Capitulation is a fancy word for giving up. The price declines at the low end are leaving owners hopeless, so homedebtors and specuvestors are simply giving up.
Today’s featured property was just profiled here on the IHB back in January. We are revisiting today because recent price reductions make it the largest percentage discount I have seen to date: 48.6%.
Asking Price: $199,900
Address: 2206 Apricot Dr #206, Irvine, CA 92618
{book3}
Little Things Give You Away — Linkin Park
And now there will be no mistaking
The levees are breaking
Hope decays
Generations disappear
Washed away
As a nation simply stares
It will be interesting to see what comes from our pop music during the later stages of this recession/depression. Will we hear sounds of despair? Will we fully retreat into mindlessly happy denial? Hardship inspires great art. I hope we see some.
We talk about the pointlessness of following short sales, but there is
still much to learn from them. Why are we seeing price reductions? This
property may not have received bids at higher price points, so
the lender may have asked the owner to lower the price until offers
come in. Loss mitigation procedures at the lenders are in a state of
flux similar to market pricing. The lenders
are unpredictable. Perhaps they will start accepting short sales to
avoid the foreclosure process. Who knows?
This property is probably near rental parity, even with the $310 HOA dues. Assuming someone wants to live in this place, it may be a good deal. For an investor, it is still too high.
Maybe this price reduction means nothing. Maybe it is a sign that banks are getting more serious about clearing out their REO inventory. It is the little things that give them away.
{book5}
Asking Price: $199,900
Income Requirement: $49,975
Downpayment Needed: $39,980
Monthly Equity Burn: $1,666
Purchase Price: $389,000
Purchase Date: 6/21/2006
Address: 2206 Apricot Dr #206, Irvine, CA 92618
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 910 |
| $/Sq. Ft.: | $220 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary/Modern |
| Year Built: | 1979 |
| Stories: | 1 |
| Floor: | 1 |
| View: | Mountain, Pool |
| Area: | Orangetree |
| County: | Orange |
| MLS#: | S559747 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 61 days |
Bath condo with Patio/Balcony out Master and Dining Area. Open floor
plan. Fireplace in Living area. Close to shopping and Freeway. Secured
building. Elevator and intercom. Handicap access. HOA provides water,
gas, trash, maintenance, pool spa, lit tennis courts, basketball court
and tot lot.
This property was purchased at the peak on 6/21/2006. The owner used a $311,200 first mortgage, a $77,800 second
mortgage, and a $0 downpayment. If this property sells for its asking
price, the lender stands to lose $201,094 after a 6% commission.
We are on the cusp of seeing properties transact at 50% off peak pricing here in Irvine. Armageddon is upon us.
Here is a video for those who want to discuss decorating.
{book4}
Water grey
Through the windows, up the stairs
Chilling rain
Like an ocean everywhere
Don’t want to reach for me do you
I mean nothing to you
The little things give you away
And now there will be no mistaking
The levees are breaking
All you’ve ever wanted
Was someone to truly look up to you
And six feet under water
I
Do
Hope decays
Generations disappear
Washed away
As a nation simply stares
Little Things Give You Away — Linkin Park
Excellent work IR.
It will be interesting when we eventually see 50% (+) declines in the more pricey Irvine neighborhoods … say, Turtle Rock/Ridge, and Shady Canyon.
Sometimes it seems like this price collapse is happening slowly, but I think that is like the watched pot that never boils. When you look back to where pricing was two or three years ago and see where it is now, the declines are breathtakingly rapid. I thought we might see some awful condos like this one go for 50% off, but not until late 2010 or 2011.
For all the renters out there, I have a question on how to screen the property owner before I sign the lease.
As a renter, what documents can I or should I ask the owner to present so that I will not get into trouble of ownership dispute, foreclosing problem etc.?
Thanks in advance for all answers.
I really doubt we’ll see 50% declines in the desireable neighborhoods you mentioned. I rented in Turtle Rock from 99-01. Decent houses were going for ~400K back then…and I thought that was outrageous. Wishful thinking aside, I doubt we will ever see those prices again. The area is just too desireable.
I am not surprised that the condo profiled is off nearly 50%. Living there is no different than renting a 2 bedroom apartment…you just pay much more to own it.
You probably don’t want to hear what I think is gonna happen to Newport Beach/Coast & Laguna Beach. However I will this … think calamity.
Some of the places in Newport, specifically the non oceanfront/non bayfront duplexes and triplexes on the peninsula went up by a factor of 3X to 5X from 1998 on. These have their mortgages paid by the tenants. They’re still hovering in the 1.3m area, which usually has 3000-5000 per month in rent to pay the mortgage. These are still shabby noisy beach apartments.
Zillow estimates for this area are not accurate at all as the beach and bayfront properties skew the non b/b up, and vice versa down. Beach and bayfront regardless of market are about 3x what might be across the alley that’s not on the water.
Here’s a couple of current WTFs that will really amuse those who are familiar with this area. These are asking peak prices.
http://www.zillow.com/homedetails/1416-W-Oceanfront-Newport-Beach-CA-92661/25134268_zpid/
http://www.zillow.com/homedetails/1404-W-Oceanfront-Newport-Beach-CA-92661/25134262_zpid/
Four and a half large to live right next to the tourist hangout on 15th, flanked by the elementary school on the other side. F’ing wow! Those 15th St bathrooms also make lovely public washrooms as well for all the out-of-towners. I suppose you have the Stuft Surfer for hangover breakfasts within walking distance; that’s worth, what, 2, 2 1/2 mil?
I used to live near there back in my single days. I honestly think I got really drunk in 1404 on 4th of July back around ’01.
I lived on that block from 9/2003 to 6/2007 as a winter renter for 4 seasons (for the unknowing, that’s the tenant from september to june, who moves out for the weekly summer renters who pay weekly what the winter renter pays monthly). The winter there was beautiful, little noise, the small parking lot limits the people on the beach. And what I called the ‘good looking mommy show’ every morning about 8:45 taking their kids to the school a block farther down the peninsula. I was never there for the 4th, althoug I lived across Balboa blvd from 97 to 2003 on the bay side. Thse places were going for 3.5 million at the peak in 2005, and in the mid 90s, about 700k.
Well, did Turtle Rock triple in value from 1996 to 2006, just like most of the OC did? I think it did. If it drops 50%, that would still leave a homeowner who bought in 1996 with a 50% gain. Not bad at all. One area somehow pressures another on the way up or down. Market will determine value and all things real estate take time to settle.
No. TR did not triple. At most it doubled. However, it started from prices well below TRidge so it has less to all and we never had the “rush to buy” that TRidge went through.
TR is now at late 2003 levels, which means around a minimum of 380 per square foot for a SFH. More with a view. There’s not a lot of homes for sale and it seems like the current price is generating sales.
Now TRidge… Aahh… that’s a catatrophe in the making. Their initial prices were around 600 per square foot, while TR was still below 400. And the multi phase releases created fake demand. Then they went on their McMansion tear, outdoing each other with fake italian stuff. What do you think is gonna happen to TRidge? Can you say 50% to 70% drops from the peak?
Like from 1000 sq foot to 400 or so (more with view).
Interesting thing.. I don’t think the the collapse in TRidge will affect TR much. TRidge was always so overpriced in comparison to TR and the buyers were different: Lots of very fancy cars in TRidge.
The idea that current price declines are fueled by the rising cost of a “real” 30 year fixed rate mortgage compared to a teaser ARM, that banks will now demand a downpayment, that you can only use verifiable income, that at least 50% of the buyer pool will have their credit wiped out for the next seven years, AND that every third houshold has at least one wage earner unemployed will see even Laguna Beach hit a 50% decline. This already happened in 1993, it can happen again.
My god I can’t believe that I was sitting in all those open houses in 2004-2006 and did not see what was happening.I just thought all my customers were really really rich!
I have another capitulation story from one of the immune markets in DC (Bethesda, MD).
Owner buys in early 06 for 800K
Lists the place in 07 for a dreamland price of 950K
Drops it 3 times in to 940K 920K and 900K – she wasnt going to give it away!
Early 09 she capitulates, she gives up, she drops the price to 800K.
Within 3 days of the big price drop, she gets 11 offers. A bidding war ensues, and she sells the place for 850K!
So she capitulates and still ends up getting more than what she paid for it? WTF is wrong with these buyers???
They didn’t want to be priced out of the market. (Yeah, I agree with you. Unfortunately, it’s only the wrong people who make serious amounts of money from human irrationality.)
MH I dont mean to be flippant but it looks like the market has spoken, and it thinks near peak pricing is OK for now. As painful as it is, this is a good reminder that neither the sellers nor the sitters set the price, its the buyers (assuming they exist, and in your case it looks like they do).
Keep your head up though. This isnt over yet…
It’s just some irrational knife catchers losing their cool and letting themselves get caught up in the thrill of the moment.
Sort of like when you bid 5 dollars for the fake dog vomit on e-bay and some jerk bids 5.50 with 2 minutes left in the auction. You become so enraged and scared that some jerk will outspend you that it turns into a frothing at the mouth bidding frenzy. Anything to “win”. The price has lost all meaning and it is now down to defending one’s phallic notion of pride and honor.
They all end the same though. You get your fake dog vomit in the mail and feel really good about yourself until 2 weeks later you see an auction for the same fake dog vomit end for 2.50 and you feel like a schmuck.
I think you’ve hit the nail on the head. When I was selling Desert Rose china on eBay I had some of the most outrageous bids for things that were selling for far less on Buy It Now “auctions”. People had some irrational attachment to the coffee pot or plate I was auctioning so they bid up to astronomical amounts. The same thing happened when I sold the silver, other china, coin collection (real nuts out there for this stuff or at least there was when I was selling it), and crystal.
I made enough on useless junk to pay for my daughter’s freshman and sophomore years in college!
Truer words have not been spoken. Thank you David.
If you try to look at this place on Zillow, the charts and data are conveniently unavailable. I have seen this before on other properties that are for sale.
My conspiracy theory is that the listing agent is messing with the Zillow entry and trying to prevent a potential buyer from being able to do their homework and discover how overpriced the place is. It’s pointless because it is just as easy to look at the charts and data for the neighboring unit to get a close rough estimate. So why bother?
Does anyone know if this is actually the case and how the agent accomplishes it and why Zillow is cowtowing to realtors on commission?
Riverside laughs at your 48.6% price reduction and gives you a 82.5% price reduction:
http://www.redfin.com/CA/Riverside/3680-Franklin-Ave-92507/home/4934263
Mar 06, 2009 Price Changed $49,900 — MRMLS #I08133833
Feb 21, 2009 Price Changed $73,900 — MRMLS #I08133833
Feb 09, 2009 Price Changed $76,900 — MRMLS #I08133833
Jan 30, 2009 Price Changed $77,900 — MRMLS #I08133833
Jan 16, 2009 Price Changed $79,900 — MRMLS #I08133833
Jan 07, 2009 Price Changed $81,900 — MRMLS #I08133833
Dec 23, 2008 Price Changed $85,900 — MRMLS #I08133833
Dec 11, 2008 Price Changed $87,900 — MRMLS #I08133833
Dec 01, 2008 Price Changed $89,900 — MRMLS #I08133833
Nov 18, 2008 Price Changed $92,900 — MRMLS #I08133833
Nov 07, 2008 Price Changed $94,900 — MRMLS #I08133833
Oct 28, 2008 Price Changed $99,900 — MRMLS #I08133833
Oct 24, 2008 Relisted — — MRMLS #I08133833
Oct 23, 2008 Off Redfin — — MRMLS #I08133833
Sep 17, 2008 Listed $104,900 — MRMLS #I08133833
Aug 21, 2008 Sold $96,800 -29.4%/yr Public Records
Jul 15, 2005 Sold $285,000 35.6%/yr Public Records
Oct 31, 2002 Sold $125,000 — Public Records
That is capitulation.
Yup. Now, admittedly, this is a little different. For one, it’s an REO on an older, small house in a bad neighborhood-the bank is now trying to dump it for whatever they can get for it (capitulation, as you said), but it seems there are absolutely no takers at any price. I drove by it, and it’s boarded up and covered with graffiti (although it seemed intact and secure). I suspect it will never be occupied again-it’ll probably sit and rot until it burns/falls/gets torn down.
That is, unless the madness begins again and somebody pays more than a quarter of a million dollars for said dump again…
Also, price reductions of two thirds from peak are not uncommon out here-I’m currently looking at houses with prices in the $100-125k range, and many of these sold for above $350k in 2005 or 2006.
Arguing with the market.
Ultimately the market (pool of actual buyers) sets the price. You can list a property high and get low balled, you can list it low and get bidding wars…..in the end a buyer and a seller will agree on an actual sales price that has no bearing on what the property acually listed for.
When I sell items on Ebay I always list the opening bid very low. I believe the more people you have watching an item the better. In the end, people will pay more for an item in an auction situation than they would normally by just buying it out right.
Pricing things too high eliminates a possible pool of buyers who already believe “Thats too much money for that”. But when it is low and it seems like it could be a bargain they will watch it, then bid……at that point they have a vested interest and time investment in “owning” the item. That is why they pay more than they normally would.
In my opinion this has not happened yet in Orange County real estate but you are starting to see it in properties like this one. People still believe that their “item” is special, that they are not going to “give it away”, it is already “cheap”.
However those that need to sell and still have profits from the bubble inflation will drop their pants on the asking price to move it quick knowing that the longer it sits the more cash they burn.
This is the begining of “capitulation” and the process will drag on for years until everyone finally realizes that you cant “argue with the market” regardless of which direction it is heading.
I recreationally watch prices in LA. Specifically, Venice, Santa Monica, Hollywood Hills, Pasadena, Mt. Washington and the like. And since I know I can’t afford *anything* I watch what interests me – cool places I wouldn’t mind living.
Eighteen months ago, they were running about $1m in the hills and the desirable east side.
A year ago, they were running about $750k.
Now, they’re about $600k.
Santa Monica hasn’t come down much. The condos in Marina Del Rey are easily 40% down from where they were a year ago. The eastside, though?
I’ve watched houses go on the market at $1.4m and come off at $600k.
This is a *year* ago:
http://thefifthofmay.blogspot.com/2008/02/forget-all-about-400sqft-those-days-are.html
MH, after commissions (if 6 percent, 51K), costs, etc. (including the carrying costs while she tried to sell), she still had to pull out her checkbook it looks like. I don’t think she did so well, though she did better than you’d think she would. I sold our house in Bethesda in April ’07 and made a bunch of cash (held it 9 years). Since then the market has not really dropped too hard there, though I have seen plenty still on the market since we left, or at least a year. But just give it time…even with the federal largesse there, in time things will drop. In 1999, which was not that long ago, the same 800K-900K houses were selling for 275-350K.
I.R.
I’d like to offer up a capitulation song for the high end, “Still There’ll be More” by Procol Harum, from the exclusive “Geezer Rock” collection from our friends at TIME LIFE.
The narrative is one of wanton destruction of a verdant landscape; “I’ll blacken your Christmas and P**s on your door”; inevitable bargaining “you’ll cry out for mercy”; followed by a detached & unemotional refrain; “…..still there’ll be more, still there’ll be more”.
The album version includes a solo by a very young Robin Trower. For me it captures that sense of despair in the face of an inexorable force that will do it’s work regardless of lamentations & wailing.
Check it out.
SB
Nothing beats the peninsula on the 4th of July! Absolutely nothing!