Big Wedge

Big Wedge — Fish

Are we selling out tomorrow for today? The takeover of Freddie Mac and Fannie Mae has opened the door for a massive government bailout. Since we are already running a large budget deficit, any bailout would be debt financed. As such, we are borrowing from future tax receipts to pay today for the sins of lenders, speculators and others who foolishly bought more house than they could afford.

The whole mortgage market bailout is yet another false hope for troubled homeowners. The bulls are somehow convinced that the problem of insolvency can be rectified through even more borrowing. People have too much debt already. That is the problem. Giving them more is not the answer. I believe you are going to see two things happen with the government in control: 1. There will be more workouts and refinancing of existing debt. 2. Credit standards will continue to tighten and interest rates and fees will continue to rise for new mortgages. There is not much the government can do with the existing toxic loans it must now make good on. It will do what workouts it can, and it will foreclose on the rest. It has a great deal of control over the new mortgages it writes going forward. It seems unlikely to me that the government would suddenly embrace all the practices that proved so disastrous during the bubble in order to prop up prices. It is one thing to minimize the losses you have, it is quite another to create new losses through foolish lending practices.

The cynics (and the bulls) believe the government will lower credit standards and write a plethora of new bad loans simply to support current price levels. This would amount to a huge, direct government subsidy to homeowners. The Government is stupid, and they do have political pressures to deal with, but they are not that stupid. Right now the focus is on limiting the damage and letting the bubble unwind without losing the secondary mortgage market causing a complete seizure of our credit markets. The government is not concerned with resale house values in Irvine, California. Everyone knows prices must come down, the only issue is how can this occur with the least amount of disruption to our financial system. Prices will stabilize, they will just do so at a much lower price level — A price level supportable by incomes where the borrowers are solvent and not prone to default on their loans.

Today’s featured property is a short sale that has been garnering a lot of attention in Northwood. Apparently there are multiple offers. After 47 days on the market, I guess everyone just discovered it… Or perhaps the realtors are lying…

10 Wedgewood Kitchen

Asking Price: $525,000IrvineRenter

Income Requirement: $131,250

Downpayment Needed: $105,000

Monthly Equity Burn: $4,375

Purchase Price: $720,000

Purchase Date: 6/17/2004

Address: 10 Wedgewood, Irvine, CA 92620

Beds: 3
Baths: 3
Sq. Ft.: 1,561
$/Sq. Ft.: $336
Lot Size: 4,096

Sq. Ft.
Property Type: Single Family Residence
Style: Contemporary
Year Built: 1997
Stories: 2 Levels
Area: Northwood
County: Orange
MLS#: S541612
Source: SoCalMLS
Status: Active
On Redfin: 47 days

Upgraded Wood Floor throughout, Wooden Shutters in Master Bedroom and
Living Room. Excellent Location at the End of Cul De Sac! Walking
Distance to Elementary School. Move in condition in Fabulouse Gated
Community….

Fabulouse?

This is a deep rollback of a 2004 price: 27%. We have been seeing many properties almost 30% off the peak, but nearly 30% off a 2004 price is more rare. Is it a bargain? Would it rent for $3,281? It may not be far from breakeven for an owner-occupant. I can remember seeing nearby comparable property for rent in early 2007 for $2,800 (on Bristlecone), so I don’t think we are quite down to rental parity, but this one is certainly closer to the bottom than to the top.

This was a conservative speculation by recent blog standards. The woman who bought this as her sole and separate property paid $720,000 on 6/27/2004. She used a $576,000 first mortgage, a $72,000 second and a $72,000 downpayment. There were no refinances. If this property sells for its asking price, the total loss will be $226,500. The seller will lose her $72,000 downpayment, and the lender will lose the remaining $154,500.

I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂

.

I found a new religion yesterday, I’d just cleared immigration jfk
A priest got in a cadillac, the shoe shine boy sang gospel
As God and his accountants drove away.
You’ll see him coast to coast on live tv, in a stadium
Rocked by satan just the night before
The collection from the faithful is tax free
It’ll pay for his presidential campaign and his yacht

And we all bow down, we bow down to the big wedge
And we’ll buy ourselves some heaven on earth
We sell our souls, sell our souls for big wedge
Are we selling out tomorrow for today?

A surgeon checks your plastic on the telephone
A casio concerto entertains you while you hold
Your credit rating’s good for a madonna or a bardot
A dali or a picasso for his wall.

You’re looking good, looking good with big wedge
Are you holding back tomorrow for today?
They’re driving in, driving in with big wedge
Are we selling out tomorrow for today?

Big Wedge — Fish

77 thoughts on “Big Wedge”

    2. anybear

      funny article. When the realtard yells “Realtor!” before entering a vacant house, I can just picture the squatters bolting out of the back door so that they don’t have to hear the realtard’s spiel about how it is a great time to buy.

    2. IrvineRenter

      “He also says that the relationship between incomes and home prices has neared a level seen at the end of past housing slumps.”

      Not around here. Not yet.

      I wonder if the NAR pays outside economists to call the bottom every couple of months to stimulate sales?

      1. The Moar You Know

        “I wonder if the NAR pays outside economists to call the bottom every couple of months to stimulate sales?”

        I think that is a very safe bet.

    3. Mike

      Funny.

      The Case-Shiller graphs were often used as evidence to support a bear market.

      Now that it’s contrary to your bearish views Case has an agenda?

      Biased a bit? You’re using the “if he’s not with us, he’s against us” argument which really isn’t substantive.

      Just possibly, just maybe, the data does support his claims?

      1. Matt

        Good point. What I wonder about is the quote that IR notes above. Median house prices in Orange County are still way out of whack versus income. Toss in the HUGE foreclosure numbers (which I think dwarf previous slumps, though I could be wrong), and there’s still a way to go.

      2. rkp

        Totally agree with Mike on this one. No reason to think that he has an agenda. Nationwide, housing has fallen to 2-3x income. Yes OC/SoCal has a long way to go but in mid size cities like Charlotte, many people can buy housing for 2-3x income.

  3. Texas Triffid Ranch

    “F-A-B…”

    “Be robbing your 401(k).”

    “L-U-hoo…”

    “Who pays? YOU PAY.”

    “L-O-U-S-E.”

  4. cara

    What’s with the posting thumbnail pictures? Are they intending you to steal them for user icons? Or does it look way worse at higher resolution? Or is this an appeal to blackberry users?

    2. SnowKat

      I think they are hoping that using the uber tiny (blurry) photos might make the house appear larger ?

      My favorite one is the shot of the front door from the inside. haha At a close second are the two landing strip lawn shots… 😆

  5. JesusCrispy

    Still too expensive. One has to realize that we are entering into a deflationary cycle with a high probability of an overshoot at the bottom. I would hate to go underwater on a mortgage when waiting another year will certainly save one tens of thousands of dollars. I say let this house go back to the bank and punish those comps even more.

  6. AZDavidPhx

    Pretty dumb seller.

    Had plenty of time to dump it onto a greater fool in 2006 just in time for the subprime implosion.

    Looks like they were betting on Irvine’s sacred land qualities to weather the storm.

    Bad move.

    Seller: -72K (Loser)
    Tax Payer: -150K (Bigger Loser)

  7. dumb JK

    Dumb 1). it doesn’t say “short” how do people know it is a “short”, why don’t they simply tell what it is?

    Dumb 2). FF gone to next trouble taker Obama, so that is what “conser..ship” means

    Dumb 3). no one is correct but market

    Dumb 4). I heard “bottom” says from 1.5 yrs ago

    Dumb 5). I don’t know nothing, I know how much I have

  8. TAM

    I believe that mortgage rates and market prices are not necessarily predictable nor rational. Rates today are below 6% – in a crashing RE market. Home prices in some markets are approaching or below replacement costs. Just as there was no rationality to the extreme overvaluation of the RE boom, the way down will also defy logic or analysis in many individual cases.

  11. Kelja

    You state:

    “The Government is stupid, and they do have political pressures to deal with, but they are not that stupid.”

    I believe they are that stupid – and they have no choice. Bailout, bailout, bailout… it will seem endless going forward. As things go from bad to worse, it will be INFLATE OR DIE! Really, they’ll be handing suitcases of cash out to anyone who can carry one.

    1. Chris

      Sure Kelja. Govt should have let BSC, FNM and FRE die. Govt **shouldn’t** drop the current interest rate but rather held steady at 5.25% or higher due to inflation. Watch USA rating go from AAA/Aaa to BB/Ba and watch your hard earn Benjamins becoming another Zimbabwe’s dollar if they don’t do sh*t. China, Japan, and others are still pumping money toward this country and, unfortunately, we still need that flow for now. Get it, idiot?

      Govt didn’t hand out these stupid loans. Rather, stupid investors of MBS (demand) cause lenders to hand out these stupid (and frankly, quite illegal) loans (supply). Although some would argue that Greenspan caused this problem with his 1% interest rate, my argument will still be valid even at 2% interest rate since it’s quite lucrative for investors (stupid) to hold these MBS paying way above GNMA dividend.

      Next time, do some investigations before accusing the govt completely. Yes, they bear some responsibility…but I wouldn’t blame them at 100%.

  14. IrvineRealtor

    This house is currently in escrow at over $600K. Offers have been accepted by the seller but bank is in process of authorizing the short sale. (not my listing, but had interested clients ask me to call on this one).

    1. SacRenter

      IR2 – what’s your thoughts on the bank approving the short sale? Seems like many houses languish for months while the bank is “in process of authorizing the short sale.” Then the house pops back up on the market a year later as an REO. Is that still happening or have the banks picked up speed in getting these houses off their books?

      1. IrvineRealtor

        If the agent can build a case that the short sale is the best option for the bank(s), and the loss mitigation group is open to the option, it can happen. The main trouble is the “discount” that a buyer is getting: it can’t be too great or it wouldn’t be approved, a catch-22. Within a declining market, often times the initial offer would have been a (relatively) very good buy, but by the time 4 months have passed, and the short sale is finally approved, the market has passed by and the buyer has walked.

    1. Trooper

      I know ! I imagine his bank account just grew considerably….

      So much for the validity and unbiased “Case-Shiller”. Poor Shiller is getting dragged into this statement, like it or not.

      For the record, he does not agree with Case on this one.

      Might I suggest a future “IrvineRenter-Shiller” index?

      1. CK

        Location, location, location SnowKat. $525k is very reasonable for a SFR in Northwood Pointe in today’s market, $600k is even reasonable. Of course you can say *I* would never pay $600k for a 1,500 sq ft house, but the fact is somebody will — so that’s where the market is right now.

        I would have (and strongly considered) put in an offer at $525k or $550k for this house — but I knew there was no way it would actually sell for those prices. Since I don’t want to spend any more than $550k, it would have been a waste of time.

        Based on IR2’s comments, it would appear I was correct not to waste my time or theirs.

        1. SnowKat

          I don’t think that location justifies that cost… IMHO Oh wait… I forgot Northwood Pointe is the holy land & is therefore worth the premium price ! lol Who would pay that much to live on that side of the 5 in a tiny house on such a tiny lot?

          All those who want to live in Northwood Pointe get ready to bend over & grab their ankles !!! 😉

          1. CK

            Well, your comments just confirm that you know nothing abou the Irvine market and what drives it, so I guess all further comments from SnowKat regarding the valuations of Irvine real estate can be totally discounted. Along with AZDavid and LC.

            Just because you don’t like the neighborhood or the price does not means nothing. Personally, I can’t stand Santa Monica. I think it is one step above a sh*t hole. But I acknowledge that a lot of people do dig that area, so I can say that I KNOW their home values will always be higher than the median for SoCal. The valuation of Santa Monica has nothing to do with what I would pay for it — which is nothing.

          2. SnowKat

            My point was that things are getting cheaper… Anyone who buys now does not understand market fundementals, because that’s where we’re headed.

          3. CK

            To say that anyone who buys now does not understand market fundamentals is a bit of a broad brush. For instance, I full intend to buy this winter — but also fully understand I will be underwater for maybe 3-5(or more) years. I can reconcile that by knowing that I am only spending what I can afford, and afford on one income (despite that we are a dual income family). I’m buying a home to live in for 10+ years, so I’m not concerned about the next 5 so much — as long as I can afford it and don’t need to sell, no matter to me.

            So I fully understand the market, and am ok with buying into it. Because what I want to spend is now coming into alignment with the type of home I want.

          5. CK

            That’s what IHB told me. You go ahead and wait to buy until you see the certain bottom. Good luck with that. I’ve got a life to live.

          7. genius

            I live next to and work in Santa Monica. Some parts of it are nice, but your assessment of it as a shithole is fairly accurate. It’s about 2-3x more expensive than Irvine for a similar house, depending on where in the city it is. North of Wilshire is probably 4-6x.

            Irvine seems like a bargain, relatively speaking.

          8. Chris

            CK, don’t worry about it. Have you been to SF? You probably would say the same wrt SF based on your feeling for Santa Monica (my assumption of course).

            However, there are still people that would bid SF homes as though they’re the *best* in the world and that SF is like no other city in the world. I dunno what they’re smoking but I’m sure the air quality must contain hemp quality oxygen (I should know…I currently live in San Jose and used to live in Irvine for 3 years).

            I would put up 100% down payment on a 92606 or 92618 Oak Creek SFH (3bd/2bth is fine but minimum) when either one hits around the $400k range IMMEDIATELY. However, I’m sure there are going to be AZDavid-like people here who will think that I’m absolutely crazy. Sure, if I’m crazy, tell that to the rest of the Irvine population for even *residing* in that city with that kinda, in their opinion, WTF RE market.

          9. tonyE

            Well, Northwood Pointe is half way to Nevada…. so it’s a good location if you have rolled some of the equity on your home to some nice investment real state in Hnderson and Bullhead City.

        2. mmg

          Ck–I would have (and strongly considered) put in an offer at $525k or $550k for this house — but I knew there was no way it would actually sell for those prices. Since I don’t want to spend any more than $550k, it would have been a waste of time.

          what do you mean no more than 550k, these houses are good investments worth 800k, make an offer before Ipo does 😆

          still some leftover koolaid flowing in Irvine 😆

          1. CK

            I’m going to invite mmg to my housewarming party. By the time we get done with a few beers, I’ll have him (or her) talked into knocking on doors around Northwood Pointe asking the neighbors if they are ready to sell….

          2. SnowKat

            It’s definitly flowing through Northwood Pointe!!

            I should open an Oxy-Clean Stand there… they’re gonna need it for all the Koolaid stains.

          3. mmg

            thanks for the invite CK, but I dont drink. I know Northwood is nice but not really interested in flatlands 😆

            with money getting tighter, Alt A defaults hitting a city near you,jobs lost left and right hardly anyone will be in the mood to be paying >600 K for a 1500 SF place unless it has ocean view or is on top of some nice hill.

            Not worth the money in my opinion. You can probably do alot better with your half mil 😆

          4. Schadendude

            CK,

            Dude, I think all Kat and mmg are saying is that there are very few certainties in life. One of them is that if you buy a house today, you are leaving money on the table. That’s it. If you fall in love with a place, can afford it with traditonal financing, and won’t be sick when your neighbor pays a good deal less for an identical floorplan in a few years, then by all means, take the plunge.

            I think what is difficult for most of us to understand is that there is a place that is so special that you would KNOWINGLY enter into the deal with an expectation of short/medium term loss. It’s not a matter of timing the bottom. During healthy real-estate cycles, the ‘top’ is a few percentage points higher than the historical average, not 150% higher.

            This thing isn’t going to bounce at the bottom, it’s going to roll… It’ll be a good long while again before we witness this level of greed and stupidity again on such a scale.

            We’re just saying it will not hurt you to wait.
            Take what you save and put your kids through college.

          5. CK

            I hear you. But it’s just a matter of how long do you wait. I was engaged to be married and ready to buy my starter home in 2001, and poof — put on a rotation up in the Bay Area (for 2 years they said). Prices were already out of reach up there so I said “I’ll wait till I go back to SoCal in 2003”. Whoops, 2 years became 4 years. Get back to Irvine 2005 and its game over here.

            So now its almost 2009, I’m 36 with a daughter in Kindergarten and a HH income approaching what will probably be Obama’s 36.5% tax bracket. Not only do I need a mortgage deduction, but I also am *really ready* to be a homeowner. So I wait until what, 2015? My child is 12? I’m becoming a first time buyer at 43? Why even bother. She’ll be headed off to college in 6 years, and we’ll be ready to downsize to a townhouse.

            Yes, I know I can buy more house for the money in a few years, but will I enjoy it more? Not likely. A home is a home regardless of how many sq feet it is. As long as it fits us, that’s all that counts.

          6. Schadendude

            I feel you man. I’m 34 and dying to own so I can start cutting holes in walls in support of my obscene wiring ambitions.

            My parents owned a home at 24, so it could be said that I’m feeling a little behind. I guess I look at it like this:

            I’ve waited this long during the run up, watching the prices outpace my ability to save a down, this is the easy part. It’s the moment(s) we’ve been waiting for man. Don’t get impatient. There’s still money yet to be saved.

            With regard to your child, they won’t know the difference between a house you own and a house you rent. It’s shelter. That’s it. It’s never a good time to lose money. I need a writeoff too, but I’m not going to spend a buck to save 35 cents.

            Stay strong CK. You’re not a loser cause you don’t own the house you live in. You’re a winner cause you don’t own the debt on an asset that you’ll never actually own. Every month you’re saving money over a purchase today. Treat yourself to something nice while you wait. Hell the economy could sure use it.

          7. Chris

            Smart move CK. Don’t overpay and try to find one that you and your family will love and reside until your child heads to college. You will at least break even if the market moves sideway (which I doubt it 10+ years from now).

            Good luck.

          8. IrvineRenter

            CK,

            I am 41, and I have not owned a home since I was 33. I will not likely own again until I am 43. Your age does not impact the soundness of the purchase decision. I am facing the same family issues as you are, but this market is forcing me to rent. It is one of the side effects of extreme market volatility like we have in California. I don’t like it either, but you must take what life gives you.

          9. mmg

            CK

            I’m in your exact same situation, 36, daughter and now son, income bracket in the danger zone 😆 , so the way I look at it is the more you wait the more you save (both on diff bet morg and rent, also avoiding huge losses), like Schadendude mentioned above your kids have no clue if you rent or own.

            with the money you save each month, treat your kids and more importantly the wife to a nice trip or any other luxury.

            with the economy going down the $hitter, we have been taking vacations, new cars (excellent deals by the way) and a daughter in private school yet we still manage to save some money (getting harder with prices going up for food and gas 😆 )renting a decent home in a very nice neighborhood–>Laguna Niguel.

            Enjoy life regardless of owning or renting

          10. CubicZ

            I so hear you! I am going through a similar phase in my life where I literally end up paying everything to uncle Sam one way or the other. The rent doesn’t go down either. I have reached a point where buying is almost the same as renting to me and I get to see them deductions on the tax papers. Taking the plunge very very soon, but not a huge property. Something like Wedgewood is good enough for now.

            CubicZ

          11. CK

            Shaden/Chris/IR/MMG:

            Good points all, and very well taken. IR and the IHB analysis has brought me back from the brink before (in early 2007 — whew!), and I will certainly listen to the chatter here again before diving in. Appreciate the great discussion on not only the economics of the market, but also the emotional side. Have a great weekend, all.

            Fight on, SC. Down with the Buckeyes!

    2. IrvineRenter

      We may have to start offering the standard caveat to valuations: It is a reasonable price today, but by historical valuations, it is still inflated.

      1. Chris

        Hey IR, I’m not sure if anyone told you this but you really need to redo your GSM 160 evaluation. Are you considering SFH rental price in comparison with actual SFH selling price?

        Seriously, you can’t compare apartment rental price with SFH selling price. With SFH, at least I don’t hear my upstairs neighbor’s feet noise and get haggled by my downstairs neighbor complaining about MY feet noise.

        SFH is much more desirable than your everyday apartment condos/flats and at least desirable than your standard townhouse-type condos where you don’t have upstairs or downstairs neighbors. You need to consider that when comparing simple price/sq ft. Price/sq ft SHOULD be higher for SFH than for condo at the same location (i.e. Oak Creek). How much higher? Well, perhaps you can come up with a convincible argument on this.

        BTW, *convincible* is a valid word according to http://www.dictionary.com.

        1. IrvineRenter

          The GRM is for similar properties. It is not comparing the rent of an apartment to the ownership of a SFD home. The relationship has stood the test of time. It is only in California and some other bubble markets where the relationship breaks down temporarily due to irrational exuberance of market participants.

          The whole notion of a price premium for ownership is nonsense. It stems from the irrational belief in endless appreciation justifying a price premium. Ownership is a burden. Ownership is supposed to be cheaper than renting. Renting carries the premium because you have greater flexibility and fewer responsibilities. The savings from ownership is supposed to be the reward for saving money and being responsible. When ideas about appreciation creep in to the picture the whole idea of an ownership premium is concocted. Look at properties outside of California (pre-bubble) and you will see what I am talking about. Most markets have historically carried a rental premium.

  18. WaitingToBuyByAndBy

    Regarding Case, claiming the bottom is near, please keep in mind he is not talking to Irvine, CA.

    Also, the article is referring to the 20-metropolitan market stats, not the 10-metropolitan market stats. The difference is much greater nationwide coverage.

    So you basically have an article hear suggesting in many areas of the US, the housing bubble is nearing the bottom.

    If you go find the latest Case-Shiller data, open up Excel and look at the numbers you can see for yourself the negative acceleration of index values in most markets (including L.A.) is slowing down and in some markets (e.g. Denver, Atlanta, Chicago, Boston, Minneapolis, Charlette, New York, and Dallas) the index has actually gone up.

    However, as pointed out by Walter, Case may not be aware of the impending wave of Alt-A nastiness that lies ahead and will affect the Case-Shiller index. He’s simply looking at the current available data. Keep in mind some areas have more Alt-A loans than others.

    I’m not here to defend Case, just want to point out we should be aware national news is not always locally accurate. That, and a little research can shed some light on things.

    1. maliburenter

      Beware of seasonality affecting the CS data. Summer months are better than winter. I can pull up the spreadsheet for you on this.

      There is definitely a difference between the various markets. Soon, it will be the Alt-A markets with shockingly large declines. That includes a lot of high end parts of California.

      Piling up my cash and working in a comparatively safe part of the financial world until then. It’s kind of like I work a bit inland, have a levee, and a car full of gas. It’s not perfect, but I’m fortunate not to have a front row seaside seat.

  20. CubicZ

    So it is in escrow, ha? No need to nurse my dream of making a full price offer in a down market because I will own a piece of worthy land in Irvine?

    I will keep my eyes open and buy something by the end of the year. Can’t wait too long. It’s like I have put life on hold from past one year. It’s getting frustrating.

    CZ

    1. genius

      You can always rent. It’s cheaper and less time consuming. If you like the place you can offer to buy it from the owner in a few years, once reality sets in and speculation has gone away.

      OT – WTF happened with commodities today? I’m glad I didn’t sell off my positions.

      1. Hormiguero

        the whole counter-rally from the greenback in the past few months is just one of those things where the market can’t go straight down.

        any rational adult with any perspective can see that the dollar is still toilet paper relative to any other currency or asset. don’t worry, gold and crude will be at 500 before you can say ‘bernanke’.

  22. Mike

    I actually toured this house about two weeks ago. It’s nice, but not worth $525k. 1,600sf is a lot smaller than one thinks. Compared to everything else in Irvine, it’s a great deal, and some knife catcher will think it’s a steal. However, this type of house won’t be a deal until it’s $400k. No way would someone rent it for $2,500/month

  23. tonyE

    Damn those little pictures… Are those Wilson WATT/Puppies speakers?

    I better check on audiogon to see if they’re gonna blow those babies at a reasonable price.

    I’ve been seen some well price High End Audio gear coming out of OC now. I missed out on a pair of Maggie 1.6QRs going for 900 bucks last month…

  24. Gemina13

    There’s no way I’d pay a half-million for under 1700 square feet, but if the number of lookers = serious interest in this place, it would seem the Greater Fool theory is still in effect.

Comments are closed.