Vintage Wine — Moody Blues
Isn't real estate supposed to be like vintage wines that get better with age? Rare vintage wines can get very expensive, and unless they turn to vinegar, their prices do always go up. Well it appears the 2006 vintage homes are all turning to vinegar now because they certainly are not appreciating in value.
Today I want to relay a story to you that was told to me by a real estate developer currently buying property in one of our most blighted California bubble markets. His company is purchasing this particular property from the bank for far less than the original loan amount. Do you remember the residual land value calculations from Land Value 101? This particular property was ready for the construction and sale of houses in 2003. The original prices were $400,000 in this particular market. By 2006, houses were selling for $700,000. When sales volumes plummeted, the builder gave up and let the property go back to the bank. The developer ran a proforma using a $275,000 house price. As you can imagine, this did not leave a large residual land value. The bank took the offer. This developer knows he can build and sell houses profitably for $275,000 in this particular market. If prices increase, he stands to reap a windfall. His only real concern is the competition from the REOs, particularly all the previously built homes in this subdivision he is undercutting by over 50%. He knows he is probably going to cause more walkaways, but prices are what they are, and as long as he can build and sell $275,000 houses, it isn't his problem.
Fortunately, for those living in Irvine, the developer is financially stable, and it is concerned about long-term house prices and probably will not cut prices over 50% to move homes. As we noted with the problems in Columbus Grove, those who are off the Ranch are not so lucky. Today's featured property is another of the bad 2006 vintage properties in Woodbury. This seller is really being hosed by his competition as he owes $184,000 more on his property than his comparable neighbor is asking for sale.
Asking Price: $489,000
Income Requirement: $122,250
Downpayment Needed: $97,800
Monthly Equity Burn: $4,075
Purchase Price: $554,500
Purchase Date: 10/12/2005
Address: 142 Vintage, Irvine, CA 92620
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 1,526 |
| $/Sq. Ft.: | $321 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Mediterranean |
| Year Built: | 2005 |
| Stories: | 3+ Levels |
| Floor: | 1 |
| View: | Hills, Mountain |
| Area: | Woodbury |
| County: | Orange |
| MLS#: | S529072 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 133 days |
 Unsold in 90+ days
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Beautiful living space in the heart of Woodbury. Enter the outdoor living area down a walkway that opens into a private courtyard with outside fireplace where neighbors gather around patio table & chairs. Ground floor entry with bedroom converted into a home office with built-in. Go upstairs to main level with spacious living room with fireplace & custom built media center. Open plan gourmet kitchen with granite countertops & island, maple cabinets & stainless steel appliances. Top level features the master suite with walk-in closet. The master bath has dual sinks with marble countertops, tub surround and separate shower enclosure. Community amenities include 5 pools, basketball, tennis and volleyball courts. Wonderful, new shopping centers with restaurants. Convenient to 5 freeway and 241 toll road.
That is a well written description. It is so rare, I thought it necessary to comment on it.
This property was purchased on 10/12/2005 for $554,000. The owners used a $443,000 first mortgage, a $110,700 second mortgage and put $300 down. On 3/21/2007 they refinanced their second for $141,000 pulling out a quick $30,000. Now that prices are dropping and they got all they could out of the property, they see no need to keep paying the big debt, so they are walking away. Does anyone blame them? Does anyone think we won't be seeing a lot more of this?
.
I remember the taste of the vintage wine
From '63 through to '69
And I'm proud of the things we believed in then
If I had the chance I'd go around again
Oh I tell you
We were young and free
Oh I'll tell you
'Cause I was there you see
And I look to the future with open arms
And the songs that flow from my old guitar
And I want to be there when the music plays
And the lights go up on the empty stage
Oh I tell you
Music set me free
Oh I tell you
It sounds so good to me
Vintage Wine — Moody Blue
as someone who prizes language, i too am glad to see a literate realtor/tard/whore’s description of a property. maybe this individual could actually perform gainful employment other than pole dancing or tending bar.
Don’t knock pole dancing. I know many women who were formerly in real estate that are now keeping the Irvine economy rolling with this “distinguished” service of entertainment.
yes, pole dancers are not taking welfare, and they are providing more social benefit than your average lying realtor. i hope they declare all their tip income.
That’s good! Have you ever wondered how many ‘independent contractors’ there are in the area? The don’t declare anything….
BD
Why should they, on paper they don’t exist in our society.
I’m back in Irvine this morning from North Carolina for the first time since 06. Man o Man is the Central Park West, Jamboree corridor looking like a ghost town, what a total Charlie Foxtrot. What are the prospects for this place and the “new urbanites of Irvine”. Ouch.
Woodbury struck me as kind of the SFR equivalent of the Jamboree condos. (Even the condos on Wilshire in Westwood don’t make sense to me, so Irvine is NUTS). A particular back-stabbing SOB at my old place of employment bought a 4bd in March of 06 in Woodbury, I think just north of a megabuck. I imagine he has lost perhaps 200k by now. Couldn’t happen to a nicer bloke.
As for myself, I got lucky. Left my job and sold in Turtle Rock in mid/late 06 (after dropping my price 100k). I had a 20 down payment into my place that I bought in 03. I imagine I wouldn’t quite be underwater yet, but I would be getting nervous. Did I forsee the crash? No. Just dumb luck. Do you guys think Turtle Rock will eventually fall or just not sell? It truly was a wonderful place to live. Just overpriced.
Carl
“Do you guys think Turtle Rock will eventually fall or just not sell?”
Very good question. Those are its two possible fates. Personally, I believe Turtle Rock will fall the least amount of any Irvine neighborhood, although this will still be significant. It is very desirable, and most of the residents have been there a long time, so the aggregate home equity is much higher. However, the transaction volumes will be very low because bidders cannot afford the high prices. The only thing that could really hurt Turtle Rock is if the many baby-boomers who are in there decide they want to retire and move out. Bottom line, I don’t see a great deal of must-sell inventory being a problem in Turtle Rock.
Look at the difference in price moves between CDM and Newport Coast. It is pretty clear that the newer bubble-era tracts are depreciating at a pace far greater than the older developments.
Carl:
Luck or not, it was a great move. Turtle Rock likely will drift lower with substantial bid ask spread over the next few years.
In 2010/11 you could buy back in Irvine to the most valued pocket. And then wait out your next Turtle Rock target to buy and turn your 2010/11 Irvine purchase into an investment property.
I would say that the 2006 vintage is not just turning to vinegar. I’d say it’s corked.
I would say the cork has leaked and everyone is standing around wonder who is going to clean up.
“this did not leave a large residual land value”
OK, if construction costs $80 sq ft and the developer builds 2400 sq ft homes, that leaves about $80,000/lot.
Where in So Cal was this, I can’t imagine it was Irvine yet. If lots in places like Phoenix are $40,000 then this puts a $40,000 premium on CA over places like Phoenix.
No, this isn’t in Irvine, but it is in California. Compare the $80,000 a finished lot value to the $450,000 per lot peak values and multiply by a density of 5, and you see just how much money the lenders are losing.
Of course Turtle Rock will fall – so will Newport and Laguna and all those places that everyone keeps saying won’t. There is just no way Orange county can sustain even the prices we have right now after the last years drop.
The only way these prices will stay the same is if hyperinflation hits us and then we are really in for a ride.
I am sure there were several houses sold from 2004-2007 in Turtle Rock. And with what we are seeing as trend over “walking away” from homes, most homes purchased between 2004-2007 are upside down. In addition, most 2006-2007 purchases were move-up, meaning a buyer sold his smaller home and used that cash towards more expensive home, increased its monthly payments. When Alt-A hits next year, we will see implosion in this area as well, unless there were no properties sold to greedy speculators in Turtle Rock
There is a developer in Calabasas who had a similarly odd story during the last housing downturn. They had gone through bankruptcy. The S&L;which had financed one of their communities had been taken over and its assets were being sold by the Resolution Trust Corp. The developer bought the homes back and resold them for a profit. The numbers were something like this (from memory, many years ago):
The homes were selling for $450,000 just before sales dried up in late 1988.
The developer went bankrupt in 1989.
The S&L;was taken over by the Resolution Trust Corp in 1989.
The developer emerged from bankruptcy in late 1990, and found most of the homes they had built still unsold, and the Resolution Trust Corp was looking for a buyer. A number of the homes weren’t completed.
The developer bought the homes for an average of $200,000 each, finished the ones which weren’t complete, and sold them for $300-325,000.
This property actually looks like something a normal person in possession of her faculties would pay over $400K for.
We’re beginning to see progress in the journey back to home affordability.
Now, if only sellers in MY neck of the woods start getting sens.
Excellent point, L! Where I live, sellers are still looking for over 30k for a one and one condo with a $340 HOA fee–full disclosure: it has a waterview of the Chesapeake Bay. I talked with a realtor who told me, “It could be worse. California prices are much higher than here,” and I thought, “I don’t know about that.”
Sale prices are down here about ten percent or so, but list prices are still right back in 2006. Still only about ten percent of inventory are foreclosures.
I wonder if the Alt-A recasts will change things over the next year.
Sorry–typo: sellers want over 300,000 for a one and one condo….
I agree but… My first impression is attractive and well described, also the real estate photographer seems to have avoided the usual “lets do a shot of the John with the seat up, in the dark” but when you get to the numbers its still 1500sq ft / 321 sq ft. pretty small for a 3 bed. I think it goes down in the Alt-A carnage.
I am new this this blog and am currently renting in Irvine. I’ve been itching to buy a house in Irvine for the last two years. It was a good thing I waited. I have toured Woodbury and think that $489K is a pretty decent price for this home. Does everyone think that the value of this house will eventually fall below $400K. What are everyone’s thoughts on Woodbury? Should I just stay away?
Prices will continue to decline thru 2011, were only about 1/2 way through the projected fall in CA. Woodbury is not immune to the wave of Alt-A defaults comming.
You may not be able to time the absolute bottom, but if you are willing to wait another 12 months you probably will be within 20% of the bottom price.
If you can afford $489K, if you really love the home and plan on staying 20+years, then it doesn’t matter as much buying now as compared to waiting. It will feel bad a year from now when your neighbor’s identical home sells for $420K.
KDub,
Welcome to the blog. I don’t know what creates your perception that $489,000 is a good price, but I suspect it is because this is a lower price than a year ago. There is a nearly identical property to this one available for $400,000. Is that a good deal? There are a number of analysis posts you may want to read to give you some guidelines for establishing how much properties are really “worth,” and how low prices are likely to fall over the next few years.
There is a trick that some of my friends used the last time around, (1990 to 1994 or so), which is sort of a rent-to-own scheme.
Find homes that you really would like to buy, if the price were right, and offer to rent them. Ask for a right of first refusal; ie, if an offer comes in for the home you can match it and buy the home.
Many of the owners with homes on the market do not wish to sell at a lower price, and would rather bleed money monthly, believing that the price drop is just a momentary aberration. Eventually reality sets in and you can make an offer they will accept; in the meantime, they have the highest possible quality renter and you have a home that meets your standards, and no risk from the continued price declines.
I’m not from there, but this looks attractive.
I’d take 10% off and see what happens, IF you intend to stay there a long time. Do you have 10-20% down plus closing costs?
Well, I liked the homes at Woodbury, but I didn’t love them. I would be willing to pay maybe $450K but I would most likely get outbid. I would be willing to wait another year I guess. I just feel that Irvine being such a desirable city to live in, a 3 bed 3 bath home cannot possibly fall below maybe 450K could it?
Hah. could it fall below $450k?
no yard, 3 floors, smallish given all the stairway space. I bet this will be going for $300k in a few years. And if credit really gets tight, $225k.
At $300k that would equate to a rental value for an owner/occupant of $1800 a month, factoring in tax savings. At $225k, its $1450. With a 1 bedroom renting in Irvine for $1600-$1700, a 3/3 is not going to fall that low.
for something comparable u should look at 2 br/2b and 3br/3ba rentals. In woodbury 2br/2ba is between 1700-1900. 3 br probably a couple hundred more.
1 bedrooms are always more expensive, so you might be miscalculating.
What would it be that I am miscalculating? The cost of a 1 bedroom rental is for reference. You aren’t going to be able to buy a 3/3 for less than what it costs to rent a 1 bedroom apartment.
1 bedrooms are always more expensive than what? A 2 bedroom? A 3 bedroom? Show me where this is true.
You’re not factoring in HOA, Mello-Roos, the risk of losing another 20-40% on your “investment”, and plunging rents as the recession deepens.
Rental equivalent value is a great theory, but not when prices still have so much further to fall.
Not a bad place, but Woodbury is out in the boonies and if you have to drive to the IBC, traffic kind of sucks. Seems like it gets hotter over there too…maybe it’s just me.
Funny we’re talking about bad wine, and there’s a big wine poster hanging in the kitchen…foreshadowing???
After witnessing the destruction to the natural habitats throughout Southern California, I hope California developers are suffering. There is absolutely no excuse for building such crammed together crap that you see from Imperial City to Bakersfield, San Clemente to Temecula, Merced to Modesto, Dublin to Vallejo. Those greedy bastards need to be punished for the devastation they caused to the state. Building 4,000 square foot homes in areas where water is limited is unconscionable and I think city officials who approved of these mass developments need to be hung, or at least die of thirst. Ok, I am not that sadistic. Let them never take a shower again.