Fear Is Gripping the Market

Back in September of 2007, I asked the question in a post Is Fear Gripping the Market? Fast-forward to 2009, and I think it is safe to say that fear rules the day.

Today’s featured property is REO that recently sold at auction for 36% off its peak purchase price.

3562 Myrtle kitchen

Asking Price: $593,900

Address: 3562 Myrtle, Irvine, CA 92606


The Fear — Lily Allen

Life’s about film stars and less about mothers
It’s all about fast cars concussing each other
But it doesn’t matter cause I’m packing plastic
and that’s what makes my life so f#@$ing fantastic

Remember the good ol’ days of mindless consumerism when houses used to replenish plastic purchasing power faster than pretentious pricks could piss it away. Back then it was trendy to lease your car and own your house; a brilliant way to lose both in a financial downturn.

The people who lived the good life are facing the end of the lifestyles to which they have become accustomed. The reality of this truth is becoming apparent as they release their denial and face their fears…



I want to be rich and I want lots of money



ISN’T THE GOVERNMENT OR THE FED GOING TO SAVE US? (bargaining and recalling past denial)


THAT SUCKS! (acceptance)

[silence and a moment of peace]

The psychology of a market is the aggregate of all its participants. Most at the low end have already passed through denial, bargaining, and fear; they have capitulated and reached acceptance. Many at the high end are still in denial, but with the struggling economy, the lack of high-end sales volume and REOs popping up on every street, fear is quickly becoming the new reality.

3562 Myrtle kitchen

Asking Price: $593,900IrvineRenter

Income Requirement: $148,475

Downpayment Needed: $118,780

Monthly Equity Burn: $4,949

Purchase Price: $830,000

Purchase Date: 2/27/2006

Address: 3562 Myrtle, Irvine, CA 92606

Beds: 4
Baths: 3
Sq. Ft.: 2,300
$/Sq. Ft.: $258
Lot Size: 5,200

Sq. Ft.

Property Type: Single Family Residence
Style: Craftsman
Year Built: 1973
Stories: 2
Area: Walnut
County: Orange
MLS#: S567905
Source: SoCalMLS
Status: Active
On Redfin: 1 day

New Listing (24 hours)

Fantastic interior location less than 1 mile to schools, features a
guest suite with full bath downstairs, 3 bedrooms upstairs with master
view deck, double door entry with almost 2,400 square feet – all for
under $600,000! Enjoy community pool, tennis and recreation less than 1
mile away at Harvard Park. Easy access to Jamboree and toll roads and
less than 5 miles to The District shopping and entertainment center.

This property looks updated inside based on the photos. It is one of the less prestigious neighborhoods in Irvine, but the house is large as are the others on this street. It also has a decent sized yard by Irvine standards. It is a solid $425,000-$450,000 property.

This property was purchased on 2/27/2006 for $830,000. The owner used a $663,920 first mortgage, an $82,990 second mortgage, and an $83,090 downpayment.

The owner’s let the property go at a foreclosure auction, and the lender purchased it for $539,597–an amount almost 20% less than the outstanding amount of the first mortgage. This is revealing of where loss mitigation procedures are today. The lender was willing to take a 20% loss at the courthouse steps, and nobody stepped up to buy the property probably because it is still overpriced.

The lender has marked it up hoping to find a knife catcher. If this property sells for its asking price, the total loss on the property will be $271,734 after a 6% commission.

When do you think it will all become clear?
‘Cuz I’m being taken over by The Fear

One more item before you leave. This video was in the comments yesterday. It gives a wonderful explanation of how the Geithner plan is a complex shell game intended to steal taxpayer money. It is not a video of some raving lunatic, but rather a calm explanation of exactly how the process works. I highly recommend watching all 12:28 of it, but if you already understand the basics of the banking problem, you can skip ahead to the 6:30 mark to see how the banks will game the system.

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.



I want to be rich and I want lots of money
I don’t care about clever I don’t care about funny
I want loads of clothes and fuckloads of diamonds
I heard people die while they are trying to find them

I’ll take my clothes off and it will be shameless
‘Cuz everyone knows that’s how you get famous
I’ll look at the sun and I’ll look in the mirror
I’m on the right track yeah I’m on to a winner

I don’t know what’s right and what’s real anymore
I don’t know how I’m meant to feel anymore
When do you think it will all become clear?
‘Cuz I’m being taken over by The Fear

Life’s about film stars and less about mothers
It’s all about fast cars concussing each other
But it doesn’t matter cause I’m packing plastic
and that’s what makes my life so fucking fantastic

And I am a weapon of massive consumption
and its not my fault it’s how I’m programmed to function
I’ll look at the sun and I’ll look in the mirror
I’m on the right track yeah we’re on to a winner

The Fear — Lily Allen

105 thoughts on “Fear Is Gripping the Market

  1. granite

    “…replenish plastic purchasing power faster than pretentious pricks could piss it away.”

    I love this dose of reality in the morning. I’ll betcha Erika Chavez is jealous that you can say this while she can’t!

    1. IrvineRenter

      I don’t think Erika would be jealous, but she probably cannot be quite as colorful as I can. I like her writing. You can tell by her columns on Irvine she thinks prices here are insane as well.

    2. A Canadian Border Guy

      Looking at this property and all the others in the Irvine, CA or is that Irving area? I cannot believe that people would pay even $500,000 for such DUMPS!

      All of the homes in that area are a collection of shop worn real estate. Shabby.

      Does one have to pay more than $1 million for any thing decent in way down there in the south of America? Or is that simply a casualty of living at that latitude?

      1. ConsiderAgain

        “…shop worn real estate”

        That is a new-to-me but good description of many homes in and out of Irvine. It is easy to see the refinement that was once present in certain areas, but now these same areas are looking a little …shabby. Along with other factors previously associated with home ownership, I wonder if “pride in…” has also fallen victim to the bubble.

        This house could hit the low $400s again which gives it >25% further to drop.

      2. AZDavidPhx

        I cannot believe that people would pay even $500,000 for such DUMPS!

        People don’t pay which is the entire problem. The bank is the one doing all the paying which enables these stupid house prices. All the buyer thinks about is his monthly payment because that is all he is paying from his perspective.

        House costs a trillion dollars? Doesn’t matter as long as the game masters can conjure up a payment plan and have the bank wire some electronic money over to the seller.

        The debtors may make payments for awhile, but none of them intend the pay these things off or live in their houses for 30 years. Can you picture all these neo-20 year old mortgage debtors actually living in their bachelor pads for 30 years? Of course not – yet the banks hand out 30 year mortgages to these people like candy. Why even have 30 year mortgages? Why not do 40? 50? 60? 70 year mortgages with payments of 100.00 a month? What is so magical about 30 at this point? Nothing.

        What is the point of working to pay down your mortgage debt when you are so accustomed to having the house pay for itself, entitling you to zero cost of living?

        It’s a big sham. Everyone pretends that they are going to pay off their mortgage debt, but in the back of their minds – they all know that their true intention is to make payments for a few years and then cash out and “trade up and then when they retire, sell again and trade down and live off their profits.

        In the meantime, each new generation of buyer is expected to leverage himself a little more than the previous buyer in order to make up the costs.

        And yet the people continue to gobble up all of the s*** that the government keeps feeding them and lining up to get more credit to buy overpriced houses with the credit being shoved up their read ends.

        1. Chuck Ponzi

          I believe 30 years was chosen because it represented a fair useful life of the average US stick-built structure.

          You’ll notice you cannot get a 30 year on a mobile home, right?

      3. tonyE

        Eh? Hows the huskeys and the sled?

        The lots down here are smaller ’cause (1) we have indoor plumbing so we don’t need outhouses and (2) we do not need outdoor buildings to house the huskeys, snow sleds, snow shoes, snowmobiles, sandbags, extra studded winter tires for the trucks and various snow removal untensils.

        Our biggest concern is storing enough suntan lotion so that we don’t sunburn during winter.

        I guess its’ abOUHt time for a Canuck to pipe in. Must be pretty boring being stuck indoors for four months in the Great White North.

        Take off, eh?

        1. Joseph

          No, the lots in Irvine are just too small, period. It’s the only place I’ve ever seen where “the wealthy” can hear their neighbor’s alarm clocks go off in the morning. Irvine is an anomaly in some sense–overpriced, overbuilt, shoddy and shabby–but we’re now seeing the overdue correction with a vengeance. I’d take my tiny West L.A. apartment from my grad school days over Irvine, no question. At least there was atmosphere to justify the cramped spaces.

    1. Lee in Irvine

      I think it’ll drop further. Mainly because all the higher priced real estate will weigh heavy on everything down below, including this house. Real estate prices will gravitate to available financing, and that includes everything valued above the conforming loan limit. Ultimately, what impacts Laguna Beach, trickles down to impact Irvine.

      Higher priced homes are not selling, NOT because sellers can’t find willing participants (suckers), but rather because the financing is not available anymore. At least not for anything that is considered widely desirable.

      Oh well, that’s just my opinion.

      1. AZDavidPhx

        I have to agree with Lee.

        I believe that the Irvine median income is going to drop back down to about 75K which is going to put median housing in the 225K to 300K range. However, since Irvine is sitting on top of Sacred Land, I’ll go ahead and salt the incomes to 90K assuming that dual income mortgage servicing is the California way of life. That will bring median housing into 270K to 360K.

        I think 350K is probably a fair price for this place. You might pay 425K to 450K to build a brand new house, but dinosaurs like these are not going to compete no matter how many granite or stainless steel trinkets have been stuffed into them.

        1. tonyE

          Domini, Domini, Santus, Santus, Irvinus.

          You got it right man…

          BTW, I’m not as depressing as you. You need to look at the metropolitan income, not just Irvine.

          Now, for reality, this area of Irvine has historically been a lower priced area. Not a bad place but if you note, the Choo Choo Train comes barreling down the stretch.

          Did you know that this is the longest straight rail stretch in California (or at least it used to be). It drops in elevation from Santa Ana to the Spectrum. Hence trains going south are cruising, while trains going north are huffing and puffing…. End Result? Either you get a fast quake or a slow roll. In Disneyland terms this would be the Matterhorn vs. Indiana Jones.

          So, IMHO, this place should go to around 200 bucks a square foot at the bottom. Assuming that it’s in good shape. At that point you’ll be looking at $460K. Which with an $90K downpayment would give a conforming loan of $390K. That should be a payment of $1900 month at current rates, huh?

          It’s a 4b/3ba house with sufficient room for a family. Not big by any means, nor in a fancy McMansion place but IMHO, not a bad place to raise a family.

          Just make sure you can live with the Choo Choo. You won’t need to tune in PBS so meet Thomas The Train. 😀

          1. nowwaat

            Let’s hope it gets there to $200/sq.ft. Payment will moew likely be about ~~$2,600 with tax and insurance (assuming no HOA). Assuming a household income of $80K, that leaves about $2,300 to $2,700 a month for all other expenses (health, insurance, car payments… etc.)

          2. tonyE

            The median income in Irvine takes into account all those pesky renters that soon will be taxes, huh?

            I figure a 4be/3ba home would be sold to someone with above median income, huh? The condo owners in Westpark would be below median.

            So if you assume a family income of 130K (two wage earners) then you get a fairly comfortable wage to pay for the house and the housekeeper imported from Phoenix.

        2. MalibuRenter

          “Irvine median income is going to drop back down to about 75K “.

          Much like rumors that overall rents will go down substantially, I think that substantial decreases in earnings (10%+) will not occur. However, it will feel like that to many people in CA, because they are not using mortgage equity withdrawal of $50k per year. That will certainly seem like a paycut.

          It was surprising how much of the mortgage equity withdrawal went back into real estate in one way or another.

      2. AstuteAss

        I think it will go further too…did you ever think that onh, jobless claims increasing, financing falling off a cliff and oh yeah, too much inventory had anything to do with it…

  2. lawyerliz

    For near 600k I want pizazz. this is dull, dull, dull. Not ugly, just dull.

    In fact, for 400k I want pizzaz. But that’s just me in Florida.

    How is the high and going higher unemployment gonna affect you?

    1. IrvineRenter

      The unemployment is starting to show in higher default rates. It is hard to isolate because default rates were going to be high anyway because of the ARM resets. Orange County is going to be flattened because very few of the borrowers can qualify for any of the bailout programs. We are on our own. Unemployment is up, incomes are down, prices are crashing; there isn’t much positive working for the housing market right now.

      1. Lee in Irvine


        That sounds like a calamity. The OCs problems are unique indeed. We are without a doubt on our own.

        1. No_Such_Reality

          The State is painting itself into a corner. If we fix the structural deficit, we massively impact 1/3rd of the work force reducing their earnings, retirements and incomes. If we don’t, the tax game and eventual default will impact all workers and all industries.

          Which is it going to be?

          Greater taxes? Less Government? Both?

          I think both. Less government and greater taxes and an eventual massively ugly government shutdown and strikes.

          If the economy doesn’t come roaring back, 2010 or 2011 will be interesting times.

          How long before California’s systemic financial problems become a major impediment to housing and business?

          1. AZDavidPhx

            How long before California’s systemic financial problems become a major impediment to housing and business?

            I have been saying for quite some time now that eventually businesses are going to opt for survival when push comes to shove. No doubt, the people in charge are well aware of the high costs of running a business in CA with the ridiculously high cost of living.

            I think that places like AZ, NV, CO, OR are going to benefit in the coming years as businesses leave CA to set up shop in areas while CA devours itself in its little tragedy of commons.

          2. Irvine5

            All we need to ignite this mess is a large shaker. Recent seismic activity suggests one is nigh. I am reloading the emergency supplies in the garage. If we survive then maybe we finally will be able to get thatn 3BR house for $400k.

          3. nowwaat

            Probably. But that makes me wonder why did Tesla decide to build their electric cars in Southern California instead of other places? I’m wondering.

          4. Mr.TT

            The batteries in electric cars do poorly in cold climates, so most of those types of products are marketed in the southwest.

          5. tonyE

            My biggest lomg term concerns about NV, CO, AZ and NM are the availability of water. I think that long term in California we’ll see water desalinization and solar power on very large scales. The inland states do not have that option and are pretty limited long term.

            Of course, we could import solar power from Phoenix and export bottled water (Eau de Santa Maria). ;-D

            Oregon wise… that too has a limit. People can only put up with so much grayness before they go out, go postal and decimate the general population.

            Trust me, I used to live in the Puget Sound area, which is just a bit more cloudy than the Willamette Walley.

            Besides, Oregon really can not take that many people. Ever been there? it’s already very, very crowded.

    2. nowwaat

      Tesla is coming to Southern California in 2011. That should solve all Cali’s problems. J.K.

    1. IrvineRenter

      I hate it when that happens between the time when I write a post and when it hits the IHB.

  3. newbie2008

    What I though was my misunderstanding of the BO fleece the taxpayer plan is worse than I thought. Is the recent activity in buy the banks a selling by pension and 401 to bank insiders? If so, the video box drawings is being put into motion. The USA govt is the best money can buy. Too bad the taxpayer has to pay.

  4. newbie2008

    On the house foreclosure, what was the balance on the loan? Asking on the slim chance that the auction amount at the court house was the balance on the loan plus back taxes?
    If not the lender is will likely note a loss on the loan instead of keeping asset value at loan balance. Then upon selling the house a profit. Boy the economy, i.e., bank profit, is will pick up in a few month.

    1. AZDavidPhx

      I would be really surprised to see a politician actually attempt to kill this sacred cow that is beloved by the masses that are too dumb to figure out that spending 1.00 to get back 25 cents is not smart investing.

      The M.I.D does need to be killed though as it does nothing but artificially inflate home prices and mislead people into thinking they are benefiting by going into debt.

      It’s time that the government stopped promoting debt slavery using home-ownership as its vehicle.

      I highly doubt anyone will succeed in getting rid of it though just by knowing how politically incorrect it would be among the masses as well as the slave-holder banking lobbyists who are making a fortune by trade.

      1. nrgtrader

        What if the govt decided instead to implement a ‘renters tax’.

        In a way, by owning a home you contribute to the social good of the neighborhood. By renting a home, you have no commitment to your dwelling other than as shelter and therefore enjoy the benefits of that neighborhood at the expense of actual homeowners. That intrinsic benefit should be paid for by those who rent.

        Kill two birds with one stone, raise revenue and incent people to buy houses.

        1. camsavem

          Brilliant statement.

          It must be nice to live in the “Emerald City” and be surrounded by all the upstanding homeowners that have now bankrupted our country.

          Cheers to you and your fellow homeowners!!!

          Yes, please raise my taxes to pay for mistakes made by assholes like you.

        2. longtime reader

          In a sense that is double taxation. Rental tax makes no sense. The property owner is already paying tax on the property and that is reflected in the price of the rental.

        3. AZDavidPhx

          What if the govt decided instead to implement a ‘renters tax’.

          The renters would be double-billed on taxes because they already pay the landlord’s property taxes with their rent. Your suggestion would mean that renters would get effectively taxed twice.

          In a way, by owning a home you contribute to the social good of the neighborhood.

          This statement is subject to debate. By renting, I definitely don’t want to be evicted and I want to live in a safe neighborhood with other working professionals. If the social good of the neighborhood declines then I will not want to live there. I contribute.

          By renting a home, you have no commitment to your dwelling other than as shelter

          False. I do want to get my security deposit back when I leave. I do want positive feedback when future landlords check into my rental history. I am fully committed.

          and therefore enjoy the benefits of that neighborhood at the expense of actual homeowners.

          False. The taxes that the government collects from my landlord is paid from my rent and it’s the same color of money paid by home-owners.

          1. nrgtrader

            Property tax is indeed paid to the state. I’m referring to a federal tax status, a “renter”.

            Renters like to pretend they care about the community, but lets be realistic. For every 1 renter with good income who makes smart financial decisions there are 10 that aren’t and just need a place to live. Just like for every 1 homeowner with a sob story of why they should get help from the fed govt there are 10 that shouldn’t.

            A renters tax is the answer Obama needs to hear.

          2. nowwaat

            “Renters like to pretend they care about the community…”

            Irvine has probably one of the highest ratios of rental units per capita than most places. Yet, it keeps showing up as one of the best kept and safest places in the entire country! I think buying is better than renting for one single reason: A hedge against inflation. That’s it!

          3. tonyE

            Oh what the hell.

            Let’s slap a 10% renters tax, per person.

            Then let’s implement caning and whipping penalties in a public plaza if they pay even one day late.

            Really, how dare they renters live near my chateau?

            Off with their heads.

            Let them eat cake ( just not my pate de fois gras).

          4. Name

            I remember when they had a renter’s “credit” where the renter filled out a form and told the government who they rented from and how much they paid and the government gave you something like a $20 credit. Does that still exist?

          5. nowwaat

            Renter’s credit is a California credit. I think it is $60 for taxpayers in a certain income bracket (you can’t make too little and can’t make too much). It’s still there unless eliminated by the latest budget agreements…

          6. Major Schadenfreude

            “What if the govt decided instead to implement a ‘renters tax’”?

            Wouldn’t mean a thing.

            Remember, rents are tied to only one fundamental -incomes. So, the government taxes rents, that will drive the rent rates down because people can only afford so much.

            If the government wanted to screw renters, they would introduce and encourage the use of exotic loans towards rents. Then, rent prices would be tied to the lending environment and we all know what happens when THAT happents

        4. Alan

          ” … enjoy the benefits of that neighborhood at the expense of actual homeowners. ”

          What a bunch of crap! I am occupying, cleaning, maintaining a place and keeping the lights and heat on, in addition to shopping at local stores, participating in community organizations, clubs, etc. It is the homeowners who are benefiting from my presence, yet I am not building up any equity or getting any tax break. They should be paying me, unless an abandoned or squatter-filled house is best for the neighborhood.

          There, I feel better now. 😉

      2. nowwaat

        Being a current renter, I have to agree with David. It’s like the 1% sales tax increase in California and trying it to beat it by buying a car before the effective date of April 1. Demand will increase, and dealers will increase their prices (or reduce discounts) much more than the savings you get by beating the deadline. Also, it’s like the rail road stories of the late 19th/early 20th centuries. With trains, farmers found new markets by moving their products across the country, only for the rail road companies to eat away any real profits; the rail road companies kept increasing their fees so to eat up the profits and farmers could barely stay in business.

        What’s even more interesting is that the rail roads were built with taxpayers’ money.

    2. MalibuRenter

      You can also get rid of much of the unfairness by making the standard deduction much bigger. It’s much simpler too.

      1. nrgtrader

        Fair is not the point, getting prices back to 2006 levels is the point. If the govt can get prices back to 2006 levels, all of the debt they are incurring at the taxpayers expense evaporates essentially. They win huge.

        I propose INCREASING the mortgage deduction and IMPLEMENTING a tax on all renters.

        1. AZDavidPhx

          I propose INCREASING the mortgage deduction and IMPLEMENTING a tax on all renters.

          Too funny. I know you are just yanking chains here, but there are some home-debtor ignoramuses out there who will not realize you are kidding around and start championing these ideas at the dinner table of their soon-to-be-foreclosed homes. We can’t have a bunch of dittoheads running around parroting these things.

          1. tonyE

            Sounds like a good idea to me.

            Why whould renters feel like they have a right to live in The Sacred Land of Irvine.

            They should do severe penitence before we even consider them to rent in even the Irvine Ghettoes.

            Maybe they can spend a year in Phoenix?

  5. mav

    Regarding the video on the Geithner Plan above I have a few questions:

    1. The Federal Reserve is a private bank, I don’t understand why allowing the fraud suggested would be in the entities best interest.

    2. The banks still end up insolvent. This is amazing to me, but even in his extreme fraudulent example the bank will still likely end up insolvent.

    I find it hard to believe private investors will be interested. The banks will be trying to dump the worst assets they know are worthless. Transparency is the key. If there is no transparency I don’t see how private investors want to make a deal with a bank who knows more about the toxic assets. If there is transparency then the prices will be too low for the deal to help the bank.

    1. No_Such_Reality

      You didn’t pay attention. For basically 7 cents on the dollar, the banks can create 3rd parties that provided full redemption value at the expense of the tax payer.

      As the tuber said, there’s so many was to obfuscate the deals legislation is bunk. He’s right that the banks like Citi need to have the shareholders wiped out and the taxpayers tax ownership.

        1. mav

          Keep in mind that this also doesn’t include the fees of the transaction. If you want to do this right, and not get caught the fees will be a pretty penny(ies) tacked onto the 7% of worthless debt. Again, I don’t see how this ultimately helps the banks, but I do see how it would lead to issues for the private Federal Reservie and I don’t see how the private entity will view this as desirable. I think the analysis was excellent, I am just asking the next obvious question.

        2. No_Such_Reality

          No, the banks have 93% equity. CASH.

          They sold the junk for a dollar and had to pay the 7 cent loan back.

          They started with a piece of toxic junk that they originally paid a dollar.

          They then borrow 7 cents from the Fed and create/invest in a 3rd party. So they have a 7 cent debt to the Fed and a $1 piece of junk.

          The 3rd uses the 7 cents to play toxic purchase game and borrows 86 cents from the Fed and treasury kicks in 7 more cents for a dollar and then pays $1 for the piece of junk.

          The bank now has 7 cents of debt to the Fed and $1 CASH.

          The 3rd party has the piece of junk (probably worth 30 cents) and a 84 cent debt to the Fed.

          The 3rd Party goes bankrupt.

          The taxpayers eat the Fed loss of 63 cents.

          The bank pays back the 7 cent loan and ends up with 93 cents to pretend nothing happened.

          All this is going to get done where the cents are cents but instead trillions of dollars.

          1. mav

            This all assumes the original equity structure on toxic assets is 60 / 40 which I believe to be a pretty awful assumption.

            I believe I am write in saying that the scheme still requires the banks to take on debt that is worthless. And I still want an answer on why the Fed would view this as desirable and would want to participate.

          2. No_Such_Reality

            It doesn’t matter what the equity structure of the toxic asset is. They sell the entire bundle to the 3rd party and get all their original purchase price back.

            The 3rd party owns the toxic asset’s equity and debt. That’s the point. If the equity isn’t really 40/60, then the 3rd is bankrupt and not the bank. The bank has 100% CASH for what was the toxic asset portion of their holdings. Plus they still have all their other assets.

          3. mav

            Try it with a 97 / 3 debt to equity ratio (30 X 1 leverage ratio). You are suggesting that the third party takes on the debt and not the bank. Perhaps you have an even better scheme. How does the third party originate that debt? I am guessing most of these toxic assets are ridden with 2nd liens and HELOCs, but that’s just a guess.

          4. camsavem

            <<<<< I believe I am write in saying that the scheme still requires the banks to take on debt that is worthless>>>>

            True statement, but they get made whole on the toxic asset, move it off their books and mitigate their loss to 7%.

            I would assume most of those toxic assets are worth almost nothing.

          5. mav

            Camsavem, right, I understand how the scheme could potentially make the banks less insolvent. I don’t see how it will help make the banks solvent. The bottom line is that you are going from 30 – 50 X leverage ratios down to a 6-10 X leverage ratio… that is deflation, not reflation. I would still like someone to explain the feds point of view in this as a private entity.

          6. NOT

            Not an expert in any way at all, and you guys may argue this but it was also my understanding that the $0.07 was borrowed from the tax payer as well…However it is a loan. So the banks now get $1.00, and they owe $0.07 of that to the tax payer… Who is currently not really charging interest… Therefore if they can re-invest that $1.00 and make $0.07 before any interest is due, they are not going to owe anything.. Maybe I missed something but that is my current understanding. Also, this is already happening (See second link from original comment yesterday) (I will post it later)

    2. AZDavidPhx

      The Federal Reserve is a private bank, I don’t understand why allowing the fraud suggested would be in the entities best interest.

      They are just running a game, trying to trick a few gullible investors into subsidizing the loss along the way by dangling low-risk high-reward carrots to “private investors” who believe that these things are undervalued.

      The banks still end up insolvent.

      The bank doesn’t end up insolvent because the government is giving the “private investor entity” a loan with no default risk. The private investor shows up with his 7.00 and the government supplies the other 93.00. When investment bombs and sells for 30.00, then the government keeps the 30.00 and the 7.00 and forgives the remaining debt 63.00 debt (the tax-payers cover that) and the “private investor” walks away a measily 7.00 poorer.

      The bank gets 100.00 for its toxic asset and can now pay off its 60.00 in liabilities and still net a gain.

      Call it what you like, “smoke and mirrors”, “hocus pocus”, “confusion and diffusion” – the result is the same which is that the tax-payer gets to hold the bag.

      1. mav

        There is no way a private investor will pay par value for a toxic asset, that would suggest the asset isn’t toxic at all. The fed is a private bank in the business of creating debt. There is no upside for the fed unless the private investor gets a good price. The private investor is a lower tier, they need to pay under value to make any money. Any par value purchase of a toxic asset would suggest some form of banking fraud IMHO.

    3. IrvineRenter

      “1. The Federal Reserve is a private bank, I don’t understand why allowing the fraud suggested would be in the entities best interest.

      2. The banks still end up insolvent. This is amazing to me, but even in his extreme fraudulent example the bank will still likely end up insolvent.”

      The Federal Reserve is willing to do this because the FED can print money, its member banks cannot. When the FED buys US Treasuries, it does so with phantom money. This is how it “prints” money in the modern era. The FED will print a trillion dollars to fund the bailout. The FED doesn’t really lose the money because it never existed in the first place. The only sign of its residue is the trillion dollars of debt the government has due to the trillion dollars of Treasuries put into circulation.

      The banks do not end up insolvent. Once these toxic assets are purchased for face value instead of market value, the banks go from a negative net worth to a positive one. This is a trillion dollar gift from the US taxpayer disguised so people do not recognize it as such.

    4. nowwaat

      My 2 cents: if Pimpco’s Bill Gross likes it which he does, then it’s good for the investors who are taking a relatively much less risk than the taxpayers are.

  6. alan

    Wow, stumbled unto this article in the upcoming “the Atlantic” by Simon Johnson, a professor at MIT’s Sloan School of Management, was the chief economist at the International Monetary Fund during 2007 and 2008, saying what steps the IMF would advise the USA to get out of this crisis. It’s a must read.


    Suffice it to say, the USA is not going to follow this advice and we are all doomed.

    1. AZDavidPhx

      He is right. We have an effective Oligarchy right now being that the two players of our two-party system are both completely bought and paid for by special interest groups also known as “elites”.

      It is going to be business as usual until we can get the masses to start thinking independently for themselves and stop being “Democrat vs. Republican” morons. We’ll need to elect some real Independents to office who will seriously take on the corrupt lobbies.

      If that is what it will take then I share your assessment of the sistation which is that “We are all doomed”.

        1. Perspective

          Fortunately, this board is virtually free of “spell checkers” trying to discredit your ideas with spelling corrections.

          That was an interesting article Alan. Thanks. One of the best features of this blog is the quality community sharing articles.

  7. newbie2008

    IR or webmaster,
    On my home computer, after using your site/video link this morning, the autovirus scan was ran and found a suspected virus with a time stamp when I accessed your site.

  8. Mitoman

    Hey Irvine Renter, I don’t know why you don’t want to expose these greedy real estate agencies that only cares about themselves, shouldn’t they be held accountable for what they’ve done? Shouldn’t their friends/family know that they are in the shady business of screwing other people?

    1. AZDavidPhx

      The real estate agents are the least of the problems. Sure, they spread lies and misinformation that benefits them financially, but it’s most Kool-Aid stupidity and Pollyanna cheerleading more than anything. It’s offensive, but nothing in comparison to the damage that the government and their proxies have done to the country.

  9. StressedInIRV

    I was a reader of this blog for about 2 years. During all these 2 years I was trying to buy a house here in Irvine. Here, in the blog, you are talking about fundamentals (which is more theory than reality, you are discussing how it should be and not too much of how is it going now). The reality is that even now, when economy is worst ever and you hardly can find a person who can predict what income he/she will have in year or two, houses with asking price of $680K-$710K get multiple offers within 5 days after listing and eventually sold for the price higher then asking…
    Yes, HIGHER than asking…. This is the reality!
    IrvineRenter, how can u explain this fenomenon? Or Irvine really is the sacred land because not so many relatively affordable decent places to live on SoCal?

    -Thank you,

    1. No_Such_Reality

      Show us the homes, we’ll give you the explanations.

      Otherwise the reasons are simple:

      1. the agent’s lie
      2. money is cheap.
      3. the wealthy are still wealthy
      4. gaming the system abounds
      5. the number of buyable homes is actually really low.
      6. the number of sales is even lower.

    2. nrgtrader

      While I am not as wise as IR I believe the ‘fenomenon’ you refer to is called “other people having more money than you”.

      My advice to you is to get more money or move to Anaheim.

      1. bigmoneysalsa

        This is terrible advice.
        I seem to recall a couple years ago a lot of idiots saying things like “if you can’t afford a home in OC move out to Riverside.” Well, turns out that the median home in OC is now much cheaper than the median home in Riverside was at the peak. Why move when you can just wait out the bubble prices?

    3. phil

      This has been discussed many times on other posts. One of my previous comments is copied below:

      (take a look at https://www.irvinehousingblog.com/blog/comments/aint-that-just-the-way/ and search for “phil” to see the whole discussion)

      I liken it to the lottery. As many have pointed out, there are very few sales. Many homes that go on the market at the wtf pricing never sell and eventually go off. Many more never even go on the market because the sellers realize they will probably never get the price they need/want and don’t want to go through the hassle. As such, all it takes are a few knife catchers to make it seem as though prices haven’t gone down. There are a handful of people in the crowd who have money/income and decide the time is now to act (kids going to school, wife insists on owning, etc.).

      However, once the market has a lot of foreclosures that must be moved through, a wait and see attitude no longer cuts it. The quantity of foreclosures will have to be sold for less if they are to move and with enough of them it will be painfully clear where the new price points lie. Sellers will not be able to fool themselves when many nearby foreclosures have just lowered prices 20% or more.

      Bear in mind also that nearby cities values are falling faster than Irvine meaning you get much more bang for the buck only a few miles away. This exerts downward pressure as people have a hard time justifying the significant premium that is Irvine. On top of all this, certain areas of Irvine are ready to implode big-time. Woodbury and NW II will be hammered in the coming years which puts even more downward pressure on the other non ground-zero areas (why pay 25% more to live in NW Pointe/PS vs. Woodbury when the schools are the same, etc?).

      The Option ARM meltdown is underway, but there are lags in the system (at least 6 months non-payment to foreclosure). I’m thinking late 2010 or early 2011 should be an apex of foreclosure activity in Irvine (based on 2010 being the peak recast year). Thoughts?

    4. Perspective

      “…you hardly can find a person who can predict what income he/she will have in year or two…”

      This is true. There are many variables in the evaluation of your expected future income. This is why your primary concern should be building a strong balance sheet – not buying a home.

      If at some point in the future you can buy a home you want at less than 2.5x your income, it’ll be time to consider it (assuming you have little to no other debt; student loans being a possible exception).

      This way you don’t have to worry about where housing prices have been or where they’re going.

    5. ipoplaya

      Some truth to your post Stressed. Homes priced aggressively, that is rollback prices to early 2004, late 2003, get into escrow quickly and sometimes for greater than asking.

      There are just too many delusional and must-sell sellers in the market now and few the price according to recent trends/comps. Sellers that price realistically move their properties quickly because there is such little competition…


    6. nowwaat

      I feel your pain! Markets do not suddenly cease to exist, and they do not drop 50% overnight, especially when they are real estate assets which are not instantaneously liquid (stocks almost are). There will always be transactions even as prices drop. Many people still think 20% off the peak is a good deal. As of now, the dynamics that hit Irvine are not of the same degree or magnitude as the surrounding cities. But the fact that there are other nice places in South OC such as Foothill Ranch, parts of Lake Forest, MV, RSM, AV…etc. will also exert pressure on pricing in Irvine and that’s already happening. Always, the decision to take the plunge is one’s own decision.

      1. tonyE

        Those places have ALWAYS existed and have ALWAYS exerted some downward pressure on Irvine.

        Right now _everything_ is slow and the new developments are the neutron bombs (kill the people, save the houses) ticking down to zero when the Option ARMs get reset.

        This is the same regardless of whether in Irvine, MV, LF, Santa Ana, etc…

    7. IrvineRenter

      “IrvineRenter, how can u explain this fenomenon? Or Irvine really is the sacred land because not so many relatively affordable decent places to live on SoCal?”

      There are several great answers to your question above. I would add that fundamentals are reality; the current state of market pricing is well above fundamentals, but it will not stay that way. Prices are falling, and they will continue to do so until prices reach fundamentals.

      The easiest solution to being stressed about prices is to stop looking to buy right now. Prices are too high, and they will continue to be for a while. If you stop looking with any real intent on buying, you will be far less stressed about pricing. Save you money and get ready when pricing is much better.

  10. fencewalker

    Irvine’s schools generally rank the highest,the city continues to rank as the country’s safest, and has ample kid-friendly recreation opportunities. It’s a huge magnet for families with school-aged children, many of whom don’t want to continue to wait for the housing bottom to be clearly in view before buying their family home, nor to compete with all the money on the sidelines waiting to buy. So I’m not so sure that the surrounding communities that have suffered greater pricing declines are going to pull much of the Irvine market away, especially from the older, more built-out and premium areas such as Turtle Rock. And before I’m labeled a “bull,” note that I have been a housing bear since 2004. I’m just not so sure the bottom is that far away for Irvine, even though surrounding communities have suffered bigger declines.

    1. nowwaat

      “Irvine’s schools generally rank the highest, the city continues to rank as the country’s safest…”

      True and Irvine has more job opportunities as well, and I can go on and on. On the other hand MV has ranked very well in safety the last few years beating Irvine on an occasion or two. The easy choice is to buy and live in Irvine but you can still find many beautiful communities (in South OC such as Foothill Ranch, parts of Lake Forest, MV, RSM, AV…etc.) that have comparable or sometimes better schools than SOME schools in Irvine, safe, with lots to offer – but one has to work harder finding these communities.

  11. d92782

    this house is right next to the railroad tracks, have fun listening the train pass by constantly. Should be discounted further because of this.

    1. Geotpf

      “Right next” is an exaggeration. There are two houses plus a street (Nutmeg) between the tracks and this house. Now, the ones that directly border the tracks on Nutmeg definitely need a significant discount due to the train, and I can see an argument for the other side of Nutmeg, but this house is far enough away I’ll bet it’s not noticable inside the house.

  12. StressedInIRv

    completely agree with fencewalker. I dont see how proces may fall down more if already there are buyers who are willing to pay more than they asked to….

    – still stressed

    1. fencewalker

      Stressed — I also don’t think that prices are going to rocket up anytime soon. If we’re getting close to the bottom, I think we’ll bump along the bottom for the next year or so.

    2. nowwaat

      That’s what is crazy. When banks price it low (by today’s standards), they get multiple offers – some of which are higher than what they ask for. That also happens in RSM, Lake Forest…etc but prices continue to drop. I recall 1.5 years ago when houses, (SFR’s) in South OC, first started dropping below $600K, I was like “wooooww” – A detached house in OC under $600K? What a good deal (though it was still above my budget). Today, it’s like “woooow” a house under $350K? ($500K in Irvine)? What a great deal!! Tomorrow…? Who knows?

  13. QualityPicks

    At this point, we may be seeing the first signs of fear. However, I keep asking my friends their opinion just to get an idea of the “average well payed professional” out there. At least every month or so we gather, and at the last reunion everybody agreed “If you want to buy, right now is the time!”.

    These are my friends, who like I said, are well paid professionals normally earning between $90k and $250k (most around $120 I would guess). Most of my friends bought their home around the year 2001. So I would say they are still about 50-70% ahead. When they bought all of them thought homes were “very” expensive. However, now that homes are at least 50% more expensive, they believe their homes are going at fire-sale prices. I’m always like WTF?

    The big difference however is the interest rate. Interest rates as low as we have had make homes more expensive. I really hate the Fed’s move to lower rates (which it may not be working) to keep interest rates low. People only seem to care about the monthly payment, even today when so much education about the problems has been spread all over the news and internet.

    Every now and then, I casually “shop around” just to see how the market is doing. To me the market seems pretty normal, except for the fact that prices keep going down slowly. Anybody pricing their home decently seems to be selling it within 2 months. And if you talk to a Realtor you get the feeling that you have all kinds of bid wars and you better buy now before the market takes off again.

    Anyway, as a renter, my psychology is in the “hopeful” but “frustrated” state.


  14. Shannon

    I tried to explain the low interest rates to my Dad. He called and said now is the time to buy because of the rates but I told him that the lower rates are only keeping house prices high and when they finally “moderate” that homes will continue to go down. My agent wants me to buy before the 8k stimulation goes BYE BYE. I just said after November all my offers will be 8k below what I am willing to pay. All that being said, I had my eye on a house in Fountain Valley that went into foreclosure a while back. I actually wanted to make an offer and I called the bank before it hit the market. I was told that the bank was required to put the house on the market and could not sell to an interested party before being offered to the general public. So, the house hit the market at 469k. This home is on a busy street, a very average to low class neighborhood, and completely original that needs to be fixed up.


    Last Saturday there was an open house and hundreds of people were there! I opted out because I just can’t do a bidding war on a 40 year old home with terrible pipes. To top it off, just a few months ago a larger house with a pool in the same neighborhood sold for 460k but was on the market for a few months. I called the bank yesterday and he told me they have recieved tons of offers. The psychology right now is “V” shaped.

  15. fencewalker

    Oh, stay away from houses on busy streets — or even streets with commuter traffic — if at all possible. You get traffic noise, fumes, and if you have kids, you’ll worry about their safety. You also get all sorts of advertisements left at the front door!! Also, it’s important to consider a good school district even if you don’t have kids yet or are not even thinking about it yet. You’ll be glad if/when you do have kids plus homes in good school districts hold their value better. Trust me, I learned from trial and error on both accounts. They were two concessions we made in the mid 90s to buy our first house in our target neighborhood.

  16. Shannon

    The school district is Fountain Valley where they both attend and pull 4.0’s. I am getting so frustrated with doing everything right and it still not being enough. We actually only qualify for 418k and I am hoping we will find something in FV in that price range within the next few years. I will only buy a SFR because we rent a very inexpensive townhome in HB. We have 120k in the bank but our income fluctuates because my husbands job is commission only working for Toyota. I work part time for the school district. It just seems like the house thing will never happen.

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