I heard a song reminded me of long ago
Back then I thought that things were never gonna change
It used to be that I never had to feel the pain
I know that things will never be the same now
I wanna go back
And do it all over again
But I can’t go back I know
I Wanna Go Back — Eddie Money
With all the rollbacks we are seeing in the market, do you think some of these homeowners would like to go back and do it all over again — and perhaps make different choices? I imagine they are feeling the pain…
Asking Price: $639,000
Purchase Price: $622,500
Purchase Date: 11/23/2004
Address: 110 Reunion, Irvine, CA 92603
Beds: 3
Baths: 2.5
Sq. Ft.: 1,300
$/Sq. Ft.: $492
Lot Size: –
Year Built: 2005
Stories: 2
Type: Condominium
County: Orange
Neighborhood: Quail Hill
MLS#: S489036
Status: Active
On Redfin: 67 days
From Redfin, “Stylish ultra luxury detached residence in highly sought after Quail H ill development. Nestled in back of CDS – very safe & quiet! Loaded w/ model upgrades, this gorgeous residence will not stay on the market long! Great floorplan enhanced w/ hardwood flooring, recessed lighting + base & crown molding. Gourmet kitchen w/ granite countertops, splash & under cabinet lighting. Upstairs bedrooms & loft. Large master suite w/ walk-in closet & bath. Charming garden patio. Resort quality association.”
Wow! Ultra luxury. Not just ordinary luxury, but ultra luxury… It must be on par with Burj Al Arab.
It won’t stay on the market long — only 67 days so far…
And, of course, another gourmet kitchen…
.
.
This one is not technically a 2004 rollback, yet. The asking price is still above the purchase price, but with 67 days on the market, I highly suspect the final sales price (if there is one) will be under the purchase price. If they can get their asking price, they stand to lose $21,840 after a 6% commission.
Asking Price: $679,900
Purchase Price: $586,500
Purchase Date: 11/1/2004
Address: 86 Reunion, Irvine, CA 92603
Beds: 3
Baths: 2.5
Sq. Ft.: 1,300
$/Sq. Ft.: $523
Lot Size: –
Year Built: 2004
Stories: 2
Type: Condominium
County: Orange
Neighborhood: Quail Hill
MLS#: S483874
Status: Active
On Redfin: 10 days
From Redfin, “Quality upgraded home with granite counter Tops, ceiling fans in each room, upgraded carpeting, hardwood floors throughout fist floor with 9 ft ceilings. Wood blinds, natural slate courtyard, recessed lighting, and more. Ample parking, walking distance to pools, schools, and shopping. Bright home in a very quiet surrounding. Lowest priced Sage plan 3 California Pacific Home.”
fist floor?
umm… This isn’t the lowest priced Sage plan 3. The unit profiled above is…
.
.
This property is listed for a wishing price. 110 Reunion is an identical plan offered for $40,000 less. In short, they are at least $60,000 overpriced.
In a strong market, this seller might get their wishing price, but in a declining market, it is a race to the bottom. 110 Reunion is currently in the lead.
“The asking price is still above the purchase price…”
It won’t be long before the masses realize potential buyers carry all the leverage in these deals. Now that we’re seeing YOY price declines and tightening lending standards the smaller pool of buyers with good credit and cash down will want a good chunk of equity protection “priced in” on the sale. for example, if I were the buyer of this property with 20-30% down (~$100K-$150K), I would want the price to come down to a level that made me relatively sure I wouldn’t have buyers’ remorse next year (let’s say $500K or so). If I couldn’t find a seller willing to meet these conditions I would get that price protection by just waiting another year, or two, or three while I continued to rent. Welcome to the “new paradigm” of housing; cut your price and sell now or sell it for even less next year.
—–
Judicious 1,
I agree with you completely…….cut the price now and sell or wait a year and cut the price, or two years and cut more. The interesting thing is that the only indicator of how much to cut to get the attention of a buyer is set by the price declines of new houses. The OC register says new houses are selling about 23 % below last year, and if you add 5 % concessions(add ons) that is a 28% price reduction.
So a place like this should sell pretty rapidly if priced at about $490,000. I believe that we will see places like this selling for between $260,000 and $300,000 before the market starts to rebound.
QFT!
But people are REALLY resistant and who woulden’t be. They purchased from the heart, not the mind and of course are very “insulted” that you would ask them to offer a MUCH lower price.
Anyways good luck
-bix
Irvine Renter…You ROCK! The data is amazing..but the songs you use are out of this world. That Eddy Money hit is one of my favs. and to have the lyrics AND a link to the music video on a real estate blog is just amazing. Above and way beyond the call of duty.
The thing is, I STILL think these houses are overpriced…even at their “rollback” prices…but maybe I am the naive one living in never-never land.
Keep the good tunes coming!
I have a friend who bought their house in 2005. They currently have the house on the market due to a job transfer (they have since moved and the house is now empty.) They can comfortably pay the monthly mortgage payments and the monthly maintenance bills. They have now dropped their price to the “break even” point with re commssion (the realtor has even dropped her commission to 4%.) They know they have to drop their price again to stay with the market; however, they would then have to write a check out at closing since they would be selling at a loss. They don’t have ~ $20,000 to do this. So, the house sits on the market while their neighbors keep dropping their prices. It’s getting scary out there!
In a declining market, that decision will lead to bankruptcy. If they reach $20,000 in the hole, even if they have to do in on credit cards, at least they can get out. A year from now, and prices have moved $80,000 away from breakeven, and the cashflow drain is killing them, what options will they have?
IrvineRenter, I totally agree. When they first put it on the market, we suggested they have a competitive asking price – even lower than the comps. We told them they should get out while they can and be happy if they break even. They didn’t take our advice and were “greedy” with their asking price. They are now paying for that decision. Every time they have reduced their price they have been behind the eight ball with their competitors. Now, we suggested they drop the price below comps and get out even if it requires taking out a loan to get out. I don’t think they will be taking this advice either. As friends, we make the suggestion only once – after all, it is their decision. They are learning a tough lesson though. Greed can really nip you in the butt.
How can they comfortably make their mortgage payments but can’t write or negotiate financing for $20k? Doesn’t make any sense.
Your 15 minutes starts with a WA Post shout-out:
http://www.washingtonpost.com/wp-dyn/content/article/2007/07/27/AR2007072701693.html?wpisrc=newsletter&wpisrc=newsletter&wpisrc=newsletter
n cty – the are able to comfortably make their payments and I’m sure they would be able to get a loan for 20k. They are in the position right now where they don’t want to sell at a loss and have to make a monthly loan payment for something they don’t have any more. So they haven’t reduced their asking price enough to entice a buyer. I guess they think some buyer will come around and buy their house at their current asking price.
$523/sf is still wacko. It’s a townhome people!!
Just curious what the consensus is on the multi unit rental property market. I own a four plex that has seen a nice run up over the last couple years. Currently, I am cash flowing about 1K a month. I defintely have some upside in rents. Could probably squeeze out at least $800 a month more. However, I have all long term tenants. They all pay on time and don’t cause me very many problems. Actually one tenant has lived there since the seventies. I am debating with my wife whether to sell or keep long term. My feeling is to sell the property and pay cap gains and potentially buy again for less money or I could take on paper losses while I essentially mange the property for essentially free. When I mean free, I mean the cash flow I am making on my on paper equity is substantially low. Considerably lower than the return on a interest bearing checking account. If anyone has any decent links for multi unit residental property market outlloks, i would be grateful.
first off, great blog! I’ve been crunching some numbers and I figure a 500k house 20 percent down, $200HOA 6.5% rate, 1% property tax and after I write a check for well over 100k for the down payment I’m looking at a monthly cost of almost $3200 per month. I’m just wondering what percentage of the population in Southern Cal can handle these monthly numbers without resorting to a top ramen life style. For someone making 100k a year this is well over half of their take home pay. I wonder what portion of 2002 and on home buyers would have been able to purchase their homes with 20 percent down and a 30 year fixed. These prices are just insane. I don’t see how these folks can save dime one towards retirement while servicing insane morgage debt. Now that banks are pulling their ARM, teaser rate products I’m wondering by what percentage the eligible buying pool in CA has been reduced.
I constantly wonder who is making this kind of money but everytime I turn around, one of my friends is getting a new job for $100k+ and we all graduated undergrad just 5 years ago. Some of my engineering friends make about $150K and they are under 30.
Perhaps there are more 6 figure jobs out there than we think. Also, if both household members are working, $3200 a month is very feasible.
I haven’t read any SoCal income surveys recently so I really don’t know what the numbers are. Of course I picked that 500k home example out of thin air. What exactly do you get for 500K? You get some crappy 2 bedroom condo surounded by dozens of other crappy two bedroom condos. Would I be willing to make the level of financial sacrifice require just so I could own one of these things? Does owning a decent house in SoCal require dual incomes? Aren’t these folks who are spending 23 of their monthy take home pay on their homes living on borrowed time unable to invest and save for the future while being a job loss or major illness away from financial ruin? I dunno. At this point security to me means staying in my crappy condo rental and saving as much as I can. I would sure hate to be one of these underwater foreclosed on ex homeowners. Scary!
what are you engineering friends doing? I am an analog designer with a PhD in Electrical Engineering + 5 yrs experience and I make about 140k. Are your friends working for BRCM and including options? When I interviewed there they offered me 110k + options (which are currently in the toilet).
Let’s assume for a moment that there are plenty of people who can afford a $3,200 a month payment — an assumption not backed by household income statistics — why would people in those circumstances buy a crappy condo when they could rent a great 4 bedroom home for the same money?
The only reason anybody would do this is if you believed you were going to make a huge return on the extra money you were dumping into a mortgage. Once that delusion passes, nobody will be willing to pay current asking prices. Prices will fall.
we are in the same field.
150K seems excessive for engineering job here in OC.
ur brcm offer is more of a normal salary.
If 150K is the norm, I have few friends interested in
Stating the obvious:
The reason people have been willing to pay so much for mortgages is that they have been convinced that prices will continue to rise. A quick $100k in equity is better than an extra year’s salary for most, and you don’t have to wait until retirement to spend it. Foolish. Short sighted. Ubiquitous.
Once its clear that prices will no longer be going up you get the opposite kind of stampede. Prices go down just as quickly as they went up. The limiting factor here is that once you go upside down on a property it takes *real* money to get out. People haven’t got it, so they tread water hoping for the best.
Changes in the bankruptcy laws a couple of years back will, ironically, slow the downward trend. People making OC wages now have a harder time just walking away and filing Chapter 7. If that were still easy to do, it would be happening a lot more, as it would enable folks to free up their income for other uses rather than continuing to service a bad mortgage.
btw, option fraud, what brcm is doing now, can’t last longer. another reason we are heading to reality.
wisewithmoney,
its a small world in analog design… we might know each other *wink*. I work in Redondo Beach… that should be enough of a hint of my company. The 140k is including bonus but not options. I make 120k base. Still its a really good job and I cannot buy house without suicidal loan!
I have few friends and co-worker who have bought their houses more recently (2005 – 2006). they really have difficulty catching up with their monthly payemt. basically, they save no money for retirement, emergency etc. One had to lease a bedroom.
anyway, I wonder if these people with well above average salary can’t afford a below average home in a financially and emotionally healthy manner, who can. People have a very short memory, appearantly they had lost sense of 1M home.
Seems obvious to us, but there is still a large majority who fail to see this simple truth.
IrvineRenter
Great blog!
I agree completely! How does one justify $3200 for a 2br. condo???
And you are dead on the rental rates. We are currently renting a 4br, 3ba NICE house in Woodbridge, end of cul de sac, “gourmet kitchen”, hardwood floors, in great shape! (the owners moved up and we are the 1st renters of the house). Built in BBQ, rose garden!
And the price for all this??? You got it! $3200/mo, 24mo lease!
And now for something completely different! Apparently there are at least 2 others here who are also into Analog! Which is a rare thing!
Rent, wisewiththemoney— either of you doing analog IC’s by any chance? I am always on the lookout for some experienced designers, and would not mind to talk shop and/or future possibilities.
I have >20 years experience, so I guess I am an old timer though I don’t feel it!
MoJo-
I guess my point is if they can make the monthly payments comfortably (they are now at the break even point so their combined payment is probably around $4k/mo) and the house is sitting empty–drop 20K and be done. Sounds like there is alot more to the story.
Bill,
I am in the same position with my 16 units in Costa Mesa. Realistically, the ONLY way to get the money out is to 1. leverage or 2. sell.
Taking paper losses is fine and all but you can only do it for so long…. (5? years) before you have to show “some” profit. While many companies do this for a long time, the real money as you have stated is in equity. Possibily hundreds of thousands if not a million.
Even putting a few hundred thousand into a horrid cd or even an INSURANCE policy will make you more money. You’re just going to have to spend a few dollars to do it. My advice? If you can spare a few hundred k against your property, do so (but make sure its not more than 60-70% of total debt to value?). Throw into the market/whatever and diversify (of course two the brain cells a little so you don’t end up losing everything… i tend to go for those wimpy cds and bonds. As always review the numbers until they make sense for a go or no go, be sure to have a DISinterested party review the numbers.
good luck
-bix
Does anyone know if there is a direct route from Quail Hill to Newport Beach? I drove down Shady Canyon thinking that was the way to go only to run into a gate. It seems silly to drive around and take the 405, so I figure there must be a way that I am just not aware of. Thanks.
Mel – as far as I know you have to go around. Sometimes you can cut through Shady Canyon on the weekends if you say you are going to an Open House. But even then, some guards will ask for the Open House address. I just check the OC Register for an Open House address and give that address the guard – then we just cut through. During the week we take the 405.
You can cut through on Shady. Just tell the guard you are there for the open house. It seems to work for us – at least on weekends between 10 am and 4 pm.
9.9% of June’s O.C. homesellers were losers
http://blogs.ocregister.com/lansner/archives/2007/08/99_of_junes_oc_ho_1.html
Few Remaining Lenders Likely in Trouble
Nonbank Mortgage Lenders Are a Dying Breed As Liquidity Dries Up and Defaults Rise
http://biz.yahoo.com/ap/070801/ahm_competitors.html?.v=1
The problem in the mortgage market is “widespread across the mortgage spectrum” and no longer just a subprime problem, Howlett said.
“and no longer just a subprime problem”
Like it ever was? Only in the minds of spin doctors hoping to prop up the market while they closed their positions.
It’s not the Borrowers; It’s the Loans.
Subprime Defaults Blamed for U.S. Earnings Setbacks (Update3)
http://www.bloomberg.com/apps/news?pid=20601109&sid=aBs95yG0JmB8&refer=home
Some of the jobs my friends and I have and their respective salaries. These aren’t including options or stock or other benefits – these are just straight up the total that their companies report to the IRS in the W2. I am including my non-engineering friends as well. And just to clarify, my reason for posting this is to point out that the median income doesn’t really describe the real earnings that people have in OC.
Fortune 500 Sales Engineer – $135K
Sr. Software Engineer for ecommerce site – $140K
QA Analyst – $90K
Software Sales Rep – $85K
Account Mgr for Health Insurance sales – $50K
AVP in Large Bank MBS team – $300K
HR Manager – $60K
The Big Bank person is the only non-OC person on that list. All of us are under 30. I think we need to dig deeper into the median income because to me, it really doesn’t represent the people I see buying the houses in Irvine.
IR – I really think we need to look into the median income. We laugh all the time at the median home price and clearly understand why it is rising in a falling market. However, we use the median income constantly to defend our position that people simply can’t afford the houses that they are in.
Isn’t it possible that there exists a large spread in incomes between the folks living in OC and though the median is around $85K, it is very possible that a large group that makes more exists above that?
Also, what is included in these income statistics? Is it just my wages or does it include investments. Frankly, with the number of people here who have been saving and are ready for large downpayments, their interest earned in the bank alone is well above $10K per year.
And it’s not just mortgages. Mortgages and the derivatives thereof are the tip of the iceburg.
rkp,
I think your view of incomes is subject to what they call “selection bias.” In other words, the people you know are not a true cross section of Irvine. The government compiles these statistics, and they are reliable indicators of home prices in most places most of the time. There is no reason to believe that everyone in Irvine makes more money than the statistics show — although bulls make that argument every now and again.
Statistically, it is not possible for a large number to make more than the median. Exactly 50% will. That is the definition of a median.
You also may want to consider the possibility that the people you know are not being entirely truthful about what they make. People who really are making a lot of money would never tell you, and people who are not making a lot will tell you, and they will exaggerate the number to impress you. I am not saying your acquaintances are lying, but anecdotal evidence of income is often unreliable.
I have no idea who you know that is actually saving money. That is a rarity in Southern California. People here only spend money: nobody actually saves any (well, some do, but you get my point.)
Back when 20% downpayments were the norm, people would save money for their downpayment, but once that requirement was removed from the system a few years ago, nobody has been saving any money.
To answer your question more directly, all sources of income are included in government surveys, but I do believe they exclude capital gains.
according to census2005,
Less than $10,000 6.6% of total households
$10,000 to $14,999 3.4%
$15,000 to $24,999 4.6%
$25,000 to $34,999 5.3%
$35,000 to $49,999 9.4%
$50,000 to $74,999 15.9%
$75,000 to $99,999 13.2%
$100,000 to $149,999 20.1%
$150,000 to $199,999 10.8%
$200,000 or more 10.2%
census irvine data
If you purchased in 2004 with an option 3/27 ARM you probably didn’t need to spend much to live here. Of course that’s all changed. If you only think about the monthly payment, this is how you justify the price. It may have been no worse than renting for 3 years.
Morons of Orange County
http://www.slate.com/id/2171235/
“… Irvine has become the nation’s capital of real estate folly.”
Another Irvine-based operation, IrvineHousingblog, brilliantly drives home the same point with daily dispatches. The blog is a guide to the seventh circle of real estate hell—people who buy houses on spec with no money down.
Analog_IC,
great, so far three analog, there might be more
I have been doing rf/analog design for 12+ years
Long time reader; first time contributor…
I am not an expert in the RE so I don’t have any professional input for the public.
There is information from local realtor flyers people should know. Take Sienna plan for example:
Properties sold since 4/07 by street name and price
Symphony $1,430,000
Ambiance $1,435,000
Mosaic $1,500,000
Retreat $1,615,000
Luminous $1,760,000 (large corner lot, end of cul de sac)
Properties currently on the market by street name and price
Symphony $1,759,000
Ambiance $1,798,800
Mosaic $1,820,000
Retreat $1,849,000
Retreat $1,899,000
Pageantry $2,250,000
This tells me that the current market prices will not sell unless they rollback to the prices of previous years. I don’t know how far they should rollback to but looking at above the answer is at least 10-20% at this time.
I believe QH prices will drop more. If you live up in the hills, you would realize that all the streets are one big parking lot filled with parked cars all day and night! There is a Super Shuttle blue van park in front of a Sienna home and another limo park by the pool most of the time. I assume these are very wealthy drivers live in million dollar homes. I thought home association would have something to say.
I know this is an Irvine Housing Blog but wouldn’t most people here rather live in Newport if they could? After they build out Laguna Crossing, Orchard Hill, Portola Springs, Woodberry, Woodberry east, and rest of the military fields, Irvine will not be the same place from where I graduate elementary school…
Oh well, thanks for all the tips from this blog. I will be saving money, interpret good date, and eventually making a worthy contribution to that tip jar!
Interesting article.
Are We at The Peak of a Minsky Credit Cycle?
http://www.rgemonitor.com/blog/roubini/208166
If those are sales, I guaran-damn-tee you they were purchased by the realtor. The realtor will make proceeds from the sale as well as get cash back at closing, all while setting a new comp for the neighborhood.
Ahh don’t you love realtors?
months ago there was a thread where someone asked: why not live in newport beach if the costs are comparable? i still remember someone’s reply, “because (s)he is asian, and felt more comfortable in irvine…” (i’m paraphrasing).
we are asian too, and let me chip in with our own experience: we relocated from the east coast in ’03, and rented in the newport bluffs complex (on macarthur and bison) for a year. that year our 5-yr old son was miserable in school and my wife was unhappy because she was unable to make friends with neighbors or other moms in school. she felt people were rather happy staying within their cliques.
maybe things would have turned out better if our son had started the school year in september instead of november, or if we didn’t live in a rental complex (the school implicitly said they didn’t want us because we were renters and they didn’t expect our child to stay for more than a few months), or if we had lived on the peninsula instead of up the hill (i’ve observed people are friendlier on the peninsula)…we’d never know, would we?
i didn’t have as much interaction with neighbors and other parents, and it really wasn’t bad living in nb. but i definitely thought the friendlier people in nb were (a) those who worked there but didn’t live there, and (b) those who just moved there from another town.
i wonder if that’s the subliminal reason that we picked quail hill over turtle ridge, that we just wanted to get away from nb as fast as we could…
we had no idea quail hill would turn out to have such a high asian population though, that’s a fluke…
I think it would be wonderful if those sales are to realtors. They will get to enjoy the much vaunted growth of their equity in the coming years with those keen investments.
Wise,
Considering that Analog is a rather small world, what an interesting coincidence to meet up on this blog.
I wonder what it means? that the Analog guys are smarter than the avg. bear? 🙂 Or that IR is running a blog that is smarter than the average OC bearblog?
Well, it is late, and I am out of ideas. But we should chat anyways! We don’t do RF – we are using the ancient 0.35u still and getting away with it!
Would love to talk more. Cheers.
almon – I don’t know if the lack of civility you experienced was because you are Asian. We are about as waspy looking as they come and we found the folks in nb to be rude and unfriendly.
Guys,
I’m analog IC designer #4! I’ve been posting on here for a while. I moved away from OC last May and now work in North Carolina. I’m currently working on CMOS RF front ends. I was doing multi-GHz ADCs in OC. I have a PhD and almost 5 years of experience in analog signal processing.
Rent in costa mesa, wisewithmoney, analog_IC: please write me at carl_r_grace@yahoo.com I would love to keep my networks expanding in OC. I plan to return in a few years or so.
IrvineRenter,
Just so you know, Analog IC design is a niche of electrical engineering. It is considered “too hard” by most students, so tends to pay better (and is more interesting) than other specialties. There are very few of us compared to other engineering specialties, and it is quite remarkable that at least 4 read your blog. I am sure there are more. Sorry to get so off topic… but there are some smart people reading the blog!
Dr HB had a post on Minsky too:
http://drhousingbubble.blogspot.com/2007/07/housing-minsky-moment-3-factors-prime.html
Ohh forgot to say, another engineer here, but mechanical engineer. I just happen to be one of these “specialized project ” dweebs. I’m solidly in the bunch with 15 yrs. exp but i’ve gone contractor a few times. The pay is much better, but the benefits are really that great.
-bix
Agree with Irvine Renter about salaries–and I know my bonus is included in my W2 wages. Bottom line is that it is near impossible to save money in Socal, you need to move into the area with leverage. At least 10% downpayments should be required for the risky loans. So sock away at least $60K free and clear to get into market. And then have at least 3 months worth of mortgage payments in liquid savings to float between bonuses, commissions, job changes, etc.
We did a drive by of Portola Hills the other day and at the pace they’re building they’ll have nothing to sell soon.
That is to say, that except for a few homes that had been framed, I didn’t see much other work. No new slabs… and the builder saleslady didn’t even know when they’d release the next phase of homes.
So, perhaps there will be next to no new homes next year… Or the builders will start to build cheaper homes.
On the former, that is very scary for the economy. On the latter it will be healthy for all but those who bought those overpriced McMansions during the last four years.
Analog stuff. ROTFLOL… that’s easy stuff. I used to smoke diodes like chinese firecrackers all the time. Besides, nowadays we spec the power supplies from China anyhow.
The hard stuff is embedded FW or maybe VHDL stuff with some MIPS/PPC cores thrown in there for fun.
And, damn… it sounds like I’m underpaid.
Time to get me a huge Home Equity loan and buy me a fancy Benz to make me feel good. Maybe I’ll drive down to Quail Hill and do lunch with the President of their HOA. He might have some good investment properties that I might sink some money into.
Bottom line is that I’m beginning to understand this…. engineers as a rule are impervious to image. Hence we tend to read through bullshit faster than even attorneys.
And the RE market is built on 50% reality and 50% BS.
One of the reasons why the median income as a rule of housing affordability may not work that well in a city as new as Irvine is that we have a large group of retirees that have owned their homes since the very late 60s and early 70s.
This clump of people can easily skew the numbers because many live in the older expensive areas -TR- and have little or no mortgage payments. Hence, at incomes of around $100K or less they live better than others who bought much later and make $200K or so.
I dare say this is one of the side effects of how Irvine was built on villages over many years. Unlike an older, more traditional city with growth spread through the whole city, Irvine has not done this.
I figure that as the city matures and becomes more age homogeneous then you will see less a better distribution accross all age groups in the villages.