There Goes the Neighborhood

Walnut Tree — Keane

Do you remember our recent discussion on Financing in a Declining Market? This REO is going to obliterate the neighborhood comps. Any property the lender considers comparable to this one will not get good financing (it doesn’t matter what we might think is comparable, it only matters what the lender thinks.) Remember our optimistic seller one block over on Sweetan Street? Any lender is almost certainly going to consider today’s featured property to be a comparable, and with a $400,000 lower asking price, anyone looking to buy the property on Sweetan Street is going to have to come up with almost $500,000 cash to close the deal (Those sellers are pwned.) This is the first real jaw-dropping price buster we have seen here in Irvine. It is happening everywhere else, and now it is happening here as well.

5228 Walnut Kitchen

Asking Price: $351,500IrvineRenter

Income Requirement: $87,875

Downpayment Needed: $70,300

Monthly Equity Burn: $2,929

Purchase Price: $475,000

Purchase Date: 7/30/2004

Address: 5228 Walnut Ave #10, Irvine, CA 92604


Beds: 3
Baths: 3
Sq. Ft.: 1,460
$/Sq. Ft.: $241
Lot Size: 1,700

Sq. Ft.

Property Type: Condominium
Style: Contemporary, Townhouse
Year Built: 1980
Stories: 2 Levels
Area: El Camino Real
County: Orange
MLS#: S534553
Source: SoCalMLS
Status: Active
On Redfin: 3 days

Wow!**Bank Owned REO this Is The One You’ve Been Waiting For**great
Floorplan**terrific Price**3 Bedrooms + Office/Loft Deck With View Of
Newport Hills**light, Open Floorplan**cozy Fireplace** Large Sliding
Glass Door Leads To Huge Rear Yard**plenty Of Room For A Family,
Entertaining, Gardening**priced To Sell Now!! No Mello Roos!

5228 Walnut GardenWow!** The realtor had fun with punctuation. and Random capital Letters.

Bank Owned REO? Bank owned real estate owned?

Plenty of room for Gardening? Looks like they need to weed the bricks they are growing.

Did you notice that this is also the first 3/2 listed for sale under the median income in Irvine?

So what is this property worth? It is selling near breakeven for an owner-occupant. An astute observer from yesterday, C. Cammack, rents nearby for $2,065. There are also nearby properties going for $1950. Let’s say this place rents for $2,000. With a 160 GRM, the value is $320,000. Some knife catcher will probably bid near $400,000 for this place today, but the asking price is getting very close to the owner-occupant breakeven. Of course, many would not want to own and occupy this dwelling, but prices in Irvine are nearing the range where they are affordable again.

Those of you who have been wondering why I have been showing so many low-end properties lately can find your answers in the graph below I borrowed from Calculated Risk:

The low end of the market is where the action is with properties like todays. It is leading the race to the bottom. The lender who foreclosed actually had $520,200 in debt on the property due to a refinance in late 2005. The people who lost the property in foreclosure walked away with their downpayment plus an additional $45,000. If this property sells for its asking price, the lender is going to lose $189,790. If there are 4,365 distressed properties in OC under $500K, and if the lenders are losing an average of $100,000 per unit, there is $4,365,000,000 in losses just at the low end in Orange County, California. Do you think the lenders have already written this off? I doubt it…


Once there was a great storm,
Pushed my head beneath the waves,
I was gone.
Underneath the walnut tree,
Where you said you’d wait for me,
And I waited a long, long time
I waited a long, long time,
I waited a long, long time,
I waited a long, long time,
I waited a long, long time.
Why, why do I come here?
Seeking out the memories I hold dear,
‘Cause you put your spell on me,
Made me live in memory,
And im frozen in just the wrong time.
I waited a long, long time,
I waited a long, long time,
I waited a long, long time,
I waited a long, long time.

Walnut Tree — Keane

60 thoughts on “There Goes the Neighborhood

  1. George8

    IR, I agree with you that the knife catchers will bid this one up 10-15% over asking. The lender will pick a “winner’ in about 2 weeks at around $385k.

    The winner will feel like a winner, but only for a brief period of time. A lot more better products at lower prices are coming on line in the near future.

    Do you have have the virtue to wait a little longer?

  2. George8

    >>We are seeing heightened activity is some of the worst-hit markets, North Oceanside for one, where in the 92057 zip code there have been sales at 60% off-peak pricing.<< Quoted from

    60% off is no longer a fact in the “desert region” only any more. It is spreading like a wild fire along the pacific coastal region as well.

    1. The Moar You Know

      I live near Oceanside, and it’s incredible what’s going on there – there’s been properties (low end) selling for more than 60% off, neighborhoods where maybe one person on a block is not in foreclosure. Amazing. And yet, not ten miles south, prices haven’t moved.

      Crazy market.

      1. George8

        >>And yet, not ten miles south, prices haven’t moved.<< Are you referring to Carlsbad? I have followed Jim Blinge's blog long enough to know Carlsbad is crumbling underneath as well. It is just a matter of time.

        1. former_irvine_resident

          What’s the URL for Jim’s blog? I have a friend who is relocating to Carlsbad and thinks he should buy…. Need to warn him.

        2. Genius

          He’s probably referring to Solana Beach and south into Del Mar and La Jolla. There are areas in Carlsbad and Encinitas that are getting killed right now. Stuff on the coast is holding up, but as you said, it’s just a matter of time.

  3. montereyrenter

    IR, me thinks you doth protest too much. This hideous stankbomb is indicative of nothing. What does the sign in the window say? Beware of toxic mold? Nuclear reactor on second floor ready to blow?

    And did they have a second job changing car oil in their living room? The stains on the carpet sure look like it.

    I’d prefer a cell in San Quentin to this abomination. Conclusions to be drawn from this one re Irvine RE: zilch.

    1. IrvineRenter

      During the bubble, properties like this in Irvine were going for over $500K. It may be the worst property in Irvine, but cosmetic problems can be fixed, and this is a 3/2 in Irvine. The fact that this could rent for $2,000 a month either speaks to a bubble in rents or the fact that everything in Irvine carries a premium.

      “I’d prefer a cell in San Quentin to this abomination. ” LOL! Me too…

      1. mickslam

        Yes, the only flaw i’ve seen with the evaluation model here is assuming that rents were not effected by the bubble at all. Rents might come down 10% as well as the vacancys are turned into rental properties.

        If you knock 10% off the current rents, then calculate a price level where a property owner finds it attractive to purchase and rent the property, well, that I think is close to the bottom price we are going to see at the end of the decline.

        We are not even close to that level yet. Another 25% or more

    2. C. Cammack

      I think you conclusion is a little harsh. I happen to live in one of the units and like it quite a bit.

      First of all the units are at a step angle from each other. The only part that we connect with our neighbors is our garage connects wit the end of their living room. That gives us ALOT of privacy. We have a driveway that can fit several cars in (try finding that with a condo) Not to mention we are walking distance from Irvine Regional Park and the nice shopping center over by Walnut and Jeffrey.

      I’ll give you that it looks a bit “dated” but the landscape is well kept and the HOA dues are only $150 (which are small considering this in only a 10 unit complex) Plus the HOA president is a rather nice fellow.

      Honestly, this one just needs some new carpet, some yard work in the back, and some kitchen updates and its fine, even to live in.

      I’m not holding my breath but if this unit got to the $270k ish range I’ll snag it for myself to live in

  4. NoWow!way

    “And did they have a second job changing car oil in their living room? The stains on the carpet sure look like it.

    I’d prefer a cell in San Quentin to this abomination. Conclusions to be drawn from this one re Irvine RE: zilch.”

    Actually 20 years ago this unit would have only be considered as a type of affordable rental for an investor to rent out. It would not have been considered as a part of the traditional ladder of homeownership – condo to detached home to bigger/better home.

    Things have gotten so unaffordable here that even these income-producing units have gotten so bloated that they were now mistaken for “starter homes”. They are not. As you’ve noted it is a grubby version of a privately owned “rental” house. There’s no pride of ownership here. It’s a run down apartment that someone mistakenly assumed was something more.

    1. The Moar You Know

      Amen. This was built from the get-go as rental property.

      Not that it can’t be a nice place to live in – I own and live in a similar place myself. It has taken a lot of work, and it will always look kind of grubtastic on the outside thanks to the HOA regs (wouldn’t do for me to make the place look nicer than my neighbors, would it?) but it is in the middle of a damn fine town and community.

      It’s never a bad thing to own the crappiest piece of properrty in the middle of a really good community. You benefit.

      And burglars tend to drive right by my place on the way to the gated community right down the street.

    2. movingaround

      I agree with nowow!way – this is not a place I would buy unless the rent savings was really dramatic. I don’t consider it buying a ‘home’. I’d rather rent.

  5. ConsiderAgain

    What a miserable, depressing dump. Nothing could make this dwelling attractive. $351k? Yea right, thanks for the insult. The only value I see here is in the tiny amount of land this trash pile rests on.

    It is difficult to imagine that at one time someone actually agreed to pay $500k, a real life savings for many families, 30 years of mortgage payments, for something like this.

  6. BD

    IR –

    You mentioned that the action is at the ‘low end’ around distressed properties and inventory. What happens to the ‘higher end’ when the ‘low end’ moves down significantly? What has happend in the past? It seems to me that the ‘high end’ will hold on longer but, must ultimately move down as well to find move up buyers with far less equity to bring forward. Any historical anectdotes here?



    1. IrvineRenter

      That is exactly what happens. The high end cannot hold to WTF prices when the low end collapses. First, there is no equity for move-ups, so the high end can only be supported by cash buyers. There are not very many of those. Second, the substitution effect takes over. People may want higher end properties, but if the low end is much, much cheaper, then people will substitute and save the money. This reduces the volume significantly at the high end. Ultimately, the high end will fall when REOs start to drag them down just like we are seeing at the low end. This will begin in full force when the Alt-A and Prime ARMs begin to reset next year and into 2010.

  7. Jack Dawson

    I like the carport. Can I back my scamper in there, put it up and let the in-laws live in it?

    Son’t know about u, but kinda’ blows my image of the ‘vine to pieces.

    I may havw to look elsewhere.

    Do they have units like this in Fountain Valley?

  8. No_Such_Reality

    Reading the first dozen comments on the blog this morning, I now have a better understanding of what drove the new house prices so high.

    Frankly, this is a modest townhome. If you think this is crappy, wait another year or two to see what the real crap is that comes back to the market.

    The difference between this and the junk that was selling in the bubble was a trivial pergranteel gloss coat. So tool that didn’t really know what they were doing came in, but new stainless steel maytag appliances for a premium, paid a premium for cheap mass-produced granite from home despot, put in cheap, often noisey improperly insulated laminated wood flooring, slapped a coat of paint on and slammed it back on the market for $150K-$200K more.

    This isn’t a 5 bedroom, 3000 SF place in Woodbury geared to the top 5% of earners in Irvine. It’s a modest 3/2 townhome, geared to the reality that is Irvine. $80Kish in income, one, maybe two earners and a munchkin or two.

    1. bobbyj0708

      Does Grizzly Adams live here?

      Not anymore. I moved out last September.

      I really did live in this complex until recently, a good friend owns one of the units.

      This particular unit has actually been renovated some (if you can believe it), the funky room upstairs was once the 2-story vaulted ceiling area for the living room below. The fireplace isn’t standard either, the unit I lived in originally had a wood stove in the LR.

      No offense to my buddy but these units were poorly built. The framer obviously didn’t have a clue what he was doing and the finish materials were poor. The windows are perhaps the worst I’ve seen. They are single paned, leaky and let in the road noise from Walnut like you wouldn’t believe.

      The unit shown here was also for sale for a long time last year although I can’t recall the price.

      I’m curious to see what this place ultimately goes for.

    1. IrvineRenter

      This makes me angry…

      From the link above:

      Don’t blame real estate agents for the financial mess many homeowners are in. It’s not their fault prices soared so high or crashed so fast. Housing is still a good long-term investment, and this is a great time to buy a house.

      That’s the consensus of the region’s largest real estate companies — Century 21 M&M;and Associates, PMZ Real Estate and Prudential California Realty.

      Their leaders made a well-argued case defending their 1,400 agents and explaining the crash during a round-table forum sponsored by The Bee.

      Larry Matos of Century 21, Mike Zagaris of PMZ and Craig Lewis of Prudential were questioned about the housing market — its rise and fall.

      “Did the real estate agents do anything wrong? No. Did the builders do anything wrong? No,” said Matos, whose company has 600 agents. “I don’t think there was a lot of bad advice out there. I just think a lot of people got caught up in the market conditions.”

      1. REJunkie

        Guilty or not, many of those real estate professionals are paying the price now. With little or no income and property that they own that they cannot afford. What goes around, comes around.

      2. No_Such_Reality

        “I don’t think there was a lot of bad advice out there. I just think a lot of people got caught up in the market conditions.”

        As the professionals in a million dollar deal or half million dollar deal demanding 6% as comission, isn’t it their responsibility to know the market conditions and advice their client?

        The NAR is pimping housing as an investment to build wealth. The clown in the article claims no responsibility for advice given or knowledge of market conditions.

        Grrrrrrr, from the article “Real estate agents can’t promise people their homes are going to go up and up in value. Neither can we predict they’re going to go down in value,” said Zagaris, who has 500 agents.”

        Wait a minute, that’s exactly what they did.

        1. RealtorsSUCK

          You got that right ! The ONE PHRASE that I kept hearing from those loser RealTurds (TM) over and over and over and over is:

          “They arent making any more land, BUY NOW or be priced out FOREVER.”

          They (RealTurds) are partly RESPONSILE for this mess. They can deny it all they want, but denial is typical of losers who dont want to take responsiblty for their actions. Typical.

      3. Iblis

        Six percent of an $800,000 sale is $48,000. Half of that is $24,000.

        I can hire a partner in a real estate law firm for $500/hr (or less). At that rate, my half of the commission is worth 48 hours of high powered lawyer time.

        Now, from whom would I rather get advice for my $24,000. A “real estate professional” who used to park cars for a living, or a high powered lawyer?

        And I seriously doubt I would use all of the 48 hours my $24k will buy.

        1. SacBoomer

          Couldn’t agree more. Every real estate transaction with a “real estate professional” representing us ended up at a lawyer’s office with a bill. The last time around, I spent $600 up front for the real estate attorney and we skipped the frustration of paying huge fees to folks with IQ s one or two deviations below the mean.

          1. Mikee

            I agree to a point. I know more about the area, housing market, financial analysis than my real estate agent (or the useless one before her.)
            But I don’t have the sales records, escrow report, MLS license, or the inside knowledge.
            I credit our real estate agent for finding a buyer for my last house. We had already bought our dream house, and was paying double mortgages. No one was looking at the house – we had maybe 5 walkthroughs in two months. But she knew a friend who knew a friend, an lo and behold it was sold.
            Then when we moved out of the dream house on a temp work assignment, she found us a tenant right away – also a friend of a friend. I’ve only had one month where I footed the whole mortgage bill thanks to her.
            So, it really does make a difference sometimes. You just have to find the right one.

      4. Major Schadenfreude

        Don’t forget, it was the lenders who created this problem – not the realtors.

        In fact, some realtors are giving back to the community like the BMW-driving realtor/owner of this fine house.

        Probate-puchased for 850K last July, she dumps 150K in upgrades (place was trashed and an eyesore), puts back on the market for 1.275 million (“hey, let’s make a quarter mil for my troubles”), but now is offering it for $899,000.

        See? Giving back to the community! Let’s see if she gives Uncle Sam his due this July.

      5. abdul rahim

        the article is particularly offensive b/c the reporter seems to believe their bullshit:

        “Housing is still a good long-term investment, and this is a great time to buy a house.” — no sarcastic rejoinder to this line that realtors will use even if the US is a nuclear wasteland.

        “Their leaders made a well-argued case defending their 1,400 agents” — there is no “well-argued” case to defend the bubble pumping of these whores.

      6. Soapboxpolitico

        Good grief. Almost don’t know where to start. As pointed out, the “journalist” didn’t even bother to offer contrasting opinions, just regurgitate what the realtards are saying and all is good. This is how we get into trouble in this country on just about any subject; journalism is failing in it’s basic duty to offer the facts and contrasting opinion. They never fact check nor perform any marginal due diligence before printing a story.

        How these remora can have the unmitigated nerve to say publicly that they’re blameless only serves to further underscore their duplicitousness. I can repeat ALL the usual bull$hit I heard from the two I worked with last year when we were home shopping … you’ve heard them all here already. Clearly everything they did was self serving and any action they take now is ever more so. The higher prices went, the more these doinkers made, it was all such a joke.

        My next home purchase will be self-represented and processed thru a real estate attorney. Nuf said.

  9. picflight

    [b]My Offer[/b]
    After giving this property a thorough look, my offer today is [b]$140,700.00[/b]. I believe this is what this property is worth.

    1. Deranged Knife Catcher

      [b]My Offer[/b]
      After giving this property a thorough look, my offer today is [b]$395,000.00.[/b] I believe this is what this property is worth.

      0% down ARMs are still available, right?

      1. zoiks

        “0% down ARMs are still available, right?”

        Only available if you do not document your income.

        My Offer
        My final offer on this property is $114.65, contingent on the seller changing the carpets and scrubbing the lime deposits off the shower fixtures. I believe this is what this property is worth.

    2. House Seeker

      We saw a property, it’s right next to the Mobile Home, from your Master Bed’s balcony you can see the last mobile home. picflight you are generous, I would not offer more than $100K for this, and right after buy, I will put it to the rent, I can’t even think, how family with kids can live in this place.

  10. minou

    Realtors are to blame for part of this debacle. Are they out of jobs and out of money now? Yep, and it’s because they were greedy. Boo hoo. Maybe WalMart hiring?

  11. Chris

    I used to live across the street from this place…forgot the property name but it was Topeka alright. HATED THAT PLACE! The damn gardeners kept on blowing leafs every single freaking morning (my wife and I are late sleepers) as if the leafs are piling up like garbage.

    $300k+ is too much for this dump. I don’t think you can use the square footage price to rank this in comparison with some of the other nicer neighborhoods such as Oak Creek or Westpark. I would probably consider it at $150k…but no mas.

    BTW, what the hell happened to 22 Daffodil? Anybody got a status on that? IR?

  12. Will

    I live close to there, and I drive by the house every day on my way to work. It’s on a busy street, and you can only come in one way on Walnut. Right next to the trailer park, and really tight parking. It looks like it was shoehorned into the area.

    I wouldn’t buy it for $200,000.

    (Which is incidentally what my parents paid for a 4/3 in the Willows in 1993)


    1. haha

      “Right next to the trailer park, and really tight parking. It looks like it was shoehorned into the area. ”

      OMG! You mean that there is an actual TRAILER PARK in Irvine ?????? You’ve got the be kidding right ????

      But then again, most Irvinians dont mind living so close to the city landfill anyways….


      1. Will

        Oh yeah, there’s two of them I know of…

        This one is on Walnut, near Jeffrey. I believe that there is another entrance to the same trailer park on Jeffrey itself, adjacent to the train tracks (yes, yes, jokes abound)

        The other park is on the corner of irvine blvd and Jeffrey.

        They’re pretty well hidden, and I don’t really know what the conditions are like inside… strange, huh?

        1. haha

          “The other park is on the corner of irvine blvd and Jeffrey.

          They’re pretty well hidden, and I don’t really know what the conditions are like inside… strange, huh?

          I suspect the trailer parks in Irvine will grow larger to hold all the losers who lost their homes in Irvine. I dont get why everyone thinks Irvine is so “special”. Places like Dana Point are way much better… ugh.

  13. Blueberry Pie

    Now that this property is bank owned and the bank stands to lose $190k, does the bank continue to try and collect the debt from the borrower? Or, once the foreclosure process happens does the bank just write off the loss?

    1. IrvineRenter

      If the debt is purchase money, the lender has no recourse. If the debt is refinance money, the lender may have recourse. If they go through a judicial foreclosure, they will have a deficiency judgment, and they can go after any of the borrowers assets (outside of ERISA protections for retirement accounts.) If they do not have a deficiency judgment, the law is a bit murkier. There is still an unpaid debt no longer secured by real estate. Without the deficiency judgment, this debt is much harder to collect. I suspect you will see a cottage industry in debt collection on these foreclosed loans in the coming years.

      1. Blueberry Pie

        Maybe I’ll join that industry.

        They made my life harder by inflating house prices, so I’ll make their life harder by placing collection calls daily.

  14. Chris

    That’s one too many zeros in the total OC losses. But $435 million is still a lot of money. Can I have some?

      1. Dawn

        435 million is not 4.3 billion. It is .43 billion.

        I’m beginning to understand how people get into this mess.

    1. former_irvine_resident

      Now that is an astute observation. I was pointing that number out to my friends today and it was way off. $435 million is still a lot of money but it’s not 4 billion plus. That’d be huge for just one county and only some of the carnage that is to come.

  15. JohnW

    It’s mostly the REALTORs who drove people into this mess, along with novice speculators drunk with cheap “look the other way” loans shoveled by craptacular “loan officers” into the gaping maw that is now OC Real Estate. This problem still exists today. I’ve got a lucky appraisal that came short on a price by about $5,000. We have a comp killer closing next week that would have put the appraisal down by $20k so my buyers at this point have “over bought”. They want to proceed anyway. Normally this shortfall between price and appraisal would be negotiated by seller and buyer. The Buyers REALTOR’s first suggestion: “the clients need to apply with another lender who will get the appraised value we need.” The drive for commissions outweighs the right path of watching out for your buyers. This mentality is what pushed us into the position we see around us. I can’t wait for these kinds of REALTORS to get thrown out of the business for behavior like this.

  16. StephLA

    I think realtors and many others really believed that prices would rise forever. Those that are bearish during the fever pitch of a bubble are in the extreme minority. Many involved in RE in 2006 were arrogant and thought they were financial geniuses. I’m glad you cant short houses, because I would’ve lost my ass in thinking that the market was ready for a pullback in 2003. Check out this interesting article from the Washington Monthly explaining that some markets are definitely in a bubble. He sites the fact that families earning 100k in Calif owned, on average, a home worth over $830,000 or more than 8X income.

    Oh yeah, another interesting bit – this article was written in 2004…

    1. abdul rahim

      By the way, will others please give more detail on the stupidity and lack of education of Realtor morons? I know that such are much mocked on these boards, given the misspellings and capitalizations of their desperate and shrill ads, but what kind of ignorant-trash backgrounds do they bring to their “profession”, LOL?

  17. phil

    Speaking of “there goes the neighborhood”, a house not far from where I live seems to have just sold for $285/sq ft. I say “seems” because the Realtor flyers show it selling for more money 5 months earlier and omit the latest sale.

    Specifically, this is 15 Prosa 92620, and the flyer shows it sold for $680k on 11/15/7 ($326/sq ft). However, Redfin and Zillow indicate this property sold for $595k on 4/8/8. I’m assuming this went back to the bank for $680k and sold for $595k to an individual and the Realtors are conveniently omitting this fact.

    If so, I am very surprised to see that the same house model at 25 Prosa just sold for $730k ($350/sq ft) closing on 5/22. Maybe it was just in the pipeline before the comp killer arrived, but there is a long time between 4/8 and 5/22. Or maybe the buyer of 25 Prosa just didn’t care and had the cash. I’ve been inside 15 Prosa and while it wasn’t the greatest house, at least on the surface, it wasn’t a dump either.

    Any thoughts on this one?

    As an aside, 2 more of this same model house just went up for $760k and $800k. The sellers are clearly emboldened by the $730k sale.

  18. SacBoomer

    I’m afraid you are all being a bit hard on this downtrodden property. Didn’t you notice the oven?

    I mean I could really see myself in this place, and after a couple of years of farming weeds in the brickyard, after I realized that I had flushed my life savings in the crapper, I could stick my head in that oven and turn on the gas.

    You just have to have a little vision, that’s all……….

  19. Headless Unicorn Guy

    This is the first real jaw-dropping price buster we have seen here in Irvine.

    Has the seller been lynched yet?


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