High End Home Prices Benefit from Lack of Inventory

The high end has benefited from a lack of supply and low sales volumes. With lenders proceeding with foreclosure faster, we are starting to see the inventory we have been waiting for.

28 WOODS Trl kitchen

Irvine Home Address … 28 WOODS Trl Irvine, CA 92603

Resale Home Price …… $2,049,900


We can never know about the days to come

But we think about them anyway, yay

And I wonder if I'm really with you now

Or just chasin' after some finer day

Anticipation, anticipation

Is makin' me late

Is keepin' me waitin'

Carly Simon — Anticipation

Since the Government deeply inserted itself into the housing market, the future has become far from certain, and we spent an agonizing year anticipating the release of inventory lenders have determined will never come. Two-thousand ten is a different year; lenders are foreclosing in earnest, and we are seeing the first of this inventory hitting the market.

Report: Sales of pricey California homes drop in 2009

Sales of California homes priced at $1 million or more tumbled for the fourth consecutive year in 2009, according to a report out Thursday.

The number of million-dollar-plus homes sold dropped 23.8% to 18,621 in 2009 from 24,436 in 2008, according to San Diego real estate research firm MDA DataQuick.

If we were experiencing a true, robust housing market recovery, why are sales at the high end falling year after year? Low volumes are sustaining asking prices (that plus denial), but actual sales continue to plummet, and unless the government is planning to subsidize this market, look for a crushing weight of pricing to fall at the $729,750 conforming limit plus available downpayment savings. Expect a dramatic squashing of the market down to the $800,000 to $1,100,000 range

The decline was the result of buyers holding back, a weak mortgage market for big loans and the drop in home prices over the last several years dragging the value of several houses below the $1-million-dollar threshold, DataQuick said.

"Prestige home sales are a unique subcategory of the real estate market. The buyers and sellers respond to a different set of motivations,” DataQuick president John Walsh, said. “In the multimillion-dollar price ranges, decisions are largely discretionary and aren't as dependent upon jobs, prices and interest rates the way they are for most buyers and sellers."

This article is focused on homes prices at $1,000,000 and above, and yet the reporter quoted John Walsh's statement about multimillion-dollar homes. The reporter is implying that the dynamics of real wealth have some bearing on the pretenders who own houses they believe are worth between $1,000,000 and $2,000,000 where the major disaster is coming. Multitudes of borrowers overextended themselves to get into houses in the no-man's land between the FHA limit and price points only the truly wealthy can afford.

The trend underscores the nature of the state’s housing recovery. Sales of California home sales at all price levels increased 16.9% percent last year, to 460,166 from 393,703 in 2008. One in 25 homes sold for a million dollars or more last year, while the year before it was one in 16 and was one in nine in 2006.

No, the trend underscores the nature of the State's housing fiasco; we have no housing recovery, and saying that we do doesn't make it so; although, it makes people feel good, and it keeps the high end in denial. Why are homedebtors idiots? Because they are lied to constantly.

Lower-end homes largely fueled last year’s buying spree as both investors and first-time purchasers sensed opportunity in steeply discounted foreclosure properties across the state.

The Federal Housing Administration, a federal agency that insures mortgages often used by first-time buyers with little cash for a down payment, has played a big role in supporting the market for lower-end properties in California and some move-up markets. In pricier California communities, such as Los Angeles County, the limit for FHA loans was increased to $729,750 from $362,790 less than two years ago.

But more expensive homes haven't enjoyed that same level of government support nor were they hit as hard by the subprime mortgage meltdown.

Traditional luxury markets are faring better than those that experienced large price increases during the bubble years. For instance, million-dollar-plus home sales in Riverside County dropped 48.6% last year while Los Angeles County saw a 13.3% decline.

Notice the subtle lie perpetrated in this sentence: "Traditional luxury markets are faring better than those that experienced large price increases during the bubble years." Did you read, "Traditional luxury markets did not participate in the bubble therefore, prices will not fall?" The writer intended for you to get that message, and it is deceitful drivel.

There is one, and only one, reason million-dollar-plus home prices have not fallen off a cliff: lenders have not been foreclosing and discretionary sellers are in denial, so both available inventory and sales volumes are very low. Demand is nearly absent, but if supply is restricted enough, prices don't fall. What we are left with is a huge market segment dominated by shadow inventory with nobody to sell it to.

Lenders are finally moving properties through the foreclosure system, and I am anticipating much more high-end inventory this year. Through the summer, demand may be sufficient as unsatisfied buyers exist from 2009, but their numbers will be depleted quickly, and once exhausted, prices will get pushed down by the weight of all this inventory. Financing will not return, and many properties will fall to the $729,750 limit plus savings. Have you noticed that the Irvine Company priced everything within reach of financing? If they believed the over $1,000,000 market was viable, they would be selling at those price points; they are not because no market exists there.

I am profiling many more Trustee Sale flips lately because there have been many more Trustee Sales, sales that simply were not occurring last year. The pace is quickening with some lenders clearing their books. Today's featured property is an REO the lender is hoping to flip for a price higher than its peak purchase price in 2006. Has the high end already fully recovered?

No, no way.

28 WOODS Trl kitchen

Irvine Home Address … 28 WOODS Trl Irvine, CA 92603

Insightful Housing Beacon

Resale Home Price … $2,049,900

Income Requirement ……. $426,871

Downpayment Needed … $409,980

20% Down Conventional

Home Purchase Price … $1,700,000

Home Purchase Date …. 11/4/2009

Net Gain (Loss) ………. $226,906

Percent Change ………. 20.6%

Annual Appreciation … 57.5%

Mortgage Interest Rate ………. 5.05%

Monthly Mortgage Payment … $8,854

Monthly Cash Outlays …..….… $11,650

Monthly Cost of Ownership … $9,100

Property Details for 28 WOODS Trl Irvine, CA 92603

Gourmet Kitchen Award

Beds 5

Baths 4 full 1 part baths

Home Size 3,800 sq ft

($539 / sq ft)

Lot Size 9,052 sq ft

Year Built 2007

Days on Market 11

Listing Updated 2/3/2010

MLS Number S603502

Property Type Single Family, Residential

Community Turtle Ridge

Tract Arez

According to the listing agent, this listing is a bank owned (foreclosed) property.

Spacious five bedroom plus four and one half bath home situated on a private cul-de-sac in the gated community of Turtle Ridge. This home is like brand new through out. Gourmet kithcen offers stainless steal appliances, granite counters, travertine flooring. Upper level media/game room loft. Main floor bed and bath. Entertaining rear yard with custom designed pool, spa, outdoor kitchen, fireplace, courtyard fountains, water features. Plus much more

kithcen? Does the realtor still earn the gourmet kitchen graphic when he spells kitchen wrong?

How many of you were introduced to Carly Simon this way?

41 thoughts on “High End Home Prices Benefit from Lack of Inventory

  1. lowrydr310

    During the good ole’ days, how many $1M+ homes were purchased by realtors (little ‘r’) themselves, either hoping to make a quick buck on a flip or handsomely rewarding themselves for their success? I’ve heard many stories of new realtors making $200K+ a year; that income level could have easily qualified them for a high end home. I wonder what’s happening to all those homes now that the $200K+ income vanished.

    Speaking of unemployment, here’s an animated map of the country showing unemployment over the past three years. REMEMBER – EVERYTHING IS BETTER! BUY A HOUSE NOW BECAUSE PRICES ARE ONLY GOING UP! 😛

    Seriously though, when I see that I have to ask myself, “How much worse can it get?” Obviously unemployment is only one factor affecting the overall economy, but in order for any recovery to begin people need to have jobs.

    1. AZDavidPhx

      It definitely looks like some smoke is starting to emanate over in the high end neighborhoods.

      The income numbers for 2009 are looking like we are going to be seeing a drop in median. Is Irvine going to buck the trend?

      Seems like it is going to be difficult with California’s overall unemployment rate so high. But then again, as I have been told several times – Irvine has all of the “Talent“….

        1. Art Student in Atlanta

          ;-P Maybe they could use a calming blue, a relaxing verdent green tone, or an inviting light lavender. We could just learn to accept unemployment as a natural and beautiful ting.

      1. newbie2008

        Don’t you realize the number of jobs BHO has saved. Instead of double the unemployment rate since BHO took office, the amount would of tripled without the bailouts. Now it time for job creation.

        “Since the Government deeply inserted itself into the housing market, the future has become far from certain…”
        It’s time for the young generation and unborn to sacrifice to the baby boomers and retires. Bow and bend over.

        If the govt keeps lending at 0 to 0.2 % interest to the banks, the banks can keep the upper-end in the house without payment for more than 3 years. But if the govt. removes or hint of removing the free money, non-paying mortgagee will get the bums rush.

        1. Geotpf

          Not sure if you were being sarcastic or not in your first paragraph, but it is very true that without the stimulus and other government measures, unemployment would be significantly than it is today. Now is the time to deficit spend on things that create jobs.

          1. newbie2008

            I vote for removing the bank bailout (economy stimulation) and giving every citizen a check for $5000. Now that would stimulate spending and be more just.

            In CA as BHO said, most of the jobs saved were police, fireman and teachers. I would rather see hiring more starting teachers, street cleaners, low cost road building and maintance crews instead of the $150K+ and retiring at 90% pension after 20 years jobs. I say it’s time to get rid of all CA and county $300k non-elected public servant positions especially those with more than 1 year severance packages in their contract. Declare insolvence or BK, the contract could be renogatated (since they were essentially gift, this would be the first real negotiation). That would be free money for a real job stimulus package for the poor. The gouvenator talks real tough on reducing the $12 per hour positions to $8 per hour and gets them down. Arnold tried to cut pay on some strong public service union with pay over $100k per year and calling their supporters “girlly man,” but who’s really the girlly man?

            Hiring a bunch of people at $50k to 60k per year is much more effective in reducing crime, keeping people busy and spending than keeping inflated public servants.

          2. matt138

            Why the hell not? It’s as viable and sustainable a job as the rest of the jobs the gov/t “creates”. Plus, I love pizza.

            Now is the time to raise interest rates so the private sector begins to save money to lend for capital investment.

            It is impossible to quantify the number of real private sector jobs the Bush and BHO stimulus has destroyed.

          3. Swiller

            It will never happen. The scare tactics and fear mongering will be unleashed on the public like never before.
            The Police State of California lives and breathes off arresting, fining, and imprisoning people. People would rather give up their personal liberties to due process than even THINK about the possibility someone could hurt them. Too bad they don’t realize those people are out there already.
            What’s the percentage of people incarcerated for simple marijuana?
            California is a sad state and will go broke….I can’t wait because THEN, we may get some real change in our laws and legislature.
            Too many police, too many fireman, TOO MANY SAFETY LAWS!!!
            We are a super safe state that has no jobs.

  2. Planet Reality

    It’s hard to believe Obama will find a way to spin government support for home loans over $1M. At this point nothing would surprise me. I’m sure the trade groups are pushing for this and I know Obama will do it if he can some how keep it on the down low or spin it to help small business owners.

    If the republicans can find a way to rally around the tea party groups Obama will lose in 2012. That is easier said than done.

    1. AZDavidPhx

      I see the division in the GOP as the reason Obama is going to win again without too much trouble.

      You’ve got them evenly split where:

      1) The honest ones have left to join the Libertarian party
      2) The dead wood still hanging around like Sean Hannity wanking themselves for the second coming of Ronald Reagan.
      3) The radical fringe off dropping little baggies of tea in the river screaming bloody murder wanking themselves to their Sarah Palin pinups.

      All Obama has to do is make a few rounds, kiss some babies, blame the predecessor, etc.

      I suppose that if our voting system were actually implemented in a Democratic way, he could probably lose – but with our dumbass voter take all caveman voting system the third party always becomes the spoiler.

      1. Planet Reality

        The republicans and democrats are largely the same from a fiscal perspective. Not only will the republicans have to overcome that, they will have to overcome the factions in the tea party groups. If they can find a brilliant way to rally the tea party groups around a fiscally conservative and socially moderate candidate Obama will lose. Again this is easier said then done, but this is the only strategy with a chance to succeed.

        1. Art Student in Atlanta

          I personally feel the Republican Party is dead. Being a former republican myself, I came to that conclusion after some long personal examination. The party simply lacks a loyal and determined base to support it. Structurally, they are unsound in having almost no presence in parts of the urban areas of the country. While they enjoy considerable presence on the national stage, their strength at the state and local levels is inconsistent. It seems to me that they take their grass roots for granted and rely on national sponsors.

          I think the future of the parties will look more like a libertarian variant of tea party movement versus just about everyone else including the Christian Right. The republicans are ineptly trying to co-opt the movement, but it will not work in the long term. Too many variables and once you cloud a simplistic movement with too many platforms (which the tea party is very simplistic), it tends to disenfranchise more of its supporters. As the debts and unfundable promises become due, more people will want the very simple solution of shrinking the government and its obligations.

          Personally, I feel that government does have a role in society. It should not be there to bail everyone out, but it does have a place in ensuring public order and supplying things to the market that do not exist otherwise. There must be a balance point where the freedom of the individual and the safety of the public can intersect.

          I do not think that any political party has been able to firmly argue about where that point is. As the arguments and the group focus on more simplistic absolute principals, so will the ability to discuss them with any civil discourse as well.

          My soap box speech is over. Thank you for your time.

          1. Art Student in Atlanta

            On the last paragraph I meant diminish.

            As the arguments and the groups focus on more simplistic absolute principals, so will the ability to discuss them with any civil discourse diminish as well.

            Need to check more thouroughly.

          2. newbie2008

            Both parties’ leadership expects sheeple to continue to vote for them. The Demo. have more consistent core voters, who will vote for them no matter how the party goes. The republicans have smaller number of sheeple group that is betrayed more often and a large amount of swing voters that are Demo but will vote Repub in a presential election. The swing voters went Demo in the last presidential election. The tea party is likely to siphon more Repub. voters than Demo. voters, but there is a large number of whites and blacks demo in the tea party that will be the spoilers. The Repub. will give lip service to the tea party platform if it gains traction, but stab them in the back. Of course local Demo will also start talking like the tea party if the bags gain traction.
            “Too big to fail” has changed into “too huge to allow a loss.” The recession is over for some people, but it’s not the upper-middle to lower classes.

          3. Art Student in Atlanta

            Quite true. The Dems have a lead on party identification. That is again mostly because they have a more consistent State and Local Presence. The only issue is when the bill becomes due, how many people are going to be willing to pay it?

            Think about it like this. As the bill gets increasingly larger so also will the desire to escape from it. As the cost to support the group that keeps getting bailed out increases and the number of people who are bailed out gets smaller and more select, inversely the number of people angry at the bail outs will likely increase. This is an issue that will likely change both parties.

            The Republicans are right now ineptly trying to co-opt this movement to regain the supporters they have taken for granted, but a number of Democrats will likely start understanding the size of these bills as well. This is all unsustainable. SSI, Medicare, Medicaid, FHA bailout, Fannie, Freddie, TARP, Unemployment Insurance, Federal/State/Local Pensions, Treasury Bonds, and everything else are waiting out in the distance. They are not something we can just pass of the cost to someone else.

            My guess many voters and Politicians are going to do the equivalent of a “Dine and Dash.” If not, someone is going to be stuck “Doing the Dishes.”

          4. Art Student in Atlanta

            Likely, but remember China is far better at the currency manipulation game than our own Fed is. On that front, my bet is on China winning out.

          5. newbie2008

            Both parties will not dash. They will retire and invite some one to the table, old Demo and old Rebub will leave one by one, while going out will say to the waiter that fellow there will pay. Wave to him and the sucker will wave back giving the waiter the impression he’s paying.

            Kick the can down the road. Japan was suckered into the US currency trap by the US banksters and Bush Sr. by pegging ones currency to US dollars, any inflating/deflating trick by the US is immediately neuralized. Japan had a lost generation and with no end in sight. The PCR isn’t that stupid to repeat Japan’s recent mistake (PRC also shoots people that lose vast fortunes of the govt or people’s money).

          6. Art Student in Atlanta

            You may be right, it may not be a dash now what they are doing, but it will be when the poor schlep they find to replace them sees the bill.

            As for the currency game trap, the PCR has played that game masterfully. I understand they got burned playing it once. If Bernake’s plan was to destroy the dollar, he is doing a very bad job. Considering the amount of resources poured into it, there has been very little inflation.

            I would say, with the games China played on the Euro with Greece, China has placed the dollar in a slightly stronger position.

            The funny thing is that China has only 2.5 Trillion in Currency Reserves and a very large amount of unfunded obligations to uphold. I think China might start liquidizing some of their assets eventually.

  3. Woodbury Renter

    Must confess to really liking this house and grounds. Sigh… I have $2MM taste and a $750k budget, don’t think I’ll ever buy a home in Irvine.

    1. Geotpf

      It is nice, but as Sue pointed out, it’s way too close to your neighbors for a two million dollar house. But people treat Irvine almost like Manhattan in terms of space per dollar spent.

    2. Sue in Irvine

      Yes, it’s a beautiful house. It lacks privacy though. For $2mill you could get acres in many other areas nearby. At Nellie Gail you could even keep your horse 🙂

    3. IrvineRenter

      Despite the pergraniteel, I do really like this interior. I suspect it will feel very dated five years from now.

      1. Joseph

        Way off topic, but I’ve never really understood the love for granite. I personally prefer Corian, but maybe granite is preferred because it doesn’t scratch or is more durable?

    4. Swiller

      No, I think you have a 750k taste, it’s just that this house is so fraud inflated, people are willing to pay $2M.

  4. Soylent Green Is People

    $2M means either a middle priced home sale and ladder up to this property – not likely due to serial refinancers or vintage 2004-2007 equity reversals – but more likely than not an off shore money purchase. Assume a $1M note (50% LTV) at 5.0%, the kind of juice you have to earn to support that monthly nut is around $200kpy. Pretty small slice of the local population can afford this lofty price. In a full doc world the self employed who used to purchase these McMansions are now shut out. So who then can buy this $2m turd in the punchbowl? We’ll know once it gets a “price improvement” to 1.7 – 1.6m.

    Quick sidebar: Was at a FTHB seminar presenting how to purchase. Post meeting a self employed guy comes up an asks how he could arrange to purchase a $1.2m home because “I don’t report all of my income… like most self employed guys do”. My response: Report your income. Pay your taxes. The buyer stood there as if I had struck him over the head. “what do you mean?” he asked. “I mean report your income. Pay your taxes.” Perhaps it was a language issue, but that concept was completely foreign to this individual. I wish it was otherwise.

    “Remember, Tuesday is Soylent Green Day!”.

    My .02c

    Soylent Green Is People.

    1. Gemina13

      ::chuckles:: Good advice, SGIP.

      We had a client who decided to stick a large chunk of her money into loads of real estate deals that she then hid from her financial advisors. (How, I don’t know. We only got hold of all this when she passed away.) But after we started dismantling her estate, we found out about the real estate deals. And the agent she used to purchase them. And their illegality. And the suddenly-inflated amount her estate now owed the IRS in back taxes, penalty fees and interest.

      Her heirs screamed bloody murder because what had once been a multimillion-dollar estate was now much, much less. One of them asked the managing partner, accusingly, why he was giving the IRS “their” money. The partner earned my everlasting respect when he lowered his glasses, looked the man in the eye, and said, “Because none of you people are worth 10 years in federal prison. That’s why.”

    2. AZDavidPhx

      You should have told him to go CEO style by “Deferring” his income and then “borrowing” from “his” company at 0%.

      That’s how a real pro evades the system. Sounds like the guy you spoke with is a novice.

      1. Swiller

        A real pro doesn’t “evade” the system, he USES it to the best advantage. C’mon now David, we need to start thinking like the snakes that created the tax code anyhow. Stupid/common/servants/chattel pay taxes, not the elite bro…c’mon get some credits and tax shelters and defers and and and and and and……BTW what’s the tax rate on the elite wealthy since Reagan days….anyone have that?
        Check Here to give $3 to the Peasant China Man Carbon Footprint Global Welfare Fund

    3. awgee

      Oh my gosh! It is so true. I would get calls from prospective clients asking what they could do because they have incurred a large tax liability. I would tell them to write a check.

      Sometimes they would become insistent and ask how they can get out of paying. I would tell them they can go to prison, but will still owe the money.

  5. HydroCabron

    Circlejerk time!

    Seriously, I love this place. I haven’t been coming here much of late, but these recent posts have been stupendous stuff, and the comments are among the best on any blog.

    I hate sounding like an actor talking about how “freakin’ faaabulous” everyone on the movie was to work with, but this place is really fun.

    Keep this up!

    1. IrvineRenter

      Thank you so much! Tomorrow I have a special post coming out The Unceremonious Fall from Entitlement, so please come back.

      BTW, did you see the Shoemaker Levy reference in No Housing Market Bottom. I thought you might like that; as I recall you once commented on my correct use of the term inflection point.

      1. awgee

        Fall from Entitlement
        Coto Housing Blog’s post for this coming Thursday includes the foreclosure cancellations in January, (5), and the properties that went back into foreclosure in January after having been canceled a few months ago, (4). Thanks goodness for loan mods and taxpayer money given to the banks to pay for he loan mods.

    1. newbie2008

      Quacks like a duck, walks like a duck. Must be a cow because I believe it to be a cow.

      If the best case would be a single option ARM waiting to explode. Multiple lenders would complicate the matters as a short sale but the buy would not be backing away.

  6. JK

    …..Gourmet kithcen offers stainless steal appliances, granite counters, travertine flooring. Upper level media/game room loft….

    Not only can the realtard not spell kitchen the truth is now revealed that they are planning on “stealing” the appliances…lol

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