She’s So High — Tal Bachman
Many people fueled the market rally with a frenzy of fear buying. Fear
of being priced out of the market, and fear of missing the great
profits to be made through home ownership. Those who did not participate by wanted to
became the stereotypical “bitter renters.” These
people were bitter because they believed the nonsense of kool aid
intoxication, and they believed that they missed their chance. Of course, over the last year,
many of these people got their chance and became knife catchers.
Today’s featured song encapsulates the feelings people had toward
houses and those who owned them — they were so high above them. The
bitter renters were jealous and felt unworthy. Little did they know…
Dr. Housing Bubble has an ongoing series he calls “Real Homes of Genius.”
He profiles really awful properties in bad neighborhoods going for
ridiculous prices. There is an intuitive revulsion from seeing these
properties and the prices attached. It does not take a sophisticated
financial analysis to recognize the housing bubble when viewing these
properties. We don’t have any run down properties of that sort in
Irvine, but I remember having the same revulsion when I would
see 1 bedroom condos going for over $400,000. I don’t care how used to
bubble prices you get, when you see tiny condos going for $400,000, the
mind simply cannot grasp it. These prices were just wrong. No amount of
kool aid could drown out the doubts about the prices of these units. Of
course, the people who bought these units almost exclusively used 100%
financing, so it didn’t really matter what they paid, and they did not
care. It wasn’t their money. An Option ARM with a 1% teaser rate made
owning one of these cheaper than renting, and in due time, it would be
selling for millions. Even if it didn’t, any losses would be someone
else’s problem — which is where we are now. Today’s featured property is a simple 100% financing deal gone bad. It is the collapse of prices at the low end of the market like this one that are serving as a drag on market prices, and they will continue to do so until we reach the bottom.
Asking Price: $299,900
Income Requirement: $94,975
Downpayment Needed: $59,980
Monthly Equity Burn: $2,500
Purchase Price: $410,000
Purchase Date: 1/21/2005
Address: 722 Timberwood, Irvine, CA 92620
| Beds: | 1 |
| Baths: | 1 |
| Sq. Ft.: | 1,001 |
| $/Sq. Ft.: | $300 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary/Modern |
| Year Built: | 2001 |
| Stories: | 2 Levels |
| Area: | Northwood |
| County: | Orange |
| MLS#: | P643157 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 10 days |
Attached One Car Garage, Hardwood Floors, Granite, Plantation Shutters
on All Windows, Rare Spacious Dinning Room, Office/Den Attached to
Bedroom, Inside Laundry Room, Fireplace. Located in Northwood Community
Near Market Place and Shops.
Why Use Title Case?
Spacious And Rare… Rare Spacious… That description is common and vacuous.
If this property sells for its asking price, and if a 6% commission is paid, First Franklin stands to lose $128,094 — on a 1 bedroom condo. As a side issue, if someone would like to investigate, it appears as if the seller brought in a straw buyer last summer. The property records are a bit confusing.
When you see properties like this one, it isn’t too difficult to see how prices were bid up to such ridiculous levels. During The Great Housing Bubble, you did not need to have verifiable income or good credit to qualify for 100% financing loans. In short, anyone could get as much money as they wanted simply by asking. Nobody would put any of their own money into a $410,000 one-bedroom condo, but if the lenders are giving it away and making the payment very, very small, why not? Properties like this one when it sold in 2005 made someone a lot of money. That person probably took those profits and bought a larger, nicer property. This pushed up the prices of the next tier of houses. As each move up was fueled by a combination of equity and loose financing terms, prices were pushed up very high. It also isn’t too difficult to see how this process can work in reverse.
People buying properties today are making one simple bet: credit will loosen again soon. I discussed this idea in the post Your Buyer’s Loan Terms. Incomes do not support peak price levels or even current price levels. The only way to keep prices inflated is through unstable credit terms. Credit is clearly more restrictive than it was during the bubble. If credit loosens up again, people will bid up prices and kool aid intoxication will grip our society. The problem with the “bet” today’s buyers are making is that credit is not going to loosen again any time soon. The lenders are still losing money even on loans they made after the credit crunch took hold (see yesterday’s post.) Credit will not loosen again until lenders stop losing money for an extended period of time. So far, they haven’t been able to write loans that don’t go bad quickly. Credit will continue to tighten until they can, and that will not occur until prices are so low people can truly afford the properties. We are not there yet.
.
She’s blood, flesh and bone
No tucks or silicone
She’s touch, smell, sight, taste and sound
But somehow I can’t believe
That anything should happen
I know where I belong
And nothing’s gonna happen
Yeah, yeah
(Chorus):
‘Cause she’s so high…
High above me, she’s so lovely
She’s so high…
Like Cleopatra, Joan of Arc, or Aphrodite
She’s so high…
High above me
First class and fancy free
She’s high society
She’s got the best of everything
What could a guy like me
Ever really offer?
She’s perfect as she can be
Why should I even bother?
(Repeat Chorus)
She comes to speak to me
I freeze immediately
‘Cause what she says sounds so unreal
But somehow I can’t believe
That anything should happen
I know where I belong
And nothing’s gonna happen
Yeah, yeah
Yeah, yeah
She’s So High — Tal Bachman
Once again though – haven’t you posted worse? Is this not in one of the prime areas? Because this is rather new with 1000 SF and a garage for 400k, but haven’t you had much older units under 700 SF units with no garage for about the same price or more? In comparison, this one seems downright reasonable 😉
At almost 30% off the peak, it is certainly more reasonable than peak prices. When it drops another $100,000 it might be close to truly reasonable prices given local incomes and rents.
Two years from now this unit will sell near or just a little above 2002 price of $260k.
Reason? GRM160 @ $1600 monthly rent.
I remember driving through here a couple years ago. $400k is nothing…IIRC someone was trying to get $499k for the same type of unit.
The 160 GRM is assuming an owner-occupant. Who wants to live in a 1 bedroom condo? I think these units will drop down to around a 120 GRM. This should go for less than $200K.
He is also assuming that this place will actually rent for 1600.00 a month, two years from now. Not likely.
The 1% ARM was a marketing gimmick. It wasn’t really a 1% loan — it was 1% for a few months (often only 1 month) on a fully-amortized loan, followed by an Option ARM at about 4%. The i/o payment at 4% is about the same as the fully-amortized payment at 1%. The Option ARM would start out with, and the borrower would be qualified on, the 1% amortizing payment. The real risk came from the potential for negative amortization if interest rates went up, which they did, but these increases weren’t reflected in changes in the minimum payment. Eventually, a borrower who paid only the minimum payment would hit the neg-am ceiling and would then face the triple-whammy of higher rates, a higher balance, and fully-amortizing payments.
If they are asking $299K right no, I don’t think it will take 2 years to get the price to 260k, you could probably do it this weekend if you just offered it.
I agree there is more correction to follow. But I disagree that GRM of 160 is the benchmark for valuing real estate. There always will be exceptions to this rule and Manhattan is an example. Granted, Irvine is no Manhattan, but as long there is limited supply of real estate in a highly desirable urban area, then there is some premium pricing that occurs. Whats in Irvine’s favor is its proximity to urban conveniences like malls, beaches, high quality education and jobs. What Irvine has not going for it is that it is overbuilt with high density housing, specially since the boom of the last five years. Certainly demand will keep the GRMs above 160 at around 200
Reasonable? Surely you jest. Or perhaps, as they say in the movies, that word doesn’t mean what you think it means.
2004 built Ladera Ranch townhome broke down below $200/sf.
http://www.redfin.com/CA/Ladera-Ranch/16-Orange-Blossom-Cir-92694/home/12357351
Ladera is starting to become affordable. There are very many properties which are now little below WTF prices. I am sure they will be more affordable next year by this time.
our time is on the way……..
..on the way to cut up yourself.
I’d give it another 2-3 years before this bottoms out.
Why is Ladara Ranch appealing? Isn’t on the other side of I-5? Isn’t the weather hotter there, particularly in the summer?
Seems cheap for LR at this time, wonder if they’re trying to stimulate the knife catchers and bid up the price.
Yes, but just by a bit. Many low $200s/sf listing nearby in LR.
It only seems cheap after you look at Irvine prices. Don’t forget that you have to drive 30 miles on a tollway any time you want to get out of the hot, ugly crap hole.
4 bedrooms seem to be coming down a lot slower though – the lowest 4 bedroom in Ladera is still listed at 699 – 300,000 for one more bedroom?
4 bed will come down to earth as well in the near future.
Nobody knows what anything is really worth because up until this point it has always been defined to be the ponzi-amount which a typical buyer is willing to borrow more than the previous buyer.
During a credit crunch, all this goes out the window.
They try to figure out a value by looking at the house across the street which was also evaluated using the same scam.
At this point, it does not matter whether the unit has an extra bedroom or not – it depends on how screwed the bank is and how far they let the previous idiot of an “owner” tap their HELOC.
That’s why now is a terrible time to buy. You are only subsidizing the losses of the banks as they desperately try to unload their inventory.
I can’t agree more. I saw the same exact situation during the oil bust in Texas back in the mid-Eighties, and you saw a lot of knife-catchers get cut on what they thought were “great deals”. The area didn’t even start to recover until 1989, just in time to run into the first Bush recession, and most of Dallas, Austin, and San Antonio were crippled until 1996 and later.
That’s why I worry about the amount of property dumping we’re going to see. With most bubble deflations, they’re limited to particular areas of the country. For instance, the oil bust barely bothered Florida, so all of the construction employees who previously built houses and apartment buildings just packed up everything in the car and moved to Miami for a while. Right now, though, there isn’t a place in the US that isn’t affected with bad mortgage loans, so we’re no longer going to see bluecollar employees working in one area and sending their money home. Now, everyone‘s going to be short on work, and when you add the whitecollar people hit with the economic cluehammer, the spiral gets worse. I used to think that the real estate market was going to get better in two years on a best-guess estimation. Now I’m realizing that this might be the worst.
Oh, people could pack up and move to where the jobs are…in China and India. It is not going to last there either. I suppose Mexico is not too far.
I know you guys hate–“but in West Bumble, OK, this would rent for $XXXX”, but I can’t resist.
I looked at an apartment that looks like it is exactly the same design in Kansas City. It was renting for less than $1000 a month (actually that was for the two bedroom with a two car garage). So what’s that if you were going to purchase? 150K or so–actually less if you factor in the condo fees.
(Granted, living in KC isn’t a particular treat, but then again I don’t consider Irvine, CA heaven on earth either)
Today’s apartment is a perfect example of runaway inflation in one local economy. Of course, it looks ridiculously obvious to people who do not live there that the Irvine economy is laughably hyper-inflated; the locals running around believing that they are members of a paradise society and foolishly overpaying their housing under the premise of Utopian premiums with the Irvine Company laughing their asses off all the way to the bank.
The locals have way more credit than they know what to do with. The majority of them have bought into the big lie that massive debt is the same thing as massive wealth.
Cut off the credit lines; the place implodes. You realize they are no more special than any place else.
It’s going to be very interesting to see how long they keep the facade up during the downturn. It’s about to get really tough as their pay-option mortgages are fixing to hit the fan shortly followed buy panicked knife-catchers trying to desperately claw their way out of a terrible mistake.
You know how you drive through bad parts of town with your grandparents and they tell you ‘I remember this used to be the area that everyone wanted to live in’ – that is my prediction for southern california – most of us on this blog may not live to see it happen – but unless something changes drastically….
It is really too bad.
The locals are quite jaded at this point.
I see it as only a matter of time before the businesses grow tired of subsidizing their employees inflated standards of living and decide to move out of state somewhere else.
Of course, the current locals are going to respond with horse-laughter as they believe that business will not leave the glorious Southern California as that would be akin to moving to Mars as no other place on earth would have enough class and sophistication to draw in the talented workforce.
AZ — You really don’t care for the people in Southern California, do you? It almost sounds like you are wishing some sort of apocalypse on us. Putting myself in your shoes, I would think it would be bad for Phoenix if they boarded up Orange County….Then all the self important OC jackasses would overrun Phoenix with our C230’s and Gucci bags! You should be cheering for OC to recover, and spare yourself the misery of having to look at us everyday.
The thought of OC, LA, and bay-area stuffed shirts californicating my new home state is too horrible. I would gladly fork over some money for a government bailout to keep the C230s and other leased vehicles idling happily on the streets and freeways of Santa Monica.
There is no such thing as a free lunch. Please let’s do whatever is necessary to keep the hyper-competitive debtards* safely caged up on the west coast.
(Remarks apply to some, but not all, Californians. Present company excepted. Further restrictions may apply. Insert additional weasel words and qualifiers as necessary. Void where prohibited.)
True that most Americans have only used to the general wave of prosperity that is the Baby Boomers’ life, at least here far away from the rust belt.
But I think what you’re talking about is really more a national decline than anything regional. We’re the classic 3d world economy now, based on tourism, commodities and scams. That’s what happens when you combine a global superpower with an electorate where 45% of the people think the world is 7000 years old. The only way is down when the average citizen is that stone cold ignorant.
That is what I think too.
Great comment.
Never in the history of the world has such a wealthy, advanced, inventive, and free society contained so many ignorant, superstitious, regressive non-citizens.
How else could so many people think they could ascend the economic ladder simply by borrowing more money than they stand to earn in a lifetime, and cutting pictures of consumer goodies out of magazines and pasting them in scrapbooks by way of “visualizing” their way to wealth and status?
hey guys, if you really hate socal then leave please. that would clear out my freeways, open up my golf courses, and make my housing more affordable. I am young and doing okay here. I could leave here and move just about anywhere. But I like it here, we have sunny days here and good looking women, there is great entertainment, you can do anything you want.
You are correct. I have known southern California since early 1970’s. It’s been a steady downhill, especially for LA. I’m ever hopeful but not holding my breath.
That was 1992, right after the riots. You don’t have to be really old to remember how bad it can get around here.
I agree that the group philosophy you’ve described above will be a huge factor for OC. Irregular reinforcement is a powerful motivator, sometimes to the exclusion of all else including one’s own health. Slot machines work the same way.
‘blah blah blah six months later i’m still trolling because I have no money…’
This would be a great place for a retiree and pretty much nobody else. Maybe a singleton who is hoping to get a leg in and bank on appreciation, but that’s such a speculative bet that they’re better off ploping their downpayment on a couple pulls of the high limit slot machines.
So, what can Mr./Mrs. Retiree pay (including association dues and taxes/Mello Roos, upkeep, insurance, etc?). Do the math — it’s headed to the lower $200k range or even (am I being too bearish) the upper $100k. Yup – another $100,000 loss and this will look reasonable.
As long as the retiree can handle the stairs…
This place should sell between $175K and $200K for these reasons:
1. This is a place for a singleton only, who, given Irvine’s median income of $84K, makes not much more than that and probably substantially less.
2. This is a below-median apartment. A median-income earner most likely will want to live better than this.
3. Incomes in Irvine are most likely dropping because of Irvine’s dependence on the mortgage industry that is going through a really major shakeout. Also, incomes everywhere are dropping.
Honestly, no…
I’m not picking on Laura specificaly here.
What I am saying is there is a vast pool of potential buyers who wouldn’t pay more than about $125k for this place. Maybe less.
These are the buyers that will eventually dictate prices.
People insist on buying at DTI’s reflecting their current incomes. This is foolhardy. The DTI should reflect 1/2 their income. For a two-income couple, this is one person’s income. For single people, it’s half. Wages don’t always go up. And we haven’t had a good round of real unemployment in 30 years. I remember. A large amount of the current pain is occurring with people who are still employed… once the layoffs begin, it’s a whole new ball game.
Businesses *will* move away from pricey, tax burdened areas. They will have to. And the talent will follow. It will have to.
Personally, if I were to purchase the place for rental, I would figure on 700-800/month for my calculations. 1 BR places really suck, because it’s hard to find a roommate to share the rent. Factor in commutes, price of fuel, groceries, etc., this place has a long way to go.
I agree with IR that loose lending will not return for years – meaning buyers for the foreseeable future will be required to qualify on much more traditional terms thereby prohibiting the prices from increasing (absent a rapid local income incline).
However, one behavioral economics principle “anchoring” may produce continued “stretching” of family finances for home purchases. Many, if not most, people will remember what homes were selling for in late 2005. Even though they will know, and accept after a couple more years, that this was a “bubble price,” their minds will fix that price to a given area. They will believe that even if not likely, it is possible that this price could return.
I think this will encourage many people to continue to stretch their finances with DTIs staying above 40% and could prevent prices from reaching, or heading below, rental parody.
> could prevent prices from reaching, or heading below, rental parody.
That is the wittiest use of the term ‘parody’ that I have yet seen this fiscal year. Intended or not, this made my day.
http://www.cnn.com/2008/US/06/30/backyard.bombs/index.html?eref=rss_mostpopular
Lennar built on bombs – makes me never want to buy a home again when you read things like this.
At least it wasn’t an old cemetery.
When Al-Qaida gets word of this, these properties will be selling like hotcakes. Then the military can go back to their WWII activities all over again and no innocent civilians will be hurt. ; )
Back from whence it came !
Nice, my home was built by Lennar… on a former military base… in Orange County! :bug: CA’s OC, but still…
Just old bombs? What a bunch of pansies. Here at the old army base (Fort Ord) the ground is saturated with live mines, bombs, grenades, ammo, unexploded rockets, and radioactive gophers. They tried clearing the land with “controlled burns” 2 years ago but the controlled burns morphed into “uncontrolled burns” so now they just rip out the scrub brush and throw up the 650k townhouses.
This is the funnest place I have ever lived. 😆
Thanks for the link. Very interesting to say the least.
It seems as every day goes by that the price per square foot is getting higher and higher. The older homes are also trying to sell for as much as some new homes which is hurting the market for older homes.
Nonsense, If you weren’t consumed by your own interest, you would see $/sqft as it is as opposed to as you wish to.
I assume you meant to say the price per square foot is getting lower and lower because that is what is happening.
Huh?
Possibly in St. George, Utah, this is what’s happening. Real estate markets are, after all, local. However, given the STRONG national forces that pushed markets up for 6 years and are now pushing markets down, I doubt it.
In Southern California, however, $/sqft is strongly going down over the last year. The only areas where it might POSSIBLY be going up are new developments on the outskirts where declining affordability has builders building smaller houses than over the last 5 years, which would drive $/sqft up (as a lot of the value is in the land). Even then, given foreclosures and tightening credit, I have a lot of trouble believing $/sqft going up.
but with the gas price going up, i fear not everyone will be tempted to buy those houses in the outskirts, which will drive down the prices
I was on:
http://your-irvine-realestate.com/mls.php
and saw a 2460 sq foot house for $1,400,000.00
My house is bigger and in my opinion nicer. And I don’t think it is worth more that 900-950K. People out there are CRAZY.
I really like the house you have in the graphic (the Sub Prime buyer house) where is that one at, I want it! 🙂
Hey, I found AZDavid’s old place in the OC?
http://www.ocregister.com/slideshow/auction-bid-anaheim-2070586-redc-realty?pos=13
LOL! Looks like AZDavid is coming over here on the weekends and tagging vacant houses. Does the hatred of OC have no bounds, AZDavid???!!
LoL I love it!
Home $weet Home!
http://www.crackthecode.us/images/AZHouseHSH.jpg
are those your tags, AZ?
It was a trashout.
The bank tried to foreclose on me. I had to show them that I was better.
“Can’t stop
AZ”
So you are in BK, AZ?
$245K?
I will live there if someone pays me that much to do it… maybe.
that is too funny!!!
PRIOR SALES: Sep 2006: $600,000
and here we thought Irvine was overpriced. 😛
My house is worth what?
My house is worth what?
[img]http://img.hgtv.com/HGTV/2008/03/14/KendraTodd-NewBioMug3-08-HHWW_w190.jpg[/img]
Yeah, I’d do her. I wouldn’t take any real estate advice from her though.
Here’s a message from the US Government to fiscally responsible citizens:
GO F*** YOURSELVES!
http://news.yahoo.com/s/ap/20080701/ap_on_go_pr_wh/bush
OK, this bailout is pissing me off.
I decided to write a letter to my congressman:
https://forms.house.gov/wyr/welcome.shtml
“I decided to write a letter to my congressman: ”
Unfortunantly, you just wasted your time writing that letter.
You’ll get the boiler plate response, but nothing after that…
But I felt better for a few minutes!
Still got a few kool-aid sippers trying to sell 1 bedrooms like this (around 800 sq. ft.) in my Westpark tract for $350k.
Good luck with that.
Almost $300k for a tiny one bedroom condo. This proves that prices are still double in the Magic Kingdom.