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, we get new foreclosure records, so the process is in full swing.
so worry not, all things are well, we’ll be alright, we have our looks and perfume…
Asking Price: $295,000
Income Requirement: $73,750
Downpayment Needed: $59,000
Monthly Equity Burn: $2,458
Purchase Price: $399,000
Purchase Date: 10/12/2006
Address: 205 Tarocco, Irvine, CA 92618
| Beds: | 2 |
| Baths: | 1.75 |
| Sq. Ft.: | 951 |
| $/Sq. Ft.: | $310 |
| Lot Size: | – |
| Property Type | Attached, Condominium |
| Property Style: | Contemporary |
| Year Built: | 1983 |
| Stories: | 1 Level |
| View: | Park Or Green Belt, Trees/Woods |
| County: | Orange |
| MLS#: | S08056061 |
| Source: | MRMLS |
| Status: | Active |
| On Redfin: | 39 days |
$295,000 for this beautiful Light and Bright upper level condo unit
with 2 Beds & 1.75 Baths looking down on peaceful views of
greenbelt and trees, in a great cul de sac location in Irvine, close to
UC Irvine, Irvine Valley College, Irvine Spectrum, golf & shopping.
Spacious living room, cozy kitchen with dining area. Two balconies: One
off the entrance and the other off the master bedroom; Mirrored
wardrobes, dressing area in master bedroom, with enclosed storage area
downstairs. New roof on unit & carport & recently paved
driveway. Excellent layout for family or roommates. Complex is well
maintained and has community pool and spa.
Like I care how much you reduced the price? Ohhhh, the lender has agreed… how nice of them.
.
.
This is an apartment. I don’t care how they classify its ownership, it is an apartment — and not a very desirable one. The only reason you own an upstairs 2/2 with a carport is as an investment. If you are an investor who understands real estate (that excludes stupid speculators betting on appreciation,) then you will demand a positive cashflow. This probably rents for about $1,700 a month, and the dues are a very high $370, so it is probably worth $140,000 to $175,000. Some knife-catcher will pay more, and they will get burned. What does all this say about the guy who paid $399,000? Not much really: he used 100% financing and passed all the risk on to the lender, People’s Choice Home Loan, Inc. If this property sells for $295,000 and a 6% commission is paid, this lender is going to lose $121,700 plus carrying costs on a tiny 2/2 after only 18 months. What does this say about the lender?
.
Be still for a second while I try and try to pin your flowers on la la la la
Can you carry my drink I have everything else
I can tie my tie all by myself
I’m getting tied, I’m forgetting why
Oh we’re so disarming darling, everything we did believe
is diving diving diving diving off the balcony
Tired and wired we ruin too easy
sleep in our clothes and wait for winter to leave
Hold ourselves together with our arms around the stereo for hours, la la la la
While it sings to itself or whatever it does
when it sings to itself of its long lost loves
I’m getting tied, I’m forgetting why
Tired and wired we ruin too easy
sleep in our clothes and wait for winter to leave
but I’ll be with you behind the couch when they come
on a different day just like this one
We’ll stay inside til somebody finds us
do whatever the TV tells us
stay inside our rosy-minded fuzz for days
We’ll stay inside til somebody finds us
do whatever the TV tells us
stay inside our rosy-minded fuzz
so worry not
all things are well
we’ll be alright
we have our looks and perfume
stay inside til somebody finds us
do whatever the TV tells us
stay inside our rosy-minded fuzz
so worry not
all things are well
we’ll be alright
we have our looks and perfume on
The Apartment Story — The National
Maybe I need a remedial course in GRM…I thought you just based it off the rent a property would bring, not factoring out the costs? On that basis, this place would be pretty close.
Also, 951 SQ ft is not tiny. I would never want to live in that size again, but I am pretty sure you featured one 300 SF smaller before. I grant it was likely a 1/1, but this one definitely has an extra room over and above the extra bed and bath.
The GRM is a rough estimate. It will get you in the ballpark, but it doesn’t reflect the unique costs of a particular property. The 160 GRM I have been using as breakeven for an owner-occupant does not include $340 for HOA, so the GRM would be lower based on that variable alone. Plus, this wouldn’t be occupied by an owner, it would be held as an investment which requires a lower GRM (100-120.)
On a direct cap basis, with a return on cost of 8%, the property is only worth $157,000. That value is assuming $8,000 in yearly expenses (tax, insurance, HOA) and doesn’t take into account any vacancy factor or reserves. I don’t even know if I’d take an 8% return in this market. I’d probably want closer to a 10% NOI return.
No GRM discussion? I found a similar Craigslist apartment for 1450, leaving 1080 as the effective rent savings given the HOA of 370 (choke!). At a GRM of 180 (to account for current interest rates) that gives a price of 194,400. So it’s *still* way too high – which is probably why the lender agreed to a 25% price cut.
Almost 1,000 sq. ft. isn’t that tiny, is it?
For 2 bedrooms and some place you’re going to line in for 5 or more years, 1000 sq ft is constraining. It’s not tiny but it’s pretty darn small for more than one person. We’re renting in 950 sq ft now, and looked at a few apartments to buy outside D.C., and came back from that trip with a new minimum sq footage we’d be willing to bother to look at of 1300, and that’s calling it close.
On the bright side, their price has now matched the WTF prices given for the same size places outside D.C., so that’s progress.
Case-Schiller’s cliff diving (over at calculated risk) Some commenters there are now guessing rental equivalence will be reached in 09? Man, I hope so…
Charlotte seems to still be surviving though.
My family of 4 (2 adults, 2 8 year olds) live on a 1000 sq. ft. 3/1. Sure, it’s small, but it’s not unlivable, at least not yet. We’ve lived here 11 years.
If it’s laid out really well into precisely the spaces you need, indeed it can be livable, especially somewhere that you spend a lot of time outdoors. But “not unliveable” is not much of a ringing endorsement. Which is why, I’ll gladly rent such a space, but refuse to buy it in this market.
Slightly off topic but the wife and I just spent the weekend in downtown San Francisco. Made a little bike trip into the outlying areas and combined there are still more than a few properties for sale in EXTREME WTF prices. One small place near the financial district was about this size place (985 sq.ft) and it was listed at $1.1MM. WOW!! Not a bad looking place but certainly not a millionaires place to live.
IR is right … we still have a very long way to go before this all plays out and prices come out of the stratosphere.
By the way, if you find yourself in downtown SF, I can highly recommend the chowder and cioppino at Tadich Grill!!! I miss it already! 😀
Have the chowder at The Crab Cooker in Newport, it’s woth the drive.
Only if you like Manhattan style chowder.
San Francisco, like Silicon Valley to the southeast, has not had the big price correction you are experiencing. Our day will be coming very soon, what with all the Alt-A resets on the horizon.
At this point 3/4 of the zip codes in Santa Clara county are down 20%, certain prime areas are still increasing but more slowly. Others have stopped increasing and are peaking right now, ready to head down. I would assume SF is having similar issues with some prime zip codes doing well and others about to take the big plunge.
[b]My Offer[/b]
After giving this property a thorough look, my offer today is [b]$107,200.00[/b]. I believe this is what this property is worth.
I know the people who used to live in this condo. The speculator who bought at $399K obviously didn’t do his homework, but it allowed our friends to move up to a nice 3-bedroom because they had equity.
I know other people who lived in a downstairs unit. When the toilet in the upstairs unit overflowed, it soaked the downstairs bedroom carpet, and the water pooled between the walls below and created a horrible mold problem that spread like a disease. I would not buy one of these units for even $50K if I had to live in one.
Isn’t this the same problem with all two story houses? Are you saying you would never live in a two story house, or in a multi-level apartment or condo?
Or is there something about this particular complex that causes water to flow down instead of up like where you live. I’d like to see your apartment ’cause I’ve never seen an “upside down” waterfall — that would be neat.
Don’t get snippy!
You can’t compare apartment complexes to single family homes. On a 2-story single family you own both the 1st floor and 2nd floor and, therefore, have control on how fixtures are installed/maintained. In an apartment, who knows what neighbors you get and if they care about how their apartment is maintained and how that will affect your apartment. At least in your own 2-story SFR it’s your sh@t flowing downstairs and not some strangers. Please, get real buster.
Wow — nobody has a sense of humor today. I just didn’t see how BubbleLee’s comment was relevant to anything. Doesn’t matter who owns what, crap (literally) happens. Stuff overflows, pipes break, the washing machine hose bursts, the drain trap springs a leak, the kid puts his ducky in the bathtub and makes it overflow, etc. I’m not sure how a stuffed up crapper is related to the price of this property or neighboring one’s
How true it is. Our washing machine water level sensor just gave up a few days ago. It flooded the laundry room and sipped through the floor down to the kitchen ceiling below. Luckily, we never use the machine unless we are home. We stopped the machine before it turned into a disaster.
We bought a new one. The old one was almost 10 years old.
Just what grehmer said. It’s a lack of control over what other people do. Who wants to clean up after other people’s messes? I’m certainly not saying this problem is specific to this complex, and I’m sure it happens often in similar building types, which is why I would never live in a complex like this one.
You can understand the concern if you’ve ever experienced a flood from above your unit. I walked into my condo one afternoon and couldn’t quite comprehend for a few seconds why it was raining in the entryway and the kitchen!
Wow, is the mold on the disclosure form?!
How come the guy who bought it is a jerk/speculator, but the friends who sold it for that much always get off scot-free in public opinion? Aren’t they the ones who took the bank’s check?
I”m not ready to say we’ve hit bottom, but prices do seem to back int eh “stratosphere”
[quote]but prices do seem to back int eh “stratosphere”[/quote]
Not yet, there is a long way to go Raj!
$77.00 a square in Riverside County for 4000 sq feet.
A great looking house, my guess is that may not be the bottom because there are a bunch of them so we continue the ride to the bottom.
In the old days we used to say it only cost twice as much to go first class. If that is still true than we know where South OC is heading.
http://www.redfin.com/search#lat=33.83634397272701&long;=-117.19369411468507&zoomLevel=15®ion_id=38381®ion_type=2&market=socal&v=2
I see $97 sq/ft, but not $77 sq/ft. Do you have a good link, or MLS#?
New 2006 home…
Try this area
http://www.redfin.com/search#lat=33.792030697075106&long;=-117.22117640938305&zoomLevel=14®ion_id=14685®ion_type=6&market=socal&v=2
By the way, Mitt Romney just bought a place in La Jolla….The tribune is saying he may run for Governor in 2010.
From the Governator to the Perfect Clone.
I would sure max out for Romney to keep the idoits on the left from getting near that office again.
IR,
you are mentioning in today’s post that this crash is going to last for a while. 6-8 years ?
With a peak in mid 2006, we are now looking into 2012 for beginning of recovery, or let’s say, to a ‘back to fundamental’ time.
In previous plots and graphics, I thought I remember a crash would be faster, and 2010 would be the bottom.
I believe it will take time to reach bottom indeed.
However, inflation may start to allow ‘fundamental values’ to become closer to the market value.
Let’s say in late 2009, 2010, we have reached another 20% drop compared to today’s value. Roughly reaching 200+$ /sf. If inflation being at 5% from 08 to 2010, then ‘theorically’ the market and the fundamental price would be there at that time and not in 2012 or later.
Any comments ?
The speed at which prices have dropped has been somewhat surprising. Foreclosures are the key to the rate of price decline, and although it was obvious there were going to be many, many foreclosures, it was not so obvious that it would cause a greater than 20% decline in the last year. Picking the bottom is not a big deal. There will be a period of several years where there is no appreciation due to the ongoing foreclosure problem. It looks like we will get back to rental parity in late 2009, early 2010, but we won’t see any meaningful appreciation until 2013-2015. Basically, you will have a 4-7 year window to buy at the bottom. There will be no rush to buy, and there will be no “V” bottom.
IR wrote “we won’t see any meaningful appreciation until 2013-2015”
According the models I’m reading, appreciation wouldn’t start again until after 2020, prices should stagnate throughout most of the 2010’s.
IR is correct about the price deprecation curve, most of the depreciation occurs in the first few years of the decline so that there is not that much benifit wating past 2009 to 2011 to buy as most of the price depreciation should be wroung out of the system by the end of next year.
That is, assuming the tide of Alt-A defaults coming don’t cause another wave of declines and the recession is mild. In which case, 2010 might be a better buying target.
I agree with that quote by IR, the key is for people to buy homes that they can afford. If you can’t afford it yet, just wait, you may be able to soon.
OK so I’ve been reading this blog off and on for a couple months now. I hear everyone talking about when prices will bottom out. My question is when will be the optimal time to buy? Prices may go down through 2009 into 2010, but if interest rates increase by 17-20% during that same time period then won’t we be in the same situation we are right now with a 30 year mortgage?
Renter Dave – My worthless opinion is that it’s time to buy when you find a property you adore at a price you can afford. If you’re buying a home instead of an investment, who cares what the price might be? If the market goes up, down or sideways, all that matters is that you feel you are paying a fair price for what you are getting, that you really enjoy it and it’s not an unreasonable financial burden. Then it’s time to buy. There’s no one good time because every property is different, every buyer is different and every person’s situation is different.
Sounds like a realtor!
Hey, watch the insults! There’s a policy against extremely vulgar and nasty name-calling here. I don’t mind being called a low life, scum sucking, bastard child of my sister and a troll, but to be called a Realtard is going WAY too far.
Ah, tricky, that “price you can afford”. Make sure that is a price you can afford when interest rates are at historic norms, not lows. That means you probably want a house around 3, 4 times your annual income. And be sure you adore it enough to stay there maybe 7 years or more, because it will cost you about 7% to get out of it; if you might want to move sooner: more kids, job opportunity, divorce, retiring, parents need care, want a better place … then that could nail you to that adorable house or bankrupt you getting out.
Prices will probably go sideways for years after the bottom is reached, don’t be in a hurry to catch the bottom.
After prices quit falling, they might stay flat, perhaps for a long time, so the optimal time to buy would be right before they shoot up.
But this is timing the market. I would wait at least until it costs the same to buy as to rent, factoring in possible tax savings and equity burn.
Would you risk the loss of your downpayment? Because real estate was in a bubble, prices might never come back to these levels, so you might be permenently under water. For this reason, I would look for a price that bears some relationship to intrinsic value. Something like “Irvine has always been 2X higher than Riverside” or something. I don’t see these prices even close any “floor”.
Well, RenterDave, the dollars required for the monthly payment may be the same, but remember that the interest part of the payment is the possible tax deduction.
In addition, you can always refinance when rates drop — the luxury of repricing unavailable when prices drop…(which is the essence of this blog? no?)
Also, remember Prop 13. You are establishing taxes for the rest of the life for you and that house.
I’d rather buy a $100,000 house at 22% interest than a $500,000 at 2% interest. I think those numbers are close for comparison — to make the point
Note to Renter Dave:
If interest rates go up, it will just drive prices down lower and keep them down longer.
Remember, it is NOT just the monthly payment that counts, you have to pay the money back. So what if the monthly payment goes up a couple hundred, if the value goes down $100k you will be underwater for many years. Interest rates go up and down, if they are up when you buy, just refi when they go down and your value goes up. If you buy when rates are low and value is high, you’re in big trouble when things reverse.
Values at historic highs: check.
Rates at histoic lows: check.
It’s a great time to buy®!
Zoom around this neighborhood
http://www.redfin.com/search#lat=33.792030697075106&long;=-117.22117640938305&zoomLevel=14®ion_id=14685®ion_type=6&market=socal&v=2
I recall these for sale at $160k back in 2000.
Be warned that the HOA fee is rather high.
My two car detached garage with 5 ft extension is 910 sq ft.
US home prices fall at record pace
By Chris Bryant in Washington
Published: May 27 2008 14:54 | Last updated: May 27 2008 20:23
US house prices plunged by a record amount in the first three months of this year compared with the first quarter of 2007, a trend that could prolong the economic slowdown and cause further pain for homeowners facing foreclosure, a new report revealed on Tuesday.
Meanwhile, rising petrol prices and a weakening labour market sent consumer confidence sliding to a 16-year low.
EDITOR’S CHOICE
US daily view: Record drop for house prices – May-27Lex: Measuring US housing – May-27In depth: US recession – Apr-02Recession still likely in US, says Greenspan – May-26In depth: Subprime fallout – Feb-27Backlog of unsold US homes hits record – May-23The S&P;/Case-Shiller national house price index, which covers about three-quarters of the country, was 14.1 per cent lower in the first quarter of 2008 than for the same period a year earlier, the sharpest drop in the 20-year history of the index.
”The steep downturn in residential real estate continues,” says David M. Blitzer, Chairman of the Index committee at Standard & Poor’s. ”There are very few silver linings that one can see in the data.”
Of scant consolation was a slight slowing in the pace of month-on-month price declines. Prices as measured by the 10-city composite index fell 2.4 per cent in March, compared with 2.8 per cent the previous month, while the 20-city index declined 2.2 per cent compared with 2.6 per cent last time. However, the indices have fallen a record 15.3 per cent and 14.4 per cent respectively over the past year.
In an interview with the Financial Times this week Alan Greenspan, former chairman of the Federal Reserve, said that house prices would fall by another 10 per cent from their February levels, for a total peak-to-trough decline of around 25 per cent.
Price depreciation remains most acute in areas which bore the brunt of a speculative property boom earlier this decade. Las Vegas recorded an annual drop of 25.9 per cent in March, while Miami saw prices fall 24.6 per cent compared with the previous year.
”Despite the sharp drop in home prices, housing demand has remained depressed, leaving a huge overhand of homes on the market for sale,” Michelle Meyer, economist at Lehman Brothers, said.
New home sales rose 3.3 per cent in April to a 526,000 annual rate after the previous month’s decline was revised from an 8.5 per cent drop to a slide of 11 per cent. New home sales have fallen by 42 per cent over the past year, the most in almost 27 years.
“Despite a headline increase, the new home sales report is not really that positive. The increase is a typical bounce following very large declines,” Jan Hatzius, chief US economist at Goldman Sachs, said.
US Federal Reserve Governor Randall Kroszner said on Tuesday that the US housing market should begin recovering at the end of this year but noted that some markets would take longer than others.
As house prices have fallen anxious consumers have grown less confident about the domestic economic outlook, which could cause spending to weaken further in the months ahead in spite of an expected boost from tax rebate cheques.
The Conference Board’s consumer confidence index this month fell to 57.2 from 62.8 in April, a figure far weaker than expected and the lowest reading since October 1992.
The present situation index fell from 81.9 to 74.4 while a gauge of future expectations fell from 50 to 45.7
”Plainly the pending tax rebates are viewed as a one-off and not enough to offset a slew of other negative factors, not least [petrol] prices,” Alan Ruskin, strategist at RBS Greenwich Capital, said.
There were a lot of Rumors that some of the reps at People’s Choice were some of the most fraudulent around. When the wholesale rep tells you that he/she can get income docs made for you….that’s pretty bad.
so worry not, all things are well, we’ll be alright, we have our looks and perfume…
There was a similar song many years ago with the chorus:
“WE DON’T NEED TO BATHE;
WE HAVE PERFUME…”
You brought up some very good points.
I don’t see how you could finance this place
unless you were able to get your payments
low enough to rent the space as a
positive cash flow investment or at the very lesast
break even.