Unbelievable — Bob Dylan
They said it was the land of milk and honey
Now they say it’s the land of money
Who ever thought they’d ever make that stick
It’s unbelievable you could get this rich this quick.
Isn’t
this whole situation a bit surreal? It is almost unbelievable that we
are witnessing such a catastrophic crash in our financial markets
coupled with a dramatic economic slowdown. The root cause of all this
turmoil is the behavior of owners like those I profile every day. So
many people took on so much more debt than they can afford to service,
and the geniuses on Wall Street securitized these toxic loans and
poisoned the entire world economic system. Think about this for a
moment: if the many borrowers in the bubble markets had not
borrowed so much money to inflate this massive housing bubble, our
current economic problems would not have occurred. There are many
responsible parties, and it always takes two to tango, but if the
demand for toxic loans had not been present, the toxic loans would not
have been issued.
It’s unbelievable it’s strange but true
It’s inconceivable it could happen to you
Why would anyone be selling right now? Prices are 20% off the peak, and there are a number of REOs to compete with. Homeowners who are not distressed are not selling now — perhaps with the exception of those who recognize prices are going lower. Measurements of distressed properties only consider REOs and short sales; however, there are a number of overextended homeowners who are trying to get out before they become one of these statistics. These homeowners are just as distressed, but if they can manage to get out now, they will not lose all their remaining equity and good credit. Like the truly distressed properties, these owners will sell. They will either sell now while they do not meet the technical definition of distress, or they will sell later when they do. For most of these homeowners, hanging on is probably not an option. Most have more than doubled their mortgages, and when their ARMs reset, they will be unable to make the payments. So when pundits say our inventory is not distressed, they may be technically correct, but many of what appear to be organic sales are truly distressed sales. And even many of those that are not distressed are choosing to sell now because prices are dropping, and they know they will be able to reenter the market at a lower price point. A significant portion of the non-distressed sales are still highly motivated.
Today’s featured property is for sale because it is distressed. It does not fit the classical definition because it is not a short sale or an REO, but the long-term owners of this property got caught up in the financial mania, and they doubled their mortgage. Now they have an Option ARM about to explode, and they are hoping to sell before it does. They made mistakes when they got caught up in a financial mania, but selling now — before they lose everything — is the best decision they could make.
Asking Price: $739,900
Income Requirement: $184,975
Downpayment Needed: $147,980
Monthly Equity Burn: $6,165
Purchase Price: $339,000
Purchase Date: 10/24/1991
Address: 3 Encina, Irvine, CA 92620
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,459 |
| $/Sq. Ft.: | $301 |
| Lot Size: | 4,635
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary/Modern |
| Year Built: | 1978 |
| Stories: | 2 Levels |
| Area: | Northwood |
| County: | Orange |
| MLS#: | S552191 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
Master Retreat, 2.5 Baths-Many Upgrades-Tile Floors,New Berber Carpet,
Laminate Floors, Window Shutters-Lots of Natural Light-Formal Living
& Dining Room, Large Kitchen w/Newer Appliances Including Double
Oven, Tile Floor & Counters, Pantry & Breakfast Nook w/Ceiling
Fan, Step Down Family Room w/Brick Fireplace, Spacious Master has
Retreat, Vaulted Ceilings & Walk-In Closet w/Organizers, Master
Bath w/Dual Vanity, Oval Tub, Separate Tiled Shower w/Newer Glass
Enclosure, Private & Lush Backyard has Bubbling Spa, Wood Patio
Cover, Hardscape w/Brick Accents, Mature Plants & Trees, Inside
Laundry Room, Newer Tile Roof, A/C & Furnace-Walk to Award Winning
Schools, Shopping, Parks & Trails-No Mello Roos, Low Tax Rate,
Association Dues $48/Month-Don’t Miss This Fantastic Opportunity!!
Why Is This Written In Title Case?
This is another sad story of a long-term owner who got caught up in the fallacies of The Great Housing Bubble and now they are losing their home. This property was purchased on 10/24/1991 — 17 years ago. The property records do not mention the amount of their purchase-money mortgage, but on 7/30/2003, the refinanced for $322,700. Then the kool aid began to flow.
- On 9/16/2003 they opened a HELOC for $100,000.
- On 4/7/2005 they refinanced with an Option ARM for $440,000.
- On 6/3/2005 they opened a HELOC for $120,000.
- On 2/22/2007 they refinanced with an Option ARM for $580,000.
- On 5/4/2007 they opened a HELOC for $50,000.
- Total debt on the property is $630,000.
- Total mortgage equity withdrawal is approximately $300,000.
Like many we have documented here, these people believed all of the fallacies of the housing bubble, and now they are losing their house. Losing the family home is a big price to pay, particularly when they have lived there for 17 years.
Those looking for market denial have been pointing to the continued activity on knife catchers in the more desirable markets. Their activity has caused prices not to decline as rapidly as they have been in less desirable neighborhoods and communities. The supposition is that there will always be a sufficient quantity of knife catchers willing to pay inflated prices to prevent further meaningful price declines. There is the possibility that this could happen. There are two factors working against this:
- As prices decline in other communities, a certain number of buyers will be enticed by the lower prices and buy there rather than in Irvine or other inflated, desirable markets.
- The number of distressed properties is larger than the number of knife catchers.
The first of these issues will cause the number of knife catchers to be smaller; it restricts demand. This will certainly happen. The second of these problems will cause an increase in supply. So far, this more serious problem has not caused inventories to balloon out of control. Based on what I see every day in the property records (owners like these,) and knowing the amount of ARM resets on the horizon, I believe it is very likely that the number of distressed properties will overwhelm the number of knife catchers and drive prices significantly lower. Only time will tell.
{book}
It’s unbelievable it’s strange but true
It’s inconceivable it could happen to you
You’re going north and you’re going south
Just like bait in a fish’s mouth
Must be living in the shadow of some kind of evil star
It’s unbelievable it would get this far.
It’s unbelievable what they’d have you to think
It’s indescribable it can drive you to drink
They said it was the land of milk and honey
Now they say it’s the land of money
Who ever thought they’d ever make that stick
It’s unbelievable you could get this rich this quick.
Unbelievable — Bob Dylan
It will be interesting to see how things shake out by the time all of these ARMS reset for these “homeowners”. I love our new definition for this status.
PAST DEFINITION
Homeowner – An individual that is paying down or has payed down h/her loan on a house.
PRESENT DEFINITION
Homeowner – Any idiot that has taken out a loan from a bank, regardless of whether or not h/she can pay it back.
Maybe you too can achieve this grand status!
LOL Maureen !! 😆
I make a correction.
PRESENT DEFINITION
Homeowner – Smart and intelligent guy who speculates on house with nothing to lose (other than credit). Smarter is one who monetizes market price gain thru HELOCs. Enjoys very high life style making banks, foreign fools, bond investors & taxpayers pay for it.
You know, they did get all that money out of their house and they did get a loan that resets 2 years after they got it. The option ARMs really only made sense if you were planning to sell within 2 years.
It was kind of everyone subconsciously realizing the good times were going to end soon, so let’s max out our loan amount NOW.
That house has a – gasp – tile kitchen counter and thus will never sell because it isn’t “updated” enough.
I kind of like the detailing on the garage door. But tile counters! Egad.
And I’ll again express my amazement that a 2400 sf house is on a lot that’s less than ideal. 4600 sf lot? That’s less than a 1/10 of an acre. This might as well be a townhouse.
If people had purchased nice land with modest houses instead of nice houses on modest land, maybe the deflating would be so bad….
You probably won’t see the Detroit scenario in Irvine. In many parts of Detroit if you don’t like the amount of yard you have, you can buy neighboring vacant houses for a few thousand, sometimes less. Demolish them and have a bigger yard.
Even better, the City is taking down some of them. By it after they are done.
Is that ‘tude about tile counters serious? I hope you’re being sarcastic (re the So Cal shallow obsession with image). I’m sorry, there is more to evaluating the worth of a house besides what type of counters are in the kitchen. Especially when counters are so easy replaced.
I was joking, but I wasn’t.
Personaly, I could give a rip it the counters are formica or tile or Corian or concrete or whatever, but the expectation of many local area homeowners is granite or bust.
Whew, glad to hear it. Guess I’m never quite sure what folks in these parts are thinking sometimes 🙄
Personally, I think if I ever buy in the near future, and the house has granite countertops, I’m going to rip them out and put in tile. Granite countertops has come to symbolize for me the ‘image is everything’ mindset in Cali that may have wrecked our way of life for a good long time.
Good idea. That way you can also spare yourself possible radiation poisoning from the radon, uranium, etc. in the granite. :ahhh:
I bet that Detroit has less population density now than Irvine.
Wow, that’s crazy. An awesome opportunity for the lucky ones, though, I guess. Amazing that the Wikipedia article on Detroit doesn’t mention the housing abandonment issue there at all — I wonder if city officials are keeping the article sanitized.
I am a Homeowner (past definition, not present) of a rental house in the IE, purchased in September 2000. The tenants recently moved out and the house has been totally refurbished and is going up for sale this week. It was appraised last week and will be priced to sell quickly. I’m catching all kinds of flack for selling as I have no financial need to sell. I just am convinced that we haven’t seen anything yet in price drops and this house never rents quickly so I’d like to get out while I can still make money on it. I see shops closing up everywhere here and the economy contracting. At the same time I see investors madly buying REO’s and renting them out. I am convinced there is a growing oversupply of rentals in the IE and that will also drive rental prices down. In short, I am getting out of this house now while I still can, albeit a bit late, and collecting my money and banking it for more buying power in the future. Comments about the timing of this sale, anyone? Any insight into the shift from oversupply of housing into oversupply of rentals?
Be prepared for asinine buyers. They think in this market they are doing you a huge favor and they will expect you and your agent to cater to all their whims. I sold my rental this past spring, albeit in another state, and the buyers’ demands were unbelievable. I finally got sick of them and told my agent to ignore them. But they came back a week later and they were my only prospects. So I gritted my teeth and the sale did go through, eventually.
Well, I just put $16,000 into the place and the appraiser clearly marked “no deferred maintenance” so I hope that helps. It’s a plain house so besides new paint (two-tone, decorator paint!), carpet (upgraded!) and laminate flooring(wood-like, decorator!) I put in all new (updated!) light fixtures and new (decorator!) door hardware, new (designer!) WINDOW COVERINGS, AND CUSTOM ROMAN SHADE VALANCES! that I proudly sewed. I even put in all new sinks and faucets, new smoke detectors, repaired the fence and stained it, got the fountain up and running, and caulked and painted the patio cover, and added some landscaping. I sure hope all this will appease any buyer and make my plain 11 year old house stand out from the trashed REO’s.
This is what I’ve been waiting for. During the bubble people could sell dilapidated houses that were in severe need of R&R for a profit. Buyers didn’t care because they were going to profit from a flip within two years of obtaining their 2/28 ARM with 0% down.
People who actually wanted to live in their house were SOL.
Now its another story.
So… it sounds like they were doing you a huge favor and you had to cater to all their whims, seeing as they were your only prospects. 🙂
Exactly. I can’t stand these seller’s mentality. “OMFG I paid $1000 for this stereo new, and I’ve only listened to it 17 times since I bought it. It must be worth $950 still!”
Last time I checked our economy is in a nose dive. If you have cash, used things can be had for cheap right now. The last few years everything on Craigslist has been a ripoff. Now I can pick up items for 35% of new or cheaper because they’ve been sitting in the garage for the last year collecting dust.
$1000 dollar stereo? That has no resale value…
However, the $10000 stereo has resale value…. imagine that. I usually get my stereo stuff used from audiogon.com
Because everyone needs a $10,000 stereo in a deep recession…
WTF?
Just like sellers wanting outrageous prices for their property, buyers can be unreasonable as well. Like after their offer is accepted wanting all the furniture in the house for free.
The point is that people can be unreasonable on either side. And if they have the prevailing attitudes on their side they are going to push it to the max.
Hope this never happens to you, friend.
Those buyers might be like my wife and I. Rare. Careful. Able to actually buy. Not the slightest motivation to overpay.
This brings up a question which some owners might want to answer. If someone who clearly is able to afford your house offers more than your loan value, but much less than the realtor told you it is worth, what do you do?
For example, a house with a 2006 price of $1 million, owner purchased in 2000 for $320,000, outstanding loan of $450,000 (assume they refi’d), broker tells them it should sell for $700,000. A buyer offers $550,000, because that’s what they think the price will be at the bottom. There is no sign the buyer will be convinced to offer more.
This is almost my EXACT situation as a seller. I am an equity seller, not distressed, but wanting to get out before the bottom. Why should I sell for bottom prices now? I wouldn’t accept an offer of $550K when comps are $700K. I might consider $650K though.
Banks are being asinine trying to unload repos. You should see what they want buyers to do for gutted vandalized property. There is still a long way to go to the sweetly reasonable stage.
I’d say wait till the market gets better before you get out, but on the other hand. A shack with an ocean view is a better investment than a dream home in the IE any time. So, I’d get out just the same. The IE sucks.
IE is a big place. Can I ask what city?
IR,
Thank you for this great blog!
I have a question, with the impending wave of ARM resets, why or how are experts (the most recent UCLA study) predicting price stabilization in 2009? Wishful thinking?
When looking at the national market, or more specifically the market for new homes nationally, prices probably will stabilize in 2009. The rest is wishful thinking designed to provide hope and denial. Our local resale market will not stabilize in 2009. In fact, the mid to high end resale market will likely continue to decline as the ARMs reset nationally. Locally prices almost certainly will drop because they are so elevated from fundamental values even after the first leg down.
Thanks! My husband and I were in the midst of house hunting when I stumbled onto your blog. We’ve learned so much and are happily waiting and saving and are not in a rush to buy as home as we were before. Thanks again!
Same here! thanks for this blog
From ocrenter at Bubble Tracking:
https://www.irvinehousingblog.com/images/uploads/oct2008late/foreclosure08q3.jpg
Does this look like stabilization is coming?
Where might I find the underlying data for this table? I am curious if the number of foreclosures in this bubble have/will exceed all prior foreclosures in the previous 20 years records were kept. In other words, will the 2006-2008 or 2006-2009 foreclosures in CA exceed the total for all prior years in the database (back to 1988)?
Using a few datapoints on the chart, it looks like we are half way there. Foreclosures 2006-2008q3 appear around 300,000. The total for prior years looks to be around 600,000. If so, it looks like foreclosures during the bubble for 2006-09 will exceed the prior 20 years combined.
ROTFLMFAO!
As stable as a drugged-up Hollywood star’s personal life.
I think that 3Q96 was a record of some kind, too.
That group at UCLA has been putting out really sunny reports for a while now. I have no idea why, but go back and look at what they were saying about job losses and the larger economy a few months ago.
Ben Stein has an interesting commentary in the NYT, to wit, if he was such a smart economist, how come he didn’t see all this coming and profit by selling short.
Mr. Stein answered that economists are very bad in calling recessions/depression. The great depression took everyone by suprise. They spent years after that trying to figure out what went wrong.
I agree, UCLA is missing something, their models just don’t work and things will be worse. Personally, I’m sticking with Roubini although his prediction that the market will be shut down for a week sometime in the next two months when a massive sell off will occur is very scary.
Of all the “economists” who completely missed the bubble, Ben Stein was the most condescending in his commentary on it. His protests that all economists are bad at forecasting is an attempt to rebuild some credibility by saying he was not alone. He is an arrogant fool.
Agreed. I find Mr. Stein favorable in many respects, but he certainly got this one WAY wrong.
I’m just an average citizen and I could see this train wreck a mile away. That business about economists not seeing this coming is just all cr*p. Maybe nobody wanted to rain on everyone’s parade, or sound like the guy from last century’s economics theories. It just gripes me that nobody who had a national audience spoke up, from Greenspan on down. He just tried to duck out before it all came crashing down, hoping that he would escape blame and it would all fall on Bernanke.
I too am an avg citizen. I have no finance background (my husband & I are engineers). But it it was obvious that the **** was coming down the pipeline. How could anybody NOT see this? (But who’d of known it’d be of such epic proportions?)
We’re in our mid-late 20s and wanted to (but didn’t) buy a home in 2006. On 2 great salaries and 20% down, we could only buy a starter crapshack in the Oceanside ghetto. Something was clearly wrong.
I agree. I am no economists, but it was
obvious to me by 2004, something was bad
wrong in housing.
I felt the same way in 1999 with MS stock.
If it kept growing the way it was then,
MS would most of the local spiral arm
by now. Stupid.
You’re spot on when you suggest it didn’t take an economics degree to see this fecal wave coming. There were SO many red flags and warnings, like the one you illustrate. But for some reason, most everyone in this country lost their minds and we were all “whistlin’ past the graveyard”. All one had to do was look at median home prices as compared to median income to know the implosion was imminent.
My pet theory now is that all these “economists” like Greenspan and Stein were nothing more than cynical cheerleaders when deep down they knew where this was headed. The worst offenders in my mind are the “geniuses” on Wall Street. More than anyone they had all the data they needed. I now believe they all cynically engaged in massively risky behavior because the rewards were staggering. They believed they were smart enough to game the system long enough to literally not be the last one standing when the music stopped. I think they also believed, in the dark recesses of their greed-fevered brains, that the giant sucker that is Uncle Sam would clean up their ankle deep s**t pile and they’d all walk away scott-free. Turns out the greedy, cynical narcissists were right.
Yeah, I was even scared of the tech bubble. I got blown out in that one, but only lost my job, not my life’s savings. But who did not learn about bubbles after that? No excuse at all not to see this one.
UCLA is missing Chris Thornberg, who is now at Beacon Economics. They were one of the academic sources of bubble warnings before most others believed there was a bubble. They also made a pretty convincing case that residential real estate was at least an excellent leading indicator, a probably a primary cause, of most recessions in the US.
Anyone care to share the latest from RE prophet Gary Watts? Has he finally conceeded or is he still trying to spin the situation to anyone who’ll listen?
These people are typical of the consumerism addiction. They stayed with the “tried and true” method of living within ones means. Then, as their friend and neighbor bought all the toys, they caught the consumer fever and now the fever is consuming them.
Fortunately many people never caught the fever and are still paying $1,400 per month just like they have for the past 17 years as this homedebtor COULD have done. Truly sad.
I think what threw most people over the edge were when these dope 30″ rimZ came out:
https://www.youtube.com/watch?v=DUCV5t91_WE
straight ill !
FUNNY!!! Gotta score me some 30’s for my Benz homey cuz a playa ain’t a playa less he’s got the bangingist rims on the block! Sick brah, sick!
We’ll look back 10 years from now and see pictures of this crap and wonder WHAT THE HELL WERE THEY THINKING?!
Rome burns. Nero fiddles.
Hmm. I often wonder how many people during the 70s realized how intensely horrible the general aesthetic had become.
Well, in this case I certainly realize how horrible this aesthetic is in the present.
(“Why is your car a troop transport with wagon wheels…?!”)
I for one think these people were absolutely brilliant… if they kept the money somewhere instead of spending it.
If they were smart, they would have shipped all of that money and parked it in an offshore bank account ( perfectly legal ) and now if they can come out even from this house they stand to keep a lot of money.
And even if they spent it, and if they can break even on the house then they can still say that they had a blast while it lasted.
Dang it, I could have borrowed $600K myself and right now I’d be moving to Australia.
The ultimate scenerio would be to extract all the equity you could, then get a straw buyer, preferably an ex con family member in need of cash.
Set him up with a mortgage broker at Wamu and have him pay 20% over asking and get that option arm liar loan. Drop him 10K to make a couple of payments and let him live there for free until they finally evict him.
Laugh all you want but trust me this played itself out more then once, and the said part about it is they will go after these people and let Angelo Mozilo get off scott free.
Welcome to America, only the ultra rich can say that crime DOES pay.
How many know about the TCE contamination problem in Irvine (from the El Toro military base)? Do you think this is something that’s going to destroy the desirability of the area once it becomes more publicized? It seems like you’d be crazy to buy in Woodbridge since the area can most likely never be fully cleaned considering the magnitude of the problem. (See the desalter project on Irvine Ranch Water District’s site).
This was mentioned here a month or so back and I wondered I also wonder if this will be a big deal later. I don’t think most residents know about it. In Jan 07, the Register stated that the desalter was running and the contamination would be cleaned up in 30 yrs. The maps shows that it is under the portion of Woodbridge nearest Irvine Center and Jeffery. The well that feeds the North Lake is contamiated, but the lagoon is safe. Orangetree, the community college and all those businesses are effected even more because the polution is even closer to the surface.
I love Woodbridge and may even buy there in the future. I would like to see more awareness about this so it can be reflected in the price. Maybe the South Lake is ok, but how do you know.
I openly wondered about something like this when the Great Park was proposed. Sadly I seemed to have missed the breaking story about the TCE contamination so thanks for the heads-up. I intend to read-up on the subject.
In reference to the Great Park. One must now be able to conclude that thing is never going to get built and if it does, it will be nothing but another small regional green-belt and nothing like what was planned. Lennar is in trouble, nothing is selling on or near the former El Toro MCAS and now this? As I mentioned earlier, I often told friends it wouldn’t surprise me in the least if the Great Park site turns into a superfund clean-up after decades of arms, ammunition, jet fuel, likely rocket fuel and other kinds of unholy waste and toxic byproducts kept on that base. We probably don’t know about half of what was dumped or spilled or otherwise discarded during the MCAS days.
Hmm, the board seems to have silently censored my reply, perhaps due to false-positive spam detection? Or maybe because it was too long? Lemme try paragraph by paragraph:
Yeah, I remember when the Irvine Ranch Water District used to talk about the progress of the Desalter project in the “Pipelines” newsletter that comes with the bills, and they did *not* at all make it clear that the primary purpose of this thing was to clean up carcinogenic chemicals that are leaching for miles through the water table from the El Toro MCAS. They are more forthcoming now at http://www.irwd.com/WaterQuality/IDP/, however.
It’s frustrating that there aren’t more impartial and thorough investigative sources keeping tabs on this issue. (I see that the cranks at newsoc.org seem to have given up their site, at least — I’m sure the uber conspiracy theorists will have a field day with that.)
The Desalter project is a cooperative between the IRWD and the Navy, and there is a Navy site at http://www.bracpmo.navy.mil/basepage.aspx?baseid=40&state=California&name=eltoro that has documents on the TCE cleanup progress, including an August 2008 update (the site is very poorly designed and you have to click on “View/Hide All Documents” and then click on the “>>>” next to “Environmental Documents” to see it.
The document includes information on how you can “be put on the mailing list to receive information about environmental restoration activities at former MCAS El Toro”.
These investigative videos are also interesting, if repetitive:
https://www.youtube.com/watch?v=QyQhAvYFi-8
https://www.youtube.com/watch?v=7eBEmSDiU2o
https://www.youtube.com/watch?v=pZq66Ew63OA
https://www.youtube.com/watch?v=msFXRS-NOww
The economy is in shambles, stock is down and people are losing their 401K’s yet they are reporting that home sales are up?
http://www.bloomberg.com/apps/news?pid=20601213&sid=a4aBhfS9axuA&refer=home
What gives?
[url=http://www.bloomberg.com/apps/news?pid=20601213&sid=a4aBhfS9axuA&refer=home ]http://www.bloomberg.com/apps/news?pid=20601213&sid=a4aBhfS9axuA&refer=home [/url]
Most people don’t have much or anything in 401k’s and half the population don’t read the newspaper.
“I believe it is very likely that the number of distressed properties will overwhelm the number of knife catchers and drive prices significantly lower. Only time will tell.”
I’ve been looking at leasing a house the last few days because I believe it’s gonna take a couple more years to flush the all Kool Aid out of the system. There have been too many buyers of distressed houses at non-distressed prices. At least I’ll finally be in a house instead of an apartment. Thank you Alan Greenspan (and Ben Stein).
I would like to do that, but moving is such a nightmare for me, and it seems like with a rental house you’re at the whim of the landlord and might have to move at any time (as has happened to me before when the owner sold). As much as I dislike many aspects of my IAC apartment (where I was *also* forced to move a little while back, though only to another apartment on the property, and at least they’ve now renovated and won’t have to again for quite awhile to come), at least I can be fairly confident I won’t have to move before I’m ready.
we could only buy a starter crapshack in the Oceanside ghetto. Something was clearly wrong.
In a “ghetto” Oh, something is clearly wrong! With you.
I hope you find that alabaster city gleaming, at the right price.