Seasons in the Sun — Terry Jacks
But the hills that we climbed
were just seasons out of time.
House prices in our local real estate market, like prices in many others, climbed a mountain of debt to heights they should have never seen. There will be a time when those prices are justified — perhaps 20 years from now — but seeing those prices in 2006 was a season out of time.
Friends, Irvinites, countrymen, lend me your ears; I come to decry the housing bubble, not to inflate it. The evil that men do lingers on through a devastated economy; the good is oft interred with their foreclosure. So let it be with the housing bubble. The noble Irvine Renter hath told you that homedebtors were greedy. If it is so, it is a grievous fault, and grievously have homedebtors answered for it.
To everything there is a season. A time to gain, a time to lose. A time to time to laugh, a time to weep. A time to build up, a time to break down. A time to dance, a time to mourn.
The Great Housing Bubble is over. It is time to move on. The Ponzi Scheme has collapsed. The lifestyle of mortgage equity withdrawal has come and gone. The dream of endless appreciation is a fantasy gone awry. Winter is upon us.
We had joy, we had fun, we had seasons in the sun.
But the wine and the song,
like the seasons, all have gone.
So where do we go from here? It is pretty frightening when you consider all the analogies of our current situation are to the Great Depression. It is clear that what is to come is going to be very bad, and we have not seen the worst of this yet. Our elected officials and the bureaucrats at the Federal Reserve are doing all they can to straighten out this mess. Hopefully, their meddling in the financial markets will not do more harm than good. I have my doubts. What happens is largely out of our hands. Even the people who are supposed to be in control are not. They more they try to reassure us, the more anxious I become. If events were under control, no assurance would be necessary.
It is natural to become reflective in a time like this. It is a good opportunity to reassess what is important and what is not. Most people are being forced to sacrifice possessions and pretenses of wealth. For some people, their attachments to these objects and illusions will cause them a great deal of suffering. For others, being released from these attachments will be a spiritual blessing. Difficult economic conditions create circumstances of loss and mourning. How we deal with these circumstances speaks to our character, and if we learn its lessons, it will reveal the path to true happiness, contentment and feelings of abundance.
{book}
Today’s featured property is a new condo sporting a significant discount. We have profiled another property in this neighborhood. Whoever owns it now cannot be happy with this new comp.
Asking Price: $399,000
Income Requirement: $99,750
Downpayment Needed: $79,800
Monthly Equity Burn: $3,325
Purchase Price: $535,000
Purchase Date: 3/15/2006
Address: 24 New Season, Irvine, CA 92602
| Beds: | 2 |
| Baths: | 3 |
| Sq. Ft.: | 1,200 |
| $/Sq. Ft.: | $332 |
| Lot Size: | 1,200
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary |
| Year Built: | 2006 |
| Stories: | 3+ |
| Area: | Northpark |
| County: | Orange |
| MLS#: | P667723 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 2 days |
How does one get “close to everythings”?
Another realtor who obviously does not give a crap.
This property was purchased on 3/15/2006 for $535,000. The owner used a $500,000 first mortgage, and a $35,000 downpayment. That is all gone.
If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $159,940.
This property is being offered for 25% off its peak purchase price.
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.
🙂
{book}
Goodbye to you, my trusted friend.
We’ve known each other since we’re nine or ten.
Together we climbed hills or trees.
Learned of love and ABC’s,
skinned our hearts and skinned our knees.
Goodbye my friend, it’s hard to die,
when all the birds are singing in the sky,
Now that the spring is in the air.
Pretty girls are everywhere.
When you see them I’ll be there.
We had joy, we had fun, we had seasons in the sun.
But the hills that we climbed
were just seasons out of time.
Goodbye, Papa, please pray for me,
I was the black sheep of the family.
You tried to teach me right from wrong.
Too much wine and too much song,
wonder how I get along.
Goodbye, Papa, it’s hard to die
when all the birds are singing in the sky,
Now that the spring is in the air.
Little children everywhere.
When you see them I’ll be there.
We had joy, we had fun, we had seasons in the sun.
But the wine and the song,
like the seasons, all have gone.
Seasons in the Sun — Terry Jack
Looks like another one of those “investor properties”.
The seller must have read a little too much Rich Dad Poor Dad before signing the dotted line.
Someone should do a “drive by” and leave a copy of “The Great Housing Bubble” on the doorstep.
I feel out of place for not splurging the last 8 years. Years ago I kept thinking “Where do these people get the money to buy all these expensive cars?” You’ve answered that question many times over IR.
Now I am seeing telltale signs of the reverse. My daughter’s friends in the best parts of Northpark are admitting that they may lose their house AND there cars.
I had a good laugh when I saw what “close to everythings” meant. Paying $400K for the right to own essentially a condo with a closeup view of the I-5 AND Culver is a real bargain. Yeah… right.
http://www.crackthecode.us/images/emperor_advice.jpg
I heard those words many, many times from 2002 – 2006. Then I left
the Dark SideCalifornia, and those words haven’t troubled me since.I laughed out loud. Seriously!
That’s exactly how those guys made me feel.
What is amazing is how high these prices got. They have come down a lot and yet they are STILL too expensive…
Absolutely too high. $2000 rent x 120=$240k.
“Close to everything” – of course, it is right on the busy exchange of I5.
http://www.crackthecode.us/images/real_estate_only_goes_up.jpg
Bwahahahaha!
Ah, I love the “tenant occupys” notice. In other words, the owner is renting it out to cover some of the costs, but still figures that he can make something close to what he paid for it by selling it out from underneath the tenant. What’s sneaky is that “drive bys only” suggests that the tenant has no idea. If the poor schlub (and it’s probably the owner’s mother or other relative) is paying month-to-month, I’d be worried about the probability of being evicted…if anyone was dumb enough to pay this price.
Yes, you have to love how these FB real-estate Tycoons are too cheap to let the house sit empty while they try to sell it.
Why not add a “sold as is” clause to the description while you are at it?
Who would seriously consider buying a house based upon a “drive by”?
When the market was going up 10% per month.
“…it’s probably the owner’s mother or other relative…”
Funny you say that – A friend of mine is kicking-out her mother-in-law from her rental property. Of course, like many mini real estate moguls, it’s renting at a negative cash flow, and with the downturn, the rent’s stopped completely.
So family or not, you’ve got to go!
I imagine that is going to make for an uncomfortable Christmas gathering…
Exactly why you never want to do business with family.
There you have it folks. A house (condo) that the average Joe in the “OC” can afford. A 1200SF condo. On secend thought, with the impending bankruptcy of our state and the inevitable tax increases coming to get out of it we should probably wait till the price comes down to $299K. This place is F’d!
Where are all of the bulls who horse laughed and mockingly stated that they themselves were going to come in and snap up all of these properties if prices ever got this low?
“This low” has since moved. Now its, when it gets to $800/sf they’ll laugh and buy everything up. Of course, when it gets there, it will be $400/sf as the new buy position. (Ok, I’m over-stating it, but you get my point.)
On this property generally. NEVER EVER buy a place for your own personal use with a tenant in it unless you can see the inside. I’ve owned and managed dozens of rental units and man, some people are insane with what they do to properties. If its an investment property for you, then it probably doesn’t matter as much unless Jeffrey Dahmer is living there.
Ipoplaya? CK? 25w100k+? Bueller…? Bueller…? 😉
I have never thought of Ipoplaya as a bull; just someone who thinks Irvine will never run out of knife catchers. I feel he, like I, thinks he is wrong.
If someone was willing to sign a half a million mortgage (+ assoc fee/Mello ?) for a 1200 sf apartment near a freeway, way inland in Irvine, we should not blame anybody for suspecting that we have enough wackos living amongst us or who want to live amongst us. What kind of mindset does one need to have to sign that mortgage ? Someone raised in Manhattan or some densely populated country ?
I just leased on a SFR in West Irvine for $2,600. Two year lease, moving in next week. I’ve always consistent that I thought Irvine would bottom out at $250/sq ft….Still think that. Nothing I have seen yet indicates otherwise, but I’m open to being wrong. There are some properties right now that are getting to price points I would consider buying, but the house we found for rent was too good a deal and too perfect a situation to pass on.
Even if we were at a bottom now (and I don’t think we are), there will be no appreciation for at least the two year period we are leasing. Worst case is we are flat to today in two years, best case we are another $100k or so lower. I’ve never been a bull, but just tried to be realistic that Irvine is not going to ever cost the same as the dirt suburbs of Phoenix.
Irvine is special, I havent heard that in a long time. 😆 I suspect somewhere around 200 SF if not lower based on the tremendous deflation happening in the economy with job loss, stocks, credit crunch,..etc, Irvine is no different.
How are u CK. Good luck with the move, make sure the owner is not in trouble.
Thanks mmg….no trouble with the owner, we know them personally. All good. At this stage, a situation like this is about the only private party rental arrangement I’d get into. If we didn’t know these people would never go for anything but IAC. I’m pretty sure Bren is a stable landlord.
How about $225K for this?
This North Park zip code has a median income of $112,399, making it one of Irvine’s wealthier neighborhoods.
That means a median dwelling in this area should be $400K at the most, to be in line with area earnings.
But this is a sub-median dwelling for this zip. This is a starter, or empty-nester, or single person’s dwelling. $225K would not be out of line for someone making $85K a year, based on a 10% down payment and a reasonable loan-to-income ration of 2.5X income, provided the borrower is not too burdened with other debt. Highly unlikely, considering the cost of cars.
We still have a long way to drop, especially if people start wanting to pay down debt and accumulate savings. We as a nation are undergoing a profound and rapid shift back to frugality and saving, and that will drive prices down further, especially for condominiums in areas where most folks prefer single family homes.
I found a better listing photo for this property. The Redfin photo doesn’t show both sides of the street.
http://www.crackthecode.us/images/guarded_condos.jpg
LOL! That combination of images really captures this listing.
Another classic…
It looks like the mainstream media is beginning to talk about the pending Option ARM implosion that has been discussed at IHB for quite some time now.
http://www.msnbc.msn.com/id/28035238/
I noticed on redfin that this property has $7k of taxes based on a $500k valuation. Assuming the property was sold for the asking price of $400k (which seems way high for 2BR but be that as it may), does $400k automatically become the new tax assessment so the new owner would get c. 20% reduction in tax? If so, I can see how California has some massive problems if it had a property tax system that never factored in that prices could go down.
Yes, $400k would become the new assessment with the new owner.
But, it gets worse. You don’t even have to sell the house. You can just ask the assessor to reassess, and they are supposed to change the tax basis to market value. Many assessors are automatically reviewing a large number of assessed values without even being asked.
A 40% drop from peak home prices won’t lead to a 40% drop in property tax revenue. Much of the assessment base is commercial and industrial, which hasn’t taken as much of a hit. A lot of properties haven’t changed hands in many years, and are still assessed far below current market. Older areas like LA and SF are in a better position than newly built areas.
The places which are the hardest hit have the highest number of recently built or recently sold homes. Think Merced, Riverside, Coachella, Santa Maria. If new homes were being built there, huge amounts of sales taxes were being collected on building materials, and now there is very little of that revenue either.
There are a few factors which help the quickly growing areas. They usually do not have a large amount of pension and retiree medical expenses which they have to pay. On average, their public sector employees are paid less than the big cities. Still, if you’re looking for municipal layoffs, look for the biggest home price drops and the biggest vacancy rates.
Prop 13 protects CA from itself. Because of Prop 13 the state can rely on a study stream of income from property taxes. The state’s biggest problem is the punitive income tax structure of 9.3% on individual income above $40k.
As goes the above-the-median income earners, so goes the CA coffers.
The State’s income tax system causes its own volatilities. It is especially sensitive to IPOs, stock options, and gains on sale of stock.
Prop 13 gives state and local government a bad downside if prices drop quickly. However, if prices recover quickly, the assessments can rise to purchase price + 2% per year trend in as little as a year. So, someone buys a house for $1 million in 2006, it’s worth 700k now. It’s assessed at $700k now. If the market price goes back to $1.1 million next year and the assessed value can go to $1.061 million in 2009.
Something similar to this happened with a lot of properties in the late 1990s. They were purchased 1987-1990, had their assessments reduced 1991-1996. Then, the assessed values were able to rise quickly 1998 onward. Most of them caught up with the purchase price + 2% trend by 2002 or 2003.
Thank you for clarifying that. I was not sure if the original purchase price was retained as the basis once it was reappraised for a lower value. It does make the virtue of buying at the bottom more important.
How about Mello Roos? Would they be a fixed amount that would not change with the value of the property? My guess is that as the value drops, the effective tax rate would go up.
Thanks in advance for your take on this.
That’s something I never really understood about this mess. If the valuation of these properties kept going up and up, where were people getting the money to pay these taxes, on top of hoa, and possibly mello-roos?
From their home equity lines of credit. The essence of a Ponzi Scheme is borrowing from Peter to pay Paul, and that is exactly what people did.
It would be interesting to find out what the tenant is paying. Anyone up to doing both them and us a favor? 😉
I would think that even as an investment/rental property, you would absolutely need to have a good look at the inside before making a bid. All that the next tenant has to do is find some mould or whatever and claim health problems to force a major renovation and maybe some compensation and damages as well. If the current tenant gets screwed out of their security deposit along with getting booted out on a couple of weeks or days notice, they could do a lot of damage as payback.
A greast interview with Elizabeth Warren:
http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=1&islist=false&id=98123372&m=98125398
From the picture, I’m a little confused, but maybe not considering the market environment, does that price include the whole block of condo’s? ha ha.
IR, sorry to say this but recently I haven’t seen any property for sale in Irvine (including this one) that is both **desirable** and **affordable** as price has actually stabilized somewhat. The more desirable ones are still asking above $300/sf and $400/sf ones are pretty easy to find.
Most of the quick sell properties are simply 1) fugly, 2) too close to freeway(s) or large road(s), 3) recently built with 3+ stories (and you need good knees for those stairs), 4) too old.
Unless I’m not looking at foreclosures, I dunno what I’m missing here.
I’m hoping you would profile SFHs built in the 90s with few years left of Mello Roos that have the above criteria mentioned in the first paragraph. Suffice to say that we may have hit bottom if you can’t even find those profiles.
I’m going to “drive by” and drop a note on this guys door to tell him he’s about to be evicted.
oo bad it’s not in the lausd like this jewel at over $880/sq. ft.:
http://listings.listhub.net/pages/SOCALMLS/F1792521/?channel=zillow
many bagholders
desperate for a bailout
will not find a one
–
enclosed in a cell
each one a personal hell
thought they would be rich