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Will the Market Panic?
2008-06-11 00:00:00
Don't Panic -- Coldplay Prices are sinking like stones, and we are all done for. It it time to panic? People will not panic this year. This will be the last year of denial. Only the weakest of speculators have been flooded from the market at this point, and there are many, many more who will be hopelessly underwater and drowning in debt as time goes on. Most of the buying this year has been by foolish knife-catchers who still believe in the fallacies of kool aid intoxication and bought now that they are no longer "priced out." (Of course, now they are "priced in" forever...) There is still the widespread belief among the general public that house prices will return to the peak in a couple of years and everything will be like it was during the bubble rally. That is not going to happen. This fall and winter, prices will make another big drop just as they did last fall and winter. That drop will put fear in the hearts of everyone who owns speculative real estate (which means almost ev...
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428 Days on the Market
2008-06-11 00:00:00
Think for a Minute -- Housemartins Have you noticed how silent the bulls have become? The ones that used to hold their heads high now hang their heads in shame. Perhaps, if they had thought for a minute about paying double for real estate, they wouldn't have so many troubles now. Today's featured property has been on the market since April 10, 2007 -- a whopping 428 days. It is a story of a year of stress and wishful thinking about the market. Asking Price: $530,000 Income Requirement: $132,500 Downpayment Needed: $106,000 Monthly Equity Burn: $4,416 Purchase Price: $628,000 Purchase Date: 1/12/2006 Address: 963 Sumerville, Irvine, CA 92620 Beds: 3 Baths: 3 Sq. Ft.: 1,481 $/Sq. Ft.: $358 Lot Size: - Property Type: Condominium Style: Contemporary/Modern Year Built: 1999 Stories: 2 Levels Area: Northwood County: Orange MLS#: S482981 Source: SoCalMLS Status: Active On Redfin: 427 days Unsold in 90+ days ** Large Yard ** Premium Lot ** Fe...
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A Brief History of Kool Aid
2008-06-10 00:00:00
What a Fool Believes -- The Doobie Brothers  Kool Aid intoxication is synonymous with irrational exuberance as I outlined in the post What is a Bubble. It has not always been part of the culture here in California as people have not always believed such foolish ideas. Kool Aid intoxication is a pathology that infected the populace of California in the 1970s. Up until the mid 1970s, California had a median home sales price of approximately three-times income just like the rest of the real estate markets in the country. (Data: Median Income of Households by State: 1984 to 2006, Median Family Income by State:  1959, 1969, 1979, 1989, and 1999, California median home price since 1968.) Median Home Prices 1968-2006 In the late 1970s, the country was in the grips of a wage/price inflationary spiral. Under those conditions, people began to bid up the value of real estate partly as a hedge against inflation, and partly because rising wages made fixed payments more affordable. I...
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WOT 6-7-2008
2008-06-08 00:00:00
You can see where the subprime blew up...
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A Foolish Flip
2008-06-06 00:00:00
   Sugar Shack -- Jimmy Gilmer and The Fireballs There were people attempting flips in 2007. There were looking for their own Sugar Shack to sweeten their lives. Prices in our area were still at or near the peak, but all the signs were pointing to a downturn which was already underway in many markets. Residential real estate markets are dominated by amateurs because professionals do not bother with the headaches of what is generally a poor investment. Non-professionals by and large have no idea what they are doing, and they only make money when they get lucky because the emotions of speculators always lead them astray (remember Speculation or Investment?) Today's featured property was purchased after the collapse of subprime was front page news in March of 2007. Our would-be Donald Trump either wasn't watching the news, or he truly believed the subprime containment BS put out by the media. This guy actually put some of his own money into the d...
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Making a Small Fortune in Real Estate
2008-06-06 00:00:00
  Mack the Knife - Frank Sinatra  The people who bought properties as flips in 2007 had to put their own money into the transaction. All of these people made a small fortune by starting out with a larger one. One of the myths of the real estate bulls is the rich-foreigners-will-save-us fallacy. This myth has a hint of racism to it: foreigners must be culturally superior to have the money to come to the rescue of us poor Americans. Whenever I see this argument raised, I always link to a post done by Rich Toscano at Piggington.com called The Dumb Money. As stated in the article, "Far from being a positive fundamental, a sudden excess of foreign participation in an asset market is indicative of ill-informed speculative money at work. When the foreigners really start piling on, it's always a good sign that the end of the bubble is nigh." As you might have surmised, today's featured property was a flip attempt by someone with a non-Westernized name (as was yesterday's.) The ...
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My House Is Worth More
2008-06-05 00:00:00
Luxurious -- Gwen Stefani Some people still have not figured out there is an epic price crash taking place. When you look at the asking prices in Irvine, people are still of the opinion their houses are worth at or above peak prices. The fact is that prices have dropped more than 20% and they continue their downward descent. Even when confronted with neighboring properties selling for less, people lapse into denial and believe "my house is worth more." I guess $15,000 in pergraniteel can add $150,000 in luxury value to a property. Who knew? Asking Price: $800,000 Income Requirement: $200,000 Downpayment Needed: $160,000 Monthly Equity Burn: $6,666 Purchase Price: $556,000 Purchase Date: 7/24/2003 Address: 206 Tuberose, Irvine, CA 92603 Beds: 3 Baths: 3 Sq. Ft.: 1,500 $/Sq. Ft.: $533 Lot Size: 999 Sq. Ft. Property Type: Condominium Style: Other Year Built: 2003 Stories: 2 Levels Area: Quail Hill County: Orange MLS#: P639605 Source...
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There Goes the Neighborhood
2008-06-04 00:00:00
  Walnut Tree -- Keane Do you remember our recent discussion on Financing in a Declining Market? This REO is going to obliterate the neighborhood comps. Any property the lender considers comparable to this one will not get good financing (it doesn't matter what we might think is comparable, it only matters what the lender thinks.) Remember our optimistic seller one block over on Sweetan Street? Any lender is almost certainly going to consider today's featured property to be a comparable, and with a $400,000 lower asking price, anyone looking to buy the property on Sweetan Street is going to have to come up with almost $500,000 cash to close the deal (Those sellers are pwned.) This is the first real jaw-dropping price buster we have seen here in Irvine. It is happening everywhere else, and now it is happening here as well. Asking Price: $351,500 Income Requirement: $87,875 Downpayment Needed: $70,300 Monthly Equity Burn: $2,929 Purchase Price: $475,000 Purchase Date: 7/30/...
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The Place You Rent is For Sale
2008-06-04 00:00:00
  Life for Rent -- Dido Attention occupant of today's featured property: it is for sale. From the MLS description, "Driveby Only Please! Do Not Disturb Occupant. No Sign, Tenant not aware Property is For Sale ." Well, they are now. If any of you know this renter, please go tell them what is going on -- the power of the internet. Today is a great case study in what a property is really worth. We have both an asking price and a statement of what the unit currently rents for. That should eliminate most of the conjecture concerning rent. I am going to show the calculations for cost of ownership and calculate the breakeven amount for an owner occupant. Asking Price: $515,000 Income Requirement: $128,750 Downpayment Needed: $103,000 Monthly Equity Burn: $4,291 Purchase Price: $495,000 Purchase Date: 4/16/2004 Address: 437 Deerfield #130, Irvine, CA 92606 Beds: 3 Baths: 3 Sq. Ft.: 1,367 $/Sq. Ft.: $377 Lot Size: - Property Type: Condominium Style: Cape Cod Year B...
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WOT 5-31-2008
2008-05-31 00:00:00
Mr Mortgage-CA Housing Crisis - 4.25 Year of Supply! Here are some interesting housing related news stories for you: Killer Bees and the Housing Crisis A New Foreclosure TV Show! Sales of foreclosures are on the rise Buffett: Banks Are to Blame For Subprime Debt Crisis California screaming: Tales from the housing bust Lenders try to help homeowners in trouble but is it too little, too late?
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A Downtrodden Apartment
2008-05-30 00:00:00
Little House -- The Fray The distress at the low end of the market doesn't bode well for the high end. In a normal, healthy real estate market, small condos generally sell for the highest prices on a per-square-foot basis. When single-family detached homes where going for upwards of $400/SF, small condos were selling for $450/SF and up. Small properties cost more on a per-square-foot basis because the inexpensive square footage in bedrooms and living areas are much smaller, but the expensive square footage in kitchens and bathrooms are still present. Right now, in our market, the smaller condos are selling for much less on a per-square-foot basis than the larger, single-family detached homes. This situation will not persist. Either small condo prices will increase, or larger home prices will fall. I think it will be the latter. Asking Price: $349,876 Income Requirement: $87,469 Downpayment Needed: $69,975 Monthly Equity Burn: $2,915 Purchase Price: $424,000 Purchase Date: 8/4/...

Charge It to the House
2008-05-30 00:00:00
  She Works Hard for the Money -- Donna Summer HELOC abuse is just as prevalent among women as it is among men. With all the free money floating around, it is to be expected that a woman who wanted to have the finer things in life would become accustomed to a lifestyle well beyond her means. Today's featured property is owned by a woman (as the decor makes obvious,) and she managed to borrow and spend herself out of her home. There is a certain Shakespearian Tragedy element to stories like these. Today's seller made a series of bad decisions which lead to her downfall. How are we supposed to feel when we see these situations? Part of me is sad that this woman is losing her home, and part of me is not sad because she brought this fate onto herself (and I suppose a little schadenfreude is mixed in as well.) The emotions we all feel when confronted with these stories serve to teach us all not to do what she did. Asking Price: $357,642 Income Requirement: $89,410 Downpayment N...
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Apartment for Sale
2008-05-28 00:00:00
  The Apartment Story -- The National This crash is going to take a long time. Even with the record number of foreclosures and speculators giving up en masse, there are still more speculators giving up every day. It seems there is a never-ending supply of 100% financing deals gone bad. This isn't that surprising when you think about it. Every speculator has a unique financial situation and a unique stubbornness when it comes to admitting a mistake. The combination of these factors means that some will hold on longer than others, so we will continue to see these people give up one-by-one for some time to come. They will all give up, and when they do, they add more fuel to the fire burning down our housing market. Even if some of them manage to avoid foreclosure, they will sell when they get back to breakeven to get out of the bad investment. There is no way prices will consistently rise again until all these people have been flushed out of the market. With each passing month, w...
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Another Flopper
2008-05-28 00:00:00
Crumbling Down -- John Mellencamp Today we continue with our daily grind of speculators giving up. The featured property was purchased in 2005, then as much money as possible was taken out of the property, and the lender is left holding the bag. Asking Price: $474,000 Income Requirement: $118,500 Downpayment Needed: $94,800 Monthly Equity Burn: $3,950 Purchase Price: $545,000 Purchase Date: 12/15/2005 Address: 73 Reunion, Irvine, CA 92603 Beds: 2 Baths: 2 Sq. Ft.: 1,099 $/Sq. Ft.: $432 Lot Size: - Property Type: Condominium Style: Mediterranean Year Built: 2003 Stories: Split-Level View: Mountain Area: Quail Hill County: Orange MLS#: S534044 Source: SoCalMLS Status: Active On Redfin: 1 day New Listing (24 hours) Highly upgraded Quail Hill condominium. Warm, charming and very well kept. Granite kitchen countertops, stainless appliances, California Closets, fireplace, dual master bathroom sinks, and so much more. End unit with no one ab...

What Goes Up? ** Update **
2008-05-27 00:00:00
Want to see how to really destroy the neighborhood comps? How about lowering an asking price nearly 20%... Address:  1714 Timberwood Drive, Irvine, CA 92620 Old Asking Price: $499,000 New Asking Price: $429,000 What Goes Around... Comes Around -- Justin Timberlake What goes up must go down, and what goes around comes around. Markets move in cycles, and although they can trend for significant periods of time, all price trends eventually reverse. Real estate markets usually trend for very long periods, and we are only 2 years into what is likely to be a 6-8 year decline. We are nowhere near the bottom. I imagine most people with toxic financing who need to refinance really don't want to think about it. It is probably making them sick, and they can't believe it is ending this way. They are shocked it is going down. As Justin Timberlake points out, "What Goes Around... Comes Around." Today's property is part of the ongoing carnage in the Collage com...
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In Hock
2008-05-26 00:00:00
Livin' on a Prayer -- Bon Jovi I remember the atmosphere in the real estate market in 2004. There was excitement in the air, fortunes were to be made, and everyone had kool aid intoxication. It would have been impossible for those who drank the kool aid to even imagine they could lose money on the deal, particularly after the market continued higher for another 2 years. Fast forward to 2008, and most of these purchasers have less asset value than they paid, and prices are going lower every day. There is much denial in the market still. Everyone is livin' on a prayer. Asking Price: $609,000 Income Requirement: $152,250 Downpayment Needed: $121,800 Monthly Equity Burn: $5,075 Purchase Price: $679,000 Purchase Date: 6/29/2004 Address: 9 Hollyhock Dr., Irvine, CA 92602   Beds: 3 Baths: 2.5 Sq. Ft.: 1,700 $/Sq. Ft.: $358 Lot Size: - Property Type: Single Family Residence Style: Other Year Built: 1998 Stories: 2 Levels Area: West Irvine County: Orange ...

Finally? It?s Time To Buy!
2008-05-26 00:00:00
If you can't make fun of this, you lack imagination...
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When Doves Cry ** Update **
2008-05-26 00:00:00
This property went back to the bank on 1/10/2008 for $850,719. It was sold on 2/28/2008 to a couple who spent $789,000. They took out a $700,000 first mortgage, and they took out a $50,000 second on 4/14/2008. They now have $39,000 of their money into this property. Are they in it for the long haul? Or do you think they will abandon ship when the value of this drops down to about $600,000? Dream if you can a courtyard An ocean of violets in bloom Animals strike curious poses They feel the heat The heat between me and you How can you just leave me standing? Alone in a world thats so cold? (so cold) Maybe I'm just too demanding Maybe I'm just like my father too bold Maybe you're just like my mother Shes never satisfied (shes never satisfied) Why do we scream at each other This is what it sounds like When doves cry Touch if you will my stomach Feel how it trembles inside You've got the butterflies all tied up Don't make me chase you Even doves have pride When doves cry When do...
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WOT 5-24-2008
2008-05-24 00:00:00
Against the Wind -- Bob Seger On Friday, May 23, 2008 , I went to the Ron Paul rally in San Diego. My main purpose in going was to meet the man himself and speak with his senior staff and see if I could get them interested in my manuscript. If I could get Ron Paul to co-author or write a forward to my book, it would sell more copies. He mentions the collapse of the housing bubble in his stump speeches as part of the problems with a lack of fiscal discipline and the use of a fiat currency through the Federal Reserve. I bought a copy of his book, The Revolution: A Manifesto, but I didn't wait through the two-hour line to get it signed. It was a cool, blustery day in San Diego. It rained for the hour before the rally, but it did not deter about 500 people from attending and listening to his hour-long stump speech. What surprised me was the number of young people there. I did not expect his message to resonate with young people. He isn't offering any handouts. Maybe fiscal responsibil...

Financing in a Declining Market
2008-05-24 00:00:00
How Many More Years -- Howlin' Wolf Check out Howlin' Wolf's description of the blues (it's at the beginning.) It cannot be denied (rationally) that we are currently in a declining market. In a declining market, banks look at appraisals and comps differently than they do in a rising market. When prices are rising the lender will look at the highest comparable sales to determine total value upon which they will base their loan. When prices are declining like they are now, the lender will look at the lowest comparable sales or asking prices to establish the value upon which they will base their loan. This is a major headache for sellers. Remember the post I did on the big drop in Turtle Rock recently How to Lose $500,000 in a Year? Once that seller put that house on the market asking $800,000, he ruined the comps for every similar home within a mile of his location. Let's say you are the neighbor at 6022 Sierra Siena Road who is asking $950,000 for a similar property. If you find...
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20% Lost In The Woods
2008-05-22 00:00:00
House of Fire -- Alice Cooper The Village of Woodbridge is a desirable Irvine Village. It is an interesting study in the collapse of the market. Woodbridge is laid out with a large loop road framed with large duplexes giving the impression of driving through a series of manor homes. Behind this pleasant veneer is a great deal of high density housing. Outside the loop has the highest concentration of attached product while inside the loop has many large, single family detached homes. As the market decline has progressed, the low end has been deteriorating more quickly than the high end, and this has created a great disparity between the prices on the outside of the loop as compared to prices on the inside of the loop. This large disparity cannot persist forever. Either prices outside the loop will rise (which isn't very likely) or prices inside the loop will fall. People who might want to live inside the loop will find the price differential so great, that many will purchase outsid...
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A Shooting Star
2008-05-21 00:00:00
  Shooting Star -- Bad Company Sometimes when you see an egregious case of HELOC abuse, you have to ask, "On what did you spend the money?" On many of the properties we profile, the owners at least put some of the money into the property and outfitted it with pergraniteel. Apologists offer the possibility of health issues or investment, but it seem pretty obvious that most of these people just blew the money. It is living like a shooting star, you burn brightly, but it can't go on forever, and when your equity has burned up, you just fade away. Today's featured property took over $400,000 out of their home, and it is being offered for sale as a fixer upper. So I ask again, "On what did you spend the money?       Asking Price: $499,000 Income Requirement: $124,750 Downpayment Needed: $99,800 Monthly Equity Burn: $4,158 Purchase Price: $210,000 Purchase Date: 7/11/1997  Address: 5 Star Thistle, Irvine, CA 92604 Beds: 3 Baths: 2 Sq. Ft.: 1,600 ...

Walk Away
2008-05-21 00:00:00
I'll Walk Away -- James Hunter Calculated Risk recently had a post Freddie Mac on Walking Away. During a recent conference call, the following exchange occurred: Analysts: What do you see? Is it in line with historical default rates as they get underwater or does it ...Freddie Mac: No, it is different. The rate of increase in defaults in that part of the population is much steeper. For those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth, if they find themselves quickly underwater - you know we're even seeing it when we try to modify and renegotiate those loans - they are walking away. They're finding it not constructive. In short, when people go underwater, they are walking away from the property. We now have some statistical proof this phenomenon is occurring. Statistics are great for discussing macro trends and the like, but we take a microeconomic approach here at the Irvine Housing Blog: we show you the properties the owners are ...

We Will Spend You
2008-05-21 00:00:00
We Will Rock You -- Queen As far as HELOC abusers go, today's sellers are just like boys playing in the street. They made a big noise, tried to take on the world, and ended up a big disgrace. The market put them back in their place. HELOC abuse crosses all socioeconomic lines. We have profiled high end, middle class, and now small-time condo owners freebasing the kool aid and spending themselves out of house and home. Everyone has ambitions to better themselves and their station in life. However, some people hatch plans to accomplish this goal that are not completely successful. Sometimes it is just fate or bad luck that causes some people to win or lose in life. Sometimes it is bad execution, and sometimes it is just bad planning. HELOC abuse would fall in the "bad planning" category. How was this supposed to work? Even if the kool aid dreams were true and you could perpetually borrow against your house as it increased in value. What is the end game? Is there no limit to the amoun...

WOT 5-17-2008
2008-05-18 00:00:00
Joni Mitchell - My Secret Place This is an open thread. There is no specific topic. The post which follows is merely intended to stimulate conversation. You are forewarned that the images are a bit risqué. 107 Stepping Stone Irvine, CA 92603 Price: $625,000 Beds: 3 Baths: 3 Sq. Ft.: 1,750 $/Sq. Ft.: $357 Lot Size: - Property Type: Condominium Style: Traditional Year Built: 2004 Stories: 2 Levels View: Hills, Park or Green Belt, Has View Area: Quail Hill County: Orange MLS#: S532361 Source: SoCalMLS Status: Active On Redfin: 1 day New Listing (24 hours) Stunning Home with Premium Location overlooking Greenbelt w/Soaring 20 foot Ceilings and Bedroom plus Full Bath on First Level! This home includes 3 Bedrooms + Office + 'Secret Room' as well as a 2+ car garage that can park 3 cars! Relax on the Large Covered Front Porch or the Even Larger Rear Patio on the Second Level with a View of the Hills! Elegantly Upgraded with...
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$186 Per-Square-Foot in Irvine
2008-05-16 00:00:00
This Ole House -- Stuart Hamblen Today's property sets a new low standard in Irvine . This is the first property I have seen below $200/SF. Granted, it is a fixer-upper, but those properties will always be the low-price leader. I really did not think we would see price levels this low in 2008. This is the kind of property that will interest me in a couple of years. If you find a house in need of major cosmetic surgery (but nothing structural), you can buy it with FHA financing and take what would have been your 20% downpayment and renovate the property to your taste. After the renovation, you can get the property reappraised, and hopefully, you will have added enough value to be able to stop paying private mortgage insurance. At that point, you are in a house finished the way you want it for equal to or less than a "normal" property in the community. Right now, it would just be a money pit, but when we are closer to the bottom... Asking Price: $499,000 Income Requirement: $124,750...
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Double Down
2008-05-15 00:00:00
Two as One -- First to Last   When your playing blackjack and the dealer has given you great cards, you have the option of taking one more card and doubling your initial bet. When the odds are in your favor, it is a smart play. Since the real estate market was a "sure thing," and prices always go up, it makes sense that people would have doubled down in the real estate market. The more property you owned, the more money you made. Well, at least that was the idea after a few kool aids. If you made the mistake of drinking the kool aid in the summer of 2006 and buying two low-end properties right at the peak, your double-down bet was a short cut from first to last. Asking Price: $359,000 Income Requirement: $89,750 Downpayment Needed: $71,800 Monthly Equity Burn: $2,991 Purchase Price: $500,000 Purchase Date: 8/30/2006 Address: 15 Bellevue #1, Irvine, CA 92602 Beds: 2 Baths: 2 Sq. Ft.: 1,280 $/Sq. Ft.: $280 Lot Size: - Property Type: Condominium Style: Other ...
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The Price of Being Wrong
2008-05-15 00:00:00
Nantucket Sleighride -- Mountain Don't cry little Robin-Marie 'cause you know you're losing your home... It always makes me sad when I see these foreclosures and short sales with pictures from the children's rooms. The disruption to family life caused by the Great Housing Bubble has only one precedent in the United States: The Great Depression. Hopefully, this family will be able to move into a comfortable rental rather than a tent city or Hooverville, but they will have to move. Basically, anyone who bought late in the bubble rally is underwater, and these homedebtors will fall into one of two categories: 1. Those who are forced from their homes (or choose to leave), and 2. Those who are trapped in their homes. It is difficult to determine who is worse off. Those who are forced from their homes will have ruined credit and difficulty in obtaining a home in the future. Those who are trapped in their homes have a complete lack of mobility to take promotions and crushing debt servi...
More About: Price , Wrong

Middle Class HELOC Abuse
2008-05-14 00:00:00
Country House -- Blur The posts we do on over-the-top HELOC abuse are gripping because the dollar amounts are so large. However, focusing only on the extreme cases gives the impression of HELOC abuse is an unusual behavior of a few spectacular cases. HELOC abuse is not unusual or uncommon: it is widespread, and it is going to pummel the middle class. What possesses people to borrow and spend so much money that they lose their homes? The simple answer is that they didn't think they would lose their homes. Most believed their house values would go up forever and their house would pay off all their debts. All they had to do was continually refinance with very low interest rates and service the debt will a little of their work income. It never occurred to them that they might actually be required to pay down this debt with their wage income. But even if people drank the kool aid and believed this pathological nonsense, why did they take the money out and spend it? Why not let it accumu...
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Equity Inferno
2008-05-14 00:00:00
  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 t...
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