2003 Rollback

Back in Time — Huey Lewis and the News

Today’s rollback is truly impressive, not because it is a great property or a great deal, but because the discount is so severe. The low end of the market is searching for the bottom, and it hasn’t found it yet. What is also interesting about this property is its cost per square foot. At $174/SF, it is the least expensive place in Irvine. This might be expected on a large property over 3,000 SF, but when you see a price like that on a small condo, it is signaling more declines in the market. Smaller units almost always carry a higher price tag on a per square foot basis. From a construction cost perspective this makes sense because the smaller units still have the expensive bathroom and kitchen space and very little of the inexpensive filler.

The low end of the market must find a bottom before the market can stabilize. Without price stabilization there, the move-up market is non-existent, and the substitution effect will eventually pull down the larger, more desirable properties. Someone looking for a two bedroom place might take a smaller property if the price differential is great enough. Is that second bedroom really worth paying double for? Today’s featured property is probably the least desirable property in Irvine. It is old, small, ugly and in need up renovation (although it is a livable rental.) All premiums can be measured off units at the bottom. Properties in Brio may be superior, but would you pay 80% more ($360,000) for a smaller unit there? (2701 Ladrillo Aisle, Irvine, CA 92606) People looking at 1 bedroom properties will not likely pay an 80% premium no matter how much nicer the property might be. As you can see this will put further price pressures on units in Brio, and this will reverberate through the entire chain of move ups. High-end property prices will not hold up with continued price erosion at the bottom of the market. The high end may continue to be populated by a few knife catchers, but as the substitution effect really kicks in, volume will decline further, and the imbalance of supply and demand will create a fragile market. REOs that find the few remaining buyers will finally overwhelm the feeble price support, and the next leg down will begin. Look for it this fall and winter.

145 Pineview Kitchen

Asking Price: $199,900IrvineRenter

Income Requirement: $49,975

Downpayment Needed: $39,980

Monthly Equity Burn: $1,666

Purchase Price: $295,000

Purchase Date: 3/26/2004

Address: 145 Pineview, Irvine, CA 92606

Beds: 1
Baths: 1
Sq. Ft.: 1,150
$/Sq. Ft.: $174
Lot Size: 763

Sq. Ft.

Property Type: Condominium
Style: Contemporary
Year Built: 1977
Stories: 2 Levels
View: Creek/Stream, Lake, Pool, Water
Area: Northwood
County: Orange
MLS#: S543235
Source: SoCalMLS
Status: Active
On Redfin: 3 days

Lowest price for this square footage in the city. Unbeliveable
opportunity to own a spacious two story townhome in Irvine for under
$200,000. Previous owner had an extension built out over the living
area which could very easily be converted to a second bedroom or used
as an office/den. This home needs some work, so bring your paintbrush
and tool box. The patio overlooks a beautiful water scene with an
island and lily pads and is quiet and serene. Lower level has pergo
flooring and a wood burning or gas fireplace. There is a full laundry
room on the patio and the home has central air. There is one covered
parking space but ample unlimited street parking a few steps from the
home. No Mello Roos. Complex has two pools and tennis courts. Located
in Northwood close to award winning schools, stores the 405 and 5
freeways and toll roads. We expect this to sell in days at this price
so hurry. Great for a first time buyer or investor.


I would be very concerned about the unpermitted extension…

Great for a first time buyer or investor? Oh, really? It cost these people their good credit, but at least they took a wad of bank cash with them on the way out.

Check out the sales history. This is a 2003 rollback:

Sales History

Date Price Appreciation
May 08, 1996 $90,000

Oct 26, 2001 $173,500


Apr 11, 2003 $215,000


Mar 26, 2004 $295,000


This is practically a 2001 rollback. Of course, some excited knife catcher will probably bid over the asking price. This may be near rental parity for an owner occupant, but who wants to own and live here? An investor looking for positive cashflow would still bid less than this asking price.

None of this is a concern to today’s owners of course. They bought the place in 2004 with a $236,000 first mortgage, a $44,250 second mortgage, and a $14,750 downpayment. They refinanced in 2005 with a $284,000 first and a $71,000 second leaving a total property debt of $355,000. They got their downpayment back plus an additional $60,000. If this property sells for its asking price, and if a 6% commission is paid, then Master Financial Inc. stands to lose $167,094. That is almost half of their loan balance. Ouch!


Tell me, doctor, where are we going this time
Is this the 50’s, or 1999
All I wanted to do – was play my guitar and sing

So take me away, I don’t mind
But you’d better promise me, I’ll be back in time
Gotta get back in time

Don’t bet your future, on one roll of the dice
Better remember, lightning never strikes twice
Please don’t drive eighty eight, don’t wanna be late again

So take me away, I don’t mind
But you better promise me, I’ll be back in time
Gotta get back in time
Gotta get back in time
Get me back in time

Gotta get back in time
Gotta get back in time
Get back, get back

Get back Marty

Gotta get back in time
Gotta get back in time
Get back, get back

Back in Time — Huey Lewis and the New

62 thoughts on “2003 Rollback

  1. allan

    Still too high. Expect ’97 prices marketwide (not adjusted for inflation). Keep waiting, and waiting, and waiting.

      1. nfox

        but 2001-2002 *where*? I’ve noticed some places in huntingon beach where prices from 1998->2001 were nearly +50%!
        I think the bubble started at different times for different areas.

      2. Sam

        ’01-’02 on this place? So you’re saying the value of this dump will bottom at $173,500? We’ll see. Ask yourself this: would you pay $173,500 for a tiny, dumpy apartment in Irvine?

        1. Priced_Out_IT_Guy

          Haha funny. A dump? You must have high living standards because this place is nicer than my $1600/mo Shea apartment in Woodbridge. Not everyone in Irvine has blinged out granite and stainless pads.

          1. msv

            That can’t be a 1 bedroom though? That is what I pay for my IAC rental in Brittany (Oak Creek) with a garage, and I do have granite and all the other niceties that come along with an IAC apartment.

          2. Priced_Out_IT_Guy

            Its a 2 bedroom but as soon as I get kicked out in a few months (they won’t renew the lease) they will install the granite countertops and fake hardwood flooring and raise the price from 1600 to 1900.

            No garage. You get a 3x3x3 storage box that hangs from the carport.

          3. Estebancito

            Oh, my, goodness. I pay 1560 for a brand new 1 bedroom (735 Sq Feet) IAC apartment. Hardwood floors, plush carpet, 2 tone paint, crown molding, stainless steel appliances… etc.

            Yes, I did say brand new. As in never lived in.

          4. Estebancito

            Oh, I forgot to mention the washer and dryer and the garage.

            I left another IAC where I was paying 1825 for a 2 bedroom with my EX-gf at the end of June. The deals are out there. I have noticed a SIGNIFIGANT decrease in rental prices the past few months.

      3. No_Such_Reality

        To mock Gary Watts, 2001 is in the bag!

        Below 2001 will depend on rents, on-going mortgage problems and fear.

        1. lunatic fringe

          With the state of the economy and the ongoing credit crunch, I could easily see 1997 prices happening again.

          Deflation, baby…

          1. Ochomehunter

            I agree. We havent seen the job losses in masses. Wait when we have massive unemployment leading to lower rentals as well. I think market will tank to 2000 or 1999 levels. Lets not forget, this crisis is worst ever since the great depression, so its fair to assume that in 1998 price were too high.
            If this crisis is the worst since great depression, then we should take out the inflation adjustment on this puppy since 1990 crash.

    1. cara

      Nice view of your very own, artistically landscaped, mosquito hatchery and frog chorus pond. Or are there no mosquitos in SoCal?

      1. Boston2theBay

        there are,but not like anyplace you probably live. That is one big advantage CA has over most other states: few if any bugs. You’ll get some ants if you live at the beach, but that’s about it. You really notice this when you move out of CA.

        1. movingaround

          Probably one of my top 3 if not my number 1 advantage to living in So. Ca. – unfortunately still not worth the premium that people thought was implied by this housing bubble.

        2. camsavem

          I have lived in Orange County since 86 and have never lived in a place that did not have ants.

          1. ockurt

            The rumor is our place in Westpark was built on a huge anthill. In the summertime, the ants rule our roost.

          2. DSB

            Funny you mention ants in Westpark – I was thinking just last night that I’ve had fewer ant attacks this year in Westpark (Aventura) over last. Maybe I’ve just been lucky this summer.

            Also speaking of Westpark, I was relieved to find that the zip code on this place is 92620, not 92606 as shown in the blog. I know my value is down, but my stomach tightened a little when I saw $199k in 92606.

          3. genius

            I’m terrified of spiders but it gets to the point where I won’t kill them anymore because they help keep the ants away.

            Flies can also be a problem if you’re like me and leave empty beer bottles sitting around.

      2. Alan

        Frogs, birds, butterflies and you don’t have to mow and weed a back yard. If indeed there is not a mosquito problem, that looks like the main feature going for this place to me.

        1. Troy

          I’ve lived in South Carolina, Virginia, Massachusetts, Oregon and Texas, and California is remarkably free of bugs and insects compared to those places. Oregon is a close second to California, but they’ve got slugs instead of bugs. You can leave your doors open at night here in Orange County and not get a bug flying inside. It’s just too arid and mild for bugs to establish a home base here.

          These types of stream landscaped areas are very popular in SoCal, especially with “upscale” apartments or condos from the 1970’s and 80’s. The mature tree cover of this 30 year old complex is actually kind of nice, for those who aren’t sun worshippers. That said, I wouldn’t pay more than 125,000 for this place, and I would rip out that stupid addition over the living room.

          1. Iblis

            Nonsense. There are plenty of mosquitoes. Maybe not epic flocks of them, but still more than enough.

            Ants, BTW, are easy to get rid of. First, find their nests. These are shallow — usually only about 10-12″ deep. If you have trouble finding nests then run your sprinklers for 30 minutes and flood the yard. The ants will run, and you can track them back to the nests. You know for sure you have the right spot when you see them carrying little yellow-white sacks.

            Now that you know where the nests are, mix up a bucket of diazinon (which you have left over from before the ban or picked up during your last trip to Las Vegas). The current stuff they sell in CA won’t work, so don’t bother. It has no persistence.

            Get a shovel and dig up the nest. Break up the dirt and mix it all up thoroughly with the diazinon solution. That nest is dead, and the ants won’t come back to it, even next year when the persistence of the pesticide is long expired.

            Do this to every nest in your yard at the start of summer, then again right before fall when things start to get really hot. You won’t see any ants in your house all year.

          2. Ambiepants

            Terro liquid ant bait works. They eat it and take it back to the nest to kill all. Good luck.

  2. George8

    Assuming owner/occupant rental parity at $1500 rent and GRM 160, it comes out $240k. Subtracting $20k for repair/renovation and $5k for closing cost, $215k is the fair price for this deal to go through.

    If there is no owner/occupant interested, an investor should not pay more than $155K.

  3. ET

    I have heard of people taking the fridge with them, but the oven? Heck it had better be cheap whoever buys it is going to at least spend a grand on appliances – and that doesn’t count all of the other things someone who would live in it would want to do before moving in.

  4. alan

    Good job again IR…

    This is exactly what happened in the last downturn in the early 90’s, deja vu.

    The low end tanked and brought the high end down. I saw it all before and it’s happening again.

    In the last downturn, condo’s like this got totally hammered. People posting the bottom of $170’s for this 1 bdrm apartment didn’t live thru the last downturn. This property will drop below $150 at the market bottom.

    Believe it!

    1. LC

      Santa Ana downtown was littered with this type of condo for $23,000 in the 1990s. People have such short memories. I’ll take the $100k that I save and buy a flak jacket. I mean, who buys this kind of condo anyway?

      1. luckyguy

        I personally saw the community, nay, it is not real Irvine…..I don’t want to rent it as my home, no

  5. momopi

    This property’s sq footage is bigger than it was, because the owner built over the cathedral ceiling area of the living room. It was a luxury 1 bed with loft-style bedroom on 2nd floor. The windows on bedroom level do not open, so no fresh air. I’d also suggest checking fire codes for this.

    As for pricing, the original floor plan sold for about $131k asking in 1999-2000. But this unit can command higher prices because it appears to have a favorable location and small yard.

  6. No_Such_Reality

    Looks like IAC rentals on comparables is $1500 not including incentives.

    This should rent at a discount to IAC. Investor value based on current market rents is right around $100,000 ($120,000 rental value – updating costs).

    It’s an old complex and likely to have special assessments. Plus, you’re likely to have to compete against IAC on price. Being low-price leader often brings in more questionable renters. The lower GRM applies.

    1. No_Such_Reality

      I stand corrected, a quick check of Craigslist shows multiple units in complexes at $1300.

      IAC’s Deerfield is advertising $1395 with $550 off. That’s $1350 a month. You’ll need to discount from that.

      Drop the HOA out, you’re at $1000/month without vacancy. Which makes $100,000 less improvements needed.

      1. alan

        I agree with your conclusion, but would update the calculation.

        For a cash flow investor (wanting a 10% return to buy) the calculation is the current equivalent of the cash flow which is $1350 (rent) – $300 (HOA) – $150 (property taxes) = about $900/month without taking account repairs/maintenance or HOA special assessments. $900/month income is only worth $100,000.00

        So on a cash flow basis, this property is still 100% overpriced.

        Will it every get this low?

        It’s anyone’s guess.

      2. No_Such_Reality

        I doubt it. A lot depends on how sticky banks get with downpayments and verifying occupancy. If they’re loose, I’d guess we’ll see an army of wannabe landlords snapping them up when the rent covers the mortgage payment, HOA + taxes.

        If they can buy it with 10% down, and roughly current rates (6.5%), I think we’ll see a lot of “landlords” step up at $150,000.

  7. camsavem

    Median house prices…

    I watch the North Tustin area more then I do Irvine because that is where we have lived for the last 8 years and that is where we want to buy, again.

    What I have noticed is the median house prices dont seem to reflect the drastic drops that I am seeing in the actual home prices.

    What I am seeing is there is no market for low end homes (no one can qualify) so the only homes that are selling are equity transfer homes. In other words, someone who bought 8 years ago can buy a home from someone else who haves to move.

    What is interesting is the fact that the homes that were selling for 1.5M, are now selling for 1M, and the 1M for 700K, and the 700K for 500K, but not much below that.

    It is disguising the actual drops because nothing is moving on the low end to throw the median price off. I think in about six months when the low end condos and townhomes start to move again you will see huge drops in the reported median prices.

    1. IrvineRenter

      Also, the median only tracks how much people are paying. It says nothing about what they are getting for their money. Prices can be dropping on individual homes while people continue to finance large sums. This keeps the median high even though people are getting much higher quality homes than they were buying in the past.

    2. Craig

      If the median prices include the banks buying back foreclosures at auction (for face value of the mortgage, because no one else is bidding), then the reported median prices are WAY over the true market value right now.

  8. Laura Louzader

    It’s still priced too high even for coastal CA.

    It’s a tear-down. No beauty or historical value here.

    I’m sure people in neighboring complexes would be relieved to see these ratholes shoveled under. Let’s hope the prices drop enough for some developer to buy existing owners out and level the dumps for redevelopment… and this time build something better.

    1. beentheredonethat

      I was wondering the same thing…at what point are some of the older, less desirable areas of Irvine going to get make-overs? I would include this POS in my questioning.

      I figured that when Irvine was at build-out, some of the older areas would need to be leveled. Build-out is looking further and further away these days.

  9. Eat it in the OC

    Would this be first time buyer type of purchase? If so, would you really expect them to have 40K for a down payment? I doubt it. I hope whomever buys intends to live in it for about 10 years.

  10. Red

    Picking the bottom value for something like this – ( clearly not this actual unit, for it will probably sell for nearly asking, there are plenty of comps that sold for more…) is interesting.
    One way would be to use that 1996 price of $90000 and apply the change in the CPI since ’96.
    1996 was pretty much the dismal bottom last time around, so I would not expect a drop below that.
    The CPI was 154.4 in Jan 96, and is at 218.8 in the most recent release.
    So…. $90,000 * (218.8/154.4) = $127,538.
    The government tells us that prices have increased only about 42% since ’96.
    If we perhaps, disbelieve the government, and use a 5% inflation rate rather than the 3%….
    that would roughly be $90,000 * (1.05^12) = $161,627.
    Ah, but interest rates were different in 1996. A 30 year loan was at about 7.2% Today’s rate is about 6.45% (bankrate.com) So we could apply that to the last number… $161,627 * (7.2/6.45) = $180,420.
    So there’s my guess – a bottom for a unit like this one at $180k or so. Higher inflation or interest rates, or depression pricing, could, of course, blow me out of the water.

    1. scott

      Good analysis.

      I think the one other factor you might adjust for is the change in real median household income. If my real income is higher, all else equal, if I can qualify for a loan on 28% DTI and if income is higher I can get higher mortgage at same DTI. According to census median CA household income in 2006 dollars was 55k in 2006 vs 39k in 1996 so one could multiply by (55/39) 1.4x. Now you could argue this unit is marketed to a below median income buyer whose income didn’t grow but the median house will be based on median buyer.

  11. ockurt

    The HOA’s are probably high due to the electricity and upkeep required to maintain that pond thing.

    This place is hurtin’. And it only has one carport.

  12. freedomCM

    I agree with NSR completely.

    Current rent ~$1300 – HOA ($300) = $1000 X GRM 100 (not 120 due to vacancies/ special assessments)
    = $100,000

    Then subtract $2000 to buy appliances/paint/clean (and hope the former ‘owner’ didn’t put cement in the toilet)
    = $98,000

    Of course, If the city finds out about the loft, and you have to rip it out, take out another $10,000

    Finally, how long will rent for this place stay at $1300? I’ve been seeing a whole lot of ‘for rent’ signs lately

    1. Laura Louzader

      $100K sounds right, given Irvine’s median income of about $84K, for this is a sub-median property. This is for a first-time, moderate-income buyer, a single person only, who is not likely to have a sizeable downpayment.

      Or, given the stuff that might need to be done, about $90K. At that, it might make a good home for some retired lady.

  13. Red

    Just wishing and hoping
    and thinking and praying
    planning and dreaming
    that won’t get you …

    Oh, sorry, got off into my own little musical interlude there.
    I mean, really, as much as we would like a little place like this to sell for what it would somewhere else in the country, it is still in the grand and glorious Republic of California. Investment in single units like these tends to be very local, since you can then manage it yourself rather than blowing a big chunk a RE manager. So once the price gets down to the region where a small investor thinks its break even, and that appreciation and rental inflation will make it pay off, somebody is going to buy it. Chances are it will never get there, someone will buy it to live in it for monthly costs (after taxes) about what the rent would be, because they can paint it whatever color they want and their last landlord was an a**.
    1996 was the bottom, folks, and this place sold for $90000 then. In 2005, somebody thought this place was worth $355,000; $177,500 takes it into half off pricing; few can resist SALE! HALF OFF! enticements…
    If it were by the freeway, or the neighboring units were a slum, then maybe… but there are four recent sales of smaller units for more than this one is offered for, averaging more than $300 a sq ft.

  14. Beinformed

    It is very hard to call a bottom until it is already over. I have experienced two housing bubbles and both times I could not call the bottom. But one thing is fundamental with homeownership, employment. With both of the last housing bubbles, unemployment was the highest ever, people cannot buy if they don’t have a job and that my friends will determine the bottom. Lets wait until after the Nov elections and see how many people are still working to determine where housing is going.

    1. Ochomehunter

      I totally agree with you. Inflation adjusted numbers, rent increases are all calculations. If one loses its job today, chances of him getting another similar job is less, if he is from housing/real estate/construcion/banking industry, he will have to take a deep cut and compete for gas station cashier job or job at walmart. This is what I think will happen:

      Man loses his job => loses his home => finds a lost home comparable rental => find a new job that pays much less => realizes that he cannot support new rent => decides to move out to cheaper place => probably Corona and finds a job that will feed him and his family. It will come down to survival. Forget calculations. When population loss will occur, rents will fall. So, look at unemployment as your gauge. I feel sorry for anyone who will be forced to leave, but this is a fact of life and everyone who gets caught in this wind will wind up going thru this. I just hope it doesnt get too painful for survival. I worrk more about kids than anything!

      1. Dave

        I’ve been in California 11 years now, and I haven’t met any local Californians with any conception of what it means to be a real survival mode. Like a Rust Belt economy. Or in most of Dixie.

        Everyone says “That can’t ever happen here.”

        I’m not so sure.

        It won’t really matter to me… I’ve been preparing for this for 6-7 years. A Southern thing I guess.

        1. ochomehunter

          You are correct, last real recession was in 1987-1992 which was 16 years ago so I dont blame you. I happen to know several from 1970 and 1987-1992 crash era and they sware by it by saying that it should never happen again and if it does, it would be a disaster. I am sure there are lots on this board who went thru that pain.

  15. allan

    OK, after reading all your responses, careful consideration of all the facts, and consulting my Ouija board, I have again estimated bottom at 1997 prices. A short burst of inflation followed by mild deflation for several years will dampen the spirit of even the most optimistic pumper. Knifecatcher/Landlord wannabes will experience the sinking feeling that only falling rents can provide. The RE bottom will be followed by several more years of stagnation. A “recovery” is way, WAY off. 15-20 years to again reach 2006 prices.

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