Today, I want to tell you about a new blog I came across recently that may be of interest to those who really want to understand real estate markets: Deal Breaker.

I wrote Land Value 101 long ago to describe how raw land parcels are valued. I found Deal Breaker which is a blog devoted to documenting the details of raw land transactions around Southern California. If you want to see what is happening in this market, it will provide you insight into what the builders and developers are doing and where they see the housing market going. We are just entering a phase of cleaning up the mess; properties are going for a small fraction of their peak valuations.

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Here are a couple of properties that were taken off the market before I could profile them this week.

Asking Price: $439,000

Address: 95 Costa Brava Irvine, CA 92620

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Here comes the sun, here comes the sun,
and I say it’s all right

Little darling, it’s been a long cold lonely winter
Little darling, it feels like years since it’s been here
Here comes the sun, here comes the sun
and I say it’s all right

Here Comes the Sun — The Beatles

Asking Price: $439,000

Income Requirement: $109,750

Downpayment Needed: $87,800

Purchase Price: $596,500

Purchase Date: 7/19/2006

Address: 95 Costa Brava Irvine, CA 92620

Asking Price: $500,000

Income Requirement: $125,000

Downpayment Needed: $100,000

Purchase Price: $575,000

Purchase Date: 5/8/2007

Address: 146 Briarwood #45 Irvine, CA 92604

Not a bad description, although it overdoes the travertine (including one misspelling).

Back in February I profiled the holdings of the Emporer of Woodbridge in Everybody Wants to Own the World.
The owner of that empire traded today’s featured property. Back
on 7/25/2000, the Emporer bought this property for $243,000. He sold it
on 3/8/2007 for $575,000. While he owned it, he took out an Option ARM
for $357,000, probably to finance his ongoing operations.

The couple he sold the property to on 3/8/2007 have not done quite
so well. If they get their asking price, it will not be a short sale,
but their equity will be gone.

Tight inventory and increased sales still has not stablized low-end pricing. Today’s featured property is a 2003 rollback.

Asking Price: $275,000

Address: 2243 Martin #111 Irvine, CA 92612

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Somethings wrong, shut the light
Heavy thoughts tonight
And they arent of snow white

Exit light
Enter night
Take my hand
Off to never never land

Enter Sandman — Metallica

When one-bedroom condos start going for over $400,000, doesn’t that just feel wrong? Isn’t there an intuition that says, “this property is just not worth that much?”

One thing I like about Dr. Housing Bubble’s Real Homes of Genius is that you just knew something was wrong. When you look at a decrepit old shack selling for $500,000, something isn’t right.

Even at $275,000, this price for this property makes no sense. Twelve years ago, that was the median home price, and $274,000 would have bought you a nice house (15182 Marne Cir Irvine, CA 92604). Instead we enter the Never Never Land of the Great Housing Bubble, and condos like today’s featured property suddenly sell for more.

So where do we go from here? Many people are getting caught up in our current bear rally and are becoming convinced we are at the bottom. It isn’t very likely that we are at the bottom.

We are entering a strange place in our housing market where many properties trade at or below rental parity — outside of Irvine — and yet prices will likely fall further. Despite the continuing slow decline, there are opportunities to save money buying versus renting. For those who know they are going to stay in a property for ten years or more, they can ride out the remaining decline and still fare well financially because they are saving money each month over renting.

The lack of appreciation in the market distorts the buy versus rent decision just as rapid appreciation does. It creates this unique circumstance where long-term homeowners can still benefit financially even in the face of declining prices. In areas outside of Irvine, we have reached the point where selling and “going short” is probably not going to yield significant savings, particularly for those who will pay more in rent after the sale. In Irvine, our prices are still inflated enough that cashing in that bubble equity lottery ticket may still have value.

Asking Price: $275,000

Income Requirement: $68,750

Downpayment Needed: $55,000

Purchase Price: $280,000

Purchase Date: 6/30/2003

Address: 2243 Martin #111 Irvine, CA 92612

Resort Luxury Living In A Gorgeous Tropical Setting At The
Metropolitan. This Open And Spacious Condo Is Perfectly Located On The
First Floor With Easy Access To The Pool, Clubhouse, Fitness Center,
And Parking. The Metropolitan Has A Guard Gated Entry For Security And
Privacy. A Spacious One (1) Bedroom Condo With A Large Balcony
Surrounded By A Greenbelt And Lush Trees. You’ll Feel Like You’re On
Vacation At A Tropical Resort. Volume Ceilings, Crown Molding, Inside
Stacked Washer/Dryer, New Carpet, And Designer Paint Make This A
Turn-Key Home. Highlights Include A Living Room, Den/Office/Dining
Room, Master Suite With Dual Sinks, Large Tub, Separate Shower, And A
Walk-In Closet. The Metropolitan Features A Resort Quality Pool, Spa,
Fitness Center, Clubhouse, And On-Site Property Management. Great
Location In The Center Of Irvine’s Financial District, With Easy Access
To John Wayne Airport, Freeways, South Coast Plaza, Fashion Island, And
The Beach.

Why Is Every Word Capitalized?

This is another 2003 rollback as the low end continues to drop.

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I would like to take this opportunity to thank Daniel Young, President of Community Development for the Irvine Company for taking the time to speak with us on Monday evening. We have a Conference Call Thread on the main blog, the complete Call Transcript in the forums, and there have been other associated threads there. I believe that the consensus is that the call was useful and contained real substantive answers.

I hope the Irvine Company will continue to communicate with us through the blog, the forums and periodic calls like the one on Monday. A medium like ours is more effective than a press release, and it is a way to speak directly to customers (us). We all benefit from having these lines of communication open.

And so concludes another week at the Irvine Housing Blog, chronicling the Irvine home market since September of 2006.

Have a great weekend.

😉

Some people will feel trapped in their homes while some people will feel priced out living the life of a Gypsy.

Asking Price: $299,900

Address: 36 Vintage Irvine, CA 92620

Running seems like the best offense
Staying just don’t make any sense
No one could ever stop it now
Show the cards of the gypsy town

Sign of the gypsy queen
Pack your things and leave
Word of a woman who knows
Take all your gold and you go

Sign of the Gypsy Queen — April Wine

Running seems like the best offense; take all your gold and go… Isn’t that the story of California real estate?

Are we going to become a split society? Is one group of people going to be encased in their debt bunkers while another group rents like Gypsies floating from one opportunity to another without roots beneath their feet? A home is supposed to be a solid foundation, a place to store wealth, and a place to live your life. Will it ever be again?

For many it has become a casket buried beneath a pile of debt entombing them, draining their monthly cash, and leaving them feeling trapped and despondent. Who wants to live that way?

For others it has become a symbol of stability and security they may never obtain. They worry they might be priced out forever, so they lose patience and overpay. Those that have the patience wait silently for the time when they too can have a place to call their own. The Gypsy life will someday end.

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I had an interesting experience yesterday related to patience. I have been waiting to buy a home for quite a while, but there is something I have been waiting for even longer: a hole-in-one playing golf. I started playing golf 33 years ago at age 9. I played much golf in junior high and high school, and I got my handicap down to 4 at one time. In all those years, I never had a hole-in-one. Yesterday, my 190 yard tee shot on the 3rd hole at Strawberry Farms was all I needed. My long wait is over.

Asking Price: $299,900

Income Requirement: $74,975

Downpayment Needed: $59,980

Purchase Price: $430,000

Purchase Date: 2/14/2006

Address: 36 Vintage Irvine, CA 92620

Bank Owned Beauty! Enjoy the relaxing lifestyle that will come along
with this beautiful single level home. Property features rich wood
flooring, stunning crown moldings, upgraded kitchen that boasts a
spacious breakfast bar. Inside Laundry Room and attached garage. Large
spacious rooms. This home is perfect for the tech savvy and is wired
and ready to go! Enjoy entertaining your guests in the relaxing court
yard, take a dip in one of the many association pools, roast marsh
mellows in the fire pit and end the evening soaking in the association
spa at sunset. Close to shopping and award winning schools!! Home Sweet
Home! Near shopping and Irvine Spectrum. Wheelchair accessible from the
garage.

If the bank owns it, it is a beauty…

This property was purchased on 2/14/2006 for $430,000. The owner used a $343,700 first mortgage, an $85,900 second mortgage, and a $400 downpayment. I imagine she spent more to move in than she spent on the downpayment.

If this property sells for its current asking price, and if a 6% commission is paid, the total loss to the lender will be $148,094.

This property is being offered for 30% off its peak purchase price.

The Ponzi Scheme spawned a societal sense of entitlement. It is likely that social safety nets will be created and enlarged to pander to this new demand.

Asking Price: $2,128,500

Address: 33 Ridgeview Irvine, CA 92603

So he chased the wind
Thats all his silly life required
And the days of vanity
Went on forever
And he saw his days burn up
Like paper in fire

Paper in Fire — John Mellencamp

Major cultural events like The Great Housing Bubble change people’s lives. The populace built mountains of paper through burning consumerism; paper that is now smoldering in the ashes of our economic fire. Statistics measure the economic fallout, but more interesting is the impact on the people.

One trend in our consumer society has been an increase in our collective sense of entitlement. People came to believe in the permanence of the supply of consumer goods they enjoyed, the exaggerated sense of self-importance they created, and the unsustainable level of lifestyle spending they deserved. Since this sense of entitlement was only enabled by a massive Ponzi Scheme, many people in the aftermath must adjust to a new lifestyle that is considerably less affluent than the one to which they feel entitled.

Rather than retreat from a sense of entitlement, it is likely we will enact even more social safety nets to pander to this societal desire. Good or bad is in your perspective. Many European countries are suffering less because they have an expensive safety net that supports those in need. The European Socialist model may prove less traumatic to the society and the economy because the safety net provides liquidity and consumer demand — at a tremendous cost. With Democrats in full control of the House, Senate and the Presidency with a filibuster-proof majority, nothing stands in their way. We will almost certainly take a step toward Socialism.

These circumstances have precedence. During the 1920s, laissez-faire economic policies with little or no financial regulation resulted in a massive Ponzi Scheme in the stock market, widespread currency deflation, and a near collapse of our economic system. the deflation of that credit bubble was exacerbated by the passage of the Smoot-Hawley Tariff Act (enacted June 17, 1930) which decimated international trade. The resulting Great Depression saw a dramatic political shift with the landslide election of FDR in 1932 and the creation of much of our current and inadequate safety net; it was our first step toward Socialism.

Since the conditions now are so similar economically and politically, it is reasonable to expect the same response. Many of the social programs Conservatives fear most will be enacted or expanded. If these programs fail in the eyes of the electorate, Conservatives and Republicans will come back to power to “fix” things; however, if Progressives and Democrats succeed, they may consolidate power for a generation.

We live in interesting times.

When I saw today’s featured property with only two pictures of the same view, I saw the artistic value in the presentation.

Asking Price: $2,128,500

Income Requirement: $532,125

Downpayment Needed: $425,700

Purchase Price: $3,880,000

Purchase Date: 12/11/2006

Address: 33 Ridgeview Irvine, CA 92603

The banks can’t be looking forward to taking back more properties like this one… This property was purchased on 12/11/2006 for $3,880,000. The owner used a $3,000,000 first mortgage and a $880,000 downpayment. A week later he opens a $350,000 HELOC, and a year later he expanded it to $477,000. These are probably just HELOCs to access money, and they may not have been used.

Then, this happened:

Foreclosure Record
Recording Date: 07/09/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2008000326533

Foreclosure Record
Recording Date: 03/31/2008
Document Type: Notice of Default
Document #: 2008000148091

The lender finally took the property back on 1/21/2009 for $2,635,000. They have been sitting on it since then trying to figure out what to do. Based on the date of the NOD, there has been no payment on this loan since 2007.

At the current asking price, if the property sells and a 6% commission is paid, the total loss to the lender will be $999,210. Let’s call it a million.