Open House This Weekend

Do you want to go see a $550,000 house asking $800,000? You have your chance this weekend. Don’t miss it!

The featured property is having an open house from 1-5 on Saturday. Go look at an overpriced short sale that has no chance of selling.

53 Waterspout Kitchen

Asking Price: $799,900

Address: 53 Waterspout, Irvine, CA 92620

{book2}

Open Letter to a Landlord — Living Colour

Now this house is full of fear
For a profit you will take control

Remember back about 6 months when there were very few properties at the mid or high end showing any distress? It wasn’t that long ago that people had convinced themselves that only those poor people in Santa Ana with bad credit had housing problems. The more desirable areas were somehow immune. It is becoming increasingly obvious that there is real distress at the high end. Why else would people be selling at a loss? Nobody wants to.

High end properties just sit there. Sellers attach a wishing price to them, and they sit. There is no jumbo financing to speak of, and if it were not for people putting 25% or more down, we would have almost no transactions in the above $629,000 loan range.

The high end short sales are telegraphing tomorrow’s REOs, and we are seeing many more of these come onto the market. Knife catchers get all excited, and some even bid over the ask. Nobody seems to notice that these short sales and REOs are not short in supply, and their ranks are projected to grow as ARMs continue to reset.

Today’s featured property is a high-end short-sale asking 20% off its peak purchase price. Considering it will drop 40% of more from the peak, it is not a particularly good price, but the banks are lining up knife catchers who have enough cash to absorb the next $250,000 in losses. Do you want to volunteer?

53 Waterspout Kitchen

Asking Price: $799,900

Income Requirement: $199,975

Downpayment Needed: $159,980

Monthly Equity Burn: $6,665

Purchase Price: $1,011,000

Purchase Date: 12/2/2005

Address: 53 Waterspout, Irvine, CA 92620

Beds:	4
Baths:	4
Sq. Ft.:	2,700
$/Sq. Ft.:	$296
Lot Size:	3,704 Sq. Ft.
Property Type:	Single Family Residence
Style:	Mediterranean
Year Built:	2005
Stories:	3+
Area:	Woodbury
County:	Orange
MLS#:	S563747
Source:	SoCalMLS
Status:	Active
On Redfin:	4 days

Gorgeous 3 story Portisol model 3ARX in Prestigious Woodbury. Model
perfect home features gourmet kitchen with Viking Appliances and
Granite Countertops, Custom Paint, Plantation Shutters, alarm system,
upgraded sound system throughout. Main level bedroom with bathroom can
be used as den. 3rd Floor Bonus Room features tons of extra storage.
Backyard is entertainer’s delight with Built-in BBQ. Short sale subject
to lenders’ approval.

This property was purchased on 12/2/2005 for $1,011,000. The owner used a $808,000 first mortgage and a $203,000 downpayment. On 3/28/2006 he opened a HELOC for $102,600, and on 3/29/2007 he opened another HELOC for $200,000 gaining access to most of his downpayment. Hopefully for him, he took out the money.

I doubt a lender will approve a sale below $808,000 (or whatever the remaining balance is on the first mortgage). Citibank has the HELOC that is going to get wiped out. Why would they agree to the short sale? If it is a 100% loss, they might as well sell the debt to someone else to try to collect it. They have nothing to lose.

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.

🙂

{book5}

Now you can tear a building down
But you can’t erase a memory
These houses may look all run down
But they have a value you can’t see…

This is my neighborhood
This is where I come from
I call this place my home You
call this place a slum
You wanna run all the people out
This what you’re all about
Treat poor people just like trash
Turn around and make big cash

We lived here for so many years
Now this house is full of fear
For a profit you will take control
Where will all the older people go?
There used to be when kids could play
Without the scourge of drug’s decay
Now our kids are living dead
They crack and blow their lives away

You’ve
got to fight
You’ve got a right
To fight for your neighborhood!

Open Letter to a Landlord — Living Colour

30% off in Woodbury

The collapse of the low end has arrived in one of Irvine’s most desirable neighborhoods. Entry level affordability is coming soon.

Today’s featured property is REO–not a short sale–being offered at 30% off peak pricing. The price is still too high.

33 Costa Brava kitchen

Asking Price: $298,000

Address: 33 Costa Brava, Irvine, CA 92620

My Rifle, My Pony and Me – Dean Martin and Ricky Nelson

The sun is sinking in the west
The cattle go down to the stream
The redwing settles in the nest
It’s time for a cowboy to dream

Does affordable housing seem like an impossible dream? Are we fools at the IHB because we believe affordability will return to the market? Sellers and owners sure hope we are, but as prices crash all around us, and now even within the Irvine Sacred Land Trust, the reality of affordable housing is soon to be upon us.

This neighborhood is a bloodbath in the making. There are three foreclosures-in-waiting nearby:

21 Arboretum, Irvine, CA 92620 — asking $450,000, paid $535,000.

15 Costa Brava, Irvine, CA 92620 — asking $379,000, paid $498,000.

216 Guinevere, Irvine, CA 92620 — asking $400,000, paid $519,500.

Woodbury, like Quail Hill and Northwood II, is going to be wiped out by the next wave of foreclosures. Everyone who bought in these neighborhoods overpaid, and most used some form of toxic financing that is going to blow up. If is not a matter of “if,” it is only a matter of “when.”

33 Costa Brava kitchen

Asking Price: $298,000

Income Requirement: $74,500

Downpayment Needed: $59,600

Monthly Equity Burn: $2,483

Purchase Price: $449,500

Purchase Date: 5/1/2006

Address: 33 Costa Brava, Irvine, CA 92620

Beds:	1
Baths:	2
Sq. Ft.:	975
$/Sq. Ft.:	$326
Lot Size:	–
Property Type:	Condominium
Style:	Other
Year Built:	2006
Stories:	2
Floor:	1
Area:	Woodbury
County:	Orange
MLS#:	S563973
Source:	SoCalMLS
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Detached 2 story home, newer area, nice curb looking, shows nice, open
kitchen, Garage, Kitchen and living area all big open area…. HOA pool
and Park area.

The original buyer of this property paid $449,500 on 5/1/2006. He used a $359,657 first mortgage, a $67,435 second mortgage, and a $22,408 downpayment. Not to worry, on 10/16/2006, he opened a HELOC for $146,266 and got back his downpayment plus $56,383. I hope he sent his appraiser a Christmas card. The lender took back the property in foreclosure on 11/3/2008 for $392,062. If this property sells for its asking price, and if a 6% commission is paid, the total loss to the lender will be $225,803: quite a loss for a 1 bedroom property.

{book1}

The sun is sinking in the west
The cattle go down to the stream
The redwing settles in the nest
It’s time for a cowboy to dream
Purple light in the canyons
That’s where I long to be
With my three good companions
Just my rifle, pony and me
Gonna hang (gonna hang) my sombrero (my sombrero)
On the limb (on the limb) of a tree (of a tree)
Comin’ home (comin’ home) sweetheart darlin’ (sweetheart darlin’)
Just my rifle, pony and me
Just my rifle, my pony and me
(Whippoorwill in the willow
Sings a sweet melody
Riding to Amarillo)
Just my rifle, pony and me
No more cows (no more cows) to be ropened (to be ropened)
No more strays will I see
Round the bend (round the bend) she’ll be waitin’ (she’ll be waitin’)
For my rifle, pony and me
For my rifle, my pony and me

My Rifle, My Pony and Me – Dean Martin and Ricky Nelson

Just Take If Off the Market

When a house has been on the market over two years, and the owner is not lowering the price, perhaps it should just be taken off the market.

Today’s property is 774 days and counting…

11 Pollena Kitchen

Asking Price: $789,000

Address: 11 Pollena, Irvine, CA 92602

{book4}

Give Me Just a Little More Time — Chairmen of the Board

Life’s too short to make a mistake
Let’s think of each other and hesitate
Young and impatient we may be
There’s no need to act foolishly

Sometimes I write about macro issues facing the housing market. Sometimes I write about our specific location conditions. Sometimes I just write about some particular property that has a story to tell. Today’s featured property is of the last category.

This property has been on the market for 774 days. WTF?

At some point in the last 774 days, did the owner decide she really did not want to sell it? If so, why is it still listed? If she did want to sell it, why hasn’t she lowered the price to sell it? These are simple questions that the realtor should have asked about 60-90 days into the listing.

In case the seller has not noticed, prices have dropped 20% since this house was listed. She has dropped her asking price 16% chasing the market down the whole way. It was overpriced when she listed it, and none of her price reductions have caught up to the market decline. If she had dropped her price sooner, she might have intersected with reality at a higher price point. As it stands, she remains in denial, and she remains priced above the market.

What is the point? Why not just take the property off the market?

11 Pollena Kitchen

Asking Price: $789,000

Income Requirement: $184,750

Downpayment Needed: $147,800

Monthly Equity Burn: $6,158

Purchase Price: $472,000

Purchase Date: 3/20/2002

Address: 11 Pollena, Irvine, CA 92602

Beds:	4
Baths:	3
Sq. Ft.:	2,478
$/Sq. Ft.:	$318
Lot Size:	1 Sq. Ft.
Property Type:	Single Family Residence
Style:	Traditional
Year Built:	2002
Stories:	2
Area:	West Irvine
County:	Orange
MLS#:	P554341
Source:	SoCalMLS
Status:	Active
On Redfin:	772 days
Unsold in 90+ days

Beautiful Fieldstone Barrington home located on a cul-de-sac. Nice size
yard w/patio cover/dramatic slate hardscape in back & front
yard/ceiling fans/built-in cabinets in garage/french doors/beautiful
tile floors/full splash in kitchen. Do not miss seeing this home!

I profiled this property because this owner is one of the rare ones who did not add to her mortgage. The property was purchased on 3/20/2002 for $472,000. She used a $275,000 first mortgage, and a $197,000 downpayment. She refinanced on 6/26/2003 for $271,500. She actually paid down her mortgage and didn’t take anything out! I hadn’t seen that in so long I just had to share it. She was responsible: no refinances, not second mortgages, and no HELOCs. Amazing!

This does give her plenty of room to negotiate on the price. If it sells for its current asking price, she stands to make $269,660 after a 6% commission. Not bad considering she overpaid in 2002. If she can manage to lower her price enough to lure a knife catcher, she can probably get out before the price rolls back all the way to what she paid for it. Somehow I rather doubt she will. Two years of chasing market tells me the greed is just too strong. She is already hurting from “losing” $150,900 in asking price. Dropping the price another $70,000 to get it within range of today’s knife catchers is a lot to ask. I don’t see it happening.

I believe this house will sit on the market until she gets bored with the listing, then she will take it off the market. She will own this property as its value plummets all the way to her entry price (and perhaps beyond). All that phantom equity: all gone…

{book5}

Give me just a little more time
And our love will surely grow
Give me just a little more time
And our love will surely grow

Life’s too short to make a mistake
Let’s think of each other and hesitate
Young and impatient we may be
There’s no need to act foolishly
If we part our hearts won’t forget it
Years from now we’ll surely regret it

You’re young and you’re in a hurry
You’re eager for love but don’t you worry
We both want the sweetness in life
But these things don’t come overnight
Don’t give up cos love’s been slow
Boy, we’re gonna succeed with another blow

Give me just a little more time
And our love will surely grow
Baby please baby
Baby please baby

Love is that mountain we must climb
Let’s climb it together your hand in mine
We haven’t known each other too long
But the feeling I have is oh so strong
I know we can make it there’s no doubt
We owe it to ourselves to find it out

Give Me Just a Little More Time — Chairmen of the Board

Irvine's Median Property

People have different ideas on what a median property looks like in Irvine. Based on its sales history, today’s featured property certainly qualifies.

Asking Price: $580,000

Address: 26 Bunker Hill, Irvine, CA 92620

Neighbor — Gnarls Barkley

Now my neighbor likes where I stay
But doesn’t, know, the price that I pay

Contrary to popular belief among the bulls, a median income household is supposed to be able to afford a median priced house. I have written at length about Affordability in the post of the same name. When prices are very high relative to incomes, affordability is very low. Usually this is associated with people using affordability products (toxic financing).

Very low affordability creates bizarre alternatives for those who do not wish to play the toxic financing game. For instance, today’s featured property is an old, smallish 3/2 in an average neighborhood. It sold for $740,000 in 2005. At that price, this property is only affordable to a household making $185,000 putting $148,000 down. Look at the house. Does it look like the property you would expect someone who is making that kind of money to live in? A household making $185,000 a year is in the top 20% of wage earners. Since rents are directly tied to incomes, these wage earners could still rent a property in the top 20% of Irvine’s properties. Therefore, the alternative facing those looking for housing at the peak was to chose between renting the property the is commensurate with their income, or buying a property that was several rungs down the property ladder.

With the conditions of the bubble rally–greed for rapid appreciation, fear of being priced out, the belief that prices cannot fall, no-limit financing alternatives, and an unbridled sense of entitlement–it is not surprising that few people stayed within conservative financing guidelines. When you think about it, the bigger surprise is that anyone did behave conservatively.

{book2}

Today’s featured property is a great example of a median property in Irvine. Half of Irvine’s properties are nicer, and half are not as nice. The strongest evidence for this comes from the sales history. I used the DataQuick numbers for Irvine (current value is a guess), and as you can see, the difference between the actual sales price of this property and the Irvine Median is very small over a large number of transactions.

Sales History

Date	Event	Price	Median	Difference
13-Feb-09	Listed	$580,000	$580,000	$0
15-Jul-05	Sold	$740,000	$643,000	$97,000
4-Apr-05	Sold	$660,000	$625,000	$35,000
3-May-04	Sold	$615,000	$620,000	($5,000)
14-Mar-03	Sold	$435,000	$421,000	$14,000
9-Mar-01	Sold	$339,000	$321,000	$18,000

Continuing the theme of matching the median, I believe this property will fall down to the the low $400s somewhere below the 2003 purchase price, perhaps lower if there is overshoot.

The last sale, the one to the current owner looks fishy to me. The flipper before them did not get a bargain. There was no huge discount based on comparable pricing. Despite this fact, this flipper was able to find someone willing to pay $80,000 more for this property 3 months later. This purchase prices is clearly too high. Why would someone do this? Ignorance is one answer (or defense), but in a fraud scheme, the buyer would be in on the deal, and they would be getting a piece of the $80,000 profit.

Does it look suspicious? Yes, it does. Was this fraud? Probably not in this case as it was not 100% financing. Unfortunately, that leaves buyer ignorance…

Asking Price: $580,000

Income Requirement: $145,000

Downpayment Needed: $116,000

Monthly Equity Burn: $4,833

Purchase Price: $740,000

Purchase Date: 7/5/2005

Address: 26 Bunker Hill, Irvine, CA 92620

Beds:	3
Baths:	2
Sq. Ft.:	1,647
$/Sq. Ft.:	$352
Lot Size:	–
Property Type:	Single Family Residence
Style:	Other
Year Built:	1977
Stories:	1
Area:	Northwood
County:	Orange
MLS#:	S563623
Source:	SoCalMLS
Status:	Active
On Redfin:	3 days

Beautiful single level house in Northwood with a very spacious
floorplan. Home is complete with granite countertops in kitchen and
bathroom. Home is in quiet neighborhood close to schools, shops, and
parks.

This house was purchased on 7/5/2005 for $740,000. The owners used a $592,000 Option ARM and a $148,000 downpayment. On 5/19/2006 they opened a HELOC for $134,000 taking out most of their equity (or at least gaining access to it). Assuming they took out their downpayment, the total debt on the property is $726,000 plus three and one-half years of accumulated negative amortization. Does anyone want to bet that this owner hit their 110% cap causing a mandatory recast? If so, the property debt is closer to $775,000.

In any event, a $580,000 asking price is going to be a short sale, and the lender is going to lose money. I don’t know how much, but it could easily be $250,000 or more.

This is one of many Option ARM implosions we are going to see. There is no hope for these people because their payment after the recast is going to be astronomical. If they could afford it, they probably would not have taken out the option ARM to begin with. However, even if we give them the benefit of the doubt and assume they could afford the payment, why would they bother. Who is going to pay 2 or 3 times the going rental rate for a property that is $250,000 underwater? Nobody is.

{book1}

Now my neighbor likes where I stay
But doesn’t, know, the price that I pay
My neighbor!! My neighbor!!
Myyyyy neighbor… wants what he sees
My neighbor!! My neighbor!!
Myyyyy neighbor… thinks he wants to be me
But he’ll never be

From out my window, seems just fine
But in his mind, again his world is far from kind
So I invited him over, could this make a new friend
But once I got to know ya, wish I never let you in

Now my neighbor likes my clothes
But hadn’t seen me with my scars exposed
My neighbor!! My neighbor!!
Myyyyy neighbor, ohhh dissatisfied
My neighbor!!
My neighbor’s, behavior… is unjustified
I’m sick and tired

I don’t know, if he lives all alone
But if you’re scared of the darkness best leave the lights on
I had a talk with my neighbor
Say it simple and plain
I guess, he understood me
He never came back again

Now my neighbor, likes my car
But no matter where you go, there you are…

Neighbor — Gnarls Barkley

Peachy

Happy Presidents’ Day! I hope you are enjoying all our great country has to offer on this special day.

The featured property is an Irvine flip asking for a 20%+ profit for doing nothing.

11 Montage kitchen

Asking Price: $739,000

Address: 11 Montage, Irvine, CA 92614

{book4}

Peaches — Presidents of the United States of America

Millions of peaches, peaches for me
Millions of peaches, peaches for free

There are still people successfully flipping properties even in our declining market. It isn’t the usual suspects from the bubble, no-money-down fools, it is the moneyed professional with plenty of cash. During the bubble, banks were handing out 100% financing to anyone who wanted it, so flippers everywhere bought and sold properties at will.

Now that banks are paying a heavy price for their foolishness, they are no longer loaning money to flippers. Being a flipper requires more cash–much more. In fact, the only way to flip today is to go to a foreclosure auction with 100% cash and buy properties on the courthouse steps. Needless to say, this greatly diminishes the buyer pool.

The auction flip works due to the fact that the diminished buyer pool makes for depressed pricing. A flipper can obtain a property at auction for 10% to 20% less than its resale value in the finance-dominated market. If a flipper can obtain a property cheaply and sell it quickly, there is an opportunity to profit.

This kind of flipping is not for the foolish amateur or the faint-of-heart. If you overpay, you will lose money. If you overpay and hold on, you will lose even more. Prices of these properties are still well above rental cashflow levels, so holding them as true cashflow investments is not a viable option. These are pure speculative flips.

I wouldn’t do it.

Today’s featured property was purchased at auction, and the flipper is trying to make a quick 20%. Good luck with that [As I secretly hope this flipper goes down in flames].

11 Montage kitchen

Asking Price: $739,000

Income Requirement: $184,750

Downpayment Needed: $147,800

Monthly Equity Burn: $6,158

Purchase Price: $600,000

Purchase Date: 12/29/2008

Address: 11 Montage, Irvine, CA 92614

Beds:	4
Baths:	3
Sq. Ft.:	2,372
$/Sq. Ft.:	$312
Lot Size:	3,484 Sq. Ft.
Property Type:	Single Family Residence
Style:	Mediterranean
Year Built:	1990
Stories:	2
View:	Treetop
Area:	Westpark
County:	Orange
MLS#:	S563636
Source:	SoCalMLS
Status:	Active
On Redfin:	2 days

Large Home in Presigous Westpark. Spacious Living Room with Cathedral
Ceilings Spacious. Kitchen Opens to Large Family Room with Fireplace.
All 3 Bedrooms Upstairs with Loft/Den as 4th Bedroom, Office or Gym.
Master Suite has Separate Tub/Shower and His/Hers Walk-In Closets. Nice
Back Yard with Built-In BBQ, Spa, Landscaping and Sprinkler System.
Community Pool and Tennis Courts. Award Winning Schools. Great Parks.
Close to Shopping and Entertainment. Low Association Dues. A Great
Place to Live on A Quiet ‘Cul-De-Sac’ Street. Not a Short Sale! Not an
REO, The owner is in process of Upgrades, Flooring, Countertops,
Appliances, etc. CAN MAKE ‘AS IS’ OFFER NOW BEFORE WORK BEGINS!

Notice how the seller would generously consider offers before putting more money into the property? I will offer $475,000. That is where the resale value is headed. Somehow, I doubt he will take it.

Presigous?

Why Is This Description Written In Title Case?

Actually, buying a house from an auction flipper is not a bad way to go. If you can get the property renovated to your taste prior to move in and have these improvements rolled into your loan, you can have an at-market property that is exactly what you want. You won’t get a good deal, but you can at least get what you want.

The previous owners of this property spent their house. Are you surprised?

The property was purchased on 9/5/2001 for $465,000. The owners used a $372,000 first mortgage and a $93,000 downpayment.

On 4/16/2002 they opened a HELOC for $80,000.

On 5/28/2002 they opened a HELOC for $100,000.

On 11/6/2003 they opened a HELOC for $108,000.

On 11/17/2003 they opened a HELOC for $248,000.

On 6/2/2004 they opened two HELOCs for $195,000 and $67,000 respectively.

On 6/24/2004 they opened a HELOC for 67,000 (probably redid the last one).

Total property debt was $634,000.

Total mortgage equity withdrawal was $262,000.

That explains why this property went to auction for $600,000. At least the lender didn’t lose too much. Wells Fargo was lucky these borrowers were not even more aggressive. The borrowers are members of an ethnic minority known for their frugality, so perhaps this is being conservative. I can’t say…

{book3}

Movin to the country,
Gonna eat a lot of peaches
Movin to the country,
Gonna eat me a lot of peaches
Movin to the country,
Gonna eat a lot of peaches
Movin to the country,
Gonna eat a lot of peaches

Peaches come from a can,
They were put there by a man
In a factory downtown
If I had my little way,
Id eat peaches every day
Sun-soakin bulges in the shade

Take a little naps where the roots all twist
Squished a rotten peach in my fist
And dreamed about you, woman,
I poked my finger down inside
Make a little room for it to hide
Natures candy in my hand or can or a pie

Millions of peaches, peaches for me
Millions of peaches, peaches for free

Peaches — Presidents of the United States of America