A New Season

Today’s property is an example of how the market crash hurts ordinary people. This property is owned by a couple, and although I do not know them, I suspect they are a young couple who purchased this as their first home and they were hoping to do a move up later. That is how the real estate game is played around here. I don’t see any data on the first mortgage, but there is a HELOC for $116,850. Assuming this is 20% of the purchase price, I have estimated the purchase price at $584,250 which is consistent with the tax assessment. Therefore, they likely have a first mortgage for $467,400. I can’t feel too sorry for them as they don’t appear to have any money in the transaction. They are priced over the market and praying for a knife catcher to come bail them out. It probably is not going to happen.

Asking Price: $549,000

Income Requirement: $137,250

Downpayment Needed: $109,800

Monthly Equity Burn: $4,575

Purchase Price: $584,250 — I think.

Purchase Date: 3/14/2006

Address: 18 New Season, Irvine, CA 92602

Beds:	3
Baths:	3
Sq. Ft.:	1,479
$/Sq. Ft.:	$371
Lot Size:	–
Type:	Condominium
Style:	Mediterranean
Year Built:	2006
Stories:	Two Levels
Area:	Northpark
County:	Orange
MLS#:	P608073
Status:	Active
On Redfin:	158 days
Unsold in 90+ days

MODEL PERFECT 3 BEDROOM + LOFT, 2.5 BATH HOME LOCATED IN NORTHPARK AREA
OF IRVINE. DESIGNER UPGRADES INCLUDE; GRANITE COUNTERTOPS, RICH WALNUT
FLOORING, DESIGNER PAINT, UPGRADED TILE FLOORING AND STAINLESS
APPLIANCES. ADDITIONAL FEATURES INCLUDE OPEN LOFT AREA, COZY FIREPLACE,
PRIVATE COURTYARD, WALK-IN CLOSET, 2 CAR ATTACHED GARAGE, LAUNDRY ROOM
AND DESIREABLE END UNIT LOCATION. THIS QUALITY HOME IS LOCATED CLOSE TO
TRANSPORTATION ROUTES, SPORTS PARKS AND FANTASTIC SHOPPING AND FINE
DINING.

Another CAPS LOCK attack.

Rich Walnut Flooring? Is the walnut wealthy? Can you say, Pergraniteel?

DESIREABLE END UNIT? If you desire being at the corner of the 5 and Culver, then this is very desirable. I hope you like noise and air pollution. And yes, it is LOCATED CLOSE TO
TRANSPORTATION ROUTES.

There is a time bomb in their neighborhood that is about to ruin the
comps and remove any hope they had of selling this property. The
neighbor at 34 New Season was a flipper, and he let the property go
back to the bank on 4/2/2008 for $360,000.

34 New Season is not listed on the MLS, so I can’t post any pictures
for you. It is one of many bank owned properties in Irvine that are not
offered for sale yet. It is not an exact match for 18 New Season, but
the flipper paid $520,000 back in December of 2005, so the values are
within $60,000. Some quick math says the property at 18 New Season is
worth $420,000 in today’s market not the $549,000 they are asking. The
fact that 18 New Season has been on the market for 158 days strongly
suggests it is overpriced.

Property traders — people who bought and sold stucco boxes without
doing any improvements to add value — drove prices up and priced many
families out of the market. Most of the properties we have profiled,
the ones that have made priced plummet so far, are those being allowed
to go into foreclosure by failed flippers. I would like to say they are
getting their comeuppance, but it is really their enablers — the
lenders — who are bearing the brunt of the destruction. I won’t be
shedding tears for either group.

This leads us back to today’s featured property. The sellers are
going to be ruined financially as they will have either a short-sale or
a foreclosure on their credit. Was this couple a pair of hapless
victims who were just doing what you are supposed to do get on the
property ladder in California? Were they caught up in the whirlwind of
speculation and burned by the market? They likely fit the profile of
the family targeted for the various bail-out programs being discussed:
do they deserve to be bailed out?

I feel stupid – but I know it wont last for long
Ive been guessing – I coulda been guessin wrong
You dont know me now
I kinda thought that you should somehow
Does that whole mad season got ya down

I feel stupid but its something that comes and goes
Ive been changin – think its funny how now one knows
We dont talk about – the little things that we do without
When that whole mad season comes around

Mad Season — Matchbox Twenty

Milestone

We have reached a new milestone in our documentation of the price decline in the Great Housing Bubble: we have our first property closing at 40% below its previous sale price. That’s right, 40% off in Irvine. The median has not declined 40% yet, but individual properties have. Will the median be far behind?

We have been watching this property for some time. It was the source for a post that first appeared on March 17, 2007, and was updated on Sep 15th, 2007. We followed up again with the post, Show Me, on January 15, 2008. It was purchased on May 26, 2005 for $565,000 with 100% financing. There was a first
mortgage from New Century for $452,000 and a second from New Century
for $113,000. Ordinarily, when a property goes up for auction, the lender will bid the property up to the value of the first mortgage, in this case $452,000. This property was purchased at auction by the trustee for a CDO (U S BANK NA, ; STRUCTURED ASSET INVESTMENT LOAN TRUST 2,) for $337,500. Think about what that means: 1. Lenders and CDO trustees are now letting properties go at auction for less than the value of the first mortgage. 2. At open auction, the highest bidder was 40% under the purchase price of this property. The flippers wouldn’t even touch it. 3. If investors are losing 40% on Irvine properties now, how bad will it be for them in 2 or 3 years? 4. The neighborhood comps just got obliterated.

This last point warrants further examination. Let’s say you are a homeowner who purchased at the peak, and you are still in denial about the market. In the minds of such individuals, the market is down artificially, and values will rebound soon. The reality is, the market for this property is 40% off the peak (Maybe a bit less if they can resell it for more than $337,500. They are trying.) Percentages can be a bit misleading when it comes to price declines. A 40% decline requires a 67% increase to get back to the peak. Assume for a minute we are at the bottom (which we are not,) how long will it take for this property to appreciate 67% in value?

2008	$ 337,500	100%
2009	$ 352,688	105%
2010	$ 368,558	109%
2011	$ 385,144	114%
2012	$ 402,475	119%
2013	$ 420,586	125%
2014	$ 439,513	130%
2015	$ 459,291	136%
2016	$ 479,959	142%
2017	$ 501,557	149%
2018	$ 524,127	155%
2019	$ 547,713	162%
2020	$ 572,360	170%

At a 5% rate of appreciation, it will take 12 years for this property to get back to the peak. Of course, if you believe 15% yearly appreciation will be returning soon, it will get their quicker, but that takes a degree of denial that will be hard to sustain in the long term. It isn’t going to happen. In reality, this property will probably decline further in value because less desirable condos always do fall further, so the appreciation does not start in 2008. It probably starts in 2013 from a lower base number. How long are people going to be willing to wait for values to return? Will people be trapped in their homes for another 20 years. I hope they like them.

Asking Price: $399,000

Income Requirement: $99,750

Downpayment Needed: $79,800

Monthly Equity Burn: $3,325

Purchase Price: $564,678

Purchase Date: 1/25/2008

Address: 1 Montgomery #46 Irvine, CA 92604

Sales History

Date	Price	Appreciation
May 26, 2005	$565,000	—
Feb 22, 2008	$337,500	-17.1%/yr

Date

Price

Appreciation

May 26, 2005

$565,000

—

Feb 22, 2008

$337,500

-17.1%/yr

Beds:	3
Baths:	3
Sq. Ft.:	1,639
$/Sq. Ft.:	$244
Lot Size:	–
Type:	Condominium
Style:	Contemporary
Year Built:	1977
Stories:	Two Levels
View(s):	Has View
Area:	El Camino Real
County:	Orange
MLS#:	P627777
Status:	Active
On Redfin:	20 days

Very nice townhome in great area of Irvine. Very close to freeways,
shopping and schools. You must definitely see this one to appriciate
it. living room has 20ft. high ceiling, and upstairs has open balcony
with view of downstairs. all three bedrooms are upstairs, there is a
half bath downstairs for guests. Nice size patio between home and
garage.

This property is very close to the freeway. It is practically on it.

BTW, the original asking price on this property was $610,000. LOL!

It is hard to say who is losing money on this one. New Century is already bankrupt, so either some CDO is losing or the various creditors of New Century are losing. In either case, if we assume this one is on their books at $565,000 (it is probably higher with all the fees and lost interest), and if we assume they get their $399,000 asking price and pay a 6% commission, the total loss will be $189,940. That loss is on one small condo in Irvine. Does anyone really believe the lenders are finished writing down their losses?

So how far will prices drop? Will we see 1999 prices? The aggregate of the market will not, but we may see some of the undesirable condos go for very low prices. I have a sneaking suspicion we may see a 1990 rollback before this is done. I know, that sounds crazy, but 1990 was the peak of the last bubble, and that puts it on par with 1998 or 1999 prices. A small condo bought in 1990 that wasn’t particularly well cared for might be a 20-year rollback. It could happen, and we will be watching for it.

I was dreamin’ when I wrote this
Forgive me if it goes astray

But when I woke up this mornin’
Coulda sworn it was judgment day

The sky was all purple
There were people runnin’ everywhere

Tryin’ 2 run from the destruction
U know I didn’t even care

‘Cuz they say two thousand zero zero party over
Oops out of time
So tonight I’m gonna party like it’s 1999

1999 — Prince

Turtle REOck

Welcome to the new Irvine Housing Blog. We have changed from WordPress to Expression Engine as our blogging software. It is a more powerful platform, and it should allow us to introduce some new and exciting features. There will be some growing pains (as I am experiencing right now in getting to know the new blog entry interface) but in no time, we will all be enjoying the new and improved Irvine Housing Blog.

Its been such a long time
I think I should be goin, yeah
And time doesnt wait for me, it keeps on rollin
Sail on, on a distant highway
Ive got to keep on chasin a dream
Ive gotta be on my way
Wish there was something I could say.

Well Im takin my time, Im just movin on
Youll forget about me after Ive been gone
And I take what I find, I dont want no more
Its just outside of your front door.

Foreplay/Long Time — Boston

Asking Price: $674,900

Income Requirement: $168,725

Downpayment Needed: $134,980

Monthly Equity Burn: $5,624

Purchase Price: $564,678

Purchase Date: 1/25/2008

Address: 4992 Paseo De Vega, Irvine, CA 92603

Beds:	3
Baths:	2
Sq. Ft.:	1,414
$/Sq. Ft.:	$477
Lot Size:	4,914 Sq. Ft.
Type:	Single Family Residence
Style:	Contemporary
Year Built:	1973
Stories:	One Level
Area:	Turtle Rock
County:	Orange
MLS#:	U8001483
Status:	Active
On Redfin:	8 days

BY FAR, THIS IS ONE OF THE VERY BEST LOCATIONS IN IRVINE. THIS IS THE
HIGHLY SOUGHT AFTER AREA OF TURTLE ROCK. THE HOME IS A SINGLE FAMILY
ATTACHED PROPERTY THAT FEATURES THREE BEDROOMS AND TWO FULL BATHROOMS.
AN ENTERTAINERS DELIGHT WITH MANY UPGRADED FEATURES. YOU ARE CLOSE TO
ALL THE GREAT THINGS THAT LIVING IN IRVINE HAS TO OFFER; THE BEST
SCHOOLS, PARKS, RECREATION THE UNIVERSITY AND MORE. COME HOME TO TURTLE
ROCK, AND START LIVING THE IRVINE LIFESTYLE TODAY.

I like Turtle Rock too, but I don’t think it is fair to say it is “by far, this is one of the very best locations in Irvine.”

An REO in Turtle Rock? How can this be?

Sales History

Date	Price	Appreciation
Aug 20, 1999	$262,000	—
Aug 06, 2001	$395,000	23.3%/yr
Mar 11, 2002	$385,000	-4.2%/yr
May 04, 2004	$669,000	29.3%/yr
Dec 22, 2005	$695,000	2.4%/yr
Jan 25, 2008	$564,678	-9.5%/yr

As you can see, this property has changed hands many times. Perhaps there is a St. Joseph statue buried on the property? The lender must think they can still get peak prices in Turtle Rock. It will be interesting to see if they can. From the property records, it is not clear why the buyer let this property go into foreclosure. It appears as if he put 20% down. Maybe the lender won’t lose on this property. That would be a first.

Upgrade Complete

From what I can tell, it looks like the upgrade went well. All the content from the old platform was brought over and we even used some nifty tricks to make sure that links to the pages on the old platform are now linking to the new pages.

Our forums have been expanded and we should have a few more subtle changes on the way. Your old forum username/password will work on the new software. If it doesn’t, request a new password through the system. If you are still having trouble, send me an email.

As with any project of this size, there are bound to be some issues. Please let me know if you come across any and we’ll do our best to take care of them.

Thanks!

UPDATE

Thank you to those of you who have provided thoughtful responses and constructive criticism. That being said, ungrateful rants will fall on deaf ears.

Flying

Wouldn't it be nice if prices really did go up forever? Wouldn't it be great if none of us had to work, and we could all just live off the appreciation of our houses? There really isn't much difference between believing in the magical kool aid of the bubble and believing in other forms of magical thinking. It is a wonderful fantasy, and believing in endless price appreciation must feel very good. I guess perpetual house price appreciation is the adult version of Santa Claus or the Tooth Fairy. If I had been able to drink the kool aid, I would have been less distressed by what I witnessed in 2004 through 2006. Ignorance really can be bliss.

How many homeowners are out there waiting for the good times to come again? I think Tom Petty put it well:

Well the good old days may not return

And the rocks might melt, and the sea may burn

I'm learning to fly but I ain't got wings

Comin' down is the hardest thing

Well some say life will beat you down

Break your heart, steal your crown

So I started out for God knows where

But I guess Ill know when I get there

Im learning to fly around the clouds

But what goes up must come down

Learning to Fly — Tom Petty and the Heartbreakers

Asking Price: $544,000

Income Requirement: $136,000

Downpayment Needed: $108,800

Monthly Equity Burn: $4,533

Purchase Price: $645,000

Purchase Date: 3/16/2007

Address: 63 Burlingame, Irvine, CA 92602

Beds:	2
Baths:	3
Sq. Ft.:	1,475
$/Sq. Ft.:	$369
Lot Size:	–
Type:	Condominium
Style:	Contemporary
Year Built:	2001
Stories:	Two Levels
View(s):	City Lights
Area:	Northpark
County:	Orange
MLS#:	S521978
Status:	Active
On Redfin:	47 days

Corporate relocation home. Competely detached. Large wrap-around yard. View. New paint throughout. Gorgeous hardwood floors. 2 master suites plus den area. Gorgeous hardwood floors. Prestigeous guard-gated community.

Competely Prestigeous.

Three and four word sentences. I like the economy of words.

The title history on this property is a bit unclear. Sitex still shows the 2004 purchaser as the current owner, and it does not pick up a 2007 transaction referenced in Redfin. If someone did pay $645,000 for this place in March 2007, the 2004 owner (whose outstanding debt was $619,800 after her refinance) got very lucky. Perhaps this was a corporate relocation. If so, the corporation is a bagholder, and they are going to lose at least $133,640 after a 6% commission.

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.

🙂