Infatuation — Rod Stewart
Remember during the bubble rally when everyone was in love with real estate? Turns out it was an infatuation. The fickle homeowners who sought to possess real estate at any price are now dumping their lovelorn properties en masse. Of course, it is easy to become infatuated when something or someone is making your dreams come true. All people had to do was buy a property and begin extracting and spending all the free money it provided. Now that the market has reversed, and people are saddled with crushing debts, and the property is no longer providing free money, it is easy to see why the object of their infatuation has lost its luster.
Today’s featured property is another casualty of the low end of the market. There is much less denial at the low end, and much more carnage — for now. The married woman who bought this as her sole and separate property has some of her own money in the game, so she showed more resilience than those who bought with 100% financing. You see, with any market price collapse, it starts with the weakest hands — those that paid way too much and have little incentive to hold on. When these people sell, it drives prices lower and distresses a whole new group of market participants — people like today’s owner that have some money in the game, but not very much. The people who put 5%-10% down who are currently underwater will be the next group to give up. Of course, this will distress those who put more money down or purchased even earlier. Eventually, all of those who are overextended or deeply underwater will give up and capitulate to market forces.
Asking Price: $354,720
Income Requirement: $88,680
Downpayment Needed: $70,944
Monthly Equity Burn: $2,956
Purchase Price: $525,000
Purchase Date: 10/11/2006
Address: 22 Claret #42, Irvine, CA 92614
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 1,145 |
| $/Sq. Ft.: | $310 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Cottage, Craftsman |
| Year Built: | 1980 |
| Stories: | 1 Level |
| Floor: | 1 |
| Area: | Woodbridge |
| County: | Orange |
| MLS#: | S544801 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
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kitchen, detached 2 car garage! Eat in kithcen, inside laundry. 2nd
bedroom is a den and currently being used as a 2nd bedroom.
Chateaux Condo? What kind of pretentious bull$hit is that?
The fact that the garage is detached is something to get excited about?
kithcen?
2nd
bedroom is a den? So this isn’t even a true 2 bedroom…
If this property sells for its asking price minus a 6% commission, the total loss on the property will be $191,563. The seller will be losing her $105,000 downpayment (or $55,000 if she maxed her HELOC,) and IndyMac (now us taxpayers) will be losing the rest.
I posted the chart below on Monday, but it is worth a more careful look. If you really want to understand the housing bubble psychology demonstrated by today’s losing speculator, it is encapsulated in the figure below.
Behavioral Finance Theory
The whole point of boiling down posts to laughable ideas like infatuation is to underscore the psychological aspects that inflated the bubble. There is no rational justification for paying $525,000 for this property other than you believe it will continue to appreciate in price. Collectively, the more people that believe in perpetual appreciation and act on those beliefs, the more prices will rise. This does require enabling on the part of lenders, and with the virtual elimination of standards during the bubble, there were no barriers to market entry, and no limits to how high people could bid up prices. It was incomprehensible to people in 2006 that prices could drop 50%. Surely if prices had detached from fundamentals, they couldn’t have detached that much. Well, they can, and they did.
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.
🙂
.
Early in the morning I cant sleep
I cant work and I cant eat
Ive been drunk all day, cant concentrate
Maybe Im making a big mistake
Caught me down like a killer shark
Its like a railroad running right through my heart
Jekyll and hyde the way I behave
Feel like Im running on an empty gauge
Oh no not again
It hurts so good
I dont understand
Infatuation
Infatuation
Infatuation
Infatuation
Infatuation — Rod Stewart
The massive 40%+ off is no longer an inland phenomenon.
Jim Klinge ( http://www.bubbleinfo.com/ ) keeps a detailed data sheet on the 60 Deutsche REOs in Oceanside currently. The list prices are now 43% down from previous sale prices.
It’s worth checking it out. Jim has done great work in the north SD county.
Many of the Oceanside REOs are being sold to investors at GRM of 120-140.
What happened to all of bulls on here who said that they would start buying up places like these at 400K?
Now’s your big chance! Off you go!
A year ago the real estate bulls or guru made big talks about buying up everything if prices were to drop 20% or 30%. Well most of them are not because they are not as rich as they thought once the bubbly equity they had went 20% away.
Many of them finally realize that they can not afford their own home on earned income.
My maximum offer on this place is 200K (which I still would not pay for this tiny apartment). It would sell for 130K in Phoenix.
Wow, AZ offers more than rental equivalent.
Lets see, 1 bdrm + den gets what $1400/month. Subtract $400 association dues and mutlipy by 160 gives you $160k.
That’s the thing, isn’t it.
The rental rate in PHX for a 1+d is (from cl phx):
Aug 22 – $920 / 1br – $899 / 1br – Townhome + Den + Attached Garage – – (N. Scottsdale)
So $130k in PHX is 160xGRM
And how long will rents in Irvine for a 1+d stay at $1400? for a 30 year old condo? Not long, I bet
Woah, I’m turning into a bull.
I said 200K to avoid the blog flog and humor the sacred land enthusiasts. In my defense, I did say that I would not even pay that much. 🙂
$1400? Sorry but if the inside isn’t a rat hole you could rent this place for $1600-1700/mo.
Just think what will be on tap for the housing market in a year from now. With the economy sinking deeper and deeper into the toilet, real estate prices will surely sink to even lower depths. The gloom sayers who have been predicting price drops to 2002 levels may be right on.
i doubt you will see 2002 prices in irvine. for example 2 Shelby is foreclosed and listed at 540 something, it has 5-6 offers and the bank has not accepted any.
You won’t see them this year, but the price decline has a lot more time to play itself out.
We’re at rock bottom prices now. This dip in prices was simply an irrational panic caused by sites like this one. In a year or two from now people will be wondering how houses could have been so cheap. They’re not making any more land you know.
4 for 4.
WTF is with this description? Chateaux Condo? plural castle condo? That doesn’t even make sense. And how on earth is the style “Craftsman”? Do these people just string words together that sound good?
“2nd bedroom is a den”
A den is NOT a bedroom, this apartment is either a 1 bdrm + den or 2 bdrm. Saying it’s a 2 bdrm when it’s not is false advertising.
No interior pics, must be pretty bad inside.
$400/month association dues, takes a big chunk out of your rental breakeven value.
Finally, seems like it has to be a short sale. Just how does the owner think she’s going to get the FDIC to sign off on a short?
This will be in foreclosure shortly.
To me, this is the most salient part of this post:
“and IndyMac (now us taxpayers) will be losing the rest”
The FDIC just announced that they will write down mortgages & interest rates to what people can afford. http://money.cnn.com/2008/08/20/real_estate/fdic_indymac_mods/index.htm?postversion=2008082017
If even this won’t stop FC/shorts, then how can anyone believe that prices won’t be in total freefall?
The FDIC just announced that they will write down mortgages & interest rates to what people can afford.
Does that mean negative interest rate mortgages are around the corner?
LMAO!!!!
That will be a product “innovation” for the next housing bubble. It will be called the “pay you” loan. It will be an offshoot of the reverse mortgage where the interest is added to the balance each month plus the owner will be given a cash payment equal to the projected appreciation minus the added interest. That way homeowners will not have to mess around with HELOCs, they will receive all their equity each month as cash. This will be widely regarded as a safe lending program because real estate always goes up.
it’s scary that one can actually see a banker/speculator/investor ready to dive into this scenario.
http://www.crackthecode.us/images/Chateaux.jpg
LOL! The owner sleeping in a box is a nice touch.
hehe, perfect.
For $400/mo in association dues I better get a wine tasting every week. Oh, and I want a battery operated pee-wee fan for air conditioning and my cardboard house absolutely must be painted mauve!
in french “eau” and eaux” and pronounced the same and mean the same thing. “Geaux LSU TIgers”
Its like Olive Garden Restaurant
and Olive Garden Restaurante
But yes no matter how you spell it its the height of tackiness.
Ou Cotrere, “eau” is singular, “eaux” is plural. Using “Geaux Tigers” as an example is not appropriate (“Geaux” is not even a word–French or English). The proper French phrase would be “Allez les Tigres”.
IR – what kind of loan did she take out? I am guessing it was some sort of adjustable.
It was an Option ARM with a 0.99% teaser rate. It is the first I have seen actually less than 1%.
The option ARM is driving the sale of this property. I don’t want to keep harping this point but people who take fixed loans and plan on living there dont just walk away from their homes. Its people who either never could afford the house in the first place or were in some sort of adjustable product that will be walking away.
“The married woman who bought this as her sole and separate property has some of her own money in the game…”
This kind of story always reminds me of that storyline in the Sopranos where Tony agreed to let Carmela build a spec house to get her off his back. Surprisingly, this didn’t turn out so well…
Wonder how this marriage is going with a >$100K loss looming on this woman’s “investment”?
“Damn that was fast…I don’t want to die”
Leonardo DiCaprio, in the Quick and the Dead, 1995
Also reprised by Bear Stearns and IndyMac in The Stupid and the Dead, 2008 (ongoing series on HBO, Homedebtor Blowups Online).
Any idea what’s going on with the townhomes on Cienega in Portola Springs? (MLS# S513880) They keep bumping up the prices but that defies logic since they have been on the market over 260 days. Any clue, Irvine Renter or anyone?? Just going off the pricing history where they have raised the price then dropped it – I’d say they are just gearing up for another “sale”. This one’s got me baffled.
So what is this worth as is?
You can rent a 3 year old 1+d in QH for $1700 from someone who is getting foreclosed on, no doubt, or around Irvine from IAC for $1800.
So let’s say $1800 X 160 GRM = $288k [b]If it were not 30 years old[/b]
For an investor who has to worry about making money (and big HOA assessments periodically), $180k
Helloooo Mob Mentality…
“Chateaux” is listed as the builder tract name.
Oh, that makes the name totally appropriate and devoid of pretense.
Start sending them your unused cardboard boxes.
Thats not fair. They are listing the freaking tract name and you assume their is pretense. Take off the bear glasses once in a while…
I realize they were listing the tract name. The tract name is pretentious.
It’s the capitalization of the second c – Chateaux “C”ondo that makes it sound pretentious for me.
OK, when I read this post, you had an ad by Goole for Ditech right below the initial fold (before you click to read more) and initially I did not realize this was an ad and mentally read
“Lost another home to Ditech!”
But the ad was real!
That’s good placement!
“You’ll never see 40% off in Irvine”
– Random Irvine Mortgage Owner
I wonder where all of those people went. I haven’t seen a bull around these parts in quite some time.
I wonder how many places we’ll see at 60% off.
It seems to indicate that we are starting to leave the denial stage.
This is good. Market capitulation is on its way soon.
No…the comments section became very boring with the perma bears attacking anyone who tried to explain why they might think a property is worth something more than a property in AZ.
Any time people started a discussion about what they believe the real median income is or any discussion that swayed from the “this house is worth $200K because that is what it is worth in ____(random city outside of socal)”, they would get attacked and called bulls or disgruntled homeowners. I know cause I have been called that and I neither own a home or am a bull.
Finally, look at IPOs site and see the actual closing prices. While people might list houses 40% off, the banks aren’t accepting them. Will they down the road, possibly. But houses are still selling for 20% off of peak at this time.
Thank you for those comments, rkp — right on point. I’m also one of AZ’s bulls who does not come around much anymore — despite the fact that I rent an IAC townhome and am personally hoping prices fall.
The main blog on IHB has become very tired. Most of the homes profiled these days are low end crap designed to fire up the OC haters who like to come here and ridcule Irvine and Orange County. It’s unfortunate that the IHB has ceased to become a place to intelligently discuss the true reality of the Irvine market. The only value add to be taken from here is the broader economic discussions, but that can be found elsewhere. It would have been nice if IHB could have continued to serve an Irvine specific niche.
At least the the Forums section is largely populated by locals who can discuss the market knowledgably.
Perhaps what you say is true, and that is unfortunate. Personally, I believe there are not many bulls around because there is little or no reason to be bullish. Bulls can still be found over at the OC Register, but their shrill rants are more akin to lunacy than substantive discussion.
We had a few somewhat bullish commenters here this week. They made their case and were treated with respect. I enjoy reading the views of those who are less bearish. If I am overlooking conditions in the market which might cause me to rethink my views, I welcome that.
I don’t see how we have lost our Irvine specific niche. I haven’t profiled many higher end properties lately because these are almost uniformly overpriced and not selling. Plus, the low end is a leading indicator of activity at the high end.
I am glad you are enjoying the forums though.
I still read IR’s blogs on a daily basis, but I don’t spend much time in the comments any more, in part for the reasons cited by rkp and CK.
Ironically, David, one of those so-called bears — ipop — actually listed and sold his home in less than 7 days. Guess what, he got more money than the home would fetch in Phoenix, too. I guess he understands the Irvine market pretty well after all.
Shhh, CK! What Forums? There are no IHB Forums.
Some of the higher end homes are good examples of chasing the market. http://www.crystalhomefinder.com/irvine-homes-for-sale/1-whitney/listing-S504153 and http://www.redfin.com/CA/Irvine/Undisclosed-address-92620/home/12463383 are the same house, 1 Whitney. Closing in on a year of being listed, and the price has dropped almost 1/3. It’s now $1.2 million. Completed in 2007. Either stages or being sold by the first occupant really quickly.
“Absolutely gorgeous Tuscany styled home. Brand new, No Asso. No Mello Roos. Main floor bed/bath with patio access. Custom-built gourmet kitchen w/prof. series appliances. Master suite with retreat, fireplace and balcony. Master bath with large walk in shower and Roman tub. Upstairs loft. Spacious family room w/surround sound. Ample use of stone inside and out. Speakers through out. Infinite hot water via tankless water heaters. Fabulous entertainer’s back yard and more. This home has it all!! Brand new property in an older area. MUST SEEEEE..”
Maybe I sounded too harsh there, IR. Don’t get me wrong, when I say tired I mean more the comments and the quality of homes profiled. Your analysis posts remain second to none.
As far as the quality of the homes profiled, it just seems that many of the low end properties don’t hold much interest to those shopping for their family home — I can’t imagine that these 1 bedroom crap shacks profiled would interest anyone but investors.
Maybe we can have a “3+ bedroom, built after 1995” week at IHB??
I hear what you are saying, and it is why I hide in the [strike]forums[/strike]. I will say that I foresee more high end properties being profiled in the future. I could be wrong, but what I see in the works is no longer the low end.
Are you implying that there hasn’t been a home in Irvine that has sold for a 40% loss? And to clarify, I don’t expect 60% losses to be the norm, but we will surely see a few.
It used to be the perma bulls staging a full frontal assault on anyone who even hinted that prices may fall in Irvine. However, there was plenty of intelligent discussion to go along with it.
I personally can’t believe people paid even 50% of peak pricing to live in Irvine. It’s a nice city and I’m actually considering moving there if I take a job I’m looking at (one more engineer, prepare yourselves), but the speculated appreciation has yet to be removed from the pricing. Still a long way to go imho. I don’t see why people buy in Turtle Rock when they could get the same place in Corona Del Mar for the same price.
schools ! I think many would have looked at Irvine in a completely different way if it wasn’t for the schools and the fact that few places in the rest of OC have comparable schools.
But their little geniuses might actually be better off in a less competitive school district. The top universities don’t let you in just because you went to a top of the line high school — class standing is pretty important in college admissions, and a somewhat less lofty district might give them a better chance to stand out.
don’t for the XX % or $ XXX down from peak BS sales pitch. Those peak sales numbers are nearly all bogus and based on fraud, cash-back and inflated numbers. Coincidentally, i just had a realtor call me and tell me a house is 200K below what it sold for in 2006. Said it was the best value out there and it would go fast and he would give me first crack at it (he would be representing me and the seller, by the way). I laughed my arse off after the voice message ended. Like I tell everyone, past sales prices in 2005, 2006, 2007, and even 2008 don’t mean a whole lot. Better to use what the house sold for around 1994-95 and double it, which loosely uses the rule of 72 and inflation of 5% (generous). So a house sold for 400K in 94, should generally be “worth” 800K now. DON’T FALL FOR THAT BS XX% DROPPED FROM PEAK, OR xxx $ DROP….so what if the place dropped 50% from 2MM….the place is really only worth 800K……don’t be a sucker….
Great post IR!
Now I realize that my college dorm was actually a
“Cottage, Craftsman”! It’s very French to put the subject first. This just in (please don’t laugh) I now have a one-fourth interest in a “need to sell” home in MV. We had to sit on it for over a year while the market unwound. I am now able to use my newly minted free education on Real Estate fundamentals to realize what to expect.
….Kill me now, please
Actually, it helps to know what the market is up to…(down to?)
The challenge will be getting the realtor to price it to actually sell. If I ignore what the “values” were two years ago, whatever we get is a gift, the result of Dad’s hard work and thrift. I don’t think we want to rent it, but I am looking up rent comparisons to see how we might price it. Oh, and I expect that we’ll be using a realtor. Any hints? If needed, I’ll take it to the Forums.
It may be a little out of his territory, but IrvineRealtor has proven himself a professional that can get a home staged and sold in this market.
Hi Agent, my coworkers, don’t be so angery, we will have to admit and come back to ground, only market is reality nothing else, you don’t have to lose your confidence. no matter it goes up or down, you make money anyway, less for sure, the anger could come because you have more than 1 or 2 houses with 0% down, what you worry about, oh, I forgot you can not get rid of them to make your ends meet…this is it, luckily, I only have one my house called home..
2×2 1145 sq/ft $310 per sq/ft $391 HOA fees…
Did I forget anything?
Oh, yeah. HAHAHAHAHHAHAHAHHAHAHA…!!!
Chateaux Condeaux
391 for H-eaux-A
Bleaux me!
Fk me sideways, that’s fantastic.