Prices are still falling, and wise owners with equity are getting out while there is still some bubble equity left. There are not many of these people, but their movement against the masses of the kool aid intoxicated will give them greater profits than those that “wait and see.”
Asking Price: $299,567
Address: 119 Fallingstar, Irvine, CA 92614
{book2}
Afternoon Delight — The Starland Vocal Band
I admire the people who manage to sell a speculative asset for a profit. As I described in Speculation or Investment? it is a very difficult thing to do because it is at odds with your emotions. Today’s featured property owner missed the peak, and by holding on for the last two years, she has left about $100,000 sitting on the table (as evidenced by the June 2007 prices), but she is still selling when she is not financially distressed, and by doing so she will likely capture $100,000 in bubble equity before it disappears as well.
Why Speculators Fail
Despite the huge price spike in the
final two years of the bubble caused by wild speculation, most
speculators will lose a great deal of money. The causes are rooted in
basic human emotions that work against making the proper decisions to
profit in a speculative market. The moment a speculative asset is
purchased and the speculator has taken a position in the market,
emotions are immediately in play. If the potential resale price in the
market is rising, the natural reaction is to want more. Greed takes
over and the asset is strongly coveted by the speculator. If possible,
the speculator will go out and purchase more of the asset in question.
This was common in the bubble when people would take the equity from
one property and purchase even more residential real estate. The
problem with this natural emotional reaction is that it prevents the
speculator from selling the asset and taking profits when they are
available. People who make a living participating in speculative
markets have learned to override this natural instinct and sell when
their emotions are telling them to buy more. The average residential
real estate speculator does not have this discipline or awareness. They
will hold the asset through the good times.
When prices begin to fall in a speculative market,
most speculators immediately lapse into denial. They were so
emotionally rewarded by purchasing and holding the asset, they see no
reason to believe the first signs of a declining market are anything
other than a temporary aberration. As prices continue to fall, the
emotions change: fear begins to creep in, and the battle between denial
and fear goes on well past the breakeven point where the speculator
could have closed the position without losing any money. As prices fall
further, the fear begins to take an emotional toll and the speculator
starts to feel pain. The further prices drop, the more pain is
inflicted on the speculator. What is the natural reaction to pain? Push
it away. As a speculative investment becomes painful, the natural
reaction is to want to get rid of it. This prompts the speculator to
sell the asset – only after they have lost money. A speculator’s
emotions always work against them. When the asset is rising in price
they want more of it, and when it is falling in price they want less.
This is a natural reaction, and it is the cause of all losses in
speculative markets. This is why most speculators fail.
In case any of you missed Mr. Mortgage’s recent entry, 5-28 – Potential Consequences of 5.5% Mortgage Rates, he walks you through all the implications of the little-noticed mortgage meltdown that occurred this week. Our spring rally may come to an abrupt halt and many properties may fall out of escrow unless the borrowers locked their rates in.
Asking Price: $299,567
Income Requirement: $75,000
Downpayment Needed: $60,000
Monthly Equity Burn: $2,500
Purchase Price: $171,000
Purchase Date: 4/30/1998
Address: 119 Fallingstar, Irvine, CA 92614
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 1,227 |
| $/Sq. Ft.: | $244 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Stories: | 2 |
| Floor: | 1 |
| Year Built: | 1984 |
| Community: | Woodbridge |
| County: | Orange |
| MLS#: | P688358 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 3 days |
NOW. This home has everything: Two master bedrooms each with a full
bath plus a large loft area. There are lots of windows, a skylight and
an enclosed patio, a great room, laundry room, plenty of storage and a
garage. No one is above you, no one is below you and there’s only one
shared wall on this end unit with high ceilings. You feel like you’re
in a detached house. A few steps away from the door is the
well-maintained pool area with dozens of chaise lounges, so bring
sunscreen. Enjoy your coffee in the sun-splashed kitchen in the morning
or watch the sunset from the spa. There are dozens of parks near by
with volleyball courts and bike trails, yet you’re close to the
freeway. Live in a great school district in the safest city in the
nation near hip shops and restaurants.
That description is not too bad; it is accurate, and it has a minimum of flowery adjectives, and no bizarre punctuation.
This owner lost $100,000 or more waiting for two years to sell, but there is still plenty of bubble equity available. This condos will see prices near $200,000 before this is over with.
This property was purchased on 4/30/1998 for $171,000. The owner used a $163,050 first mortgage and a $7,950 downpayment. There was a refinance in 2003 for $161,500, probably to secure a lower interest rate. This owner was very responsible.
If this property sells for its current asking price, and if a 6% commission is paid, this owner stands to make $110,592. It will be a nice return on her $7,950 initial investment.
I hope you have enjoyed this week at the Irvine Housing Blog. Be sure
to come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
🙂
{book7}
Gonna find my baby, gonna hold her tight
gonna grab some afternoon delight.
My motto’s always been; when it’s right, it’s right.
Why wait until the middle of a cold dark night.
When everything’s a little clearer in the light of day.
And you know the night is always gonna be there any way.
Sky rockets in flight. Afternoon delight. Afternoon delight.
Afternoon Delight — The Starland Vocal Band
“Despite the huge price spike in the final two years of the bubble caused by wild speculation, most speculators will lose a great deal of money”
Correction: they will lose a great deal of someone’s money. That money is not necessarily their own. It could be the banks, mortgage insurers, or the taxpayers, but the losses are so big for anyone who bought near the peak that it will blow way past their downpayment amount.
I used to work with somone who bought himself an “investment home” here in Phoenix in the middle of 2007 as people began rushing the exits.
His wife is a realtor and found them a smokin deal of a house! He was telling me all about how he really stuck it to the seller by coming in with an extremely lowball bid and getting it accepted. The seller just wanted to get out of town and would take anything, he said.
They celebrated the purchase by inviting all of their friends over to the new place, jumped in the pool, ate nachos and drank margaritas. PARTAY!
He was so proud of his steal of a deal; convinced that the market was going to turn around. I had to hear at least once a week how there were so many great deals out there and how then was definitely the time to buy.
The plan was to rent the place until the market turned around and then sell the thing. He has been renting it out but he cannot cashflow the thing. He is losing money every month even with the renter in there. He knew this going in, but it didn’t matter because the market was bound to turn around within a year or two so he would make up the loss then.
Fast forward to 2009 and he is now under water. Things have not exactly turned out as planned. Phoenix prices have cratered around 50% from peak and he was recently laid off due to the bad economic conditions here.
A perfect example of speculation failure. He would speak wildly about investing in real-estate and I never said anything; he never knew about my antics on this blog either.
I believe that we have another wave of foreclosures coming from speculating knife catchers who jumped in too soon as I believe this scenario is playing itself out all across the bubble states like AZ, CA, NV, FL, etc.
You couldn’t have said it better. I’ve got an idiot cousin who just bought a second home in the IE. Idiot says he got a great deal for 300K. On Redfin I saw a comparable house for 150K. Idiot.
People aren’t always crazy when they see investment opportunities. From about Oct 2008 to March 2009, I picked up deals that were crazy in the corporate bond market. Lately, I’ve seen almost none.
However, I have a funny feeling the pattern will repeat in late summer. The foreclosures are going to bury a series of additional financial institutions.
They removed the listing from Redfin.
It was there last night. It may have gone into escrow.
OUCH!
http://www.crackthecode.us/images/falling_knife.gif
I finally encountered in Dallas what seems like a typical agent in LA. Last week she was saying “you should buy now before rates go up”.
If interest rates go from 5 to 6.5%, prices only have to come down 10% to make the aftertax payments a breakeven for someone with a decent income in TX. The high end here is dropping maybe 1% per month, low end is pretty stable.
Hope your DFW home search is going well. Nice weather we’re having, eh?
Perhaps your DFW realtor meant to say “…buy now or, without your commission, I’ll miss a payment on my Ford Explorer.”
Have you tried “For Sale By Owner.COM?” Last time I checked there were more than 100 properties in the Dallas area on the site. No need to pay 6% for expert advice like “…buy now or else.”
Play the game:
http://www.crackthecode.us/images/realtor_mad_libs.jpg
That’s awesome Dave — your “antics” as you call them are very much appreciated – some levity is always a good thing! Keep it up!
As usual … David provides priceless laughter.
I nominate David for the originality, witty, and ultra-clever awards.
Tim Duy: “A Return to a Nasty External Dynamic?”
“[W]e are stuck with two apparently contrasting views. On one hand, rising long rates and the related steepening of the yield curve should indicate improving economic conditions – after all, rising yields simply imply that market participants are gaining confidence to put their money to work in more risky endeavors. The steeper yield curve should boost bank earnings and, in time, encourage lending. On the other hand, higher yields may undermine support for the housing market, thus extending the downturn.”
This is exactly what is going on. This will be the Federal Reserve’s big challenge as we come out of recession. It is no easy balancing act. This is the same problem we faced from 1975-1980. The FED allowed inflation to get out of control during that period in order to get the economy out of the deep recession of 1973-1974. We instituted housing stimulus in 1975 similar to what we are doing today.
“after all, rising yields simply imply that market participants are gaining confidence to put their money to work in more risky endeavors.”
Rising yields on what risky endeavors?
Mr. Mortgage has a great follow up piece:
5-29 – ‘The Day After’ the Interest Rate Spike
“In a nutshell, they are kicking aside everything that is not locked or not a purchase in contract.”
No rate lock means no loan.
From Mr. Mortgage~
“Anyone with an unlocked GSE Jumbo loan that was hoping for the 5% rate available when the application was taken is out of luck. Jumbo fixed wholesale rates are now 6% to 7% depending upon which lender the loan is with.”
Uh-Oh!
Actually, that’s music to my ears.
Mortgages rallied this morning. At least for today things aren’t as dire as they appeared. Treasuries are rallying across the curve as well with modest flattening.
The 10-year bond is yielding about 20 bps less today. That’s good news for the mortgage market. No doubt, this is a result of more Fed tinkering.
However, you don’t see shocks in the mortgage market like the one we saw on Wednesday, without serious fundamental issues under line of sight.
We’ll see what happens next week.
The next couple of weeks will be critical (as will the next few quarters!), to see if the Fed/Treasury can continue to suppress long-term rates and mortgage rates, while maintaining the appearance of control of potential inflation.
I think we will be fine for next week(s). The weekly chart for TLT looks like a strong reversal, that should last at the very least for a little while. All that needs to happen is for people to start crying uncle and we will see the Fed get in the action right away, even if it is only with a rumor or bluff.
The State budget battle should prove interesting:
Latest budget proposal eliminates CalWORKs, lets out inmates early
Much of this article is emotional spin, but it does underscore the nasty battle they will have in Sacramento.
I don’t think it’s emotional spin. In order to get the current budget in balance, the goverment literally has to make cuts that equate scuttling the whole UC system.
For 32 years, CA citizens have paid too few taxes (compared to the services they demand) and demanded too many services (relative to tax flows). I blame Prop 13 but hey! They’re getting it to balance now.
The first thing to eliminate should be that 10k credit to new homebuyers, what a waste of money.
This isn’t the spin we get in the MSM:
Foreclosures Surge as Stabilization Drifts Further Away
“The housing market may not stabilize until Q111, the Mortgage Bankers Association said today”
“Twelve percent of all mortgages are now at least one payment delinquent, the MBA said in a conference call.”
“Not only has foreclosure activity surged, it’s become more widespread, as prime, fixed-rate mortgages now constitute 56% of mortgages in the foreclosure process.”
Should I pretend to be surprised?
Things seem to be picking up steam going downhill…but all we see in the stock market, MSM, etc. is positive spin (e.g., Fox “News:” “The economy sank at a 5.7 percent pace as the brute force of the recession carried over into the start of the year. However, many analysts believe activity isn’t shrinking nearly as much now as the downturn flashes signs of letting up.”). When will reality sink in?
Prime borrowers are defaulting? GASP!
Not suprising.. “New home sales up .3%”, WOW.. at the same time the largest increase in supply, more foreclosures, RATES UP, Job losses, Geitner Saturday to beg and grovel at the feet of China to buy more of our DEBT!!
Capitulation has just started with despair still on the horizon..
I sell Condos in Jax Fla for “Big American Builder” and we are slowly raising prices.. I know, you can’t believe it.. In Jax there are apprx 20+ months supply of condo units avail resales, foreclosures, New, ect… Seems we and the other Builders would rather hold on to their Money now in hopes of a late year turnaround… OH, pass me some more Kool-Aid !!! These pretzels are MAKING ME THIRSTY !!!
I don’t get it. If the price drops another 100K, it is nearing her 1998 purchase price. That was the low of the last housing bubble. This bubble may be unwinding, but surely there has been some meaningful appreciation in the last 11 years. I find it hard to believe that we will approach ’98 prices.
It’s musical chairs – -for buyers and sellers. We bought a place in ’99 at $315K – -the previous owner bought in ’90 at $275K. He sold after 9 years and made less than $20K for his effort. We sold after 8 years, in 2007, and made over $400K (after costs/commissions). That’s just the way things go. Same house, different time, drastically different result. Bottom line: no guaranteed returns for real estate.
Great move! Did you buy another place, or rent?
Renting a house. Lease is up now and we’re looking for another (better) rental. Haven’t found it yet…
But it wasn’t like I timed it perfectly – -sold a house on the East Coast ad moved to CA in ’07, and had we sold a year or so earlier, two houses right behind us sold for 130K more…we moved to see about getting some medical help for one of our children out here in CA. So it was less about “getting out while the gettin’ was good” and in hindsight it looks “wise.” Still working on that medical stuff, too…we hate renting but buying when we got here (we tried) was frustrating so we went for a rental. Now it looks lik we have to wait a good while longer…
There has been some wage inflation since 1998, but if the market overshoots to the downside–which seems likely–we could easily see prices roll back to the 1990s. We already have in Riverside County.
A 90’s rollback as a pretty much guaranteed at this point judging by the state of the economy.
There are so many un(der)-employed people out there right now. If any of the jobs ever do return there is going to be huge competition and the lowest bidder will win the day, driving down incomes across the board.
How are houses going to fetch these prices when everyone is earning less?
Because NOW is a great time to buy!
Wow, I bought my house in 98, and never took any equity out. I even refinanced to a 15 year loan. I also make an extra payment each year.
All this time, I never thought of myself as a speculator.
Anyway, back in the late 90s, I paid $420 to rent a room in a duplex at Newport Beach with an ocean view. I would have to pay about twice that price today. If rental prices have doubled, then I would think that housing prices have appreciated as well. I just don’t see a 98 rollback if rental prices remain so high.
My mortgage right now is much less than rent, and that’s with a 15 year loan and extra payment. I get a hillside home with mountain views in a fantastic neighborhood. Renters pay more for less in a crappy neighborhood. So I don’t think a 98 rollback is realistic for most houses in good condition.
I also don’t think banks will demand 20 percent. Once we hit bottom, and banks feel like things will appreciate again — they will go back to their old ways. Maybe not the really crazy stuff, but we will see 80-10-10 loans. In other words, at the bottom, banks will settle for 10 percent from customers with good credit.
That was the low of the last housing bubble
Yes, but that was also when lenders had money to loan.
“I find it hard to believe that we will approach ‘98 prices.”
Vegas home pricing back at 1999 levels
Please don’t tell me how “it is different here.”
I know somebody who recently bought 3 small single family homes in LV for $350,000 cash. It took 3 weeks to rent all of them out, and his net rent (minus management cost of 8%) is almost $3,000 per month. So he’s yielding about 10% on his investment. Plus, these homes will likely double in value the next 10 to 15 years.
JMHO ~ Las Vegas is close to the real estate “bottom”. They will recover at least 24 months before Southern California.
Late 2010 = 1996
That’s more brash than even I think. However, I do think it’s possible.
FYI ~ per DataQuick, the OC median was $195,000 Dec 1996.
Yea, I’ll bet this seller wants it sold NOW.
I would too; it isn’t difficult to see the writing on the wall.
Best of luck to the knife catcher that grabs this one. Bring lots of money.
Guys:
This is something I have been wondering about. Maybe some of you can offer some insight.
Redfin stays away from Short sales (and for good reason). On their web site, describing the problems associated with short sales, they state “…the ownership of the original loan is now split up among various investors – many of whom are overseas and now possibly bankrupt.”
My question is: If the banks owning the real estate have gone under, who owns the house? Who is motivated to get the REO sold? How will this inventory get flushed out of the system?
If the bank goes under, the FDIC owns the property or the bondholders of the bank. There is always someone in the chain of ownership who can be identified. It may take some searching to find them, but they can always be found.
Right now no lender is motivated to get the REO sold because it means recognizing a loss that may make them insolvent. All the delaying tactics we are seeing are being done so that the banks can make enough money to actually be solvent before they are shown to be insolvent–if you can follow that logic. This phenomenon is particularly acute with commercial properties where the losses are going to cause the bankruptcy of thousands of small and mid-sized regional banks.
A friend of mine bought a house about four months ago. He just received the third bill for his mortgage, which is from yet a third lender/servicer. Every month, the bill/statement is coming from a different company!
It’s a big game of musical chairs, even among the banks!
Love that song, played it 5 times already… :cheese:
We need to introduce a new grand prize for this one. WTF isn’t enough for this newly listed home in Irvine:
57 Eaglecreek
Irvine, CA 92618
Asking Price: $1,999,000
Beds: 4
Baths: 3
Sq. Ft.: 2,914
$/Sq. Ft.: $686
Lot Size: 5,769 Sq. Ft.
Oct 28, 2005 Sold $1,160,000
Mar 01, 2002 Sold $665,000
Apr 29, 1999 Sold $471,000
http://www.redfin.com/CA/Irvine/57-Eaglecreek-92618/home/4746621
Today’s new Redfin listng in San Clemente has been drinking the same kool-aid as 57 Eaglecreek:
http://www.redfin.com/CA/San-Clemente/170-W-Avenida-Alessandro-92672/home/5008530?utm_source=myredfin&utm_medium=email&utm_campaign=listings_update&utm_nooverride=1
It looks like the listing was changed to $1.199 million today – the first price was probably just a typo. Yet another example of realtors not checking their work…you’d think they would pay a little more attention to something as important as the price!
The details on Redfin show the asking price has been reduced to $1,199,000.
That’s quite a one-day drop of $800k. Is it possible that the agent and/or seller found God? Or is it just further proof of incompetence?
These are the kind of houses that make me really question what is going to happen – clearly this is a beautiful house. But it is in Oak Creek – which is certainly a nicer neighborhood in Irvine but it is not an ‘upper class’ neighborhood – at the most upper middle class but even that is pushing it. And upper middle class (say 150k a year) cannot afford a million dollar home. We have way to many homes like this in Irvine neighborhoods.
———————————————–
REVIEW & OUTLOOK MAY 27, 2009
Foregone Foreclosures
Some redefault rates may reach 75%. A central tenet of Washington economic policy for the past three years has been that the key to ending the recession is stopping mortgage foreclosures, whatever the cost. Well, another new study shows that mortgage-servicing companies are having a terrible time of it, not least because the mortgages are continuing to sour at a rate nearly as fast as they can be modified.
Yesterday’s Journal reports that Fitch Ratings found that a conservative projection was that between 65% and 75% of modified subprime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes. This is an even worse result than previous reports by federal regulators. Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months.
The reasons for the high redefault rate aren’t surprising. Many of the borrowers never could afford these homes in the first place, yet the political pressure has been strong to modify loans even for these borrowers. As home prices continue to fall in some markets, borrowers remain underwater and many of them simply walk away from the home and thus redefault.
This study has to come as a blow to the Federal Deposit Insurance Corporation, which has invested a great deal of political capital in the modification thesis. It also means that to the extent that public money has guaranteed any of these loan modifications, the taxpayer will be an even bigger loser.
———————————————–
And there we have it; a perfectly executed heist. The transfer of wealth from the tax-payer to the banking Oligarchs is completed while the tax-payer is off staring at his bucket of KFC.
Yes, a whopping blow to the FDIC. I am sure that they are all running around crying and sobbing at their desks, lamenting the theft of the taxpayers.
What a bunch of crap. You have to love how these pigs in the government come at you with an open hand to fleece you in order to “help” homelosers and then sigh and cry along with you when it doesn’t work out.
“Gosh darn it, Mr. Taxpayer – I really thought that those people would make good on their debt if we just helped them out a little. MmmmHmmm. I am just as disappointed as you are. MMmmHmmm.”
Funny that they describe this house as being “near hip shops and restaurants.” I live in Woodbridge and didn’t know that Claim Jumper, Islands and Subway were now considered hip!
Too hip, gotta go!
When you say “she” is that because the owner is actually a woman? It seems like you use “she” a lot. I would assume that the majority of houses are owned by married couples (thereby assuming that both names are on the mortgage). Then I would assume of the remaining non-couple owned homes, more than 50% would be owned by men.
Are my assumptions bad?
Many of the properties I profile are owned by single women or women who purchased as “their sole and separate property.” If it is owned by a couple, I say “them,” and if it is owned by a man or woman alone, I will generally use the gender-appropriate pronoun.
I wrote about the significant increase in activity among women in the bubble some time ago. If you read through the comments, you will see that I received the ration of BS one would expect from people with an agenda, but the facts are what they are; women participated in the bubble in unprecedented numbers.
I’m not surprised by the large number of women who bought during the bubble. In 1998, I wanted to buy a townhome, and the only ones I could find that I could afford were out in San Bernardino. I went to ReMax, had them crunch the numbers, and almost applied until I figured in how much the commute from SB to Los Angeles would cost.
Once the bubble began to grow–around 2001–I started getting calls from the ReMax agent I’d contacted. Rental agencies I’d worked with suddenly called to ask if I was interested in buying my own home. I remember a commercial at the time had a woman facing off with a sexist realtor who, instead of helping her find a SFH, kept pushing her towards townhouses. The ad insinuated that single women deserved tons of wasted space, granite countertops, and Moen fixtures too!
Ah, well. I was able to ignore the siren call of too little house for too much money. I’m sorry they weren’t, but I still wonder what on earth they were thinking.
Does anyone know how stupid it is to rent this “apartment” for twice the money, when rents are dropping, and there are vacancies everywhere? I guess not.