The English Garden

Apr 4th, 2007  
by IrvineRenter  in House Flips

Asking Price: $655,800

Purchase Price: $625,000
Purchase Date: 9/1/2006

Address: 206 Garden Gate Lane, Irvine, CA 92620

Beds: 2
Baths: 2.5
Sq. Ft.*: 1,200
Year Built: 1998
Stories: 2
Single Family Residence
Neighborhood: Northwood
$/Sq. Ft.*: $546
MLS: S469456
Status: Active on market
On Redfin: 98 days

Asking Price: $595,000

Purchase Price: $575,000
Purchase Date: 1/30/2006

Address: 54 Paisley Place, Irvine, CA 92620

Beds: 2
Baths: 2
Sq. Ft.*: 1,050
Year Built: 1999
Stories: 2
Type: Single Family Residence
Neighborhood: Northwood
$/Sq. Ft.*:
MLS: S476148
Status: Active on market
On Redfin: 42 days

In my opinion one of the most notable features of this bubble has been the increase in price of entry level housing product. I suspect this is a result of sub-prime lending and/or exotic financing terms. Back when you could not afford to finance more than 3 or 4 times earnings, entry level housing was priced at $200,000 or less. During the rally when 10 to 12 times earnings could be easily borrowed, $200,000 properties where bid up to $550,000. Nobody was actually making any more money, they were just borrowing a lot more. Once the limit of borrowing was reached last year, the rally fizzled. Now that credit is tightening, those who bought at the top are having difficulty finding buyers. The result of all this borrowing is properties like the two I am featuring today.

First, I want to say this is one of my favorite neighborhoods in Irvine. It features architecture reminiscent of a small English village with quaint cottages. There are few visible garages, the sidewalks are detached from the street, and the trees make for a great street scene. It is very close to Canyon View Elementary in Northwood. If prices were not ridiculous, I would buy in this neighborhood.

These two flips are showing signs of stress. They are overpriced and hoping a greater fool comes along to save them. 206 Garden Gate Lane has been on the market nearly 100 days. If they get their asking price of $655,800 assuming a 6% commission, they will lose $8,548.

The flipper at 54 Paisley Place gets their asking price of $595,000 assuming a 6% commission, they will lose $15,700. Does anyone want to go up there and pay well over $500 per square foot for some 8 year old properties when you could buy 75 Chantilly, a nearly new, much larger 2 bedroom over in Woodbury for $370 per square foot? I think I will pass.

Astute Observations

Astute Observation by OptimusPrime
2007-04-04 07:48 AM

“Nobody was actually making any more money, they were just borrowing a lot more. Once the limit of borrowing was reached last year, the rally fizzled. Now that credit is tightening, those who bought at the top are having difficulty finding buyers. The result of all this borrowing is properties like the two I am featuring today.”

Well put.  This pretty much hits the nail on the head w/all the marginal townhomes/condos on the market now.  Last to enjoy the ramp…first to get crushed.

I figure the 750k-990k homes are the next in the firing line…the gray area. 

How long can you hold out is the question?

Astute Observation by NanoWest
2007-04-04 10:03 AM

Your statement is absolutely correct, and difficult to support with facts…....what happens when first time condo/townhouse buyers need to have a down payment of between 10 and 20 %. My bet is that this will be the drving force for a fall in home prices, and that it will be dramatic.

Astute Observation by lendingmaestro
2007-04-04 01:02 PM

correct.  something as simple as eliminating 100% financing is enough to put housing into a tail-spin.  Not many people can put down 5% on a 600,000 property.  That’s 30 grand.  I bet many people don’t even have that in a 401k.

Astute Observation by Donut
2007-04-04 01:09 PM

Actually, median incomes from 2000- 2005 are up substantially.  One does need to wonder though how much of that median increase is do to inflated bubble earnings.

Astute Observation by IrvineRenter
2007-04-04 01:24 PM

One thing not discussed much when thinking about median incomes is the impact of mortgage equity withdrawals and spending. Orange county residents have been living WAY beyond their means by using their house as a wage earner. Consumer spending in OC will tank once the housing ATM is shut off. There are lots of pretenders out there.

Astute Observation by RogerSmith8080
2007-04-04 04:07 PM

OC also has a lot of the real-estate industry like the imploding Sub-Prime industry.  OC is to Mortgage like Silicon Valley was to .COM’s.  Not that it matters if its big bucks from real-estate or big bucks from credit both are going the way of the Dodo bird.  There is no way OC can escape this hell storm, I don’t care how nice the weather is.

Astute Observation by lendingmaestro
2007-04-05 05:37 PM

I have a good friend that works for Sterling BMW.  He can’t believe how many people come in and buy cars with cash (HELOC checks).  These people spend money like wildfire,  I grossed over 115k last year and I hate having to shell out 1750 a month for a 2 bedroom in quail hill.

Astute Observation by A POV
2007-04-05 08:13 PM

As the sub-prime industry slogs to the mortuary, I am giddy with curiosity what tact the solvent mortgage industry will take with the curcumstances at hand.
Also, it would be interesting to know how many homes, townhomes and condominiums are on Irvine tax rolls and, of those, how many are in trouble making payments.
I’m ready to stand corrected, but I bet it is less than 5%. Let’s say I’m wrong. Let’s say it is X%.
Whatever it is, proveyors of proper lending need to lend to breathe and never, ever want to be landlords.
The music has stopped. The peak has been sheared-off. So what?
The market will likely absorb this fall-out with new lending products.
Anyone not appreciating Irvine weather quality on the planet has not traveled the earth. Don’t be smug.
Political issues aside, prime weather USA real-estate is some of the safest and world money knows it.
Look for more international money to step-in as things become more ugly.
If we cut the spike in half over 2002-2007 things are still good.
Good times and bad times, our homes are the reflection of of our success, never the source.

Astute Observation by CK
2007-04-09 12:34 PM

IrvineRenter—you noted that this neighborhood is one of your favorites, I could not agree more.  Not sure if you are in a position to move—- but if you are interested—- I just found 202 Garden Gate Ln listed for lease.  This is the 3 bed 2.5 ba model (1,340 sq ft).  MLS #566582.  $2,400/mo.  I think this is a great deal for this place, and would be all over this myself if I had not just renewed with the IAC for 12 mo.  Damn.

Astute Observation by CalGal
2007-05-30 09:05 AM

CK - I just noticed your comment from back in April 07. I wish I had seen it earlier.  That sounded like a good deal.  Please let me know if you see another one come up on the market.  We are also leasing with TIC; however, we would be willing to pay our breakout fee for a nice house for $2400 per month.

Astute Observation by CalGal
2007-05-30 09:07 AM

This house is now listed as “Inactive” in Ziprealty.  Does anyone know if it sold or if it was taken off the market?

Astute Observation by Former Tenant
2007-07-12 09:31 AM

As a former 3 year tenant at 202 Garden Gate Lane we thoroughly enjoyed the ambience of the neighborhood but the house itself was unbearable! The construction is quite poor…the walls dent and chip with every slight rub or bump. The quarters are terribly cramped. The cottagey style begins to lose its charm when you realize you don’t even have a coat closet or linen cupboard. 202 Garden Gate Lane is a charming, nostalgic, sweet little house, but even with three bedrooms it simply does not have enough room for more than a single resident and a pair of finches! This home is just over 1300 sq feet…we lived in a beautiful IAC apt in turtle rock that was just over 1000 sq feet that lived much more efficently than this place! Oh and dont get me started on the ANT infestation in that neighborhood…dreadful….the worst I have experienced in my 10 years and 4 residences in Irvine.

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