How many times must a man look up Before he can see the sky?
How many days must a property be on the market before an owner realizes he has priced it too high? Usually after 60-90 days a realtor will sit down with an owner and have the “your property is overpriced” discussion. What discussion do you have after 180 days? or 1 year? And what discussion do you have after 1000 days?
I have never seen a property stay on the market for over 1000 days. It is pretty rare to see one on the market for over a year. Are there people out there who just list their house for a vanity price and keep it perpetually for sale? I suppose you see some of that on Zillow with the “make me move” listings, but it isn’t common on the MLS. Is there a limit to how long a property can be for sale?
How many years can a mountain exist Before its washed to the sea?
Today’s featured property has been profiled before. Back on May 25, 2007, this property had already been on the market for 437 days. I would see it now and again when scanning for properties on Redfin, and I was always amazed that it was still on the market.
Fill my eyes with that double vision No disguise for that double vision
What is the premium for a detached product? There certainly is one. I would pay more for a similar product that does not have a shared wall, and so would most buyers. You have a greater sense of privacy with a detached unit, there is less noise, and there is something about being able to clearly identify a specific object as
“mine,” that you cannot obtain from an attached condo. Intellectually,
you might know there are property lines at the walls, but when you look
at an attached condo, you see one massive building you only own a part
of. It is not as emotionally satisfying. The question is how much is this premium?
Someone could probably do a study of the property records and come up with some aggregate estimate. I imagine it would be something like 10%-20%, but I have no data. An internet search brings up a number of studies in the UK housing market, but I found nothing referencing the United States. Whatever the actual number is, I suspect it is far less than 100%. Today we have two featured properties in Westpark. One is a 2/2 attached short sale being offered for $299,900, and the other is a 2/2 detached being offered for $599,999. Do you think the seller of this second property has any chance of selling it? I don’t.
Today is Mrs. Irvine Renter’s birthday. Since I manage to forget to get a card for her every year, I thought I would wish her a very public happy birthday.
Hopefully, this Valentine’s Day I will remember a card so I won’t have to write another poem.
I suppose you have to wonder about a guy who would drive around with this license plate:
It is rather entertaining to see the reactions of people in my rear-view mirror…
I want to let everyone know that I will not be as active in the comments over the next week. I have family coming to town to visit for the holidays. I suspect I will have enough downtime to see what is going on, but if you ask me a question in the comments, it may not receive a response.
So what do you think now that money is free? We joke about the free money during the bubble, but with interest rates a 0%, the FED really is giving away free money to any bank wanting to borrow it.
Is someone getting the best, the best, the best, the best of you?
The conventional wisdom in real estate is to buy the most desirable properties in the most desirable neighborhoods because those properties cannot decline in value. When you look at real estate prices in some of the beach communities, you see this idea was taken to its extreme. For as overvalued as Irvine was at the peak relative to rents, Newport Beach, Corona Del Mar, and other beach communities were even more overvalued.
Buying the best of the best is supposed to be an insurance against loss. However, when people truly believe real estate cannot go down in value, there is no price that is too high. It doesn’t matter how much you pay if you cannot lose money in the deal. All you have to do is wait and sell it to someone else who also believes it cannot go down at a higher price. High-end neighborhoods were particularly prone to buying based on this erroneous belief, and the degree of detachment from fundamentals is truly extraordinary.
Today’s featured property was purchased at a ridiculous price in 2004. It was bought new in 2002 for $768,000, and it was sold to the current owner in 2004 for $1,365,000. A 77% increase in price in just two years. That 2002 owner made some serious money. The 2004 owner is not so lucky.
When you evaluate this property, it certainly appears to be the best in the neighborhood. It is at the end of a cul du sac, it is across from the main park, it is large, and it has a large yard. If there is a better property in this neighborhood, I can’t find it.
There’s somethin’ wrong with the world today The light bulb’s gettin’ dim There’s meltdown in the sky
Fringe markets are those regions where properties are less desirable due to proximity to large employment centers. These markets develop as people are priced-out of the more desirable markets closer to work. Eventually, employment centers also migrate to these fringe market areas, and development pushes even further into the wilds.
When Irvine was first developed, it was a fringe market. The primary employment centers were in the LA basin, and those who bought in Irvine commuted to these far-away employment centers. As Orange County continued to develop, it became a strong employment center of its own.
There are still fringe markets even in Orange County. San Clemente and Rancho Santa Margarita are examples. There is limited employment in these sub-markets, and people commute to employment centers.
Fringe markets have characteristically volatile house prices. People only live in fringe markets because they are priced-out of more desirable areas, so when prices drop in the better areas, people leave fringe markets, and prices really plummet.
Proximity to employment is not the only defining characteristic of a fringe market. Even within primary markets like Irvine, we have fringe neighborhoods that experience greater price volatility because they are undesirable for other reasons. One such neighborhood in Irvine is Columbus Grove.
Columbus Grove was developed at the peak of the housing bubble, and it was overpriced from the beginning. The continuing activity of the builders coupled with the ubiquitous toxic financing has resulted in many home sales of the must-sell variety. This created a nasty downward spiral in prices.
Columbus Grove also suffers from its proximity to powerlines, underground toxic waste, a nearby cement factory, and other elements which make it less desirable. The combination of inflated prices, huge numbers of must-sell homes, and low desirability has caused prices to absolutely crater.
Every single homeowner there has a property worth less than the paid for it, and the vast majority are hopelessly underwater on their mortgages.
Tell me what you think about your sit-u-a-tion Complication - aggravation Is getting to you
Actually, conditions like these make for ideal places for vultures to be active. When we do reach the bottom, the best deals will be in neighborhoods like this one. Unfortunately for the flipper who owns today’s featured property, we are not at the bottom.
If chicken little tells you that the sky is fallin’ Even if it wasn’t would you still come crawlin’ Back again? I bet you would my friend Again & again & again & again & again
When I first started writing for the Irvine Housing Blog in February of 2007, I wrote a series of posts culminating in Predictions for the Irvine Housing Market. I updated that post in I Was Wrong, Its Worse... When I first suggested that prices might crash, there was a certain amount of incredulity in the very idea of a dramatic price crash. In order to float the idea with a minimum of being called crazy, I wrote a post titled, What if Prices Dropped to Fundamental Values. In that post, I presented a series of projections for the Orange County median home price. I put it out there as a hypothetical because I was afraid predicting a catastrophic crash would cost me credibility with readers. Even this hypothetical was shocking to many (read the comments and you will see).
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How crazy did people think I was?
“Let’s not get too carried away. First of all we probably should not
really make economic prediction more than one year ahead. As
IrvineRenter said, this is just an “what if” analysis. It makes an
interesting game for bubble sitters but IMO we should not read too much
into it.”
“I am not agreeing that the blow off downturn will look as drastic.”
“I have been following all your posts for quite sometime. I think your price dropping theory is way too unrealistic.” I hate to tell you who said that one…
“After tweaking your model, it seems that prices would need to fall
30-35% to return to fundemental values, not 50%. Considering the
factors above, it seems likely that once prices started falling by
significant margin that the pool of sellers would start to dry up.
Only folks that absolutely were forced to sell would consider it, which
would look more like a long, slow leak than a collapse.”
“I just don’t agree it will be as bad as you think. I *hope* you’re right ... but I just don’t see it.”
“If I had to guess, I’d say 15-20% overall drop in housing values over the next 2-3 years max.”
“While I agree wait for a couple of years (may be two) is a good idea, but I just can’t image the prices will gone down so much.”
“Your long-term forecast appreciation is just pure speculation.”
Sorry Cassandra I misunderstood Now the last day is dawning Some of us wanted but none of us would Listen to words of warning
So how did I do with my crystal ball? Well, DataQuick just released some updated numbers, and with the help of Jon Lansner and Lee in Irvine who has been tracking DataQuick numbers, I can provide an update:
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As you can see (consistent with the theme of I Was Wrong, Its Worse...) I was too conservative in with my dire predictions. At the time, I was predicting an unprecedented drop in prices. I did feel I was being conservative despite the conventional insanity of the day. I did not believe the median could drop so quickly. Perhaps I should have stood behind my predictions in How Bad Can Bad Get?
Today’s featured property is a short sale in Woodbury. Irvine is a bit behind the rest of OC with its price drops, but with the ARM Problem still facing us, a problem 60 minutes just discussed at length, it certainly looks as if prices will continue to fall…
We are starting to see an interesting phenomenon in the housing market: knife-catchers changing their minds. The first one I noticed was in Quail Hill back in October. It was purchased by a flipper who put a large sum as a downpayment but then tried to sell quickly at a breakeven price. The only reasonable explanation is that it was purchased as a flip, and the owners changed their minds.
Changing your mind on a stock purchase is relatively easy. Stocks are very liquid, and transaction costs are very low. However, changing your mind about a real estate transaction is not so easy. Real estate is very illiquid in a declining market, and the transaction costs are very high. If you quickly change your mind about real estate, you will lose money. Of course, it is common to price it just above your purchase price and hope someone just a little more foolish than yourself comes along to bail you out. In a declining market, the greater fool is harder to find.
In the world of large real estate transactions, buyers do an enormous amount of due diligence to completely understand what they are buying and the state of the market they are buying it in. It is not uncommon for buyers to spend hundreds of thousands of dollars on property research and still walk away from the transaction. This is prudent because wealthy real estate investors know how illiquid these investments are, and they know how costly it is to change their minds later. Small-time residential real estate speculators know none of this. For many, the extent of their due diligence is walking the property with a salesman. Some will get the necessary inspections to accurately determine the status of the property, but many will not. Most amateur speculators simply don’t care: real estate always goes up you know.
The comedy of errors is amusing to us, but it must be very troublesome to the speculators who lose tens or hundreds of thousands of dollars of their own money. Many of the knife catchers who have been speculating have invested large downpayments, mostly because the banks wisely forced them to. The bagholders for the next leg down in the markets will be the knife catchers, and the money lost will be their own.
Today’s featured property is one such knife catcher who appears to be changing his mind on the viability of this investment. Is it too late?
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