Just in Time

Just in Time — Tony Bennett

Time is running out. Congress is working to pass a massive banking bailout before our economy completely implodes (which it might anyway). They have taken the steaming pile of manure they rejected earlier this week, candy coated it, and resold it to the American people. Of course, a major selloff on Wall Street probably helped sway public opinion as well. After they pass the bill, there will probably be a relief rally on Wall Street celebrating the massive government intervention, and this rally will be touted by all as confirmation that Congress did the right thing.

In the meantime, house price are still falling, and some of our speculators are trying to sell before they go underwater. Today’s featured property found some motivation recently, and he lowered his asking price about 30% to try to move the property. Of course, the original asking price was totally WTF, so he isn’t getting multiple bids over the ask.

4 Eastmont Kitchen

Asking Price: $670,000IrvineRenter

Income Requirement: $167,500

Downpayment Needed: $134,000

Monthly Equity Burn: $5,583

Purchase Price: $275,000

Purchase Date: 11/20/1996

Address: 4 Eastmont, Irvine, CA 92604

Beds: 4
Baths: 3
Sq. Ft.: 2,305
$/Sq. Ft.: $291
Lot Size: 4,200

Sq. Ft.

Property Type: Single Family Residence
Style: Contemporary
Year Built: 1978
Stories: 2 Levels
Area: Woodbridge
County: Orange
MLS#: S517431
Source: SoCalMLS
Status: Active
On Redfin: 266 days

Unsold in 90+ days

4 BDs up plus an office down. Roof, carpet, flooring in BAs, kitchen
appliances & paint all done in the last 2-3 years. Excellent
expansion with corner fieldstone fireplace in ‘great room’. Great yard
for entertaining; extensive use of brick & built-in barbeque
center, lots of fruit trees, no zero lot line, Enjoy the fabulous
amenities of Woodbridge: the best ‘Place in America to Raise a Family’
and the ‘#1 HOA in US’. Irvine: ‘Safest City in America’ ‘top 2% of
schools in CA.’

This property was first offered for sale on 1/10/2008 for $949,000. WTF? Needless to say, it didn’t sell. On 9/11/2008, the price was lowered to $670,000. If this owner has listed it for that in the beginning, it might have sold, but now there are recent comps that have sold for less, so he is still chasing the market down. One would think that a house purchased in 1996 would have plenty of equity, but as we all know, lots of people spent all their equity, and today’s owner did as well. It is difficult to tell exactly how much is owed on the property, but it appears as if a sale at this price will get him out near even.

  • The property was purchased for $275,000 on 11/20/1996. There was a $192,500 first mortgage and a $82,500 downpayment. Nice start.
  • On 12/23/1998 the first mortgage was refinanced for $192,000. So far, no kool aid.
  • On 3/27/2001 he opened a HELOC for $75,000. Yum, tasty kool aid.
  • On 11/25/2002 he refinanced the first mortgage for $270,000.
  • On 5/29/2003 he refinanced the first mortgage for $269,000. Trying to be responsible.
  • On 7/5/2005 he opened a HELOC for $250,000. He is drunk on kool aid now.
  • On 6/22/2007 he took out a loan for $50,000.
  • On 10/17/2007 he took out a loan for $75,000.
  • On 1/24/2008 he opened a HELOC for $350,000. It is difficult to tell from the records which of these loans has survived. There is no way to be sure the $350,000 HELOC was ever used.
  • Total mortgage debt appears to be $619,000 ($269,000 + $350,000), but it might only be $269,000.
  • Total mortgage equity withdrawal is either $426,500 or $76,500 depending on how much of the final HELOC was used.

Most of the cases of HELOC abuse I profile here are the extreme ones, but nearly every property I look at has some amount of mortgage equity withdrawal. In fact, I am far more shocked when I come across a homeowner who didn’t take out their equity. It is very rare. Often times when I am reviewing a property that was purchased by someone at the peak, I see HELOC abuse from the previous owner that got away with it. They got lucky that the greater fool came along.

We all saw the evidence of rampant mortgage equity withdrawal during the bubble. How many times did you ask yourself when seeing all the conspicuous consumption, “How can they afford all of that?” The obvious answer is that they couldn’t; they were charging it to the house. Think of all the properties I have profiled where people have taken out $200,000, $400,000 or $800,000 over the last several years. Multiply that by all the people you saw shopping at the Spectrum, and you can see what a massive stimulus mortgage equity withdrawal was to our local economy. This was not the exception, this was the rule. Some have speculated that the Alt-A and prime resets may not be that much of a problem because the people in Irvine make a lot of money and they are sophisticated about managing their debt. This is nonsense. Many, many people are insolvent. They are borrowing from Peter to pay Paul. They are finding other ways to prop up the Ponzi Scheme, but we will witness the great deleveraging. The bills are coming due, and people will not be given more borrowed money to pay for it. The borrow-and-spend lifestyle is over. The financial distress of this deleveraging will eventually force the sales of a great many homes. No, those who have overborrowed will not be able to weather this storm. The excesses of the bubble are coming home — literally.

I hope you have enjoyed this 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.

🙂

.

BTW, Halloween is going to suck this year…

.

Just in time you’ve found me just in time
Before you came my time was running low
I was lost the losing dice were tossed
My bridges all were crossed nowhere to go
Now you hear now I know just where I’m going
No more doubt of fear I’ve found my way
For love came just in time
you’ve found me just in time
And changed my lonely nights that lucky day
Just in time

Just in Time — Tony Bennett

46 thoughts on “Just in Time

  1. Allison C.

    Cute cartoon. I wonder if the treats will be less for the trick or treaters this year. My neighbor is planning to turn off all the lights and not giving out any candies.

  2. lawyerliz

    Just curious, what percentage of people can now afford the median house, vs at peak?

    Sorry I haven’t been here much, but I have been glued to Calculated Risk.

    I’d buy this at 20% more off. Nice house.

    1. alan

      ? Nice house ????

      Only two pics of the house, nothing special, typical stucco box design, ugly from the outside if you ask me. Small yard turned into a brick patio. At least landscaping is not much work but no garden and very small front lawn to mow. If they used the heloc money it doesn’t look like they spent it on the house unless it was bricking the back yard.

      1. SnowKat

        I agree alan, this house looks like it hasn’t been updated since the early 90’s with the white wash wood & white tile in the kitcken. I wouldn’t say it’s ‘ugly’ though… Maybe just not my style.

        I am guessing that there are not very many pictures because they are as unimpressive as the kitchen/family room shots.

        I miss houses that have lawns … :smirk:

      1. freedomCM

        eh…no back yard, and right next to a huge apartment complex. no updates in 20 years.

        why should this be worth more than it was purchased for?

  3. Larrygg

    Another fool living in the past. This house will probably sell for $450K in the next few years. I’m curious what steps the lenders are taking to secure their paper? 20% down at a minimum and I’d venture to say that whatever appraisal they get,cut that number by 25%. If they were smart. There’s no way that an appraisal would come it at anywhere near $670K. Maybe last year but not this year.

  4. Walter

    Think I will take the kids to Balboa Island for trick or treating. From what I understand it is the strongest RE market around so we don’t expect to find many brown lawns.

  5. NY-interest

    I wonder if all this deleveraging will fully shake out the real from the fake in Southern CA.

    My wife’s originally from Irvine, and I love the area. My biggest con with Southern CA is the people. I never felt that they were real. I guess with their houses being used as ATMs, my gut feeling was correct in that it was not real wealth.

    Perhaps with people actually having to legitimately earn a salary to pay for an extravagant lifestyle, a true soul and culture may return to the area.

    1. IrvineRenter

      “Perhaps with people actually having to legitimately earn a salary to pay for an extravagant lifestyle, a true soul and culture may return to the area. ”

      We can all dare to dream…

      I hope you are correct.

    2. SnowKat

      NY – Any person I have met in OC that I could ‘gel’ with was NOT from here (for the most part)… LoL Go figure!

    3. Hormiguero

      Southern california has always been driven by real estate booms and busts, going back to 1860s LA.

      Irvine is nothing if not one giant movie set, scientifically designed to be the perfect suburban image.

      Do you really expect to find something besides actors under the lights on a sound stage?

      1. CK

        Ah, my favorite subject on IHB. Dickheads from somewhere else saying that everybody who lives in Irvine is without soul, culture, morals, and now are apparentely fake actors. Everything these experts know about residents of Irvine was learned by watching an episode of “The OC”. It’s even more fun to see that stereotype furthered by the moderator.

        I wish that somehow when these experts posted that their own zip code would pop up in the corner of the post, so we could give it the appropriate context. I’m sure we could have a lot of fun slicing and dicing their neighborhoods. So on that note, where do you live, homeyguru? What makes your people better than the actors in Irvine?

        1. Senator Larry Craig

          Certainly, there is a significant measure of truth to the stereotype. I lived in Irvine for 15 years, leaving in 2004. It does indeed lack soul and culture, if only in a relative sense. It is not fair to generalize, but the plastic faces and chests perusing the sculptured setting in SUV’s with rims and trims of gold is prolific. Since leaving, I have redifined what the word “community” means to me. O.C. and Irvine offers great weather in which to be hopelessly confined to a rat race. I suppose one cannot possible understand the nonsense of it all from the perspective of inside the cheese maze.

          1. CK

            IMO, if you can’t find a community in Irvine, you are not looking very hard. And by no means am I saying Irvine has a better community than anywhere else — every place has its merits. It’s just that to say that Irvine has no community because you didn’t get involved or like the community is very disengenous.

            BTW — I travel a lot with work. I have been to every major city in the US. Irvine by no means has the corner on the plastic surgery or gaudy vehicle market. And don’t forget that Irvine does not equal Newport Beach, my friend. Don’t lump us in with our neighbors. I would not live around those a-holes either. But I do like their beaches.

          2. SnowKat

            CK – I think what they are trying to say is that, for the most part, Irvinites keep to themselves… Pull their cars into their garages & close the door behind themselves. I don’t think that their morals, culture, or souls are in question.

        2. NY-interest

          CK,

          I was born and raised in zip code 10710. So you can slice and dice my background whatever way you’d like. Please save your “dickhead” comments to yourself.

          My wife, who was born and raised in University Park, and I both come from middle class families. I’m not preaching from atop any soapbox. I’m just calling it as I see it in regards to the lack of soul/culture that exists in the Irvine/LA area.

          My wife’s parents grew up in small towns on the east coast and ultimately settled on the west coast. Funny how both her parents, my wife and I have drawn the same conclusions about Irvine. It’s a lovely area, an area where I may ultimately settle, but it lacks soul and culture.

        3. idrnkurmlkshk

          It’s a generalization CK. But from the sound of your defensive, snotty response it sure reinforces the point.

      2. SnowKat

        “Irvine is nothing if not one giant movie set, scientifically designed to be the perfect suburban image.”

        A giant movie set ?? LoL 😆

        Sounds a little like jealousy to me.

      3. MandarinoMiracoloso

        So much dumb money was “withdrawn” and spent in Irvine because so much was made available. Create instant riches, and many people will waste it. It does not matter where it happens, people will tend to act the same. IMHO

  6. phil

    I have asked this before but never received an answer. Someone has to know how many loans in Irvine or at least Orange County are Option ARMs?

    This would really help gauge how large a tidal wave we have coming.

    Anyone?

    1. IrvineRenter

      I don’t know of any database that has these statistics. I do know that 32% of all loan originations (purchases and refinances) in 2006 were Option ARMs, and 80% of all originations in 2005 and 2006 were either Option ARMs or interest-only ARMs. There was a lot of refinancing going on during this time period. This problem is huge.

        1. IrvineRenter

          In all of California more than 80% of loan originations in 2006 were either Option ARM or interest-only.

          1. AZDavidPhx

            California is broke from all of the borrowing. Your governor is asking the rest of the country to help out and come to the rescue. I think this is going to be the end of some of the people on here crowing that people not from the area have no business coming on to this blog and talk about a place that they do not live in.

  7. oc_analyst

    This house has an un-fixable negative in that it sides to a cheap condo development. I used to live on Eastmont in the not-as-cheap townhomes across the street from the flats next to this house. While Woodbridge is arguably the best value in Irvine (no Mello-Roos, $73/month association for 12 pools and 48 tennis courts, etc.), it will be a tough sell.

    Rent would be about $2,900.
    Ownership economic cost would be $3,229.*
    Rent-saver breakeven price: $597,000.*

    My projection: more to fall. At market bottoms, even good areas get to or below rent saver pricing. Given higher credit standards, and the risk associated with the underlying asset, one could argue that rent-savers will not opt to finance a house until economic cost is well below equivalent rent.

    *Assumes 30 year fixed, 6.5% rate, 20% down, 6.5% cost of capital, $100/mo in R&M, $73/mo assoc., $70 prop. insurance, 1% property tax, 28% federal, 9.3% CA tax brackets, that buyer has enough income to where mortgage interest deduction is fully incremental in said brackets, and excludes mortgage principal as this is not an economic cost but a transfer from one asset (cash) to another (home equity). R&M may be a hair low, but it’s a recession: you should learn to do more yourself!

  8. Beinformed

    Again, this home is overprice, if you apply Whitney’s formula. If back in 1996 the house sold for $275,000, and if I recall, that was the high selling point, then you add 4% yearly and you get around $446,000 for present price. Plus factor in that it is a buyers market and we have yet to hit bottom. If it sells for around $400,00, I will be surprised, R.E. investments compared to stock market investments returns only around 4% yearly, whereas stock market returns have historically given around 10% returns. If they seller gets around $400,000 then he should take the money and run.

  9. billinny

    “Most of the cases of HELOC abuse I profile here are the extreme ones, but nearly every property I look at has some amount of mortgage equity withdrawal.”

    I’m curious if the ratio of ‘extreme HELOC abuse” to “properties on market” is rising or falling…appreciating this will be more anectodotal in nature. In other words IR have you found you have been needed to look at more, or fewer, properties on the market to find the mroe extreme examples of HELOC abuse.

    My thinking is that the worst abusers will be the first to be forced sellers, thus would be a high portion of the houses on the market. So, in theory over time we will see fewer of the very severe cases as the worst ones were the first wave of forced sellers. To the extent there were some with less abuse, it seems these people may be less likely to become forced sellers and can ride the market out.

    1. houseonlegs

      You also have to consider a lot of the extreme abusers were still refinancing in 06 and 07 and their arms/option arms have not reset yet. I think people that took max cash out wont even put their home on the market, they have already given up. They will make their minimun payment until their loan resets and then they will just wait to be kicked out.

  10. BHC

    the funniest thing is, everyone posting on this blog are going to be helping these and other Irvinites finance/payoff their huge amount of debt. Who really is laughing now?

    1. SnowKat

      Laugh it up! We will be laughing when they through you out of your McMansion 😉 Hopefully you saved some HELOC for a rainy day…

    2. Schadendude

      Ya including you f*cktard… Least we get to keep our credit rating. Good luck buying in again once the sheriff comes to throw you out.

  11. lawyerliz

    Grrrr. I made a long post and didn’t notice I was supposed to write the word in and it got deleted.

    Bottom line is that I’m not buying back into the mkt for a while, and when I sold last fall, vowed I wouldn’t get back in intil it went below 10000 and now I’m thinking maybe less than that.

    I’m beginning to see a bottom in South Fla, and it’s a really low bottom.

  12. lawyerliz

    After reading IHB for a long time, I expect there to be no lawn.

    I wouldn’t pay more than 300k, maybe 275 in South Florida for the house.

    And of course, I have no idea what the surroundings are.

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