Estimated Prophet

California, preaching on the burning shore

California, Ill be knocking on the golden door

Like an angel, standing in a shaft of light

Rising up to paradise, I know I’m gonna shine.

My time coming, any day, don’t worry about me, no

Its gonna be just like they say, them voices tell me so

Seems so long I felt this way and time sure passin’ slow

Still I know I lead the way, they tell me where I go.

Estimated Prophet — Grateful Dead



This could be the song of the guy who delivers the paperwork for a foreclosure…

Today’s owner must have estimated a fair profit for their property; otherwise, they probably would not have gone out and borrowed more than they paid for the property. In context with the previous HELOC abusers we have profiled, today’s seller is a minor leaguer. They are extraordinary in their ordinariness. They are stereotypical of many homeowner’s behavior during the bubble. People really believed their home appreciation was free money they could spend as income because their house would go up in value forever. In hindsight, it is laughable and ludicrous — and to some of use in foresight it was as well — but to those caught up in the mania, it made perfect sense.

Irvine will not be savaged by subprime (other than the job losses.) Irvine will be devoured by its own consumption. As I demonstrated in What is Equity?, if you consume your equity or buy at too high a price, the inflation hedge is the only thing keeping you above water, and if you consume too much through bad loan terms or HELOC abuse, you will go underwater and you will be at serious risk of losing your house.

Negative Amortization

Today’s seller bought in the upward trajectory of the speculative equity curve. Since they bought in 2003, they were too late to stay above water at the bottom of the trough; however, it might have been manageable if they had used conservative financing and not used their HELOC. Instead, they chose a different path, and now they are a short sale. This actually makes it easy to estimate their profit: they paid $830,000, and they borrowed $952,000, so the made $122,000 on the property. Of course, since they have recourse loans on the property, and they are a short sale, they have no protection from the lenders collections department. There may be a question as to how much of this “profit” they will be able to keep…

2 Valente Front 2 Valente Kitchen

Asking Price: $899,000IrvineRenter

Income Requirement: $224,750

Downpayment Needed: $179,800

Monthly Equity Burn: $7,491

Purchase Price: $830,000

Purchase Date: 10/6/2003

Address: 2 Valente, Irvine, CA 92602

Beds: 5
Baths: 5
Sq. Ft.: 3,103
$/Sq. Ft.: $290
Lot Size: 6,500 Sq. Ft.
Type: Single Family Residence
Style: Contemporary/Modern
Year Built: 2001
Stories: Two Levels
Area: West Irvine
County: Orange
MLS#: S511815
Status: Active
On Redfin: 94 days

Unsold in 90+ days

Gourmet Kitchen Award

Magnificent turnkey gem nestled on ultra-premium lot on end of safe & quiet CDS! Gorgeous curb appeal thanks to contemporary styling + stone detailing & mature landscaping. Dramatic living room entry boasts nice hardwood flooring + custom lighting & French door access to patio. Stunning gourmet kitchen w/ rich European cabinetry, granite counters, backsplash, island & built-in range & hood. HUGE master suite w/ private bath & walk-in closets. Entertainers’ yard.

Ultra-premium end lot? You mean the one backing on to Jamboree? safe & quiet? Have they no shame?

CDS? Collateralized Debt Servitude?

Magnificent Turkey…



This property will probable look like a breakeven transaction when it finally sells. If they had used a 30 year fixed and avoided the HELOC, they probably would escape with some equity. As it stands, any assets they do escape with will be a target for their lender, although in the short term, they made $122,000. If this house sells for asking price and a 6% commission is paid, the lender stands to lose $106,940.

If you were the lender who had the second lien that did not get paid off in full, aren’t you going after the money the borrower took?

133 thoughts on “Estimated Prophet

  1. AZDavidPhx

    Nice house. It is unfortunate that all the equity is gone. The owner’s next place will most likely be a significant step down.

  2. lawyerliz

    I’ll bet any takers $50.00 that the second never does anything. Some security holders somewhere have lost all their money, but none of them know that they could squeeze money out of this particular person. And this loan is just a tiny fraction of their loss. Not worth the bother.

  3. granite

    5 bathrooms??? Those “West Irvine” boxes crack me up. They are packed like sardines. The end of IR’s bubble is about $600K, which is what this house is worth.

  4. NoWow!way

    “This actually makes it easy to estimate their profit: they paid $830,000, and they borrowed $952,000, so the made $122,000 on the property. Of course, since they have recourse loans on the property, and they are a short sale, they have no protection from the lenders collections department. There may be a question as to how much of this “profit” they will be able to keep…”

    The furnishings and accessories are very expensive looking. Everyone wants to live like rock stars until the illusion is disturbed by the reality of having to sell at a loss. To me, it looks like they were addicted to furnishing their home until it was “just right”. There are no holes in the scheme of furnishings in any of the rooms/bathrooms. Everything is done to perfection.

    Some homes will have a great kitchen or master…. and other rooms in the home look like they ran out of steam to make it happen just yet. This home has every corner in place. That $122k was starter money on pimping the inside of their purchase, is my guess.

  5. IrvineRenter

    Posted By:Diana Olick

    Florida Taking Its Toll (Brothers) On Daughter’s Condo

    You just can’t make this stuff up. Apparently even a big builder’s daughter can’t seem to keep faith in the Florida housing market. According to an SEC filing, Wendy Topkis, daughter of Toll Brothers co-founder and Vice-Chairman Bruce Toll, is walking away from a Florida condo, just like everyone else. A Toll Bros. condo!! The Palm Beach Post says it best: Et Tu Wendy?

    According to the home builder’s proxy statement:

    Prior to fiscal 2007, the Company entered into an agreement of sale to build and sell a condominium to Wendy Topkis, Bruce E. Toll’s daughter, and her husband for a purchase price of $2,468,075. In January 2008, the buyers informed the Company that they did not intend to make settlement on the condominium. The Company intends to pursue its rights under the agreement of sale.

    Does that mean they’ll sue darling daughter? The company’s general counsel says they are pursuing normal procedures.

    Daddy is quoted as saying she just changed her mind because she had another child and the place would be too small, but I’m guessing the 13 percent drop in Florida prices was screaming at her a little louder than the baby. So Wendy just adds to the company’s 61 percent cancellation rate in the Sunshine State.

    Now, if Wendy was required to put down the same 7 percent deposit on the new home as everybody else, then she could be out $172,765. Of course, daddy owns almost five percent of the company (market cap around $3.5 billion) so maybe he could help out, or perhaps he wants her to learn about fiscal responsibility the hard way. None of my business of course; just family business…or lack thereof.

  6. Don from the Tanning Salon



    Please note the image of the master bedroom, image 6. Large, carpeted cat tree thingy. I”m guessing this house had at least 2, and possible as many as 47 cats living in it. This of course means that all the carpets and padding will need to be pulled out because otherwise the place will reek of ammonia laden-cat pee forever. Also, the walls in every corner have probably been sprayed by the male cats, so those will need work too. Residual cat fur and dander in the duct work makes this place an immunologic nightmare. Your children will develop allergies and asthma and you’ll wonder why. Also, cat shit outside in the fenced yard. Probably fleas and/or ticks wandering the hallways.
    But hey, go ahead and spend 900 thousand dollars, though. It will probably work out fine.

    Also, the commenter above who said the furnishings “look expensive.” I disagree. I think the furnishings look highly staged, esp. the fruit basket blocking the linear hallway kitchen pass through, and the nook table beside the front entrance.



  7. zaleriana

    Somebody out there is going to start paying a few dozen basis points to acquire the debt and then pursue folks like these. There’s big business in collection of non-performing and charged-off accounts. I would assume that a big market will (or has/is) develop (ed/ing) for pursuing CA non-exempt mortgage debts.

  8. momopi

    The house looks like it has an extended drive way. I like the lot size, it’s not bad for Irvine. Prices are a bit high though.

    p.s. not everyone is allergic to cats. ;p For fleas try diatomacious earth.

  9. surfing in newport

    Hey, really nice entry. From outdoors right to the living room wooden floors. You would think out of 3,000 sf, the builder could spend 1-2 hundred on an entry.

  10. ipoplaya

    I don’t believe many of the upgrades in this house were available from the builder so a good chunk of that HELOC money definitely must have went back into the house…

    Technically, the house sides to Jamboree, not backs to it. Either way, the roar of the cars is close and never-ending. 6 lanes and only a 6-foot block wall to slow the sound.

    Same floorplan a few blocks up was also at $899K list and they just went into escrow. Not nearly as nice on the inside but doesn’t sit against Jamboree.

  11. ipoplaya

    Nope, no extended driveway. You can park one car between the garage and street with perhaps a few feet remaining to the sidewalk. Oddly enough there is quite a bit of street congestion in terms of lots of cars parked on the street in this particular tract.

  12. arm

    This house backs onto Jamboree – I think that is why at first glance the price seems somewhat reasonable given the house and lot size. But, given the location, I think it will be a tough sell.

    For me a sure sign that there was a bubble, was that houses that backed up onto major streets were going for premium dollars – sort of like condo prices – I think such houses are the last to rise and the first to drop.

  13. zaleriana

    Regarding previous suggestions of taking out HELOC $$ to invest elsewhere, did y’all see this in the NYT? :

    The Doyles took advantage of the housing boom by refinancing their home nearly every year since they bought it in 1995 for $275,000. Until their most recent loan [$740,000 in 2004] they never had a problem making their payments. They invested much of the money in shares of companies that subsequently went bankrupt.

  14. IrvineRenter

    Sales rates couldn’t get much lower. The baseline you are comparing it to was the slowest ever recorded. It was bound to increase somewhat at some point.

    Pent up demand… LOL

  15. zoiks

    “What do you all think is the catalyst?”

    If it’s anything like Costa Mesa, it’s more speculation.

    I’ve seen a bunch of REO stuff go to speculator/flippers. For example, there’s a townhome right near the corner of Wilson and Harbor that went REO early last year. It finally sold for something like $390k. (The foreclosed loan was somewhat higher than $500k.) The buyer promptly put it up for sale at $429k or $439k, and listed it for rent at the same time! (Both ads could be found on Craigslist at the time.) That was about 3 months ago. Today, the townhome *still* has the “For Rent” sign up, but the ads have been taken off craigslist. I suspect it’s going back to the bank again.

    The sad thing is you can drive down Wilson and find a couple of SFHs on 6000 sq ft lots for $410-$450. It would be crazy to spend that kind of cash on a small townhome with no yard near a very noisy and busy intersection, in an area where immigrants (I’ll let you guess on status) pretty much run amok.

    It looks like to me, more often than not, the REOs end up being sold to speculators, not families. I could cite many other examples, too.

  16. surfing in newport

    We went to open houses in Turtle Rock and Turtle Ridge last weekend. Actually kept on running into other “potential” buyers. In Newport, it was another story…didn’t see anyone. I chalked it up to the nice weather.

  17. AZDavidPhx

    Wendy Topkis Vice President 215-938-7300 x101

    Wendy Topkis Vice President

    Wendy Topkis is a key member of the legal department and development team at BET Investments. She also oversees acquisitions of properties in New York, California and Florida. Wendy is a member of the New York State Bar Association and the International Council of Shopping Centers. Prior to joining BET Investments, she worked in the real estate department of Fried, Frank, Harris, Shriver and Jacobson, a New York based law firm. Wendy is a graduate of the University of Pennsylvania where she earned both undergraduate and law degrees.

  18. tenmagnet

    I would agree the interior is very nice and I like the layout.
    In comparison to 53 Legacy Way and 17 Parma, in my opinion this one is much nicer.
    The fact that it backs up to Jamboree is not that big of a deal.
    You make it sound like it’s the infield for the Daytona 500.
    Tustin and Irvine police are all over that part Jamboree, so its doubtful you’ll hit 35.

  19. AZDavidPhx

    Wendy Topkis
    Political Campaign Contributions
    2006 Election Cycle

    Topkis, Wendy
    10023 B.E.T. Investments Inc./Attorney $4,000 06/22/2006 P SANTORUM VICTORY COMMITTEE – Republican

  20. ice weasel

    IR beat me to it. “pent up demand”, hilarious.

    “No! No! I want to throw my money away on an investment with a declining value! Really I do!”

  21. Mertland408

    I live in West Irvine & I went to this home during an open house in late 2006. That’s how long this home has been on the market!! It has had at least 3 different agents. At each listing the beginning price is a WTF & they they keep lowering the price, but nobody bites. This home has 4 baths not 5. They did an extensive kitchen remodel & added a pizza oven in the backyard. I suspect that’s what they did with most of the HELOC.

    It’s a husband & wife that live there. The husband is a chef owns a restaurant in Pasadena. I wouldn’t want to do that commute everyday! I asked the realtor why the owners are selling & she said they thought the house was too big for just the two of them. Translation: can’t afford the mortgage??

  22. rkp

    I have to agree with ten – this part of Jamboree is pretty calm. Its after you get past portola that it turns into a dragstrip with people going 70+ mph.

    I really like this area cause of its proximity to the sports park and Tustin Marketplace.

  23. CapitalismWorks

    Everyone is born short a home. Unless you are going to live in a cardboard box, you are either a renter or an owner.

    IR, your perspective on the demand side of the equation is skewed by your bearish sentiment. There is a large population of buyers running around looking for deals in this “temporarily depressed” market. Many buyers rode out the 4th Qtr of 07 watching the story unfold, and are now returning to the market to find deals.

    IPOPlayas escrows show a moderate increase in activity. The case of pent-up-demand is further supported by anecdotal evidence of dramatic increases in buyer traffic.

    You must remember that people buy homes for a number of reasons, the least of which is whether they can earn a cash-on-cash return as a rental unit. Yes, a 100 GRM certainly represents an absolute floor in terms of pricing because buying at that level offers an attractive current yield, a margin of safety, and a long call option on real estate and inflation, however just because there is strong fundamental support at that level does not mean that it is the only level at which the market will plateau.

    Some people don’t rent, period. My parents fall into this camp.

    Some people firmly believe the market will always go up over some specified horizon.

    Some people are buying and selling in the same market (IPO falls into this category).

    Some people think that rates are likely to increase in the future and like the idea of locking in a 5.5% 30 year fixed.

    I am sure there are more reasons, but the point is the market is made up of individuals who each hold highly divergent views on the decision to purchase a home.

    To be clear I think the market is set to continue to slide for a number of reasons, (1) self-employed job losses (RE jobs most notablty) (2) limited availability of credit to sub prime borrowers (3) significant departure from fundamental values.

    But, from the demand perspective, prices are down and rates are lower. For a contrarian this is an attractive combination. Many buyers sat out the past few years waiting for a normalization in prices, and are beginning to be tempted.

  24. NanoWest

    I agree, these peoples lives will be turned upside down until they pay something. Lets offer 1 cent on the dollar….I bet we could collect 5 cents on the dollar. Might be a good investment.

  25. NanoWest

    Don, I am with you regarding cats…..peeeeeeeeee you.

    My ex had cats and they always wanted to pee on my stuff(tells you something). One time I was skiing in the French alps(charmonix) and all of a sudden I started smelling cat pee. Turns out the little pisser did it on my ski coat.

  26. buster

    Hey, I’ve got an idea! Let’s take all the defaulted recourse loans, package them into one big HLPO (High Lawsuit Potential Obligation) and sell them off to the lawyers. We can tranche them up so that the “A” tranche gets the lawsuit proceeds first, the “B” tranche second, etc, etc, etc. We can make millions in fees and maybe the rating agencies will give us a AAA rating for the top tranches!

  27. NanoWest

    This is the biggest joke yet…….the truth is that the banks are so swamped they can’t handle the volume and people have to wait 30 days just to talk with some one.

    All of these plans will be for situations where it makes financial since to give the mortgage holder a break. Banks exist to hold peoples money in a secure way,,,,,,not to lose money.

  28. NanoWest

    After moving to Huntington beach I’ve started watching that market as well as the Irvine market. It appears to me that Irvine is falling much faster than Huntington…it may be because there were so many new homes build in the last 10 years in Irvine. This being said, it is only a matter of time before Huntington starts to see massive price declines like what is happening in Irvine.

  29. buster

    Great — give the deadbeat homedebtors another 30 days of free livin’ The Banks just keep giving and giving…

  30. ipoplaya

    I come out of West Irvine on Robinson or Trevino every morning/night/etc. because I live there. At 35mph, assuming the lights were green, I guarantee you’d be going so slow you’d cause an accident. If the light at Robinson is green, people will go flying by this particular house at 60mph. If it’s red, you’ll have the northbound traffic accelerating as they pass the place. It is noisy. I was at an open house on Sorenson this weekend, one block away from this place, but 3-4 houses in from Jamboree, and the nosie from Jamboree was quite noticeable in the backyard.

    I do agree though that the strip of Jamboree from Tustin Ranch Road, where the OCFA complex is, up to Orange is a racetrack. When I had my street bike, I’d come down that stretch of Jamboree at 90mph. Very fun!

  31. George8

    Why would someone own and work at a restaurant in Pasadena and live in Irvine? Is Pasadena such a inferior place to live and work?

  32. Alan

    Pasadena is GREAT….

    Irvine has nothing on old town Pasadean, the views of the mountains are fantastic and it now has light rail (green? line access to LA)

    The only problem with Pasadena is it gets way too hot in the summer.

  33. houseonlegs

    I watch the HB market as well and I’ve noticed that a lot of homes on the market are original or long-time owners, it doesn’t seem like there was as much of the flipping market there over the past 5 years. When you look at the sales data in HB, a lot of them have not had a sale in the past 5 years, while Irvine homes seem to have multiple sales.

  34. Rocker

    Didn’t she get the memo?

    Daddy was well preparead ahead of this subprime crisis.

    CEOs, CFOs of the home builders began to unload shares in the summer of 2005, being 2005 the year when their shares hit record high prices.

    I took this event as the peak of the bubble, even though the Kool-aid kept flowing 2 years more until summer 2007.

    I particularly remember Robert Toll unloading shares in 08/05 and then in 11/05 he gave a “less than positive” outlook for the next quarters.

    Check this NYT link:

  35. ipoplaya

    I totally agree. I rented a place in Pasadena for two years when I was working in downtown LA and it was fantastic. I think the only things Irvine/OC have on that area are beaches and the weather. If I owned a biz in Pasadena, I’d get me a nice place in the hills of Altadena or Sierra Madre. Even better yet, La Canada Flintridge. That is a nice community and short little freeway drive down to Pasadena.

  36. Emma Anne

    Here is what I don’t get. I admit I am getting to be middle aged (touch of grey, heh) but I remember the *last* housing crash in SoCal in 1990. I sold my condo at about the height (pure luck – I was moving) but I had plenty of friends with sob stories of being trapped in houses with negative equity, etc. (didn’t know anyone who “walked away” though). And it was bad for several years.

    I mean we’re not talking about the roaring twenties here. How can people forget so fast? Housing in SoCal always goes up? Well, yeah if you are careful to only look at the last ten years!

  37. Chuck

    We just looked at 53 Emerald, one of the listings in Woodbridge that you just added to your web site. I’ll be curious to see what the final sale price is – the house does have a pool, but it is a complete dump inside. The renters were there when we toured the house and they said that the original owners bought it as a teardown in 2004 for $1.2 million but then decided to rent it out instead – now it is listed for $1.299 million. I saw dry rot on the exterior, the kitchen cabinets are the original cabinets and have just been painted green (!), the kitchen counters are the original tile, etc. Plus, the renter also pointed out that the built-in appliances in the kitchen have been updated but were never correctly installed (there are huge gaps above the oven where you can see through the wood, for example).

    It is very surprising to me that this went in to escrow so quickly since it has only been on the market for less than a month, and they have not even held an open house……

  38. zaleriana

    This already happens. There are (indirect) securitizations of charged-off credit card accounts and auto loans. The companies that do the collections securitize their revenue stream and use the proceed of the financing to buy more delinquent accounts.

    It’s certainly possible to get a AAA rating for the A tranche of almost any revenue stream–it’s a question of the size of the tranche. What got goofy in the last couple of years was the CDOs of CDOs, which assembled junior pieces (i.e., barely investment-grade debt) of several issues and got AAA for too big an A tranche–part of the problem also being that for such a structure to work, the assets need to be diverse, not 50%+ junior pieces of subprime residential mortgage bonds, which was often the case.

    Rigorous credit analysis of these assets would have required re-structuring of the tranches and would have left a lot of mortgage issuers and bundlers as the bag holders. But when everyone is chasing this years bonus rather than long term comp, such niceties disappear.

  39. Iblis

    This is the kind of debt that gets sold to people who attend “be a millionaire in 30 days!” weekend seminars in a local hotel conference room.

    Most of the poor saps who buy will quickly get frustrated trying to collect. They’ll give up.

    The guys who hold the seminars and wholesale the bad debt to the hapless, wannabe millionaires do OK.

  40. Boston2TheBay

    I grew up there. Elementary through high school, back when “Old Town” was skid row. Pasadena has very nice parts but also big ghettos. Schools were ganglands even in the 70s before the mass white flight. First place in the country with forced busing. Private schools are numerous but pricey. Pasadena Polytechnic is as good as Exeter or Andover but carries a similar price tag.

    San Marino, La Canada, Arcadia or South Pas are the only places you’d really want to raise a family these days. Sierra Madre is a neat place (especially “Hippietown” in the lower canyon) but feeds into Pasadena schools.

  41. Alan

    You just got love a city that split in two during the prohibition because Pasadena was teatotlers and South Pas wanted booze. Then I was in the city hall back in 78 and they had a photo posted of the USS Pasadena (lets see when Irvine gets a battleship named after it) and the caption read.. I quote.. USS Pasadena off to fight the “nips” talk about policically incorrect, and in city hall too..

  42. IrvineRenter

    “How can people forget so fast? ”

    I have often asked myself the same question. I don’t have a good answer. Many of the participants of the bubble were young people who may not remember the market of the 90s, but I think a lot of it was the seductive nature of kool aid intoxication. If you were able to convince yourself the decline in the early 90s was an aberration, then you can buy into the rest of the lie. I keep trying to convince people the rallies were aberrations, but most people do not want to accept this idea.

  43. zaleriana

    (1) There are about 8mm more people in CA than in 1990 and 14mm more than 1980.

    (2) The turnover in population (i.e., number of people who didn’t live in CA in 90 or 80) exceeds that number b/c of people leaving the state.

    (3) People think that “this time will be different”, which is reinforced by the media and anecdotes about “bob and sue” who made sooo much money on their house. The (again, anecdotal) number of people who did well (or at least okay) through the Internet bubble added to this.

    (4) People think that it won’t happen to them.

    (5) People have very short memories for bad things, especially if they only happened to someone else.

    (6) People are dumb.

  44. hb

    I did notice the cat tower as the one major flaw in the photos: the rooms are all de-cluttered, accent lights turned on, the table is set for a dinner, fresh matching towels carefully hung in the baths, but they left the cat tower in the master bed picture–they missed that one and should have removed it for the photos.

    Otherwise the photos are very well done–remember all the listings with the trash cans prominently displayed and the clutter everywhere? Odd that they missed the cat tower. And there should have been some seating by the outdoor fireplace, but perhaps the roar of Jamboree traffic made them not bother.

  45. tenmagnet

    During college, I dated a couple of girls that were from San Marino. Absolutely loved the area. Big, beautiful homes set in the midst of wonderful picturesque neighborhoods. It’s proximity to Old Town Pasadena is nice as well.

  46. IrvineRenter

    Homes in Bubble Regions
    Remain Wildly Overvalued
    February 12, 2008

    If you own a home in a former bubble region like California or southern Florida, there’s bad news… and really bad news.

    And they suggest that it is still way too early to go bargain hunting in these markets, although — of course — there is always the occasional deal around.

    The bad news is fresh market data published Monday night by real-estate Web site They show prices, as expected, kept slumping through the end of last year.

    But the really bad news is that, even after a year of misery and falling prices, homes in many of these regions still aren’t cheap. They remain wildly overvalued compared to average personal incomes.

    There is a strong long-term correlation between the two figures. And in many regions, house prices would still have to fall a very long way to get back into line.

    How far?

    Try around a third in Florida and Arizona — and closer to 40% in California.

    Yes, from here. The long-term chart for California is shown below.

    Even if house prices stabilized, it would take a decade or more for rising incomes to catch up.

    The data on median house prices and per capita personal income in these states have been tracked by Karl Case, economics professor at Wellesley College. (He is one half of the duo behind the closely-watched Case-Schiller real estate index).

    Professor Case’s numbers ran through the end of the third quarter. I decided to see how they might look today, using Zillow’s data for the fourth quarter.

    The company hasn’t posted statewide data, but the price falls across the many cities it tracks give a pretty strong picture. From these I assumed, for the sake of calculations, that California prices fell 8% last quarter from the third quarter, a huge number by historic measures but not out of line with Zillow’s data. For Florida and Arizona I assumed declines of 5% and 5.5%. You could use other, more modest estimates for the recent declines: They won’t change the outcomes much. I also assumed personal incomes in these states rose in line with recent and historic averages.”

    The results? In all three markets, the prices are well off their peaks when compared to incomes. But they remain far above historic averages.

    Median prices in California peaked in 2006 at 13.3 times per capita incomes. Hard to believe, but true. They may be down now to about 11.1 times.

    But that’s still way above the ground. Throughout most of the 80s and 90s they ranged between six and seven times incomes.

    Just to get down to seven times incomes, prices would have to fall 37% tomorrow.

    Those who bought at the peak of the cycle may be pinning their hopes instead on “incomes catching up” instead. But they had better be patient. Even if house prices stayed exactly where they are, it would take around 10 years for rising incomes to bring the ratios back into any sort of alignment.

    And it would take even longer before prices started to look very cheap again.

    That’s based on average personal income growth of 4.6% a year in California and Florida and 4.2% in Arizona.

    Yes, these are projections and estimates. Time and chance will play their usual roles. And there will doubtless be different pictures within regions of the same state.

    Nonetheless the overall picture is pretty clear. And, if you are a homeowner in any of these regions, none too appealing.

    Write to Brett Arends at

  47. hb

    Yes I read that article. Just amazing. Then the guy says: but one of the refi’s I spend on my daughter’s education, it’s not like I was being selfish. Not selfish, maybe, but certainly foolish.

  48. zaleriana


    As you point out with the chart in the post, it’s all part of the expected cycle–there is a repetition of the booms and busts in housing prices that has come to be relatively expected. They feed on themselves and then burn out. And then it happens again.

    So, the rallies aren’t aberrations any more than the declines are–it’s like the tide–the mean water level isn’t the natural state, but provides a basis to compare the highs and lows. We just had the killer tsunami of all high tides and, again, as you point out, we should expect to overshoot “normal” low tide before things get back to “average”. Then, it’s only a matter of time before there’s another high tide.

  49. NanoWest

    Many investment “events” are generational. When a generation gets burned, it takes 15 years for a new generation of players.

  50. zaleriana

    Anybody who buys that junk w/o collection experience + infrastructure or a willingness and ability (and cash) to run into court for everything is nuts. Collections is a hard racket in the best circumstances, and collecting mortgage debt on sold houses is one of the worst.

  51. Priced_Out_IT_Guy

    A 900K house with plastic shower inserts?

    For close to a million bucks I’d like to see some real craftsmanship, not just dressing and store-bought fixtures.

  52. Genius

    Cars don’t cost $500k. Well, not the ones most people buy.

    Actually, it seems that used Ferraris are going for over sticker. I wonder how long that will last?

  53. Allison C.

    I am so glad I found this wonderful blog for Irvine real estate. Please help me!
    I moved here from San Jose, and have been living with friends. I am ready to start looking to buy a little place of my own in Irvine. (Not in a hurry) The agents I’ve interviewed all insisted on obtaining my FICO score before taking me house hunting. I’ve already shown their lenders my tax returns and paystubs. I have proof that I have been steadily employed as a physical therapist for the past 8 years. I have 20% down payment.
    I would be grateful if anyone can tell me if this FICO requirement is really necessary just to show me a few houses or are they jerking me around. I heard that running my credit will lower its score. I don’t want to run it till I am ready to make an offer. Thank you in advance.

  54. Surfing in Newport

    Changed browser and for some reason the post was cut off 🙁

    Any clues as to why the ratio was

  55. Surfing in Newport

    last time I’ll try…promise

    Any clues as to why the ratio was less than 5 in 1975? I’m guessing very high interest rates that depressed housing prices even though inflation (the reason why interest rates are high) would have suggested that housing is a good hedge…at some point, you just can’t get financing and that depresses the housing prices further than they should be.

  56. AZDavidPhx

    People here don’t get it. They can understand that the bubble popped. The part they fail to comprehend is that prices will fall gradually for quite some time and even when the bottom is reached – the prices are not going to return to even today’s prices for a very long time.

    The idea that they can find a “good deal” relative to last years prices is all they see.

    The few that know prices are going to continue to drop say things like “well the price I am buying at is well below market value”. They hedge their bet that the prices will not drop 30K below today’s prices.


  57. ipoplaya

    Allison – In no way our FICO scores any kind of requirement, but sellers and realtors don’t want to waste too much time on someone that won’t get through underwriting.

    Couple of options – get yourself pre-qualified to purchase. A prequal has almost become standard as an additional submission with an offer to purchase. The prequal will evidence that someone has examined your scores, finanncial situation, etc. and should be willing to extend a loan to you to a certain value.

    Also, you can run your credit scores yourself without having it affect the scores themselves. I use, which is TransUnion, and re-run my scores every couple of months. You could sign up there, run the scores yourself, and give the print-out to any interested parties if you so choose…

  58. ipoplaya

    IMO, forget the in-house lenders. Too mcuh work. Get started with a broker, direct with lender, or an maybe an internet-based lender to get an independent prequal.

    Here is one I recommend:

    They usually have the lowest rates around at any given time. I will likely use them when I buy and/or refi my place.

  59. Terry

    Kitties do not like change. If you removed their cat tree they very well just might start peeing on things to alert you to their dissatisfaction. Better not to upset the kitties. To paraphrase the University of Maryland’s football thing, “Fear the kitties.”

  60. skek


    Above all else, remember that this is the strongest buyer’s market in our lifetimes and you are in the driver’s seat. There are hundreds of sellers chasing very few buyers and they know it. Also, don’t let an agent pressure you, bully you or convince you that the old rules apply. Everything that is selling today is going for well under the list price (and after multiple reductions from the original list). Buyers can demand that the sellers pay the closing costs and buy down their interest rates. Nearly every realtor I’ve talked to has some story about how things aren’t that bad, business as usual, great time to buy, etc. and tries to make a 2-3% discount off list price sound like the steal of the century. Don’t buy it. Drive a hard bargain. If you have to buy in this market, get some downside protection baked in, because the property will continue to decline in value for at least a year or more before prices stabilize.

    Best of luck.

    And on a related note, belated best of luck to ipop — did you make your offer yet?

  61. ipoplaya

    Thanks skek. Supposed to sign the purchase offer this afternoon.

    I am busy rounding up my FICOs, updated pre-qual, proof of funds, etc. Going to try and make it easy for them to accept my price…

  62. ElricSeven

    I often find that people will tell you about a worthwhile expenditure that sounds justifiable. What they don’t tell you about are the luxury vacations, new cars and dining out that they failed to cut back on before tapping credit. You can’t tell whether someone was doing what was necessary without seeing their whole list of costs and expenses. My guess is that they were unwilling to compromise their lifestyle and in essence were borrowing to finance that lifestyle. Not the necessary daughter’s education.

  63. TurtleRidgeRenter

    Allison, why not rent a nice little place for a year and wait for prices to go down more? This would give you the luxury of time, you wouldn’t be staying with friends, and you could use the time to get a more precise feel for the area, pinpoint exactly the right neighborhood for you, and watch price trends. The price drop alone might pay for your rent this year.

  64. Genius

    LMAO. Check the prices on NSXes and then please repeat what you said.

    Comparing houses to cars is retarded at best anyway.

  65. Kirk

    The best part is that the collectors don’t care if a judge has already cleared out the debt through bankruptcy. They’ll come after you anyway.

    There was a great article on this, but I can’t seem to find it now.

  66. Pete

    Ahh, Chamonix, merveilleux, j’aime beaucoup.

    Quant au chats, j’aime aussi les chats. Par contre ma femme aime les chiens… alors..

  67. mark

    The comment was about not wanting to waste money on something that declines in value (I left the “investment” part out ’cause a house is not really an “investment”). There are very few things we spend our money on that appreciate. The next biggest expense to your mortgage or rent, tends to be your car expense. And every dollar you spend on your car is “throwing money away.”

  68. lawyerliz

    Hey, I have cats and my house does not smell like pee. The actual kitty litter box does smell like pee after they pee in it.

  69. CapitalismWorks

    Who the Hell buys NSXs? Honda and Sports Car don’t mix. Period.

    Now the new Audi R8 is a beautiful car.

    We were talking about depreciating assets, so I think the link between losing value is a house, and losing value on am expensive car is correct, especially in terms of magnitude. Funny thing is how people are conditioned to pay the new car premium price and take a 20% hit as soon at they drive off the lot.

  70. evan

    Pasadena is old money. Irvine is new money. That’s the way I like to compare the two. I’d give my right testicle for a place in Pasadena.

  71. reply213

    I’ve read that prior to 1975 (and maybe a bit later), a wife’s income did not count towards qualifying a household for a mortgage.

    If interested in reading about the macro-economic & social effects of this policy change check out a book entitled “The Two Income Trap”

  72. sunnyview

    It’s interesting to see ipoplaya is so eager to jump in the pool. In contract, I am very much enjoy this blog, have to ask IR, if there is an occasional deal around there, let’s say, 40% down from current market by this year, with interest still low, will u take off your shirt?
    Don’t take personal, please, I just like to see the risk appetite everyone had right now.

  73. Rocker

    Well, I’m an immigrant and I’ve been living in the US since 2000 and thanks to the Internet it didn’t take me too much time to find out the boom/bust cycles of California and I found enough evidence to believe that this was no different.

  74. IrvineRenter

    Any purchase made in the next 2 or 3 years is going to be at risk for further price declines. If there is any possibility you might need to move during that period, you should not buy. However, if you have a 5 year or longer time horizon, and a property can be acquired for its true breakeven rental value, you may have to endure a period of lower resale values as the market over-corrects, but you are saving versus renting, and you control your housing situation. You won’t lose unless you have to sell when values are depressed.

    If you buy now, and pay more than breakeven rental value, you are bleeding cash each month versus renting, and the property resale value will fall farther and take longer to get back to breakeven. If you time horizon is long enough, you might be OK, but in the long term, we are all dead.

  75. mark

    Do not go to a broker!!! You may get lucky and find one of the very few honest ones, but why take that chance? Do the work yourself.

  76. NoCal SC

    I lived in Irvine while I went to UCI plus a few years after, then moved to Pasadena. Loved loved loved Pasadena. I live in the Bay Area now, but if I ever come back to So Cal, Pasadena is one of the few places I’d consider.

    (And how sad is this — I graduated from UCI in ’91. More than half the neighborhoods mentioned on this blog I have to look up ’cause I’ve never heard of them.)

  77. tony


    Stop being brainwashed by PR and status and go learn something for cryin’ out loud.

    Honda has been in F1 since ’65.
    Honda won the Isle of Man in the late 50s.
    Honda owned CART.

    The Audi R8 is a typical german vehicle, too heavy, too expensive, too complex and too fragile.

    The NSX, OTOH, is one hell of a fast car. Light, agile, quick and reliable.

    Jeez, please stick to Real Estate, because when it comes to Automobildom you have been brainwashed by the Status and Marketing Depts.

  78. tony

    I like Pasadena, but the smog is terrible up there. When I worked at JPL I developed a nasty cough. It kept getting worse over time and I had no clue why.

    Then I got a job in Torrance and went back to the 405 shuffle. The cough went away in three months.

    Mountain wise… yes Pasadena is nestled against the mountains BUT in summer days you can’t see Mt. Wilson. That’s how bad it can get.

  79. sp

    I actually visited this house. The interior is well-kept. Unfortunately the Master Bedroom is closer to the Jamboree side. You CAN hear the cars go by although it’s not that bad. (Depends if you are a light sleeper). The real issue is that if you plan on entertaining or spend time in the yard, then it’s extremely loud. A bus passed by and it was extremely loud.

    If you don’t mind having a view of Jamboree and the sound of cars wiz by when you’re gardening, then this house is good.

    I decided to not make an offer. I didn’t want to have any regrets.

  80. tony

    Is 92617 the zip code for UCI?

    Duh…. there are statistics and lies. The types of homes built there change a lot year to year. And you can hardly call that an open market.

    As the University decides to change homes, and as the homes for the professors and staff got built, it could be expected that the homes for grad students would be cheaper, eh?

  81. ipoplaya

    Me and IR are in different boats sunny… I already own, so I’m in the pool already. More like a turbluent ocean really.

    IR is safely tucked away on shore, in the comfort of his rental home, where the declines in property value only serve to benefit him.

    If I was renting today, you can bet I wouldn’t dream of buying a house yet.

  82. Genius

    The NSX is an awesome f-ing car, don’t talk like that about it. The R8 is overhyped and overpriced, although I wouldn’t kick one out of bed. I’d rather get busy with a GTR.

    I made that statement to show that you were incorrect in saying “Yeah well any $75K car today is going to lose $60K over the next 5-7 years guarenteed.” I can find more examples if you’d like. Ferraris and Lambos are still going for well above sticker, even used.

    Cars are a consumable imo, unless you’re talking vintage/collector, and are nowhere near in the same asset class as real estate(TM). Land doesn’t break down or go out of style.

    I agree with your last sentence.

  83. CapitalismWorks

    LOL. I am German by origin. Ve build Ze best carz. You can keep your tin-foil rice rockets.

    “Stop being brainwashed by PR and status and go learn something for cryin’ out loud.”

    Hey Moron, Honda has never done ANYTHING in F1. Hell I could enter a Go Cart and produce a similar record.

    Here is a link to the outstanding F1 records. Please note that the word Honda is not found on the page…

    Considering your touting the importance of light-weight to performance, it is interested that you cite Honda’s performance in CART rather than F1 given the CART cars tend to be 30% heavier than F1 models, and are known for longer wheel bases and less maneurvability.

  84. evan

    I graduated in ’01 and I’m still here. The liquor store accross the street on Campus drive is no longer there. Oh and so is the Irish bar accross the bridge. There’s a new gym, large parking structures and tons of new housing units built along Campus drive since you left.

  85. Boston2TheBay

    One of the G’s on Fair Oaks will gladly cut it off for you. Better yet, cruise up to Farnsworth Park in Altadena sometime (where I spent many evenings playing Jungle ball). Maybe the Martin Luther King Village (the projects) or Jackie Robinson Park.

    People who aren’t from Pasadena have no clue what it’s really like. It reminds me of Brentwood: Why pay big $$$ for a house in either area when you’re forced to use private schools? You think many in Brentwood or Pacific Palisades send their kids to Uni or Pali (where most students are bused in from the inner city)?

    Pasadena looks nice on the surface, but scratch a little and you’d be surprised. Better yet, check the crime stats. San Marino, Arcadia, La Canada or South Pas are the only places you’d want to live in that area.

    Plus, inland blows. Once I moved to the beach I realized that.

  86. sunnyview

    we, float in the bay, San Francisco bay, brought house in 2003 fall.
    I saw two of my friends brought 1.3M houses at end of 2006 and 2007. Silicon valley is not a hard core, it is eroding in the matter of time. The reason I following here is that I plan to move down to orange, somehow, in order to change the quality of life. most people work here in high teach, sort of good paid, relatively say, double work amount. it’s truly not worth unless for green card sake. My man is too late or too old to being in tech start up game, giving room to india or chinese does all good.

  87. Allison C.

    Thank you all soooooo much for the input. I will look into other options (as in renting for a while) and check the websites for competitive rates. I just spoke to another realtor, she said she only works with prequalified buyers. I almost wanted to tell her to get a reality check, the good old days are over! Please kiss my feet for giving you a chance to make money! Another one wants me to bring in all the proofs mentioned above, AND written statements from banks to show that I have my 20% down. I feel like I’m being penalized for not jumping on the band wagon couple years ago. Thanks to all again!!

  88. NoWow!way

    I think that is why there seems to be this weird consensus to “just wait it out a couple of years.”… and the houses will resume their upward prices.

    People who bought and held on during that period were richly rewarded by the mid 2000’s. Anyone “brave” enough hit paydirt.

    Like childbirth, you somehow wind up having a second one after “forgetting” about all the labor pain during the first one 😉

  89. ipoplaya

    Looks like the 2006 buyers bought this with a $900K first and a $225 second. Odd that it went back to the bank at $867K. They actually paid down their 1st somewhat in the year and half they owned it…

    Ole Fremont Investment & Loan loaned both the 1st and 2nd it appears. HSBC owns it now.

  90. zornundo

    Definitely #6. I am convinced more and more everday that the intelligence of the average person is quite low.

  91. Eric U.

    my phone at work got into the zombie bill collection industry somehow, and we have everything going into voice mail I take my calls on a different phone. I guess I see why this happens now.

  92. CapitalismWorks

    Banks exist to make money. The are private companies subject to governmental oversight.

    Credit Unions are designed to hold money in a secure way.

  93. George8

    What do you recall this location in Pasadena?

    1711 N Fair Oaks AVE #110
    Pasadena, CA 91103

    Price: $589,000
    Buy with Redfin and Save $11,780*
    Beds: 3
    Baths: 2.5
    Sq. Ft.: 1,620
    $/Sq. Ft.: $364
    Lot Size: 2,542 Sq. Ft.
    Property Type: Townhouse, Residential
    Property Style: Craftsman
    Year Built: 0
    # of Stories: 2
    Area: Northwest Pasadena
    County: Los Angeles
    MLS#: 22098516
    Status: Active
    On Redfin: 197 days

  94. tonye

    I mentioned CART because Honda owned F1 in the 80s and moved to CART in the 90s because, honestly, Honda’s domination was bad for F1, Ferrari and Mad Max and Bernie.

    Honda went to own CART with its engines…. the chassis were Lola, Reynard, Penske etc…. it’s a formula and Honda owned it too.

    Then CART committed harakiri when Toyota started to cry. So, the Evil Empire went to the House that Tony (the bad Tony) built. After all seeing Honda walk all over Toyota was specially sweet from our grandstands at Long Beach. Well, Honda moved to the IRL and spanked Toyota… so now Toyota is in NACRAP.

    Then you got MotoGP… hmm…let me see…. other than The House of Desmodromic you don’t see none of the big torque, low redline Kraut two wheelers there…. do you?

    OK, so let’s talk sedan racing. The ITR/GSR-R’s owned NA. Until AHM nixed it and went to the TSX. Cunningham and crew did manage to get lots of points, however this year Mazda is doing very well. Krautland? Those 3 series are so so.

    European Touring Car? Well the Frogs are doing quite well too but the Accord R ( our TSX ) is doing very well too. And then there’s the CTR, not a bad car at all.

    ALMS/Le Mans…. OK, here we go. Audi built a turbodiesel that’s reliable, efficient and goes the distance… but it’s a damn bore. Rumor says the only reason they win is because the competition chokes when they catch up with them. Diesel… cough! cough!

    So, tell me, Oh Great Automotive Sage… Do you know what happened in Mexico City in 65? Do you remember the McLaren and Williams cars in the 80s?

    And, dude, despite the huge love that Bernie has shown to Ferrari in the last five years, it’s all gonna come down crashing one of these days. The new engine rules for F1 are a laughing stock. The halcyon days of F1: the 30s with Auto Union and Alfa, the wild 50/60s with Cooper, Jim Clark, McLaren, the heady turbo years of the 80s and even the boring “single line” days of the 90s/early 00s are about to come crashing down on Grand Prix.

    So I suggest that before you make such ignorant statements about openwheel motorsports you do a bit of background investigation.

    Oh, btw, the current Honda team has some potential. Assuming that Bernie doesn’t fine them again about “extra” fuel.

  95. tonye

    Oh since you like Wikipeida

    And here’s the full story

    And the whole thing

    Now, come back and tell us the story about Audi in GP…… Hint… do you know the meaning of the four rings?

    Does Bernd Rosemeyer ring a bell?
    How about Rudi Caracciola?

    Hopefully when you read and google those names you will have a much better understanding of open motorsports… not just what you’ve been rading on msnbc for the last three years.

  96. awgee

    “pent up demand”
    “a two week increase in escrow openings in the Irvine”
    Reminds me a story about the guy who fell off a one hundred story building and about twenty stories from the top he starts thinking, “Hey, this ain’t so bad. Everything is gonna be just fine.”

  97. cyberpunk

    4) They aren’t making any more land
    5) Irvine is “different”
    6) Buy now or be priced-out forever!

  98. cyberpunk

    Gimme a break, he’s comparing a 15 yr old chassis to a brand new one. Good work, let’s make some more ridiculous comparisons while we’re here.

  99. Scott


    If the new buyer takes out a mortgage, this place won’t sell with the HELOC still in place – it’ll have to be paid off in escrow, so the 2nd will get their money, unless the 2nd agrees to the short sale – but why would they unless they are the same as the 1st and want to get some money out?

    On the other hand if it goes into foreclosure on the 1st, again the 2nd won’t bother foreclosing – they can file the NOD and start racking up all sorts of fees and interest (based on higher default rates). Then when the 1st forecloses and wipes out the 2nd, the 2nd can go after the borrower, since it is a recourse.

    Whether the 2nd goes after them or they sell the debt off and someone else goes after them, this borrower will not walk away with $100,000 free and clear – it’ll be years of painful collection attempts, unless they BK.

    As for debt surviving BK – it generally doesn’t and there have been some recent cases where debt collectors have faced stiff judgments for doing so (including punitives and attorneys fees)

  100. tonye

    A Ferrari 250GT and the Dino are still an outstanding vehicles today. Do not think that because something is old it’s bad.

    Besides, for the last ten ( fifteen ) years the germans have been making their cars porkier.

    Now, if he were to think of even a Civic R or Civic S (NA), or even a 2.2 S2000….. heck, my 95 GSR had an 8100 rpm redline and the ITR had an LSD on it too… but the US CSI has even more power, an LSD. and a rifle bolt MT6 action.

    So, anyone that makes points like yours or his simply is clueless about automobiles… and hey, since my wife works for one of the large ones we KNOW cars in my house. Devoid of “ego” and value judgements, btw. Just the facts.

  101. tonye

    Well. he reached terminal velocity and he wasn’t accelerating anymore. So maybe he realized it wouldn’t be as bad as he thought. 😛

  102. zaleriana

    “As for debt surviving BK – it generally doesn’t and there have been some recent cases where debt collectors have faced stiff judgments for doing so (including punitives and attorneys fees)”

    Too true, at least regarding consumer debt. But most people hire awful, awful bankruptcy lawyers who won’t lift a finger for anything. So they don’t know how to deal with such collection attempts. If you know anyone that this happens to, tell them that the best recourse is to go back to the Bankruptcy Court, even if they have to do it pro se (ie, w/o a lawyer). Most federal judges don’t have too much tolerance for creditors violating their orders.

  103. vino verde

    wow, this listing has a beautiful kitchen. so much over investment in kitchens, so much over investment in real estate, take out the ‘kitchen necessary to sell speculative crowd’ and very few people (if any) will pay this kind of money for this kind of kitchen,

  104. djd

    CDS in this context probably means cul-de-sac.

    It wouldn’t be fair for me to make a dead end joke here, since the interleaved cul-de-sac pattern is not uncommon in suburbia in general.

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