How should we feel about knife catchers? They were warned of the risks and bought anyway. Now we are paying to clean up the mess.
Asking Price: $300,000
Address: 7 E Smokestone #3 Irvine, CA 92614
Something went wrong along the way
Everybody’s waiting for judgment day
So they can go “Told you so”
They can go “Told you so”
Standing in line, the blind lead the blind
Waiting and waiting for an overdue sign
Brothers and sisters playing Chinese Whispers
If things aren’t suited then they’ll get diluted
Told You So — Depeche Mode
I started writing for the IHB in February of 2007, but there were many other blogs preaching about the impending housing price crash before that. Now that it has been over 2 1/2 years, we are starting to see the bloody knife catchers.
There were ample warnings about the problems, but like Lemmings following the herd, buyers jumped at properties because they believed prices would rise forever. Fast forward to now, and there are whispers of foreign cash buyers and
the firm believe in price drop immunity. We are creating the next wave
of knife-catchers.
I am not sure how to feel about 2007 knife catchers. Part of me wants to gloat because I was right and they were wrong, but that doesn’t help much, and I could have been wrong. I should probably feel more sympathy and compassion for these people, but they were warned to the problem, and they ignored the warnings. What should I feel toward these people?
I am sure there is some simple spiritual answer; it eludes me at the moment.
Like any tragic characters, 2007 knife catchers offer wonderful schadenfreude, or as Wikipedia notes, “human suffering that, paradoxically, offers its audience pleasure.” My The Reservoir of Schadenfreude may be empty, but when the flow of schadenfreude comes my way, I still know how to tune to that channel….
Asking Price: $300,000
Income Requirement: $75,000
Downpayment Needed: $60,000
Purchase Price: $409,000
Purchase Date: 2/7/2007
Gain (Loss) after 6% Commission: -$127,000
Percent Change: -26.7%
Annualized Return: -10%
Address: 7 E Smokestone #3 Irvine, CA 92614
Beds: 2
Baths: 2
Sq. Ft.: 917
$/Sq. Ft.: $327
Lot Size: –
Property Type: Condominium
Style: Contemporary
Stories: 1
Floor: 2
View: Park or Green Belt
Year Built: 1980
Community: Woodbridge
County: Orange
MLS#: P702490
Source: SoCalMLS
Status: Active
On Redfin: 2 day
2 Bedroon and 2 Bathroom. LOCATION,LOCATION,LOCATION, This Upper single level Condo is one of the best locations in Woodbridge (Inside the Loop) Your View is of the Park across the Street, Only a few blocks from the Desirable South Lake Beach Club, Lagoon and tennis club.
LOCATION,LOCATION,LOCATION… What does this tell me? The realtor used ALL CAPS to call attention to the fact that real estate is located somewhere. Hmmm… that is helpful, isn’t it? Doesn’t all real estate have a location?
The property was purchased with 100% financing right at the peak. It isn’t surprising the owner gave up.
This property took 11 months from NOD to foreclosure auction. It looks like there was one modification granted in January of 2009, but it doesn’t look as if the owner made any payments as the a follow-up NOD was filed 4 months later. Based on the purchase date, it looks as if the owner made payments for about a year and a half before giving up. The last 18 months have been about living rent-free.
Foreclosure Record
Recording Date: 09/01/2009
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2009000471474
Foreclosure Record
Recording Date: 05/29/2009
Document Type: Notice of Default
Document #: 2009000272607
Foreclosure Record
Recording Date: 01/26/2009
Document Type: Notice of Rescission
Document #: 2009000033296
Foreclosure Record
Recording Date: 11/10/2008
Document Type: Notice of Default
Document #: 2008000525729
So the owner actually made a wise investment. Lets look at it this way:
IO payments at 6% $2000 per month. About $300 per month of tax benefit, so a cash cost of $1700. We’ll assume no maintenance was performed. We’ll also assume that the owner didn’t write off any unpaid but accrued interest off their taxes.
Lets just say that the guy spent $5000 on closing and move in costs.
So for 36 months of living, the owner spent $30,000 or just about $850 a month.
Not a bad deal in return for a trashed credit rating
It looks like someone still lives there…so who knows how long the “living for free” gravy train will continue.
In this economy, being a homedebtor isn’t all that bad. If you lose your job and quit making payments, you probably can live free for 2 to 3 years in your house. If you are a renter and the same happens, you might be living in your Honda after a few months.
Actually, with move in and closing costs included its more like $1000 a month. Is that a fair rental price for the area?
You are leaving out condo association fees, but your point is well taken. Yes, the owner got a smokin deal. Typical rent for 2 bedroom apartment in that area of Irvine is $1700-$2000.
No, that rent is too high. It’s too high even for some of the comparable Irvine Co. properties, and it’s definitely too high for privately-owned condos. See my post below for comp rents on this property.
NOTE: the upstairs units in this complex typically rent out for $50-100 less than the downstairs units.
-Darth
It’s MORE than fair! I’m paying $1,650/mo to rent one of the downstairs 2BR’s in this very complex. I started out paying $1,800/mo back in Dec. 2005, which was raised to $1,850/mo in March 2007. I recently negotiated the rent back down to $1,650/mo.
Be very cautious if you are an aspiring landlord hoping to turn this unit into a cashflow rental. Rents are still falling in this complex! I would expect rent on this unit to fall below $1,500 by the time unemployment turns the corner. By my calculations, assuming a 20% down payment and not allowing for ANY vacancies, this unit is cashflow positive at a sale price of $225,000.
In addition, this is one of 8 units in this complex that face the park/pool. For all of the realtards pitching of the location, these 8 units are the LEAST desirable locations in the complex. At all hours of the day and night, there are a ton of cars parked out on the street between these apartments and the park. The park/pool can also get very noisy at nights and on weekends. It’s a somewhat reasonable level of noise, so it’s not a bother to any of the units except for these 8 that directly face the park. The cars issue is also not a problem to the other units in the complex, except for these 8 units that have all the cars (and their teenage occupants) right outside their front door.
A lot of people buy inside the Woodbridge loop, because it’s like walking into your own little wooded, lakeside, country neighborhood. It’s very quiet and serene in most places. This unit, however, is one of the exceptions, due to its LOCATION, LOCATION, LOCATION!!!
-Darth
Someone paid $300,000 for an apartment. Thanks for channeling the Schadenfreude.
No, the owner actually paid $409,000 for an apartment and is now trying to unload it on someone else for 300k.
No we all paid $409k for the apartment since you as the taxpayer are going to eat the loss on this one.
Point taken. The owner who caught this knife must look like mincemeat.
“The property was purchased with 100% financing right at the peak. It isn’t surprising the owner gave up.”
The “owner” didn’t pay anything. Or, more correctly, the owner (i.e. the bank) did pay $409,000, and the loss should come out of someone’s bonus. But it won’t.
It is also possible the person never moved in. Early 2007, the kool-aid was still strong. The Bear MBS hedges hadn’t been burned down, and subprime lenders hadn’t imploded en masse yet.
As an investment, this was pretty much an all upside bet. Trashed credit will cost if they need to buy anything on credit and could cost on a rental or other things that might run a credit check.
This is a rectification trade and is the same as the bankers who increased risk because they held minimal downside exposure (no clawback policies). If the downside volatility is someone-elses-problem, you increase volatility as fast as you can, because you just take the upside. If you only average the positive portion of a sine wave, and want to maximize that average, you maximize the amplitude. The negative going swings cause problems, but they’re someone else’s.
If you need 18 months of payment-free living to get comparable to a rental, something is seriously wrong.
No, they moved in alright. Look at the photos. They are filled with random junk. Somebody lives there-could be a renter I suppose. Also, it appears the bank has not taken possession yet-there was a notice of the auction, but did the auction actually take place?
Guess I should check the listing first. I wonder what motivated this person to buy instead of renting. There were at least two professionals that facilitated this deal – bank & realtor.
A realtor should know a person’s income, and have an idea of what their initial payment and any arm-increased payment. I don’t know of any consequence of a realtor advising a client a deal is OK when signs point to no. If it’s an originiate-to-securitize, then the lender may not care either. Potentially, the pros most involved have no skin in the game.
Holy Hell – Who would pay $400K plus for this place? Wow – I was living in Utah 2005-2008 so I missed the bulk of the CA craziness and looking at this example, thank god! The only thing worse than this condo (apt.) selling for the that price is the listing pictures. Make some effort to either clean the place up a little or take a few pictures that actually make the place look interesting. The shot of the old towels and clothing hanging over the top of the shower stall??? WTF. What is the point of that shot…to show the combo clothes dryer/closet space this Irvine beauty offers?
$300K is still hilarious, this should sell for $150K-$170K in a sane world.
I have to assume that California dollars are worth two or three of the Federal Reserve notes I have in my well-worn Texas wallet. That would explain the premium.
I’ve said it before and I’ll say it again, that anybody trying to sell a place needs to study STAGING 101.
Get the trash off the kitchen cabinets and off the top of the fridge and get rid of the fridge magnets and pick up all the stray clothes and towels and magazines and other extraneous junk and shove it all under the bed if you have to, and CLOSE THE TOILET LID, for heaven’s sake, and mop the floors and run the vacuum and wipe all horizontal surfaces. You shouldn’t have to pay $3000 to somebody to “stage” the place just to do these things, but if you are the bank and want this dump off the books, send a cleaning firm.
Jesus.
“…get rid of the fridge magnets”
Oh, pet peeve time.
I hate refrigerator magnets. The greatest benefit of becoming single was scraping all the damned
refrigerator magnets off and filling half the garbage bag with them. “Off to the landfill, you little fellers!”
My fridge has such clean, simple lines, with nothing to disrupt the texture and flow of its surfaces: no calendars, post-its, or idiotic cartoon characters holding postcards to its surface. And wiping it down is now a breeze, thanks to my magnet-free lifestyle!
I am a total curmudgeon grump bastard hard-ass nasty get-off-my-lawn killjoy. Fine.
Allow me to join in. I can’t stand that crap either. I don’t do magnets, knickknacks, figurines, or plates. If it doesn’t serve a purpose, or it looks like it fell off the Church Lady’s etagere, it doesn’t stay in my house.
Our fridge is built in with custom wood panels that makes it look like another pantry.
I can’t stand the thought of a seven by four wide slab of stainless steel in the kitchen. It reminds me of the morgue.
OTOH, we got a few magnets on the range hood. 😉
Luxury Properties Still Offer Deep Discounts
Falling real estate prices are becoming as much a feature of high-end neighborhoods as ocean views, infinity pools and four-car garages.
While the latest data suggests prices for mainstream homes may be stabilizing after several years of pain, the news for luxury homes isn’t looking as good.
That’s bad news for sellers, naturally, but anyone in the market for a home listed for $2 million or more will find deeply discounted asking prices—and may be able to command even lower prices.
On Tuesday, data from the Federal Housing Finance Agency showed that average home prices ticked up 0.3% nationwide between June and July, including a 1.6% bounce on the west coast. The gains are modest, and they are partly influenced by the season—higher-end homes tend to sell better in late spring and early summer, as families try to move before the school year. Analysts are disappointed the rise was not higher.
Nonetheless, prices have now risen three months in a row. And compared with the disastrous events of the past few years, anything other than Armageddon is apt to raise spirits.
But these numbers only relate to homes purchased with conforming loans backed by the FHFA—in most areas, that describes mortgages of up to $417,000, or up to $713,000 in the country’s most expensive regions.
A stone patio surrounds the pool outside a spec home at 38 French Road in Greenwich, Conn. The city is seeing the worst home-sales market—and deepest discounts—in decades.
That overlooks luxury and high-end homes, where the outlook remains bleak.
“I would say we’re 40% off 2007 prices for everything,” says broker Chad Rogers, who covers the area from Malibu to Hollywood Hills for Hilton & Hyland, a Beverly Hills real-estate firm. “We’re now seeing prices consistent with where we were back in 2003.”
“The $10 million to $30 million properties are on the market for a very long time,” says Cathy Wood, a real estate broker covering Beverly Hills and surrounding areas for realty firm Gibson International. “They’re seeing a lot of price reductions.”
Realtors, she says, “are now selling $500,000 condos, when they used to sell $5 million homes.”
About that article. We sold _all_ of our CSCO stock on Y2K. Most of it before it went below $65. Phew!
An update on shadow inventory:
The “Shadow” Foreclosure Inventory
So why do we have this shadow inventory? There are three possible causes:
The first is explained in the WSJ piece. It’s taking quite a long time to figure out which borrowers qualify for the Obama administration’s mortgage modification program. It’s also taking time to process the deluge of applications. During the wait, borrowers remain in their houses which, otherwise, would be in foreclosure. Those who don’t get the modification will ultimately face foreclosure.
Second, with so many foreclosures, banks likely just have logistical issues getting them all processed in a timely manner. There’s a heap of paperwork and other red tape involved in making a foreclosure happen. Banks have never experienced a flood of foreclosures like this, so they aren’t equipped to handle so many very quickly.
Third, banks may not want to foreclose on all of these homes immediately. A WSJ source above used the analogy of foreclosures hitting the market like “a fire hose or a garden hose or a drip.” Which do you think would be better for housing prices? The drip. If you have a huge inventory, then it’s more of a buyer’s market, where few buyers can drive down the prices of many homes. If you have the foreclosures spread out over a longer amount of time, new buyers may enter the market over that lengthened period. I have heard the theory (from a Floridian friend of mine who knows the real estate market there) that banks are purposely holding back foreclosures for exactly this reason.
Whatever the cause or severity, I believe that the shadow inventory of foreclosures is real. It poses a danger to the real estate market’s recovery. How significant a debilitating effect it will have is still unclear.
2 & 3 are related. Banks don’t want to foreclose so quickly, so they keep their foreclosure department understaffed.
Wow, this place is fugly. $300K for this 30-yr old dumpy condo? I don’t think so! Those are some of the worst listing photos I’ve seen lately. I guess these folks don’t really want to sell.
My guess is, it’s a converted apartment, and as such it should be priced no higher than $120K
Gemina13: “My guess is, it’s a converted apartment, and as such it should be priced no higher than $120K”
I’m pretty bearish, but I’ll go ahead and predict that this property will never sell for a price that low. I’d be pretty surprised if this property ever sells below $200,000, although I wouldn’t stack money against that one. RE is still falling, but it doesn’t have THAT far to fall.
-Darth
Oh, I agree it won’t sell for that low. Somebody will pay a stupid price for it, because it’s in Irvine.
I would happily pay $200K for this property v. $120K for a comparable property in the IE.
-Darth
Seriously? You’d pay $200K for this dump?
Looks like whoever said, “No one ever went broke underestimating the intelligence of the American public” was right.
Absolutely. While you’re busy throwing out ad hominem nonsense, I’d rent it out for $1,500/mo and make money on it.
Enjoy the heat out in the IE. (or whatever other hole you live in as you brag about how inexpensive your housing is)
-Darth
2007 sale price $409K but 2009 tax basis only 315K. Do you think they already got a tax reduction already? If not, why is the tax basis lower than the 2007 purchase price.
Most likely had their property value reappraised by the Assessor’s office.
IR, you paint yourself into a corner with grand sweeping generalizations like “They were warned of the risks and bought anyway,” and “but they were warned to the problem, and they ignored the warnings.” Really? They were? Who warned them?
Do you really honestly believe that every single person in the United States who bought in 2007 were “warned of the risks and bought anyway?” Seriously? You think that *every single buyer in the country* read a blog such as yours before making the decision to purchase and said, “Well screw it, I’m buyin’ anyway. Damn the torpedos, full steam ahead!” That’s some special brand of your own kool-aid right there if you do.
I know it feels good to be vindicated in what was once a very unpopular stance, and yes, clearly you and others like you were right, but that’s a very dangerous place to be……well, unless you think self-righteousness and believing that everyone who made a different choice than you is an uneducated, brainwashed moron, is a positive character trait.
Sure there were many who deserve what is happening to them now, but there are many more who made an honest (albeit bad) decision and are now losing everything. Anyone who takes pleasure in that is despicable, in my opinion.
I thought Newport Skipper had shown up under a new name there for a minute!
While I don’t agree with bengalaxy’s tone, I will admit the same thought occured to me when I read the lede today.
In 2007 there were still plenty of ‘good news’ stories, Gary Watts and gang were still getting regular press, and the MSM was much more focused on other issues. It is aboslutely untrue that “they were warned”.
What is true is that if they were smart, they would have done some independent research and could have been warned. Not that this warning would have been heeded mind you, but they would have heard both sides of the story.
It depends on who’s buying. Anyone who read IHB in 2007, then went ahead and bought, is more to be censured than pitied. But most people who buy houses don’t study the market or really know where their mortgage goes (who ultimately holds the note), much less what the trends are. Yes, people are accountable for their economic decisions, or should be, and caveat emptor and all that, but this is tricky stuff to understand if you don’t read IHB all the time.
Investors and home buyers are going to get screwed because they don’t have or make the time to do all the research they need to. Everyone buys a house, but not everyone is a real estate expert – there’s the problem. We need more honest R.E. experts who don’t get a cut at sales time.
Time to revisit IR’s proposal for his business plan….
Janet Tavakoli, a Wall Street insider, knows exactly what happened. The bad guys got away with the loot. The last video (60mins) is quite good.
Janet Tavakoli videos