When I first moved to Irvine, I lived in Oak Creek. It is still one of my favorite neighborhoods. My wife has given me her parameters for what she desires in a home, and today's featured property perfectly fits her description (now if I could just afford it...) It is in Oak Creek near the elementary school, it has a large yard, it is an open plan, the wood is a medium tone, and the surfaces are a medium tone granite, there is a downstairs den/bedroom, and the home itself is spacious. When prices get to the affordability range, this is the kind of property I will be bidding on.
Today's featured property is a story of of the Ponzi Scheme / Musical Chairs aspect of the real estate bubble coming to an end. The owner of this property is the one without a chair. I suspect she wishes the music would not have stopped playing.
Northwood II is speculator central. I have heard that the builder was requiring owners to have downpayments and good credit to purchase in this development. Perhaps they knew we were near a peak of the bubble and didn't want to face lawsuits when prices crashed. There are many homes for sale in this neighborhood, and most of the properties are distressed. Some knife catcher will step up and buy this one -- at least the lenders hope so. They are already looking at close to a half a million dollar loss.
Do you ever stop to ponder the massive losses the lenders are absorbing? It is difficult to get to worked up over the losses from faceless corporations who conjure money out of thin air, but these loss figures are simply staggering. I am amazed none of our major banks has declared bankruptcy yet.
Today's featured property is a beautiful, high-end domicile. When the price gets down to $650,000, it will be a good buy. I wonder if someone will step up and take the next $300,000 loss? I think I will wait.
This market desperately needs more knife catchers. There are just too many properties that need to be sold and too small a number of people to buy them. I suppose we aren't helping matters any at the IHB .
I hope everyone is getting a laugh out of the daily posts here. The carnage we are witnessing -- and will continue to witness -- isn't funny for the people losing money. Residential real estate bubbles are very painful when they deflate. I vacillate between sadness and laughter reviewing these properties all the time. You have to be able to laugh at the grim happenings in life. Life is too short to be bummed out all the time.
Today's featured property is another speculator who is getting flushed out of the housing market. Not to worry though, he has extracted all the equity and is passing the loss on to the lender.
Do rational people still deny there was a housing bubble? Today's featured property is being offered 25% off its peak purchase price. It is one of many. There was a recent post over at South OC Tracker with a property 60% off in Aliso Viejo. Those kind of price drops are not a correction below value, they are the deflating of a bubble to value. Prices are not going to quickly rebound to peak values from an undervalued condition. They are going to drop to rental value and remain there until the toxic mortgages and overextended homeowners are purged from the market.
Today's featured property is another 100% financing deal gone bad. One of many yet to be purged from the system.
Declining markets are very difficult on builders, and it is not for the reasons you might think. Production homebuilders make their money on sales volume and not on margin. They would rather see stable prices and high volumes than periods of booms and busts. As I described in detail in the post Land Value 101, production builders can adjust to different price points as long as there is demand above their cost of production. The vast majority of the gain or loss in house prices falls to land value. In a price bust like we are seeing now, price of houses may drop 40%, but the price of land may drop 85%. The mistake many of the builders made, which is the same mistake they make in every cycle, is that they become land speculators buying land early in the production process. As they are doing their improvements, land values increase, so they make some extra on the land deal -- as long as prices go up. When a bust occurs, builders get caught with inventory of both land and houses. It is the land inventory that really wipes them out (think Lennar.) The bottom line is that builders are flexible, and they can adjust to any price level where prices exceed their production costs. The real challenge for builders is during the adjustment when prices are falling.
House prices in speculative markets (California and some others) do not respond to price changes like one would expect. When prices decline, sales volume also declines because people expect further price declines, and they do not want to lose their equity. Anyone who is not kool aid intoxicated becomes hesitant to buy in a falling market -- as they should. This is the real problem for homebuilders because theirs is a volume business. The more they lower price to attract buyers, the more buyers are frightened and expect further price declines. It is a downward spiral. Every time a prospective buyers goes into a sales office, they will be told there are no further price reductions and they need to buy now. Of course, further price reductions happen, and the builders lose credibility and buyers become even more hesitant. As we have discussed before, prices will continue to decline until affordability returns to the market, and it makes sense to buy again.
Today's featured property is a classic example of what happens to people who buy from a builder in a declining market. These people bought at the peak, and now they are looking at a $200,000 loss for their troubles.
There are no property pictures today, but this is the street of models.
We have profiled informal neighborhood cartels where a group of neighbors get together and set WTF asking prices. As with all cartels, they are unstable arrangements because each participant has an incentive to cheat at the expense of the others. Today's featured property was one of two neighboring properties asking WTF prices. One of the two decided it was time to sell and lowered his price accordingly. The neighbor has got to be really angry as not just will the neighbor sell first, it will also set a comparable price that will make it nearly impossible for the other property to get its asking price. We are not talking about $5,000 or even $50,000, we are talking about $500,000!
There were people attempting flips in 2007. There were looking for their own Sugar Shack to sweeten their lives. Prices in our area were still at or near the peak, but all the signs were pointing to a downturn which was already underway in many markets. Residential real estate markets are dominated by amateurs because professionals do not bother with the headaches of what is generally a poor investment. Non-professionals by and large have no idea what they are doing, and they only make money when they get lucky because the emotions of speculators always lead them astray (remember Speculation or Investment?) Today's featured property was purchased after the collapse of subprime was front page news in March of 2007. Our would-be Donald Trump either wasn't watching the news, or he truly believed the subprime containment BS put out by the media. This guy actually put some of his own money into the deal, so it wasn't just gambling with the lenders money. You would think if someone was going to put their own money in the deal they might have a clue about what he was doing: apparently not.
Send In The Clowns
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