Home Sales Data thru 7-25-2007

From today’s OC Register: “For the 22 business days ending July 25, sales for all types of Orange County home sales decreased 18.9 percent. The median sales price increased 1.1 percent. The median is where half the homes sold for more and half for less. Types of homes selling, as well as home value changes, cause the median to change.“

Median sale price

Sales volume

ZIP

code

prev. 4 weeks

% change

from ’06

prev. 4 weeks

% change

from ’06

92602

$765,000

4.8%

-30.3%

92603

$918,000

-6.6%

12.2%

92604

$626,250

-6.8%

13.0%

92606

$662,500

-11.7%

76.5%

92612

$900,000

70.2%

250.0%

92614

$474,000

-21.0%

-52.0%

92618

$670,000

15.8%

70.0%

92620

$748,500

-17.4%

-5.0%

Source: DataQuick

Greystone Villas – Investment Gone Awry

Address: 963 Somerville, Irvine, CA 92620 (Northwood)

Plan: 1481 sq ft – 3/2.5

MLS: S482981 DOM: 124

Sale History: 1/12/2006: $628,000

10/3/2002: $360,000

9/19/2000: $283,000

4/29/1999: $232,000

Price Reduced: 07/05/07 — $645,000 to $599,980

Current Price: $599,980

This is our third post featuring the Greystone Villas tract (#1, #2). We’ll provide updates to those homes but first let’s take a look at this one. Here we’ve got a 3bd/2.5ba Plan B that was purchased for $628,000 ($565,200 loan at 7%) on 1/12/2006 . It was immediately rented out for $2,350/month on 1/20/2006. How negative do you suppose that cashflow is?

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It looks like a refinance was done on 7/31/2006 through PMC Bancorp – $536,000 First Mortgage at 1% (teaser rate?) and a $67,000 HELOC. The property was eventually listed for sale on 4/9/2007 for $645,000. A price drop on 7/5/2007 brought the price down to $599,980. If sold at the asking price of $599,980, the investor stands to lose over $64,000 (assuming 6% in selling costs and not including negative cash flow).

Soo.. what’s the latest with the 3 bedrooms in this tract? First let’s update the older posts:

Update on Post #1: 129 Islington was taken off the market on 10/19/2006.

Update on Post #2: 301 Rathbourne is accepting backup offers and is showing a price of $599,900 (loss of $61,000 assuming 6% selling costs).

601 Newcastle sold for $615,000 on 4/12/2007 – 76 DOM (orig at $649,000).

135 Islington sold for $610,000 on 3/17/2007 – 202 DOM. (orig at $669,900)

161 Islington rented for $2,700 on 4/25/2007. (orig at $724,000)

Currently, these are the 3 bedrooms (same plan) on the market competing with our new feature, 963 Somerville:

39 Darlington – $655,000 (Purchased for $680,000 on 8/22/2006)

125 Islington – $619,000

141 Islington – $594,000 (Bank Owned!)

311 Rathbourne – $617,500

141 Islington is Bank Owned and 39 Darlington as well as 963 Somerville could be headed in that direction. The tract high price of $680k compared to the $599.9k sale in escrow represents an 11.7% drop in prices has already occurred.

Holy 2003!

Every limbo boy and girl

All around the limbo world

Gonna do the limbo rock

All around the limbo clock

Jack be limbo, Jack be quick

Jack go unda limbo stick

All around the limbo clock

Hey, let’s do the limbo rock

Limbo lower now

How low can you go

The Limbo — Chubby Checker

These rollbacks are coming up so frequently these days, I am forced to wonder, “How low can you go?”

Asking Price: $651,900

Purchase Price: $735,000

Purchase Date: 5/4/2006

Address: 144 Saint James, Irvine, CA 92606

Beds: 3

Baths: 2.5

Sq. Ft.: 1,931

$/Sq. Ft.: $338

Lot Size: –

Year Built: 2002

Stories: 2

Type: Condominium

View: Park or Green Belt

County: Orange

Neighborhood: Walnut

MLS#: S498460

Status: Active

On Redfin: 15 days

From Redfin, “Spacious floor-plan in beautiful gated community of Parklane! Great curb appeal! A must see!!! Den or office off master suite! Corian counters! Center island! Clean white cabinets! Custom tile flooring! plantation shutters! enclosed patio! Best price detached home in the area for the square footage! Light & bright! sides greenbelt! Go direct!”

Three exclamation points: check.

No periods: check.

“Light and Bright:” check.

This realtor probably has an advanced degree in realtorese.

At first glance this seems like just another rollback, but wait… Check out the sales history:

Sales History

Date Price

05/04/2006 $735,000

07/11/2003 $667,000

This is a 2003 rollback!

I imagine this seller thought they were getting a good deal when they bought at the peak and only paid $68,000 more than the previous buyer. Oops! It doesn’t seem to have worked out that way. If they get their asking price, minus a 6% commission, they stand to lose $122,214 in just over one year of ownership. I guess buying on St. James street did not bless this transaction.

These rollbacks have clearly wiped out all of the market gains through 2005 and 2006, and we are working our way through 2004. Now we even have the occasional 2003 debacle.

To be honest with all of you, I did not expect to see the market deteriorate this quickly. I was expecting real signs of distress in the fall and winter (I still think it will get much worse.) Real estate markets typically do not turn this fast. Of course, this is no typical real estate market.

The market decline of the early 90’s was a slow deflation. There was no single period of intense panic selling; however, it really is different this time. These prices were bid up so high, with so little regard to fundamental valuations, and was played by so many people with so little to lose (100% financing) that it certainly appears as if it is going to behave like a traditional commodities market.

If you think it is bad now, wait until the crushing weight of inventory and the massive dump of REOs hits the markets this fall and winter. I predict we will see a full scale panic like the residential real estate market has never seen before. Watch for the psychological shift I described in Houses Should Not Be a Commodity. When we move from denial into fear, the bulls will go strangely silent. When we move from fear into panic and capitulation, we will see a massive inventory spike, and they will all be rollbacks. Watch for it. It is coming soon.

I hope you have enjoyed your week at the Irvine Housing Blog. I have enjoyed bringing it too you. See you next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

Markets and the Sea

. . . however baby man may brag of his science and skill, and however much, in a flattering future, that science and skill may augment; yet for ever and for ever, to the crack of doom, the sea will insult and murder him, and pulverize the stateliest, stiffest frigate he can make; nevertheless, by the continual repetition of these very impressions, man has lost that sense of the full awfulness of the sea which aboriginally belongs to it.

. . . these are the times of dreamy quietude, when beholding the tranquil beauty and brilliancy of the ocean’s skin, one forgets the tiger heart that pants beneath it; and would not willingly remember, that this velvet paw but conceals a remorseless fang.

Moby Dick — Herman Melville

Wall Street financiers came up with a number of financial instruments designed to minimize their risks (Collateralized Debt Obligations, Credit Default Swaps, etc.) In doing so, they created a false sense of security and moral hazard which caused huge sums of money to flow into residential home mortgages. Like the first quote from Moby Dick above, the market participants “lost that sense of the full awfulness” the markets can inflict upon them.

For all our wisdom and collective experience, none of us knows what the markets will do next. Like an ocean current or a raging river, a financial market charts its own course. It is fickle and feckless and flows without regard to our hopes and dreams. To forget this fact is to book your financial passage on the Edmund Fitzgerald (Link to great music video).

The ebbs and flows of financial markets are meaningful to us, but in reality they are just movements in price; nothing more. Price rallies make homeowners blissful and renters bitter, while price declines make homeowners gloomy and renters gleeful.

These feelings and emotions are independent of movements in price. The market just moves, that is all it does. It is benign, yet dangerous; it is indifferent, yet demonstrative; the market is a paradox which me must simply accept.

It has been argued — convincingly in my opinion — that the health of a real estate market starts at the bottom of the food chain. Like the plankton in the sea, the entry-level buyer is the base of the real estate food chain. If the organisms that make up the base of the food chain are not healthy, the entire ecosystem is in peril. So it is with our real estate market.

In several posts I have talked about the complete lack of sales at the low end of the market. It occurred to me I haven’t profiled enough of these properties to show just how bad things are. Today I am going to profile three properties in “The Lakes:” a severe rollback, a bank REO and a peak buyer hoping to limit their losses. Enjoy…

Asking Price: $270,000

Purchase Price: $340,000

Purchase Date: 12/15/2005

Address: 79 Lakepines, Irvine, CA 92620

1st Loan $255,000

2nd Mtg. $51,000

Downpayment $30,000

Beds: 1

Baths: 1

Sq. Ft.: 934

$/Sq. Ft.: $289

Lot Size: 763 sq. ft.

Year Built: 1977

Stories: 2

Type: Condominium

View: Water

County: Orange

Neighborhood: Northwood

MLS#: S488313

Status: Active

On Redfin: 86 days

From Redfin, “Charming, Spacious two story Loft Bedroom home in resort like Lakes community. Best location. Tranquil Back patio faces serene stream and water features. Cozy fireplace, Catherdral scraped ceilings, Skylight, Garden Window, new lighting fixtures, designer paint, Newer appliances including stove, microwave, dishwasher. Walk in Closet in bedroom. Turnkey.”

Look at this depth of this rollback: 20% off; even at this asking price it is still on the market after 77 days. Further price reductions will be necessary before this sells. If they manage to get the asking price, and assuming a 6% commission, this seller and their bank stand to lose $86,200 — that is 25% off a 2005 price!

The lake, it is said, never gives up her dead

When the skies of November turn gloomy.

The Wreck of the Edmund Fitzgerald — Gordon Lightfoot.

Real estate always goes up, or so our next seller hopes…

Asking Price: $241,500

Purchase Price: $191,826

Purchase Date: 6/11/2007

Address: 171 Streamwood, Irvine, CA 92620

1st Loan $178,500

2nd Mtg. $31,500

Downpayment $0

Beds: 0

Baths: 1

Sq. Ft.: 415

$/Sq. Ft.: $582

Lot Size: –

Year Built: 1977

Stories: 1

Type: Condominium

View: Trees/Woods, Water

County: Orange

Neighborhood: Northwood

MLS#: S497917

Status: Active

On Redfin: 17 days

From Redfin, “Enjoy the sounds of meandering streams from one of the least expensive condos in all of Irvine. This studio unit is on the ground floor within a great community close to shopping, dining and transportation. Numerous association amenities including 2 clubhouses, 2 pools, 2 spas, and tennis courts make this a great place to live!!!”

The obligatory three exclamation points…

Look at this sales history:

Sales History

Date Price

06/11/2007 $191,826

03/21/2005 $210,000

04/16/1998 $57,500

This was a 2005 rollback foreclosed on by the Bank of New York in early June. Does anyone want to bet this will sell for less than the June sales price? And look at the 1998 price. If you calculated its rental value — and at 415 SF, it is only useful as a rental — the 1998 price is probably not far from is real worth.

Back to the behavior of lenders and our moral hazard:

By this, he seemed to mean, not only that the most reliable and useful courage was that which arises from the fair estimation of the encountered peril, but that an utterly fearless man is a far more dangerous comrade than a coward.

Moby Dick — Herman Melville

Asking Price: $399,999

Purchase Price: $427,000

Purchase Date: 3/2/2006

Address: 3 Lakepines, Irvine, CA 92620

1st Loan $340,800

2nd Mtg. $85,200

Downpayment $1,000

Beds: 2

Baths: 1.5

Sq. Ft.: 1,202

$/Sq. Ft.: $333

Lot Size: –

Year Built: 1977

Stories: 2

Type: Condominium

County: Orange

Neighborhood: Northwood

MLS#: U7003339

Status: Active

On Redfin: 1 day

New Listing (24 hours)

From Redfin, “Very spacious and open floor plan. Combination kitchen/dining/living room great room. Private patio area for a small animal, and or bbq area and relaxing. Vaulted ceilings with sky lights. Association area includes two pools & spas, tennis courts. Lakes and streams running all around complex.”

Given the whopping $1,000 downpayment, I am not surprised this would be millionaire is walking from this stellar investment. If this property sells for its asking price, the ~~seller~~ bank stands to lose $51,000.94 after a 6% commission.

The Captain wired in he had water coming in

And the good ship and crew was in peril

And later that night when his lights went out of sight

Came the wreck of the Edmund Fitzgerald.

The Wreck of the Edmund Fitzgerald — Gordon Lightfoot.

Any Way The Wind Blows

Is this the real life? Is this just fantasy?

Caught in a landslide, No escape from reality

Open your eyes, Look up to the skies and see,

I’m just a poor boy, I need no sympathy

Because I’m easy come, easy go, Little high, little low

Any way the wind blows doesn’t really matter to me, to me

Bohemian Rhapsody — Queen

Link to Music Video

Despite the obvious headwind facing the housing market, there are always those who think it is about to turn around. Today’s property is a highly-leveraged knife-catcher who is risking their credit plus a few dollars to gamble in the residential housing commodity market.

Asking Price: $739,500

Purchase Price: $685,000

Purchase Date: 4/26/2007

Address: 43 Windchime, Irvine, CA 92603

1st Loan $548,000

2nd Mtg. $68,400

Downpayment $68,600

Beds: 4

Baths: 2.5

Sq. Ft.: 1,500

$/Sq. Ft.: $493

Lot Size: –

Year Built: 2004

Stories: 2

Type: Condominium

View: Hills, Mountain, Trees/Woods, Other

County: Orange

Neighborhood: Quail Hill

MLS#: S493857

Status: Active

On Redfin: 44 days

From Redfin, “LARGEST DETACHED SAGE PLAN 4 w/ 4BR (1BR–now a den–DOWN); UNCOMMON PRIVACY W/ HILLS VIEWS FROM ALL BR’S!18 inlaid ceramic tile flring down Upgraded carpeting; Plantation Shttrs; Gourmet Kitchen w/ white-on-white appliances:LR W/ custom lited ceiling fan!Formal DR w/ custom liting & doors out to prof. landscaped bkyd (NO HOME BEHIND!)OPULENT MASTER W/ WALK-IN CLST; CUSTOM PAINT!ATT. 2 GARAGES; WALK TO ALDERWD BASICS+ ELEM; NR ASSN. COMMONS FACILITIES! AMENITIES!”

I have a difficult time reading through the schizophrenic use of capital letters, slashes and unusual abbreviations. Also, I question the validity of marketing this as a 4 bedroom.

If they get their asking price, with a 6% commission, these flippers stand to make $10,130. My guess is they are paying less than a 6% commission. In any case, it doesn’t seem like they have a very good risk/reward ratio for this trade, and it is a trade, after all. As long as people like this are trading the housing market, a normal family will never find a good deal. Of course, the crash will rid the market of flippers in a most painful manner. Also, what does it say about the health of the market when the only transactions we are seeing are flippers?

We will watch this property for an update.