issue of the fundamentals of why housing prices in Orange County are indeed, not rational. One of the most common metrics cited by those with or without a basic economics background is the rent versus buy 'price' (monthly payment). These prices are the net output of a large number of variables, including (very importantly) what amount can be mortgaged, as IrvineRenter has explained in previous posts. I would like to take an opportunity to focus on the supply side of the equation, to help frame the discussions. Some of this is for statistical consideration, and some is simply to discuss the housing product and this blog community's view of the current and future marketplace offerings.
One of the commonly-recited phrases heard in defense of high housing prices, especially in Orange County, is "they aren't making any more land." There are a number of technical arguments to refute the idea that (even if true) this justifies high levels of appreciation, which is not the point of this post. While Irvine is extremely desirable, it is far from built out, and it appears to this blogger that there is significant rental and new home inventory available and coming available even as sales continue their sluggish pace.
One area of particular interest is Orchard Hills in Irvine. As has been discussed on the forums, this area has attracted plenty of interest for those hoping for something less remote than Portola Springs and more scenic than Woodbury or the Villages of Columbus. Any hopes for something reasonably affordable in a nice location have been dashed by the recent market survey postcard showing prices starting at $1.25 million and going up from there. It would appear that The Irvine Company is attempting to take the Turtle Rock experience and move things even further upmarket.
Fewer than 4,400 homes are planned - reduced from the 5,903 in the existing General Plan for the city of Irvine, and dramatically fewer than the 11,800 units in Irvine's original General Plan. This will allow for 3 units per acre - fewer homes per acre than Irvine's original hillside village, Turtle Rock.
While these lower densities sound desirable, this is obviously coming at a price.
The area is large, and I have a preview of construction that has begun at the southwest corner near Jamboree and the 261. Some pictures from Sunday walks show the state of progress.
The new retail center, scheduled to open this summer.
Closeup of the Orchard Hills brickwork style at the retail center. This same rustic-looking brick is seen on the grand entrance walls in the residential areas.
Culver and Settlers, from the hill, looking west.
Settler's multiple lanes of gated entrance off of Culver, with the Irvine/Costa Mesa skyline in the distance.
Trees ready for planting along Settlers, looking east
IAC apartments on Whispering Trail, looking west from near the retail center
View of the apartments looking east, near the 261 toll road, with the privacy wall in progess for the homes up the hill. There is approximately 30 feet of elevation change down to the street level of the apartments.
Is the market ready for Orchard Hills?
Frankly, I'm a bit skeptical that more premium apartments and premium homes are what this market is looking for right now, and I foresee a bit of a miscalculation (or at least mis-timing) on the part of The Irvine Company. But TIC is well known for savvy market research and planning, so it will be interesting to watch unfold.
Regarding the apartments, we know that certain specific apartments at Woodbury Lane have yet to see their first rental, despite being available for over 10 months. If one checks the inventory at the newly-opened Portola Place, unit after unit has multiple available "now," status which indicates plenty of supply. I don't yet know the exact number of units they are building at Orchard Hills, but to my eye the number appears large compared to nearby communities such as Estancia, Anacapa, and Somerset.
Regarding the homes, we keep hearing reports about how the upper end of Orange County's housing market is holding up well, perhaps because the folks with all the millions are not subprime borrowers. But the housing food chain cannot be deprived of its plankton forever without impacting the big tuna. Given the challenges the homebuilders are having at the Villages of Columbus and Portola Springs, the continuing trend of increasing inventory and decreasing sales in the resale market could make for a rocky ride ahead.
In the heart of Irvine there are a number of small neighborhoods that are less well known than Woodbridge or Turtle Rock or some of the other larger or newer communities. These neighborhoods are no less interesting or well planned than their more famous brethren. One of these hidden gems is the community of Deerfield.
Deerfield is north of Woodbridge bounded by Irvine Center Drive, Culver Drive, Yale Avenue and the rail line which bisects Irvine. Deerfield Avenue is the main collector street moving traffic throughout the community. There is an apartment complex at the corner of Irvine Center and Culver, and there is other high-density housing north of Deerfield Avenue near the railroad tracks. The remaining housing is a mixture of one and two story dwellings. Deerfield was one of the earlier communities developed. It's buildout was complete in 1976.
Life in Deerfield revolves around the large community park. This park together with an elementary and middle school comprise a large central greenspace. There are a series of pathways linking three satellite parks to the community park. This is a great master plan which allows children to walk or bike to school or the park without crossing busy streets.
Deerfield Community Park has great play areas. Notice the high, double-corkscrew slide -- great fun for the young at heart.
There is another tot lot for smaller children with safety swings.
Another Frisbee golf course, apparently a popular feature for parks in the 60's and 70's.
Frisbee golf is still played today...
The community park has a building staffed year round.
There are also volley ball courts and tennis courts.
The north end of the central greenspace is occupied by Venado Middle School and
The trails link the central park to satellite parks. As you can see, these are used by the locals.
Northern Park (pool not shown).
Eastern park with children at play.
Western park and pool.
There are apartments and high density condominiums in Deerfield. The density is lower than the adjacent Windwood community behind Culver Plaza, and it is higher than the adjacent community The Ranch.
There are attractive single-story homes.
Many show pride of ownership.
Landscaping you only find in mature communities.
Plenty of pretty flowers...
The varied architecture and mature landscaping makes for an attractive street scene.
The sub-neighborhoods have landscaped entries, but there is no names to give further identity.
A Lamborghini is going to stand out no matter where you park it, but it seems out-of-character with the modest, working-class homes in Deerfield. So what do you think? HELOC? Visitor? Car rich and house poor? Recent lottery winner?
Deerfield is a nice neighborhood to live and raise children. The central park gets plenty of use, and it provides a unifying element where neighbors meet neighbors and children play together outside. It doesn't have the fame of Irvine's other neighborhoods, but it is no less desirable as a place to call home.
Irvine's Deerfield: a great place to live.
Old Asking Price: $513,000 or $507,000
New Asking Price: $479,000
Purchase Price: $486,000
Purchase Date: 6/9/2006
Address: 39 Spanish Lace, Irvine, CA 92620
From the listing:
"Truly better than any Model Home, owner spared no expense was planning to stay forever! Upgraded everything, Carpets, Tile, Paint. Kitchen has Stainless Steel appliances and custom backsplash. Recessed lights throughout, Ceiling Fan in Master Bedroom, Living Room is Prewired for Fan. Additional Cabinets added in Laundry Room, Closet Organizers in Master Bedroom Walk-In Closet. Desirable Street Front Location, Great Mountain Views from Private Front Balcony"
Notice there are no granite tops in this truly-better-than-any-model condo. Maybe the 80's style white tile is the new black? Granite tops was so 2005. Who wouldn't want the high-end white tile? After all, this flipper / home debtor / owner was planning to stay forever! Yeah, right...
I must admit, I have a particular prejudice against 1 bedroom apartments / condos selling for more than their rental value. The only reason any rational person would buy this unit is to make positive rental cashflow, or to save versus the cost of renting. Nobody wants to live in these units for more than a couple of years. This isn't a house that you buy to live in for a long time. It's transitory housing, and it always will be.
First Team's website tells me my payment would be $2,564 a month (based on a $507,000 purchase price), the HOA is $150 a month, and the taxes are $464 a month, plus another $100 for insurance. The total cost of ownership is running $3,642 a month. Does anyone think they can get $4,000 a month rental on this place?
Let's be real for just a moment. Buying a unit like this isn't about being rational, it is about greed. There is no justification for the pricing of these units other than the buyer believes these units will rise in price forever. This is the "greater fool" theory on full display.
**** UPDATE 1 ****
The deterioration at the bottom of the market continues. Assuming a 6% commission, this flipper / long-term homeowner stands to lose $26,340.
**** UPDATE 2 ****
Now the loss would be $35,740. Thank you Mk9 for the heads-up.