I dreamed I had a good job and I got well paid.
I blew it all at the penny arcade.
A hundred dollars on a kewpie doll.
No pretty chick is gonna make me crawl.
Get on a TWA to the promised land.
Every woman, child and man
Gets a Cadillac and a great big diamond ring.
Don’t you know you’re riding with the king?
Riding with the King — Eric Clapton
This song reminds me of all the people who took out liar loans to buy houses in Irvine. They dreamed they had a good job and they were well paid. They dreamed their house would take them to the promised land of Cadillacs and diamond rings, but, of course, they end up selling at a loss. A sad and repetitive story.
Asking Price: $679,000
Income Requirement: $169,750
Downpayment Needed: $135,800
Purchase Price: $699,000
Purchase Date: 6/07/2004
Address: 5112 Royale, Irvine, CA 92604
Beds: 3
Baths: 2
Sq. Ft.: 1,723
$/Sq. Ft.: $394
Lot Size: 6,300 sq. ft.
Type: Single Family Residence
Style: Ranch
Year Built: 1969
Stories: One Level
Area: El Camino Real
County: Orange
MLS#: S512070
Status: Active
On Redfin: 4 days
From Redfin, “Nicely upgraded single story , detached home in The Ranch ! Remodeled kitchen w, maple cabinets and corian counters, Large sunny great room , scraped ceilings, dual pane windows, remodeled baths , newer roof. Check out the attic and see the potential!!!!! Storage galore or could be extra bedroom. “
potential!!!!! Five exclamation points worth. Ummm, if it is nicely upgraded, hasn’t it reached its potential?
.
.
Another day, another 2004 rollback. Today’s seller stands to lose $60,740 on their 2004 purchase after commissions. With all these 2004 rollbacks, what does it say about those hoping for a profit on their 2005 and 2006 purchases. They are out there trying. Good luck.
Recently, I went through many of the old posts on the blog to look for properties to update. I kept finding the same two things: 1. Properties with minor price reductions chasing the market down, and 2. Properties taken off the market without selling.
Think about what that says about the true market inventory. During the rally, everyone who put their house for sale ended up selling it. There were no sellers unable to get their asking prices. There was no “overhead supply.” In today’s market, the inventory numbers on the MLS do not represent the true number of potential sellers in the marketplace because there are so many sellers who have given up.
If there was even a small amount of sales activity or price appreciation, these sellers would relist their houses and add their stealth inventory to an already overbloated inventory number. So when you look at the dismal numbers for “months of inventory” on the market, consider that the numbers are much, much worse that the statistics show. If you don’t believe me, go through the old posts on this blog and see for yourself. It is hard not to reach the same conclusion.
Check out the data for Irvine on Altosresearch.
For the Eric Clapton fans out there, I leave you with one of his best guitar solos: Cream — Crossroads
“Recently, I went through many of the old posts on the blog to look for properties to update. I kept finding the same two things: 1. Properties with minor price reductions chasing the market down, and 2. Properties taken off the market without selling.”
What is incredible about this statement is the population of properties that have been profiled in IHB could be construed by bulls as “one off” reductions. And even at the “dramatically reduced” wishing price, the properties just sat and sat. Holy Correction!!
It would be an interesting exercise to show:
List Date | IHB Profile Date | Rollback / WTF | DOM | Status
—–
I would also note for anyone who actually wants to look through all the old posts that Redfin will say “sold property” on any property taken off the market. If you look at the last sale date, you will see it wasn’t sold in 2007 (with the exception of REOs.) This is the telltale sign of a property removed from the market.
I forgot to mention that I also see a lot of relisted properties from people trying to refresh their listing. It is as if they believe their property didn’t sell because the listing was old when in reality it didn’t sell because the price was too high.
I have noticed another realtor trick. Just before they lose the listing to the bank or sobered up FB, realtor places a “In Escrow” or “Sold” sign up. That code of ethics is bulletproof.
What does scraped ceiling mean? Did a colony of bats break in one evening and have a bat orgy?
This place sold for 699k over 3 years ago? Damn. Either this has a lot more downside potential, or I’ll never own in Irvine.
Either this has a lot more downside potential, or I’ll never own in Irvine.
I rather suspect it will be the former old boy.
Altosresearch Median Price is totally off
$699K in Irvine at the height of the mania tells you that this place has a lot of issues.
Think:
6300 sq foot lot: great!
1700 sq foot, 3b/2ba: good sized!
detached home: great!
So why did this home so low then?
Let’s see:
(1) Choo Choo trains and Amtrak close by
(2) Next door to the mobile home park. The only one in Irvine.
(3) Backs to Irvine Center Drive:
This house should be lucky that El Toro didn’t become an airport, otherwise it would have been the trifecta of Planes, Trains and Automobiles.
(4) The Ranch is not a very desirable location nor “one of the best” areas of Irvine.
AND
(5) Whoever did the kitchen PUT THE ISLAND WRONG! It should have divided the kitchen from the den, not the kitchen from the dining room. Note that when you have those kitchen cabinets opened you block the way from the kitchen to the dining table! Crazy design.
(6) The backyard looks like an orchard, not a backyard.
It means they scraped that popcorn acoustical spray from the ceiling. It means two things for this place:
1. You now live in an echo chamber because you have hardwood floors and nothing to dampen sound vibrations.
2. With this being built in 1969, the acoustic spray probably contained asbestos, which is now possibly floating around this house or imbeded in every nook and cranny unless they had a professional scrape it.
Assuming 5% a year appreciation from the 1996 price puts this place at $391K.
I think that’s optimistic.
Taking the 1996 price and scaling for inflation puts it at a mere $293K.
That looks about right for bottom and this place.
Last year I saw a UCLA economist lecture about the pending housing bubble collapse on cable.
One of his points was that houses are different than other commidities in that instead of selling at a loss; if they can people will take their house off the market and just hunker down, stop eating out, cut back on all discretionary expenses and pay the mortgage to keep their house. This is exactly what you are seeing.
What’s with the empty bookshelves, total eyesore.
Did they run out money when it came time to furnish this place.
Recently, I went through many of the old posts on the blog to look for properties to update. I kept finding the same two things: 1. Properties with minor price reductions chasing the market down, and 2. Properties taken off the market without selling.
I’ve been monitoring a small village up here in Sacramento that is similar (but much smaller) than Irvine. What I’ve seen over the past 6 months is that houses are taken off the market and then re-listed with new MLS’s after about 6 months. Sometimes the relisted price is higher than the old price, sometimes it’s lower.
In the past few months the relists have been higher than the sold homes. Double digit reductions are becoming common and we’ve had one house break the 20% reduction from Original List Price.
People know we’re renting and hoping to buy…someday. So I regularly get messages from people who are planning to put their houses on the market and are who want to let me make an offer before the realtors get involved. The Realtards keep telling me that prices won’t come down more because people will simply rent their homes out until the market adjusts.
Alan, normally that would be the truth of the matter. However, if you look at the information contained in IrivineRenter’s post from the 5th of November:
https://www.irvinehousingblog.com/2007/11/05/tick-tock-tick-tock-the-sound-of-the-option-arm-timebomb/
Is the UCLA economist’s thesis predicated upon the idea that mortgage payments could double?
—The Realtards keep telling me that prices won’t come down more because people will simply rent their homes out until the market adjusts.—
more like they’ll rent their homes out until their mortgage payments adjust.
Sorry about the bold thing..really messed that up!
They look like MDF shelves that you pick up at Target, not built-ins. What benefit did the agent see in adding this picture? Looks like this pic was meant for showcasing the shelves on eBay.
Sellers, it is time to be more particular when choosing an agent for your real estate needs.
We scraped the popcorn off a house built in 1971 and there was no asbestos (the contractor had it tested). He said that Irvine never allowed the use of asbestos in ceilings. Now, with regards to those old “stick ’em down” tiles, that’s another story.
Hear me out, you know I run a bubble blog, and therefore am a bubble believer, but I think that your anecdote does not prove what many bubble heads have said.
Basically, bulls would use an anecdote like that in the opposite direction: “See, I told you people could hold out”
When (and if) many more turn into foreclosures, then the tide will have turned. I expect to see that late next year. For now, those people are sitting tight on their properties. They were, in fact, only willing to sell in a market top. those people will not force down the price. They never would. They’re not forced sales.
We have the perfect bull trap the past year in housing. Volume has dropped off a cliff. Some pricing has remained strong (as is evidenced by the WTF). For a while, it appears (to the non technical analysts) that bulls will stay the day. They have no idea what’s around the corner for them. The biggest bull trap in history.
A bull trap occurs whenever volume decreases substantially, but pricing stays stagnant. It’s only a matter of time until the serious price discounts happen. I’m already seeing some limited cases in South County reverting to 2003 prices, and perhaps below. Once we cross the threshold of short-sale and foreclosure, there’s no incentive for people to hold onto homes waiting for a better price if there’s no equity. They just dump it to get out of it as fast as possible and wait for the forgiven debt act to take its course.
There’s also a double whammy. They “just hunker down, stop eating out, cut back on all discretionary expenses” compared to the spending binge they’ve been on and the economy craters, their job goes and they lose the home eventually due to job loss.
That post was by graphrix, not IR. I made the same mistake.
Very good point though, because while there are people who will be able to ‘hunker down’, there are obviously a lot of people who are going to be better off just walking away.
Had I stayed in Irvine, I would have been a ‘hunker down’ type. I bought in 2001 with an 80/10/10 loan since I was coming in from out of state and had little equity. Things turned out well at my new job so I refinanced to a 15 year fixed at 4.5% in 2004 to take advantage of record low interest rates.
I do not work in the mortgage industry so I would have been fine, but I wouldn’t have been happy seeing so much equity evaporate even though it was fake to begin with.
Like most of you, I had watched patiently as the bubble expanded just shaking my head. I had planned on staying long term but realizing the bubble was going to eventually pop I started looking.
I first tried to leave in early 2005 but could not find a job in a decent market to jump to so I continued to bide my time. In 2006 I was fortunate to find a perfect job with a substantial pay raise in a much cheaper market. It seems I got out just in time (Aug 06).
There are a lot of things I really like about Irvine and I follow this blog partly to see how things are doing and to determine when I might be able to come back.
Some may disagree with me on this and that’s fine as we all have our personal preferences, but I really like having a strict HOA that enforces rules. I prefer not to have a boat and a trailer parked in the front yard across the street from me. (been there, done that)
The ‘cookie cutter’ look also does not bother me like it does some people. I like when houses are well maintained, an appropriate color (not neon pink), and properly landscaped.
Schools for the most part are good and I love the weather. One thing I definitely do not miss is the high density living arrangements (just how many people can we squeeze in Irvine Ranch anyway!?) Traffic on Culver was really not that bad when I first moved in but by the time I left it was just insane due to all the development North of the 5.
The thing that I really can’t stand is something that also bothers IR and which he terms the Southern California Social Contract.
https://www.irvinehousingblog.com/2007/09/10/the-fb-plea/
Frankly, I don’t miss a lot of those type people and I don’t feel sorry for the financial mess they have brought upon themselves.
I just wish that we as a society didn’t have to pay for their misdeeds and that they would learn their lesson. Unfortunately, I think they are simply passing on these same traits to their children and we will be repeating this again in another 15-20 years.
tonye, Thanks for the observations–especially #5 because I am blind to these sorts of design issues until the time comes when I will have learned enough about what to look for.
Just how does this work? Ok, say I’m living in a house I can no longer afford. The payment has jumped to $4,600 because of my option ARM and my total nut with payment, insurance, taxes, HOA and Mello Roos is $5,600 per month and I can’t make it.
So, I rent it at $3,100 per month and have a negative of $2,500 per month. But I also need a place to live since I’m renting out my place. So I move down a notch and rent for $2,750. Now my total costs are $5,250 instead of $5,600, but after tax I’m screwed because my rental losses are limited by IRC Section 469. Before I could deduct my interest and maybe some of my taxes (or maybe not if I’m in that dreaded AMT). Now I likely can’t deduct any of my rental loss, nor can I deduct my rent I’m paying.
Plus, in a huge blow to my ego, I’ve just confirmed that renting is a better deal because now I’m doing it myself. Can someone explain how “renting it out” really puts me in better financial shape?
SawItComing,
Buster, It would just be better, especially if the house you rent out had Granite, or Charm, or something.
Don’t confuse the issue with facts and logic!
Buster,
You have a three bedroom house, you live in one bedroom and rent the other two out at $650/month each to IR and one of his/her friends and then get a night job as a security guard (or run a prostitution ring out of your house, or grow some pot)
See, you can make it through the bursting bubble….
Remodeled kitchen?
The kitchens in my appartment complex (Woodbridge Meadows) are nicer.
In today’s market, the inventory numbers on the MLS do not represent the true number of potential sellers in the marketplace because there are so many sellers who have given up.
This same phenomenon occurs with respect to unemployment statistics. To be counted as “unemployed,” you have to be looking for work. If you’ve stopped looking, then you are a “discouraged worker,” and not included in the unemployment numbers.
There are some good reasons for the bifurcation (some “discouraged workers” are “lazy” or “on vacation” or “working under the table for their brother-in-law”), but it does distort the numbers. It is why, for example, that unemployment statistics lag the reality as recessions drag on: People just drop out of the labor force and are no longer counted.
It is also why unemployment numbers don’t rebound very quickly when things are getting better: “Discouraged workers” come out of the woodwork and start looking for jobs. Unemployment rates have been known to increase in the early stages of a recovery for this reason.
Anyway, you should consider that phantom inventory to be the overhang of “discouraged sellers.” They will be the reason why a recovery in prices will be long and drawn out. People who think that the real estate crash will look like a “V” on a chart are wrong. It will look first like an “L” and later like a “U”
In addition, how many people are already “functionally” unemployed? By that I mean 1099 realtors, brokers, and other real estate professionals that aren’t making any money.
These people don’t pay monthly taxes or unemployment insurance so they can’t file an unemployment cliam like W2 employees can.
What housing tract was the house in? We’re too terrified to disturb the ceiling and don’t want to have it tested (so that we don’t have to affirmatively disclose if we ever sell).
This house is in the Ranch… you subdivide the garage for two apartments, put a couple of port a potties out on the backyard orchard. Get a large Sears metal shed out there… In total you can rent four units.
The only issue will be parking the cars. Is the driveway long enough to put four cars? Is the front yard big enough to park a couple more cars there?
Sounds like an upscale investment property. Better than Santa Ana or Garden Grove!
Maybe you could convert some of the bedroom space to barracks or remodel them to be a Japanese Capsule Hotel. You could really stack the bodies that way.
http://www.links.net/vita/trip/japan/lodging/capsulehotel/
I’m curious if there are distinguishing characteristics that make these unfortunate homeowners stand out in a crowd.
Has anyone noticed a coworker downsizing his H2 to a more reasonable car like an Accord or Camry?
Are people leaving country clubs? Not showing up at charity events as often?
Anyone cutting back on the European vacations?
What do you think the ancillary indicators of a desperate homeowner will be?
“Check out the attic and see the potential!!!!! Storage galore or could be extra bedroom.”
WTF? Who lives in the attic? Midgets?
The first one built – the Willows.
In addition, how many people are already “functionally” unemployed? By that I mean 1099 realtors, brokers, and other real estate professionals that aren’t making any money.
These people don’t pay monthly taxes or unemployment insurance so they can’t file an unemployment cliam like W2 employees can.
If they’re still going to work, then they’re still employed. It’s been a while since I was immersed in government economic stats, but I seem to remember that, in addition to data on discouraged workers (yes, they are tracked) there is data on “underemployment.” This would include real estate agents who are working short hours.
It occurs to me that some of these people might file for unemployment comp, which if I’m not mistaken allows people working short hours to file claims. Are you sure that real estate agencies don’t kick into the unemployment comp system? That’s a bit surprising to me.
You’ll certainly see the effects of all of this in data series that track compensation (including commissions) in the real estate, finance and insurance sector of the economy. Government stats have all manner of problems, but not a whole lot gets entirely overlooked. That said, I think the economic growth, inflation, and at least some of the employment data is seriously out of whack, meaning even more than it always has been.
I’m curious if there are distinguishing characteristics that make these unfortunate homeowners stand out in a crowd.
I don’t think that “discouraged sellers” are a single cohort. There are all kinds of reasons people sell or don’t sell, and of course strengths of motivation. Discouraged sellers run the gamut from people who decide that now’s not a good time to upgrade, all the way down to people who are maxing out their credit cards to stave off foreclosure.
That said, one thing that’s pretty clear is that the HELOC window has slammed shut. The implications for consumer spending are stark. This Christmas will be a disaster, and it’s only going to get worse. And if the mortgage fiasco does what I think it’s going to do and spread to other types of consumer credit, you can kiss the car business away for a while.
I don’t think you’ll see too many instant car downgrades, though. A few I suppose, but they’ll be the really desperate people, i.e., those who get the chariot repoed. Everyone else who for whom a downgrade would save money has a lease. Those who actually own the car (either outright or via a loan) wouldn’t save a nickel by downgrading.
People who are in financial trouble, for whatever reason, cut back on discretionary purchases such as restaurant meals and vacations. Country club memberships? Maybe some real estate people will be cutting out those memberships, but I think most of the damage you’re talking about will be seen at lower levels.
Of course, if this turns into a full-blown depression, then all bets are off. And, as time goes by, you’ll see cutbacks “trickle up.” Real estate crashes have a grinding sort of chararcter that will really wear people down.
Great link!
Scroll down, luv the pic of the guy in his skivies passed out on the floor. They sure know how to party over there.
A lot of people say that this bubble is like the 90’s bubble. The difference that I noticed is that when I sold my home in the 90’s I had to buy another house or get slapped with a 30% capital gains tax. But this time when I sold I didn’t have to pay capital gains on a profit of $500,000 or less (per couple); therefore I do not have to buy and am sitting this out for at least a year if not two.
Check out the book “Build it Right” for many handy hints:
http://www.userfriendlyhome.com/uhf9.html
No affiliation, just like to steer people away from poor design.
“It is as if they believe their property didn’t sell because the listing was old when in reality it didn’t sell because the price was too high.”
LOL. Too true. Thanks for another great post. I loved the musical selection for today.
Thanks for the guitar solo link, just great. Remember house prices back when those guys were making music? I think my parents were trying to decide between a rancher on a double lot and a house with a suite both were priced at $28,000. They bought the mortgage helper.
gjw
Indeed.
My apologies graphrix. No disrespect was intended.
When we did our home, particularly out kitchen, we spent a lot of time with a chalk drawing the position of the appliances and cabinets. The distance between island and counters is four feet. This allows the full extension drawers ( about 21 inches ) to be opened on both sides simultaneously. Or more often, you can open one side of drawers and sliding trays and still walk around them comfortably.
The details are a lot of work. I spent half an hour one evening with a fine file to move an outlet just a quarter of an inch so the kitchen backsplash would fit correctly. This is on a 20 foot wall!!!!
As I look at my home, I am aware of about two items that I would like to redo ( light switches ) and slide about one foot further. OTOH, we installed many lighting zones and lots of two way switches and dimmers. Ditto with heating and cooling.
One thing that helps is going to open houses and model homes and checking out how those homes are laid out. Open their cabinets and walk through the house imagining how you would turn lights off and on and how you would hold a Christmas Dinner or a Bachannal….
Most people look at the furniture and crown molding. Instead they should focus on the Human Factors of a home and on the quality of the underlaying hardware.
But, not everyone can be an engineer!
I’m finding it surprising that anything is selling right now except around the margins. After Option Loans, Subprime loans and other negatively amortizing instruments went away real estate became functionally overpriced for all intents and purposes.
I suppose there are a few misguided souls who think this looks like a bottom and have a hefty amount of cash who are buying, but who else?
The numbers simply don’t work unless you have a fake loan and suspend belief or have boatloads of cash.
I’m tempted to interview those buying to learn the story behind the purchase. Of course I’ve wanted to interview everyone on the I-5 at 3:00am to figure out what they’re doing there ( I was headed to the airport for a business trip – since I know you’re wondering)
I’ve found this blog by accident, and have been reading it daily. As an Irvine homeowner (who bought before the bubble and have no plan to sell or move in the foreseeable future), the whole bubble was/is ridiculous and pathetic.
As for what kind of people got caught in this: A friend told me about her baby sitter, whose only source of income comes from running a daycare center at her house. She started out in a small condo, but in 2006 she decided to join the real estate craziness in Irvine–and went and bought herself a $800k house. Seriously, how could she even qualify for a loan? A house she cannot pay for, because she bought it on variable mortgage.
Her reply to my friend–“what God giveth, God taketh away”. Didn’t know God was a real estate agent, did ya?
My brother in law is an RE agent and he collects umeployment insurance (illeagally of course)from the state of California.
I am not sure if it happens a lot with self-employed/contractoring people, but its not exactly a rarity either.