Disco Inferno — The Trammps

The twin towers known as the Marquee at Park Place is a lasting symbol of everything wrong with the housing bubble (Two mass fires, yes! One hundred stories high.) These urban units were 30 years ahead of their time, and perhaps in 30 years, the buyers in these towers will be able to sell their units for what they paid for them. The obscenity of the prices there will be laid bare in today’s post. I will run through the cost of ownership numbers as compared to the cost of a rental and demonstrate what these units are really worth to an owner occupant.

I must confess, I have been holding off profiling these towers. There is limited information available on these units in the data services I use, so my picture is somewhat incomplete; however, the main reason I have waited to post on these units is because in the very first post done on this unit back in early 2007, I lost it in the comments section. It is pretty rare that I lose my cool, but I did there. The exchange went as follows:

Asking Price: $1,080,000

Income Requirement: $270,000

Downpayment Needed: $216,000

Monthly Equity Burn: $9,000 at least

Purchase Price: $1,035,000

Purchase Date: 3/16/2006

Address: 3141 Michelson #808, Irvine, CA 92612

Beds:	2
Baths:	2
Sq. Ft.:	1,520
$/Sq. Ft.:	$711
Lot Size:	–
Property Type:	Condominium
Style:	Other
Year Built:	2006
Stories:	1 Level
View:	Panoramic
Area:	Airport Area
County:	Orange
MLS#:	P597004
Source:	SoCalMLS
Status:	Active
On Redfin:	258 days
Unsold in 90+ days

BTW, the listing realtor is the owner. Do you feel the schadenfreude?

Notice he isn’t talking up the wonderful Santa Ana School District. This isn’t a place for families.

I wonder if he has a view of that beautiful new office building?

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What is this guy’s plan? Since he is the listing broker, he will only pay a 3% commission, so he has left himself a bit of negotiating room to get out at breakeven. After 258 days on the market, I don’t think his plan is going to work, particularly when the seller across the hall (3141 Michelson #804, Irvine, CA 92612) is selling a larger unit for $351,000 less.

What are these units really worth? Let’s revisit the calculations from the post Rent vs. Own:

$321,893 Purchase Price

$64,379 Downpayment @20%
$257,515 Mortgage @ 80%

$1,627.67 Mortgage Payment @ 6.5%
$268.24 Property Taxes @ 1%
$67.06 Homeowners Insurance @ 0.25%
$67.06 Special Taxes and Levies @ 0.25%
$1,100.00 Homeowners Associate Dues or Fees @ $1100
$67.06 Maintenance and Replacement Reserves @.25%
$3,197.10 Monthly Cash Cost

$1,394.87 Interest on First Payment
$(365.48) Tax Savings @ 25% of mortgage interest and property taxes
$(232.80) Equity hidden in payment
$201.18 Lost Downpayment Income @ 5% of Downpayment

$2,800 Total Cost of Ownership

We have to make some adjustments to the original calculation due to the unique circumstances of these properties:

1. The assumed breakeven rent is $2,800. Some units have gone as low as $2,300. $2,800 is a likely median rent.
2. The HOA dues are an outrageous $1,100 a month
3. The property taxes are actually a bit lower as I believe there are no Mello Roos taxes here.
4. The maintenance and replacement reserves are only for minor interior items so they are much less than a SFD home.

As you can see, the HOA dues are a value killer. The breakeven value for an owner-occupant is only $321,893 which is nearly 70% off the asking price for this unit. The monthly cashflow drain the owners of these units are experiencing is remarkable, particularly for the plethora of empty boxes.

Maybe this property should be renamed the Marquee at North Korea?

North Korea at night and Marquee at Park Place at night.

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Burn baby burn! Burn baby burn! Burn baby burn! Burn baby burn!
Burnin’!

Burn baby burn! – Disco inferno!
Burn baby burn! – Burn that mama down, yoh!
Burn baby burn! – Disco inferno!
Burn baby burn! – Burn that mama down
Burnin’!

Disco Inferno — The Trammp

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P.S. I almost went with a different theme today. Owning in the Marquee Towers is also similar to riding on Disney’s Tower of Terror, complete with the huge, sudden drop…

In Da House — Crazy Frog

Part of our formula for success at the Irvine Housing Blog is to be entertaining. Reading about the housing market can be dry and boring, or it can be lively and entertaining. We always try to make it fun, funny and entertaining.

My wife cannot stop laughing at the crazy frog…

We have done many kinds of posts at the IHB:

• Analysis
• Flips
• Fraud
• WTF prices
• Big losses
• HELOC abuse

We try to inject fun and humor in our posts by adding music, making fun of bad descriptions, and creating funny graphics. If possible we try to weave all these together in a manner that informs as well as entertains. So tell us what you like about the IHB and what you would like to see more of. If you have ideas for other posts you would like to see, please share them here.

Norwegian Wood — The Beatles

The WTF prices of Great Housing Bubble are an obvious illustration of the greater fool theory. Usually, the detachment from fundamental values is not so great. Prices that look foolish in retrospect do not always look foolish in the moment. Irvine house prices from 2004 onward looked foolish even as people were paying them. The absurdity of the situation becomes even more apparent when you see the asking prices of those who purchased at the peak of the Ponzi scheme as they look to find the next greater fool. Today’s property is one dramatic illustration. These buyers grossly overpaid right at the peak in summer of 2006. Rather than admit defeat, they are asking for 50% appreciation from the peak with an asking price that is so ridiculous you just have to ask, “WTF?”

Asking Price: $2,975,000

Income Requirement: $743,750

Downpayment Needed: $595,000

Equity Burn: $24,791

Purchase Price: $1,882,500

Purchase Date: 7/13/2006

Address: 28 Woods Trail, Irvine, CA 92603

Why would you completely remodel and upgrade a 2007 home?

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Do you see the mentality at work here? All someone had to do was buy some real estate, improve it if they wanted to, wait a short time and sell it for a huge profit. The prices paid do not matter as long as the greater fool comes along with access to enough money to buy them out. I would not be too surprised if someone would pay this stupid price if a lender enabled them to. The bulls are all lamenting the tightening of credit because they know this is the only thing preventing the greater fool from bidding up prices even higher. After watching The Great Housing Bubble, I have become convinced there
is no concept of value in the general public. There is no price that is
considered too high as long as prices are rising.

Unfortunately, we exceeded price levels supportable by incomes by 2002.
It was only the lowering of interest rates which kept the rally going.
After that toxic financing took over and pushed prices even higher. The
bulls do not seem to understand that incomes must be able to support
the borrowing; the fact that it does not is why we are having a credit
crunch. Lending will continue to tighten until loan balances are
supported by incomes, and we still have a long way to go. Lenders are
still loaning 5.5 times income because interest rates are low and DTIs
are still very high. Many of the loans written in 2008 will go into
foreclosure as well because the high debt-to-income ratios will crush borrowers who will be underwater. People who buy in 2008 are going to be no better off than those who purchased in 2004. At least those who bought in 2004 had the delusion of price increases to make them feel rich for a few years. Those who bought in 2008 went underwater the day after they closed the deal. In fact, since there is a delay between negotiating the deal and the closing date, most were underwater the day they closed. Given the reality of the direction of prices right now and the fact that prices are still well above reasonable valuations, it is reasonable to ask any buyer in this market, “WTF?”

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I once had a girl, or should I say, she once had me…
She showed me her room, isn’t it good, norwegian wood?

And when I awoke, I was alone, this bird had flown
So I lit a fire, isn’t it good, norwegian wood.

Norwegian Wood — The Beatles

Free Money — Patti Smith

Every night before I go to sleep
Find a ticket, win a lottery,
Scoop the pearls up from the sea
Cash them in and buy you all the things you need.

Oh, baby, it would mean so much to me,
Baby, I know our troubles will be gone.
Oh, I know our troubles will be gone, goin’ gone
If we dream, dream, dream for free.
And when we dream it, when we dream it, when we dream it,
Let’s dream it, we’ll dream it for free, free money,
Free money, free money, free money,
Free money, free money, free money,
Free money, free money, free money,
Free money, free money, free money,
Free money, free money, free money,
Free money, free money, free money,
Free money, free money, free money,
Free money, free money, free money, free.

Free Money — Patti Smith