Irvine Housing Blog

2003 Rollback!

** AN IRVINE HOUSING BLOG NEWS FLASH **

A 2003 rollback has been sighted!

We interrupt our regularly scheduled sequence of properties in Quail Hill to bring you this special breaking story. An auction site has listed a property for sale at a price lower than its 2003 purchase price.

Is this a ploy to generate a bidding frenzy? Sure it is.

Will it sell for less than its 2003 purchase price? Who knows.

Is this auction site hoping the Irvine Housing Blog will call attention to their listing? Power To The People. Always glad to be of service...

Asking Price: $400,000

Purchase Price: $415,000

Purchase Date: 12/2/2003

Address: 1404 Terra Bella, Irvine, CA 92602

Beds: 2
Baths: 2.5
Sq. Ft.: 1,327
$/Sq. Ft.: $301
Lot Size: -
Year Built: 2001
Stories: 2
Type: Condominium
View: Mountain
County: Orange
Neighborhood: Northpark
MLS#: S494809
Status: Active
On Redfin: 30 days

From Redfin, "This is a fabulous Tuscan Villa with upgrades galore. This warm and inviting home is bright with extra windows and faces the morning sun. Ceramic tile flooring, Euro White Cabinets, Window Blinds and shutters, Neutral designer carpet with a security system can all be yours! This is a private end unit with no one above or below."

Link to Auction site The auction is today, so there is still time if you want to buy it... Not.

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The property records from my data source shows a first mortgage for $331,840 and no second. There must be more to this story for it to be going at auction.

If this sells for asking price, and the auctioneer takes a 10% commission (that is their fee), the seller will recognize a loss of $55,000 on a 2003 purchase.

What more needs to be said...

How about Jim Cramer's take on the housing market...

Jim Cramer in October 2006.

Jim Cramer in July 2007.

What a difference nine months makes...

So long sad times
Go long bad times
We are rid of you at last

Howdy gay times
Cloudy gray times
You are now a thing of the past

Happy days are here again
The skies above are clear again
So let's sing a song of cheer again
Happy days are here again

Happy Days are Here Again - Music and Lyrics by J. Yellen and M. Ager

Youtube link Barbra Streisand - Happy Days Are Here Again

A special thanks to mk9 for posting this property in our forum.

Home Sales Data January to June 2007

The information presented in this post are provided by the Orange County Register and Dataquick.

Previous commenters have noted the "noise" from week to week makes it difficult to determine where the market is really going. Here is the data from the first half of 2007 smoothing out the noise from individual weeks.

Above is different look at the market. Instead of breaking it down by zip code, this data looks for trends in various housing types, and it is for all of Orange County not just Irvine. Notice the dramatic decline in sales volume, and notice the huge drop in the median sales prices of new homes.

It is difficult to put a bullish interpretation on this data. New home prices are down, and we know the prices of new product is not reflective of the true price because the incentives being offered to buyers. So one could argue the new home sales price numbers are far worse than what is shown. It is true that many of the new home sales have been condos on Jamboree, so perhaps there is smaller product dragging down the median, but then again, this also means new higher-end homes are not selling at all (Portola Springs).

The numbers appear to be holding up for resales, but ask yourself how is this possible. If new homes are selling for 20% or more under last years prices, how could resale prices not be lower? Wouldn't a reasonable buyer go buy a new house for a significant discount over an old one? Of course they would.

The reason resale prices are not showing the decline in the median is twofold:

1. There are few if any sales at the low end of the market. The sales that would be occurring in a healthy market that would cause the median to record a lower value are not occurring now.
2. The people who bought new homes in 2005 and 2006 are going underwater and unwilling and unable to sell. They are being killed by the pricing of the homebuilders, but there is nothing they can do about it, so they all sit in their overpriced homes waiting for their exotic mortgages to explode.

The resale buying which is occurring right now is the last of the move-up buyers who are taking advantage of what they perceive to be a bargain in the market. The loose lending standards are still being offered to prime borrowers (for now.) These buyers are few in number because they are having difficulty finding someone to purchase their home. There are many properties falling out of escrow for this reason. It is the "plankton theory" on display.

Perhaps some of the bulls can offer another interpretation in the comments. I would like to read them.

Burlingame Over

Real estate markets move like large ocean liners: once they start going a certain way, they tend to continue in that direction for extended periods of time; they are slow to change direction. The credit markets have grabbed the rudder and ordered a price decline. The boat spent the better part of a year changing direction, but now it is clearly headed toward the rocks.

Today's properties are on the same street in Northpark. One was purchased at the peak and is now offered for sale at a 10% discount. The other was purchased in 2005, and they are hoping for a breakeven sale.

Asking Price: $664,999

Purchase Price: $712,500

Purchase Date: 5/31/2006

Address: 75 Burlingame, Irvine, CA 92602

Beds: 3
Baths: 2.5
Sq. Ft.: 1,664
$/Sq. Ft.: $400
Lot Size: -
Year Built: 2000
Stories: 2
Type: Condominium
View: Park or Green Belt, Trees/Woods
County: Orange
Neighborhood: Northpark
MLS#: S491713
Status: Active
On Redfin: 43 days

From Redfin, "Northpark beauty! Fireplace in the cozy living room, lg. upgraded entertainers kitchen, cathedral ceilings, spacious patio, rare side yard & more. Large master bedroom/bathroom w/ sep. tub & shower. New carpet, fresh paint, plantation shutters. End unit, so feels like detached for attached price! Excellent, private location with attached 2-car garage. Pools, spas, sports courts, walking/bike paths - come enjoy the best Irvine has to offer in this guard-gated, private Northpark townhouse"

I am surprised this unit wasn't listed as having "custom paint." I actually like the colors, but I could see how some might not.

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If this seller gets their asking price, they will lose $87,400 after a 6% commission. This unit has been on the market for over 30 days, so it doesn't appear they are fielding multiple offers over the ask. In short, they will not get their asking price, and they will lose more money.

Asking Price: $545,000

Purchase Price: $550,000

Purchase Date: 4/29/2005

Address: 17 Burlingame, Irvine, CA 92602

Beds: 2
Baths: 2.5
Sq. Ft.: 1,475
$/Sq. Ft.: $369
Lot Size: -
Year Built: 2000
Stories: 2
Type: Condominium
View: Other
County: Orange
Neighborhood: Northpark
MLS#: S495748
Status: Active
On Redfin: 17 days

From Redfin, "Model Perfect With A Large Wrap Around Yard. view Of City Lights, Priva te & Cozy. Highly Upgraded W/ hardwood Floors, Shutters, Custom Paint, ceramic Tile And More. Unique Floor Plan Offering A Full Suite Downstaris With Full Bath And Walk-in. Master Upstairs , Open Living And Dining, Cute Balcony This Is Your Buyers Dream Home. Prestigeous Guard Gated Community Of Northpark. "

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If this seller gets their asking price, they will lose $37,700 after a 6% commission.

With falling home prices, I think we can safely say that for the housing ATM, the game is over.

Weeping Desert Willow

Today's property is a perfect example of how negative amortization loans given to people who can not afford the payments destroy property values.

In this one section of street in the Villages of Columbus there are three properties for sale: 27, 28 and 30 Desert Willow (links on the numbers.) Two of them are adjacent and the third is directly across the street. They are all of similar size and character, and the sellers paid similar amounts for them.

However, the seller of today's featured property got behind on his payments and went into default. As a final effort to get out of this property, he put it for sale at a drastically reduced price. The neighbors can't be too pleased.

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Asking Price: $850,000

Purchase Price: $1,286,863

Purchase Date: 5/3/2006

Address: 28 East Desert Willow, Irvine, CA 92606

1st Loan — $943,629
2nd Mtg. — $251,634
Down Pmt. -- $91,600

Beds: 5
Baths: 3
Sq. Ft.: 2,790
$/Sq. Ft.: $305
Lot Size: 7,800 sq. ft.
Year Built: 2006
Stories: 2
Type: Single Family Residence
County: Orange
MLS#: S495550
Status: Active
On Redfin: 14 days

From Redfin, "Incredible 5 Bedroom, almost new with many upgrades. To appreciate thi s home you must make an appointment to SEE IT IN PERSON. Near Schools, park and shopping. Perfect family home. Too many upgrades to list."

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As you can see from the financing details, this is a short sale, and it almost certainly will not be approved by the lender. It is not uncommon in these situations for the second mortgage holder to get wiped out, but rarely will the first mortgage holder take a loss. They would rather foreclose, buy the property for the amount of the first mortgage and go through their loss mitigation procedures. It is possible they think it will cost them less this way, but I doubt it.

Just for the sake of Schadenfreude let's calculate the theoretical loss on this property: There was a closing on 5/3/2006 at which Lennar walked away with $1,286,863. If this house sells for its asking price, and a 6% commission is paid to a broker, there will be $799,000 left to pay off the various parties. That is a total loss of $487,863. First, the owner will lose $91,600, then the 2nd mortgage holder will lose $251,634, and finally the primary mortgage holder will lose $144,629.

This can't be good news for the owners at 27 Desert Willow hoping to get $1,188,000 for their house, or the owners at 30 Desert Willow hoping to get $1,279,000? Once a similar property sells for $850,000, what chance to they have of getting their wishing price?

On Sunday's post on Home Sales Data thru 7-16-2007, I posted this chart with the increased insurance premium lenders are being charged to insure the most stable subprime borrowers. The reason this insurance is becoming so expensive is because of situations like this one where primary mortgage holders are getting burned, and insurers are having to pay off claims.

This is also why mortgage interest rates are going to rise. Future borrowers are going to have to pay the increased insurance costs and make up for the losses on these loans made during the bubble.

It only gets worse from here.

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I would like to thank EvaLSeraphim for pointing out this property and helping me with some property data.

Sconset Sunset

Like the beautiful image of a Sconset sunset from Nantucket Island shown above, the sun is setting on the Southern California housing bubble. Peoples dreams of endless appreciation and instant riches are slowly wasting away into the silent summer sky.

Asking Price: $629,999

Purchase Price: $780,000

Purchase Date: 5/18/2006

Address: 51 Sconset Lane, Irvine, CA 92620

Beds: 3
Baths: 2.5
Sq. Ft.: 2,000
$/Sq. Ft.: $315
Lot Size: -
Year Built: 2000
Stories: 2
Type: Single Family Residence
County: Orange
Neighborhood: Northwood
MLS#: S497195
Status: Active
On Redfin: 5 days

From Redfin, "This is a great 3 bedroom , loft and 2.5 bath Cottage Style home in No rthwood pointe. Open light floorplan w tile floors on the first level. Gormet kitchen with tile counters and custom backsplash. Check out the master bath!Private yard is perfect for entertaining. "

What is a gormet? Another realtor that gets excited about bathrooms. What would Freud say?

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When I first profiled a property in this neighborhood (The English Garden) I said it is one of my favorites in Irvine. When I first discovered this little enclave, there was a house for sale on this same street for $875,000. It was about the same size but with one more bedroom. How times have changed.

This is one of the most extreme price reductions I have seen to date. I actually admire this seller for accepting the reality of life and setting the price to a level which will sell in this market. Assuming a 6% sales commission, this seller stands to lose $187,800 in just over one year. Think about that for a moment...

I have speculated we will see prices 40% to 50% off the peak in Irvine. Here we are early in the decline, and we have a property selling for 20% off peak pricing. Does that make you believe in a more serious decline as I have speculated, or are you of the opinion this is as bad as it gets?

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I would like to offer a special thanks to Rockysan99 for pointing out this property