The Matador — Johnny Cash
Watch out for the raging bull market! Like a matador, you will need to dodge the stampeding bulls as they put in multiple offers over the ask. The matador kills the bull in the end. The market will do the same. There is still a lot of bullishness in today’s market, despite the obvious signs of a catastrophic price collapse. The bullish behavior is a sign that we are nowhere near the bottom, for as many authors and songwriters have noted, “only fools rush in where angels fear to tread.”
Over the weekend, there was a brief discussion of contrarian thinking and investment. I will buy when market sentiment is very negative as will many who come to this blog. There is a huge difference in that kind of contrarian behavior and that being displayed by the knife catchers of today’s market. To believe that a market will suddenly change directions when fundamentals do not support prices and momentum is strongly downward is not contrarian thinking, it is just plain foolishness. When our housing market really does bottom out, market sentiment will be very bearish. Nobody will be drinking the kool aid and believe in rapid price appreciation and people who buy homes will be looked on as being foolish. Of course, when fundamentals of price and rent are in alignment, the purchase will not be foolish, it will be financially prudent not because of rapid appreciation but because it saves money versus renting. Right now, buyers really are foolish, but public opinion doesn’t realize this yet. Once public opinion embraces the foolishness of buying real estate, we will be near the bottom. Until then, expect to see each property that leads the market lower to attract multiple offers and enter escrow quickly. As Forrest Gump noted, “Stupid is as stupid does.”
Asking Price: $499,000
Income Requirement: $124,750
Downpayment Needed: $99,800
Monthly Equity Burn: $4,158
Purchase Price:
$262,000
Purchase Date: 4/11/2000
Address: 94 Almador, Irvine, CA 92614
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 1,407 |
| $/Sq. Ft.: | $355 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Townhouse |
| Year Built: | 1989 |
| Stories: | 2 Levels |
| Area: | Westpark |
| County: | Orange |
| MLS#: | S536944 |
| Source: | SoCalMLS |
| Status: | Backup Offers Accepted |
| On Redfin: | 10 days |
convenient location!! Near shopping, parks and Irvine award winning
schools. Highly desirable open floor plan. Custom paint. Cozy living
room fire place. Recessed lighting in all hall way areas. Hard wood
flooring throughout. Upgraded stainless steel kitchen appliances.
Oversize Master with walk in closet. Master bath features dual sinks
and overhead skylight. Move in condition! Priced below market value!
Show and sell today! MORE PHOTOS AND VIRTUAL TOUR TO BE ADDED SHORTLY!
Notice they forgot the granite when putting in the pergraniteel.
Quiet, peaceful and
convenient location!! I call BS on that one. This property is within 100 yards of the 405.
How many exclamation points can you count?
Remember when many of the properties we profiled were 100% financing deals gone bad? Those are still out there, but I have been seeing so many HELOC abuse properties lately that I can’t help but cover them. Today is another sad story of a couple who drank the kool aid and spent their house. Perhaps they will reflect on this fact while they are in their new rental…
- The property was purchased on 4/11/2000 for $262,000. They put 5% down ($13,100) and borrowed $248,900.
- On 8/1/2001 they sipped the kool aid with a $255,000 refinance.
- On 2/7/2003 they refinanced for $252,000. At this point, kool aid intoxication had not taken over.
- On 8/15/2003 they refinanced for $308,000. Yummy kool aid…
- On 12/18/2003 they opened a $20,000 HELOC.
- On 11/20/2004 they refinanced for $368,000. The kool aid was free flowing.
- On 5/3/2005 they took out a $50,000 HELOC.
- On 11/2/2006 they opened a stand-alone second for $140,000.
- On 10/4/2007 they refinanced for $545,000. That was only 8 months ago. Did they make any payments?
- The total mortgage equity withdrawal is $296,100. They only put $13,100 of their own money into the deal.
One of these days, I am going to put the cash outflows and inflows into an Excel spreadsheet and calculate the internal rate of return on their “investment.” The money was stretched out over 7 years, but the amount they got relative to the amount they invested was pretty good. Of course, their credit is trashed, but they will never again in their lives find an investment that pays like that one did. The lingering memory of all that easy money is what keeps the bulls (fools) rushing in to deals like this one.
.
The crowd is waiting for the bullfight Matador
My final fight the place is packed once more
But Anita won’t throw me a rose this fight
The one she wears is not for me tonight
She’s watching now with her new love I know
Walk proud and slow
Be strong and sure give the crowd a show
They want blood you know!
You’re still their idol as you were before
Kill just one more!
Remind Anita, you’re the greatest Matador
The time has come, forget Anita in the stands
Be a tall and strong and brave and noble man
Be better than you’ve never been before
Make this your greatest moment Matador
She’s watching now with her new love I know
Walk proud and slow
Be strong and sure give the crowd a show
They want blood you know!
You’re still their idol as you were before
Kill just one more!
Remind Anita, you’re the greatest Matador
The Matador — Johnny Cash
That is certainly a lot of cash. And here I have been sticking to conventional investment methods, and making very little.
However, I still like my method better – at least I get to keep my stuff!
http://laspalmas-community.blogspot.com/2007_07_01_archive.html
My girlfriend used to rent in this complex in the same floor plan so I’m quite familiar with this complex. For once a realtor wasn’t completely lying, you don’t hear the 405 at all. My GF’s unit was closer to the freeway and we’d sleep with the window open.
However, since when is Pergo considered hardwood? And there isn’t a walk-in closet in the master unless some remodeling occurred. And of course you gotta love the “priced below market value”. Uh, don’t think so…
This place really has “Recessed lighting in all hall way areas”?? Where do I sign?? Since it seems that sellers and realtors are still somewhat in denial and prices are still way over priced. Are there instances where buyers are making offers $50K to $100K under asking and have been accepted?
The bubble is being defined by two dates moving farther apart. The earlier date is the rollback date, as in “they are selling this for less than it was bought in 200X” The later date is the date at which a bank would loan you more than it could be sold for. October 07! A new record, isn’t it? And one that we know is still being moved forward.
I was noticing the loan date too. The credit crunch took hold in August of 2007. For this loan to be originated and funded in October 2007 is somewhat surprising. I suppose that is how credit crunches work. Once credit starts to tighten, lenders originate loans under tighter and tighter standards until people finally stop defaulting. Apparently, the initial round of credit tightening was not tight enough as evidenced by the default on this loan.
And yet they are taking backup offers. Obviously there’re still plenty of knife catchers out there, as foolish and as unsuspecting and as ill-informed as ever.
Somebody used to say…there’s a sucker born every minute in this country. This is why this ridiculous RE market we have now has been supported.
Next comes the bailout. Go for your dream home at any cost…if everything else fails, the government will be there, lending you a hand. Have no fear. Buy, buy, buy.
Our governments, local and federal, will do everything in their power to keep home prices at this level. This is their cash cow. how else can they finance their various extravagant programs? They’re used to spending at this level. It’s hard to cut back. It’s not their money. The only way to stop them from spending is to throw them out!
A lot of money was made over the past six years from sellers selling at the right time. It is reasonable to assume some of this money is still in OC and wasn’t used to continue flipping. That is to say I am sure some people saved their profits.
For these people buying in today’s market with money made during yesterday’s bubble market, it may be easier for them to make a buying decision now as opposed to a totally new-to-the-area buyer looking to permanently move to OC without a pocket full of bubble money.
Are you really a knife catcher if you are buying today with bubble profits from the past few years?
It’s reasonable to assume “some” people sold into the Irvine bubble and are still renting today. I have one friend who sold in 2005 a small Irvine condo (really just an apt) for $500k and she continues to rent waiting for an opportunity.
However, I have at least five friends who upgraded pouring their hundreds of thousands of gain into an even more costly home.
Married couples with kids that sold in 2005 to early 2007 usually upgraded to a bigger and better house, even if one of the spouses wanted to take their profits and rent, in my own anecdotal experience, women where the ones putting pressure to their husbands to own.
In my own anecdotal experience in my group of friends, young women (less than 50 years old) usually are not financial savvy and hardly they are updated in current events or world affairs, they hardly read newspapers or business magazines, and yet they are the ones making critical finance decisions, again in my own experience.
That’s why it’s critical to manage and educate your boss so she can make the correct decisions affecting your life.
I always wonder what my mail-man/woman thinks when they deliver the weekly Economist along with the weekly In Touch magazine. Those two magazines cannot be going to the same person.
I must admit, I flip through the In Touch to check out the pics too…
Are you kidding? What kind of sexist crap is this? I can’t believe I’m reading this in 2008…wow…just wow.
Lol, women hardly read newspapers or business mags? Really?
Whatever. I’m still in shock from this comment. Disgusting.
My experience as well.
I let this happen to me once. Never again.
Even if it means never marrying again, so be it. At my age I would be facing real poverty in retirement to go through that again.
Agreed. Could it be possible that the guys responding negatively here chose financially illiterate and financially irresponsible woman so they could attempt total control of the money, a way to have a leg up (pun intended) on the relationship? Perhaps they liked a child-woman at that time because it reinforced their manhood? But the child-woman became tiresome and morphed into an albatross?
Agreed with Dawn, that is.
Rocker was very careful to qualify every observation s/he (Rocker could be a woman) was about to make, yet s/he still managed to offend you.
Wow. I hope you are a psychiatrist who gets to see other people’s issues. Otherwise, I’m guessing you either know people like this, or write scripts for soap operas.
Rocker? John Rocker the baseball player? The famous sexist and alleged racist? Famous advocate of free speech?
Actually, you are generalizing not me, I circumscribed my observation to a specific group, and that’s the hard data that I have.
I have the following cases in my data: 3 couples, 1st, they upgraded their house 3 times in the last 5 years rolling their profits into the next house every time, 2 big mistakes, what about diversification into a different asset class?, can the SoCal housing history support the idea of eternal appreciation?, 2nd couple, a cash out refi/HELOC based remodel of their house, they owe now twice the price paid for their house 7 years ago, 1 big mistake, wouldn’t be the right thing to do to fully pay your house before you retire?, she was the one selecting everything in the big remodel project and advising other women to extract equity and do the same, effectively putting peer pressure in other women, one husband told me, she effectively was thinking that the equity gains of her house was free money for her to keep or spend, and 3rd, they bought their house in San Diego in 2005 over stretching themselves, they already lost their house in a foreclosure.
In all these 3 cases, female members pushed their husbands to agree with their decisions. I can’t make this stuff up, this is reality.
Once I asked one of them, that she knew about real estate bubbles and the possibility of her house decline in price in a recession and if they are forced to sell they will need to bring a check to the closing table? She didn’t know what to say, she looked to her husband with a “what’s he talking about” and her husband say, oh yes, that happened to a friends in Colorado, I smiled, silenty assented and changed the conversation topic.
And my point with all of this is than men and women must take Home Financing, Economic History and Perspectives, Econmic Engineering (money through time) education before buying, financing or re-financing a house the next time.
People that got into Option ARM, should take a remedial of Compound Interest 101.
Rocker, Good save. I agree with your last comment about educating oneself – regardless of sex.
I am a silent reader for months but feel compel to alert IHB readers that there are women, maybe few, who are reading this blog with good financial sense and sitting on the sideline waiting to buy when this market finally makes sense. I am a woman. I sold my house in the Bay Area few years ago and am currently renting in Irvine. Being an econ major may have helped.
BTW, IR, great job. I am now a daily reader.
Mark, thanks for the invite.
Yes, Rocker and Chocolate. I have seen similar situations too, and I am also a woman. Two of my closest friends did not adhere to my humble advice last year when they bought homes and now they are deeply underwater with their new mortgages. In one of the situations my girlfriend and her husband were having shouting matches until he reluctantly gave in to her pressure to buy a very overpriced townhome. Sorry if the truth offends you Dawn…
I find that more men then women are able to hold a discussion with me like the ones we have on this blog. It is not because women are altogether less intelligent than men. Unfortunately many of my beloved girlfriends simply do not choose to read up on business news. Personally, I enjoy this blog way more than any US magazine.
I am trying to get my girlfriends to become more interested in these issues.
Studies have shown that women are generally less intellegent than men in regards to problem solving, but they are more perceptive of others’ emotions which is a different type of intellegence… I suppose.
Your kidding, right? If you are serious then you need to get a life.
I was responding to Dawn’s comments not Kirk.
Oh, and this house is insanely overpriced
“Mean-while, single women accounted for 22% of all home purchases during the period from July 2005 through June 2006, while single men accounted for 9%, according to a National Assn. of Realtors study. Agents have taken notice.”
http://www.forsalebyowner.com/education/index.php/buying-a-home/54-find-the-right-home/94-a-woman-sees-a-house-differently-from-a-man-and-its-her-opinion-that-counts-most-when-time-to-buy
Maureen and Bittersweet Chocolate, thanks for sharing your experience and insight.
Actually, I find intellectually arousing to be surrounded by a group of intelligent and well prepared females, when I was at my engineering school they used to kick my butt, I miss that.
After seeing all the wide spread pain that the bursting of the housing bubble has caused, I think some education could have helped to reduced the severity of the problem, not necessarily eliminated it, because as we all know strong emotions like greed, fear and ego played a key role.
“Rather than love, than money, than fame, give me truth.”
Henry David Thoreau
My in-laws… the wife browbeat the husband into trading up and cashing out.
He did get a huge tv from one of the cash-outs…
They are in their late 50s and in the past few years re-financed into a new 30-year mortgage.
I think as long af the husband works they can afford the payments, but I doubt they will be able to sell without taking a loss. (And it hurts me, to know their payment, and how much of it goes to principle and how much to interest.)
I think this is fine with her…
They are lovely people and wonderful to my son.
I think she understands very little about money, she just knows what her friends are doing, and thinks she should be able to do what they do.
I dont know of anyone that sold, took the profits and leased or rented a house or apartment.
awgee did.
And I know another family who did also.
And another family, Calgal and hers.
If I were your “SoCal Real Estate Bubble 101” teacher, I’ll give you a “F” right here.
Obviously, you don’t know the poster child of “sell your SoCal house, take your profits and run to your new rented house”
This your remedial homework, read the following:
[url=http://www.pimco.com/LeftNav/Global+Markets/Global+Credit+Perspectives/2006/Kiesel_For_Sale_06+2005.htm]Mark Kiesel from PIMCO (bonds funds king) sold his Newport Beach house in June 2006 and rented[/url]
I can give you some credit depending on how long you have been an IHB reader.
Mark Kiesel is a fixed income portfolio manager at PIMCO, he buys and sells debt, trades bonds. PIMCO manages like ~800 billions of dollars from institutional investors, sovereign funds, pension funds, university endowments and very wealthy individuals, and they are right here in our backyard, I can’t second guess him.
To me the signals of the peak of the bubble were like coming from an Economy 101 textbook:
– CEOs of home builders increasingly sold their shares in the summer of 2005
– People were bidding up houses in the living room when doing the open house tour
– And The Playboy Playmate of one month of 2005 said that she was into real estate investment: sell Sell SELL!!
[url http://www.accessmylibrary.com/coms2/summary_0286-6551814_ITM%5DWarren Buffet sold his Laguna Beach house in 2005 after years of ownership[/url]
I convinced my wife’s parents to do exactly just that in 2006. They went from a nice 3 bedroom home to a 2 bedroom apartment.
They also wiped their mortgage debt (300k) and walked away with 300k in the bank. They’re sitting pretty (like us) and will buy in 2010 or 2011.
You’d be amazed how much house the interest alone on 300k rented the last couple of years, let alone will allow them to buy in three years.
Dejnov.
I know a lady who sold her house in SF, bought a house in Italy, and got transfered to a European based division of her company, and now draws her salary in EU. Currently shares a small apartment with a roommate.
I know 2 “families”. One was a single guy who had parents lend him the downpayment and he lived at the house for a year, then selling it for a profit (don’t know how much but it was a profit). He then directly went to renting. He sold sometime in 2005.
One family, the dad was very excited and said this was definitely a bubble, and they sold their place in 2005 and also moved into a rental. However, they home school their kids so it was not a difficult decision for them to make.
So, how much is a fair price for a townhouse in Irvine? Is it $300/sq. ft? At what price point is it reasonable?
My experience renting/owning in Irvine leads me to suggest this place would rent for around $2,300. So, as the market heads toward fundamental value, $2,300 x 160 = $368,000, it’s probably “reasonable” in the mid to high $300s.
The real question is, when will prices meet reason?
To put Perspective’s answer in $/sqft terms, that’d be $368K/1407 = $261.
My sense is that rents are also a little inflated, so less than that. I remember someone (I think it was picflight) saying a few weeks ago that something like $100/sqft was fair in 1999, so updating for inflation, that’d be maybe $200/sqft (with a generous inflation rate assumed).
Personally, I don’t know…just thought I’d do a little math.
Exactly my thought. With inflation into account and discounting the koolaid high, I would put fair value at $160/sqft in southern California. Of course there will be exceptions, but this is what value I am using as my base.
If $160 sq ft is fair value in So Cal, what does that leave Irvine at? Irvine was about $160 sq ft in 1999 if I recall correctly — Not the $100 noted in the previous post.
If you guys think $160 sq ft is the number for Irvine, I think you are going to be waiting a looonnnggg time to see that. And no, I’m not a bull — I fully expect $250 sq ft is coming to your local Irvine neighborhood — I just think you wishing if you think we are rolling all the way back to 1999.
I’ll know it’s time to jump in when the NAR (realtor’s association) gives up trying to suck people into the market ;-P
Thanks IR for the public opinion analysis – I agree, at this point people don’t yet believe it is foolish to buy and actually the general populace seems to be saying ‘it is a good time for buyers’.
So basically you are saying that since I know many of my friends believe I am foolish now for not buying, and when I do buy they will think I am foolish for buying – I should just plan on being the foolish one for a long time!
IrvineRenter-
Thanks for the EXCELLENT documentation on the history of refi’s and HELOC’s. Had you not documented it so completely I would not believe it. If someone told me this as a story I would say, “Impossible.”
The only positive thing I will say is that this is a THREE bedroom for just under $500K and I think that is a sign of progress. For so long I kept seeing over $500K for TWO bedrooms which is just insulting…worse than insulting…degrading.
Until this one comes down to $380k, the only positive thing I see here is that you can walk across the street to Rubio’s and Red Mango.
Other than that, it is still WAY overpriced at $500k. Best of luck to whoever put it in escrow. There are actually a lot of nice units in Las Palmas — some have full driveways, nice backyards, and are over 1,600 sq ft. This does not appear to be one of those premium units.
But the bedrooms are TINY! The photo suggests that there is barely room to move between foot of bed and mirrored closet doors in the second bedroom, no room for a chair (bureaus are not shown) or attractive bedside tables in master BR, etc. The unattractive arrangement of LR, with sofa ends right against the wall next to fireplace, also suggests that area is very small. 3 BRs in 1400 square feet, with a staircase and a laundry room, is heading towards Tokyo. This place is for Munchkins.
Off the topic,
Turtle Ridge is finally about to catch up with the reality:
http://www.redfin.com/CA/Irvine/25-Rose-Trellis-92603/home/5901036
25 Rose Trellis
Irvine, CA 92603
Price: $1,250,000
Last Sale: 11/24/04
Sales Price: $1,274,000
yeah- and check out the price drop!
William E. Jones:
Yes, under 500K now. Wait a little while. Houses like this will be selling for under 400K.
Go lower.
My mother in law is looking to buy a mobile home. Does anybody know of any web resources for mobile home purchases? How is the market for them compared to houses? I assume they did not bubble quite as bad as houses.
There are a couple nice parks in Lake Forest/El Toro off Muirlands. Also, you may want to check out Lake Park in Santa Ana (manufactured housing with garages – very nice).
There is also a nice park off Ortega Highway in SJC.
If forgot to mention in my previous post that the parks I recommended are for seniors 55 and over. I would stay away from the family parks, if possible.
Thanks for the tips. She’s not looking in the Irvine area. What I am actually looking for is some more information on the fundamentals of mobile home economics.
Is now a horrible time to buy a mobile home?
Do mobile homes tend to appreciate at all?
The economics work like this:
Do you want your mother-in-law to move in with you? No? Then how much would you pay to have her move into that mobile home park?
That’s what I thought.
Most senior citizens purchase mobile homes not because they are interested in an investment, but because they are economical. Some of them sell their primary residence and pay cash for the mobile home so they can move “down”. They can still maintain their independence with cash to travel, a small plot of land to garden, etc.
What you have to be careful of is the length of the lease (years remaining) and the percentage the monthly land rental fee can increase per year. You don’t want your mother-in-law to move into a place and then have the lease expire in five or six years and find out the land owner doesn’t plan to renew the lease. Or they plan to jack up the rent by an ungodly amount to get folks to leave (so they can sell the land for SFR’s).
A relative of mine owned a home in a very nice park in Orange County. After his death two years later, we sold it for a 28% profit (in 2006). This may have been an anomaly, considering the time period, however.
I cannot give you statistics on mobile home appreciation, however, I wouldn’t advise your mother-in-law to purchase one with the express intent of making a good investment. It’s more of a place for a senior to enjoy a relaxed retirement.
She is not buying the mobile home with the intent of an investment.
After reading this blog, I am fairly confident that now is not a great time to be buying a house, but is it equally bad to buy a mobile home now?
If she buys a mobile home now (she’s 58 or 59 years old I think), and wants to sell in 5 or 10 years, what are the chances she’ll be upside down in it?
probably about 95% chance to be worth less.
Mobile homes are more like cars, a depreciating asset.
The only appreciation you will see is if you own the land, or a long lease at a low rent (land-equivalent)
These sellers obviously didn’t use their HELOCs to upgrade their place much. Still looks pretty original. Hmmm, wonder what kind of cars they’re driving?
This is actually a nice community if you’re not too close to the 405 as others have mentioned. This unit seems like it’s in the middle of the complex which is good. Nice thing about this area is that you can take the bike trail down to back bay fairly quickly. Also, these are townhomes which are a little more desirable than condos.
Another place I like (though I would have preferred they finished the perteel).
Maybe I’d pay $290 for it.
I am beginning to wonder if prices really are going to drop back to affordable levels in Irvine, or if they will just flatten out for many years. I’ve been looking at homes around Woodbridge and University Park for the past six months and don’t see much capitulation.
[b]They will drop. [/b]
Look at the bigger picture what is happening in this country. The market is on a steady decline, we have the bank losses due to sub-prime, and more coming everyday. These losses have yet to trickle down to the average person and they will soon.
Oil is rising every week, this will soon translate to everyday things we purchase. Oil has already affected the airline industry. Soon we will be charged $10 for wearing pants and $15 for each visit to the bathroom in flight. Welcome to Air America.
Oil will affect the necessities even more and food will get more expensive.
Job loss is highest in the last 4 years.
This picture is [b]NOT[/b] looking good. Hold tight!
How can you say that about Woodbridge- especially now that 4 Rainstar dropped below $1M. It’s a screaming deal!!! Especially with the custom side by side fireplaces!!! I can’t believe that someone hasn’t snapped it up already!!!
(You know, this RE insanity is kinda fun for a few seconds….)
My bus just wont fit in the driveway…or my car for that matter…perhaps a Vespa may fit if it’s angled just right…Who would buy this crap at any price?
Totally agree with you.
Told ya all!
There’s a sucker born in this country every minute!
Sure hope it’s not going to be one of you guys, or me….to be such a sucker. 🙂
It is a condo, people. A tiny, 1400 sq ft condo. What a hunk of junk for half a mil. Your rep is going out the window, Irvine. People are really stupid in Irvine.