IHB News 8-21-2010

Meet up with us Sunday night at JT Schmids from 5:00 to 9:00. I hope to see you there.

Irvine Home Address … 5 FERN Cyn Irvine, CA 92604

Resale Home Price …… $499,900

Seize the day or die regretting the time you lost

It's empty and cold without you here, too many people to ache over

I see my vision burn, I feel my memories fade with time

But I'm too young to worry

These's streets we traveled on will undergo our same lost past

Avenged Sevenfold — Seize the Day

IHB News

We are having another event Sunday night at JT Schmids at the district. I will be addressing interested parties on how they can invest in the trustee sale market. I am expecting a smaller turnout, and I should be able to give each attendee individual attention to ask questions.

As always, we encourage everyone to attend and enjoy an evening of comradery and conversation about real estate. Appetizers and drinks will be served.

Huge Price Reduction

The burgeoning inventory in Irvine is starting to frighten buyers who really want to sell. Today's featured property was originally profiled on March 4, 2010 when the owner was asking $629,000. I noted back then that they were not likely to get their asking price. A few days ago, they lowered their asking price from $559,900 to $499,900 — a decrease of more than 10% and more than 20% from their original asking price. At its current price, and 4.5% interest rates, it is quite affordable.

This is exactly what the banks fear. If too much inventory hits the market — and it is still steadily climbing — sellers will start to lower price to find a buyer. If a great deal of inventory hits the market, the price reductions may get quite aggressive like today's featured sellers. That is how a market price drop happens.

Irvine Home Address … 5 FERN Cyn Irvine, CA 92604

Resale Home Price … $499,900

Home Purchase Price … $276,000

Home Purchase Date …. 10/1/1999

Net Gain (Loss) ………. $193,906

Percent Change ………. 81.1%

Annual Appreciation … 5.5%

Cost of Ownership


$499,900 ………. Asking Price

$17,497 ………. 3.5% Down FHA Financing

4.51% …………… Mortgage Interest Rate

$482,404 ………. 30-Year Mortgage

$97,813 ………. Income Requirement

$2,447 ………. Monthly Mortgage Payment

$433 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$42 ………. Homeowners Insurance

$50 ………. Homeowners Association Fees


$2,972 ………. Monthly Cash Outlays

-$393 ………. Tax Savings (% of Interest and Property Tax)

-$634 ………. Equity Hidden in Payment

$29 ………. Lost Income to Down Payment (net of taxes)

$62 ………. Maintenance and Replacement Reserves


$2,037 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$4,999 ………. Furnishing and Move In @1%

$4,999 ………. Closing Costs @1%

$4,824 ………… Interest Points

$17,497 ………. Down Payment


$32,319 ………. Total Cash Costs

$31,200 ………… Emergency Cash Reserves


$63,519 ………. Total Savings Needed

Property Details for 5 FERN Cyn Irvine, CA 92604


3 Beds

2 baths Baths

1,350 sq ft Home Size

($466 / sq ft)

4,500 sq ft Lot Size

Year Built 1974

1 Days on Market

MLS Number S607254

Single Family, Residential Property Type

El Camino Real Community

Tract Di


MUST SEE THIS…GREAT CURB APPEAL-Beveled Glass bay window – NEW THOMASVILLE CUSTOM KITCHEN! Cherry wood cabinets, Granite Counters,Frigidare Professional Series Stainless appliances-Vaulted Ceilings-New windows and Doors-Ceramic tile floors-Custom Lighting–Cul de sac–Private side enterance – Concrete tile roof – New roll-up Garage Door – Lush mature landscaping – Tile hardscaping – Large back yard, great for children – Best Schools…5 Deerfield pools..Tennis in the park…Standard sale –

From the previous post:

HELOC dependency

Day after day, I see sellers who have spent their home price appreciation as it came in as if it were a source of managed income. I believe this practice is so widespread that many who live in California consider it an entitlement; buy a house and you automatically get to double your spending power. With entitlement comes a social acceptance of the means to obtaining that entitlement — taking on excessive debt. To the chagrin of lenders, borrowers have also figured out that if things don't work out it is easy to walk away from debt and start over, and any social stigma associated with foreclosure and bankruptcy has vanished.

  • Today's featured property was purchased on 10/1/1999 for $276,000. The owners used a first mortgage and a $50,000 down payment — well, kind of…
  • On 10/13/1999 a stand-alone second for $50,000 was recorded on the property. The real down payment was $0.
  • On 5/9/2001 they refinanced with a $273,000 first mortgage reflecting a $3,000 decline in their mortgage balance.
  • On 2/13/2004 they went over to the dark side and refinanced for $313,000.
  • On 1/3/2005 they opened a stand-alone second for $90,000.
  • Total mortgage debt is $403,000.
  • Total mortgage equity withdrawal is $127,000.

I gave these owners a "D" because the $90,000 stand-alone second is more than just paying off a few credit cards; that is simply adding to a mortgage to get the money to spend which crosses the threshold of knowingly spending anticipated appreciation which is a "D" by definition. Since their withdrawal was relatively small by Irvine standards — $127,000 — and since they paid down the mortgage at times, one could argue for a "C."

Not a bad take for a $0 investment — plus, if they get their asking price, they stand to make another $200,000. They won't get it.

I have been inside both neighboring properties 1 Fern Canyon and 3 Fern Canyon, the latter in particular was much larger and very nice inside. It appears that the original listing was for $529,000 — a more realistic although still inflated asking price. Perhaps the owners feel they added $100,000 in value by installing an over-the-top Thomasville kitchen. ~giggles~

28 thoughts on “IHB News 8-21-2010

  1. Laura Louzader

    Does EVERY house and condo have to have an open kitchen? Jeez, am I sick of seeing these!

    When did it become the thing to do to cook in the middle of the living area and stare at a pile of dirty cookware while you eat dinner? Or are these kitchens even meant to be cooked in?

    I foresee a wave of renovations to close off these open kitchens, and a return to formal dining rooms.

    1. Concerned

      Can’t wait for the open bathroom fashion to come into phase.

      The article states this property is affordable – but at $3000.00 a month, that is still not affordable to a lot of people, especially in these times when anyone with a CD or index fund is not making a whole lot to help supplement any income. Not to mention, the employment market is still shakey.

      Price is still too high for me and I have a good paying job. Squatters, Government Intervention, more bailouts, … where is the true value of this house?

    2. Passerby

      “Does EVERY house and condo have to have an open kitchen? Jeez, am I sick of seeing these!

      When did it become the thing to do to cook in the middle of the living area and stare at a pile of dirty cookware while you eat dinner? Or are these kitchens even meant to be cooked in?”

      Especially the ones wedged into a corner of the ‘great room’ with a long eat-in bar. After looking at too many of them, they start to look like a fancy concession stand for the family room.

  2. Planet Reality

    It’s nice to see a young middle class family with 2 kids and a $100K income can afford a house with a yard in Irvine.

    That is very middle class in Irvine. Of course this is Irvine and the winning bid will have a 20% down payment making this even more affordable. I’m sure there will be a few 3.5% down payment offers but the 20% down offer will be accepted.

    This young family could buy a nicer house only 15 minute commute from Irvine, but Irvine is different. This same young family won’t even consider Riverside.

    1. IrvineRenter

      When updated 3/2 SFDs start selling for a cost of ownership less than rent — which this one is at $2037 per month — that will be very good for middle class families.

      1. Planet Reality

        When that family can get some nicer granite and better stainless steel apliances the world is going to be saved.

      2. SanJoseRenter

        A half million dollars for a 70’s small house on a small lot still sounds like WTF pricing to me.

        1. Planet Reality

          The monthly payments now are probably pretty close to what they were in 1999. In any event the 5.5% annual appreciation from 1999 price is not exactly jaw dropping.

  3. darms

    At $499,900 that comes out to $370 ft**2 which seems above your former metric of $300 ft**2. Is that primarily as this seems to be a small (1350 ft**2) house?

    1. IrvineRenter

      The small house does make the $/SF higher, but the big reason is the low interest rates. At 4.5% and no HOA or Mello Roos, the cost of ownership is quite low on a payment affordability basis.

  4. Laura Louzader

    Uh…. about the “open bathroom” phase…..

    It is well underway here in Chicago. Now tell me please, how is a 1 bedroom concrete-floored, concrete-ceilinged “brutalist” apartment with open heating ducts through the living area, concrete counters, and a bathroom that is a)completely open to the bedroom except for the WC stall, and b)has the shallow sheet-steel 6′ bathtub INSIDE the shower stall, worth $650,000?

    I mean, you don’t have to pay over a half million to live like this. Why didn’t the builder just pick up some old high rise housing projects on the cheap from the CHA and change a few fixtures?

  5. theyenguy

    I have two comments: First, I was too “callow” to have noticed the California Housing And Mortgage Equity Withdrawl Entitlement. Shame on me.

    Second, between August 9, 2010 and August 20, 2010 the world stock market, VT, fell 6% and the 20 to 30 year US Treasuries, TLT, rose 6 percent, creating a huge bubble that is about to burst. Dr Housing Bubble in article Southern California Home Sales Collapse By 21 Percent Year Over Year writes that home sales in Southern California have collapsed in near synchronization with the ending of tax credits and tighter lending guidelines. The July sales figures fell on a year over year basis by 21.4 percent. This is a significant drop in a summer month that usually has solid home sales. This is the proof that the market is merely being held up by massive government intervention and incredibly expensive tax credits that serve really no purpose except to provide a short term sugar high for the market.

    As you mention huge price reductions are starting to appear now as sales are starting to fall off. And soon there will be no sales when the global debt bubble bursts.

    Doug Noland of Prudent Bear writes on the Mother Of All Bubbles in his Prudent Bear August 20, 2010 article entitled Let’s Change The Debate stating: “I have posited that the 2008 bursting of the mortgage/Wall Street finance Bubble unleashed an even bigger “mother of all” bubble throughout global fixed-income marketplaces. I trace today’s Bubble back at least to the Greenspan Fed’s 1987 post-crash systemic reliquefication. Recent history of monetary disorder fueling serial boom and bust cycles is unequivocal. From my analytical perspective, we’re in the midst of history’s greatest and most perilous financial Bubble. And I am beside myself that nobody in a position of influence seems to care. We’ve witnessed momentous analytical and policy errors over the years – and these blunders are allowed to repeat themselves without thorough analysis and review. All this talk about fighting deflation and helping Main Street misses the point – and only feeds the Bubble. It is fundamental to our nation’s future that we stabilize the government debt Bubble and secure the integrity of our monetary system. The chorus of calls for larger deficits and greater Fed monetization is fueling distortions that risk financial calamity”.

    As I look at the chart of the 20 to 30 year US Government Bonds, TLT, I see just part of the massive amount of debt, BND. And I believe we have gone blown the debt bubble so large, there is going to be a mad rush to the exit doors to sell, where there will not be enough buyers for sellers, resulting in a liquidity evaporation, and a liquidity crisis.

    Out of the chaos, I believe that a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts. He will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.

    I believe the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve. Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have done servicing mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, and Annaly Capital Management, NLY, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.

    And I envision that a continuing falling EUR/JPY will result in further stock deflation, and then a stock liquidity crisis will also emerge, where there will not be enough buyers for sellers of stocks as well as bonds, causing small business failures and banks to become sorely decapitalized, resulting in the president of the ECB arising to be an “Eurozone credit seignior” and provider of liquidity to Europe. I also believe that framework agreements will be announced in Europe providing for fiscal federalism giving a whole new meaning to the term European Economic Governance. Yes, I foresee a greater fiscal union. Fiscal federalism will result in the Eurozone evolving into a region of global governance where national sovereignty is a concept of a bygone era.

  6. mike23w

    [quote]$629,000 -> $559,900 to $499,900″[/quote]

    i’m seeing similar large drops in the bay area. i wonder if this is the beginning of a trend.

      1. Chris

        Once the *homedebtors* realize that they can no longer get their equity back through price reduction, they’ll do the squatting to get *it* back 😉

        1. Swiller

          f worse comes to worse, that’s exactly what I intend to do, however, how long would it take for me to squat out my $100,000 down payment?

          Not nearly long enough, but long enough to save for a move. I have until 2012 to pull the trigger, which means I would have to default in 2011, I’ll need to ask my attorney friend for specifics to know when the last month to default is.

          No one has mentioned that yet…..will the Home Mortgage Debt Relief Forgiveness Act ending in 2012 result in a FLOOD of defaults?

    1. wheresthebeef

      This is definitely a step in the right direction. The half million dollar asking price still might scare some people away. But when you run the numbers, a 20% down and low 4% rates make this about the same monthly outlay as a 2 bedroom IAC rental. The big question is “are rents still too high?” That a topic for a whole different debate.

    1. Swiller

      That’s what greed gets you. They should have bought cheap Wal-Mart and Home Depot CRAP to replace the good stuff. Then they should have sold the other stuff to finance their move. That’s the LEGAL way.

      With a $1 million dollar home though, it’s more like simply bare greed than survival tactics. I only advocate stripping a home if you need the cash to survive. For all the wealthy, you already have enough, stripping the home isn’t worth your time.

  7. DarthFerret


    Unless it’s hidden in the calculations somewhere, I believe that you’re still not accounting for private mortgage insurance (PMI). Even on FHA loans, PMI is still required whenever the down payment is < 20% of the sale price. PMI payments are 0.5% of the loan amount annually plus an upfront fee of 1.5%. The annual fees can be canceled once LTV drops below 78%, IF the annual fee has been paid for a minimum of 5 years.


    For this featured property, the upfront fee would be ~$375, and the annual fee would be ~$2,600. These are not insignificant amounts, and they should be factored into the cost-to-own calculations.


    1. DarthFerret

      No idea what was going on with my math in the post above, but the upfront PMI fee would be ~$7,500 on this property, not $375.

      For new buyers that are trying to squeeze in to a home using FHA financing, this upfront PMI charge is substantial. It increases the loan costs (down payment + closing + points) by more than 25%.


  8. DarthFerret

    I’d like to point out yet another sub-$500K 3-BR SFR in Irvine, but I think the price drop on this one might be premature.

    They dropped their price $125K overnight! They are probably fishing for short sale offers, so they can start negotiating with their lender. I suspect that this house will sell in the $550-570K range within the next couple months, despite the location.

    If this is just a one-off incident, then we can all go back to our knitting for several more months. If, however, this is the start of something larger…


    1. DarthFerret

      Further on this property…

      If this does sell for < $500K, it could be a watershed event for Irvine home prices. This home is one of only 3 three-bedroom SFR's currently listed below $500K in Irvine, and it is selling for only $265/sf with no HOA. If people are starting to wonder if I am the listing agent for this property, please allow me to disabuse you of this notion. My point is NOT the relatively low price of this property. My point is what this could mean for the prices of OTHER Irvine properties if this one sells so low. This could signal the tipping point in Irvine's stubbornly high prices. Granted, this is not the most coveted location, the newest house, or the best curb appeal. But it's also far from the worst in any of those categories. This is a middle-of-the-road, upgraded Irvine SFR in a reasonable location. One might go so far as to say that this home is a stereotypical Irvine home (movie screening room notwithstanding). If this home sells below $500K, all those other comparable 3BR SFR's are going to have a very, VERY hard time justifying their $600K+ prices to that small pool of bargain-hungry buyers. -Darth

  9. irvine_home_owner

    “Granted, this is not the most coveted location, the newest house, or the best curb appeal. But it’s also far from the worst in any of those categories. This is a middle-of-the-road, upgraded Irvine SFR in a reasonable location.”

    I would slightly disagree. The Willows is probably lower than middle, if you’ve driven around that area, you can tell there is no HOA.

    While it does show hope for further Irvine softness, just like condos, this is the low end which has already shown 40%+ drops.

    It’s the “Irvine” middle that needs to start dropping ($800k to $1.2mil). If you ever see a Quail Hill SFR start listing for less than $800k, it probably means a meteor is on it’s way to Earth.

Comments are closed.