**** NEWS FLASH ****
A special thanks to Irvine Wanna Be for alerting us to the sale of 35 Hidden Trail (details below) for $1,910,000 on 5/31/2007. There was a 5% commission for a total loss of $435,500 plus carrying costs. Ouch!
Asking Price: $1,750,000
Purchase Price: $1,800,000
Purchase Date: 3/28/2005
Address: 26 Hedgerow, Irvine, CA 92603
Beds: 5
Baths: 4.5
Sq. Ft.: 3,611
Year Built: 2003
Stories: 2
Type: Single Family Residence
County: Orange
Neighborhood: Turtle Ridge
$/Sq. Ft.: $485
MLS#: U7001742
Status: Active on market
On Redfin: 48 days
From Redfin, "BEST PRICE IN TURTLE RIDGE!!! NESTLED IN THE GATE GUARDED COMMUNITY. ONE BEDROOM AND BATH DOWN. FORMAL LIVING ROOM AND DINING ROOM OPEN TO COURT YARD WITH FIRE PLACE. GOURMET KITCHEN MASTER SUITE WITH HIS & HER CLOSET. PLANTATION SHUTTERS THROUGHOUT. LARGEST FLOOR PLAN IN BOTANICA. PRIVATE YARD, GREAT CURB APPEAL. "
THANK YOU FOR THE ALL CAPS AND 3 EXCLAMATION POINTS MS. REALTOR!!! HERE'S SCREAMING AT YOU...
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This is a nice home in a great neighborhood. Perhaps in the comments some of the bulls can explain why it is selling for less than its purchase price?
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Asking Price: $2,150,000
Purchase Price: $2,250,000
Purchase Date: 7/13/2006
Address: 35 Hidden Trail, Irvine, CA 92603
Beds: 4
Baths: 4.5
Sq. Ft.: 3,675
Lot Sq. Ft.: 6,243
Year Built: 2005
Stories: 2
Type: Single Family Residence
View: City Lights, Ocean, Panoramic
County: Orange
Neighborhood: Turtle Ridge
$/Sq. Ft.: $585
MLS#: S446750
Status: Active on market
On Redfin: 365 days
Unsold in 90+ days
From Redfin, "Corporate Relocation. Outstanding panoramic view - city lights, ocean. Highly upgraded with hardwood floors, crown molding, plantation shutters, custom built-ins. Main floor master bedroom. Extra large bonus room. "
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First, I would like to wish this listing a happy birthday: it has been on the market for one full year (Ooops! this listing expired yesterday. Sorry for the dead link). Do you think it might be overpriced? I don't know if this really is a corporate relocation or if anyone is on the hook other than the seller, but a $2,250,000 home sitting empty is burning a hole in someone's pocket.
If this sellers gets this asking price -- which seems pretty unlikely after a year on the market, they still stand to lose $229,000 after commissions. If you add a year of carrying costs and the price reduction this will need to actually sell, this seller is probably looking at a $500,000 loss. In my opinion, that is a lot of money.
As you can see, the high end is not immune from the pressures of a falling market. There is no safe harbor from the storm brewing in our housing market. Last fall, and earlier this spring, there were sales occurring in the most desirable areas of Irvine showing some price appreciation. This is a natural "flight to quality" you see at the beginning of any bear market. If asset prices are declining, and you have to park your money somewhere, you want it in the best asset you can find. Unfortunately, in a real bear market -- like we are about to experience -- there is no place to hide. The market is like the tide raising or lowering all ships, and as Warren Buffet noted, "You don't know who's swimming naked until the tide goes out."
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Masada is an ancient fortress in what is now modern Israel. It may be best known as the last outpost to resist Roman rule. The Jewish Zealots which inhabited Masada finally committed suicide rather than suffer defeat at the hands of the Roman siege army. It isn't known how they committed suicide. Perhaps it was hemlock, the deadly poison Socrates drank. Masada has become a symbol for zealous devotion and dieing for one's beliefs.
Turtle Ridge is Irvine's Masada. There are physical similarities in that they are both isolated outposts of prized real estate. The zealous devotion of housing bulls inhabiting Turtle Ridge and their ritual kool-aid drinking is evident in the prices of homes there.
Prices on a per square foot basis (the best way to compare one neighborhood to another) are very high. From the listings I have seen, I would estimate the median listing price is around $600 / SF. About 10% are in the $400s, about 40% are in the $500s, about 40% in the $600s, and the remainder are over $700 / SF. This is a 20%-30% premium over most of Irvine.
Over the next few days, I am going to profile a variety of homes in Turtle Ridge. I have identified 4 properties which are selling below their 2004 or 2005 purchase prices, and I have identified 4 properties which have such ridiculous asking prices that you have to ask, WTF?
First let's profile two of the rollbacks:
Asking Price: $759,000
Purchase Price: $808,000
Purchase Date: 10/11/2005
Address: 55 Greenhouse, Irvine, CA 92603
Beds: 3
Baths: 2.5
Sq. Ft.: 1,275
Year Built: 2004
Stories: 2
Type: Condominium
County: Orange
Neighborhood: Turtle Ridge
$/Sq. Ft.: $595
MLS#: U7001496
Status: Active on market
On Redfin: 64 days
From Redfin, "Beautiful detached Turtle Ridge Property. Hardwood floors, stainless steel appliances, plantation shutters and custom paint. Light and bright throughout. Great dutch door from family room to back patio to feel cool breeze. Located on quiet street. Gated community features resort like pool, spa, cabanas, and clubhouse. "
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This is a beautiful home in one of the best neighborhoods in Irvine, and this seller is still going to lose money. If they get their asking price, minus a 6% commission, they will lose $94,540. So much for that "safe" investment.
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Asking Price: $719,900
Purchase Price: $760,000
Purchase Date: 9/13/2004
Address: 213 Lonetree, Irvine, CA 92603
Beds: 3
Baths: 2
Sq. Ft.: 1,790
Year Built: 2004
Stories: 1
County: Orange
$/Sq. Ft.: $402
MLS#: K07084046
Status: Active on market
On Redfin: 3 days
From Redfin, "Nice property in this great area!! You can & apos; t pass up this price for such an awesome unit!!!Needs very little to be ready to move in to. Bring even your fussiest buyers You won & apos; t go wrong on this one!! "
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If they get their asking price, they stand to lose $83,294 after commissions.
Check out the price per square foot. This will likely sell for under $400 / SF in Turtle Ridge. This is a real comp killer.
So there you have 2 properties selling for less than their purchase prices from 2004 and 2005. These are two of the less expensive homes, but the top of the market is not immune. On Thursday, I will feature two more from the high end.
Bulls have opinions; bears have opinions. How do can you tell who's opinion is more likely to become future reality? What characteristics are exhibited by an analysis with good predictive power versus those without? How do you tell the difference between an opinion based on emotion, fantasy and wishful thinking from an opinion based on a rigorous, unbiased examination of the facts? These are the questions I wish to explore today.
As part of my job, I obtain market studies to evaluate various land uses for specific pieces of property. Based on the quality of the information in these reports, I make and implement recommendations on the purchase and development of multi-million dollar properties. If my analysis is faulty, or if I fail to recognize a faulty analysis in a report upon which my actions are based, the project's investors will not meet their financial objectives. In short, if I mess up my analysis, people lose money.
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The easiest way to demonstrate a good analysis from a bad one is to directly compare a good one to a bad one and note the key differences. For an example of a good analysis, I will use The Anatomy of a Credit Bubble, not because it is so great, but because I know it very well. For an example of a bad analysis I will use Gary Watts Real Estate Outlook 2007 because he has achieved local fame, and because his analysis is terrible.
Accurate Data
The first thing an analysis must contain is accurate data which is verifiable. Garbage in, garbage out. For The Anatomy of a Credit Bubble I used data from the US census bureau, the local MLS, Newsweek magazine, US department o labor, and a variety of websites which used official government data sources. Basically, if you want to challenge the accuracy of the data presented in the analysis, you could go the source and verify it. I don't have any problems with the accuracy of the data presented in the Gary Watts report, so he makes it past the first hurdle.
Direct Causation
Once you have accurate data, the analysis of this data must focus on cause and effect. There must be direct causation linking a specific set of conditions to the outcomes these conditions will produce. A good analysis demonstrates this direct causal link in a clear and unambiguous manner. When an analysis relies on indirect causation, it is weak; when an analysis relies on implied causation, it is worthless.
In The Anatomy of a Credit Bubble, I demonstrated a number of direct causal links which impact how much people pay for houses:
- House prices are directly correlated with amounts borrowed.
- Amounts borrowed are directly correlated with the interest rate offered.
- Amounts borrowed are directly correlated with the borrowers debt-to-income ratio.
- Artificially low interest rates (reset issue) and exotic financing cause foreclosures.
- Foreclosures cause higher interest rates.
- Foreclosures above a certain threshold cause house prices to decline.
- Declining house prices causes more foreclosures. (note the causally related downward spiral)
- Declining house prices and increasing foreclosures cause lenders to lower debt-to-income ratios and raise interest rates.
- Lower debt-to-income ratios and rising interest rates cause amounts borrowed to decline.
- Less amounts borrowed (in conjunction with foreclosures) causes house prices to decline.
Notice the focus is always on correlation and causation forming a chain of events leading to an inevitable conclusion. A good analysis centers the debate around the premises. If the premises are true and accurate, the conclusions cannot be denied.
In contrast, a bad analysis states a conclusion and offers support through indirect or implied causation. When you read through the Gary Watts Real Estate Outlook 2007 you find yourself asking, "How does that impact house prices?" It is a question that is never answered.
Straw Man Arguments
You know an analysis is in trouble when it starts with straw-man arguments to refute counter claims. The Gary Watts Real Estate Outlook 2007 starts its analysis with this headline,
"So Why Do You Feel So Bad? . . . Could It Be The Media? Remember all the fuss over Y2K? How about Killer Bees, West Nile Virus and the Mad Cow disease? What happened with 2005’s “serious” lack of vaccines for one of the “worst” flu seasons? Where did SARS and the Bird Flu. . . fly to?"
He left out crop circles, UFOs, Kennedy conspiracy theories, and the prophesies of Nostradamus. This is an effort to make all dissenters look like raving maniacs with no credibility. The implication is that people who believe there is a housing bubble must also have believed in these other erroneous predictions. This is a feeble attempt to increase his own credibility through linking his opponents to false predictions.
Gary Watts Real Estate Analysis
When he finally gets to real estate, he pulls out these gems:
"Housing Prices Continue to Decline!
Only the rate of appreciation is declining; home prices are still rising. The median profit earned for Orange County was $291,000 for 4 years of ownership!"
Here he conflates a rising median with rising prices for individual homes. We all know the prices of individual properties are declining. We have documented it in many, many posts. The median holds up only because sales at the bottom of the market are nearly zero and incentives and discounts are not reflected in the reported sales prices. The comment about the median profit is completely superfluous information which only documents that we had a bubble. It makes no statement as to whether house prices are currently rising or falling.
Next Mr. Watts comments on the decline in sales:
"Home Sales Decline By ____30___%!
They are measuring against 2005’s almost record year. Since 1996, the yearly average of all sales in Orange County has been 42,716. Last year our sales decline will be only 15% off our 10 year average."
Sales are below the 10 year average, but only by 15%. Notice the attempt to make this seem insignificant? Bear markets in real estate begin with a dramatic drop in sales. This is the leading indicator everyone anticipates. He makes no mention of what this means. A good argument would have at least attempted to address the bearish argument of declining sales signaling the top of the market.
More nonsense, this time on foreclosures:
"Foreclosure Activity Rises!
They have to be up after hitting a record low! The truth is that 99% of all loans in the U.S. are not in foreclosure. The remaining 1% that were foreclosed upon had the following breakdown:
* 80% were classified by federal lenders as Professional Thieves and were turned over to the FBI.
* 20% were classified by lenders as Fraud for Property that resulted in unethical lending practices.
* Ca. Defaults: Historical 32,762 - Low: 12,145- 3Q’04 High: 59,987 – 1Q’96 Current: 37,273
* For all of ‘06, foreclosures accounted for only 1.81% of all Orange County sales, with lenders reselling those homes at an average discount of only 3.8%!"
Here he tries to make it sound as if borrowers are making their payments, and the foreclosure problem has nothing to do with the exotic loan terms. According to Gary Watts breakdown 100% of the foreclosures can be attributed to theft or fraud. Does anyone believe that? Somebody provide me a link to his supporting material concerning the breakdown of foreclosures -- if it exists. I would like to see it. I suspect this is a rectal extraction. Plus, he completely ignores the implications of the trend in foreclosures which is increasing at an increasing rate. It isn't the number of foreclosures today that is the problem, it is the number forecast for the next 5 to 7 years that is alarming.
Then Mr. Watts really pulls out all the stops,
"Affordability Index at Record Low – So Few Can Afford to Buy! Home ownership is at a record high of 70%, while the baby boomers ownership percentage is 80%! This index is archaic and does not account for how dramatically the world changed in 1979."
Affordability is the central issue of the bubble. His drawn out attempt to make light of this problem is ridiculous. First, what does his statement about ownership percentages have to do with anything? Affordability is so low because this increase in home ownership (caused by loose lending standards) has driven up prices as buyers outbid one another for properties.
He tries to bridge to his analysis about the changing world in 1979... Basically, he says baby boomers are rich, and they will buy so much real estate that the market demand is limitless. This is silly. Baby boomers were big participants in the bubble, that is clear; however, now that these second homes are burning a financial hole in their pockets, they are not buying more, but instead selling what they have. Also, baby boomers are all moving toward the empty nest stage and into retirement. Their demand for housing space is going to decline as they downsize and abandon their McMansions.
Plus, I just have to wonder why this market altering event in 1979 didn't prevent the last bear market from 1990 to 1996 -- a bear market Gary Watts accurately predicted?
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I don't want to rehash his entire analysis, but when you read it you see numerous examples of indirect or implied causation. Each of the facts he mentions could in some way contribute to increased buying or decreased supply, but each of them also could amount to nothing. It is the shotgun approach: maybe one or two items out of the list of 20 will have an impact, so he just lists them all hoping the cumulative impact will convince the reader prices will increase. He plays on the inability of most people to sort through the details. He doesn't dazzle them with brilliance, he baffles them with BS.
Give yourself an out
In the final paragraph, Gary Watts does give himself an out which makes the inaccuracies of his forecast look beyond his control.
"What to Watch:
1. If the Fed sees things it does not like and raises interest rates.
2. If increases in our housing inventory push the supply past 5.5 months.
3. Un-motivated sellers still entering the market in large numbers."
This is an obvious tactic as explained by Rich Toscano,
"This is the type of permabull revisionism that we can expect a lot more of in the months and years ahead. It goes something like this: "We were right to predict infinitely rising home prices, but who could have foreseen Factor X?" Factor X might be further mortgage defaults, employment weakness, a consumer slowdown, outmigration, or any number of other problems. It will be discussed as if it was some entirely unpredictable exogenous shock, and that the bullish analysts' predictions would have been spot on had the X-Factor not come into play. The truth is that the X-Factor will not be some external shock as they'd have us believe, but a likely if not inevitable result of the excesses of the housing bubble."
At the time Gary Watts wrote his analysis, there was more than 5.5 months of inventory on the market. It has only gotten worse. He built in the excuse for the failure of his analysis.
Conclusion
A good analysis uses direct causation with verifiable data, clear premises and easy to understand conclusions. A bad analysis has faulty data and utilizes indirect or implied causation to support a hazy conclusion.
People in the industry who really want a market analysis employ companies like John Burns Consulting to get something with real predictive power. Nobody who makes multi-million dollar investment decisions uses Gary Watts. Quite honestly, if a consultant I used gave me a report like Gary's, I probably wouldn't pay them, and I certainly wouldn't use them again.
Gary Watts analysis is nothing to take very seriously, but it doesn't need to be. Gary's place in the REIC is not that of a paid analyst, he is a paid shill of local realtors. His analysis is not intended to actually forecast anything, he merely needs to make it plausible enough to help realtors convince people to buy homes. If you want to rely on him to guide you for making the purchase of a home, do so at your own risk and with the full knowledge you are a sheeple being guided to the slaughterhouse.
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Bulls rejoice! The activity in 92612 is undeniably bullish. Increasing price on increasing volume is the sign of a healthy market.
Of course, there may be more there than meets the eye. The 92612 area code contains the Jamboree corridor where they are selling new condos (and dumping some of the overpriced trash from the Marquee). Builders have been offering incentives to artificially keep the price up and stimulate sales. It seems to be working.
The rest of Irvine... well, it does not look quite so bullish:
92603 is Turtle Ridge and Turtle Rock, and it is sporting a whopping 15.9% price decline and a 38.3% drop in sales which portends of even more price declines.
92620 is Northwood and Woodbury. The equity crushing 31.6% decline coupled with an monsterous 46.7% decline in sales does not correlate with the bullish rumors.
So much for the best neighborhoods holding their value.
Another Irvine village which is not widely known is The Ranch.
The Ranch is bounded by Yale Avenue, Irvine Center Drive, Jeffrey Road and the railroad tracks. It is north or Woodbridge and East of Deerfield. The communities of Windwood, Deerfield and The Ranch form a gradient of decreasing housing densities and increasing house sizes. With the exception of the condominium complex of Smoketree, the Ranch is almost exclusively large, single-family detached housing.
There is a mixture of one and two story houses. This one is your typical "American Dream" home with a white picket fence.
The main entry off of Irvine Center Drive features an attractive greenspace park.
There are not many parks or amenities in The Ranch. The main greenspace features of the community are the preserved windrows which have been used to link the various neighborhoods together with the central park and recreation space.
The preserved hedgerows gave the community instant maturity.
The pathways are attractive and inviting.
These are large, mature eucalyptus trees.
All the greenspace corridors lead to the central park area.
The greenspace is large, but it is not used for formal sports activities.
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There is another park on the east side of The Ranch separating it from Smoketree.
There is another children's tot lot.
Between the houses and the railroad tracks is a wide buffer for power lines which is used as a bike trail.
This sets the homes a considerable distance away from the railroad tracks.
Large houses are common in The Ranch. Perhaps not this large...
The houses all display pride in ownership.
There is a variety of architectural styles.
I liked this one with its boulder landscaping.
The wide lots permit houses with elevations wide enough not to be dominated by a three car garage.
The Ranch is a perfect village for a homeowner who wants a large home on a large lot with minimal park facilities and a no mello roos or HOA fee. This neighborhood is atypical for Irvine in that regard.
Irvine's The Ranch: a great place to live.
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Asking Price: $599,000
Purchase Price: $760,000
Purchase Date: 6/23/2006
Address: 131 Talmadge, Irvine, CA 92602
Beds: 3
Baths: 2
Sq. Ft.: 1,752
Year Built: 2003
Stories: 2
Type: Condominium
County: Orange
Neighborhood: Northpark
$/Sq. Ft.: $342
MLS#: U7002421
Status: Active on market
On Redfin: 4 days
From Redfin, "OUTSTANDING ASSOCIATION WITH A GUARD GATED COMMUNITY! IN THE HEART OF NORTH PARK IN THE MOST SOUGHT AFTER CITY OF IRVINE. THIS HOME FEATURES THREE BEDROOMS AND TWO BATHROOMS, ASSOCIATION POOL AND SPA. OUTSTANDING SCHOOLS AND PARKS. CLOSE TO TRANSPORTATION, SHOPPING, ENTERTAINMENT. .. THIS HOME IS IN THE TUSTIN UNIFIED SCHOOL DILSTRICT. HOME IS BEING SOLD 'AS-IS' AND 'WHERE-IS' WITHOUT WARRANTY. "
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You have to love properties like this one. A flipper who timed the market top perfectly walked away from this nightmare and left the bank holding the bag.
In our analysis posts, we discussed the theoretical possibility (probability) of foreclosures leading to lower prices. We haven't seen much of it to date to demonstrate how it works. Here it is.
In the past, a property like this one would have sold in a day at above asking price. There would have been no negative impact to the neighborhood comps. Right now in the markets, there are few buyers, and those who are buying are putting in cautious bids. There will probably be no bidding war for this property. This transaction will be very telling of where the market is today, and where it is heading.
It still takes some form of exotic financing to buy this property. I doubt many families with a $171,000 annual income with an $85,000 downpayment are rushing out to buy this place. Somebody making $85,000 a year utilizing a huge DTI ratio will take out a 10 year I/O, buy this place, and spend the next 10 years underwater eating Ramen Noodles.
However it goes down, this will be a comp killer. All those sellers holding on to a breakeven wishing price just got clobbered. As each distressed homeowner succumbs to the terms of their exotic mortgage, they become another foreclosure. Each foreclosure reinforces the previous low comp and drives a dagger into the hopes of other neighborhood sellers.
This is how it happens: one foreclosure at a time.
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I would like to say a special thank you to Purplehaze for tipping me off to this property.
We have a first today: a property that is a flip, a knife-catcher and a WTF award winner -- the kind of property that really makes this hobby fun.
Asking Price: $1,890,000
Purchase Price: $1,485,000
Purchase Date: 2/27/2007
Address: 18991 Edington Terrace, Irvine, CA 92603
Bedrooms: 4
Full Baths: 2
Partial Baths: 1
Square Feet: 2,831
Lot Size: 9,000 Sq. Ft.
Year Built: 1970
Listing Date: 06/09/07
On Market: 2 days
Type: SFR
Status: ACTIVE
MLS #: P582554
1st Loan $1,000,000.00
2nd Mtg. $250,000
Lender -- Americas Wholesale Lender
From ZipRealty, "'spectacular view of city lights and mountains'. This hard to find turtle rock terrace home has 4 bedrooms, 2.5 baths all on one level. This is the model 70 presidential home. Enjoy the city lighs view from the master bedroom, living room & family room. This house is at the end of a single loaded street with only 6 houses. As an additional bonus, take the pull down ladder to the attic and view all the storage space. This house is ready for you to put your own creative touch on it."
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Lets take a look at the rest of this home:
So here we have a house built in 1970, and it hasn't been updated since then -- unless perhaps the white tile kitchen was an 80's update. How about the exposed white brick living room, or the paneling and yellow carpet upstairs. This property is a joke.
I will give these sellers credit for having enough sense to recognize this when they said in the description, "This house is ready for you to put your own creative touch on it." In other words, you have to do the renovation. So what have these people done to warrant the $405,000 price increase? Are they such savvy buyers that they purchased this property that far under market? These people paid $524 per square foot, and they are asking $667/SF for the property. This is insane!
I have to admire the delusional thinking. They put $235,000 of their own money into this transaction, and they plan to walk away with $640,000 after six months. That is a great internal rate of return (near 600%). It certainly would be better than 5% at the bank. Of course, I think they will be lucky to get out before this becomes a short sale, but only time will tell.
So what about the comps? We happen to have a great comparable property:
Price: $1,498,000
19041 GLENMONT TER
Irvine, CA 92603
Beds: 4
Baths: 2.5
Sq. Ft.: 2,605
Lot Sq. Ft.: 8,670
Year Built: 1971
Stories: 1
Type: Single Family Residence
View: City Lights, Peek-A-Boo, Trees/Woods, Other
County: Orange
Neighborhood: Turtle Rock
$/Sq. Ft.: $575
MLS#: S483106
Status: Active on market
On Redfin: 61 days
From Redfin, "Elegant & Sophisticated Style! Det. Single Level on Oversized Corner L ot, Popular Plan 60 w/ a Gourmet's Dream Kitchen, All new Stainless Appliances, Custom Cabinets & Granite Counters. Extensive Upgrades incl. new Tile flooring, new Dual-Paned Vinyl Windows & Doors, new Roof-Furnace-AC, Upgraded Electrical systems, Custom Fireplace Mantle, Remodeled Powder Room, All new Shower-Tubs w/ Intricate Tile Inlays & More! Pool sized yard w/ view offers total privacy. Quiet, single loaded cul-de-sac street."
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Does the front elevation look familiar? These houses are nearly identical, and they are so close together than the Edington Terrace house actually looks over the roof of the Glenmont Terrace house. Is the view worth $400,000 extra (plus renovation costs)? In my opinion, the Glenmont Terrace house is overpriced as well (it is priced $200,000 over its 2005 purchase price), but as a comparable, it clearly establishes Edington Terrace is in WTF territory.
Turtle Rock appears to be the last bastion of kool-aid drinkin' maniacs. When I look around at listings, most are priced in the $500/SF range. There are a few over $600/SF, and they have been on the market for a long time. There is nothing I can see to justify the price this flipper paid much less the $405,000 extra they want for the property. I am dumbfounded, and being so means they have truly earned today's WTF award.
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I would like to express a special thanks to JoonB for alerting me to this property.
Asking Price: $380,000
Purchase Price: $515,000
Purchase Date: 10/12/2006
Address: 23 Deodar, Irvine, CA 92604
Beds: 2
Baths: 2
Sq. Ft.: 1,000
Lot Sq. Ft.: 2,800
Year Built: 1976
Stories: 1
Type: Condominium
County: Orange
Neighborhood: El Camino Real
$/Sq. Ft.: $380
MLS#: S485757
Status: Active on market
On Redfin: 40 days
From Redfin, "Single story home in a corner lot overlooking a huge greenbelt. Beautifully remodeled throughout. This is an as is short sale."
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This short sale price will probably not be approved by the lender as it is too far outside of their loss limitation guidelines. It is probably priced this low to entice bids in order to give the bank an idea of where the market will be after they take the property back in foreclosure. The bank will lose money, but they will follow their guidelines for loss mitigation which will not permit a 30% haircut after a little over 7 months.
In my opinion the real story here is probably in the sale history:
Sales History
Date Price
10/12/2006 $515,000
10/27/2005 $465,000
08/01/2000 $218,000
It appears to me the buyer on 10/12/2006 was a straw buyer bailing out the 10/27/2005 buyer. The $515,000 sales price, after a 6% commission, would net this seller $20,000 -- enough for a payment to a straw buyer and/or the person who arranged the sale. This is pure speculation on my part, and the previous seller may simply have gotten lucky, but when you see a short sale after 7 months, it is probably a first-payment default fraud. This may be a flip gone flop, or it may be fraud, either way this never should have transacted at a price over $500,000, and its next transaction (after the bank buys it at a foreclosure auction) will likely be less than the 2005 price.
The sellers who will really be displeased by this whole mess are the neighbors. The above sale won't feed their fantasy price, but then again, they probably will ignore its significance as an aberration, drink some kool aid, and deepen their denial.
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13 DEODAR
Irvine, CA 92604
Price: $565,000
Beds: 3
Baths: 2
Sq. Ft.: 1,178
Lot Sq. Ft.: 3,035
Year Built: 1976
Stories: 1
Type: Condominium
County: Orange
Neighborhood: El Camino Real
$/Sq. Ft.: $480
MLS#: P579755
Status: Active on market
On Redfin: 7 days
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19 DEODAR
Irvine, CA 92604
Price: $585,000
Beds: 3
Baths: 1.5
Sq. Ft.: 1,517
Lot Sq. Ft.: 2,112
Year Built: 1976
Stories: 2
Type: Condominium
County: Orange
Neighborhood: Orangetree
$/Sq. Ft.: $386
MLS#: P572471
Status: Active on market
On Redfin: 49 days
Why do we get so much pleasure from failed flips? I can think of no other human endeavor which has engendered so much pleasure in the misfortune of others. In my opinion, the outpouring of schadenfreude we are seeing as the housing bubble deflates is a mixture of Greek tragedy and bad karma. In short, bubble participants should have seen it coming, and they are getting what they deserve.
Schadenfreude is not a spiritually uplifting response. Most religious traditions would counsel us against it. In Buddhist teaching, people are taught to cultivate feelings of compassion for the misfortune of others -- feeling empathy and sadness for the slings and arrows of outrageous fortune when they impact another. The near enemy of compassion is pity: it masquerades as compassion, but it has an element of separateness which detracts from the sense of Oneness with all things. Joy is good: Sypathetic joy, the joy in the happiness of another, is another pillar of a spiritual existence. However, joy in the misfortune of another -- schadenfreude -- is not a skillful behavior leading to happiness. Even knowing that, many of us feel this joy anyway. Why is that?
I recognized financing terms were creating artificially high prices early on. By 2004, I was telling people I knew this was a problem which would cause a market crash. I can't tell you how many people looked at me like I was crazy. "Real estate always goes up," I was told. "The government would never allow prices to crash," I was told. "If you don't buy now you will be priced out forever," I was told. You know the intoxicated language of those who imbibed the kool aid. If these statements had been offered in a defensive manner of someone who is being made to realize they made a serious mistake, I could have felt sympathy for them. I would have been able to disarm their defensiveness and helped them see the light. However, what I generally got was a smug assuredness of someone who truly believed they were right and I was wrong; not just was I wrong, I was a stupid, cowardly fool who did not have the brains or the courage to take the free money being given out.
During the bubble rally, those of us who chose not to participate were labeled as "bitter renters." We were labeled as envious of the good fortune of homeowners as their property values rose, as they took on insane amounts of debt, and as they learned to finance a lifestyle well beyond their means. This was undoubtedly true for some, but in my opinion, this is not the primary reason so many derive so much pleasure from the misfortune of those now suffering from declining property values.
These same people who chided us for being envious actually wanted us to be envious: they wanted us to know they were the winners in our competitive society; they wanted us to view them as superior. This need to feel superior is undoubtedly a manifestation of Southern California’s Cultural Pathology, but it more than that. This act of putting themselves above us created a separation which prevented us from feeling sympathetic joy for their good fortune, and it will prevent us from feeling compassion for them when they fall.
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In our collective unconscious which manifests in our dreams and our mythology, water is often symbolic of our emotions or our emotional state. Have you noticed people are often categorized as deep or shallow? If you are in debt you often feel "underwater," etc.
Anger is much like water: if not given an outlet, it will fill a reservoir until it reaches a breaking point and is expressed in a flood of emotional rage. Each encounter with a pathologic, kool-aid drinking housing bull over the last few years has added to this reservoir, and reveling in failed flips is an outlet for this pool of toxic emotional waste.
There is an element of tragedy in every disaster, but financial bubbles are some of the most interesting because they are completely man made. They are created by the individual decisions of buyers who are motivated by greed, foolish pride, and a false sense of security. Each of these people should have known better. Many of them were warned of their impending doom and chose to go down the path to the Dark Side.
Newton's Third Law states, "For every action, there is an equal and opposite reaction." The Law of Karma states, "For every event that occurs, there will follow another event whose existence was caused by the first, and this second event will be pleasant or unpleasant according as its cause was skillful or unskillful." Do you believe the behavior of buyers over the last 4 years has been skillful?
Whether it is Newton's Third Law, Karma, or a Calvinist form of retributive justice, as this bubble deflates, all the participants in this bubble are about to experience a great deal of hardship. Like many of you, I will enjoy their suffering until my reservoir of schadenfreude is emptied. For the sake of my own personal spiritual well being, I hope this happens soon so I can get back to feeling compassion for my fellow man.
We are the Irvine Housing Blog. I know we have all been enjoying the failed flips and ridiculous asking prices, but there is much more to see in our housing market. I came across this property in my perusing the market, and I thought you might find it interesting.
As you may have noticed, music and video tends to pop into my head while writing these posts...
Jungle love its drivin me mad
Its makin me crazy
Steve Miller - Jungle Love
Price: $659,900
14871 LARKSPUR CIR
Irvine, CA 92604
Beds: 4
Baths: 2
Sq. Ft.: 1,400
Lot Sq. Ft.: 5,500
Year Built: 1971
Stories: 1
Type: Single Family Residence
County: Orange
Neighborhood: El Camino Real
$/Sq. Ft.: $471
MLS#: S484245
Status: Active on market
On Redfin: 49 days
Fixer-upper
"SECLUDED, very PRIVATE location at end of cul-de-sac on single-loaded street. New carpet. One bedroom being used as den. Needs some TLC, but great deal with no HOA and no Mello-Roos. Family room was an add-on"
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- I would start with a weed whacker.
- I suspect it hasn't been painted recently.
- Secluded? Yep. Private? Yep. Jungle? Yep.
- No HOA. No kidding!
- Is that the house or a shed?
What is your reaction?
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