Passage

Now here you go again

You say you want your freedom

Well who am I to keep you down

Its only right that you should

Play the way you feel it

But listen carefully to the sound

Of your loneliness

Like a heartbeat.. drives you mad

In the stillness of remembering what you had

And what you lost…

And what you had…

And what you lost

Dreams — Fleetwood Mac

Link to Music Video

Doesn’t that song capture the frustration of missing the market peak, and now you can’t get out?

Today’s post, in its entirety, came to me as an email from an anonymous fan. Enjoy.

47 Passage Front 47 Passage Kitchen

Asking Price: $600,000

Purchase Price: $612,500

Purchase Date: 11/19/2004

Address: 47 Passage, Irvine, CA 92603

1st Loan $359,400

Downpayment $253,100

Beds: 3

Baths: 3

Sq. Ft.: 1,582

$/Sq. Ft.: $379

Year Built: 2004

Stories: 2

Type: Condominium

View: City Lights, Mountain, Panoramic, Park or Green Belt, Trees/Woods, Has View

County: Orange

Neighborhood: Quail Hill

MLS#: S497537

Status: Active

On Redfin: 73 days

From Redfin, “Designer touches and upgrades compliment this beautiful home in the heart of Quail Hill. Travertine flooring, granite counters, stainless steel appliances, plantation shutters, designer paint, and surround sound make this home a delight. This perfect Quail Hill location allows walking distance to the association pool, fitness center, tot lot, restaurants and shopping. Quail Hill is located just minutes from the entertainment center called the Irvine Spectrum and the beautiful Laguna Beach.”

.

.

If today’s seller gets their asking price, they stand to lose $48,500 (after 6% commission) after three years of ownership. They have the equity to absorb the blow, but it must still be quite disheartening. What is unique about this home is that it was purchased from William Lyon Homes (the builder) brand new. There has been no price-inflating flipping on this property. This one underscores how bad the bubble was: Purchased directly from the builder in 2004 and they are hoping to get out with “just” a $50,000 cash equity loss. But wait! Don’t home prices in Orange County ALWAYS go up?

63 thoughts on “Passage”

  1. Don from the Tanning Salon

    Trudging up those front stairs to get to the front door is symbolic of climbing the mountain of debt you have to take on to “own,” the place. At least when you get inside, it’s nice enough. But it’s still a condo, and that’s an awful lot of money for a condo, three bedrooms or no.

    Lindsey Buckingham is underrated as a guitarist. Listen to his work on “The Chain,” right after the quiet part when the bass line comes back in and just repeats. Right around 3.17 on this youtube clip https://www.youtube.com/watch?v=Csatmi34YEk Oh, and I never realized how short John McVie was.
    —–

  2. doug r

    How does that plastic playground equipment stand up to the UV light after years in the Southern California sun?

  3. NanoWest

    Its nice to see units in the “nice” neighborhoods going for less than $400 per square foot. I would guess that this place would sell within 90 days if it was priced at $320 per square foot. Most likely these owners will get to that price with $20K price reductions every month or two over the next year or two.

    As prices start to erode, it is interesting to see people price their homes “aggressively” only to find out they need to be even more aggressive with pricing. More in more places are showing up for less than $300 per square foot in Irvine.

  4. Diana K

    This one actually looks nice.

    I’d think about buying it if I lived in Irvine.

    For a much lower price.

  5. James G

    Your financial breakdown of what either would be required to get into this house seems a little unrealistic. The first loan amount of $359K seems reasonable enough, and is probably what the condo should be selling for, but the downpayment of $253K works out to 42%!!

    Unless a buyer was able to sell another house (where/when they were actually able to sell), and make that kind of profit to put it into new home, that’s pretty unrealistic. If so, they probably wouldn’t be looking at a 3/3 condo.

    Just my opinion 😉

  7. Dylpar

    Just wanted to add that the builder is actually John Laing. Not sure where they got William Lyon. My brother lives a few doors down.

  8. Anon

    Dylpar, you are correct. The builder is John Laing. The seller of record is WL Homes LLC. I assumed (you know what happens when I do that) that those initials stood for William Lyon. It actually comes from Watt and Laing, when there was a merger between the two. My bad…

    James G, the only debt on the property is the 1st TD for $359K, leaving the balance as a downpayment. I don’t find this unusual at all….except for this blog, which has “selection bias”.

  10. Stupid

    This price is interesting, as the seller actually has enough equity to give them the flexibility to lower the price.

    Having looked at various Quail Hill places still asking too much, makes me wonder if many if the sellers just don’t have enough equity to drop the price further – all they can do is put a wishing price on it and wait for foreclosure.

  11. hoover

    Just a thought, but the loss isn’t so significant if you consider what the cost of rental housing would be for 3 years. At 1K per month, which I am sure is less than the going rate for a 3 bedroom unit in a decent area of Orange County, that is 36K over 3 years. Shouldn’t it be rational to subtract housing costs, at least for properties which appear to be owner-occupied rather than flipper-owned?

  13. Larrygg

    Say you have the $260K to put down on this property. For a 30 year fixed mortgage the P & I would be $2400 per month. Plus the $550 in property tax plus the $450 in association fees. Does this place really deserve to cost someone $3300 a month for 30 years? And after they put down a quarter of a million dollars to get in? This demonstrates how ridiculous this housing market has been and still is.

  15. eric

    In that case you would have to add interest expense (next of taxes) as that money is “thrown away” just as surely as rent is

  16. Sue

    How to Sell in a Down Market And Get a Deal on a New Home

    http://www.realestatejournal.com/buysell/openhouse/20071003-kim.html

    Going, Going, Even Auctions Aren’t Moving Homes

    Builders and real-estate agents are turning to auctions to get rid of excess homes on the market, with mixed success. The Orlando Sentinel reports on an auction held at the DeBary Golf & Country Club that was called off because the builder, Lakeside Homes of DeBary, was losing too much money.

    “The bidding was sluggish. One unit originally priced at $355,000 sold for $165,000. And so with just a few town homes gone, auctioneer Eddie Haynes called off the sale,” the Sentinel reports

  21. Sue

    Impac Mortgage looks for tenants

    http://mortgage.freedomblogging.com/2007/10/03/impac-mortgage-looks-for-tenants/

    Impac moved into its 200,000-square-foot headquarters at 19500 Jamboree Road last year, consolidating operations from other Orange County sites.

    The company pays close to $7 million in rent at Impac Center annually. Its lease runs through 2016.

    Impac’s building, the largest at the Impac Center complex, is designed to hold close to 800 workers. Following several rounds of layoffs by Impac—including some 500 workers in the past two months—the building is believed to be about a third full.

    The company leased the space in early 2005 in one of the larger OC lease deals of that year. The deal was signed when the company’s market value was close to $1.4 billion, compared to about $120 million now.

  22. Sue

    IrvineRenter – perhaps this is behind the housing price not indexing perfectly to increase in wages pattern you noticed for a fairly long time peroid (ex. last 15 years)

    Here’s an interesting quote from Greenspan’s “The Age of Turbulence”
    (great read BTW – I am enjoying it).

    “As a consequence of the decline in long-term nominal and real interset rates since 1981, asset prices worldwide have risen faster than nominal world CGP every year, with the exceptions of 1987 and 2001-2 (the years of the dot-com bubble collapse). This surge in the value of stocks, real estate deeds, and other claims on income-earning assets — that is, direct and indirect claims on assets, whether physical or intellectual — is what I designate an increase in liquidity. These paper claims represnting purchasing poqwe that can quite readily be used to buy a car, say, or a company.”

    Also, Irvine Renter, if you guys go get yourself an Amazon Associates account (http://affiliate-program.amazon.com/gp/associates/join) you can link this and other books you might think people find interesting, and collect commisions if people click though and buy them.

  23. ipoplaya

    No way they get asking, so the loss will be more like $75-100K over three years…

    The 3/3 around the corner from this place on Stepping Stone will probably sell before this one does. They are the same size and Stepping Stone is sitting at $545K right now.

    If Passage was smart, they’d take the next offer at $550K they got and run for the hills! Or maybe in their case, run for the flatlands 🙂

  24. Sue

    sorry, correcting typos
    “interset” should be “interest”
    “poqwe” should be “power”

  25. Stupid

    Passage is a lot nice location than Stepping Stone. Stepping Stone is all packed in like sardines, all lanes and garages. Passage feels a lot nicer when you walk though that area.

  29. Sue

    Is the credit crisis over? Not so fast

    http://www.reuters.com/article/reutersEdge/idUSN0222862220071002?sp=true

    That’s frightening news for banks that already have absorbed losses on their balance sheets due to delinquent subprime borrowers. The losses so far amount to about 10 percent of the forecast of $100 billion in losses.

    “The disturbing number here isn’t 10 percent … but the $100 billion,” Pomboy said.

    With nearly $700 billion in ARMs in negative equity facing interest-rate resets, “depending on how much lenders can ultimately recover, this implies (bank) losses will be more like $210 billion to $346 billion,” she said.

    “And that’s assuming the situation doesn’t get worse.”

  31. carl

    Wow these poor sellers. The opportunity cost over three years on the 250k downpayment alone is close to 40k. Ouch!

  32. awgee

    The credit crisis over? It cracks me up the way the MSM is proclaiming that the banks are taking their pain and reporting their losses. The banks are valueing their paper using computer programs and saying they are marking to “fair value”. What in the world is “fair value”? There is marking to market and there is marking to BS. That is it. Either an asset is valued for what it will sell for or the listed value is horse hooey. And the losses they are showing, even with fantasy values, are only a fraction of their actual losses which are off balance sheet. Yea, the credit crisis is over? I am betting we just got to the first inning.

  34. carl

    Come now Awgee… “marking to BS” is so crass… its “market to model”… of course the model was made by a 7 year old boy with ADHD and Elmer’s glue, but hey! It’s our model.

  35. Genius

    What are their options to “losing too much money?” Wait until the market erodes further to try and sell? I guess they could carry their assets for another 5 years or so, but that costs money as well.

    Sellers holding onto properties longer than they should for fear of loss will only compound the depreciation; I don’t see how the scenario could play out any other way.

  36. IrvineRenter

    Let us know if this actually closes. It would be amazing if someone actually spent that much money for one of those houses in this market. It is not surprising that the realtor would be touting the escrow, even a phantom escrow.

  38. Major Schadenfreude

    Dumb Question Alert…

    What does it mean to “have equity to absorb the blow…”?

    The way I see it, these folks will lose $48,500 if they sell the house at their asking price. Or does the bank absorb part of the loss?

    (Thanks).

  39. MMG

    MS

    they put 253k down, so they can afford to go down all the way to 359k (morg balance) which would bring to about how much it really is worth. 😆

  40. Shere Khan

    “have equity to absorb the blow…”?

    I believe IR is referring to the $253,100 which was a down payment rather than a (usual) second mortgage . If ***cough*** the seller gets the price they are looking for they will at least walk away with 204, 600 quid.

  41. Jane

    If today’s seller gets their asking price, they stand to lose $48,500 (after 6% commission) after three years of ownership.

    How about this, for $253,100 down, if they put into CD with 4% avg. interest rates in last 3 years, it generates additional $30K lost. Also if they just rent same place, it may only take $25K per month, so $0.8K * 36 month = $28K. So the total lost possible around $48K + $30K + $28K = $106K

  43. IrvineRenter

    That must be one happy seller. Funny that Zillow thinks the place is worth $1.35M based on comps. This sale will put an interesting spike in the neighborhood values.

    I wonder if the other neighbors are angry because they dropped their price?

  45. OC Saver

    I must agree with you on both of your points.

    If you’ve ever heard Lindsey’s version of “Big Love” on FM’s “The Dance” album… well, it’s pretty amazing.

    Big Love Video.

  47. Sue

    Mortgage lenders in subprime ‘traffic jam’

    http://www.ft.com/cms/s/0/b7b4d912-71d5-11dc-8960-0000779fd2ac.html

    “Servicers have failed because there’s a huge resourcing issue,” said Barefoot Bankhead, managing director at Navigant Consulting. “As lenders have gone out of business, the servicing arms have been in transition without the resources to handle the enormous number of requests for loan modifications and restructuring.”

  50. Sue

    Schwarzenegger to sign home sales legislation

    http://www.centralvalleybusinesstimes.com/stories/001/?ID=6548

    With California an epicenter of the mortgage meltdown and housing slump, Gov. Arnold Schwarzenegger says he will sign three bills that he says will increase protections for Californians who own or plan to purchase homes and to expand affordable housing opportunities.

    “It is critical that we continue to take steps to protect Californians against unscrupulous lending practices and to ensure that consumers can make informed decisions,” says Mr. Schwarzenegger in a written statement released by his office Wednesday morning.

    The bills are:

    • SB 223 by Sen. Mike Machado, D-Linden, which will make it a crime for licensed appraisers to engage in any appraisal activity that is connected to the purchase, sale, transfer, financing or development of property if their compensation is impacted by the final price generated by the appraisal.

    • SB 385, also by Mr. Machado, which permits state agencies involved with residential mortgage lending and brokering to adopt emergency measures and new policies to ensure that all mortgage lenders and brokers are subject to federal guidelines on non-traditional mortgages. This law impacts the Department of Financial Institutions, the Department of Corporations and the Department of Real Estate.

    • AB 929, by Assemblywoman Sharon Runner, R-Lancaster, which increases the amount of affordable housing in California by raising the total debt that the California Housing Finance Agency can carry by $2 billion. CalHFA issues bonds to finance housing for low and moderate-income families.

  51. house on legs

    23 New Dawn did sell on 9/13 for 1,875,000 per public records. Lien amounts were N/A? Wow, you would think that people who could afford that price would actually be intelligent enough to know what’s going on in the housing sector? The sellers made a whole lot of money, original buyers of 1998 and only owed 430k.

  52. ipoplaya

    Looks like a spike down to me, at least in terms of current list prices. 23 New Dawn was 5,000sf right? $370 per sf seems means that 1 New Dawn better be prepared to drop from $2M down to $1.5-1.6M to get that puppy sold… 47 New Dawn went for $2.4M back in July. Was that much more of a house than 23? $370 per sf does seem exorbitantly high in this market though as that would suggest per sf prices still north of $400 on smaller houses in the area.

    I’d take Rosegate over Woodbury any day all other things being equal. Walk to Canyon View, walk to Northwood High, Sierra Vista is close… Being nestled up against the hills at Portola is better than being nestled up against the 133 and old military base.

  53. sunsetbeachguy

    What is the best way to learn who the original developer is for existing homes?

    Specifically, I like John Laing tracts that I have visited.

    There was one in Tustin and Aliso Viejo that had some nice neo-traditional touches. Specifically hiding the garages in a motor court.

  54. sunsetbeachguy

    2 out of 3 ain’t bad.

    More debt for CalHFA is a bad idea.

    That is quintessential hair of the dog that bit you behavior.

  55. FamilyGuy

    Just for the record, are we going to classify this buyer as a “greater fool” or “bagholder”?

  56. Trooper

    Did anyone see Barney Frank on Kudlow and Company today ? He said he wanted to appoint Jack Kemp as “Mortgage Czar”. When pressed if this would be a permanent position, Frank said, “No, it’s temporary, more like Queen for a Day”. 🙂 Mortgage Czar indeed.

    Kudlow is going to try and get Kemp on the show tomorrow for reaction.

  57. Sue

    Congress calls for “mortgage czar”
    http://news.yahoo.com/s/nm/20071003/bs_nm/economy_credit_dc

    Here’s a quote from Greenspan’s book (p.489) which obviously isn’t about mortgages per say, but is interesting to consider in the mortgage czar debate.

    “Markets have become too huge, complex, and fast-moving to be subject to twentieth-century supervision and regulation. No wonder this globalized financial behemoth stretches beyond the full comprehension of even the most sophisticated market participants. Financial regulators are required to oversee a system far more complex than what existed when the regulations still governing financial markets were originally written. Today, oversight of these transacitons is essentially by means of individual-market-participant counterparty surveillance. Each lender, to protect its shareholders, keeps a tab on its customers’ investment positions. Regulators can still pretend to provide oversight, but their capabilities are much dimished and declining.”

    which seems to be occuring (ex. I think I read somewhere that for some mortgages, bank wants it’s own property appraisal at closing, and the investors buying the mortgage from the bank also want their own independent property appraisal at closing)

  59. IrvineRenter

    I suppose we could call them a happy homeowner, but we will need to wait and see if the comps hold up.

    I am guessing either name you gave would work though. 😉

  62. tonye

    How they cut Lindsey’s guitar at the end of The Chain is one of rock’s most frustrating moments…. Just as the fellow hits his stride and starts to lay out his riffs and his guitar starts to wail, they turn the volume down and Poof!… End of the Song.

    Just as the bong was still halfway the first round, DAMN! The song’s over???

    AM Radio sucks.

    It’s obvious this cut was meant to be a “hit” so they had to chop it for AM Radio.

    OTOH, if this had been cut for FM ( remember that in the 70s, FM often would play an ENTIRE record ) they would have made that into a 7 minute cut and the bong would have done a full round the room. 😉

    You know they NEVER did this with Clapton, Pink Floyd, Burning Spear….. FM ruled the day.

    Hmm.. I think the RE market has gone from an FM kind of thing to an AM screw up, eh?

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