2002 or Bust

Will prices drop to 2002 levels? I think the real question is will they stop there…

Today’s featured property is quickly approaching its 2002 purchase price.

407 Terra Bella kitchen

Asking Price: $295,000

Address: 407 Terra Bella, Irvine, CA 92612


Black Friday — Steely Dan

When Black Friday comes
I’ll stand down by the door
And catch the grey men when they
Dive from the fourteenth floor


People do not take kindly to market price drops. Most people do not have the slightest clue as to what asset valuations should be or what makes these values change. This is not a bad thing nor is it a criticism of the ignorance of the general public. Some things are best left to experts with specialized training. However, when these experts fail us, it does leave us rather angry–as it should.

Unfortunately, with the housing bubble, there were not any experts with specialized training providing impartial advice to would-be homeowners. The realtor and mortgage broker communities are not widely known for their high education levels, scrupulous sales activities, and impartial and learned advice (Yes, I know there are exceptions). The lenders, who are supposed to be the wise ones in the transaction (they are the ones with the most at risk), abdicated their responsibilities when they quit holding loans in their own portfolios. And of course the least qualified to render an intelligent opinion on real estate matters are those with the most to say on the subject: the BS artists hawking their get-rich-quick-in-real-estate programs, wannabe Donald Trumps building financial empires, and your average mom-and-pop specuvestor who thought to make a fortune in real estate. A great deal of ignorance and greed fueled by a great deal of Wall Street money was bound to be a disaster.

I have written about the bottom of the market on a number of occasions. Specifically, I wrote about it on September 13, 2007, in the post The Market Bottom, and again on October 6, 2008 in the post Fundamentals at a Market Bottom. The post from 2007 is a particularly interesting read for those who do not believe prices can actually trade below rental parity.

Market Bottom 2

My prediction is for an Irvine median of somewhere around $400,000 at the bottom, assuming we do not have significant downside overshoot. None of the gyrations in Washington lead me to believe this will not happen. A $400,000 median would put us at 2002 price levels. I note that the Orange County and Irvine markets are different than the San Diego County market–not that it is different here–but the San Diego market has been 1 year ahead of us on the way up and on the way down. They will return to 2001 price levels which are comparable to our 2002 prices.

Today’s featured property was purchased in late 2002, so its purchase price is probably higher than typical 2002 price levels for a unit of its size and quality. However, the asking price is much closer to the bottom than to the top. IMO, this unit will bottom out in the $225,000 to $250,000 range, assuming an owner-occupant wants to live here.

407 Terra Bella kitchen

Asking Price: $295,000


Income Requirement: $73,750

Downpayment Needed: $59,000

Monthly Equity Burn: $2,458

Purchase Price: $264,000

Purchase Date: 12/17/2002

Address: 407 Terra Bella, Irvine, CA 92612

Beds: 1
Baths: 2
Sq. Ft.: 950
$/Sq. Ft.: $311
Lot Size:
Property Type: Condominium
Style: Mediterranean
Year Built: 2000
Stories: 2
Floor: 2
Area: Northpark
County: Orange
MLS#: P675419
Source: SoCalMLS
Status: Active
On Redfin: 1 day

New Listing (24 hours)

Extra Large one bedroom in exclusive Northpark community. Two story
condominium with wood floors upstairs and downstairs. Lots of upgrades.
Granite countertops, walk-in closet, separate laundry room. 24 hour
gaurded community.

gaurded? There are only Thirty-one words in that description, and he can’t spell them all correctly. Don’t get me started on the grammar.

Look at the size of that kitchen. I would just eat out every night.

  • This property was purchased on 12/17/2002 for $264,000. The owner used a $211,200 first mortgage, and a $52,800 downpayment.
  • On 6/16/2004 the property was refinanced for $258,750.
  • On 7/12/2005 the owner HELOCed out $53,040.
  • Total property debt is $311,790.
  • Total mortgage equity withdrawal is $100,590.

This owner only took out $100,590. He is a small-timer by Irvine HELOC abuse standards. Think about that; a guy borrowed and spent $100,590, and he is conservative. Crazy.

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.



When Black Friday comes
I’ll stand down by the door
And catch the grey men when they

Dive from the fourteenth floor
When Black Friday comes
I’ll collect everything I’m owed
And before my friends find out
I’ll be on the road
When Black Friday falls you know it’s got to be
Don’t let it fall on me
When Black Friday comes
I’ll fly down to Muswellbrook
Gonna strike all the big red words
From my little black book
Gonna do just what I please
Gonna wear no socks and shoes
With nothing to do but feed
All the kangaroos
When Black Friday comes I’ll be on that hill
You know I will

When Black Friday comes
I’m gonna dig myself a hole
Gonna lay down in it ’til
I satisfy my soul
Gonna let the world pass by me
The Archbishop’s gonna sanctify me
And if he don’t come across
I’m gonna let it roll
When Black Friday comes
I’m gonna stake my claim
I’ll guess I’ll change my name

Black Friday — Steely Dan

57 thoughts on “2002 or Bust

    1. AZDavidPhx

      AZ’s crystal ball says 2000 pricing is very possible. California has been bubbling since the 90’s. Incomes are going down despite the “inflation-adjusted” voodoo that has been applied to the latest numbers.

      It’s only a matter of time until the businesses figure out that they can cut costs by leaving the state.

      Why pay someone 100K for the same job that they can pay someone else 75K in the state next door?

      Californians are going to have to come back down to reality in terms of their salary expectations which is going to impact the housing values.

      It’s going to be a tough recession over there.

  1. Lee in Irvine

    For people that don’t understand “the how and the why”, we got into this mess, I would recommended you watch House of Cards on CNBC this weekend. It’s on several times over the weekend.

    Investigative Reporter David Faber does a good job in describing “how” the Ponzi scheme started, and “why” the Ponzi scheme continued on for so long.

    They chronicle stories on 2 OC homeowners. One from the hood, the other from south of the border. It’s a riot!

    1. Walter

      I got sucked into House of Cards last night. Very good 2 hour overview of what happened. And they even get a lot of screen time with one of the major enablers of the bubble, Greenspan.

      1. mav

        It was a decent documentary to educate the masses. My only beef with it: I don’t think they did an adequate job of accurately illustrating the home debtor. To some extent it painted the home debtor as the victim. They focused on lower income and likely subprime individuals. Faber asked good questions to the others interviewed. The only person I could relate to in the documentary was the Hedge Fund manager.

        1. Anthony

          They’re doing the PR work for Obama, ofcourse. They’re setting up for him to bail the irresponsibles out. There’ve been talks about the Obama’s administration subsidizing mortgage payments for these people.
          They wined, they dined on caviars, and we’re now paying for them with our hard-earned money.
          Yeah, right, the victims!
          Except for a few that are stupid and get fooled, they’re all in it to make (or hoping to make) the buck, and they get caught.
          Everybody knows!

      2. idrnkurmlkshk

        The visual explanations of a CDO was GREAT. I’m a visual learner, and those 3D animations helped me understand how those toxic packages were put together, and WHY we will NEVER be able to sort them out and help the people who have their mortgages wrapped up in them.

        I also came to accept that no matter what kind of degree or job title you hold, nobody knows WTF they are doing. Complicated decisions always come down to moral dilemas. Human nature and GREED is what got us here, and now we all have to pay for it. Funny how it ends up being SO simple.

        This will be the largest redistribution of wealth in the history of the world. If you made money or have stayed out of debt, congratulations. You may have set the future of your family up the food chain.
        As for the others, I am sorry but you made a deal with the Devil, and not you must pay up.

  2. george8

    HOA and taxes=$807/month in 2008 for this tiny apartment.

    This one probably needs to drop well below $200k before any investor could make economic sense out of it.

    1. NoWowway

      Thank you George8, you beat me to it. The HOA/s alone are nearly $350/month and will eek up over time, as costs always continue to rise.

      This is an apartment.

      1. ignorantoutsider.

        $311 per square foot is major luxe standard – with the HOA fees how much would this have to rent for to cash flow? I dont think its even close yet. And I dont think you can deflate a major bubble into a deflation without massive downside overshoot. Anyone who buys at this price will be next years IHB feature as $100,000 loss knife catcher. Its a 1 bedroom walkup.

        1. Anthony

          Come on, guys.
          You guys are so generous.
          This one bedroom apartment has to be priced like one, 100K.
          This would come out around 1100 a month in total payment, which is the rent for a one bedroom apartment, after deductions.
          Of course, with 1100, people could stay in a very nice, luxury apartment in many other parts of the country.

  3. Jeremy

    Where is that ad from? That’s hilarious and infuriating at the same time. What miniscule percentage of people who would either live in an $802 apartment or an $85,900 condo also exceed the standard deduction? Furthermore, I want to know what brands of materials, fixtures, and appliances were used in that condo, because I’m buying stock in their manufacturers. Everything I’ve ever encountered required occasional maintenance or replacement.

    1. IrvineRenter

      That particular ad was from 1997. It is a real project here in Orange County. You’re probably right about the taxes, although a single person making $90,000 would pay enough in state taxes in order to itemize.

      1. FairEconomist

        I remember that ad, because it was out around about when I bought and so was paying attention. I actually thought it was pretty fair for real estate advertising – it mentions all the big items if not things like insurance and maintenance. And it really did make sense to buy in 1997.

      1. Mr. Yuk

        Correct me if I’m wrong, but wasn’t Canyon Hills originally built as an IAC complex? I remember some IAC communities that were constructed in Tustin Ranch in the early 90’s that TIC decided to convert to condos (Mandevilla, at the corner of Jamboree and Irvine Blvd, being one of them), so TIC brought in Akins (which later became part of Catellus) to market them to buyers.

  4. mav

    “My prediction is for an Irvine median of somewhere around $400,000 at the bottom, assuming we do not have significant downside overshoot.”

    In that scenario I wonder if those prices would actually be affordable. With that scenario I expect real unemployment would be between 15-25% and I expect that the deflationary impact would crush incomes and assets. The statistics might say otherwise as income statistics will be lagging price declines. I expect some people would benefit greatly, but I wonder if those prices would generally be affordable at the level they are currently perceived to be affordable. I expect the vast leveraged financial losses would have a strong correlation with affordability at that price level. Those who benefit during deflation will flock to the nicer areas.

    1. maliburenter

      People who benefit during deflation are those who hold performing bonds or have made performing loans, and have little or no debt. The real rates of return can be astonishing. I purchased a corporate bond with a 28% nominal return a few weeks ago. That particular bond is rather unlikely to default in the two years I hold it.

      With a little deflation, I’m getting 30%+ annual return.

      1. mav

        “28% nominal return a few weeks ago. That particular bond is rather unlikely to default in the two years I hold it.”

        LMAO, good luck with that one…. the other side you are missing is that you need to keep you job and see you salary decrease at a rate lower than deflation. (or increase) Why risk it, just be in cash…. always a great deflation play, don’t get too greedy….. get ready for a good round of junk bond defaults.

        1. maliburenter

          Well, it’s not even a junk bond (nor Citi, which is a large portion of the high yield bonds carrying investment grade ratings).

          While it comes as a shock to many people from OC, if you save enough money, you don’t actually need a job. You especially don’t need both husband and wife employed to be able to pay all the bills.

      2. mav

        Maliburenter, I’m just curious if you see the irony…. when you correctly say people with debt during deflation are in trouble yet your are buying high yield bonds. I’m guessing you lived through the 90s, this makes the 90s look like a walk in the park.

        1. maliburenter

          The odd part is it’s an investment grade bond.

          The particular company that issued the bond might have problems years out, but they have a huge amount of cash. Someone was selling on a credit downgrade that was still fully investment grade.

          Because I bought in the secondary market, the issuer isn’t paying this kind of interest. They are paying ~5%. Whoever sold the bond at that price either really needed the money, was prohibited from holding anything with a rating below A, or is an idiot.

          I’ve seen this pattern repeat a few times. Each bond I’ve purchased is now worth much more than I paid.

          1. mav

            Investment grade is clearly not investment grade anymore. The market is screaming that. I believe defaults on all types of debt will spiral out of control in the next 2 years as deflation drags on…… It’s a roll of the dice, in a casino that won’t necessarily tell you how many sides the dice has….

          2. maliburenter

            Let’s compare some alternate investments over the next two years:

            1. Houses. Do I really need to say anything?

            2. Stocks. My forecast (and many others) is for them to drop futher. I’m guessing a bottom about 20-25% below current dow/s&p

            3. Treasuries. Short term yielding almost nothing. Longer term yielding 2.5-3.0%.

            4. Municipals. Some at 5%+ aftertax. Not too bad. I own some.

            5. Corporate bonds. The yield spreads are huge versus prior recessions. This either means immense defaults, much lower recoveries, higher anticipated inflation, or people are just deleveraging and this is something they can sell with less of a loss than the rest of their portfolio. I own a lot of this. Carefully selected, but still a lot.

          3. NanoWest

            I am getting ready to put a fair amount into corporate bonds. I will most likely stay with mutual funds to diversify risk…….any problems iwith this?

          4. mav

            This might be a case were diversification is a bad idea. You might have a better probability of success in rolling the dice on just a handful, chosen selectively. Maliburenter and others are still very willing to trust balance sheets and ratings. I’m not, if I don’t know what the hell is going on, I stay away.


            The US corporate debt default rate could reach its highest level since 1981 in the next three years, Standard & Poor’s says.

            Based on our estimates of a worst-case scenario, the three-year U.S. cumulative default rate between 2008 and 2010 among speculative-grade nonfinancials will rise to 23.2%, the worst on record since 1981.

            If realized, this estimate suggests that 353 speculative-grade rated nonfinancial firms could default between 2008 and 2010, with potentially more than 200 of these defaults materializing in the second half of 2009 and in 2010.

            Consumer-sensitive sectors — such as consumer products, media and entertainment, and retail and restaurants — will be among the worst hit, in line with what happened in 1990-1992.

  5. Rocker

    HA HA, the sign outside of Wall Street (WS) is very funny.

    After watching the “House of Cards” CNBC special, nobody in WS feels guilty of anything!!, from Alan Greenspan to the guy that created CDOs, passing over the credit rating agencies (which declined to be interviewed, btw) nobody feels guilty, at all!, as I was educated only thieves that have been all their lives feel like that.

    The guy that created and sold CDOs around the world is into photography now, aww…how cute!

    IR, I’m sorry to break your expectation that people that created this big financial house of cards will honor the Great Depression tradition of jumping out of buildings to their death, is not going to happen.

    1. mav

      If you are looking for Great Depression type social impacts then you are looking at mostly the wrong people in that documentary. You need to look at the people who were taken advantage of buy the debt enablers. The only people in that documentary that could fit the bill are the Narvik, Norway mayor, and possibly a home debtor who is forced to move back to Compton or give up a HELOC life style. These types of social impacts are already occurring today.


    2. longtime reader

      WS shouldn’t feel guilty. If you were employed on wall street you’ll do the exact same thing. Greenspan is not to blame either. Any rational economist would have lowered interest rates when you have an excess amount of money being put into treasuries. The real reason why this bubble started was excess capital from abroad. China, India and a few others, started making a lot of money from globalization and they needed a place to park their money, safely. Instead of investing excess capital in their own country they invested in the US.

      1. IrvineRenter

        I would argue the people on Wall Street should feel a little sense of guilt. If nothing else, they have done their jobs very poorly.

        The function of Wall Street is to effectively and efficiently allocate capital among its competing ends. Asset bubbles are by definition a poor and inefficient allocation of capital. Wall Street has managed to create two massive financial bubbles in the last 10 years.

        I do agree that if employed on Wall Street, most would do the exact same thing. This doesn’t make what Wall Street does right or moral, it just makes most people herd-following sheople who do not question the direction the herd is going.

        1. longtime reader

          The reason I say most people would do the exact same thing is that they get incentives based on short term profits. If a trader didn’t invest in these financial products for there clients, most likely their clients would’ve found someone who would. That trader would’ve got fired for not being as profitable as his peers. It’s just the nature of the game.

          Foreign investors were eating these product up.

          Companies that issued credit default swaps should have had to have capital to pay out if there was a default which wasn’t the case. That should be the first thing regulated.

        2. Hizkel

          IR, I am an every day reader (and a sporadic poster) and I appreciate your framing of these issues in terms of morality but being a pathological cynic, I tend to disagree. Don’t get me wrong, I want our financial system to work, but I just feel it can only work if it has the minimal possible reliance on the morality of its stakeholders. Coming to Wall Street, I feel that it is unfair to expect people there to feel guilty. How can we expect people working in an immoral system to act morally ? And if you insist on morality, then as a friend of mine once pointed out to me, you can argue that in the last five or so years Wall Street was in fact Wall Street was unknowingly engaged in the moral endeavor of distributing wealth from the rich to the poor in the form of non-recourse loans. Many people have enjoyed nice houses and nice HELOC life while they lasted. And given our limited tenure in this life, every peroid of good life counts. Now the problem is that the government is engaged in the immoral act of paying back to the rich from the poor’s and our children’s pocket. That is going to be painful, especially for those who were too timid and careful not to partake in the Great Feast.

          1. newbie2008

            Laws based on morality has been the standard for centuries, until the “enlightened” jurists starting saying otherwise. Sure the old standard was violated by the strong, but the people had jury nullification and other forms of resistance. Without morality based laws, the laws can only be enforced under the barrel of a gun.

      2. Anthony

        Then, please tell me why our government is using our own and our children’s future earning to bail out the people from China and India and a few other countries?
        Why don’t we let them sell back these bonds they’re holding now for a penny on a dollar?
        Why giving them back their money?

    3. Rocker

      Well, that’s a macro-economics explanation that partially answers some of all the open questions, but giving people loans 10 times their annual income, or allowing people to re-finance their house beyond historic standards, that’s something that happened in this country.

      I don’t know if is only me, but many things where the goverment and WS were involved look very wrong to me: the govermnet, people that should have acted didn’t move a finger and I don’t know how credit rating agencies are still in business.

    4. Cary Resident

      I thought this urban would have been put to rest by now. In the Sixties all new office construction had air conditioning. This required sealed windows. It’s therefore not possible to throw yourself out of a window on Wall St. any more. (The few buildings here dating from before the Korean War do have operable windows, but they are occupied by back-of-house, support industries unlikely to have staff inclined to throw themselves to the pavement on behalf of their overlords.)

      It’s often said the reason they don’t have ticker tape parades any more is because there isn’t any more ticker tape. The real reason is that you can’t open windows to throw anything out.

      1. Major Schadenfreude

        “It’s therefore not possible to throw yourself out of a window on Wall St. any more.”

        I’m sure they can get on to the roof and jump from there.

        These people just are trying hard enough!

    1. ockurt

      You have to take these statistics with a grain of salt…depends on the mix of condos sold.

      In our Irvine ‘hood we aren’t at ’02 prices…yet.

    1. mav

      Whatever plan is executed the end game will be the same:


      The party is over. Either the debt markets will be allowed to destroy themselves naturally…. or the government will inefficiently go deeper into debt while simultaneously destroying the future of US debt markets. In either scenario a nation based on debt spending will ultimately see a decreased standard of living.

  6. maliburenter


    Astute observers may notice that I had previously said 2010 would = 1998. I am now somewhat more pessimistic.

    I had hoped to look to the Case Shiller futures for more guidance. Unfortunately, they have almost no trading activity. Recently, on a typical day there are no trades. Thus, prices convey no new information.

  7. ockurt

    This Terra Bella complex is horrible…whoever designed it should be shot.

    Looked at some of these places a few years ago and the layouts were strange…common hallways that connected the units…seemed like an apt. Plus, I think the unit I looked at had a tandem garage which sucked. The HOA’s make this place a rip-off too.

  8. freedomCM

    way, way to optimistic on 2002 prices. that was past the peak of the ‘normal’ bubble, already IOARMS were playing.

    i predict these pads will go for the mid $100s

  9. granite

    “Go jump in a lake” used to be a strong statement. That 3 word version has more impact. How about one at the CAR and NAR conventions (and David Lereah)? 6% of these prices is a crime.

  10. NOT


    We are almost at 400k for an avg house.

    Irvine, CA and surrounding regions
    50th Percentile (median) price and inventory data
    click to see 25th 50th 75th percentile
    Price: Inventory:
    Last: 02/13/2009 $403,750 13,812
    Prev: 02/11/2009 $405,000 13,701
    Change: -1,250 (-0.31%) +111 (0.81%)
    52wk Range: 200,000 – 550,000 7,499 – 15,855

    1 month +3,751 (0.94%) +673 (5.12%)
    3 months -11,250 (-2.71%) -1,541 (-10.04%)
    6 months -91,150 (-18.42%) +5,064 (57.89%)
    12 months -146,250 (-26.59%) +6,338 (84.80%)

    median price
    inventory numbers are for all properties in region.

    1. IrvineRenter

      ” Irvine, CA region includes the following cities:
      Aliso Viejo, Costa Mesa, Cowan Heights, El Toro, Foothill Ranch, Irvine, Laguna Beach, Laguna Hills, Laguna Woods, Lake Forest, Newport Beach, Newport Coast, Orange, Santa Ana, South Laguna, South Main, Tustin ”

      A few of those cities with many more listings bring the median down. Only Laguna Beach, Newport Beach, Newport Coast, and parts of Costa Mesa will have higher prices. When you factor in Santa Ana, which has large numbers of distressed properties, the median really drops off.

      1. newbie2008

        What exactly is the medium price? Is it for all units including condo’s? Is it the typical house? A condo can be a dive to a 5000 sf penhouse, but more than likely the former with high HOA.

        The Catellus ad did make sense except it neglected to include insurance and maintenance. With a new condo, those should be relatively low.

        1. IrvineRenter

          The median price is the price level at which half the transactions are above and half are below. It is a better measure of pricing in a market than the average because it is not distorted by a few very expensive properties being sold. The median typically includes all properties sold in a specific geographic area during a certain timeframe.

          The median can be distorted by the mix of sales in the market. Right now, the reported median is lower than what would be normal because almost all transactions are the low-end condos. Very little of the expensive product is selling. As sales volumes picks up at higher prices points (which will happen even as prices continue to fall for individual properties), the median may increase.

  11. Short Sale

    Here in Atlanta, I would say home values are pretty close to 2002 values. I don’t think they will stop there either. We were working on a deal that sold for $175,000 in 2004. Now, there are strong comps at $85,000!! Yeah, $85,000! Prices have dropped really low and it’s kinda scary to think they’ll go even lower. We’ll see. Great website!

  12. tonyE

    The house just next to mine sold for $765. That’s about 380 per sq foot. It also just happens to be around the magic conforming jumbo limit: 80% of 765 = 610. I guess they might have wrapped the costs into the mortgage?

    This house was reasonably upgraded yet they took the appliances from the kitchen (Thermador) when they lowered the price. Originally (10 months ago) they wanted $495 per sq foot. Since it was a estate sale with likely no debt there wasn’t rush to sell and the house sat there empty for quite a while.

    Me thinks that the bottom in desirable areas will be higher than some think because the conforming jumbo limit will support a higher price.

    My area of TR hit 300 per square foot in ’02.

  13. momopi

    I almost bought one of these units back in 2000, but opted for Oak Creek instead. It’s nice, but not within reasonable walking distance to my (ex employer) old office.

    The HOA is a little high, and some people don’t like being right next to an elementary school, though I don’t think it really matters.

Comments are closed.