I will be out of town this weekend. Anyone want to guess where I am going?
I would appreciate some help in designing the cover for my upcoming book (I have almost reached a deal with a publisher.)
The following cover was designed by JesseBee:
I like it, but I don’t know if it conveys the level of seriousness the subject matter.
I found this image on the web that I like a lot:
I like the idea of a photorealistic image of a house inside a bubble. The backdrop of a sky is also pretty cool.
A simpler version might look like this (although if it were upside down, it would be even better.)
I will need to design my own cover. If someone wants to take on this task, it would be greatly appreciated. I look forward to seeing what you come up with.
This market desperately needs more knife catchers. There are just too many properties that need to be sold and too small a number of people to buy them. I suppose we aren’t helping matters any at the IHB ;).
I hope everyone is getting a laugh out of the daily posts here. The carnage we are witnessing — and will continue to witness — isn’t funny for the people losing money. Residential real estate bubbles are very painful when they deflate. I vacillate between sadness and laughter reviewing these properties all the time. You have to be able to laugh at the grim happenings in life. Life is too short to be bummed out all the time.
Today’s featured property is another speculator who is getting flushed out of the housing market. Not to worry though, he has extracted all the equity and is passing the loss on to the lender.
Wow,fantastic property located in wonderful community of Woodbury,with
Resort like life style,this beauty has 3 bedrooms,3 baths,one bedroom
and bath on first floor,kitchen and living room and dining room and one
bed and bath on 2nd floor and master bedroom on 3rd floor.Fantastic
floor plan for active families,upgraded kitchen w/granite counter tops
and upgraded cabinetries,clean and bright home.
Note to realtor: in English, we put spaces after punctuation marks.
This property was purchased in late 2005 for $612,500. The owner put 10% down. In September of 2007, he managed to increase his credit line on his HELOC to extract all his equity (I can’t believe a lender approved this after the credit crunch in August.) Of course, now the lender is going to eat the loss. It isn’t likely this will sell for its asking price as it is probably 10% over market, but if it did, the total loss after a 6% commission would be $96,440. The lender must feel really good about extending that HELOC.
Thus 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.
🙂
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Isn’t it rich? Are we a pair? Me here at last on the ground and you in mid-air Send in the clowns
Isn’t it bliss? Don’t you approve? One who keeps tearing around and one who can’t move But where are the clowns? Send in the clowns
Just when I stopped opening doors Finally finding the one that I wanted was yours Making my entrance again with my usual flair
Sure of my lines Nobody’s there
Don’t you love a farce? My fault, I fear I thought that you’d want what I want, sorry my dear But where are the clowns? Send in the clowns Don’t bother they’re here
Isn’t it rich? Isn’t it queer? Losing my timing this late in my career But where are the clowns? Send in the clowns Well, maybe next year
Do rational people still deny there was a housing bubble? Today’s featured property is being offered 25% off its peak purchase price. It is one of many. There was a recent post over at South OC Tracker with a property 60% off in Aliso Viejo. Those kind of price drops are not a correction below value, they are the deflating of a bubble to value. Prices are not going to quickly rebound to peak values from an undervalued condition. They are going to drop to rental value and remain there until the toxic mortgages and overextended homeowners are purged from the market.
Today’s featured property is another 100% financing deal gone bad. One of many yet to be purged from the system.
Inside the stunning guarded gates of resort style Northpark, minutes
from Tustin Marketplace. This home features luxury living, the gourmet
island kitchen you have dreamed of, soaring vaulted ceilings. Dual
master suites with an attached 2 car garage. You do not want to pass up
this beautiful home.
Is it just me, or does anyone else see a face in the left side of the front elevation?
If this property sells for its asking price, WMC Mortgage is going to lose $194,100 after a 6% commission. The piggy-back mortgage is a total loss, and the first mortgage is going to feel some pain.
For entertainment value, I often go over to the OC Register blog and read the comments of the bulls. They are case study in market
denial. When people take a position in a financial market, they often
lose their objectivity in reviewing the flow of data. Every piece of
information is interpreted as reaffirming the correctness of their
original decision to take a position. It is comical to read the
comments of the bulls. Every piece of market data that is unequivocally
bearish is simply dismissed. Every piece of market data that is 90%
bearish and 10% bullish is taken as bullish. Lately, there has been no
other kind of market data. This denial takes an enormous amount of
emotional energy as the market will force what Mark Douglas calls “a painful forced awareness” on its participants. I suppose it is
a natural human reaction. Nobody likes to admit a mistake, particularly
after they have made arrogant, and completely incorrect, statements to
family, friends and coworkers. Rather than eat their words, they
maintain denial to the bitter end. After the fact, many will likely
blame unforeseen, outside factors rather than admit they had no idea
what they were doing, and they were completely wrong. We offer comfort
here by telling people it is all OK if they can afford the property. We
all know it really isn’t OK. There are still people holding stocks they
purchased at the peak of the stock market bubble. I doubt they feel it
is OK because they were buying for the long term. You don’t lose money
until you sell, right? Bull$hit.
.
O no, I see, A spider web is tangled up with me, And I lost my head, The thought of all the stupid things I’d said.
O no, what’s this? A spider web, and I’m caught in the middle, So I turn to run, The thought of all the stupid things I’ve done,
And I never meant to cause you trouble, I never meant to do you wrong, And I, well if I ever caused you trouble, And oh no, I never meant to do you harm.
O no, I see, A spider web and it’s me in the middle, So I twist and turn, Here am I in my little bubble,
Singing I, I never meant to cause you trouble, And I, I never meant to do you wrong, And I, if I ever caused you trouble, Oh, no I never meant to do you harm.
They spun a web for me, They spun a web for me, They spun a web for me.
Financial markets are fickle monsters. Whichever way the herd moves the market will go the other direction. I first described this phenomenon in the post How Subprime Lending Created the Housing Bubble, and I extrapolated on that idea in What is Past is Prologue. If you were not a reader of the site in early 2007, I suggest you click on those links and check them out.
During the bubble rally, prices were pushed up the herd mentality. As prices rose, more and more people were convinced prices would continue to rise, so the pool of buyers swelled. Credit standards dropped to qualify more buyers, and the party went on and on. When credit standards were basically eliminated in 2004 and downpayments were eliminated, the buyer pool saw one last burst of activity until everyone that could buy, did buy. The herd had all “gone long” on real estate. The problem came when the pool of available buyers was exhausted and there was nobody left to push prices any higher. Once the herd had all purchased, the only thing they were able to do was sell. When the entire herd became sellers and there were no more buyers available, sales volumes dropped off, inventories increased and prices began to fall.
The behavior of the herd can be illustrated through the behavior of the individual participants. Today’s featured property was purchased by a realtor in late 2003 for no money down. He pulled out a bunch of equity, and now he has listed the property at a price that will pay off the debt and get him out of the transaction. There are hundreds if not thousands of people out there just like today’s owner trying to get out of their properties. The collective term for this group is called “overhead supply.” It is overhead supply that will prevent any appreciation until the market clears them out. The way markets normally do this is through a process known as “capitulatory selling.” People resign to their fate and sell at a loss. Some will do it willingly, and some will do it through foreclosure, but the market will clear them all out eventually. The way it looks right now, the process of capitulatory selling is increasing, and it will likely continue to increase through 2009.
Fabulos DETACHED HOUSE WITH 4 BR+2.5 BATH+LARGE FAMILY ROOM +2
FIREPLACES.NICE YARD AND MANY UPGRADES, ceramic and travertine
floors+Granite counter tops new Carpet and paint. LOTS OF ASSOCIATION
AMINITIES+GIM.
Fabulos? AMINITIES+GIM? What is a GIM?
I guess proper punctuation is optional. What IS the DEAL with INTERMITTENT caps LOCK?
I suppose the owner is responsible for this bad description because the realtor is the owner.
[adsense-ir}
The property was purchased on 9/30/2003 for $594,000 (ignore what Redfin says.) There was a $475,000 first mortgage, a $118,750 second and a $250 downpayment. On 11/19/2004 he refinanced with a $616,000 first mortgage and a $115,500 second pulling out $137,250 bringing the total debt up to $731,000. Thus we have an asking price of 789,000 — he needs to pay off the debt. It is hard to say what this property is worth as there have been no recent comparable sales. Somehow, I doubt he will get his asking price. After the debt service consumes him, this will be a foreclosure candidate.
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I been in the right place but it must have been the wrong time I’d have said the right thing but I must have used the wrong line I been in the right trip but I must have used the wrong car My head was in a bad place and I’m wondering what it’s good for I been the right place but it must have been the wrong time My head was in a bad place but I’m having such a good time
I been running trying to get hung up in my mind Got to give myself a good talking-to this time Just need a little brain salad surgery Got to cure my insecurity
I been in the wrong place but it must have been the right time I been in the right place but it must have been the wrong song I been in the right vein but it seems like the wrong arm I been in the right world but it seems wrong wrong wrong wrong wrong
Slipping dodging sneaking creeping hiding out down the street See me life shaking with every ho’ I meet Refried confusion is making itself clear Wonder which way do I go to get on out of here
I been in the right place but it must have been the wrong time I’d have said the right thing but I must have used the wrong line I’d have took the right road but I must have took a wrong turn I’d have took the right move but I made it at the wrong time I been on the trip road but I must have used the wrong car My head was in a good place and I wonder what it’s bad for. Right Place Wrong Time — Dr. John
Today’s featured property is a very rare find in Irvine — a vacant lot on which you can do what you want. You wouldn’t have total freedom, this is still Irvine, and you would have to deal with the Turtle Rock HOA, but you would not have to deal with the Irvine Company or one of its approved builders. You could create a custom home exactly the way you want it, without having to buy an existing house and demolish it. Our challenge today is to figure out what this lot is worth.
PRICE REDUCED!! THIS IS THE RARE OPPURTUNITY TO BUILD YOUR NEW HOME. IT
IS A VACANT LOT. THE STRUCTURE WAS LOST DUE TO THE FIRE LAST YEAR.
First, a refresher on how to value a lot from Land Value 101:
Individual Lots
The market value of a individual lot is equal to the revenue it
could generate minus the cost of creating that revenue. Sounds simple
enough, but what is the potential revenue and what are the costs?
Sales revenue will largely be determined by what can be built on the
lot and how much that house would sell for in the market. The
dimensions of the lot, building codes, and the local zoning ordinances
will all create constraints on what can be built. Most often there will
be some variety in choices available to construct on a given lot. Each
of these options will have a potential revenue and an estimated cost.
The combination which yields the greatest profit is the product that
should be built.
Imagine a 6,000 Square Foot lot that is 60′ wide by 100′ deep. A
typical lot such as this would have a front setback of 20′, side
setbacks of 5′, and a rear setback of 30′ leaving a 50′ wide by 50′
deep envelope for the house foundation. This site could comfortably
accommodate a 2,000 SF house (some area is lost by not making the house
a perfect rectangle.) For the sake of making the calculations easy,
let’s say this house could sell for $1,000,000 (peak prices).
An individual speculator would be paying retail prices for house
construction. This would be upwards of $150 SF. The cost of
construction would be around $300,000 (2000 * 150 = $300,000.) There
would be a 6% sales commission (1,000,000 * 0.06 = $60,000), plus
financing costs, overhead costs, and other miscellaneous costs which
will add up to about 10% of the project cost (1,000,000 * 0.1 =
$100,000.)
Therefore,
your revenue minus expenses would be $1,000,000 – $60,000 – $100,000 –
$300,000 = $540,000. This is how much money would be available to pay
for a lot at the breakeven point. Since a speculator would want to make
a profit, the lot is discounted from $540,000 until an amount is
reached to compensate for the risk and the headaches that go along with
the project.
Perhaps the speculator would want to make $120,000 (approximately
12% of sales price) in order to do this work? If so, the speculator
would be able to offer $420,000 ($540,000 – $120,000 = $420,000) for
the lot. If they are the highest bidder, they get the lot, and the
project is theirs. (BTW, this same basic calculation also works for
tear-down projects — often called “scrapers.”)
.
Interesting that the example above written almost a year ago is so close to what a buyer would be dealing with on today’s featured property.
To value this lot, the first task is to estimate the final value of the property after the structure is built. IMO, Turtle Rock will hit bottom near $250/SF, maybe $275/SF for a typical 2,000 SF home like the one that could be fit on this lot. New construction might command a premium of $25/SF, but not much more. That would put the final value near $500,000. Of that, $300,000 is going to go for construction of the house. Since this would be an owner-occupant, the remainder could go toward land making this lot worth about $200,000. Of course, you might want to put a larger house on this lot, and that might justify a higher lot price, but the old structure was only 1,796 SF, so a smaller structure might be in order. I suspect the surrounding neighborhood probably averages about 2,000 SF.
The interesting thing about this calculation is that you see just how sensitive the price of the lot is to the price of the house that sits on it. The $549,900 asking price might be warranted in today’s market as houses are still going for $900,000 in the area. As nearby prices fall, the value of this lot will fall right along with them. The difference being, there isn’t much of a floor beneath lot prices. If house prices in Turtle Rock fall $400,000 in this area, so with the value of this lot. If this lot doesn’t sell soon, it may only be worth $150,000 a couple of years from now. If you don’t believe the price of lots can drop that much, I can tell you that lots in Riverside County already have. Finished lots are going for less than replacement cost there. When you are stuck with an asset nobody wants, the price is only what some buyer is willing to pay. With speculative real estate, that isn’t very much right now.
If you really want to drink the kool aid, buy this lot. You will get every dollar of the change in prices in the surrounding neighborhood — up or down, and you wouldn’t have to deal with renters, maintenance, or other issues associated with the “box.” Of course, few lenders will loan money on something like this, so you would probably have to do it with your own cash. At the bottom when they are going for $150,000, finished lot deals like this one will be the real “home runs” of the next speculative real estate cycle.
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Watch out You might get what youre after Cool babies Strange but not a stranger Im an ordinary guy Burning down the house
Hold tight wait till the partys over Hold tight were in for nasty weather There has got to be a way Burning down the house
Heres your ticket pack your bag: time for jumpin overboard The transportation is here Close enough but not too far, maybe you know where you are Fightin fire with fire
All wet Hey you might need a raincoat Shakedown Dreams walking in broad daylight Three hun-dred six-ty five de-grees Burning down the house
It was once upon a place sometimes I listen to myself Gonna come in first place People on their way to work baby what did you except Gonna burst into flame
My house Sout of the ordinary Thats might Dont want to hurt nobody Some things sure can sweep me off my feet Burning down the house
No visible means of support and you have not seen nuthin yet Everythings stuck together I dont know what you expect starring into the tv set Fighting fire with fire Burning Down the House — The Talking Head
Isn’t it rich? Are we a pair?
O no, I see,
I been in the right place but it must have been the wrong time
Watch out