Author Archives: IrvineRenter

Stepping Down Update 1

Since our original post on August 2, our race to the bottom has been continuing. Our low price leader is really starting to race now. Their new asking price is $515,000. That is a full $100,000 below their 2004 purchase price. Wow!
.

There’s a lady who’s sure
All that glitters is gold
And she’s buying a stairway to heaven.
When she gets there she knows
If the stores are all closed
With a word she can get what she came for.
Ooh, ooh, and shes buying a stairway to heaven.

Stairway to Heaven — Led Zepplin

Link to Live Performance Music Video

Link to Studio Version

Buying a property on Stepping Stone was supposed to be the Stairway to Heaven of home ownership. Right now the staircase seems to be leading to Hades.

The four listings which follow are identical floorplans for sale. It is your classic race to the bottom.

Asking Price: $629,900

Purchase Price: $615,500

Purchase Date: 12/10/2004

Address: 112 Stepping Stone, Irvine, CA 92603

1st Loan $488,784
2nd Mtg. $122,196
Downpayment $4,520

Beds: 3
Baths: 3
Sq. Ft.: 1,553
$/Sq. Ft.: $406
Lot Size: –
Year Built: 2004
Stories: 3
Type: Condominium
View: Hills
County: Orange
Neighborhood: Quail Hill
MLS#: S496508
Status: Active
On Redfin: 17 days

From Redfin, “Great property – Great location, surrounded by mountain views, greenbelts and wide open spaces. Decorator colors, epoxy gar flrs, full bedroom/bath downstairs perfect for home office. French doors, front porch, totally move-in. All white kitchen with added cabinets and rear balcony with view. Large living room with fireplace and dining room. Each bedroom has it’s own bath”

As you can see, this was a typical 2004 100% financing deal (well a 99.27% financing deal). And I suppose this isn’t technically a 2004 rollback, yet, but with $14,400 in negotiating room, it probably will be. If this seller manages to get full asking price, and assuming a 6% commission, they still stand to lose their whopping $4,520 investment, and the bank will eat an additional $27,914.

Let’s see how the neighbors are doing…

Asking Price: $639,800

Purchase Price: $417,500

Purchase Date: 12/23/2003

Address: 91 Stepping Stone, Irvine, CA 92603

1st Loan $333,390
2nd Mtg. $62,510
Downpayment $21,100

Beds: 3
Baths: 3
Sq. Ft.: 1,553
$/Sq. Ft.: $412
Lot Size: –
Year Built: 2004
Stories: 3
Type: Condominium
View: Hills, Park or Green Belt
County: Orange
Neighborhood: Quail Hill
MLS#: S485936
Status: Active
On Redfin: 89 days

From Redfin, “Amazing ‘Mame’ award winning model * * Dramatic floorplan * * Enormous Great room/fireplace & large viewing Patio * * Gourmet Kitchen/ Granite Island * * Granite counter top with 6’splash * * Upgraded Dishwasher * * 3 huge bedrooms suites/ bathrooms * * ceiling fans in every bedroom * * Designer Paint * * surround sound * * Upgraded carpet and ceramic tile * * custom window coverings * * country club facilites-pools, spas, parks-tennis cts, * * Award winning Irvine schools * * Seller motivated. Will look at all offers. “

I guess the MAME (Major Acheivement in Marketing) award isn’t helping the marketing of this unit.

Enough with the asterisks already…

This unit is priced $10,000 higher, and it has been on the market almost 90 days. This strongly suggests the price is too high. This doesn’t make the asking price of 112 Stepping Stone look to promising.

How about this one:

Asking Price: $645,000

Purchase Price: approximately $250,000

Purchase Date: unknown

Address: 131 Stepping Stone, Irvine, CA 92603

Beds: 3
Baths: 3
Sq. Ft.: 1,553
$/Sq. Ft.: $415
Lot Size: –
Year Built: 2004
Stories: 3
Type: Condominium
View: Hills, Mountain, Park or Green Belt
County: Orange
Neighborhood: Quail Hill
MLS#: P575773
Status: Active
On Redfin: 86 days

From Redfin, “Gorgeous 3 Bed & 3 Bath Townhome. It is situated away from the street, View of Hills, Green belt, Park, Prime location. One bed/full bath on downstairs, large gourmet kitchen with solid granite counter top w/ full back splash, Upgraded ceramic tile, New Paint, Upgraded Lush Carpet, Relaxing Balcony w/ view. Assoc. pool, spa, BBQ , fitness center, tennis ct. Close to award winning Irvine school, village shopping center. Easy access to #405, #133 & #5.”

Yet another gourmet kitchen…

This seller is sitting on plenty of equity at this point, so they don’t seem too motivated. It is probably why they are in third place on the race to the bottom.

Asking Price: $650,000

Purchase Price: approximately $420,000

Purchase Date: unknown

Address: 171 Stepping Stone, Irvine, CA 92603

Beds: 3
Baths: 3
Sq. Ft.: 1,553
$/Sq. Ft.: $419
Lot Size: –
Year Built: 2003
Stories: 2
Type: Condominium
County: Orange
Neighborhood: Quail Hill
MLS#: S471673
Status: Active
On Redfin: 195 days
Unsold in 90+ days

From Redfin, “Premier Quail Hill condominium with upgraded kitchen. Granite countert ops and stainless steel appliances, ceiling fans, hardwood floors, ceramic floors & berber carpet. Main level room can be used as an office or 3rd bedroom. Unit has large storage area in garage and spacious front entry porch. This unit is tucked away from traffic noise. Washer/Dryer/Refrigerater included. A must see!!!! Seller will consider all offers.”

Wow!!!! Four exclamation points. This realtor must be very excited about this listing.

As you can see, this unit is bringing up the rear on our race to the bottom. At 195 days on the market, perhaps the seller should consider lowing the price. The market is obviously not where this seller wants it to be.

These races to the bottom are very revealing. You can see how the sellers financing terms and purchase price plays into their motivation and their asking prices. One of these units will sell eventually, and it will set the comps for the other three. I would guess a sale will take place under $600,000, but there are still some buyers out there who can get the necessary financing. These units are on the edge of the abyss of the financing picture. Units smaller and less expensive than this are not moving at all. Do you think one of these sellers will get lucky?

Unforgiven

New blood joins this earth

And quickly he’s subdued

Through constant pained disgrace

The young boy learns their rules

With time the child draws in

This whipping boy done wrong

Deprived of all his thoughts

The young man strugggles on and on he’s known

A vow unto his own

That never from this day

His will they’ll take away-eay

What I’ve felt

What I’ve known

Never shined through in what I’ve shown

Never be

Never see

Won’t see what might have been

What I’ve felt

What I’ve known

Never shined through in what I’ve shown

Never free

Never me

So I dub thee UNFORGIVEN

Unforgiven — Metallica

Forgiveness is never an easy thing. There are some things that seem so wrong you don’t want to let people “off the hook” or you know you will see the behavior again. In the end, holding on to anger is far more destructive to the angry person than it is to the person to whom the anger is directed. Forgiveness is something one should do for their own sake.

The almost unbelievable irresponsibility with debt displayed by homeowners like today’s is so amazing, so far beyond any form of excusable behavior, that you have to wonder if it is right to forgive it. If someone borrows hundreds of thousands of dollars against their home and ends up with a short sale requiring the forgiveness of this debt, how do you feel about it? Remember America’s Debtor Prisons or Are Short Sales Moral? These questions do not go away. Does a really extreme case change your opinion about the subject? Let’s see…

Asking Price: $1,195,000

Income Requirement: $298,750

Downpayment Needed: $239,000

Purchase Price: $397,000

Purchase Date: 7/20/2001

Address: 9 Soaring Hawk, Irvine, CA 92614

Beds:	4
Baths:	2.5
Sq. Ft.:	2,960
$/Sq. Ft.:	$404
Lot Size:	4,462 sq. ft.
Type:	Single Family Residence
Style:	Traditional
Year Built:	1984
Stories:	Two Levels
Area:	Woodbridge
County:	Orange
MLS#:	S517428
Status:	Active
On Redfin:	12 days

Beautiful Woodbridge home has been expanded over 1000 sq ft to create an extra Large Kitchen, Great Room, Huge Master Bedroom complete with a Walk In Closet & a full size Customized Master Bath. Updated Kitchen includes Newer Appliances, Stainless Steel Refrigerator, Recessed Lights & Granite tile counters. This home is situated on a Private Lot with Gated Access to the Front Door. Walking distance to Parks, Pools and award winning Irvine Schools.

So lets walk through the mortgage history of this property and see just how bad HELOC abuse can get…

7-20-2001 The house was purchased for $397,000 with a first mortgage of $317,600 and a downpayment of $79,400.

11-07-2001 HELOC for $48,000 taking out over half of downpayment.

8-26-2002 Refinance for $360,000.

11-26-2002 HELOC for $29,000

11-26-2002 HELOC for $71,000

6-18-2003 HELOC for $56,000

6-18-2003 HELOC for $100,000

6-1-2004 Refinance for 517,500 –probably paid off HELOCs at this point.

10-22-1004 HELOC for 89,900.

4-21-2005 Refinance first mortgage of $624,000

4-21-2005 Refinance second mortgage of $156,000. Total debt of $780,000 at this point.

9-12-2006 Refinance first mortgage of $948,750.

9-12-2006 Refinance second mortgage of $189,750. Total debt of $1,138,500. No HELOCs

So there you have it. This homeowner went to the housing ATM 8 times over a 5 year period and pulled out $820,900. Now they have a property priced at a WTF asking price hoping they can find some knife catcher to come pay off their bills. Even if you wanted to buy this house, would you do it knowing that you were about to pay for $820,900 worth of consumer spending (They may have spent $200,000 on the renovation, but please spare me the BS about investment or illness or any of that crap. Look at the pattern of withdrawals. They spent it, and you know it.) I suppose the lender can always hope these people stashed some of this money away somewhere to cover the shortfall at the closing table. Doesn’t seem very likely, does it?

Consumed by greed, the homedebtors will be seeking forgiveness for their debts and sins. Our major religions believe forgiveness is a good idea, or should this behavior remain unforgiven?

Our Father

which art in heaven,

Hallowed be thy name.

Thy kingdom come.

Thy will be done

in earth, as it is in heaven.

Give us this day our daily bread.

And forgive us our debts,

as we forgive

our debtors.

And lead us not into temptation,

but deliver us from evil:

[For thine is the kingdom, and the power,

and the glory, for ever. Amen.]

The Lord’s Prayer — Matthew 6:9-13

I bet you didn’t think I could get Metallica and the Lord’s Prayer in the same post and have it make sense.

😉

That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂

Rain

This one goes out to a struggling realtors lurking on the blog. We feel for you…

Out of work, I'm out of my head

Out of self respect, I'm out of bread

I'm underloved, I'm underfed, I wanna go home

Will you tell the folks back home I nearly made it

Had offers but didn't know which one to take

Please don't tell 'em how you found me

Don't tell 'em how you found me

Gimme a break, give me a break

Seems it never rains in southern California

Seems I've often heard that kind of talk before

It never rains in California

But girl don't they warn ya

It pours, man it pours

It Never Rains in Southern California — Albert Hammond

Today I want to look at the rental market and share with you some properties that caught my eye as good deals in the market. I have not been to any of these properties, so I don't know anything more than what is shown on the internet. A careful inspection of the property may reveal it to be less of a deal than it appears. Also, as a way to relate these properties to fundamental valuations in the for-sale market, I will provide links to comparable properties.

To start, I will share with you one of the craigslist scans I use to get a quick feel for changes in the rental market. I will search for 4 bedrooms in Irvine under $3,000. By limiting the search to 4 bedrooms, I avoid all the Irvine Company spam advertising their apartments, and by setting the limit under $3,000, I get a small enough list to tell at a glance if product availability is growing or shrinking. This scan turns up the following properties that appear to be a good deal:

$2500 / 4br – 4bed/2.5bath w/2088 sqft in Northwood

$2500 / 4br – 3 BR 1 Office Almost New Home in Irvine

$2550 / 4br – Spacious University Park Townhouse

The one at 4601 Kimberwick Circle (second one on the list) looks like a particularly good deal, IMO.

One interesting note is the decline in prices on these 4 bedroom properties. Last year, it was difficult to find a 4 bedroom under $2,800. As you can see above, the leading edge of the 4 bedroom market has dropped to $2,500. This would put the valuation of older, not-updated 4 bedroom properties at around $400K based on a 160 gross rent multiplier. So what are asking prices on properties meeting this description in Irvine?

Price: $650,000

4242 Rafael ST, Irvine, CA 92604

Beds:	4
Baths:	2.5
Sq. Ft.:	1,800
$/Sq. Ft.:	$361
Lot Size:	5,139 sq. ft.
Type:	Single Family Residence
Style:	Contemporary
Year Built:	1975
Stories:	Two Levels
Area:	El Camino Real
County:	Orange
MLS#:	S514960
Status:	Active
On Redfin:	42 days

Beautiful family home in great family neighborhood. Three lots from greenbelt leading to park, pool and elementary school. Centrally located in the well kept community of Greentree on a lightly travelled street and away from busy streets. A sunny back yard with jacuzzi invites gardening and relaxing. A downstairs master bedroom increases this home's appeal. A newer shake-like tile roof, remodeled kitchen and many other upgrades add to the quality of life for the new owners.

Can you spot the misspelled word?

Price: $640,000

148 SAINT JAMES #56, IRVINE, CA 92606

Beds:	4
Baths:	3.5
Sq. Ft.:	–
Lot Size:	–
Property Type:	Single Family Residential
Area:	Out of Area
County:	Orange
MLS#:	07-235205
Status:	Active
On Redfin:	69 days

BEAUTIFUL GATED 4+ 3.5 TWO STORY IN PARK LANE IRVINE. BRING ALL OFFERS!!!! POSSIBLE SHORT SALE /LENDERS APPROVAL. PROPERTY AS IS, NEEDS A LITTLE PAINT. LOWEST 4 BED IN THE TRACT!!!HOA FEE LOW. GREAT COMMUNITY. A MUST SEE!!

ALL CAPS, multiple exclamation points. This is written by someone with an advanced degree in awful real estate writing. I wonder if they go away to seminars to learn to write this poorly, or if they just copy each other's bad habits.

As you can see, the leading edge of pricing for these properties is around $650,000, and based on the comparative rents from the craigslist properties, the values for an owner-occupant are closer to $400,000. At the peak, prices were double (100% overvaluation) their fundamental worth based on rents. Now that properties have declined about 20% from the peak, the level of overvaluation is somewhat less. We are a bit less than half way to the point where prices in the market are at parity with rental valuations. Of course, if rents decline — and they appear to be showing some downward pressure — then valuations will drop.

When I did my initial Predictions for the Irvine Housing Market I did not factor in the potential impact of a severe recession causing a decline in rental rates.

In the post How Bad Could Bad Get?, I did.

BTW, I lifted the chart below from Pigginton.com. San Diego peaked 1 year before we did. Will Irvine's chart look like this in 2008?

While we are looking at rain, let me share another video with you…

"I'm Singing in the Rain", Gene Kelly

Under $200K

I hear the train a comin’

It’s rollin’ ’round the bend,

And I ain’t seen the sunshine,

Since, I don’t know when,

I’m stuck in Folsom Prison,

And time keeps draggin’ on,

But that train keeps a-rollin’,

On down to San Antone.

Well, if they freed me from this prison,

If that railroad train was mine,

I bet I’d move out over a little,

Farther down the line,

Far from Folsom Prison,

That’s where I want to stay,

And I’d let that lonesome whistle,

Blow my Blues away.

Folsom Prison Blues — Johnny Cash

Today’s property is the lowest priced unit in Irvine, and it is very near the breakeven point for an owner occupant as evidenced by these comparative rental units asking $1,095 and $1,195. The problem is the same one all small condos face: who wants to be an owner-occupant? This unit is a tiny prison, and the person who buys it is going to be trapped there for the duration of the bear market. They would probably be listening to a lot of Johnny Cash…

Asking Price: $179,500

Income Requirement: $44,875

Downpayment Needed: $35,900

Purchase Price: $191,826

Purchase Date: 6/11/2007

Address: 171 Streamwood, Irvine, CA 92620

Beds:	0
Baths:	1
Sq. Ft.:	415
$/Sq. Ft.:	$433
Lot Size:	–
Type:	Condominium
Style:	Other
Year Built:	1977
Stories:	One Level
View(s):	Trees/Woods, Water
Area:	Northwood
County:	Orange
MLS#:	S517557
Status:	Active
On Redfin:	9 days

Great Location at a Fantastic Price! Enjoy the sounds of meandering streams from one of the least expensive condos in all of Irvine. This studio unit is on the ground floor within a great community close to shopping, dining and transportation. numerous association amenities including 2 clubhouses, 2 pools, 2 spas, and tennis courts make this a great place to live!!!

The two needless capital letters at the beginning were excusable, but then he added three exclamation points after offering his dubious opinion of “great” living. Do you really think this realtor thinks this is a great place to live?

Sales History

Date………………Price

06/11/2007 $191,826

03/21/2005 $210,000

04/16/1998 $57,500

I am not sure if this was an REO or just a really stupid flip attempt. In either case, the 2007 purchase was a discount off the 2005 price. If the current seller can get their asking price, they stand to lose $23,132 after a 6% commission. Of course if this is an REO, and if the lender had $210,000 in it originally, the loss is closer to $45,000.

Also take note of the 1998 price. This was probably its worth to an investor in 1998 using a 100 GRM. This unit or similar ones will probably be heading down to the 100-120 GRM range because the only people who would be interested in owning them would be an investor looking for positive cashflow as a rental. This is also one of the reasons condos will crash particularly hard in the bear market because people will not want to be imprisoned in one for long.

Autumn

To everything (turn, turn, turn)

There is a season (turn, turn, turn)

And a time for every purpose, under heaven

A time to be born, a time to die

A time to plant, a time to reap

A time to kill, a time to heal

A time to laugh, a time to weep

A time to build up,a time to break down

A time to dance, a time to mourn

A time to cast away stones, a time to gather stones together

A time of love, a time of hate

A time of war, a time of peace

A time you may embrace, a time to refrain from embracing

A time to gain, a time to lose

A time to rend, a time to sew

A time to love, a time to hate

A time for peace, I swear its not too late

To everything (turn, turn, turn)

There is a season (turn, turn, turn)

And a time for every purpose, under heaven

Turn, Turn, Turn — Pete Seeger / The Byrds / Bible (Ecclesiastes 3, verses 1–8)

Sorry to recycle this song, but it is very fitting for today’s post…

If you compare the cycles of the housing market to the cycles of the seasons, our local housing market is entering Autumn. Spring was from 1997-2001, Summer was from 2002-2006, and Autumn began in 2007 and will likely continue through 2009, Winter will be here from 2010-2012. Spring will come again, but only after a cold, dark winter.

Asking Price: $699,900

Income Requirement: $174,975

Downpayment Needed: $139,980

Purchase Price: $620,500

Purchase Date: 11/14/2007

Address: 68 Autumn, Irvine, CA 92602

Sales History

Date………..Price

11/14/2007.. $620,500

09/29/2006.. $835,000

08/28/2003.. $628,000

Beds:	4
Baths:	3.5
Sq. Ft.:	2,341
$/Sq. Ft.:	$299
Lot Size:	–
Type:	Condominium
Style:	Mediterranean
Year Built:	2001
Stories:	Two Levels
Area:	West Irvine
County:	Orange
MLS#:	U8000308
Status:	Active
On Redfin:	1 day

LENDER OWNED. Fantastic detached end unit home with 2 master suites, one upstairs and one on main floor. Large living room with french doors that open to a private patio, inside laundry room, beautiful tile floors, and a nice quiet location at the end of the street. Walking distance to Homestead Park.

It is nice to document asking prices, but it is even better to document final sales prices in the market.

Today’s listing is sale that closed at 25% off its peak sales price in 2006, and it is a 2003 rollback.

The REOs are obliterating the market, and in doing so, they will drive more homeowners underwater which will create even more REOs: a downward spiral. This is the dynamic of the market, and it will continue to be until enough buyers enter the market to absorb all the inventory. Right now in the market, the desire is there (remnant kool aid intoxication,) but the lack of available credit is getting in the way (just as was predicted in Houses Should Not Be a Commodity.) The realtors are out right now trying to convince people it is the negative media creating the problem. This is not accurate. The credit markets are creating the problem. Market psychology has not changed yet, and people are still trying to buy. Later this year, market psychology really will change as people fully accept the price rally was a bubble and prices will decline further. This change in market psychology will fuel the next leg down in the market continuing through 2009.