I recommend the video above. It is a classic 2008 recap.
This year, 2008, was the year the world came to recognize that we have a huge economic problem caused by housing. As with all crises there was denial by everyone at every turn, and this denial is still going on. The latest nonsense meme is that low interest rates are going to solve the ARM problem: bull$hit it may even make it worse.
I received a sign that the general public is moving from denial to fear in Irvine. Some people I know that bought in late 2007 are selling their starter home because they see prices going down. Just a couple of months ago, they were determined to hang on to both properties as “investments.” When even the most kool aid intoxicated start to see the fall in prices as an ongoing trend, and when these same people start to sell out of fear, the market is entering a new psychological stage.
Psychological Stages of Bubble Market
Today’s featured property is a 1/1 in Turtle Ridge that is showing significant distress. Apparently Turtle Ridge is not immune after all.
Asking Price: $300,000
Income Requirement: $75,000
Downpayment Needed: $60,000
Monthly Equity Burn: $2,500
Purchase Price: $445,000
Purchase Date: 3/25/2005
Address: 133 Danbrook, Irvine, CA 92603
| Beds: | 1 |
| Baths: | 1 |
| Sq. Ft.: | 822 |
| $/Sq. Ft.: | $365 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Other |
| Year Built: | 2004 |
| Stories: | 1 |
| Floor: | 1 |
| View: | Park or Green Belt, Has View |
| Area: | Turtle Ridge |
| County: | Orange |
| MLS#: | S521349 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 322 days |
 Unsold in 90+ days
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designer paint, berber carpet, upgraded bathroom, and much more. There
is a garage with direct access, a fireplace, and air conditioning. This
is a primo location with access to Newport Beach, Fashion Island, The
Spectrum and the Beach! There is a really nice community pool and spa
with clubhouse and nearby walking trails. only way to be in the area
for this price! Only one of a few 1 bedrooms every built!
every built?
Here is your chance to pay $300,000 for a glorified apartment.
This property was purchased on 3/25/2005 for $445,000. The owner used a $400,500 Option ARM first mortgage and a $44,500 downpayment. Not to worry, on 4/5/2006 he opened a HELOC for $60,000 and likely withdrew his downpayment plus $14,500.
If this property sells for its asking price, if a 6% commission is paid, and if the owner maxed out the HELOC, the total loss to the lender will be $178,500.
This property is being offered for 32.5% off its 2005 purchase price. This is not a ultra-low teaser price. Check out the listing history:
| Date | Event | Price | ||
|---|---|---|---|---|
| Dec 29, 2008 | Price Changed | $300,000 | ||
| Dec 16, 2008 | Price Changed | $340,000 | ||
| Nov 19, 2008 | Price Changed | $320,000 | ||
| Nov 11, 2008 | Price Changed | $370,000 | ||
| Jun 06, 2008 | Price Changed | $375,000 | ||
| May 15, 2008 | Price Changed | $399,000 | ||
| May 13, 2008 | Price Changed | $419,000 | ||
| Apr 27, 2008 | Price Changed | $439,000 | ||
| Apr 09, 2008 | Price Changed | $449,000 | ||
| Feb 12, 2008 | Listed | $460,000 | ||
| Mar 25, 2005 | Sold | $445,000 |
This property has been chasing the market down for almost a year.
{book}
3 versions of the same shot of the kitchen, and yet either the bedroom or the living room is missing a photo. Makes you wonder if the dining room is the only living room… With only 882 sqft that could be the case…
Price per square foot is out of line – too high for the current market.
I would have liked to have seen that rent/vs. own feature that you’ve posted before, on this place.
I don’t think this place could rent for anywhere close to what it would cost to own. If the rent/own parity isn’t even close, who would ever buy into this “apartment” style of ownership?
The price adjustments are just a curiosity. It looks like someone is guessing where the bottom is, one step at a time. This type of chasing the market down looks to lead towards complete capitualation at some point. No one can just keep “guessing” and dropping the price without eventually freaking out and dumping the place.
I just used the calculator:
20% down pay $60k
5% 30 year
0.5% maintenance
HOA $225
Tax 2.36%
25% tax bracket
Total monthly cost to own = $1,792.
How much rent can this unit fetch?
It could probably rent close to that, at least $1,500.
Why is the tax rate so high? Isn’t it 1.04% usually in Irvine? Mello-Roos are a killer once again!
The tax and HOA come to about $820/month. This thing has to drop to below $250k to get buyers.
Where do you get $820? The HOA’s are listed as $225/mo
That’s right HOA $225 and taxes $7068/year. Total $814/month.
Yearly Property taxes = 7068 = 589/ mo.
HOA = 225/ mo.
Combined HOA & Taxes = 814/ mo.
Add that amount to the monthly mortgage payment for this one bedroom apartment!
The tax amount is for the previous sales prices of 445K. The taxes will go down significantly if this thing sells for the asking price of 300K. I imagine the tax bill will decrease by about one third..making it a around 400/mo. Add the HOA in and that isn’t chump change.
Really? Are you sure that is how it works in terms of property taxes in Irvine? Also, is the adjustment automatic or the new owner has to file challenge?
Isn’t the Mello Roos a fixed amount? As I understand it, taxes would be calculated as 300K times a 1.25% tax rate, then add the Mello Roos.
Looking at the existing tax rate is misleading.
Does anyone know where to find the actual Mello Roos for any of these properties? The other big deal is how many years will the Mello Roos last. Woodbury has 30 and 40 yr Mello Roos. But a development built in the late 80’s, with 18 yr Mellos Roos, are already done.
Here is the 2008 property tax bill for this place
http://www.flex-e-bill.com/OCTLink/Show.aspx?parcel=931-216-47&year=2008
If you look at the tax distribution section you will notice that it has 1337.10 bond on the property and 915.30 Mello Roos tax as well.
For future reference, follow this link and type in the address of any property in Orange County to get the tax bill for the place.
tax.ocgov.com/tcweb/search_page.asp
Thanks. This site will be very helpful.
Yes, but you CAN NOT deduct the Mello Roos — and now the County reports the breakout to the IRS. Bad new for the tax cheats who were deducting the Mello Roos as taxes.
Paid almost a half million for a 1 bedroom apt in 2005. And still people thought prices would continue to climb. Amazing. I’m trying to think back in history when our society was so gripped by irrational hysteria. Maybe the War of the Worlds broadcast in 1938 but that only lasted a day.
“I received a sign that the general public is moving from denial to fear in Irvine.”
Should be all down hill from here, where’s my sled!
Not so fast … see Ipoplya’s post at the end of yesterday’s topic. A WTF price was paid?!? WTF???
Somehow, there are greater fools still out there, and as long as there are, there will certainly be properties for them to buy at those prices.
Fortunately, one (or even a handful) of greater fools does not make the market. There is a group of buyers out there that are jumping onof the false belief the current low rates are going to be short-lived.
Rates will be low for a LONG time (and most likely even lower in the near future).
“Rates will be low for a LONG time”
Yea, but I want interest rates at 15%…
I’m going ice block sledding in Aliso tomorrow…should be a lot of fun. Worth the try for those who never did it.
And for those who didn’t think housing prices matter, S&P noted the following about a California bond issue backed by sales tax receipts
“However, recent months’ [California] state sales tax collections have shown significant declines. Pledged November 2008 sales tax was off 18% from
the same period in the prior year. Separate state general fund sales tax collections have shown similar declines”
So seems that if people can no longer buy bling from their HELOC, then Arnie isn’t collected sales tax on sales of said bling. Still 18% in one year is quite a drop.
About the taxes in turtle ridge they are basically:
1.04409% of the taxable value ($3,132.27)
$2,312 fixed (this will not change with a new sale)
total:5,444.27
monthly:$453.68
http://www.flex-e-bill.com/OCTLink/Show.aspx?parcel=931-216-47&year=2008
Using your new tax info:
I just did the calculator one more time:
20% down pay $60k
5.15% 30 year
0.5% maintenance
HOA $225
Tax 1.814%
25% tax bracket
Monthly cash cost of $2051
Total monthly cost to own = $1,650 after tax benefit
I ca see some itchy buyer jump the gun at around $280k.
If monthly rent is $1500 and GRM 160, the fair value is $240k.
Hi IR,
buying a home is everyone’s dream, but looking at your views, it seems we dont know how many years will it be before we can buy. I have been waiting since 2005. I looked at lot of home in 2005, but didnt buy anything (fortunately!!). Now the prices are lower, interest rates are lower. However, as per your analysis, how many more years will it be before it is “normal” to buy a home!!!
That’s not really a question anyone can answer. Some of it depends on your circumstances – if you’re independently wealthy, it doesn’t matter, does it?
Buy a house you can comfortably afford.
“Buy a house you can comfortably afford.”
That’s my plan, with the additional consideration of “buy a house that I could see myself wanting to live in for at least 5 years (and hopefully longer)”
I sure don’t want to have to count on my house keeping its value in order to sell it in just a couple of years.
Rent a house that you can comfortably afford. You won’t be stuck in it for 15 years. Good luck getting your money back in 5 years even if you buy today, don’t even bother if you bought 2 years ago.
If your goal is to get the most home for your money then I wouldn’t even consider purchasing a home at market value for at least 2 more years.
The suggestion to buy now as long as you plan to stay in your home for 5 to 10 years seems to me to simply be a way of rationalizing a purchase that doesn’t make a lot of sense from an economic standpoint.
Sam,
2010-2014 will be a good period to buy. 2011 will be near the bottom, but there will be no rapid appreciation for years thereafter, so the window of opportunity should be fairly long.
Just thinking…
People pay a premium for Irvine because of the school district; however, so whoever buys this place (800 sq ft.. tiny kitchen (didn’t need much granite to cover) stackable washer dryer, clearly no enough room for any kiddies, will not care one iota about the school system. It’s clearly only use is a starter property, so will have to fall below rental parity to sell (to account for the premium of not being able to move when you want)
Why would anyone buy a one bedroom, mother-in-law apartment unless it’s for your mother-in-law?
Americans are playing the world for a bunch of fools, and why not?
Click my name for IR’s post from January 1 with his predictions for 2008:
I will make the not-very-bold prediction that 2008 will see the worst single-year decline in the median house price ever recorded,
another not-very-bold prediction for 2008: one or more of our major financial institutions and one or more of our major homebuilders will fail
I will be recapping that post again tomorrow as well.
To be somewhat contrarian [ and please dont confuse me with a real estate shill ] I think that there may some serious long term upside to getting into property within the next year as a long term hedge against inflation. If there is any short term near parity situation between rent and mortgage the later 25 years of a 30 year mortgage are going to be payed back in VERY cheap dollars if hyperinflation kicks in. The real dollar cost will be mostly downpayment. If the 2020 $200,000 income is $45,000 in 2008 constant dollars that monthly mortgage wont look so bad.
Yes, if destructive hyperinflation kicks in, then you would be right. In that case, ANY asset besides dollars would be a good investment.
any asset tied to debt / leverage will not be a good investment for a decade or more, hyperinflation is a fantasy right now for people who can not understand the simple difference between inventory and capacity….people betting hyperinflation will lose a ton of money
What part of the curve is (Turtle Rock) Irvine? Denial? With the low inventory, it looks as if the prices when up the last quarter.
I tend to agree with ignorantoutsider. The inflationary effect of the enormous government spending from the bailouts — and who knows what else — will hit like a 30 foot wave crashing down on us. As DeathToSinan says, any asset but the dollar will experience serious price inflation. That price inflation will include housing.