Category Archives: Uncategorized

The Night Before Christmas

What can you get for $1,000 / SF in Irvine?

72 Golden Eagle outside 2

72 Golden Eagle kitchen

72 Golden Eagle Living Room

72 Golden Eagle Irvine, CA 92603

Price: $12,995,000

IHB Get Together 2

Beds: 6
Baths: 9
Sq. Ft.: 10,964
$/Sq. Ft.: $1,185
Lot Size: 0.94

Acres

Property Type: Single Family Residence
Style: Villa
Year Built: 2008
Stories: 3+
View: Golf Course
Area: Turtle Rock
County: Orange
MLS#: U8004266
Source: SoCalMLS
Status: Active
On Redfin: 89 days

This elegant seven bedroom, seven and three half-bath custom residence
was inspired by the famed La Suvera estate in Tuscany. Like its
namesake, this gracious home enjoys pastoral views – in this case, the
gently rolling hills of Shady Canyon . From the moment you enter the
residence through the lovely formal front pavilion you are surrounded
by the highest quality craftsmanship, materials and amenities, all
working together to create an atmosphere of casual elegance. In
addition to the spacious master and guest suites – all with ensuite
baths – revel in large public rooms including living and dining rooms,
gourmet kitchen and great room, large downstairs game room and theater
and a formal library parlor. Other amenities include a wine cellar with
adjacent wine dining room and both subterranean and above grade parking
for a total of four vehicles. Lovely landscaped grounds envelop the
residence and include a pool, spa and pool cabana.

Nice place, but it is a bit too much like a castle to me. It doesn’t feel very cozy. To each his own…

{book}

‘Twas the night before Christmas, when all through the house

Not a creature was stirring, not even a mouse;

The stockings were hung by the chimney with care,

In hopes that St. Nicholas soon would be there;

The children were nestled all snug in their beds,

While visions of sugar-plums danced in their heads;

And mamma in her ‘kerchief, and I in my cap,

Had just settled down for a long winter’s nap,

When out on the lawn there arose such a clatter,

I sprang from the bed to see what was the matter.

Away to the window I flew like a flash,

Tore open the shutters and threw up the sash.

The moon on the breast of the new-fallen snow

Gave the lustre of mid-day to objects below,

When, what to my wondering eyes should appear,

But a miniature sleigh, and eight tiny reindeer,

With a little old driver, so lively and quick,

I knew in a moment it must be St. Nick.

More rapid than eagles his coursers they came,

And he whistled, and shouted, and called them by name;

“Now, Dasher! now, Dancer! now, Prancer and Vixen!

On, Comet! on Cupid! on, Donder and Blitzen!

To the top of the porch! to the top of the wall!

Now dash away! dash away! dash away all!”

As dry leaves that before the wild hurricane fly,

When they meet with an obstacle, mount to the sky,

So up to the house-top the coursers they flew,

With the sleigh full of toys, and St. Nicholas too.

And then, in a twinkling, I heard on the roof

The prancing and pawing of each little hoof.

As I drew in my hand, and was turning around,

Down the chimney St. Nicholas came with a bound.

He was dressed all in fur, from his head to his foot,

And his clothes were all tarnished with ashes and soot;

A bundle of toys he had flung on his back,

And he looked like a peddler just opening his pack.

His eyes — how they twinkled! his dimples how merry!

His cheeks were like roses, his nose like a cherry!

His droll little mouth was drawn up like a bow,

And the beard of his chin was as white as the snow;

The stump of a pipe he held tight in his teeth,

And the smoke it encircled his head like a wreath;

He had a broad face and a little round belly,

That shook, when he laughed like a bowlful of jelly.

He was chubby and plump, a right jolly old elf,

And I laughed when I saw him, in spite of myself;

A wink of his eye and a twist of his head,

Soon gave me to know I had nothing to dread;

He spoke not a word, but went straight to his work,

And filled all the stockings; then turned with a jerk,

And laying his finger aside of his nose,

And giving a nod, up the chimney he rose;

He sprang to his sleigh, to his team gave a whistle,

And away they all flew like the down of a thistle.

But I heard him exclaim, ere he drove out of sight,

“Happy Christmas to all, and to all a good-night.”

{book}

The Skinny on the Housing Crisis

Author Interview — Jim Randel

I would like to introduce you to a new book by bestselling author, Jim Randel, called The Skinny on the Housing Crisis, What Every Homeowner and Homebuyer NEEDS TO KNOW.

Jim Randel takes the complex issues related to the housing crisis and presents them in an easy-to-understand manner. The book is well written, it can be read in under an hour, and the reader is left with a basic understanding of the mess we are in today. If you or someone you know wants to understand the housing crisis, but you don’t want to spend several hours reading a 250 page book, I highly recommend The Skinny on the Housing Crisis.

The basic presentation is similar to the stick-drawing joke circulating the internet. The story is presented through the eyes of Billy and Beth, a typical couple who trusted the “experts” and were duped into a disastrous financial transaction. In a series of cartoon-like scenes, the author takes us through the buying process and shows how all the parties involved had incentives to push Billy and Beth into a transaction they did not understand. The average buyer can easily relate to Billy and Beth’s plight, and all of us can empathize with what people went through as they got caught up in the housing crisis.

Many of you who have been reading the IHB and have purchased my book, The Great Housing Bubble, have commented on how I am able to take complex subject matter and make it understandable. Jim Randel takes this one step further. His simple presentation is understandable to everyone. This book will serve as education to teenagers preparing for adulthood and the personal finance decisions they will face. He is planning a series of books using the same methods to explain other personal finance issues. I look forward to seeing them.

Today’s featured property is typical of what I see on the market today. Long-term homeowners who are selling in today’s market in Irvine have on average doubled their mortgages since they purchased. There was so much HELOC abuse and housing ATM dependancy during the bubble years, it should come as no surprise that consumer spending has fallen off a cliff, and our entire economy is in shambles. Today’s owners will likely still make a profit on their home and pay off their mortgage. They won’t have much to show for it, but at least they will not face bad credit for their free-money spending spree.

23 Washington Kitchen

Asking Price: $839,000IrvineRenter

Income Requirement: $209,750

Downpayment Needed: $167,800

Monthly Equity Burn: $6,991

Purchase Price: $302,000

Purchase Date: 4/29/1998

Address: 23 Washington, Irvine, CA 92606

Beds: 4
Baths: 3
Sq. Ft.: 2,500
$/Sq. Ft.: $336
Lot Size: 4,628

Sq. Ft.

Property Type: Single Family Residence
Style: Contemporary
Year Built: 1998
Stories: 2
Floor: 1
Area: Walnut
County: Orange
MLS#: S555490
Source: SoCalMLS
Status: Active
On Redfin: 1 day

New Listing (24 hours)

Gourmet Kitchen Award

This is a great find! Desirable four bedroom Centennial Home in the
private gated community of Harvard Square. Ideal interior tract
location. Spacious and functional floor plan with high ceilings, lots
of natural light, beautiful hardwood floors and neutral plush carpet.
Custom gourmet family kitchen, granite counters, maple cabinets and a
kitchen window, which looks out to the oversized back yard. Yard is
half grass and cement patio, perfect for entertaining. The BIG Park is
a big selling feature. Residents love the holiday events, community
gatherings, pool, basketball court and tot lots. A dog walkers dream!

A dog walkers dream! Do people really place a high importance on where their dog takes a dump?

  • This property was purchased on 4/29/1998, very near the bottom of the last cycle. The owner’s paid $302,000. They used a $226,150 first mortgage, a $45,200 second mortgage, and a $30,650 downpayment.
  • On 6/2/1999 they refinanced with a $316,000 first mortgage. This pulled out their downpayment plus $14,000.
  • On 9/11/2000 they obtained a HELOC for $35,000.
  • On 10/11/2001 they refinanced for $365,000.
  • On 10/31/2002 they refinanced for $370,000.
  • On 11/3/2005 they refinanced for $485,000.
  • On 4/20/2007 they opened a HELOC for $60,000.
  • Total mortgage debt is $545,000.
  • Total mortgage equity withdrawal is $288,200 including their downpayment.

I am amazed at how often I see this. Many, many Irvine homeowners doubled their mortgage obligations during the bubble. These aren’t the flagrant abusers, these are the average homeowners living their pretend lives built on a mountain to cheap debt. The payments are coming due. Do you think most of these people doubled their incomes over the last 10 years? I doubt it.

{book}

Introducing the RentVsOwnulator

Amish Paradise — Al Yankovic

The wheels of progress keep turning here at the Irvine Housing Blog. Some of you may have noticed that we have introduced a new rent versus own decision calculator. It is still a work in progress, but it is good enough to put on the main site. We hope to add some formatting and create a stand-alone version for people to download and use.

Our goal was to create an accurate and detailed accounting for the true cost of ownership. This is a point-in-time calculator. You are not asked to make assumptions about inflation or appreciation. There are no projections for the future. People who invest in real estate (I am not talking about stupid amateur speculators) always look at the stabilized cashflow in the first year of ownership. If it doesn’t make sense in year 1, then it isn’t an investment, it is a speculative gamble. There are a variety of rent versus own calculators out there. Most are put up by realtors. They are totally biased and ignore costs and exaggerate benefits. Some are put up by bubble bloggers that are biased the other direction. We want to be accurate.

Most of the underlying assumptions are documented in the post Rent versus Own. Most of the inputs are in the left-side column, and most of the outputs are on the right (the exception is the HOA fees which are plugged in directly on the cost side). Play with these assumptions at your own risk. As I documented in the Rent versus Own post many of the costs are underestimated, and many of the benefits are overestimated. The most common mistakes are to ignore maintenance and replacement reserves and to overestimate the tax savings. The true tax benefit is not the highest marginal tax rate you pay.

The primary function of the calculator is to determine the true cost of ownership to compare to a base rent. However, we have added a reverse calculation that allows renters to put in the rent they are currently paying and show them how much house they can afford. Since this is not a spreadsheet calculation and we could not iterate to run the calculations backward, we cheated: we use a percentage of rent that goes to the cost of ownership beyond the payment and subtract this from the rent to compute the purchase price, downpayment and loan amount. You will see the two methods produce very close results both forward and backward.

Any comments or suggestions for improvement will be appreciated.

In other news, I wanted to remind everyone that we are having an Irvine Housing Blog party and book signing at 6:30 on Wednesday, November 12, 2008, at JT Schmids at the District. All who wish to be a part of the IHB community and meet others
in the community are encouraged to attend. We may have staff writers and photographers from OC Weekly in attendance to write a story on the IHB community. You can avoid the pictures and remain anonymous if you wish. Participation is voluntary.

Look for an interview with me in the Irvine World News on Wednesday and the OC Register on Thursday.

I was having a conversation about current events and the massive deleveraging we are witnessing globally and I realized something rather remarkable: most residents of California have seen their new worth decline 40% or more over the last 2 years. Think about that for a moment. The California median home price is down 40% according to the California Association of Realtors. Since houses are almost always hugely leveraged, many homeowners have lost all the net worth they once had as equity in their houses. The stock market is more than 40% down in the last year. Anyone invested in the market either directly or through their retirement plans is down 40%. Stocks, bonds, real estate, commodities, and currencies: nearly every asset class is down, and down big. The only group that has not seen a huge decline in their net worth has been renters who are mostly in cash.

What is going to become of this huge “reverse wealth effect”? There have been many studies on how much people spend when their stocks or houses appreciate. I don’t think anyone have every studied what people do when every asset they own declines significantly in value. I don’t know if it has ever happened before. You have to imagine this will create a giant sucking sound in our economy. The only people who aren’t impacted by this and who don’t care are the Amish. Maybe there is something to be said for the simple life…

We have talked about cash being king. Right now, it really is.

{book}

As I walk through the valley where I harvest my grain
I take a look at my wife and realize she’s very plain
But that’s just perfect for an Amish like me
You know, I shun fancy things like electricity
At 4:30 in the morning I’m milkin’ cows
Jebediah feeds the chickens and Jacob plows… fool
And I’ve been milkin’ and plowin’ so long that
Even Ezekiel thinks that my mind is gone
I’m a man of the land, I’m into discipline
Got a Bible in my hand and a beard on my chin
But if I finish all of my chores and you finish thine
Then tonight we’re gonna party like it’s 1699

We been spending most our lives
Living in an Amish paradise
I’ve churned butter once or twice
Living in an Amish paradise
It’s hard work and sacrifice
Living in an Amish paradise
We sell quilts at discount price
Living in an Amish paradise


Amish Paradise
— Al Yankovic

I Wanna Be a Bagholder

I Wanna Be a Cowboy — Boys Don’t Cry

When the market was at its peak, there was a 40% or greater fall in front of it. The first wave of losses and defaults were late buyers using 100% financing. This made the banks the bagholders. This is why the banks have lost so much money so far and why our entire financial system is on the verge of collapse. The banks have generally eaten the first half of the drop, and they have not been anxious to be the bagholder for the other half. So the lenders have been lining up people with good credit and 20% downpayments to take one for the team.

Every knife catcher buying in 2008 will see their 20% downpayments evaporate before this decline is over. If they hang on long enough, they will get it back, but the banks are trying to provide enough of an equity cushion in the transaction to make sure they are not the bagholders for round 2 of the price declines. This is why equity requirements and qualification requirements went up so quickly. The lenders are betting that those with good credit and plenty of their own money in the deal will not walk away when prices drop. This is a good bet on their part. There will still be a healthy default rate from loans orginated in 2008, but it will not be near as bad as the defaults from 2004-2007.

Banks don’t loosen credit until well after the crisis is over. If you are waiting for the banks to bring back 100% financing when prices bottom, that is not going to happen. In fact, credit will be at its tightest at the bottom of the market. When almost nobody qualifies for a loan, and when almost nobody has the required downpayment, prices will be at their lowest because demand will be small (Remember, Desire is not Demand). If you are one of those who qualify and has cash, you will get a great deal.

In the meantime, the banks are lining up bagholders to absorb the remaining market losses. There is still plenty of kool aid in the market in Irvine, and there seems to be no shortage of those with good credit and enough cash willing to buy at our inflated prices. Of course, there is also no shortage of distressed properties either, and this supply will continue to grow. Bagholders provide a useful function. If these people did not step forward to overpay for housing, the banks would be absorbing even larger losses, and our economic system would be put in even more jeopardy.

So what do you think, do you wanna be a cowboy and ride the market missile all the way to the bottom?

Today’s featured property is a recently purchased REO that has been put on the market as a quick flip. It really looks to me like the buyer got cold feet and is trying to make a quick and graceful exit from the transaction. Smart move…

219 Terra Cotta Front 219 Terra Cotta Kitchen

Asking Price: $619,000IrvineRenter

Income Requirement: $154,750

Downpayment Needed: $123,800

Monthly Equity Burn: $5,158

Purchase Price: $585,000

Purchase Date: 6/30/2008

Address: 219 Terra Cotta, Irvine, CA 92603

Beds: 3
Baths: 3
Sq. Ft.: 1,510
$/Sq. Ft.: $410
Lot Size:
Property Type: Condominium
Style: Other
Year Built: 2003
Stories: 2 Levels
Floor: 1
View: City Lights, City, Fields, Hills, Park or Green Belt, Peek-A-Boo, Has View
Area: Quail Hill
County: Orange
MLS#: S551712
Source: SoCalMLS
Status: Active
On Redfin: 1 day

New Listing (24 hours)

View View View. Corner End Unit, 3bdrm 2.5bth. Ready To Move In
Condition. Upgrades Include Granite Counters, Stainless Steel
Appliances, 5 Burner Cook-top, Hardwood Flooring, Plantation Shutters.
Very Open Kitchen To Dinning Area. This Is Not A Short Sale. Fast
Escrow Possible.

View View View. Blah, Blah, Blah.

The property records on Redfin are incorrect. They did not pick up the sale on 5/18/2005 for $787,000. The previous owners who were foreclosed on bought the property with 100% financing using a $629,600 first mortgage and a $157,400 second. That is why the bank foreclosure was for $632,123 on 5/29/2008. If this property sells in the next month, it will be the third sale in 6 months. McDonalds doesn’t flip burgers that fast.

If these people bought this property as a quick flip, I think they would have priced it higher. If this sells for its asking price, and if a 6% commission is paid, these sellers will lose almost $5,000. Why would they do this? Even if one of them is a realtor and there is only a 3% commission, there isn’t much profit in the deal. I am thinking they must have changed their minds, and they want to get out before prices drop further. These owners have $234,000 in equity in the property, so the realtor is accurate in saying this isn’t a short sale. I guess they changed their minds about being a bagholder.

I hope you have enjoyed this 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.

🙂

{book}

Riding on the range,
I’ve got my hat – on,
I’ve got my boots – dusty.

I’ve got my saddle
On my horse.
He’s called….T-t-t-t-t-trigger
Of course.

I wanna be a cowboy
and you can be my cowgirl
I wanna be a cowboy
and you can be my cowgirl
I wanna be a cowboy

(woman’s voice)
Riding on the chuck wagon,
Following my man.
His name is Ted,
Can you believe that?
Camping on the prairie
Plays havoc with my hair.
Makes me feel quite dirty,
Though we all do sometimes

I Wanna Be a Cowboy — Boys Don’t Cry

Over My Head

Over My Head — Fleetwood Mac

I’m over my head,
But it sure feels nice.

Isn’t that the reason everyone panders to their sense of entitlement and buys too much home? We all know that emotional longing to live well and have the very best. I am certainly not immune. Like many in my industry, I have had to live with a reduction in my income during the housing crash (I am lucky to have a job at all). The place I rent now used to be easily affordable, but now I am stretched to maintain my standard of living. Am I entitled to the life I had during the bubble? I certainly do not want to downsize and lower the quality of the place I live because I enjoy it. I am over my head, but it sure feels nice.

Everyone feels these desires to have more. Some people have less discipline than others when it comes to resisting these urges. During the bubble, lenders removed all external resistance, and the most irresponsible among us were given access to as much money as they wanted to buy a home. It shouldn’t be terribly surprising that we are having a lot of foreclosures now.

Of course, the assurances of realtors like Suzanne convince people they deserve it and they can do it. Well, sometimes they don’t deserve it, and they can’t do it. If you don’t fully understand what “pandering to a sense of entitlement” means, watch the Suzanne Researched This video above. It demonstrates the concept better than I could explain it.

Today’s featured property was owned by someone who overbought and simply could not afford the place they had. The property was purchased in 2004 with an Option ARM and a significant downpayment. The Option ARM consumed much of their equity, and the market took the rest. Now the bank owns it, and they are asking 15% off the 2004 purchase price.

9 Hollyhock Kitchen

Asking Price: $567,000IrvineRenter

Income Requirement: $141,750

Downpayment Needed: $113,400

Monthly Equity Burn: $4,725

Purchase Price: $679,000

Purchase Date: 6/29/2004

Address: 9 Hollyhock, Irvine, CA 92602

Beds: 3
Baths: 3
Sq. Ft.: 1,700
$/Sq. Ft.: $334
Lot Size: 4,027

Sq. Ft.

Property Type: Single Family Residence
Style: Other
Year Built: 1998
Stories: 2 Levels
Area: West Irvine
County: Orange
MLS#: P661034
Source: SoCalMLS
Status: Active
On Redfin: 2 days

lite-briteGreat entertaining floorplan! Spacious open kitchen with Euro white
cabinets & center island. Roomy Master Bedroom with large walk-in
closets. Upgraded Wood Floors, Plantation Shutters. Master bathroom
with separate shower and bath tub and dual sinks. Home is light and
bright with an inviting feel…..and no HOA Dues!

This property was purchased on 6/29/2004 for $679,000. The owner used an Option ARM with a 3.67% teaser rate with an initial balance of $543,200. The remaining $135,800 was a cash downpayment. On 8/9/2005 the owner opened a HELOC for $98,000, but it isn’t clear whether or not they took the money. By 7/2/2008 the negative amortization and missed payments had ballooned to $600,555 which is how much WAMU paid at auction for the property. It looks as if the new JP Morgan Chase / WAMU isn’t messing around with their foreclosures. This property is priced to move.

I feel bad for owners like this one. They were likely moved by an emotional appeal for this property. The realtor told them they could have it, the mortgage brokers gave them a loan, and they sunk a great deal of their own money into the transaction. In the end, they lost the house, lost their money, and lost their credit. That must really suck.

{book}

You can take me to paradise,
And then again you can be cold as ice
Im over my head,
But it sure feels nice.

You can take me anytime you like,
Ill be around if you think you might love me baby,
And hold me tight.

Your mood is like a circus wheel,
Youre changing all the time,
Sometimes I cant help but feel,
That Im wasting all of my time.

Think Im looking on the dark side,
But everyday you hurt my pride,
Im over my head,
But it sure feels nice,
Im over my head,
But it sure feels nice.

Over My Head — Fleetwood Mac