Will Shady Canyon Store Value?

Shady Canyon is a unique neighborhood of high quality homes and great amenities. Will the prices hold up there?

58 Vernal Spg   Irvine, CA 92603  kitchen

Asking Price: $3,895,000

Address: 58 Vernal Spg Irvine, CA 92603

You’re beautiful. You’re beautiful.
You’re beautiful, it’s true.
I saw your face in a crowded place,
And I don’t know what to do,
‘Cause I’ll never be with you.

You’re Beautiful — James Blunt

I am careful in my life not to take on limiting beliefs, but realistically, I will never own a house with a $3,895,000 price tag (hyperinflation?). I don’t know that I would want to. My family does not need 5,385 SF… I suppose that is why it is called luxury.

This is a beautiful property as many in Shady Canyon are. It is the only place in Irvine where you can obtain lots and houses of this size, which makes it unique; although, North Tustin has some comparable properties nearby. If you want big and opulent in Irvine, Shady Canyon is the place to do it (Turtle Rock has some big lots too).

I recently wrote about Rental Parity and Beyond where I discussed the value beyond cashflow value that real estate can sustain. In that post, I noted, “There are only two things that creates the capacity to hold wealth
beyond cashflow value in real estate; uniqueness and quality.” The properties in Shady Canyon all have uniqueness, and depending on the taste and budget of the owner who improved the property, many Shady Canyon properties are of very high quality. Therefore, Shady Canyon may sustain valuations above rental parity even at the bottom of the market. That is the good news.

Unfortunately, properties in Shady Canyon got bid up to unreasonable levels due to the Immunity Syndrome. Shady Canyon is still due for a significant fall.

Golden Sunset

CHUNG YOON ART GALLERY — chungy0@yahoo.com

58 Vernal Spg   Irvine, CA 92603  kitchen

Asking Price: $3,895,000

Income Requirement: $973,750

Downpayment Needed: $779,000

Purchase Price: $4,266,000

Purchase Date: 11/22/2005

Address: 58 Vernal Spg Irvine, CA 92603

Beds: 4
Baths: 5
Sq. Ft.: 5,385
$/Sq. Ft.: $723
Lot Size: 0.62


Property Type: Single Family Residence
Style: Monterey
Stories: 1
View: Canyon, City Lights, Mountain, Panoramic
Year Built: 2005
Community: Turtle Rock
County: Orange
MLS#: U9003406
Source: SoCalMLS
Status: Active
On Redfin: 1 day

Spectacular Montecito style estate on a spacious corner lot atop a hill
overlooking valley and city lights. Rare single level with upgrades you
have to see to appreciate: Stone courtyard entry with fireplace, Rain
Forest Verde marble in kitchen & copper tiles on the island,
wrought iron chandeliers, stone fireplaces, limestone floors, open beam
wood ceiling, beautiful custom bathroom tiles, an outdoor
entertaining/living area, flagstone motor court behind gates… Seller
upgraded throughout as her dream home and spared no expense but never
moved in. You couldn’t duplicate this home for the asking price.
($30,000 in the master closet for example & $750,000 in
landscaping,etc.) Salt water pool, a spa and waterfall outside master
bath. Some smart buyer is going to get a great deal! Seller would
consider a lease option, rent $13,500/mo. Showing instructions below.

upgraded throughout as her dream home and spared no expense but never
moved in
. That is sad, if true.

Seller would
consider a lease option, rent $13,500/mo
. Let’s say this trades at a small premium to current rental parity; with a GRM of 200, this property would be worth $2,700,000. Is that where this finds support? Is this property of such high quality and unique that it may store value significantly above cashflow value?

This property is in no danger of being a short sale, but the owner does have a significant mortgage on the property. Sometimes I see a $1,000,000 loan on the property because some foolish financial planner convinced the owner not to have all their money tied up in the house. It tends to be limited to $1,000,000 because there is no deduction for larger amounts. The mortgage on this property is much larger.

If this property sells for its asking price, and if a 6% commission is paid (5% is the norm on such expensive properties), then the total loss of equity will be $604,700. That is a big loss, but selling now may be much less painful than waiting if this bottoms near $2,700,000.

BTW, This parody is better than the real video…

67 thoughts on “Will Shady Canyon Store Value?

  1. MalibuRenter

    This house reminds me of one in Bell Canyon, just west of the San Fernando Valley, http://www.redfin.com/search#lat=34.21059550679963&long;=-118.67302894592285&market=socal&max_price=3000000&min_price=375000&status=1&uipt=1&v=5&zoomLevel=14 $1.5 million, 1.16 acres, gated community. Offered at just 50% over what they paid in 2000.

    One that actually sold for under a million was http://www.redfin.com/CA/Bell-Canyon/170-Dapplegray-Rd-91307/home/4700352 , bigger than today’s listing.

    There are a number of properties which are on larger lots, with ocean views, in Malibu, for less. Take for example this house near the ocean on 3 acres http://www.redfin.com/CA/Malibu/6130-Via-Cabrillo-St-90265/home/6857835 . $3 million.

    If you want a wicked comp killer, how about Carbon Beach, 5 br 5 ba 5700 sf, sold for half off a 2008 price. The star maps point you to the former resident’s home here.

    In both places, many asking prices are at 2003 levels, actual sale prices are 2002 or earlier.

  2. cara

    Hmmm, could it get a renter for that amount, or is that just what the owner needs to cover her loan? Determining rent on these properties is just as difficult.

    I like the structure and the location and the stone work, and the pool but not the kitchen or the bathroom, too gaudy in the bathroom, too plain brown in the kitchen, and without furniture the living room looks like a chapel.

    Will this discount from purchase price be enough to snag a buyer? How many others are for sale right now? Any under contract or sold recently?

  3. winstongator

    If it can’t get a renter for that amount, it would take less, which would point to an even lower selling price. Combine that with a phase-out of the mortgage interest deduction for incomes > ‘a lot’ and the real cost of ownership would go up $5k/month.

    It is fiction, but Vinnie Chase in Entourage is leasing his LA home. The fact that they are offering a lease option tells me that properties at this price point do get rented out.

    It is sad that this home will have sat unoccupied for close to 4 years. That is truly a waste of resources and a misallocation of capital.

  4. IrvineRenter

    Despite all the rumors of a market bottom, people analyzing the market for clients who are risking real money are forecasting continued declines:

    Negative Equity: 16 Million Homeowners Underwater

    “The percentage of properties “underwater” is forecast to rise to 48 percent, or 25 million homes, as property prices drop through the first quarter of 2011, according to [Deutsche Bank] analysts Karen Weaver and Ying Shen.

    I guess Deutsche Bank didn’t get the memo about house prices finding a bottom.”

    1. avobserver

      Some 24% of owner-occupied homes had mortgage debt that exceeded the values of those homes at the end of June, according to data from Equifax and Moody’s Economy.com. That number rises to 32% when looking at the share of homeowners with mortgages that don’t have equity left in their homes.

      The percentage of properties “underwater” is forecast to rise to 48 percent, or 25 million homes, as property prices drop through the first quarter of 2011…..
      Welcome to the nation of debt prisoners. As for SoCal Q1 2011 may not be the end of it. Last time we had a market down cycle it took over 5 years to reach the bottom. The bubble in late 80’s was much smaller with far less built-in leverage, the recession in early 90’s in terms of severity and unemployment level did not even come close to what we have today, and we did not have all the gov’t intervention to delay the market correction. Yet many think we have already found the bottom – in 2 years!!

      It might be reasonable to speculate the “bottoming” process in today’s environment will take at minimum 7-8 years from peak. But for potential buyers (myself included) who have been waiting to buy since 2003, waiting till 2015 and beyond feels like eternity. But to jump in now or even 2010 means significant downside risk. Many people bought in 2005/2006 were gambling with other people’s money thru 100% financing. But people who bought in 2009 had to come up with real money. There is a high probability the 20-30% they put down will be completely wiped out by 2012. But if I decide to hang on it means that by the time I can finally buy (without taking large financial risk) I will have waited for over a dozen years since I first thought of buying. Kids will be out of school by then…. Of course the upside is that I will have saved enough money to buy a house in cash.

      So the bubble economy will get you in the end whether you see it coming or not.

      1. QualityPicks

        I remember in discussing with many at an investing forum housing stocks. Everybody wanted to find/catch the bottom, and there was a lot of buzz about where the bottom was going to be. I told them, when a market crashes after a huge bubble, it doesn’t recover fast, and as a matter of fact continues to be a loser sector for many years after people kept calling “the bottom”. Eventually, everyone’s patience wears out and nobody cares. That was over a year and a half ago, and even with the amazing rally from the bottom, the housing index is still lower than when everybody was talking “bottom”.

        Home prices seem to be at a similar point I believe. Everybody keeps talking about the bottom in housing (prices). Well, I bet you in two years people won’t care any more, because it will start to become obvious that housing prices are not going to ramp up to the upside “ever again”. So things will stabilize and continue to drain the hopes of people.

        It will be 5 or 10 years and we might still be near current prices (after having dropped 20 or 30% more).

      2. HydroCabron

        I had an epiphany the other day. I saw a gorgeous old bungalow for sale while out for a walk. It was empty, so I stuck my face against the front glass: gorgeous woodwork, bungalow-style, with maple or teak built-ins and hardwood floors. Just lovely inside – one of the few places I have seen that makes me visualize myself in the front

        I am emphatically not in the market, but I strolled around to the alley for a back view. Judging the whole property, including the detached garage, the fencing, and signs of the need for a roofing job, and extrapolating to the interior, I figured I would put $75,000 into just the structure, for the sake of soundness and basic presentability. Add that to the likely sales price – on the market for 7 months, so I took a few grand off – puts me at $525,000.

        Not. Worth. It.

        My apartment is smallish, and a little frayed around the edges, but that is not my problem. The neighbors are excellent, and if they are replaced by losers I can move out within one month, at a cost of no more than a few hundred bucks.

        I think of buying about 10 years down the road, but that’s not certain. At the rate I’m putting away money, I’ll be able to retire and continue paying rent indefinitely about 15 years down the road, so it makes little sense to buy a house just so I can keep working.

        I may buy a house again, but I could have a satisfying life as a renter from here on as well.

    2. OCMAN


      Today I heard Christopher Thornberg talking on 1070 Radio that Deutsche is too negative. He said that it’s like banks are going over to other extreme to cover their behind.

      Thornberg was one of the many who thought RE market would crash but to my surprise, he thinks the RE market bottom is later this yera or early 2011 and will stay there or slowly rise for 3 to 4 years.

      I don’t know whether he meant CA or nation but that’s not really a good news for me personally since I’m targeting 2012 and hoping for Orchard Hill houses, but nontheless, it was a surprise for Thornberg to think that RE bottom is within 6 to 9 months.

      Any thought on this? Thanks.

  5. Geotpf

    For a house this big, .62 of an acre is actually a fairly small lot, bordering on too small. Of course, like you, I don’t see the need for a house this big in the first place, but if you have a few million lying around, and can afford a “staff” to look after the place, why not?

    Looking at the history, this house has been for sale for three years (first listed August 14th, 2006). You would think she would have a clue by now that she needs to lower the price significantly to actually sell it. Of course, since it’s been listed and delisted several times, with three price changes in there as well, it’s quite possible she originally listed it at seven million or something and thinks she’s already lowered the price enough. She’s wrong.

  6. OC Progressive

    Wow, $750,000 in “landscaping, etc.” That must include the pool, stonework, fountain, flagstone motor courts, gates, et cetera, but that is still just a staggering number.

    1. Geotpf

      That is a bit insane, especially if you consider you could probably build an entire house this size for that much, if not less.

      1. cara

        heck, you could build 3 houses for that number. Maybe not in Irvine, maybe only 2 and a half.

    2. IrvineRenter

      When we look back on the housing bubble, one of the legacies will be an abundance of over-improved properties. Pergraniteel will forever be connected with the style of the housing bubble. I suspect houses built and renovated during the next decade will be austere compared to the showy 00s.

      1. HydroCabron

        “the showy 00s”

        How does one pronounce that?

        As a boy – “before the war” – I remember old people saying “aught 5” for 1905.

        So are we living in the aughts?

        I will be able to look back on the optimism of aught 6 when I’m old.

        1. IrvineRenter

          The Showy 00s would sound like “Cherrios,” I guess?

          Perhaps we can coin a new term here.

          1. Dave in Alamitos Beach

            I’ve been calling them the oh-ohs as in oops. About sums up the decade. 2 oh oh 8.

      2. Jeremy

        This actually provides a little ray of hope for me. We cook a lot, every single day, and the kind of home we would be able to afford once everything’s settled out would normally feature a basic kitchen. With the housing bubble spewing pergraniteel over every shack and apartment in the state, we stand the chance of ending up with a really nice range.

        Well, maybe that’s a very small thing, but it helps pass the time as we wait and watch…

      3. HydroCabron

        I have noticed those vessel bowl sinks in many Pergraniteel® homes lately. I believe they came on fairly late during the aughts, say, after aught 5 or so.

        The vessel sinks in granite or some sort of composite stone, instead of mere porcelain, as in the old days, are the ultimate expression of the gracious style of living that is Pergraniteel®.

        Whether living in relaxed, stylish comfort, or entertaining the pillars of your community, look to Pergraniteel® to show your impeccable discernment and class.

        1. IrvineRenter

          “Whether living in relaxed, stylish comfort, or entertaining the pillars of your community, look to Pergraniteel® to show your impeccable discernment and class.”

          You should write sales copy…

        2. Gemina13

          They’re also a pain in the ass to clean. Hard water stains on the inside and outside of the bowl, plus the splashing as you attempt simple tasks like washing your face, brushing your teeth . . . give me an ordinary sink any day.

        1. Geotpf

          I wonder what these would rent for. I suspect the number would be close to the $1,127 HOA plus Mello Roos plus property taxes plus insurance plus repairs, making the proper value for these condos to be zero.

      1. Gemina13

        So does this price reflect the premium people are willing to pay to live in such a fantastic location, do you think?


  7. Peasant

    Pergraniteel? I got it now, Pergo fake wood floors, granite countertops, and steel appliances.

    The exteriors in Shady Canyon are indistinguishable, there’s nothing unique about this particular house or any of the other Shady Canyon houses. Don Bren bought out Henry Ford II, Max Fisher and the other partners in the original syndicate because they didn’t share his “vision” of Tuscany on the Pacific. For millions of dollars I’d go for an ocean view contemporary in Laguna.

  8. Property Owner

    Well, I just saw one of the short sale houses we had put an offer on is still on the market after we were told to ‘put our best and final offer in because they were going to decide who gets it’. Interesting thing is they have RAISED the asking price by $50,000. I asked why and they said the appraisals came in higher so they decided to raise the price to align with the appraisal. I guess they turned away all the ready buyers to see if they can get more based on the recent appraisal.

    1. ockurt

      Hey Property Owner, I posted this for you a couple days ago but it was late in the day…don’t know if you read it.

      My wife and I were outbid on several Irvine properties late last year and early this year.

      1st property was an REO in Westpark, priced competitively so I thought I was being aggressive offering $5k below asking and someone came in and offered $20k above asking. House needed work too.

      2nd property near the lake in Woodbridge, non-REO, very nice single story. I offered $25k below asking, sellers got full price offer and the buyers put $300k down.

      3rd property also in Woodbridge, inside the loop, very well-maintained property next to the elementary school (Stonebrook I think?). It was also competitively priced and I offered about $20k below and I believe that one sold above asking.

      The 4th property we made an offer on finally hit. In Newport Coast of all places, probate sale and the estate was motivated. I paid less than a foreclosure in the neighborhood.

      Anyway, it’s a frustrating process but timing and luck have a lot to do with it. Stick to your budget and don’t get into bidding wars. Do your research, get your ducks in a row, and keep going after it.

      1. E

        Thread about multi-million dollar homes…property owner and ockurt have a conversation about bidding wars.

        Thread about condos…property owner and ockurt AGAIN have a bidding war conversation.

        Thread about anything….property owner and ockurt talk about bidding wars.

        Shut the fuck up and take it to the forums.

        1. Property Owner


          Why do you feel the need to fly off the handle immediately. I had actually written a long response but decided to not post it and instead will just say there is no need to talk to people you don’t know like that. If everyone ‘shut the F up here, then it would be a pretty boring place to go, right?

    2. Dan in FL

      No way that’s what happened. (not calling you a liar, I’m calling the RE-idiot a liar) It’s a short sale…if the sale went through, there’s no way the homeowner would care what the selling price is.

      The bank decided they wouldn’t take the offer that was presented to them. So the “appraisal” they mentioned was the banks appraisal of how much of a hit they were willing to tank.

      Bottom line is that someone is not telling you the whole truth. The property isn’t necessarily worth $50k more…it’s just that the bank doesn’t want to let the current owner off the hook for that price.

  9. Zulu

    The bottom line is, at some point you have to decide if you want to live in your own home, or live in a crappy rental and hope that you can expertly time the market to catch the exact bottom.

    Meanwhile, the months/years tick by….tick…tick…tick. You’re not getting any younger. Your kids are growing up in a rental unit and will be leaving for college soon. Most of your things are in storage and you’re living out of boxes. But hey, you’re saving money, right! It will all be worth it, right?

    Well…what if the market bottom doesn’t come for ten years? Are you still willing to wait? Ten LONG years living in a rental, smelling your neighbors cigarette smoke drifting into your window and listening to their damn dogs bark.
    Will it still have been worth it? You can always make more money – but the one thing you can’t get back or buy with your money is the time you lost.

    Or what if the bottom of the market is NOW and prices start to go back up? (Doesn’t look like any new spec homes are starting in Shady – that tells you something…). Will you recognize the bottom when it arrives and immediately jump back in the market? Or wait, while prices continue to go up and you just can’t bear to get back in because you’ve missed all the good deals? All the time, living in your rental. Oh boy, having fun yet?

    Anyway, the point is that most bloggers here seem to want to group their home in with their other investments (ticker symbol NY:HOME). But a home is not a stock, it’s your life. It’s the memories with your kids, the home they’ll grow up in and remember. It’s having a home you enjoy and inviting your friends over for dinner and going down to the cellar to pick out a nice bottle of wine.

    We decided to build in Shady because we like it there. Sure, we’d like an ocean view too but not at the price of dealing with the tiny lots, homes built on top of each other and summertime traffic on PCH. That’s a personal choice. Are we upside down on our home – yeah, just like everyone else who owns a home. BFD. So I’ll have to work harder. But at least when I’m done with work, I’ll get to come back to my own home and not the rental we’re in now. Been in a rental long enough, and let me tell you it ROYALLY SUCKS.

    The way I see it you only have 3 choices: rent, live with relatives, or own your own home. Personally, I’m more than done with the first two choices.

    1. mike in irvine

      Renters have the ability to move to a different area if the neighbors cigarette smoke bothers them. Home owners have to suck it up and tolerate noisy neighbors or nazi HOA’s till the end of time. tick..tock..my friend. I can afford to relocate if i my rental becomes expensive with regard to my current income. Upside down home owners have to suck it up till the market improves while they watch fellow neighbors stay rent free in a house they cannot afford. I have seen homeowners constantly checking zillow to see if the ‘value’ of their property has increased…

      The premium towards home ownership is an overblown media/realtor created beast. If it wasnt for the mortgage tax benefit and the potential benefit 500k tax free appreciation.

    2. bigmoneysalsa

      Your characterization of the choice between living in a rental and living in an owned home couldn’t be more wrong. Because of the housing bubble, given a particular housing budget the quality of the home someone could afford as a rental was much higher than the quality of home they could afford to own. To put it in your own terms:

      I have X dollars to spend on a home every month. I can:
      A) Live in a smelly condo filled with cigarrete smoke and the sound of barking dogs or
      B) Rent a much nicer condo in a better neighborhood with a great school for my kids.

      or, maybe if I have more money maybe my choices might be:

      A) Buy a nice 1200sf condo or
      B) Rent a nice 2000sf single family home in the same area.

      One thing you are right about is that life is too short to spend wasting away in a place you don’t want to live. What you don’t seem to realize is that during a housing bubble, this means that renting and makes a lot of sense while you wait for the bubble to wane, because for any given budget you will be spending that time in a significantly nicer home.

      1. SeattleDave

        BigMoney…I could not agree more. There seems way too much carping on this blog about renting in some dumpy apartment, as if that is the ONLY alternative to owning.

        I fall into your second scenario. Although I have owned a home in the past, most of my life I have been a renter. And most of that time was NOT spent in a crappy apartment. I have always rented decent houses in nice neighborhoods, and have knowingly spent more to do so. And I have always been a long term renter. I screen landlords more than the landlord screens me. As a result, I have lived in nice housing for many years at a time. The landlord rewards a stable tenant with stable rent.

        When I finally did buy a house, the mortgage (PITI) was only 20% higher than my previous rent, and the rental house was much nicer than the house I bought.

        So yes, life is too short. It’s better to rent a nice place than buy a crappy one.

    3. Chris M

      Seems like there might be some nice SFHs for rent these days. And at a lower monthly cost than “owning”, too. Rental doesn’t necessarily mean a crappy apartment. BTW, I do own my home, and am not underwater. My equity has dropped from 52% to maybe 40% in the last 2 years. That doesn’t faze me, since I plan to live here for 20 years.

    4. Geotpf

      Not every rental is an apartment. The featured house here is available for lease as well as for sale-so the talk about barking dogs and cigarette smoke doesn’t apply. It’s just as nice rented as if it was purchased. The rent is “only” $13,500 a month, for a GRM of 289 as compared to the sale price. That’s a whole lot of a better deal than $779,000 down and $17,207 a month plus a $475 a month HOA fee plus Mello Roos plus property tax plus property insurance plus repairs. I’ll bet you could also work out some sort of rent-to-own deal with the current owner.

      1. winstongator

        How do you come up with $17,207/mo? What interest rate? Will you qualify for the full interest deduction because of the AMT? Assuming you can afford this place, you’ve got a pretty high income.

        1. Geotpf

          Click on the Redfin link for the house (the address in the blog post), look on the left part of the screen. The interest rate they are using is 5.25% for a 30-year fixed, which strikes me as low for a super-duper-jumbo such as this, but meh.

          1. Geotpf

            …or you could look at the other left part of the screen (their mortgage calculator is actually on the right and I’m just smoking crack).

    5. IrvineRenter


      I get tired of renting too. Fortunately, we rent a nice place, so it isn’t the bad renting experience of your post.

      I am glad you are enjoying your property. Life is short, and if you can afford the cost, more power to you. There could be worse things than being trapped in a Shady Canyon home.

      “Or what if the bottom of the market is NOW and prices start to go back up?” There are many people buying because of this fear. Will fear-buying become a self-fulfilling prophecy? I doubt it.

      All things being equal, I would rather own, but it is not equal (rental parity) here, and I am not willing to pay a ridiculous premium to own, particularly when I am renting something nice.

      1. Lee in Irvine

        I am so sick and tired of renting. If I could go back, knowing what I know now, I would have bought in 2001. But, because I knew too much, I didn’t buy.

        More than anything, the number one thing that pisses me off about this bubble, is it rewarded the ignorant and the squanderer, and punished the educated and the prudent. (BTW, I’m working real hard on that anger.)

        Alan Greenspan is a criminal.

        1. T

          Yes Lee, and knowing what you know now, you would have sold 2 years ago right? And now you’d still be in a rental and pissed off about something else, the traffic maybe.

          Life isn’t fair, but karma has a way of biting those who deserve it in the ass.

          In So Cal, I’ve always lived in very nice rentals, except for once, and had I bought it would have been a massive financial hit, but because I rented I was able to escape promptly. Due diligence can’t catch everything.

    6. winstongator

      But, but, for this house we have the option to buy or rent. It’s not some crappy rental, it’s a freakin $13.5k/mo lease!

      For this particular home, you’d advise someone to buy at asking rather than rent at $13.5k/mo?

      How many people have memories of their parents fighting over money? Or having money disputes contribute to a divorce? How many of those had house-poor buying decisions contributing to the trouble?

    7. QualityPicks

      Zulu, you can also rent really nice homes (like the one described here). There are very nice homes for rent at a fraction of buying them. You probably think you can only rent an apartment or something.

      If you’ve been on this site long enough, you’ll see that while we are often trying to predict where bottom will be, our main concern is buying a home when it makes sense. A big factor is rental parity because it gives you a good idea of how much “premium” you are paying for the benefit of buying. In current times, the benefit of buying (here in Irvine) is close to nil for most people (I’m sure there are exceptions) since most homes still have a big premium over renting the exact same home. So Irvine, it seems, does not care about the current economic conditions for now. You are taking a big risk if you buy a home now.

      Of course, if you have 6 months expenses in cash in the bank, in addition to enough cash to put 20% down on a property you are willing to live for 30 years (please think of your age and add 30 years), your job future looks good, and you find a home near rental parity, then you have not much to think about.

      The problem is that most are buying now because “it could be the bottom” and they don’t want to miss the profits. Or, they have 200k or more lying around and have no idea if they are overpaying for a property or not.

    8. Freetrader


      You are getting slammed a bit by the peanut gallery here (no surprise there – just as the prevailing dogma doing the boom was “buy buy buy” the prevailing dogma now is “don’t buy don’t buy don’t buy”) but I want to just chime in and say that you make some excellent points. There are psychic benefits to home ownership that can’t be accounted for under Black-Scholes or any other investment model. The ability to pack up and move on a month’s notice may be a good thing (it certainly helps in a volatile job market) but not everyone is going to value that ability very highly. A home (as opposed to a house) is NOT a financial instrument or investment. The trouble we’ve gotten into in the housing market is due to everyone treating their house as such. You have the right approach, and if you see a house at a price you are willing to pay, that you believe you can afford in the long run, and in which you would be happy to be stuck in for the long run (even if underwater), then by all means buy it, and forget the people who say otherwise.

    1. Lee in Irvine

      Very nice charts … thanks for sharing!

      The word that keeps coming to mind … calamity. There’s no escape. We cannot pass enough inventory above $500,000 to sustain any short lived rally.

      I stick with my original belief … we’re going back to 1999 prices. Remember seeing Aliso Viejo for $209,000 & Newport Coast for $899,999 … guess what? … it’s coming back.

      1. IrvineRenter

        Yes, the bullishness is getting a bit carried away. Prices are still going to decline significantly, and this bear rally is like many they had in the mid 90s.

      2. avobserver

        I am sure low transaction volume and knife catchers with large amt of savings will produce a few more “blip” rallies like this one down the road. But if we consider these factors:
        (1) banks can not hide shadow inventory in their books forever and Option ARM recast will intensify in the next 2 years,
        (2)demand from large cash buyers will dry up at some point with no movers up demand from low end to fill in the gap,
        (3) mortgage rates can not be kept at this artificial level perpetually (unless we accept the fact that we are heading for a prolonged deflation) no matter how hard Fed tries,
        (4) unemployment rate in SoCal will keep rising and wage income keep falling till 2013….

        we can probably guess where the market is going to be at in 5 years.

        1. Property Owner

          On your item #1, I have been speaking to a friend about the option arms in their banks portfolio and he said they have already worked through modding all their 2 year option arm resets and are now actively working to mod all their 5 year option arms before they get into trouble. If other banks are doing that as well to stop the bleeding before it begins, will that stop the wave?

          1. cara

            They haven’t modded my friends out here in DC. Wish they were being so proactive here… Meh.5year I/O arm, but they can afford the fully amortizing payment… really they just need a refinance into a fixed rate for piece of mind.

          2. DarthFerret

            I would love to see IR write an article on this very topic! I was in high school and college during the last housing bust (90’s), so I’m a bit short on experience to back up what I’m seeing and thinking. Everything that I read here on IHB seems to make sense about rental parity and the next foreclosure wave, but a nagging voice keeps asking me, “what if you’re wrong”. After all, markets, especially ones as bizarre and [govt-]manipulated as the RE market, don’t follow logical, predictable patterns.

            I’ve seen a lot of very sound, logical reasons why the housing market will continue to fall, and I think I agree, but I’d love to read a detailed analysis (not the shrill realtorspeak hype that I see over on the OC Reg and other places) that speculates on why we might be wrong and why prices might have bottomed.


    2. Lee in Irvine

      Actually … I’m look at the bottom chart, comparing 1990/1996 to the current debacle. I have a problem with it. We’re NOT 52 months into the current decline. The chart indicates that the 1990/1996 decline started at 6 months, and the current decline started at 18 month. That’s not an equal comparison.

      The blue line (1990/1996) needs to be shifted to the left 6 months. The yellow line (current debacle) needs to be shifted 18 months to the left. This adjustment changes the current decline to about 34 months old, not 52 months. As for the OC, the median for SFHs peaked in June 2007 ($734,000), so we’re 26 months into this decline. The last OC decline lasted about 6 years (72 months).

      1. Lee in Irvine

        One more point … I don’t know if this decline will last 6 years … it probably won’t due to this decline being much more radical than the last one (high beta). However, it sure the hell is gonna last a lot longer than where we are now (26 months). I suspect that prices (including the OC median per DataQuick) will bottom out sometime around the spring of 2012, making this decline about 4 1/2 years long. However, that’s just a guess.

        The Orange County median price in December (Year End) 1998 was $229,000. I think that seems like a fair target.

  10. newbie2008

    Are those green shoots toxin weeds?
    You reap what you sow or what someone else sows.
    How much toxins can the system take?
    Fetch another round of toxic loans.

  11. kevin1

    Calculated risk blog (http:/calculatedriskblog.com)
    directs me to the Google Map for distressed homeowners search.

    Here is an example of Irvine:

    If Google map correctly shows foreclosures, then the remaining question is when the banks are willing to sell them? Or this won’t happen in 1~2 years.

  12. Tony Libby

    I am not sure that we can comment on video of James Blunt Perody or not but I must that great work done with this,
    Really is very funny 🙂

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