Should I Stay or Should I Go?

Darling you gotta let me know

Should I stay or should I go?

If you say that you are mine

I’ll be here ’til the end of time

So you got to let me know

Should I stay or should I go?

Always tease tease tease

Should I Stay or Should I Go? — The Clash

This is the question every underwater, subprime borrower is asking right now. Most of these people just wanted a home, and if they could afford the payments, they would probably stay in them ’til the end of time. They were enticed with the teaser rate on their Option ARM, and if they can’t serial refinance (tease tease tease,) then they would like this teaser rate made permanent. Unfortunately, it is not going to happen.



Remember the Adjustable Rate Mortgage Reset Schedule?

The gray lines making up the majority of these loans reseting in 2007 and 2008 are subprime. This is what is causing prices in areas like Santa Ana or the Inland Empire where subprime was concentrated to fall precipitously. The big price drop caused by the collapse of subprime will put many homeowners in a weakened position where they may be underwater or have a very high loan-to-value ratio. When the next wave of resets hits the market (the Alt-A and Prime crowd that makes up most of Irvine) prices will be lower because of all the subprime defaults. The Alt-A and prime borrowers in Irvine may face difficulty with refinancing because they will not have enough equity to fall within the tighter lending standards necessitated by the subprime collapse. The subprime fiasco may not hit Irvine directly, but it has created the conditions that will poison Irvine’s market when its toxic loans ripen in 2009 and 2010.

They say all real estate is local, but this isn’t true. All real estate markets within driving distance are linked together by commuters. If prices in Corona drop to the low $100,000s, prices in Irvine will certainly fall. There is a price differential that will entice people to fringe markets. This creates price drag on the primary markets as some potential buyers are siphoned off by the fringe markets. Eventually this effect will work its way to the most desirable markets on the coast. The collapse of the real estate market is like a land tsunami: it starts inland and makes it way overland to the coast leveling everything in its path. The markets in Coastal California will not be spared, particularly with as extremely overvalued as they currently are. If GRMs fall to 160 in Irvine, they will not stay at 400 in Corona Del Mar.

Today’s sellers have earned my admiration. Once they decided it was time to go, they stopped messing around and priced their home to move.

56 Calavera Front 56 Calavera Kitchen

Asking Price: $869,453IrvineRenter

Income Requirement: $217,363

Downpayment Needed: $173,890

Monthly Equity Burn: $7,245

Purchase Price: $970,000

Purchase Date: 10/4/2004

Address: 56 Calavera, Irvine, CA 92606Rollback

Beds: 5
Baths: 3.5
Sq. Ft.: 2,400
$/Sq. Ft.: $362
Lot Size: 6,000 Sq. Ft.
Type: Single Family Residence
Style: Contemporary
Year Built: 1996
Stories: Two Levels
Area: Westpark
County: Orange
MLS#: S510396
Status: Active
On Redfin: 117 days

Unsold in 90+ days

Highly & professionally upgraded. Most desirable home in Westpark2. Granite counter tops, High grade wood flooring through out the house, Italian pavers in kitchen, Crown molding & 5inch base boards, Custom Paint, Tumbled Travertine back splash in kitchen, Built in cabinets & high grade flooring in garage, Stainless steel appliances w/ Refrigerator, Automatic fireplace remote igniter, rolling garage door, Home media center with speakers throughout house5th BR does not have closet (Den/Office).



This house was orginally listed for the WTF price of $1,150,000 on Oct 24, 2007. It is not a big surprise it did not sell. What is surprising (and admirable) is the $300,000 price drop they made a few weeks ago. As was discussed in Selling for Less, a property needs to be listed for some period of time at a sales price which would result in sufficient funds to pay off the loan before a short sale would be approved. Do you think they arrived at an asking price of $869,453 by randomly picking numbers? It is probably the exact payoff figure for the loan on their property after commissions. In today’s market, this house is a good deal, but with no room to negotiate on price, it may not be good enough until it is eligible to become a short sale.



That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.


61 thoughts on “Should I Stay or Should I Go?

  1. George8

    This looks like a nice home at 2003 rollback. However, it still takes more than $200k income, and $200k down to qualify to buy it.

    IPO, what do you think? How long do you think this one goes into escrow?

  2. OptimusPrime

    Westpark…one of my favs in Irvine.

    I actually like this home and did remember the $1mm+ tag.

    I’d definitely be an interested buyer at $700k. A sub $300 sq/ft

  3. NoWow!way

    I find it particularly interesting to read the price may be associated with the line of price related to a short sale.

    It is a beautiful home. The mls description and pictures were professional and the price looks serious for anyone looking in this neighborhood at this particular time.

    I think most of Westpark has less than 20 years left on their mello roos, too! 😉

  4. secret service

    why do you think this house is a good deal (even in today’s market) ?
    >360$ psf is still high, even for Westpark

    If I may not agree with the 160GRM (especially for the family detached house like this one), there is still no way i’d pay more than 280$ psf today. (~680k$)

    That’s still high, considering that this kind of house may be rented for ~ 3200$/m, which even at a 200GRM means 640k$

    Have you noticed that in both case, we are ~25% off with today’s price ?

  5. buster

    Maybe the several years of high prices have desensitized potential buyers to outrageous prices. Would you really pay almost 3/4 million dollars for an Irvine tract home? It’s 3/4 MILLION. For a tract home.

    Who cares that they once listed it for $1.3 million? If they had listed it for $1.8 million, would you consider it a good buy right now at this price?

    IMO, the real value is $500,000 – $575,000 and not a penny more. This is a very nice home that somebody making $160,000 should be able to easily afford. It’s not a mansion, it’s not a “wow” home, it’s a nice tract home in a nice neighborhood.

  6. NanoWest

    These bail out programs are scary……………….

    It is sort of funny to read about distressed properties where the difference between the value and sales prices is 22K. People lose sleep over chump change in mephis…… OC you should not lose any sleep unless your loss is at least $300K(real or imagined)

  7. ipoplaya

    All depends George. The house is a bit over-valued still even in the current market. Not sure the bank would take any less, so it might have to go bank to the bank and then eventually get sold in the $700s. I think someone would pay low $800s for this house today and feel happy about it, just not sure they can get it done giving what would appear to be the homeowners distress. This place backs to a well-traveled arterial road and that would keep me from buying it even if I wanted to live in WP2.

  8. eastbay

    this house should be valued at 600-650K based on 1996 sales price of 330k. Don’t use last sales price which isn’t “real”. Double the 330K price and you get 660K. I double mid-90s prices as a easy way to calculate inflation and use the rule of 72 (72 divided by inflation rate (4%) gives you the number of years for the price to double–72/4 = 18 years)….Personally, I wouldn’t pay over 600K for this house down the road, but offered to me now at 650K, i would jump at it.

  9. CK

    I posted this one on the forums as one I would like (and think something like this will fall back to $600’s eventually). For $700k I would cancel all my meetings and go sign on the dotted line today. And stay here for 20 years.

  10. CK

    IPO — I use Paseo Westpark every day, and find that for the most part, it is fairly quiet. Backing to that street would not hold me back. My wife and I checked this place out about 7:30pm last week, and got out of the car and just listened for about 10 minutes. Dead quiet, and the cars that went by were not trying to qualify for the Daytona 500. The part of Paseo WP this backs to a pretty short stretch between stops at Warner and Festivo (right in front of the school), and it seemed the cars don’t get much of a head of steam up right there between the stops.

  11. TheArcadian

    Back in the 90’s my parents worked hard for several years, saved some money and were able to purchase a nice single family home in a decent neighborhood. Nothing extravagant.

    My parents made only $30,000/yr between the 2 of them and had no problem taking on a 30 yr mortgage. Their down payment was the result of working 14 hour days, 6 days a week.

    Fast forward 12 years later. My SO and I graduate from college and able to save almost 4x what my parents made per year. We live at home, live frugally, eat on a budget and don’t spend money on “toys” unless it’s a birthday or special occasion. After all this, we would still have to “stretch it” to afford a cookie cutter home situated on a tiny lot.

    It just drives me crazy that the Feds would bail out people who put little or no down payment on the their home; stretched themselves to the max on a mortgage; and refuse to take responsibility for these decisions.

  12. NewtoOC

    IR, nitpicking here but … you need a “I don’t know what kind of loans people who own in Irvine have” choice on the polls. I am new to the area and only know a handful of neighbors and coworkers that live in Irvine proper and while I suspect some people got in over their heads I don’t really know that for a fact.

    I really like the polls by the way! It’s interesting to see what other people’s observations are vs. my own data points.

  13. no_vaseline

    Boy, isn’t that the truth!

    I know of a whole tract in the Stockton area (20 homes) that was dumped back to the lender in the early 1990’s. The tract had $15K neg. equity each unit. That’s about $300K total. There are some people who are stuck that bad on a single home today. And it’s getting worse.

    Interesting times indeed.

  14. houseonlegs

    In 3/06 the owners refinanced with a $862,500 ARM and a $172,500 HELOC. The listed price of $869,453 probably is the exact payoff amt of the 1st mtg. I wonder if they’ll have any takers?

  15. American-Screamer

    This part of the article should tell you who the bailout is really for..

    “Bank of America, which is in the process of acquiring Countrywide Financial and has potentially huge exposure, has circulated a proposal to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans.”

    It’s not for the distressed home-debtor…its for Wall Street, Banks and huge commercial lenders…

  16. ipoplaya

    I agree CK, Paseo isn’t that noisy. People frequently use it to get from Barranca with connection to Harvard, but being single lane both sides with stops, it’s definitely not a racetrack.

    I roll through there on Tuesdays and Thursdays at 6:15 or so coming back from preschool and always see a number of cars, mostly around the intersection of Paseo and Warner. I have come across, on a number of occassions in that area, some dropped sedans with modified exhausts – WRX’s and the like.

    I don’t think I’d want my master bedroom backing to a street they roll on if I had more choices. Personally, I’d rather have my backyard back to someone else’s backyard… In a buyers market, that should be doable.

  17. skek

    Agree — I was looking for an option that said “who knows, I don’t talk with my friends and neighbors about their financing, although a lot of them drive suspiciously nice cars…”

  18. Surfing in Newport

    I’m hoping that the OTS plan doesn’t fly. I like the idea that they are trying to find a way to get around issues caused by the securitization of loans, but the concept is still flawed.

    1) It would require government guarantees on 100% LTV. I don’t think this is going to fly as it will be seen as a massive bailout of the banks since the LTV is likely to increase further from this point as housing prices continue to drop. Even at 95% LTV, the plan will be seen as a bailout since significant portions of the market are still predicted to drop more than 5%.
    2) If the housing market is over valued by 2x in some places, it will take ~20 years for the home owner to see any appreciation. So in effect, they are renting.
    3) Because they are renting, and they have no one to pay for maintenance except themselves, I predict that these properties will become rundown. Why would you fix/update anything if you are never going to see a return on that investment.

  19. T!m

    eastbay – But it has only been 12 years since that 1996 sale. Using the formula you site, it shouldn’t double in price until 2014.

  20. lendingmaestro

    That doesn’t make sense to me.

    Even if you assume a 5% rate of appreciation a year for 10 years you only come up with a value of $537,535.

    Are you using the fuzzy real estate agent math that says home prices double every ten years? 5% is above the long term yearly average price appreciation in So Cal.

  21. TheArcadian

    And the only way to bail out Wall Street is to bail out homeowners through some fed-sponsored program.

    IMO, both parties should be punished. All these distressed homeowners aren’t going to end up on the streets. They’ll just be forced to rent and save up for a down payment like the millions of American before them.

    As for Wall Street, no way I would want my tax dollars to bail them.

  22. resident

    I still think this one is overpriced for today’s market. Look at 30 Water Lilly in Columbus grove, it’s a little larger for 799K. I know they have ugly HOA and Mello, but the home is only a year old. To get this one sold, they should go to 750K and see if they can get multiple offers. It’s a short sale anyway, why to they care about the price? Ultimately, these will get down to the 550-600K range, but you’re look at ’10-’11 before that happens.

  23. IrvineResident

    I saw that NAR commercial, magic number of 10 (years) to double your house value is so disconnected of realty. Housing bearly beats inflation. I’d love to see NAR data backing the claim

  24. NanoWest

    Got news for you……there is no law of nature that says that home prices have to appreciate at the same rate or greater than inflation………..home values in orange county will be set by one and only one factor in the next 5 – 10 years. That factor is the ability of first time home buyers to come up with a down payment.

    By the time the banks and the government get done putting regulations in place that will assure that we don’t have another housing bubble/meltdown…..its going to be about down payments.

    I certainly don’t know whats going to eventually happen, but I would not put my money in a bank that did not require at least a 10% down payment, 6 months of backup, a ltv of 90%, and a 35% DTI by a future mortgage holder…..would you?

    If the entry level market is dead, the move up market is dead.

  25. ipoplaya

    Resident, I think you under estimate the Mello Roos impact. The difference between this Westpark place and Water Lily in Mello Roos is $4500 per year. Considering that extra expense is not tax deductible, it’s like paying $6K more per year in mortgage. At today’s interest rates, that is around $85K in mortgage.

    Think about it, just the difference in Mello Roos makes Calavera almost $100K cheaper all other things being equal. As it relates to the pricing of Water Lily, I think this Calavera unit is fairly priced.

    Now, there is a Tustin Field listing that just popped up. $879K for 3200sf only a couple of years old. Doesn’t back to a major street or the tollroad either. With the much lower MR load at Tustin Field vs. VoC, I’d think buyers would be enticed toward this property.

  26. Carlos

    Funny how the name of the street this lovely home is on means skeleton or skull in spanish. The propensity of OC pretense never ceases to amaze me.

  27. Surfing in Newport

    Interest rates on fixed rate mortgages have future expectations of inflation built into them. So if mortgage rates go up, you should assume that housing prices will increase faster than what you previously assumed. So while your payment goes up, your expected return on investment also goes up. That is, buying a house has a higher monthly payment, but you expect future appreciation to make up for it. The only problem occurs when affordability is an issue. Then higher interest rates would tend to depress housing prices further than expected. As IR commented a few weeks ago, people in the 70’s (a time of very high mortgage rates) were willing to have extremely high DTI’s. So it appears that people go to great lengths to temporarily get around affordability standards because being house poor for a few years makes sense.

    Maybe if comps took into account rental prices, we could eliminate some of the bubbles in this market.

  28. CK

    Despite the fact that they are so close as the crow flies, WP II and Columbus Grove seem light years apart. I drive through CG and I feel like I am in the 909 (or is it 951 now). CG is a bubble neighborhood, and looks and feels like crap. Everything from the homes to the landscaping looks like they were just slapped together to maximize profits. WP II, on the other hand is beautifully landscaped, attractive houses, neighborhood school….First class development, IMO — built during the last bust.

    I hardly even consider Columbus Grove to be a comp to WP II. And then the tax part IPO mentions.

  29. Stilldoubtful

    I see these huge drops in home prices and wonder how the OC economy can hold up.

    Like this listing, selling at a 300k loss. 300k loss on just 1 house, how can banks and the homeowners afford it.

    There will be thousands of homes selling at such significant losses makes me wonder even if I get a house at a reasonable price, will the economy be there to pay for that house every month.

    Also, inflation is really strong this year, everything is going up (milk, gas etc.) Salaries ofcourse are not, leaves a lot less to pay for the house, when everything else is so expensive.

    I have been waiting for these huge drops, but I am now wondering how bad this economy could really get. I know everybody says prices will fall, but these huge fall’s (so needed) will result in some huge casaulties.

    Everybody compares this to the early 90’s in OC and is saying prices will fall 20 -30%.
    Percentage losses is only a part of that. Dollars amounts are way higher now.

    Average nice OC home in early 90’s went from 320k to 250k for example. 70k is a big number, but still manageable then.

    In 2008, 1 million dollar home falling to 600k by 2009. 400k loss.

    400k is just a huge number to me and 400k is still a lot of money.

    I know people will say that only the brokerage firms will lose, but at the end – I feel everybody will be hurting from this.

    Makes it scary to buy a house even at 600 – 700k.

  30. TurtleRidgeRenter

    The laptop I bought last year is now worth less on ebay than what I paid for it! Please, federal government, will you pay me the difference?

  31. TurtleRidgeRenter

    Also my 2008 car! I can’t sell it for what I paid for it. I owe more on the car than it’s worth! I had NO IDEA this would happen. Please help me, federal government. Send me a check so I can sleep at night!

  32. Major Schadenfreude

    “Why would you fix/update anything if you are never going to see a return on that investment.”

    Not only that, but why stay in a property if your new neighbors are remitting smaller mortgage checks?

    The plan requires restructuring the loan based on a “current market value” of the property. Well, this is a moving target! Today’s market value may very well be 20% more than the market value in 4 years. The specu-buyer will sell the home, the Fed and lender eat the loss (according to the OTS plan), and re-purchase another one in the same neighborhood. Except now they “start over”, remitting smaller monthly mortgage checks, AND they get to enjoy the upside.

    The “solution” solves nothing.

  33. tony

    The shareef dont like it


    He thinks its not kosher
    Fundamentally he cant take it.
    You know he really hates it.

  34. Mike in Irvine

    By any chance, are you a depressed, upside down mtg bag holder.
    This is the most informative blog that i have come across.

  35. sunnyview

    This blog offers much entertainment than nowadays stock market.
    WTP = WTF 1M, 800K, 600K…, you guys really be spoiled. look at million houses here

    Someone still remember ‘new economy”, then ‘jobless recovery”.
    what is next? unemployment rate around 6% is natural one in long term.
    inflation goes towards 4%-6%, would be nice, let us back 80s. not everyone wish Ben act as Paul Volcker, certainly not to wall street.

  36. Major Schadenfreude

    Seeing price drops on houses never gets stale!

    Supplemental rental info is good for GRM calcs, but if he were to focus more on rentals, then it would be bye, bye for me and a lot of other people, I’ll bet.

  37. IrvineRenter

    Check out this post over at Dr. Housing Bubble:

    I think the fear you are describing will become widespread once the crash goes on longer and the market psychology shifts from denial into fear. It is this exact fear that causes prices to drop below fundamental valuations. People who are fearful need a reason to buy, that reason being savings over renting. Once the fear you describes becomes more widespread, the kool aid intoxication will be gone, and the next phase of the market drop will begin.

  38. tony

    “I used to think,” Mr. Breakstone said, “that I would pay the piper later and enjoy life now. I’ve totally reversed that view.”

    OK…. so there you have it. A “credit card” lifestyle and now they want us to pay for it.

    How about those of us who -still well in the black- have seen some of our “paper gains” disappear? Can I go to my bank and DEMAND they lower my fixed rate and take a 400K shave on the mortgage (hmmm…. hey, that would make it almost nothing!!!!).

  39. Lost Cause

    Irvine is such a weather vane in the bubble. I don’t think it is a bad place, it has many redeeming qualities. But the reason I watch this blog is that Irvne has so many indicators. Almost totally cororate built, owned and operated, it saw building peak even after the signs were everywhere that the boom was over. And the reluctance to adapt to the changing environment, or captitulate quicky instead of a long, drawn out sloft landing just make the enevitable calamity more complelling watching.

  40. DumpsterDiver

    “Funny how the name of the street this lovely home is on means skeleton or skull in spanish. The propensity of OC pretense never ceases to amaze me.


    Nailed it.

  41. ice weasel

    What’s interesting to me (aside from what I see as clearly WTF pricing) is how we add or determine value in some homes. It’s a very narrow view in many instances (and frequently self-serving). Most of these issues also seem to forget one thing, everything changes. Neighborhoods move from what may have been once considered as good to not as good. Landscaping? Even if it’s maintained by an HOA, that is certainly one of least static things about a given area. If the HOA suddenly needs divert money in different areas, if a law changes and requires landscaping to conform to different regulations, boom! The neighborhood “changes”.

    My point is simply this, when considering the value of a home of course things such as neighborhood serve an important context for making that evaluation but it’s hardly a static factor such as lot size and home size (to name just two things). Even major traffic patterns can change. I think when we focus on which neighborhood might be two percentage points better than another we miss the larger, much more important issues (again, things like the size of the home and the size of the lot and the amount of inventory available).

  42. granite

    I would like to have IR’s opinion on the deflation/inflation argument. While I read Mish daily I still have the 70’s deja vu of stagflation where commodities rose but the economy suffered.

    I agree with Mish that we will end up with deflation. How about you IR?

  43. resident

    I totally agree with both your comments. I live in Westpark too and hate cookie cutter Columbus Grove. My point though, was that that the average buyer is going to put a premium on new construction with all the current “must have” upgrades. They may be able to find a knife catcher on this one, but if they don’t sell it soon, they’ll have to get it under 800K before there’s a lot of interest.

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