Mistake 2008

I Made a Mistake 2008

I recommend the video above. It is a classic 2008 recap.

This year, 2008, was the year the world came to recognize that we have a huge economic problem caused by housing. As with all crises there was denial by everyone at every turn, and this denial is still going on. The latest nonsense meme is that low interest rates are going to solve the ARM problem: bull$hit it may even make it worse.

I received a sign that the general public is moving from denial to fear in Irvine. Some people I know that bought in late 2007 are selling their starter home because they see prices going down. Just a couple of months ago, they were determined to hang on to both properties as “investments.” When even the most kool aid intoxicated start to see the fall in prices as an ongoing trend, and when these same people start to sell out of fear, the market is entering a new psychological stage.

Psychological Stages of Bubble Market

Today’s featured property is a 1/1 in Turtle Ridge that is showing significant distress. Apparently Turtle Ridge is not immune after all.

133 Danbrook front 133 Danbrook kitchen

Asking Price: $300,000IrvineRenter

Income Requirement: $75,000

Downpayment Needed: $60,000

Monthly Equity Burn: $2,500

Purchase Price: $445,000

Purchase Date: 3/25/2005

Address: 133 Danbrook, Irvine, CA 92603

Beds: 1
Baths: 1
Sq. Ft.: 822
$/Sq. Ft.: $365
Lot Size:
Property Type: Condominium
Style: Other
Year Built: 2004
Stories: 1
Floor: 1
View: Park or Green Belt, Has View
Area: Turtle Ridge
County: Orange
MLS#: S521349
Source: SoCalMLS
Status: Active
On Redfin: 322 days

Unsold in 90+ days

Best deal in Turtle Ridge! Better then a model, granite counters,
designer paint, berber carpet, upgraded bathroom, and much more. There
is a garage with direct access, a fireplace, and air conditioning. This
is a primo location with access to Newport Beach, Fashion Island, The
Spectrum and the Beach! There is a really nice community pool and spa
with clubhouse and nearby walking trails. only way to be in the area
for this price! Only one of a few 1 bedrooms every built!

every built?

Here is your chance to pay $300,000 for a glorified apartment.

This property was purchased on 3/25/2005 for $445,000. The owner used a $400,500 Option ARM first mortgage and a $44,500 downpayment. Not to worry, on 4/5/2006 he opened a HELOC for $60,000 and likely withdrew his downpayment plus $14,500.

If this property sells for its asking price, if a 6% commission is paid, and if the owner maxed out the HELOC, the total loss to the lender will be $178,500.

This property is being offered for 32.5% off its 2005 purchase price. This is not a ultra-low teaser price. Check out the listing history:

Date Event Price
Dec 29, 2008 Price Changed $300,000
Dec 16, 2008 Price Changed $340,000
Nov 19, 2008 Price Changed $320,000
Nov 11, 2008 Price Changed $370,000
Jun 06, 2008 Price Changed $375,000
May 15, 2008 Price Changed $399,000
May 13, 2008 Price Changed $419,000
Apr 27, 2008 Price Changed $439,000
Apr 09, 2008 Price Changed $449,000
Feb 12, 2008 Listed $460,000
Mar 25, 2005 Sold $445,000

This property has been chasing the market down for almost a year.


38 thoughts on “Mistake 2008

  1. cara

    3 versions of the same shot of the kitchen, and yet either the bedroom or the living room is missing a photo. Makes you wonder if the dining room is the only living room… With only 882 sqft that could be the case…

  2. NoWowway

    Price per square foot is out of line – too high for the current market.

    I would have liked to have seen that rent/vs. own feature that you’ve posted before, on this place.

    I don’t think this place could rent for anywhere close to what it would cost to own. If the rent/own parity isn’t even close, who would ever buy into this “apartment” style of ownership?

    The price adjustments are just a curiosity. It looks like someone is guessing where the bottom is, one step at a time. This type of chasing the market down looks to lead towards complete capitualation at some point. No one can just keep “guessing” and dropping the price without eventually freaking out and dumping the place.

    1. george

      I just used the calculator:

      20% down pay $60k
      5% 30 year
      0.5% maintenance
      HOA $225
      Tax 2.36%
      25% tax bracket

      Total monthly cost to own = $1,792.

      How much rent can this unit fetch?

      1. Roo

        It could probably rent close to that, at least $1,500.

        Why is the tax rate so high? Isn’t it 1.04% usually in Irvine? Mello-Roos are a killer once again!

  3. eastcoaster

    Yearly Property taxes = 7068 = 589/ mo.
    HOA = 225/ mo.

    Combined HOA & Taxes = 814/ mo.

    Add that amount to the monthly mortgage payment for this one bedroom apartment!

    1. wheresthebeef

      The tax amount is for the previous sales prices of 445K. The taxes will go down significantly if this thing sells for the asking price of 300K. I imagine the tax bill will decrease by about one third..making it a around 400/mo. Add the HOA in and that isn’t chump change.

      1. george

        Really? Are you sure that is how it works in terms of property taxes in Irvine? Also, is the adjustment automatic or the new owner has to file challenge?

      2. brea

        Isn’t the Mello Roos a fixed amount? As I understand it, taxes would be calculated as 300K times a 1.25% tax rate, then add the Mello Roos.
        Looking at the existing tax rate is misleading.

        Does anyone know where to find the actual Mello Roos for any of these properties? The other big deal is how many years will the Mello Roos last. Woodbury has 30 and 40 yr Mello Roos. But a development built in the late 80’s, with 18 yr Mellos Roos, are already done.

      3. buster

        Yes, but you CAN NOT deduct the Mello Roos — and now the County reports the breakout to the IRS. Bad new for the tax cheats who were deducting the Mello Roos as taxes.

  4. Jim Jones

    Paid almost a half million for a 1 bedroom apt in 2005. And still people thought prices would continue to climb. Amazing. I’m trying to think back in history when our society was so gripped by irrational hysteria. Maybe the War of the Worlds broadcast in 1938 but that only lasted a day.

  5. Forbear

    “I received a sign that the general public is moving from denial to fear in Irvine.”

    Should be all down hill from here, where’s my sled!

    1. Alan

      Not so fast … see Ipoplya’s post at the end of yesterday’s topic. A WTF price was paid?!? WTF???

      Somehow, there are greater fools still out there, and as long as there are, there will certainly be properties for them to buy at those prices.

      1. CapitalismWorks

        Fortunately, one (or even a handful) of greater fools does not make the market. There is a group of buyers out there that are jumping onof the false belief the current low rates are going to be short-lived.

        Rates will be low for a LONG time (and most likely even lower in the near future).

    2. Roo

      I’m going ice block sledding in Aliso tomorrow…should be a lot of fun. Worth the try for those who never did it.

  6. scott

    And for those who didn’t think housing prices matter, S&P noted the following about a California bond issue backed by sales tax receipts

    “However, recent months’ [California] state sales tax collections have shown significant declines. Pledged November 2008 sales tax was off 18% from
    the same period in the prior year. Separate state general fund sales tax collections have shown similar declines”

    So seems that if people can no longer buy bling from their HELOC, then Arnie isn’t collected sales tax on sales of said bling. Still 18% in one year is quite a drop.

    1. george

      Using your new tax info:

      I just did the calculator one more time:

      20% down pay $60k
      5.15% 30 year
      0.5% maintenance
      HOA $225
      Tax 1.814%
      25% tax bracket

      Monthly cash cost of $2051
      Total monthly cost to own = $1,650 after tax benefit

      I ca see some itchy buyer jump the gun at around $280k.

      If monthly rent is $1500 and GRM 160, the fair value is $240k.

  7. Sam

    Hi IR,
    buying a home is everyone’s dream, but looking at your views, it seems we dont know how many years will it be before we can buy. I have been waiting since 2005. I looked at lot of home in 2005, but didnt buy anything (fortunately!!). Now the prices are lower, interest rates are lower. However, as per your analysis, how many more years will it be before it is “normal” to buy a home!!!

    1. The Moar You Know

      That’s not really a question anyone can answer. Some of it depends on your circumstances – if you’re independently wealthy, it doesn’t matter, does it?

      Buy a house you can comfortably afford.

      1. Blueberry Pie

        “Buy a house you can comfortably afford.”

        That’s my plan, with the additional consideration of “buy a house that I could see myself wanting to live in for at least 5 years (and hopefully longer)”

        I sure don’t want to have to count on my house keeping its value in order to sell it in just a couple of years.

        1. Roo

          Rent a house that you can comfortably afford. You won’t be stuck in it for 15 years. Good luck getting your money back in 5 years even if you buy today, don’t even bother if you bought 2 years ago.

    2. Jim Jones

      If your goal is to get the most home for your money then I wouldn’t even consider purchasing a home at market value for at least 2 more years.

      The suggestion to buy now as long as you plan to stay in your home for 5 to 10 years seems to me to simply be a way of rationalizing a purchase that doesn’t make a lot of sense from an economic standpoint.

    3. IrvineRenter


      2010-2014 will be a good period to buy. 2011 will be near the bottom, but there will be no rapid appreciation for years thereafter, so the window of opportunity should be fairly long.

  8. alan

    Just thinking…

    People pay a premium for Irvine because of the school district; however, so whoever buys this place (800 sq ft.. tiny kitchen (didn’t need much granite to cover) stackable washer dryer, clearly no enough room for any kiddies, will not care one iota about the school system. It’s clearly only use is a starter property, so will have to fall below rental parity to sell (to account for the premium of not being able to move when you want)

    Why would anyone buy a one bedroom, mother-in-law apartment unless it’s for your mother-in-law?

  9. Blueberry Pie

    Click my name for IR’s post from January 1 with his predictions for 2008:

    I will make the not-very-bold prediction that 2008 will see the worst single-year decline in the median house price ever recorded,

    another not-very-bold prediction for 2008: one or more of our major financial institutions and one or more of our major homebuilders will fail

  10. ignorantoutsider.

    To be somewhat contrarian [ and please dont confuse me with a real estate shill ] I think that there may some serious long term upside to getting into property within the next year as a long term hedge against inflation. If there is any short term near parity situation between rent and mortgage the later 25 years of a 30 year mortgage are going to be payed back in VERY cheap dollars if hyperinflation kicks in. The real dollar cost will be mostly downpayment. If the 2020 $200,000 income is $45,000 in 2008 constant dollars that monthly mortgage wont look so bad.

    1. DeathToSinan

      Yes, if destructive hyperinflation kicks in, then you would be right. In that case, ANY asset besides dollars would be a good investment.

      1. mav

        any asset tied to debt / leverage will not be a good investment for a decade or more, hyperinflation is a fantasy right now for people who can not understand the simple difference between inventory and capacity….people betting hyperinflation will lose a ton of money

  11. newbie2008

    What part of the curve is (Turtle Rock) Irvine? Denial? With the low inventory, it looks as if the prices when up the last quarter.

  12. Lagunalover

    I tend to agree with ignorantoutsider. The inflationary effect of the enormous government spending from the bailouts — and who knows what else — will hit like a 30 foot wave crashing down on us. As DeathToSinan says, any asset but the dollar will experience serious price inflation. That price inflation will include housing.

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