I Was Wrong, It's Worse…

Y.M.C.A. — Village People

With 100% financing available in the Great Housing Bubble, it is a wonder all the Y.M.C.As didn’t close down. If you are down and out, all you needed to do was fill out a liar loan application and move into your new house. Wait a few months, and you could open a HELOC and start spending all that free money. What could be better?

Today’s featured property is representative of stress at the high end of the market. Most of the properties I have profiled to date have been at the low end because this is where the market stress is the most acute. The big push in prices occurred because many people took out 100% financing to buy starter homes. More expensive homes were generally move-up properties, and the buyers transferred the equity from the sale of their starter home. This puts many of them in a somewhat stronger financial position, so the acute stress of the credit crunch hasn’t impacted them to the same degree. Plus, many of these borrowers used Alt-A loans which are not due to reset until 2009-2011. A great many of these borrowers have taken on huge debt loads well in excess of their incomes, and many will collapse when their resets hit. This hasn’t happened yet, but it will.

5 Villager Kitchen

Asking Price: $999,888IrvineRenter

Income Requirement: $249,972

Downpayment Needed: $199,977

Monthly Equity Burn: $8,332

Purchase Price: $1,150,000

Purchase Date: 3/14/2007

Address: 5 Villager, Irvine, CA 92602

Beds: 5
Baths: 4
Sq. Ft.: 3,027
$/Sq. Ft.: $330
Lot Size:
Property Type: Single Family Residence
Style: Mediterranean
Year Built: 2002
Stories: 2 Levels
Area: Northpark
County: Orange
MLS#: S521208
Source: SoCalMLS
Status: Active
On Redfin: 196 days

Unsold in 90+ days

BEAUTIFUL 5 bedroom, 3.5 bath executive home on cul de sac in
prestigious North Park Square. Gorgeous kitchen with Granite counter
tops and full backsplash. Large center island has cook top with eating
bar that overlooks the spacious Family room with stacked stone
fireplace, custom built media center and separate custom work center
with bookshelves. Enjoy music through surround speakers located on the
interior and exterior of the home. Too many upgrades and custom
features to list. Gorgeous pool with two cascading waterfalls coupled
with a separate area with a custom fireplace makes this home perfect
for entertaining or relaxing.

How did they come up with that asking price. Is the next price reduction going to be down to $888,777? It might sell there…

Did you realize they were giving out 100% financing on $1,150,000 properties in March of 2007? No wonder the median didn’t really drop until the credit crunch hit. Today’s owners (occupants who have stopped paying rent to the bank,) used 100% financing, and now they are walking away. This isn’t as common at the high end, but it still occurs. If this property sells for its asking price, Countrywide is going to lose most of the second mortgage they provided. The total loss after a 6% commission will be $210,105. I wonder if gobbling up Countrywide is giving Bank of America indigestion.


Several people have asked about the accuracy of my post Predictions for the Irvine Housing Market.
I have the DataQuick numbers through April of 2008, so we can take a
look. First, when I first made the chart below, I did not have accurate
numbers. The base number I used of $687,000 was incorrect.

Irvine Housing Market Prediction Chart

Using the three-month moving average of prices, the real number was
$723,750. With this new, more accurate number, we can compare the
projected drop with the real figures.

Well, it is even worse than I imagined. When I first suggested that
Irvine’s median home price might decline 12% in a single year, it was a
bold prediction. Prices had never dropped that much in Irvine — ever
— much less in a single year. Given the condition of the market, I
felt the number was conservative, but to see it actually drop more than
my prediction is remarkable. I guess the bulls should be glad, it isn’t
as bad as bad can get:

Irvine Market Decline Extreme


Young man, there’s no need to feel down.
I said, young man, pick yourself off the ground.
I said, young man, ’cause you’re in a new town
There’s no need to be unhappy.

Young man, there’s a place you can go.
I said, young man, when you’re short on your dough.
You can stay there, and I’m sure you will find
Many ways to have a good time.

It’s fun to stay at the y-m-c-a.
It’s fun to stay at the y-m-c-a.

They have everything for you men to enjoy,
You can hang out with all the boys …

It’s fun to stay at the y-m-c-a.
It’s fun to stay at the y-m-c-a.

You can get yourself clean, you can have a good meal,
You can do what about you feel …

Young man, are you listening to me?
I said, young man, what do you want to be?
I said, young man, you can make real your dreams.
But you got to know this one thing!

No man does it all by himself.
I said, young man, put your pride on the shelf,
And just go there, to the y.m.c.a.
I’m sure they can help you today.

It’s fun to stay at the y-m-c-a.
It’s fun to stay at the y-m-c-a.

They have everything for you men to enjoy,
You can hang out with all the boys …

It’s fun to stay at the y-m-c-a.
It’s fun to stay at the y-m-c-a.

Y.M.C.A. — Village People

55 thoughts on “I Was Wrong, It's Worse…

  1. George8


    I love your update on the informative prediction charts. It is so clear and powerful.

    It speaks volume.


  2. cara

    Do you think the speed of the decline will really effect the depth? Given the coming impact of Alt-A recasts, I don’t think the second prediction graph is yet ruled out.

  3. finsup

    What strikes me about some of these profiled listings is the sparsity of the furnishings, etc. in high-priced homes that are (or were) obviously occupied.

    For example, this home features a glider in the front yard that I believe was on sale at Wal Mart for $79 last week. The cheap roll-up blinds (I think these are one step up from the paper kind) in every photographed room would be another. I’m wondering if the expansive bank of kitchen cabinets contain only a box or two of Ramen noodles inside.

    It appears to me that many of these “homeowners” were stretched so thin that they could not afford to properly furnish their McMansions.

    A peculiar way to live, no?

    1. abdul rahim

      it was the facade, Potemkin Village values that those sheeple were living, and though those values will probably come roaring back with the next boom, I hope we have a few years of sanity.

      I think much of the stupid energy of the real estate bubble was motivated by the boomers’ greed for high returns. they were such pathetic non-savers that with their retirement years staring them in the face, the only way to escape elderly indigence was to see 20% returns. they tried it with dotscum fever, and the bubble popped in their faces. Barely TWO YEARS LATER, many of the same aging idiots were trying to obtain 20% returns in real estate.

      This time, though, the bubble cost all of us trillions. The boomers were willing to impoverish a superpower and wreck its economy all so that they could escape having to save 5% of income, even, and endure single-digit annual returns on investment.

      Is there any way that a cohort of 76 million can properly be punished?

        1. steve madison

          well that’s a useful clarification.
          all those single incomes thinking suddenly the laws of economics had been repealed.
          this is a stupid country we live in, collectively. too stupid to be trusted with a decent income.

  4. Forbear

    It sure would be entertaining to know exactly how much income people really had when using Alt-A loans.

    1. MalibuRenter

      There is an eye-opening survey at http://www.marisolutions.com/pdfs/mba/mortgage-fraud-report-2008Q1.pdf showing what portion of applications had various forms of fraud or misrepresentations on them. The source(s) of the problems are not stated, but they are probably a mixture of mortgage broker, buyer, ID thief, real estate agent, owner (refinancing), and appraiser.

      Even in 2008, apparently most CA mortgage applications contain some sort of fraud or misrepresentation. I personally didn’t think the number would be 76%. Is there anyone from the lending industry here that can comment on whether the numbers in this report pass the smell test? Could the authors of the paper be classifying simple mistakes or sloppiness for misrepresentation?

      1. IrvineRenter

        “General application misrepresentation includes, but is not limited to: incorrect name(s) used; occupancy, income, employment, debt and asset misrepresentation; different signatures for the same name; invalid Social Security number(s); incorrect address(es); and incorrect transaction type.”

        Sloppiness is being counted. Still, the numbers are alarmingly large.

        I wonder how much of the 42% increase over 2007 is due to certain types of fraud (i.e. stated income loans) are now recognized as fraud instead of being encouraged by the industry. In short, I believe the baseline data is flawed because fraud was rampant during the bubble, it was just not reported as such.

        Fraud is far easier to commit in a 100% financing environment. Now that downpayments are the norm, the incidence of fraud should decline. Perhaps the reports of fraud will still increase because in order to be successful at it, it will need to be more obvious and egregious.

  5. Gindy

    finsup, that’s exactly what happened. They bought big huge houses they could not afford to furnish. They took the money from the HELOC and bought new cars to show off in the driveway so their neighbors would think they were wealthy. inside their kids have a bed and maybe a dresser for their clothes.
    On the other hand perhaps they are getting rid of furniture so they don’t have to move it.
    Or their agent suggested they move half the crap out so the place would look big and people could imagine their own stuff in the spaces.
    Or doing what we are, just divesting ourselves of crap we no longer want, need, or use. And we own our own home free and clear. I am just tired of dusting junk.

  6. no_vaseline

    There isn’t much doubt in my mind the bottom graph will come to pass, at least in magnatude.

    The shape of the graph as it reverts to the mean is subject to debate.

  7. SoOCOwner

    This home is located on the corner of Irvine and Culver. The street noise must be terrible.

    1. Alan

      As has been noted several (many) times before, $1 million doesn’t get you all that much in Irvine. I presume the ” … down to $888,777? It might sell there…” is a joke. $400k, including Irvine/CA premium? Even if major streets weren’t so close, the neighboring houses are. Personally, I’d rather have a much smaller house if it gave me more space to enjoy the CA weather plus some quiet and privacy.

  8. CapitalismWorks

    Do you think the electricity is already shut-off, or are they just conserving energy. Those were the darkest interior pics I have ever seen.

    BTW, this place looks like something from Ladera Ranch.

  9. roundcorners

    based on the actual numbers, doesn’t it look like the new bottom would be somewhere in the winter of 2010-2011?

  10. alan

    This property sold for $719,000 in 03. I thought we were down to 03 prices already, so this is still priced at 04-05 levels.

  11. Kelja

    Your charts are amazing, they take the breath away (most certainly for those desperate homeowners hoping for the much touted bottom). Luckily, I rent.

    But they do pose a quandary. I was hoping to be a homeowner sometime in the next couple years. Best I can hope for is a quick bloody collapse.

    Government intervention won’t stop the inevitable but will slow it down. That’s unfortunate for those looking to become homeowners.

  12. Aaron

    I think the “bad as bad can get” chart will accurately reflect the whole of Orange County. Not necessarily Irvine though.

    1. Kirk

      This web site is a reality check, based on actual facts on the ground.

      Based on conditions on the groundโ€ฆ Where have I heard that before? LOL!

      1. IrvineRenter


        As our resident expert on parody, do you think the site is for real or is it a parody?

        1. CapitalismWorks

          I’ll answer for Kirk. Judging by the picture on the Outlook page there can be no doubt this is parody.

          The credentials included by the author include a bachelors and masters in Talmudic Law. I don’t know if the Old Testament ha a section on leverage and structured finance, but if it does this guy might be on to something!

    2. abdl rahim

      well, the happy real estate people have not so happily disabled comments. they took a torrent of abuse in a matter of hours. ha ha!

      you now have to email comments to the site’s editor, undoubtedly another masturbating Realtor (TM) with a lot of time and no income.

    3. finsup

      Unfortunately, this site does not appear to be a joke — it was profiled in the latest issue of Money magazine.

      Love THEIR charts, though … note the lack of metrics on the vertical scale — makes it seem like there were just as many homes sold in Jackson, TN as the entire SoCal market … oh, wait. I don’t think that’s what they had in mind….

  13. CK

    Thanks for the great post today, IR. Great to see a higher end property that is in distress. The graphs are amazing, I can point to your first prediction graph way back in early 2007 as the single biggest reason I put away the checkbook and decided to keep renting. Owe you a lot for that analysis.

    I also think we are likely headed the way of the “how bad can it get” graphic. I’m particularly interested in the rent saver line, as that’s my category. I’m still planning on buying in Q1 2009, and although we won’t be at a bottom, this scenario at least seems to support we will be at rent parity…which is all I am hoping for. Thanks again.

    1. alan


      Note that the rent saver line is horizontal, meaning that IR thinks that rents will not change during the next several years.

      This is not a likely scenario. With unemployment up to 7% and climbing in CA and the vacancy rate rising, I would expect rents to decline. Any decline in rent would lower the rent saver line and delay the crossover.

      1. MalibuRenter

        During the last downturn in the early 1990s, for a very short time rents were dropping. Mostly, rent just rose more slowly while home prices were dropping.

        However, if you go several years out, the difference between a 2% trend and a 4% trend can be significant.

  14. Ambiepants

    Irvine Renter:

    8 is a lucky number in the Chinese culture. Their word for “eight” sounds the same as their word for “wealth” or “prosper”. If you look at the aerial map you will see the house lies at the end of a cul-de-sac … which many Asians will not buy (just like a house on a T-intersection) because a car could come crashing through – unsafe for your family. I suspect they might be trying to counteract that. Just a guess. I think it is smart to keep feng shui principles in mind when purchasing property if not for your own beliefs, just for the fact that you want it to be marketable to the Asian population in Irvine. Hope this helps.

        1. irvinesinglemom

          A quick visit to the Forums section will tell you that bkshopr is IHB’s resident feng shui and Asian culture expert. IHB bkshopr!

          1. Ambiepants

            Cool! Thanks. Ya know, I had no idea we had forums here until you mentioned. I thought I had seen some reference to it in the comments section but figured it was something that IHB used to have. Now I know better! (If the ad for it at the top of the screen was a snake, it would’ve bit me.) I will check it out.

  15. Major Schadenfreude

    What does the third (bottom illustrated) graph represent?

    Correct me if I’m wrong, but the first represents what IR originally predicted. The second, what is actually happening superimposed on the first. However, the third shows a much deeper decline, but I don’t know upon what it is based. Or is it just a “lower limit” estimate?


      1. NewportCoastRenter

        Irvine Renter. I printed out chart 1 and 3, but could not click to enlarge and print chart 2. Can you repost? Thanks as always!


        1. IrvineRenter

          If you right click on the image, depending on the browser you are using, you should be able to print it or open it in a new tab and print it from there.

  16. Beinformed

    This is a short sell. Soon to be REO. Mobility Home loan is the loser. Homeowner took out a 1st of $920,000 and then a second of $230,000 in 2007. Original asking price was 1,200,000. On the market for 184 days. Has Mello Roos and HOA’s. Was served NOD. FYI this proberty sold for $574,000 back in 2003.

  17. LC

    Congratulations, Irvine Renter! You have found a house that is surely going below the original purchase price: $719,000 when brand new. No way is this going to sell for even that much. Things are dropping over 50% in some places, and the Alt-A resets are not even getting started.

  18. Buck Thrust

    Sadly, there are not really residential ymca “suites” anymore. Nor boarding houses, or poor houses per se.

    Having said that, i would rather live eternally in a thousand fucking such places, with bedbugs, than live in the skeevy caucasian paradise known to the sorry as “Irvine, California.” May a million Koreans and Armenian flippers suck out the life of this sorry part of “Orange County” and render it as empty as the CGI fantasies of modern masturbatory Hollywood entertainments.

    There dwelleth (or dwelled) the intestinal parasites known briefly as the “upper crusties.” May all of them and their noisome children be reduced to powder and released upon the breezes of the prairie.

    1. Forbear

      Interesting perspective Nut Buster, I mean Buck Thruster; Irvine is hardly a “caucasian paradise”. ๐Ÿ˜†

  19. LC

    Also, Irvine Renter, certain people think that due to the velocity of the downfall, we should hit bottom sooner, which is good news.

    My intuition tells me that hitting bottom at such a speed might produce a nice cratering effect. Sort of like punching a hole in the bottom of you chart. At any rate, I can’t see things getting back to normal in 04/09.

    1. MalibuRenter

      To some extent, quickly dropping prices cause that to continue. Buyers hang out and wait. Lenders get even more frightened. There is also a delayed effect. It takes a while for people who are abandoning or walking away from homes to make it all the way through the foreclosure process.

  20. Just A Lurker

    In Chinese, number 9 sounds like “longevity” and 8 sounds like “prosperous”. I think it is likely that our Asian rescuer is jumping ship.

  21. WaitingToBuyByAndBy

    IrvineRenter, thank you for showing your predication against the available data. Please continue to post updates in the months ahead.

    It is amazing to see reality is worse than expected.

    1. northpark renter

      This is great analysis.
      Thing I don’t understand is houses are selling in Northpark and Northpark Square (this home is in NPS) at these high prices per sq foot. All the analysis and fundamentals aside, there must be another factor at work here, because the homes are selling in these neighborhoods. Only the homes with less than desirable locations such as this one are on the sidelines; the others, are selling.

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