Foreclosures Lower Prices

Asking Price: $599,000IrvineRenter

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




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.



I would like to say a special thank you to Purplehaze for tipping me off to this property.

23 thoughts on “Foreclosures Lower Prices

  1. lowrydr310


    Do you have any plans to keep us updated on these homes? Perhaps you should feature some of the homes you mentioned here in the past (especially the WTF homes) and give us an update – sold? lowered price? foreclosure?

  2. IrvineRenter

    We do updates. Usually we post these on Fridays or over the weekend. Many of the properties we have featured have shown price reductions. There have been very few sales.

  3. Mr Vincent

    Looks like a pretty nice place. No-one living above or below, plus an attached garage.

    Why did they not take any pics of the inside? Hmmm?

    I bet it will sell in somewhere between 500 and 580k.

  4. SoCalwatcher

    I am curious who the idiot that bought this place at $760K really honestly truly figured that the market value was going to kep climbing at that price???

    Someone really screwed up on this one….

  5. NickStone

    Irvine Renter:

    I remember reading your initial analysis on the fate of the housing market and your math on determining the Fundamental Value of properties and thinking “Finally, someone has really hit the nail on the head as to where the housing market should be!”

    I honestly didn’t think the drop would be this quick.

    Ironically, if you look at the banking sites for Canada and England, the bank sites themselves refer to loans in terms of a multiplier of borrower income. They simply won’t lend out “5x” loans. Of course here in Southern California, a “10x” loan is not uncommon. The sites also publish what are called “Affordability Indexes” to predict trends in housing market pricing. Strange that only the blogs are doing it here.

    On a side note: A friend told me that she had just spoken to her friend that is a doctor, who just moved into a house in Manhattan Beach after marrying recently. The house is a 3 bedroom. She confided that her housing costs per month is around $10,000.00. I am not sure if that includes property taxes and HOA, but any way you slice it… that number sounds RIDICULOUS to me.

  6. oc-conservative

    I chose to sell our home in the summer of 2005 because we were planning to move eventually and I believe in the credence “sell when you can, not when you have to.”

    During that time, I remember the feeling from talking to sellers and agents. Though prices were at their peak, there was a hint that the frenzy was behind us. The reason was because inventory had unusually ticked up though there was no particularly bad news at the time like there is now.

    Anyways, even in such a great market, I was fully of angst selling our home. It sold after two weeks over asking.

    Since then I’ve watched it become harder and harder to “cash out” to where it is now – virtually impossible to cash out unless one is ok with getting at least 20-30% from peak prices. In talking with people today who want to sell their home, not because they have to, but because they want to cash out, it always makes me wonder why they didn’t do it when it was easy.

    At the time I sold, my mentality wasn’t “I’m getting the peak price in this cycle, yipee” but rather “I’m going to sell because it’s easy now and might not be so easy later when I want to even though I don’t know where prices will go.”

    Bottom line is that from my experience, I really feel for the people who have to sell right now and can’t (except for the flippers). I can’t imagine what it is doing to their livelihood or what impact it will have on their future.

    I work in the finance industry so I am all too familiar with market cycles. Market peaks especially after parabolic rises are almost always achieved when the buyers cannot pay any higher prices because those that want in have already bought and have no more buying power, in this case, be it the first time home owner or 2nd home purchaser or flipper.

    The bottom will come when the last sellers put their home on the market. At that point, it will be a matter of how low will the buyers not let the prices go. Why do buyers determine the prices at both ends of the cycle? Because they are the ones putting up the money.

    That’s the way I see it. But timing the market for its exact peaks and troughs is near impossible because there are so many variables. The best one can do is not get over emotional and try to stay rational and objective.

    Just felt like writing this because in seeing the foreclosures like this one…well, it’s just really sad and sobering and makes you damn reflective.

  7. No_Such_Reality

    It’s previous tax assessment value is $577K and it comes with a hefty $7400 of taxes. $1400 of which are bonds and mello roos which will not be going down with a lower price. Add the HOA at $130 and you basically burning $750/month of taxes and HOA. Because of the Mello-Roos and HOAs, that burn rate pretty much stays above $700/month all the way down to $520K.

  8. Irvine_Native

    Which part of that imposing fortress of garages and stucco is for sale? That place looks awful.

  9. squareround

    Hi, Irvinerenter,

    What happened to this house:

    Irvine, CA 92606

    Nov. 2006 it was sold at 1.3 million.
    Now is asking 999K. Is there any cheating here?

  10. Major Schadenfreude

    10 grand a month housing costs???!!!

    I’ll bet that doctor prays for a plague every night.

    I think the only doctors who ought to feel confident about their future incomes are the psychologists, as I’m sure they will be treating a lot of people for depression over the next few years!

  11. momopi

    If I was going to spend $600k on a row-house, I’d expect a full drive way in front of a 2-car garage. Many newly developed neighborhoods don’t put in sufficient guest or curb-side parking.

  12. Boomer

    Ridiculous to one person is reasonable to another. Just because you cannot afford it doesn’t mean others can’t. Some homes in Manhattan Beach would be a bargain at $10k a month. Believe it or not, there are people out there who spend $40k a month on beachfront rentals in Manhattan Beach and Malibu, just as there are people who spend that much or more on beachfront rentals in the Hamptons back east. I have no idea where in MB the 3 bedroom house is, but if it’s on the strand, that may not be a bad deal.

  13. Krip

    Regarding the comment by oc-conservative about feeling sad and reflective about this foreclosure, let me tell him that I am sad and reflective about all of the potential buyers whose only wish was to own a piece of the OC dream and own a slice, nay a sliver of OC real estate – not greedy just hopeful – only to be cast asunder by the greed of the flipper hoping to cash in on someone else’s dream. And now he abandons the property and walks away without regard for the ripple effect on the market? Sorry for him? No Sirreee! I smile with glee.

  14. tazff

    Love how Zillow shows the value of this property at $760,000.
    A full $160,000 under the asking price. And it will probably go for less then that.

    Zillow and Dataquick and criminal how they inflat home prices.

  15. Major Schadenfreude

    True. There’s a lot of money out there.

    And doctors probably don’t have to worry about their future incomes too much either. Although I’ll bet cosmetic surgeries trend HELOC activity.

  16. awgee

    Good eye Sue. UBS and Bear Stearns are the start of the collapse in the CDO market that will have the most profound effect on the housing market as any other factor. Without the CDO market, the lenders have to hold on to their own paper. How many home loans do will think will fund? I think I saw a blurb on Bubblevision saying that Freddie Mac was showing losses for this quarter of over 200 million dollars. GS admitted the subprime fallout has a ways to fall, and no one is even talking about Alt-A yet. The irony … Bear Stearns today said the subprime implosion is contained. If there is anyone who is thinking of buying a home within the next year, please research the CDO, MBS, and over the counter derivative market.

  17. Joe

    That tax rate is actually very low….extremely low for Irvine. 1.035% plus Mello Roos of $1500. I am surprised.

  18. IrvineRenter

    If this property stays on the market for a few days, I will profile it.

    It looks fishy. First the 30% loss is pretty harsh, and these little tidbits caught my eye:

    “Rare opportunity for those Buyers with no credit… no need to preview.”

    How can someone with no credit get a $1,000,000 house?

    Who would buy a home without previewing it?

    This may be a scam, but I don’t see quite what they are trying to pull.

  19. oc-conservative

    I am not sad per se for this flipper nor for all the other speculators. They definitely played their part in inflating housing prices.

    Unfortuneately, as in all bubbles, many innocents who never took part will suffer. Those that want to sell their home now as part of their retirement, those that will be effected by the housing-led recession, etc…

    I don’t smile with glee. Only a few years earlier, the flippers, amateur realtors, loan agents, who have contributed to this problem, they were all smiling with glee. So, I’d rather not.

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