Sorry for the duplicate post, but our comments crashed on the first one…

Capitulation is a fancy word for giving up. The price declines at
the low end are leaving owners hopeless, so homedebtors and
specuvestors are simply giving up.

Today’s featured property was just profiled here on the IHB back in January. We are revisiting today because recent price reductions make it the largest percentage discount I have seen to date: 48.6%.

Asking Price: $199,900

Address: 2206 Apricot Dr #206, Irvine, CA 92618

{book3}

Little Things Give You Away — Linkin Park

And now there will be no mistaking
The levees are breaking

Washed away
As a nation simply stares

It will be interesting to see what comes from our pop music during
the later stages of this recession/depression. Will we hear sounds of
despair? Will we fully retreat into mindlessly happy denial? Hardship
inspires great art. I hope we see some.

We talk about the pointlessness of following short sales, but there is
still much to learn from them. Why are we seeing price reductions? This
property may not have received bids at higher price points, so
the lender may have asked the owner to lower the price until offers
come in. Loss mitigation procedures at the lenders are in a state of
flux similar to market pricing. The lenders
are unpredictable. Perhaps they will start accepting short sales to
avoid the foreclosure process. Who knows?

This property is probably near rental parity, even with the $310 HOA
dues. Assuming someone wants to live in this place, it may be a good
deal. For an investor, it is still too high.

Maybe this price reduction means nothing. Maybe it is a sign that
banks are getting more serious about clearing out their REO inventory.
It is the little things that give them away.

{book5}

Asking Price: $199,900

Income Requirement: $49,975

Downpayment Needed: $39,980

Monthly Equity Burn: $1,666

Purchase Price: $389,000

Purchase Date: 6/21/2006

Address: 2206 Apricot Dr #206, Irvine, CA 92618

This property was purchased at the peak on 6/21/2006. The owner used a $311,200 first mortgage, a $77,800 second
mortgage, and a $0 downpayment. If this property sells for its asking
price, the lender stands to lose $201,094 after a 6% commission.

We are on the cusp of seeing properties transact at 50% off peak pricing here in Irvine. Armageddon is upon us.

Here is a video for those who want to discuss decorating.

{book4}

Water grey
Through the windows, up the stairs

Chilling rain
Like an ocean everywhere

Washed away
As a nation simply stares

Little Things Give You Away — Linkin Park

Capitulation is a fancy word for giving up. The price declines at the low end are leaving owners hopeless, so homedebtors and specuvestors are simply giving up.

Today’s featured property was just profiled here on the IHB back in January. We are revisiting today because recent price reductions make it the largest percentage discount I have seen to date: 48.6%.

Asking Price: $199,900

Address: 2206 Apricot Dr #206, Irvine, CA 92618

{book3}

Little Things Give You Away — Linkin Park

And now there will be no mistaking
The levees are breaking

Washed away
As a nation simply stares

It will be interesting to see what comes from our pop music during the later stages of this recession/depression. Will we hear sounds of despair? Will we fully retreat into mindlessly happy denial? Hardship inspires great art. I hope we see some.

We talk about the pointlessness of following short sales, but there is
still much to learn from them. Why are we seeing price reductions? This
property may not have received bids at higher price points, so
the lender may have asked the owner to lower the price until offers
come in. Loss mitigation procedures at the lenders are in a state of
flux similar to market pricing. The lenders
are unpredictable. Perhaps they will start accepting short sales to
avoid the foreclosure process. Who knows?

This property is probably near rental parity, even with the $310 HOA dues. Assuming someone wants to live in this place, it may be a good deal. For an investor, it is still too high.

Maybe this price reduction means nothing. Maybe it is a sign that banks are getting more serious about clearing out their REO inventory. It is the little things that give them away.

{book5}

Asking Price: $199,900

Income Requirement: $49,975

Downpayment Needed: $39,980

Monthly Equity Burn: $1,666

Purchase Price: $389,000

Purchase Date: 6/21/2006

Address: 2206 Apricot Dr #206, Irvine, CA 92618

This property was purchased at the peak on 6/21/2006. The owner used a $311,200 first mortgage, a $77,800 second
mortgage, and a $0 downpayment. If this property sells for its asking
price, the lender stands to lose $201,094 after a 6% commission.

We are on the cusp of seeing properties transact at 50% off peak pricing here in Irvine. Armageddon is upon us.

Here is a video for those who want to discuss decorating.

{book4}

Water grey
Through the windows, up the stairs

Chilling rain
Like an ocean everywhere

Washed away
As a nation simply stares

Little Things Give You Away — Linkin Park

The schadenfruede we feel for knife catchers is different than the feelings we have toward rally buyers. These are the people keeping prices elevated and unaffordable, so compassion for their losses is in short supply.

As you might have guessed, today’s property is a failed knife catcher. I first profiled this property in 2007.

Asking Price: $600,000

Address: 28 Meadowgrass, Irvine, CA 92604

The Great Housing Bubble was recently reviewed by Inman News, a major online real estate news outlet. The PDF is here (InmanNewsGreatHousingBubbleBookReview.pdf)

I want to thank Patrick Duffy of The Housing Chronicles Blog for the review.

Boo Hoo — KT Tunstall

If I was a second too late
Or a moment too soon
Or an hour too long
Tell me baby would you wait a bit longer?
I wonder if you would
Or would you be long gone?

That could be the knife catcher song…

Schadenfreude comes in two flavors: there are the people who bought while prices were rallying because prices were rallying, and then there are the knife catchers who bought while prices were falling because they were getting a bargain. Today’s featured property is of the latter variety.

Why is there schadenfreude in watching knife catchers? There are a number of reasons:

1. Knife catchers drank the kool-aid. They bought because they worried about being priced out forever, and they believed prices will rise again after they purchased.
2. There were voices telling them not to buy (like the IHB). The sages forecasting a crash were dispensing data and analysis while prophets foreseeing a rally were reading rune stones. Divination based on data is more dependable.
3. Knife catchers believed they could pick a bottom, yet they know nothing about what determines real estate prices.
4. Knife catchers invested their own capital in their ignorance. Lenders were not giving out 100% financing to knife catchers.

For these reasons and others you might think of, schadenfreude has a different flavor after the market peak. You can expect to get a bigger taste as prices keep falling.

{book6}

Asking Price: $600,000

Income Requirement: $150,000

Downpayment Needed: $120,000

Monthly Equity Burn: $5,000

Purchase Price: $710,000

Purchase Date: 8/17/2007

Address: 28 Meadowgrass, Irvine, CA 92604

With so few words, you would think they would all be spelled correctly. Nope… Nighborhood.

The photos in this profile are from the listing back in 2007. They are bright and lively and present the property well. Compare those to the current photographs.

Do you think this change in photography tells you something about the state-of-mind of the knife catcher or the realtor. I do.

What is particularly sad (or embarrassing depending on you
point-of-view) is how overpriced this property still is. Even with the
discount, at $388/SF, this property has a long way to fall.

Sales price history:

This property was purchased from a long-term owner by our first bubble crash loser on 4/29/2005 for $730,000. The property was purchased by today’s knife catcher for $710,000 on 7/17/2007 for $710,000. What a bargain. They got 3% discount on a property that is going to fall over 40%.

The current owners used a $568,000 first mortgage, a $71,000 HELOC, and a $71,000 downpayment. Fortunately for them, they must know a friendly appraiser because a month later on 8/17/2007, they were able to obtain a HELOC for $179,000. This got back their downpayment, paid off the first HELOC, and allowed them to cash out $37,000. Does that smell fishy to you?

If this appraisal represents the peak value of $747,000, this property has declined $147,000 in value over the last 21 months. That is an monthly equity burn of $7,000. The lender is going to absorb that loss, plus they are not getting paid by the underwater borrowers, so the lender is going to lose plenty.

If this property sells for its asking price, and if a 6% commission is paid, the total loss to the lender will be $183,000.

{book7}

If I was a second too late
Or a moment too soon
Or an hour too long
Tell me baby would you wait a bit longer?
I wonder if you would
Or would you be long gone?
Would you be alone?
Would you be alone?

Mmm…
It’s not the same
Mmm…

Boo Hoo — KT Tunstall