Author Archives: IrvineRenter

Open Thread 7-26-2008

Heartlight — Neil Diamond

Are the rich foreigners going to come buy our overpriced real estate? Not if they are from this planet. Perhaps ET and his buddies will come down to save us?

30 Dreamlight Irvine, CA 92603

Price:
$1,995,000

Beds:	4
Baths:	4
Sq. Ft.:	3,124
$/Sq. Ft.:	$639
Lot Size:	9,600 Sq. Ft.
Property Type:	Single Family Residence
Style:	French Country, Tuscan
Year Built:	2006
Stories:	1 Level
View:	City Lights, City, Hills, Mountain, Panoramic, Valley
Area:	Quail Hill
County:	Orange
MLS#:	U8003269
Source:	SoCalMLS
Status:	Active
On Redfin:	7 days

This is One of the Best Locations in Quail Hill !! Beautiful Single
Level, almost new home, located at the end of a Cul-de-sac on Largest
greenbelt in Vicara. 180 degree panoramic views of Irvine Valley,
Mountains, City Lights & Breathtaking Sunsets. Single loaded
street, with Laguna Canyon surrounding you. Over $300,000 in upgrades
including Gourmet Kitchen with 20 Ceilings, Built-in Buffet with glass
Front Cabinets, Wine Fridge, Warming Drawer, all upgraded appliances,
Brazilian Granite, Stone backsplash w/ Decorative Iron Details, Faux
finished walls, Wok Room with sink & much more! Travertine Counters
in all Baths with Designer styled showers. Custom Lighting, Closet
Organizers in all bedrooms and garage. Sound System thru-out, custom
chandelier & sconces in Dining Room. Master Suite Bath is in
limestone w/upgraded cabinets, built-in High-boy, his/hers closets
& more!

Did you notice how they wet the pavement and sidewalk to get a better picture, but they did it in the mid afternoon when it dries to quickly and you don’t get the reflective effects?

I imagine this is a nice property, although I can’t tell because there are no pictures. $639/SF? WTF? If you look at the comps on Redfin, you can quickly see this property is $500,000 overpriced. Who knows, perhaps ET will phone home and see if mortgage brokers on his planet will finance the deal…

Come back again
I want you to stay next time
‘Cause sometimes the world ain’t kind
When people get lost like you and me

I just made a friend
A friend is someone you need
But now that he had to go away
I still feel the words that he might say

Turn on your heartlight
Let it shine wherever you go
Let it make a happy glow
For all the world to see
Turn on your heartlight
In the middle of a young boy’s dream
Don’t wake me up too soon
Gonna take a ride across the moon
You and me

He’s lookin’ for home
‘Cause everyone needs a place
And home’s the most excellent place of all
And I’ll be right here if you should call me

Turn on your heartlight
Let it shine wherever you go
Let it make a happy glow
For all the world to see
Turn on your heartlight
In the middle of a young boy’s dream
Don’t wake me up too soon
Gonna take a ride across the moon
You and me

And home’s the most excellent place of all
And I’ll be right here if you should call me
Turn on your heartlight
Let it shine wherever you go
Let it make a happy glow
For all the world to see
Turn on your heartlight
In the middle of a young boy’s dream
Don’t wake me up too soon
Gonna take a ride across the moon
You and me
Turn on your heartlight now
Turn on your heartlight now

Heartlight — Neil Diamond

Live Fast

Life In The Fast Lane — The Eagles

During The Great Housing Bubble California’s homeowners were living life in the fast lane. Free money was readily available, and people were taking it and spending it with abandon. Some people got lucky and found the greater fool to bail them out, and some people did not. Today’s featured property was purchased with 100% financing at the top of the bubble from a HELOC abuser. Of course, the lender is left holding the bag.

819 Yorkshire Kitchen

Asking Price: $474,900

Income Requirement: $118,725

Downpayment Needed: $94,980

Monthly Equity Burn: $3,957

Purchase Price: $625,000

Purchase Date: 11/1/2006

Address: 819 Yorkshire, Irvine, CA 92620

Beds:	3
Baths:	3
Sq. Ft.:	1,481
$/Sq. Ft.:	$321
Lot Size:	–
Property Type:	Condominium
Style:	Mediterranean
Year Built:	1998
Stories:	2 Levels
Area:	Northwood
County:	Orange
MLS#:	S540579
Source:	SoCalMLS
Status:	Backup Offers Accepted
On Redfin:	6 days

End unit townhome with large wrap-around private patio. Nicely
upgraded: hardwood floors in formal living and dining rooms; beautiful
kitchen with white cabinets and black countertops; new stainless steel
appliances; tile flooring in kitchen and bathrooms; recessed lighting,
plantation shutters, closet mirror doors and organizers. Corporate
owned; easy to purchase; can close in 30 days.

Colons and semicolons: fancy.

Corporate
owned? Not according to the records. Perhaps she has a corporate deal where they will make up all the losses. I don’t know.

This property was purchased on 11/1/2006 with 100% financing. Now it is a short sale, and if it sells for its asking price (which it looks like it might,) the total loss on the property will be $178,594. Citibank will lose $125,000, the full amount of their second mortgage, and Wells Fargo will lose the remainder. Perhaps there is a corporate entity willing to pay off these lenders, or perhaps the realtor is making up the part about being corporate owned. Either way, it is a big loss for less than 2 years of ownership.

The subplot here is with the previous owners, the ones who were saved by the current owner. They lived like this:

The house was purchased on 8/24/2000 for $295,000. There was a $235,920 first mortgage and a $29,200 second, and the owners put 10% down.

On 9/9/2002 they refinanced for $265,000. No MEW.

On 10/7/2004 they refinanced for $333,700 pulling out their downpayment plus about $40,000 spending money.

On 11/21/2005 they opened a HELOC for $100,000.

These people were not as hardcore as some we have profiled, but they probably represent a typical family going about its business during the housing bubble. When they sold their property, they paid off their debts and had around $175,000 to spare. As you can see, the habit of mortgage equity withdrawal was reinforced by the market. I would not be surprised if they continued their somewhat subdued behavior in their next property. Why wouldn’t they? They got to live beyond their means for a time, and there were no repercussions.

There is a price to be paid for living in the fast lane. Californians are having their bills come due, and it appears as if they cannot pay them…

For anyone who believes we are anywhere near a bottom, look at the chart above (courtesy of Bubble Markets Inventory Tracking.) We are nowhere close to a bottom. It looks like we are having quite a rally in foreclosures.

He was a hard-headed man
He was brutally handsome, and she was terminally pretty
She held him up, and he held her for ransom in the heart
of the cold, cold city
He had a nasty reputation as a cruel dude
They said he was ruthless, they said he was crude
They had one thing in common, they were
good in bed
She’d say, ‘Faster, faster. The lights are turnin’ red.”
Life in the fast lane
Surely make you lose your mind, mm
Are you with me so far?

Eager for action and hot for the game
The coming attraction, the drop of a name
They knew all the right people, they took
all the right pills
They threw outrageous parties, they paid heavenly bills
There were lines on the mirror, lines on her face
She pretended not to notice, she was caught up
in the race

Out every evening, until it was light
He was too tired to make it, she was too tired
to fight about it

Life in the fast lane
Surely make you lose your mind
Life in the fast lane, everything all the time
Life in the fast lane, uh huh
Blowin’ and burnin’, blinded by thirst
They didn’t see the stop sign,
took a turn for the worse

She said, “Listen, baby. You can hear the engine
ring. We’ve been up and down this highway;
haven’t seen a goddam thing.”
He said, “Call the doctor. I think I’m gonna crash.”
“The doctor say he’s comin’, but you gotta pay him cash.”
They went rushin’ down that freeway,
messed around and got lost
They didn’t care they were just dyin’ to get off
And it was life in the fast lane
Life in the fast lane

Life In The Fast Lane — The Eagle

Life's Been Good

Life’s Been Good — Joe Walsh

I nominate today’s featured song as the ode to The Great Housing Bubble. If you drank the kool aid, I mean really drank the kool aid (like today’s owner), life must have been very good. All this free money allowing you to do whatever you want whenever you want. Life must have been very good to those who lived off their houses. There is nothing wrong with living well, and there is nothing wrong with becoming accustomed to a certain style of life, it just isn’t very wise to build this life on an unsustainable foundation of Ponzi Scheme financing — it will collapse, and you will lose the life to which you have become accustomed.

Perhaps I should nominate Tequila Sunrise by the Eagles? The hangover must be a killer…

16 San Clemente Kitchen

Asking Price: $489,000

Income Requirement: $122,250

Downpayment Needed: $97,800

Monthly Equity Burn: $4,075

Purchase Price: $289,500

Purchase Date: 6/21/2000

Address: 16 San Clemente, Irvine, CA 92602

Beds:	3
Baths:	3
Sq. Ft.:	1,664
$/Sq. Ft.:	$294
Lot Size:	–
Property Type:	Condominium
Style:	Bungalow
Year Built:	2000
Stories:	2 Levels
Area:	Northpark
County:	Orange
MLS#:	S540591
Source:	SoCalMLS
Status:	Active
On Redfin:	5 days

Beautiful Guard Gated Community with 5 Pools. Enjoy Real Hardwood
Floors, Crown Moulding, Surround Sound, In Wall Speakers, Custom Paint,
Finished Framed Windows & Custom Window Treatments, Nice Master
w/Walk-n-Closet & Small Balcony. Finished Garage w/Built in
Storage. 3rd Bedroom is currently a loft w/Built in Bookcases. Lots of
extra parking. Walk to Elem. School. Sep. Laundry Room upstairs.
Amazingly quiet and safe neighborhood. Highly sought after floor plan,
rarely on the market.

Highly sought after floor plan,
rarely on the market. This kind of nonsense statement always annoys me.

Sep. Laundry Room upstairs. What is going on with this sentence? Why abbreviate separate? Perhaps the realtor can’t spell it? Why capitalize Laundry Room? In fact, why did the realtor switch between Title Case and sentence case throughout the description?

Have you had your fill of HELOC abuse stories yet? I am constantly amazed at how common this behavior was. Today’s owner is going to make $200,000 on the sale and fail to pay off the bank. Let’s look at what she did:

The house was purchased on 6/21/2000 for $289,500. There was a $231,200 first mortgage and a $58,600 downpayment (20%).

On 11/5/2001 she refinanced with a $235,000 first mortgage and opened a HELOC for $85,000.

On 2/4/2004 she opened a HELOC for $150,000. So far she was conservative by local standards, but the kool aid must have tasted good because she went all out afterward.

On 4/30/2004 she took out a stand-alone second for $233,500 and paid off the HELOCs.

On 9/16/2004 she opened a HELOC for $250,000.

On 4/20/2006 she opened a HELOC for $395,600.

On 9/27/2006 she refinanced with a $559,200 first mortgage.

On 9/27/2006 she opened a HELOC for $84,860. Based on her history, it is safe to assume she spent it.

The total property debt is $644,060.

The total mortgage equity withdrawal including her downpayment is $412,860

Countrywide was her last refinance, so they will endure the losses, or perhaps it is the CDO these loans were packaged into. Who knows? If this property sells for its asking price, the total gain on sale will be $170,160. The total loss to Countrywide will be $184,400.

This woman is obviously a serial refinancer whose spending is out of control. I can understand the borrower. She is just acting like a child trying to get whatever she wants without regard to the consequences, foolish but understandable. I can understand the lenders. They did not care if she defaulted because these losses are passed on to some investor somewhere who doesn’t have the slightest clue what they are investing in. I can understand the investors because they were buying a product given a AAA rating from a rating agency who is supposed to understand this stuff. I can understand the rating agencies that were running statistical analysis on data from a bull market. As long as the bull market continued, everything would be OK. Of course, the ratings agencies were so far removed from the micro circumstances of the individual borrowers that they had no idea whether or not people could afford their payments to keep the bull market going. Everyone was doing the right thing in their little world, and the system was too complex and unwieldy to hold together. Those few people who saw this and warned of its collapse were ignored because everyone involved was making money and the religion of real estate said prices always go up, so we built an enormous financial bubble. All perfectly understandable and totally wrong.

BTW, you have to love the album cover for this one.

I have a mansion but forget the price
Ain’t never been there, they tell me its nice
I live in hotels, tear out the walls
I have accountants pay for it all

They say I’m crazy but I have a have a good time
I’m just looking for clues at the scene of the crime
Life’s been good to me so far

My Maseratti does one-eighty-five
I lost my license, now I don’t drive
I have a limo, ride in the back
I lock the doors in case I’m attacked

I’m making records, my fans they can’t wait
They write me letters, tell me I’m great
So I got me an office, gold records on the wall
Just leave a message, maybe I’ll call

Lucky I’m sane after all I’ve been through
I can’t complain but sometimes I still do
Life’s been good to me so far

[Instrumental Interlude]

I go to parties sometimes until four
It’s hard to leave when you can’t find the door
It’s tough to handle this fortune and fame
Everybody’s so different, I haven’t changed

They say I’m lazy but it takes all my time
I keep on goin’ guess I’ll never know why
Life’s been good to me so far

Life’s Been Good — Joe Walsh

Losing My Religion

Losing My Religion — REM

Wikipedia defines faith as “a belief in the trustworthiness of an idea that has not been proven.” Religious faith is a collection of beliefs based on ideas which are neither testable or provable. If you accept the core beliefs of a religion on faith, you generally get a feeling of peace and well being that serves to reinforce the “correctness” of the acceptance of faith. Most religions build on these core beliefs and assemble a series of ancillary beliefs for guiding human behavior known as religious dogma. California has a major cultural “religion” that cuts across traditional denominational lines — the religion of real estate.

Baptism into the real estate religion is a metaphorical drinking of kool aid. The fundamental belief of this religion is a belief in the “higher power” of market forces — real estate values always go up. Once you accept this fundamental belief, the dogma of real estate can take over. The dogmatic practices of real estate include buying at any price and borrowing any sum you can. Since real estate always goes up, it doesn’t matter how much you pay because you can always sell later for more money. Value has no meaning. Also, since you can pay back any borrowed sums when you sell, it doesn’t matter how much you borrow or under what terms. Fabricating income on a mortgage application to qualify for a larger loan is perfectly acceptable behavior. Debt is something to be serviced not retired. It is foolish to borrow under terms which pay down a mortgage because equity appears through appreciation. There is no need to build equity through retiring debt. Besides, paying down debt is a slow process, and building equity through appreciation is much faster and requires less sacrifice. The lure of kool aid intoxication is very strong. It appeals to our fantasies of unlimited wealth and spending power.

People who accept religious tenets often face a crisis of faith at some point in their lives. John Spong wrote a book titled “Why Christianity Must Change or Die” in which he devotes a chapter to the Jewish exile to Babylon. It was a cultural crisis of faith where many of the fundamental beliefs of Judaism were challenged. California’s religion of real estate is facing a similar crisis. The fundamental belief in endless house price appreciation is being challenged, and all the associated beliefs are similarly being called into question. Right now, most people are still in denial clinging to their faith in the forces of the housing market. Many will come to lament the Day the Market Died, many will continue to cling to Southern California’s Cultural Pathology, and many will bargain for a renewal of the The California Social Contract.

Any core religious idea that can be empirically tested will face its ultimate challenge. The collapse of The Great Housing Bubble will prove that real estate values do not always go up, and in fact, real estate values can decline significantly. All of the associated beliefs built on this fundamental premise are equally false. People will be forced to examine the beliefs which guide their purchase decisions and their relationship to debt financing. Like any other crisis of faith, the loss of comforting and secure beliefs is emotionally painful, and the cleansing process will take time. Will kool aid intoxication survive? Probably, but there will be fewer faithful until meaningful appreciation returns and the army of realtors missionaries sets out to convert a new generation.

Figuratively, today’s featured property is a church (just like all other houses in California.) The fact that it is located on Church Street is testament to the faith the buyer had in its continuing appreciation. Based on the resale history, there was reason to believe prices would always go up. Our faithful owner borrowed 100% of the money necessary to worship here.

157 Church Place Front 157 Church Place Kitchen

Asking Price: $649,900

Income Requirement: $162,475

Downpayment Needed: $129,980

Monthly Equity Burn: $5,415

Purchase Price: $815,000

Purchase Date: 1/30/2007

Address: 157 Church Place, Irvine, CA 92602

Beds:	4
Baths:	3
Sq. Ft.:	2,000
$/Sq. Ft.:	$325
Lot Size:	–
Property Type:	Single Family Residence
Style:	Other
Year Built:	1998
Stories:	2 Levels
Area:	West Irvine
County:	Orange
MLS#:	P647342
Source:	SoCalMLS
Status:	Active
On Redfin:	4 days

BANK OWNED BARGIN (NOT A SHORT)! THIS 4 BEDRM HOME HAS 3 BEDRMS
UPSTAIRS AND 1 BEDRM DOWNSTAIRS. FIREPLACE & ENCLOSED BACKYARD.
QUIET LOCATION IN GREAT AREA OF IRVINE. WALKING DISTANCE TO AWARD
WINNING MYFORD ELEMENTARY. NO HOA. CLOSE TO TUSTIN MARKETPLACE SHOPS
& RESTAURANTS********AGENTS: PLEASE SEE REMARKS********

It is interesting that 100% financing was still available in 2007. This is a reason the collapse was delayed until the credit crunch really took hold in August of 2007. The sales history shows a number of speculators making good money off this property. Now the bank gets to be the bagholder for the first big drop in value.

Sales History

Dec 30, 1998	$290,000	—
Dec 07, 2001	$388,000	10.4%/yr
Jun 25, 2004	$735,000	28.5%/yr
Jan 30, 2007	$815,000	4.1%/yr
Jun 13, 2008	$715,138	-9.1%/yr

Each day when I estimate the loss to the lender (notice they are generally the ones losing money,) I base my calculation on the original loan amount. The actual loss to the lender is usually much higher because while the property was going through foreclosure and leading up to its eventual sale, the lender was not receiving any payments, and this loss of revenue was being added to the loan balance on the lender’s books. When this lender foreclosed, they paid $715,138 at auction despite the fact that the first mortgage was originally $652,000 (the second was a total loss.) The additional $63,138 represents the outstanding loan balance on the first mortgage on the date of auction. Some of this might be negative amortization, but the majority will be missed payments and servicing fees. I will continue to calculate losses the way I have been in the past, but I want everyone to realize that the real losses may be considerably more.

If this property sells for its current asking price, and if a 6% commission is paid, the total loss to the lender will be $204,094 (plus the $63,138 in lost interest and fees.)

Californian’s may never lose their religion when it comes to real estate, but I suspect in the future the lenders will be a bit more weary when it comes to providing the baptismal kool aid.

Oh, life is bigger
It’s bigger than you
And you are not me
The lengths that I will go to
The distance in your eyes
Oh no, I’ve said too much
I set it up

(chorus)
That’s me in the corner
That’s me in the spotlight, I’m
Losing my religion
Trying to keep up with you
And I don’t know if I can do it
Oh no, I’ve said too much
I haven’t said enough
I thought that I heard you laughing
I thought that I heard you sing
I think I thought I saw you try

Every whisper
Of every waking hour I’m
Choosing my confessions
Trying to keep an eye on you
Like a hurt lost and blinded fool, fool
Oh no, I’ve said too much
I set it up
Consider this
Consider this
The hint of the century
Consider this
The slip that brought me
To my knees failed
What if all these fantasies
Come flailing around
Now I’ve said too much
I thought that I heard you laughing
I thought that I heard you sing
I think I thought I saw you try

But that was just a dream
That was just a dream

(repeat chorus)

But that was just a dream
Try, cry, why try?
That was just a dream
Just a dream, just a dream
Dream

Losing My Religion — REM

Dead Town

Deadhead — Devin Townsend

Our market is experiencing wave after wave of pain. Will the owners endure, or will they give in and sell? It depends on the circumstances and the constitution of each owner, but those with little to lose are giving up without much of a fight, and they are passing the pain on to the lenders. Today’s featured property is a classic illustration of kool aid intoxication and bubble behavior. The owner bought with 100% financing late in the rally, she managed to pull out a bit of spending money, and now that prices are crashing she is bailing out and leaving the losses to someone else. The losses to the lenders are accelerating along with the decline in prices. This one is gonna hurt…

46 Townsend Kitchen

Asking Price: $574,900

Income Requirement: $143,725

Downpayment Needed: $114,900

Monthly Equity Burn: $4,790

Purchase Price: $764,000

Purchase Date: 4/22/2005

Address: 46 Townsend, Irvine, CA 92620

Beds:	3
Baths:	4
Sq. Ft.:	1,900
$/Sq. Ft.:	$303
Lot Size:	–
Property Type:	Condominium
Style:	Spanish
Year Built:	2005
Stories:	2 Levels
Area:	Woodbury
County:	Orange
MLS#:	S540511
Source:	SoCalMLS
Status:	Active
On Redfin:	3 days

Best value in Woodbury. 3 bedroom, 3 bath, large living room, kitchen
features granite counters and dark maple cabinets, hardwood flooring,
luxurious master bath with dual sinks, built-ins in master closet.
Seller is installing new stove, diswasher and microwave.

I have seen this floorplan, the dual master layout is interesting, but not practical for a conventional family. I could see a roommate situation working out, particularly if one of the roommates has a child. Also, a household with a single child might like it, particularly if the in-laws visit frequently. There is no yard, but you do get a claustrophobic patio surrounded by two-story house elements. It feels like a cave.

Today’s seller used 100% financing, so any money pulled out of the property was the bank’s money. Their rate-of-return would be infinite as they have zero initial investment. On 5/4/2006 almost 1 year after the initial rental purchase, the owner refinanced with a $688,000 first mortgage and a HELOC for $86,000. Apparently, she was not happy with only getting $10,000 spending money out of her little investment (she had owned a whole year, surely she should have made $100,000, right?) On 5/23/2006, she must have found a “better” appraiser because she was able to open a HELOC for $172,000 which enabled her to pull out $96,000. This left a total debt on the property of $860,000. If the lender can get the asking price, and if a 6% commission is paid, the total lender loss will be $319,594. That is almost 30% off the peak valuation for this property.

Here is another property in Woodbury looking to drop below the $300/SF mark. In early 2007, I saw one of these properties asking $3,000 per month in rent which based on similar properties at the time was a reasonable rental rate. Assuming $3,000 per month is a valid rental rate, and assuming this rate will not decline in the face of a deteriorating economy, the value of this property based on its rental cashflow is around $480,000. The asking price of this property is within $100,000 of its cashflow value.

Those homeowners who are holding on and those holding their breath because they are underwater have people like today’s seller to thank for the continuing decline in prices. In a normal market (if there is such a thing in California) this property would not be for sale. It is only being sold because the owner can’t afford it and the values have dropped too much to warrant hanging on. As prices drop further, it creates more owners like this one. In short, it is a downward spiral. After our brief summer leveling period, expect another big drop this fall and winter. We are not at the bottom yet.

Devin Townsend You are a sun Goddess
Will you save me?
Hooray for you.
Hooray.
Now the rain it comes, the rain it blurs the grey line
…the grey line…the Greyhound home
You are so vicious (Hurt me, I can take it)
Cause it’s all in the heat of the moment,
It’s all in the pain
Sonar, sonar again…
It’s on again, (got no wings…gossamer wings…) …on again…
You are a sun Goddess!!!
Will you save me? …babe…babe…babe…
Cause it’s all in the heat of the moment
It’s all in the pain!!!
So give in to the heat of the moment
Give in to the pain!!!