The price on this property is now under $6,000,000. The owner is asking $1,000,000 less than what was paid.
Real estate is notoriously illiquid. When you want to sell it, there is not always a buyer there to unchain it from your ankle.
Today’s featured property is looking at a potential million dollar loss.
Asking Price: $6,495,000
Address: 29 Blue Grass, Irvine, CA 92603
Ball and Chain — Social Distortion
Times are hard getting harder
I’m born to lose and destined to fail
Real estate is illiquid. Perhaps you have heard that term before. One of the main criticisms of owning real estate as an asset class is its lack of liquidity, but what does that really mean? Liquidity is the ability to sell an asset and convert it to cash. In case you haven’t noticed, right now, real estate is not very liquid.
Liquidity risk is one of those esoteric and academic concerns that does not apply to the real world–or so people thought during the bubble. When prices were rallying, real estate was very liquid. If you would have put a property for sale in 2004, you would have obtained multiple bids over the ask within days. Real estate was nearly as liquid as stocks during that time. Like every other condition during a financial mania, people assumed this would also go on forever.
{book4}
When stock prices crash, there is still liquidity. You may have to discount the price a few pennies to find a bidder, but there is always a bidder willing to pay something close to the most recent transaction price. In real estate, this is not the case. When a credit crunch causes a drastic reduction in potential buyer’s ability to make bids, offer prices can drop very quickly while the asking prices of sellers do not. This increasing bid/ask spread is one of the telltale signs of a real estate market price collapse.
We joke about the phenomena here. We remark on the denial and delusion of sellers and their WTF asking prices. We see the collapse of demand caused by restricting credit; sellers do not. For instance, look at these two Woodbridge properties: 79 Lakeview Irvine,
CA 92604, Price:
$590,000; and 24 Lakeview Irvine,
CA 92604, Price:
$699,000. The less expensive property is asking $289/SF while the more expensive one is dreaming $421/SF. The former owner accepts reality; the latter owner does not.
The illiquidity of real estate makes property a ball-and-chain. The owners are looking for relief, but they are not going to find any.
Take away, take away
Take away this ball and chain
Well I’m lonely and I’m tired
And I can’t take any more pain
Today’s featured property is a high-end ball-and-chain. It is only being discounted 7% off its peak purchase price. That doesn’t sound like much, but 7% of this purchase price is $500,000!
Asking Price: $6,495,000
Income Requirement: You’re not financing this one.
Downpayment Needed: You are probably paying cash.
Monthly Equity Burn: More than you can imagine.
Purchase Price: $7,000,000
Purchase Date: 8/2/2006
Address: 29 Blue Grass, Irvine, CA 92603
| Beds: | 6 |
| Baths: | 9 |
| Sq. Ft.: | 7,600 |
| $/Sq. Ft.: | $855 |
| Lot Size: | 0.5
Acres |
| Property Type: | Single Family Residence |
| Style: | Santa Barbara |
| Year Built: | 2006 |
| Stories: | 3+ |
| View: | Canyon, Golf Course, Panoramic |
| Area: | Turtle Rock |
| County: | Orange |
| MLS#: | U9000309 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 47 days |
Ambiance of a Santa Barbara Spanish home, & casual, resort-style
grounds modeled after those of timeless Montecito estates. Lovely rooms
featuring high ceilings & adorned in luxury finishes from Richard
Marshall hardwood flooring to Venetian plaster, Walker Zanger stone and
tile and custom window treatments. Home features an eminently livable
5-6 bedroom, 7.5 bath floorplan, with one bedroom currently used as an
office and another in a private casita with kitchenette. Every room
features peaceful vistas of the Shady Canyon Golf Course, hills,
canyons, or the beautiful gardens. Main level master suite with
fireplace, private terrace, stunning bath & dual dressing rooms; as
well as living & dining rooms, wine room; gourmet kitchen;
subterranean level with 4-car parking, fitness room, bonus playroom.
Gorgeous landscaping with olive trees & succulents, a shimmering
pool & spa, numerous terraces/covered loggias, BBQ area & 2
outdoor fireplaces.
Either John McMonigle is a good writer, or he hires one. That description describes the property well, it uses a few well-placed modifiers, the grammar and spelling are correct, and most importantly, it did not pain me to read it. I guess when you list a $6.5 million property, you get quality description copy.
This property was purchased for $7,000,000 on 8/2/2006. The owner used a $5,600,000 first mortgage and a $1,400,000 downpayment. Can you imagine the payments on a $5,600,000 loan? Wow! Despite the huge financing amount, this owner must have some real money. He refinanced on 2/7/2007 for $4,900,000. To do that, he had to pay down the original note by $700,000. It is still a huge loan, but a distressed homeowner doesn’t have $700,000 sitting around to pay down mortgages. This guy does.
If this property sells for its purchase price, and if a 6% commission is paid (John McMonigle would make $389,700), the total loss on the property would be $894,700.
It is difficult to project what will happen to properties like this one. Properties over $2,000,000 historically have not been financed (although the bubble changed that somewhat). The cash market for these very high-end properties cannot be valued by a rental income based approach. People with that much money are not using financing, and rental parity is not a concern to them. If you are rich enough to pay cash for a property like this, you buy it because you want it.
The very rich that buy properties like this are still subject to changes in wealth and income like the rest of us. Many of these people are suffering from drops in the stock markets and other asset class valuations. This may or may not cause them to sell real estate. During our last real estate recession, high-end properties like these got hammered. They might get pummeled again.
{book3}
Well it’s been ten years and a thousand tears
And look at the mess I’m in
A broken nose and a broken heart,
An empty bottle of gin
Well I sit and I pray
In my broken down Chevrolet
While I’m singin’ to myself
There’s got to be another way
[Chorus:]
Take away, take away
Take away this ball and chain
Well I’m lonely and I’m tired
And I can’t take any more pain
Take away, take away
Never to return again
Take away, take away
Take away
Take away this ball and chain
Well I’ll pass the bar on the way
To my dingy hotel room
I spent all my money
I’ve been drinkin’ since half past noon
Well I’ll wake there in the mornin’
Or maybe in the county jail
Times are hard getting harder
I’m born to lose and destined to fail
Ball and Chain — Social Distortion
The mismatched wood (cherry, white oak, maple, and walnut in one room!!!) through out the house is very jarring to my eyes. Perhaps it is my Midwestern simplicity, but I prefer homes that are somewhat easier to flow through, not homes that demand I look at every ‘thing’ in them, but perhaps that is the owners’ intent…
The furnishings are way out of whack with the exterior concept and some of the ornateness in the decorations (fireplace mantle) is just too much.
I much prefer the previous post’s home, smaller yes and lots less expensive, but much more tastefully decorated (except for that ghastly pink baby room, give the kid a chance not to be a Barbie doll, mum and dad)
I think they swiped their table cloth from the Old Country Buffet…
I really don’t think the home was staged. That may actually have been the owners tablecloth and salmon-colored walls. For $7 mill, you would think they would get a decent stager.
For 7 million I would never buy in Irvine. At that price the house should have a nice view of the sun setting into the ocean.
I agree about the ocean view.
A few more points. Subterranean parking? Stack effect when you warm up the auto means carbon monoxide seeps up through the whole place. Is that one of those fire/fuel canyons? Great view next fire season!
$200 a square foot puts it at about 1.5 million, maybe 2 mill with the pool. Now where’s that Countrywide office again?
I agree- for $7 million, I want a beautiful ocean view. I just don’t understand the allure of Shady Canyon. As others mentioned, it’s not as if you trade ocean views for lots of land and complete privacy.
And I think those Tuscan/Santa Barbara styles are getting very tedious. Few are well done. Most are expensive Disneyland carricatures. Shady Canyon andCrystal Cove seem to be the worst for Tuscan McMansion architectural overkill.
As one whose been to homes in Shady Canyon and Newport Coast, along with other coastal towns in OC, Shady is very very attractive.
An ocean view is nice, but trust me when I say the views from Shady Canyon are very peaceful. The way they layout the houses, it does feel more private than it actually is. I don’t think any of the houses have a house ‘behind it’, giving you a very private feel in you backyard you don’t get in the ocean view areas.
IR, what are your thoughts on this type of home past “hammered” and “pummeled”? It seems that if someone needs to sell this house and they are willing to take a serious loss, they are, by def’n, in distress. Distress in the high end is usually a good sign for many of us with less lofty aspirations but this isn’t exactly a price point many of us can aspire to. How would you try to calculate the “worth”(I don’t know if that is the correct word for it) of this house? Let’s say to the nearest 6 figures 🙂
There are an infinite number of ways to calculate the “worth” of this property. And none of them matter much, except maybe to the appraiser and the lender. The only thing that matters is how much someone is willing to pay for the property and that is the “worth” to that person … at that moment. And it may not be worth that much to anybody else, or the bank.
If you have to calculate the practical worth of a finished high end Irvine home, there is no way you are coming out on top with the winning bid.
Distressed? Distressed is relative. If you once had $40 million and now have $20 million, that person might feel distressed. That doesn’t mean they necessarily have to sell assets.
Que Lastima!
I disagree on the characterization of these sellers as “distressed” for being willing and able to realize a large loss on their property. I would say that they must be “motivated” by something to do so now, but that’s hardly the same thing.
I too am curious if anyone has ever successfully determined a scheme by which one can accurately gauge the worth of multi-million dollar properties.
“I too am curious if anyone has ever successfully determined a scheme by which one can accurately gauge the worth of multi-million dollar properties.”
I have never seen one.
As awgee pointed out above, these properties are worth whatever some other rich family is willing to pay for them. And as mav pointed out, distress is relative, and there is no reliable way to know whether or not people with that much money want to divest themselves of real estate.
But IR, if you look around (not that you don’t) there are lots and lots of these so called multi-million dollar homes. Coto, Laguna Beach, Newport Coast, Irvine TR, Nelli Gail etc. The time on market is essentially infinite for this type of home. I can’t imagine there are that many all cash buyers out there. The ones on the margin of these prices ranges will have to come down to some point that allows for financed transactions. What I see now, is that with the destruction of equity, less and less people are carrying over money for large downpayments on the intermediate-high properties properties (say 1-1.5M?). Won’t buyers who have income and down payments for these homes realize that a $10M today is tomorrow’s $5M home?
Everything you describe is certainly going to take values down in the financed-home market. However, once you get about a certain price threshold, the buyers are not financing dependent. The bubble pushed this threshold to new heights, but the threshold did not go away. Anyone seriously looking at a $6,500,000 property is not worried about financing.
True enough I’m sure. But wouldn’t they realize that they can get more now (or a year from now) for their $6.5M cash? Or get this place for, say $4M, since there won’t be a whole lot of bidding competition to meet the asking price?
Not too many really rich people throwing money away, even if they can afford to?
The other assets that would be sold to finance a cash transaction like this are at least as depressed as real-estate. I would expect someone to buy it in the $5-$6M range thinking they’re getting it 20-30% ‘off’. In 2 years they might sell it in the $4-5M range.
It is actually only a $2M home, with a $5M lot. A better comp would be comparable lot price + building cost. Building cost today has to be considerably less than in 05/06, plus you’d get exactly what you want. Would have to wait a little while. You could probably work out a rental of a home like this one while your home down the street is being built.
A cost approach can be used. Land plus building cost less depreciation. But for that price a custom built home is more in order except for established neighborhoods or highly restrictive zoning.
A friend’s in-laws bought 9 bedroom lake front vacation home in VT. It was across the lake from one of Vandervilt’s vacation home. Over the years, all the rich folks decided to vacation somewhere else. The homes were in disrepair before they bought one of them on the cheap.
Brilliant observation. I hadn’t scrolled down to yours before I wrote almost exactly the same thing.
Correct. The buyer might be at $3 m or $4 m. I wonder how much will most posters here consider this property a steal during this down cycle?
What do you define as a steal?
The person who buys this will value the property more than anyone else. Considering the high inventory level in the high end, it is unlikely that the purchaser will be able to sell for a higher price any time soon. Someone who is looking to make money is better off day trading the stock market.
In this case I would define a steal as follows: the price level where the purchaser can afford the taxes on a property they love easily with a fixed perpetual income.
IR,
“For instance, look at these two Woodbridge properties: 24 Lakeview Irvine, CA 92604, Price: $699,000; and 79 Lakeview Irvine, CA 92604, Price: $590,000. The less expensive property is asking $289/SF while the more expensive one is dreaming $421/SF. The former owner accepts reality; the latter owner does not.”
swith “former” & “latter”
oops, switch…
Parallelism is a funny thing. The statement as I wrote it is technically correct. In reference to the preceding sentence, my use of former and latter is correct; however, in reference to the sentence before that, it is wrong. I went back in to the original post and reversed the order of presentation of the two properties. That way the parallelism carries through all three sentences, and hopefully the confusion goes away. I should have noticed that myself…
the home is beautiful.
I still think you could determine the relative worth of high-end property by their rental price. Whether that value would be a ceiling for a buyer with money to burn is not something you can say before, during, or after any bubble in history. People are stupid.
“…The very rich that buy properties like this are still subject to changes in wealth and income like the rest of us…”
Your comment suggests the “us” here aren’t rich. How offensive! Obama assures me my household is rich and that I need to “pay my fair share” and “spread the wealth.”
If you make over $250K a year you are rich and need to pay for people who are not intelligent enough to make the right choices. That is civic your duty. 😉 Reverse Darwinism; it works until nobody makes over $250K anymore.
“If you make over $250K a year you are rich…”
We could debate that point. 🙂
Some places you are, not Orange County that’s for sure…
Mav, that’s retarded.
If you make > $250K, you get taxed at a higher rate for your income over $250K, not for all of your income.
Let me walk you through this.
Say you make $350K.
The first $250K is taxed as before.
The second $100 is taxed at a 3% higher rate than before. That’s $3K.
If you wanted to pay 3% less tax, you would first have to give up $100K gross income and $74K net income.
You and Rush are having a great time portraying the 1999 tax rates as those of a communist country…
It has more to do with something called Alternative-Minimum Tax that will raise even the tax below $250k. As I understanding it, your interest deduction becomesly grossly limited if you are unfortunate enough to fall into this bracket.
Well, the AMT is tricky. Mortgage interest does not get “thrown back into” the AMT calc, but state income taxes and property taxes do. Safe to say, if you live in a high tax state (CA, NY, etc.), mortgage a home, and earn more than $150k jointly, you’re paying AMT.
The good news is, that if you’re already paying the AMT, Obama’s tax increases may not affect you much. We paid $1,700+ in AMT for 2008 and we have no children increasing our deductions.
It’s time for you to throw out your turbotax CD, and hire a professional. You way over simplified it, but you easily justified paying for a pro….
Nuts. Where the hell do you live? 250K is not that much money in many parts of the country:
Coastal SoCal, SF, Seattle area, New Jersey. NYC, Boston, parts of Chicago, DC, etc, etc…
It may be a ton of money in Oklahoma City.
Re: 250K is not that much money.
Where do you live?! What planet are you from? 250K is a crapload of money. As an exercise, please find the median household income of your area (zip will be fine). I live in a pretty nice neighborhood in DC, and median income is 115K. 250 is ~2x stdev above mean (or 5% of total population). Even in my pretty wealthy surrounds, 250K is a LOT of money. Sure a couple of jet-set lawyer DINKs may pull down that kind of money, but they are NOT representative of the population, even in expensive neighborhoods.
You must be on drugs. If you can’t consider yourself rich on $250,000/ year, then you have completely lost touch with reality.
I’m a Chicagoan, and there are no “parts” of Chicago where 250K salaries would not qualify you as rich.
You haven’t seen the worst of it. Imagine if the Democrats start taxing wealth directly even before you die. Right now, they heavily tax your income, but they don’t take your actual wealth until you die (at which point they take almost half). Imagine a 1% net worth tax… that would make the rich consider armed rebellion.
I wonder if a savings tax would lead to further deflation or asset reflation. I would bet on further deflation as it sends the message that money is worth more in the future. Politicians tend to think that everyone else is not as smart as them…. people just react exactly as they suspect to their brilliant policies.
If your goal is to get more money from people who are truly rich/wealthy, then a “net worth tax” would be far more accurate than an increase in the income tax. It’s going after the balance sheet as opposed to the income statement.
If this recession gets worse, I think we will see a proposal to take a “small” percentage of retirement accounts. Think about it. You could raise a ton of cash by taking a “just” 1% from every American’s IRA/401k. Tax creep…
For that to be effective the US would have to be willing to wage war against countries that are more than willing to provide citizenship and shelter for wealthy American refugees.
For every action that is an equal and opposite reaction…. a basic physics principle that applies…. one that politicians don’t seem to understand.
“Imagine a 1% net worth tax…”
The Swiss do this, at least in some cantons. No capital gains or dividends taxes. Very much simpler tax filing forms, for this and other reasons.
Of course the Swiss consider tax evasion a civil rather than criminal law matter. Penalties if you are caught, but no jail time.
Current federal law at its worst says in 2011 there will an estate tax of as much as 55% for estates valued at over one million $$$. No chance any of my relatives will be paying any estate tax. You?
http://en.wikipedia.org/wiki/Estate_tax_in_the_United_States
You couldn’t even muster a brigade. The rich would hire Blackwater to do their fighting for them.
Better yet. The rich might PAY for an armed rebellion.
That could be Obama’s plan to restart the economy:
Raise the tax on the rich so they go and spend money to create a private army that will take over Nancy Pelosi’s office.
Two birds killed with a stone: new jobs and no more Pelosi. ;-D
I don’t get the Pelosi thing. Sure, she should be kicked out of Congress, but so should many members of both parties – Hoyer, Inhofe, Bunning, Dingell, Frank, Bachmann, and many others come to mind – but why is this particular Speaker of the House of a sudden one of the great monsters of Washington?
She’s just a mediocre, sell-out politician.
Why she merits special vilification with extra cheese is tribute to the media’s peculiar herd behavior. I guess this one’s extra-special evil, for some reason.
They do tax wealth after death, but they also didn’t collect taxes on any capital gains made but not exercised before death.
For example, you have an asset pool with an acquisition cost of $200k in house/stock/bars of gold whatever asset class you want. It is now worth $2MM. If you sell it the day before you die, you pay 15% long term capital gains or 270K. If your estate sells it When you die, the cost basis is moved to $2MM and you’ll pay approximately $430k in taxes.
Of course that is only in 2011 or later. Right now, you’ll pay no estate tax until $3.5MM. And that means that any embedded capital gains will never be taxed.
It’s weird that so many are convinced that rich people just can’t take it anymore. There is this meme that they are like the blue whale or the white rhinoceros, and may disappear from our planet if we do not change our short-sighted ways.
The rich won’t go overseas if marginal tax rates go up. Nor will they die off if capital gains are taxed like ordinary income. And we won’t be forced to breed them in captivity if there is a 1% asset confiscation.
Now these policies may be bad policies, but they should be considered within the context of whether they’re bad policies. The idea that the rich will rise up and throw off their chains through force of arms, or flee the country, just isn’t reality.
Check out the top marginal tax rates at http://www.truthandpolitics.org/top-rates.php
Under Truman and Eisenhower they ranged between 87% and 91%. Then down to 70% by Johnson and Nixon, to 50% during Reagan, and to 39% by throughout Clinton’s presidency. There were huge loopholes which made the more obscene top rates less scary than they seemed, but the wealthy are still treated far better by the tax system these days than they have been since the 1920s.
Maybe my school history courses were all taught by arrant communists, but I recall no stories of the wealthy taking up arms or fleeing for foreign shores.
Regarding the rich considering armed rebellion if they are taxed 1% on net worth:
You say this house is going to be bought for all cash. What will be the tax rate on it? Hasn’t California been taxing real estate at 1 percent? How can you not call this a wealth tax? Does the name Property Tax confuse us?
We pay an Income and an Outgo tax. Are we confused because they call it a Sales tax?
The middle class has been paying 1 percent on most of their wealth for decades. The wealthy have a smaller fraction of their wealth tied up in residential real estate so they pay lower wealth taxes as a percent of their wealth.
Could be coming soon to a reality show. Around LA, a lot of big homes like this have been used to shoot things like The Bachelor.
I am not so sure that real estate is illiquid. Especially when comparing to the stock market. If you want to sell a property, it is simple, lower the price, or put it up for auction. The stock market is basically a daily, running auction. That is why stocks can be sold quickly.
I was showing a property recently and there was a line of agents and clients to get in. Why, because it is a REO priced in the low 300,000s when the rest of the area is at 400,000+. The bank is going to turn the property in to cash quickly. If that does not work, I am sure the auction block will.
A statement I do agree with: real estate is illiquid when sellers do not accept the current market price. Just like the stock market.
Yes, but when that REO is relisted the asking price will be far higher than the price paid at auction. This difference is the bid/ask spread, and is a tangible measurement of illiquidity.
When a stock is sold – even at a loss – you actually get money back. If you’re upside down on a house, you either have to dig deeper into savings to cover the short when selling or risk ruining your credit. I know because I ran into this situation in the mid 90’s once and I missed a job relocation because of it and because I did not have the money to cover the short.
Sure, if you have lots and lots of equity, then a house can become more liquid than otherwise. And even if you price it right, you may still have to wait quite a while to sell it while still making payments on it whether you live there or not. Homeownership can be great if you buy at the right price – but still not without its high illiquidity risks.
“When a stock is sold – even at a loss – you actually get money back.”
If you bought on margin, basically the same as a mortgage for stocks, you will not be getting much back. This is why margin calls are so dreaded.
Likewise, if real estate is paid for with cash, you will be getting money back even if the property is sold for less then the price paid.
Don’t get me wrong, I understand that real estate is not as liquid as stocks. All I am saying is most of the illiquidity is a product of people not accepting the market price for the asset. This is as true in the stock market as it is in real estate. Try putting in a sell limit order significantly above the market price. Your sell order will sit and rot. Just like a over priced property.
I never understood this, for $7 mil I would want at least an acre if not 3-5 acres, (unless it was a penthouse in NYC). Judging by the pics, this looks line more than 1/2 an acre, could this be a misprint?
I don’t think the lot is any more than 1/2 acre. When viewed from across the canyon, it has very close-by Tuscan McMansion neighbors.
Well I for one am glad John listed two patio chairs on the second picture. Nothing says “7600sqft estate” like two chairs. Where do I send my offer?
My mom in her attached home in Turtle Rock looks directly at this house. She has a nice view of large homes and green hills. The view used to be just green hills, but now it’s Shady Canyon, etc. This house, however, has a view of rows and layers of small TR attached homeslayers of homes across the gully. My Mom has the much better view.
The furniture and decor in that place is dreadful. I was hoping for much better from the looks of the front. I certainly wouldn’t be paying a shade under $7 mill for that piece of junk.
I also note the brief description mentions 9 baths, but the text mentions 7.5.
“The view used to be just green hills, but now it’s Shady Canyon, etc. This house, however, has a view of rows and layers of small TR attached homeslayers of homes across the gully. My Mom has the much better view.”
Sounds like her view *used to be* better for sure, before the builders got there.
Now, it’s a matter of perspective. If you look at a big, pretty house and don’t envy, great. If you look out on the small houses and feel superior (or even tolerant), win again. Only if you envy the bigger or loath the smaller do you lose.
wow….
realy nice housingbut i don’t need right now….
maybe someday….
Party Pooper, I disagree that the high-end is judged by the price one could rent them for. At this level, most of these individuals have multiple homes, boats, planes, etc.: they don’t need the income, so these properties aren’t income plays.
For $6mm or so, one could purchase a 30+ unit apt. building in Orange County in pretty good condition that would have a cap rate of around 6%, which would provide much more income and tax advantages than a single family home.
Interesting blog post today by technology columnist/blogger Robert X. Cringely:
http://www.cringely.com/2009/03/the-not-so-bad-bank/
The part I found particularly interesting:
“One thing important to remember about CMOs is that, as the banks continually explain, they are so complex and so dispersed that there is no way to put them back together again prior to maturity. Can’t be done. And since politicians are particularly stupid when it comes to math (being only able to understand negative numbers, it seems), they buy this argument, which is supported to some extent by experts at the Treasury and the Federal Reserve who I think, frankly, identify maybe a little too closely with the bankers.
The fact is that Wall Street has all the time had the ability to put those CMOs back together again, just like Dorothy was all along able to return to Kansas by simply clicking her heels. Computers are very good at keeping track of deals like CMOs and they have to because – contrary to what the bankers and brokers tell us — CMO’s are put back together again all the time. This happens every time a mortgage is retired either through the sale of a house or a refinancing.
CMO’s were invented in 1973. That date stems from the arrival of several market conditions, one of which was having the available technology to both create CMO’s — to tear apart and securitize the mortgage pools — AND TO KEEP TRACK OF ALL THE DISPERSED BITS FOR REPAYMENT. If we could do it in 1973 we can do it EASILY today and the fact that we are continually told that it is difficult or impossible probably represents ignorance, institutional inertia, or someone not really wanting to try. Heck, I think they’re just lying.
Think about it: you’ve sold your house, the mortgage is gone (repaid), so the CMO, which is where the mortgage debt obligation actually lies, has to have been repaid, too — every little bitty piece of it, held in different proportions by at least four different bondholders. And as long as there have been CMOs it has been thus.
The funny part is that what is supposed to be impossible happens so easily and so often. A typical CMO deal involves about 10,000 mortgages, the bank knows the shelf life of those loans is three years, which means they get paid off or adjusted after the first year at about 5,000 loans-per-year or around 15 loans-per-day.
So the CMO that was so dense as to be indecipherable is actually deciphered 15 times per day after the first year.”
One poster on his blog says that CMOs were invented in ’83, not ’73, but aside from that, does Cringely have it right here? Is all the talk of CDOs being too difficult to pick apart just B.S.?
I like Myron Scholes’ idea about CDO’s (could apply to all synthetics):
Scholes thinks the regulators should “try to close all contracts at mid-market prices” and then start up the market anew with clearer rules and shorter-duration contracts. (Of course, Scholes was involved in the LTCM bailout, which should have provided much guidance for how to avoid today’s credit mess.)
http://curiouscapitalist.blogs.time.com/2009/03/06/myron-scholes-intellectual-godfather-of-the-credit-default-swap-says-blow-em-all-up/
Bottom line is this is a zero-sum game: for each dollar lost, a dollar is gained.
I wonder what the turn over is for Shady Canyon–it seems most were built on speculation. Does anyone really live there?
Totally over priced–this area does not support this kind of pricing any more (or ever really did?)–on a lake, on the beach does–
Great looking house, especially the outside. It will never sell for anything even remotely close to what they are asking, but $1.5 mil.
LC,
I’m not trying to start a fight here, but come on – $1.5?? How the hell can you state something like that? What is your justification? I can easily see this slipping to $3-4 million, but $1.5?? No way.
McMonigle would never let it happen.
At the bottom of the last real estate cycle, in the year 1998, the most expensive house to sell in Orange County sold for $1.5 million.
“that would make the rich consider armed rebellion.”
Poor people in the US own many more guns than the rich. The alternative is to have the poor directly confiscate the wealth. The rich should be happy to be taxed at sub-Euro levels.
Hovering over that Zip Code on Redfin while setting the minimum price at 2.5M is a hoot.
Not sure if many of these uber mcMansions ever trade hands. Why on earth would TPTB let these homeowners out of their homes when there are tons of other spec builds for sale.
People may pay “cash” for homes like this.
Doesn’t mean that they aren’t “trapped” to the tune of a few million.
Bummer.
$8.5 million?!? Seriously? Think of the spectacular property that price could get you in Laguna Beach. Oh, wait — you don’t need that much for something fantastic in Laguna… Irvine???!!? No way.
That’s not exactly true:
http://www.redfin.com/CA/Laguna-Beach/2495-Riviera-Dr-92651/home/3261833
http://www.redfin.com/CA/Newport-Beach/3-Harbor-Is-92660/home/3252430
January 1999
http://www.redfin.com/CA/Newport-Beach/920-Via-Lido-Nord-92663/home/4575007
October 1997
http://www.redfin.com/CA/Laguna-Niguel/1-Upper-Vintage-92677/home/3568744
That’s not exactly true:
Here are some sales in the last cycle i found on Redfin.
http://www.redfin.com/CA/Laguna-Beach/2495-Riviera-Dr-92651/home/3261833
http://www.redfin.com/CA/Newport-Beach/3-Harbor-Is-92660/home/3252430
January 1999
http://www.redfin.com/CA/Newport-Beach/920-Via-Lido-Nord-92663/home/4575007
October 1997
http://www.redfin.com/CA/Laguna-Niguel/1-Upper-Vintage-92677/home/3568744
That’s not exactly true:
Here are some sales in the last cycle i found on Redfin.
http://www.redfin.com/CA/Laguna-Beach/2495-Riviera-Dr-92651/home/3261833
http://www.redfin.com/CA/Newport-Beach/3-Harbor-Is-92660/home/3252430
January 1999
http://www.redfin.com/CA/Newport-Beach/920-Via-Lido-Nord-92663/home/4575007
October 1997
http://www.redfin.com/CA/Laguna-Niguel/1-Upper-Vintage-92677/home/3568744
In today’s market, this house is probably worth $3.5 – $4.1 million tops. Tomorrow’s – well – I don’t have a crystal ball but if this house drops to $1.5 million then then this country is going to have so many more problems than it does now that what the price of this home sells for really won’t matter.
Right now, $1.55 million will get you a house of this square footage, on ten times as much land, in Riverside.
http://www.redfin.com/CA/Riverside/2240-Jefferson-St-92504/home/18987050
IMHO, this shows me that you are only paying about $1.2 million or so for the house itself (assuming 5.14 acres of Riverside real estate is worth $350,000-just a guesstimate). The rest is for the half acre of Irvine real estate. Is a half acre of Irvine real estate really worth $4.8 million?
Looking at the “list” vs “sold” chart on that house’s very page, the sold per square foot for the area is around $450, making the 7600 sq ft house at about 3.4 mill, or around 50% off the previous sale price. Ouch!