Lenders work to inflate our flagging housing bubble to limit their losses. The lender of today's featured property is hoping for $275,000 extra in its loss recovery efforts. Are you willing to step forward and help them out?
Irvine Home Address … 101 LATTICE Irvine, CA 92603
Resale Home Price …… $1,100,000
{book1}
Oh dancing with myself
Oh dancing with myself
Well there's nothing to lose
And there's nothing to prove
I'll be dancing with myself
Dancing with Myself — Billy Idol
High-end market pricing is a symbolic, mutually-shared illusion with sellers and lenders — a group increasingly becoming sellers — pretending that current pricing is stable and praying preying they find a patsy to pay the huge note. Some gyrate their asking prices in a do-si-do dancing up and down and ending where they started. Today's featured property shuffled two steps back and six steps forward:
Property History for 101 LATTICE
| Date | Event | Price |
|---|---|---|
| Mar 01, 2010 | Price Changed | $1,100,000 |
| Mar 01, 2010 | Price Changed | $985,000 |
| Mar 01, 2010 | Relisted | — |
| Feb 08, 2010 | Price Changed | $875,000 |
| Jan 18, 2010 | Price Changed | $925,000 |
| Jan 12, 2010 | Price Changed | $895,000 |
| Nov 18, 2009 | Delisted | — |
| Nov 16, 2009 | Price Changed | $825,000 |
| Oct 23, 2009 | Delisted | — |
| Oct 21, 2009 | Listed | $875,000 |
| Feb 28, 2006 | Sold (Public Records) | $1,380,000 |
What would possess whoever is in control of this asking price to raise it $275,000 over the last five months? Is this a short sale where the lender keeps raising their approved short-sale price? Did the realtor have influence? I don't think the sellers care any more:
Foreclosure Record
Recording Date: 02/16/2010
Document Type: Notice of Sale (aka Notice of Trustee's Sale)
Foreclosure Record
Recording Date: 11/13/2009
Document Type: Notice of Default
Their $1,104,000 Option ARM blew up.
High-end inventory
According to recent reports, high-end house sellers lower their sights, and anyone selling mansion can expect to wait 3 years. I found these quotes from the first article interesting:
"The market moved, and so with it did the price," Eisenberg said. "The seller is a smart businessman and a reasonable guy — he gets it — and the best part is that he is under no real pressure to sell as the property is owned free and clear of any debt."
Therein lies one reason for more overpricing in the luxury home market, said Gary Painter, director of research at the USC Lusk Center for Real Estate.
"What's different about the high end, compared to the general population, is that people who have substantial resources are able to wait longer" to sell, Painter said. "In the bottom of the market you see negative-equity situations, loans going up, people must sell. Outside forces force them to price to sell. Those sorts of outside forces aren't as present [at the upper end]."
We all know this is not true for most properties between $1,000,000 and $3,000,000, and as I demonstrated in $3,367,500 HELOC Abuse from Hollywood, $5,000,000 HELOC abuse from Laguna Beach, $7,000,000 HELOC abuse in Newport Coast and 18 different properties in Huntington Beach, high end markets are inflated beyond belief, not by cash buyers, but by highly leveraged pretenders who are dancing with their lenders in amend-extend-pretend.
More so perhaps than in other parts of the nation, Southland sellers have another reason for overpricing at the onset: the magical belief that a star will happen upon their place and be willing to pay any price.
That statement — complete with its ironic truth about wishful thinking — is a setup for an even bigger delusion: 
"The story of celebrities knocking on doors and overpaying for a house they 'have to have' still floats around," Malibu agent Gardner said.
Reinforcing the popular myth, Cotton said, is that "every once in a while the real estate god looks down and someone will buy a place that's overpriced."
In other words, stupid knife catchers are everywhere.
Quoting Steve Thomas?
From the Altera website:
President – Steven Thomas
Steven is a 3rd Generation real estate and it is truly in his blood. He is an Orange County native and has served as the dynamic leader through many of the changes in Orange County over the years and is THE expert on OC market dynamics.
Occasionally, even industry shills have a valid observation (from the OC Register story):
At the current pace, the overall market is a seller’s market without much appreciation at all. The number of distressed homes within the Orange County housing market is keeping a lid on appreciation. On the other hand, the higher end price ranges are experiencing a deep buyer’s market, the higher the price range, the deeper the buyer’s market. The hottest price range is homes priced between $250,000 and $500,000, with an expected market time of 1.75 months. Contrast that with homes priced above $4 million with an expected market time of 33.89 months.
Remember O.C. has 13 months of unlisted foreclosures, so the market-time is quickly approaching infinity. Lenders are very concerned about the massive losses they will take as the high end deflates, and they are doing everything possible to prevent it, but moving back to sustainable lending standards means that people really must have the incomes to support the loans.
This is a nice house, but is it the property fitting to someone making $230,000 a year with over $220,000 in the bank? That is who will buy this. Are there enough of these high wage earners to support the number of homes that must wash through the system? That is really the question we are exploring. According to sales volumes, the number of listings and the total shadow inventory, the answer appears to be a resounding "no" — unless you believe the cartel will hold together. I don't.
Irvine Home Address … 101 LATTICE Irvine, CA 92603 
Resale Home Price … $1,100,000
Home Purchase Price … $1,380,000
Home Purchase Date …. 2/28/2006
Net Gain (Loss) ………. $(346,000)
Percent Change ………. -20.3%
Annual Appreciation … -5.3%
Cost of Ownership
————————————————-
$1,100,000 ………. Asking Price
$220,000 ………. 20% Down Conventional
5.06% …………… Mortgage Interest Rate
$880,000 ………. 30-Year Mortgage
$229,324 ………. Income Requirement
$4,756 ………. Monthly Mortgage Payment
$953 ………. Property Tax
$242 ………. Special Taxes and Levies (Mello Roos)
$92 ………. Homeowners Insurance
$252 ………. Homeowners Association Fees
=============================================
$6,295 ………. Monthly Cash Outlays
-$1306 ………. Tax Savings (% of Interest and Property Tax)
-$1046 ………. Equity Hidden in Payment
$435 ………. Lost Income to Down Payment (net of taxes)
$138 ………. Maintenance and Replacement Reserves
=============================================
$4,516 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————–
$11,000 ………. Furnishing and Move In @1%
$11,000 ………. Closing Costs @1%
$8,800 ………… Interest Points
$220,000 ………. Down Payment
=============================================
$250,800 ………. Total Cash Costs
$69,200 ………… Emergency Cash Reserves
=============================================
$320,000 ………. Total Savings Needed
Property Details for 101 LATTICE Irvine, CA 92603
——————————————————————————–
3 Beds
2 full 1 part baths Baths
2,460 sq ft Home Size
($447 / sq ft)
6,154 sq ft Lot Size
Year Built 2004
141 Days on Market
MLS Number S593530
Single Family, Residential Property Type
Quail Hill Community
Tract Othr
——————————————————————————–
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Nice home in Quail hill overlooking hospital, city area and local highways…Somewhat open spacious floor plan with vaulted ceilings, plantation shutters, canned lighting, newer carpet, hardwood flooring in some areas, partly travertine flooring, stainless steel appliances, granite countertop in kitchen, wood banister leading upstairs to smaller bedrooms and master has a small view balcony off the room….backyard has built in island bbq with room for entertaining with slight local freeway noise.
Did you read the honesty in that description? Somewhat open… slight local freeway noise… This description provides a balanced account of the property and mentions negatives, something quite rare. There is no puffing or realtorese in the description. I want to thank rkp for sharing this property in the astute observations.
http://www.crackthecode.us/images/WhoLetTheDogsOut.jpg
What a cute little dog. I hope he wasn’t abandoned during the foreclosure.
I think it’s a new realtor (little ‘r’) staging technique.
HOney, the home comes with this cute little puppy! I have to have it!
LOL !!!!!!!!!! thanks Matt138
Irvine Renter,
Can you please explain why any bank is going to race to declare it’s insolvency? This bank only claims a $200-$400K loss when it’s sells the house. As long as the bank holds on to the property the bank continues to recognize the loan income even though the loan is in default. The banks can continue to do this to fake solvency until the government bails them out, AGAIN.
It would be great if you were right, but it’s mostly wishful thinking. It’s time to separate yourself from what you want and what you think is right and accept what is happening.
Hope is not a strategy.
Can anybody confirm this? That is, does anybody have a link that shows that the bank only has to mark down the value of a loan after it was sold in foreclosure, as opposed to having to do so after they issue a Notice of Default, or maybe even after the borrower is 30 or 60 or 90 days late?
On September 30, 2008, while the EESA bill was still being debated, the SEC and the Financial Accounting Standards Board (FASB) released guidance related to mark-to-market accounting designed to clarify how it should be applied to illiquid assets. This guidance indicates that where the market is frozen or the transactions in the market are disorderly, institutions may use their own models to determine the fair value of an asset. The SEC and FASB indicated that additional guidance on this rule would be proposed soon.
http://www.fredlaw.com/articles/banking/bank_0810_klg_klk.html
However, are houses illiquid assets? It’s not like a shopping mall or a large chunk of vacant land or something that has only few buyers. Pretty much any house in at least fair condition can be sold fairly quickly, if the price is right. Calling the housing market “frozen” is simply wrong. (Maybe in Sept 08 (still a stretch), but not in Feb 10.)
I think most “pre-shadow” inventory currently is involved in a loan mod attempt. How many loan mods will ultimately succeed is completely unknown.
Right or wrong, the banks are going with the houses they own in REO and the loans they own are illiquid assets.
Part of the issue is that houses in some areas are illiquid. The bigger problem is most of these assets are illiquid at the price the owners of the assets desire. Mark to market solves this issue but with all the bailouts going on, don’t expect mark to market to be enforced any time soon.
As usual, you are completely wrong. Historically, 68% of loan mods end in foreclosure. The loans currently being modified through HAMP have an average DTI of 59% after modification, indicating a historical failure rate of 95%.
For normal loans, a DTI that high would result in massive defaults. However, a fair number of mods involve a balloon payment or similiar, resulting in something like an interest-only loan; that is, lower monthly payments than the value of the loan “should” have under a more traditional loan. If the monthly payment is less than fair rental value for a similiar place, the mod will probably succeed, IMHO, at least until the balloon payment comes due (in a decade or three from now).
In any case, it is impossible for me to be “completely wrong” on this point, as my position is that the long term success rate of recent loan mods is simply unknown at this juncture. I acknowledge that there is a strong possibility of a huge number of loan mod failures-but I also think it’s quite possible that there will be a lot of successes.
Planet Reality,
First, lenders must set aside reserves for a loss the moment bank regulators determine the loan is not performing. All those loans that are 90 days late and not in some bogus modification program have been marked down on the lender’s books. Part of the reason Bernanke and others celebrate our mini stock market bubble is because it has allowed lenders to recapitalize to absorb losses. As people fail to participate in loan modification programs, lenders are writing down loans and foreclosing on people as evidenced by the increase in trustee sale flips.
Second, I disagree with your contention that I am blinded by my choice of renting and that I am engaging in wishful thinking. The data and analysis I present is what it is. I let people make up their own minds. I believe it, or I wouldn’t say it.
It doesn’t take clairvoyance to recognize that you are an owner, and you probably bought shortly before you started posting here. I appreciate your bullish outlook, but I also chalk it up to selective information absorption and wishful thinking because you are an owner.
I can accept what is happening but I can also point out injustice and the problems created by our expensive and half-baked solutions to problems created by a massive Ponzi Scheme.
If accepting what is happening means coming to the conclusion that the market is healthy, we are at the bottom, I am priced out forever, and so on, then I am not accepting that version of reality because it is nonsense.
Hope is not a strategy. Who exactly is employing this strategy, me or you?
What I am asking you to do is accept that the market was not “healthy” this decade, and won’t be “healthy” next decade either.
Your assumptions on bank balance sheet manipulation is also wishful thinking as are your assumptions of me.
Your core beliefs are misguided based on your hopes. Banks will not liquidate due to self preservation interest and interest rates will stay low as they did in Japan.
Someone needs a dose of exlax.
And that’s a good thing? Then we are truly doomed.
“…and interest rates will stay low as they did in Japan”
Indeed they did stay low in Japan. And real estate prices declined for 18 consecutive years under those conditions, in a country with far less available land than we enjoy in the United States.
That’s right, but don’t leave out the part where it’s still very expensive to buy a condo in Japan. That’s the rub. Now apply that fiscal policy in the US, which is Japan on steroids.
Hello Friends …
It’s been sometime since I posted in this venue. I’ve had some things happen in my life recently, and I’ve formed a new perspective on what’s important in my life. The housing bubble isn’t part of that anymore.
With that said; many of know what is inevitably going to happen in the coming months. However, for me, I am sick and tired of obsessing over it. I will continue to grow my business, save my money, pay my landlord, and quit obsessing over this ponzi scheme … then watch it all unfold.
Peace Out!
Good to hear from you Lee, I missed your astute observations.
I agree with you that the housing bubble will be with us for many years to come…sometimes it’s just better to tune it out and let the chips fall where they may. There will be no positive outcomes in the end. Millions of lives will be ruined, families torn apart and personal responsibility will forever be lost in this society.
On another note…looks like Greece is freezing government pensions. Hmmm, could that happen here one of these days?
We all need a break from time to time. This thing has dragged on painfully slow for awhile now.
I hope Lee will show up again after a short sabattical and resume his astute observations which are among my favorite.
Lee,
We felt your absence, and I hope you still stop by and offer your observations. I understand your desire to put everything behind you (remember Are You Over It??).
You have much to add to the conversation, and your comments benefit all who come here.
Lee, nobody has the energy to do this for the next 20 years which is what it will take.
Something big is coming in the next few months? Surely you jest, if you were serious you would have the energy to obsess.
What about the defaulting of CA on its debts? Would that count as some “big”?
Lee,
Missed your astute observations on this blog. I can certainly share your resignation over the sorry state of our housing market and this endless parade of nonsensical gov’t policies. My own anger and frustration have quietly given away to a sense of detached bemusement in the past two years. Stepping back and watching the whole thing as a distant spectator could be salubrious for one’s health. Nowadays I just feel like I am sitting in a large audience watching a Samuel Backett’s play on a gigantic stage.
Perhaps if we step back a little farther and begin to view our current situation from a historical perspective, we would be even less surprised – haven’t all the civilizations before our time unraveled and descended into chaos after a deceiving period of order and prosperity? Perhaps the post World War II economic prosperity and social stability in a large part of the world have been an anomaly rather than the norm? Thoughts like this do not help me make decisions on buying a house in OC, but they do somehow help me relax and as you said – peace out.
What an odd shaped house. It looks like it’s going to fall down the hill.
Good example of the inflated OC real estate market.
Besides speculators, I can’t believe any high earners would pay >$1m for a 6k sqft lot, with a new but depreciating house, next to the freeway.
There are not that many >200k jobs out there for the masses. The ones that make that kind of money want more for their hard earned cash. Even the realtors have to cut their fees and do more for less these days.
There are high end properties selling for their 2004 and 2005 comparable prices in the $1m-$4m range. It seems the prices for these houses fall relatively slow but will keep continue for a long time (?). This is obviously preferred by Washington over a quicker and more painful “reset” to fundamental values.
Construction (and materials in particular) are offered at significantly lower prices than 3-5 years ago
I looked at the price and stats for the house…some people are back in the fantasy land days of 05/06. A 2400 sq ft tract house near the freeway for 1.1 big ones. I know Irvine has a premium, but this is ridiculous.
For 1.1M, you can get brand new construction (almost 4000 sq. ft.) in a guard gated neighborhood in Laguna Niguel…you also don’t get the annoying freeway drone. That’s where I’d be looking for that price range.
Absolutely. Check out San Juaquin Hills in Laguna Niguel. Gated community in a very nice area. Even by today’s standard – after the RE bubble in OC is only half way deflated, people often forget what $1.1M can buy. IMHO Irvine is hopeless. I am suspecting the premium on Irvine RE over its surrounding area will continue to climb due to its appeal to non-local buyers with deep pockets. I remember one of the astute observers on this blog mentioned awhile back that the former Taiwanese president bought a couple of units in the North Korea Tower. Somehow I don’t think that is an isolated case.
Now I know this isn’t in Irvine, but check out the loss on this castle in France:
Russian Mogul Pays $50M to NOT buy a house
… seems fair. I have always understood a deposit to be something that you’re committed to. If the sale goes through, then the deposit goes toward the purchase price, but you never get a deposit back.
But it reminds me of the hundreds of times I’ve seen condo buyers decide not to purchase after their building has been built, and then have attempted to recover their deposits.