Sometimes important lessons can come from unusual locations. The experience of the US Forest Service has much to teach the Federal Reserve. Will they learn the lesson?
Our featured property is a three-bedroom property in Irvine for under $250,000. How the mighty have fallen…
Asking Price: $247,900
Address: 46 Eagle Point #25, Irvine, CA 92604
{book1}
Burning Down The House — Talking Heads
Hold tight wait till the party’s over
Hold tight were in for nasty weather
There has got to be a way
Burning down the house
Outwardly, the Federal Reserve and the US Forest Service seem to have little in common. The Federal Reserve manages our currency and banking system while the US Forest Service manages public lands in national forests and grasslands, which encompass 193 million acres, according to their website. Nevertheless, they both manage complex systems and the outcomes of their choices are commonly obscured for many years.
Our economy, which is the responsibility of the Federal Reserve, is a collection of interrelated individuals and entities whose behavior impact the system. These participants are also reacting to the system, and thereby they are impacted by it. Our forest ecosystem, which is the responsibility of the US Forest Service, is a collection of interrelated plants and animals that both impact the system and are impacted by it.
Both complex systems under management by these two agencies are unpredictable and difficult to manage effectively. Oftentimes the results of management practices are not fully realized until decades after policies are put in place. The similarities between the missions of these two agencies and the nature of the problems they face make them analogous. Lessons learned by one agency can often be extrapolated to the other, and given the long timeframes in their system’s lifecycles, it is important to review and learn these lessons when they are presented.
What Lesson Did the Forest Service Learn?
For years the US Forest Service was dominated by timber production interests. It was a classic example of regulatory capture. The US Forest Service’s primary objective, and thereby its land management policies, favored timber production. Forest Fires were seen as an obvious threat to timber production, so policies of fire suppression were absolute: put out all fires as quickly as possible, and do not let anything burn. This was forest service policy for several decades.
To its chagrin, the US Forest Service discovered its policy was flawed. By not allowing small fires to burn, leaf litter and other combustible natural growth accumulated. In unmanaged forests, periodic fires eliminate this source of fire fuel. In managed forests this accumulation of fuel fosters fires that get out of control (think Yellowstone).
To combat the accumulation of fire fuel, the US Forest Service changed its policies. Now, small fires in the understory are permitted to burn. By eliminating the excess fuel, the more dangerous and costly canopy fires are avoided. A few trees may get damaged in the small fires, but the forest survives.
What Can The Federal Reserve Learn from the Forest Service?
The interests of the timber industry to the US Forest Service are similar to the interests of Wall Street and other financial market participants to the Federal Reserve. The policy of the Federal Reserve is to stimulate the economy—to put out the fire with lower interest rates—every time there is an economic slowdown.
This policy became known as the “Greenspan Put” during the 20 years of Alan Greenspan’s tenure as Federal Reserve Chairman. This policy pleases business interests, and for many decades, it can look like a sensible policy.
There is a major problem with the “Greenspan Put” policy of stimulating the economy through artificially lowering interest rates. Just like the accumulation of fire fuel on the forest floor, our economy accumulates unsound business plans, Ponzi Scheme financing arrangements, idiotic investment strategies, and behavioral moral hazards. Recessions are supposed to be the small fires that destroy these destructive agents, but when the Federal Reserve manipulates interest rates and stimulates the economy, recessions are not allowed to serve their purpose, and the economic problems pile up.
Many have written that there is an 80-year cycle of economic activity that results in depression-like conditions. They speak of this as if it were a law of nature like the orbital period of Pluto. This is nonsense. The cycle of depressions—if we are to believe there is such a thing—is merely a calendar coincidence. There is no identifiable cause and effect between the passage of 80 years and the cause of an economic catastrophe.
It is my opinion that our problems are caused, albeit indirectly, by the manipulation of our financial system by the Federal Reserve. When our entire financial system gets out of control due to the build-up of unsound business practices—an accumulation caused by Federal Reserve policy—there is a tipping point where monetary policy cannot save the day. The fire burns down the financial house.
One of the functions of the Federal Reserve is to maintain stable prices and promote economic growth. It was formed out of a perceived need to smooth out the extreme economic cycles of boom and bust of the 19th century. Like it or not, it is probably not going away (although many would like it to.) The question they are going to have to wrestle with is how to smooth out the ups and downs without creating the conditions that send the economy careening out of control like it is now. I am not qualified to provide those answers, but in their quest for solutions, I hope the brain trust at the Federal Reserve looks at how the US Forest Service manages a similar problem. They may find guidance in this unlikely location.
{book3}
BTW, did any of you watch the interview with Ben Bernanke on 60 Minutes last night? (part 2 is here) It was very interesting.
I watch the new show Lie To Me on Fox too much. When I watched Bernanke talking, I kept seeing this nervous twitch in his face and lips. Maybe he was nervous because he was on 60 Minutes, but he is in the public eye, so he has been on camera before. Rather than fill me with confidence, it really frightened me to see our Federal Reserve Chairman so edgy when discussing our economy.
Today’s featured property is a crappy condo, but at $228/SF, it is the least expensive way to own a 3 bedroom unit in Woodbridge.
Asking Price: $247,900
Income Requirement: $61,975
Downpayment Needed: $49,580
Monthly Equity Burn: $2,065
Purchase Price: $402,000
Purchase Date: 9/30/2005
Address: 46 Eagle Point #25, Irvine, CA 92604
| Beds: | 3 |
| Baths: | 2 |
| Sq. Ft.: | 1,088 |
| $/Sq. Ft.: | $228 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Year Built: | 1978 |
| Stories: | 1 |
| Floor: | 1 |
| Area: | Woodbridge |
| County: | Orange |
| MLS#: | S567144 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours) Fixer-upper
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3 bedroom, 1 1/4 bath fixer upper. This end unit condo features newerappliances, large patio and inside laundry hookups. Located in the
master planned community of Woodbridge you can take advantage of the 22
pools, 24 tennis courts, and 19 park areas or relax by one of the 2
lakes and lagoons. Close to shopping, restaurants, and excellent
schools.
Check out the shadow on the inside photo. Did you see the biceps on the realtor? That dude is pumped up.
Notice this unit is not being pumped as light and bright…
This unit has all the appeal of owning your own apartment–which is none.
This property is a good example of how the lenders are getting clobbered. The dollar amounts involved are small because this unit is low end; however, the magnitude of the loss is tremendous. It is foreshadowing losses to come on nicer properties.
The property was purchased on 9/30/2005 for $402,000. The owner used a $321,600 first mortgage, a $80,400 second mortgage, and a $0 downpayment. Now that values have cratered, it is not surprising that she walked.
When the lender went to the foreclosure auction, they only bid $239,250, which is 25% off the amount of the first mortgage, and they still got the property. Nobody wanted it. The auction price is 40% off, and the current asking price is 38% off the original purchase price. We haven’t seen many 40% discounts in Irvine to date. We will see more.
{book2}
Watch out
You might get what you’re after
Cool babies
Strange but not a stranger
Im an ordinary guy
Burning down the house
Hold tight wait till the party’s over
Hold tight were in for nasty weather
There has got to be a way
Burning down the house
Burning Down The House — Talking Heads
but …
http://housingdoom.com/2009/03/06/stewardship-gone-terribly-wrong-in-wyoming/
I guess the US Forest Service hasn’t figured it all out yet. It looks like they have been learning from Wall Street and the Federal Reserve.
We have to deal with the U.S. Forest Service on a regular basis. I think they have good intentions, but with all the red-tape, sometimes the left-hand doesn’t know what the right-hand is doing. We hear one thing from our rep. ranger, but then get a letter in the mail stating the opposite.
The USFS is just another (well-intentioned) inefficient, bureaucratic excuse for people how have no skills to have a job. But watch this branch of the Federal Government grow exponentially in the coming years with the whole “Green” movement.
Regarding the analogy, no matter what happens there is always going to be a fire, and the cycle will go on. Maybe it will be larger and hotter then mitigated ones. But then again, this is also going to be the largest transfer of wealth this country has ever seen.
Party is over for the baby boomers.
Although the current price seems high to me, what does the RentvsOwnulator tell us? Is it getting near rental parity? The HOA dues probably kill it.
Too bad you didn’t interview Bernanke.
I think so, at least for owner/occupant. $1500 rent with 160GRM is $240k.
The unit needs maybe $10-$15k to wake up a little. $230k is reasonable.
An investor can pick it up at $180k.
1500.00 a month to rent this. I love it.
“The property owner, Irvine, Calif.-based Bethany Holdings Group, had abandoned the complex and a dozen other large rental properties in the greater Phoenix area after defaulting on hundreds of millions of dollars in loans.”
http://www.msnbc.msn.com/id/29697413/
Another reason why Irvine housing is overpriced.
How exactly does this article prove Irvine housing is overpriced?
This place has another 125K to 150K to drop. Give it another year and a half.
Seriously, do you have a macro you run that enter these ridiculous comments?
You’d be mad at the world too if you had to live in Phoenix!
have to agree with AzDave on this one. this is an APARTMENT. why do people get defensive at his posts. I agree with him even though we may be wrong, you feel it should go for more, good for you 😆
I agree with AZDavid on this one too.
Rather than saying his is a ridiculous comment, why don’t you actually provide some useful information?
Here is mine:
1 car detached garage
Old-so high HOA and special assessments
3bd in 1000sf-way to cramped for anyone but college student renters.
Defensive, no, just a little annoyed at the receptiveness and silliness of them. He’s the opposite of the ‘real estate will always go up!’ cheerleaders of a few years ago.
If he could make a serious point as to why this unit will drop to 100 or 125, other than he’s in phoenix which is cheaper and assumes that is a base line for prices, it would be interesting to read.
But seriously, I think the bottom on an unit like this (barring war, floods, or more realistically – early 1980s type mortgage rates of 21%) is probably in the high 100,000s somewhere.
At $100,000, the mortgage payment at 6% at 100% financing is $788. Which is fully deductible for a while as it’s all interest. Add on $350 HOA, 1% tax ($83 per month – deductible), 1% est insurance ($83 per month), for a total nut of $1304 before deductions, this is incredibly cheap for Orange county. It’s in Irvine so the crime in non-existent. Yeah it’s an APARTMENT, and that may have a large emotional negative for many people. But people buy and have bought expensive apartments for all of modern history. New York, Chicago, etc. That’s not a negative for many people, we don’t all want a yard or property.
I’m glad you are annoyed. I was always annoyed by Californians with bubble incomes who bought speculation property in AZ and influenced our market too, but oh well. I suppose we all just have to deal.
You are living in the past, Refugee – acting from an old playbook. You need to unlearn what you have learned.
Of course it is cheaper in PHX – the bubble did not expand as wide here. Duh. Do you think it is commanded by God that O.C be more expensive?
Californians are going to be amazed by the cost of living changes that are heading their way.
This place is going to drop because your median incomes are going to crater over there. When all your unemployed get back to work, it will be for less money. The bubble jobs are going away and lots of competition for experienced McWorkers out there. Get ready, it’s on its way.
Why would you be glad I’m annoyed?
If you make a post here with hard numbers, I assume you have some reason to back up your assumption. Don’t you?
I’m not sure what playbook I’m acting from, other than the price of a piece of real estate has a relation to the income levels and population levels of the area. And for this one, to drop another 125k to 150k is unrealistically low.
Could you elaborate on how you got to those #s?
Actually 1300 for an old apartment (with all the features that freedom mentioned :lol:) sounds about right.
from IR’s post on Jan 5 2009
The example above uses the most recent Irvine Median Household Income Data. From this it calculates the gross monthly income. Notice this is the gross amount, not the after-tax income. Someone making $91,101 per year would be taking home between $5,000 and $6,000 a month depending on the number of exemptions claimed and the amount of their tax write-offs. Note the effect this has on the take-home DTI ratio. Someone using a DTI of 31% is really spending almost 50% of their take-home pay on housing and related expenses. The maximum loan amount is calculated using a 30-year fixed-rate conventionally amortizing mortgage assuming 85% of the payment, taxes and insurance amount will be going toward the mortgage payment.”
so if you’re taking home between 5-6 k per months 1300 is about 25% of your income. now my opinion is the median earner is definetly not jumping up and down to buy an old 1000 sft apartment 😆
you also have to take into account the psychology of people about thier jobs, umemployment, negative wealth effect (401Ks–>101Ks, stock market, etc) on buying behaviors. once we let go of our southern california pathology per IR, people will again be able to identify 250k, 350k, 650k as huge amounts of money that need to be repaid and to which you will be stuck for 30 years.
JMO, Irvine will be hit as bad as everywhere else, offcourse it will retain a premium over other places but that same premium should be the same it was 10 years ago. 😆
Look at the charts. This dump was fetching 150K back in 2000. We will be easily seeing 2000 pricing and will likely overshoot back into ’97 ’98 territory.
http://www.crackthecode.us/images/eagle_pt46_zillow.jpg
Has the weather over in the O.C gotten way better since then? Is the unemployment rate much lower now than back then? Is the crime rate much lower now?
NO
Doesn’t seem so unrealistically low now does it. As much as I enjoy reading all of your smoke and mirrors percentage X square root Y just because this just because that, it’s really not that complicated to figure this out and see the trend here. Come on, quit being a fool.
I agree with AZDavid as well. If you’re stupid enough to pay nearly $250K for this crappy rathole, you deserve to get stuck there for ten years without finding another fool to take it, while the price declines another $150K.
Can’t you be challenged without resorting to insults?
The Zillow chart for this property (above) is cut off on the right side, but the last 2 sales were 1/12/09 at $239000, and 9/30/2005 for $402,000.
The last sale before that was 02/02/1979 for $58,000 (good for them!)
The Zillow estimate (estimate! – but let’s use it anyways) for 2000, was $146,000, not $100,000 or $125,000, which was a few years past the low point of the 90s. If we use that, and I roll that price forward using the consumer price index increase in that time of of 25%, it is equivalent to 182,500. That’s not 100000 or 125000 or even near it.
The identically sized property next door (#23) was sold on 5/9/2000 for $162,000, which is even higher than Zillow’s estimate for this property. Rolled forward by 25% is $202,200
One of the 2 bedrooms at #22, sold for $138,000 on 3/30/2000, Rolled forward by 25% is $172,500
A 3bed 2ba at #18, (The featured property is a 1ba) sold for $150,000 in 1996, With inflation, that’s 205,500 at 37% CPI increase.
Another 3/2 at #17, sold for $120,000 in 1997 this was probably the nadir of the housing market, still with 34% CPI, that was 160,800.
And just for yuks, a 3/2 at #16 sold for $189,900 in 1989, with a 73% CPI, that’s 328,000 in current dollars.
And the consumer price increase from 1979 to 2008 is almost 200%, making that 58,000 in 1979 about 172000 in current dollars. Historically there was a bubble in the 70s also, I’m not quite sure where is was at in 1979 being geographically and temporally ignorant to this part of the country at that time.
I guess the point of this is, what makes you think that prices will go below any historical bottom in real dollars for this property (or one like it) given its never been there before?
Can’t you be challenged without resorting to insults?
Take it easy there, Refugee. You are the one who decided to take things down a notch with your juvenile comment:
Seriously, do you have a macro you run that enter these ridiculous comments?
A simple “I disagree because ….” would have worked just fine, but you felt it more prudent to hurl mud. So don’t go getting all indignant on me now because you were met with the same that you served up.
You are tossing around lots of statistics and most of which are nothing but smoke and mirrors. If you look around, 2009 college graduates are still earning about the same as 2000 college graduates (maybe even less). Incomes have not risen enough to keep up. You can talk all you want about price index blah blah, whatever. Incomes are not there and that is all that matters.
Regarding the 1 car garage that the listing claims: It has only a one car carport.
Regarding the garage that they mention in the listing, they lied. It is a one car carport
Regarding my statistics:
I’ve used the consumer price index, to estimate current equivalents of past sales prices to today for comparison.
I’ve used public sale data from zillow, as you have also used zillow charts.
I’ve used an estimated mortgage percentage rate, an estimated California property tax rate, and an estimated property insurance rate.
Which of these is smoke, and which is mirrors? The ‘price index blah blah’ or the ‘percentage X square root Y’.
You have a couple of quotes here
‘If you look around, 2009 college graduates are still earning about the same as 2000 college graduates (maybe even less’ – can you provide a link to this, specific to Orange county?
and
‘Incomes have not risen enough to keep up.’ – wll with the current prices and the past few years, yes,
but
You’ve predicted ‘This place has another 125K to 150K to drop. Give it another year and a half. ‘
A 50 to 60% drop in 12 to 18 months? That’s pretty dramatic, so can you substantiate this with anything, any estimate, that gets this down to a price it’s never been at?
I have to agree with you AZDavidPhx. It is easier to understand what happened here if you are a renter. To watch the “mania” from the outside gives you a totally different perspective. But I agree with you that incomes are the most important thing that will give support to home prices. Incomes keep dropping. Most of my friends have had bonuses canceled or reduced. Some have been laid off, others have taken pay cuts.
However, the Fed and government, by supporting low rates and financial institutions, are keeping prices inflated with respect to 2000. If you are a renter, you understand that home prices are high, and most of us won’t pay these still inflated prices. So we will wait. Soon we will have to pay higher taxes to bail-out all these home-debtors, so we will be unable to pay more for overpriced homes.
So put some things together:
1. Incomes are similar to 2000.
2. Unemployment is much higher.
3. Toxic financing is not available.
4. Attitudes have changed (still changing for the better).
5. Every person being forclosed, can’t buy for 7 years.
So if almost everything is same or worse than in 2000, why aren’t prices? Here are the reasons why:
1. Interest rates are much lower, wich makes people able to pay much more for a house.
2. “Enough” people are still “intoxicated” with what the housing bubble was so they are willing to pay more than they should for a house.
3. Government intervention.
4. Everybody seems to understand how fragile things are and potential sellers don’t want to sell, and banks don’t want to foreclose, etc.
I’d say the reason it could go below a historical bottom is that it is years older now, and it has not been steadily maintained (or upgraded). It is currently in worse condition than it was 10 years ago, or probably even 5 years ago. And I can at least suspect that the same goes for the rest of the condos – exterior walls and paint, sidewalks, driveways, landscaping, … And what is the condition of the roof?
This looks like a property that has depreciated, not maintained its value from a historical as-new price.
I dont know if it has another $125k to $150k to drop, but from the photos it looks like it will need more than $10-15k to make it a reasonably attractive place to live. Who would pay $250k to live in a depressing dump, even if it is only a place to sleep while you enjoy all the amenities of Woodbridge and Irvine?
The bigger question to me, is how is the rest of the development and area holding up? Not much point in sinking a lot of money and effort in improving your place if many of the others around you are similarly trached and decaying.
Maybe it’s just me, but there still seems to be to many comments about what is “wrong” with a place. I grew up in a 900 SF 2BD 1 BA shit hole in torrance and I don’t remember where I was living as really that “depressing”.
Perhaps the asking price is high, I don’t know,but so many of the comments revovle around “the yard is crap, the rooms are small, its next to a busy street, the kitchens tiny, its build for hobbits, etc. etc.
WTH?
Every house cant be perfect, and it doesnt mean that a family or a person can’t be happy and make a life in this place just the way it is.
The negative comments are a result of the outrageous asking prices. For 250K, one should expect a lot more than this. 250K is a lot of money.
I can agree with this comment. $250k for most families is a King’s ransom! $18k per year to rent this place is a LOT of money too, but certainly preferable to mortgaging the unit.
More people will come around to AZDavidPhx’s skepticism about how much we spend on places to live. The real question is how many?
We could all save a ton of money living in less desirable areas (below our means), living with roomates, or living with parents.
Being probably the cheapest 3 br in Irvine, this condo will probably not drop in price – it may even sell for more than the listing price especially if it is a short sale. Now, other condos like it may sell for less as housing prices drop in Irvine, but it will take some time.
No macros – just common sense. Apparently not all are so fortunate.
Look at these ones for a bottom…
[url]http://www.redfin.com/CA/Santa-Ana/1010-W-Macarthur-Blvd-92707/unit-128/home/4529983[/url]
[url]http://www.redfin.com/search#lat=33.70017177527331&long;=-117.88033962249756&market=socal&status=1&v=4&zoomLevel=17[/url]
This is what’s commonly known as “South Coast Metro”. Even though they’re technically in Santa Ana they are in a rather nice area. Eons ago, mid 80s, we leased an 800 sq foot 2be/1ba there. The prices then sat around 80K per unit.
The units in Irvine were/are a lot nicer. And in the mid 80s they went for like 100K.
So, I think this particular unit will drop to 150K or less.
BTW- the second unit (second link) at 1040 McArthur #117 … they want 298 per sq foot… THAT’S worse than KoolAid… that’s someone drinking lots of mexican everclear! ;-P
that’s someone drinking lots of mexican everclear!
With or without the added rattlesnake? 😉
I suppose the MacArthur Village unit might be more likely to sell if they’d put up photos of the unit. Two different views of the complex entrance sign aren’t too helpful. 🙂
Oh well, at least the Dining Room Features include an Eating Area. 😛
2010 = 1996. Will this property go to $130k or $120/sq ft?
Certainly doesn’t sound like much of a stretch to me.
Funny you should mention it, but I’m on (broken) record here insisting prices are going to $140k/sf.
Which seems absurd, except that over the 6-8 months I’ve been claiming it, prices are, indeed, moving in that direction. Fast, too.
IrvineRenter: The Fed, imo, is responsible, but only partially. The buyer, the broker, the appraiser, the lender, the mortgage purchaser, the CMO originator, the CMO broker, the buyer of the CMO, the credit default swap seller (if “insurance” was purchased by the CMO buyer), etc. Each of these was presented with docs explaining their benefit/obligation. Each could have passed on the offer. The Fed may have maintained low interest rates too long, but that was only one issue. Individual and corporate responsibility ultimately determined the outcome – no amount of legislation/regulation can anticipate irresponsible, or simply stupid, behavior!
“no amount of legislation/regulation can anticipate irresponsible, or simply stupid, behavior”
Have you seen Reg Z? It could have been issued years earlier, but the idealogues at the Bush administration prevented it. Here is a portion of it:
“(ii) Verification of repayment ability. Under this paragraph (a)(4) a creditor must verify the consumer’s repayment ability as follows:
(A) A creditor must verify amounts of income or assets that it relies on to determine repayment ability, including expected income or assets, by the consumer’s Internal Revenue Service Form W–2, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of the consumer’s income or assets.
(B) Notwithstanding paragraph (a)(4)(ii)(A), a creditor has not violated paragraph (a)(4)(ii) if the amounts of income and assets that the creditor relied upon in determining repayment ability are not materially greater than the amounts of the consumer’s income or assets that the creditor could have verified pursuant to paragraph (a)(4)(ii)(A) at the time the loan was consummated.
(C) A creditor must verify the consumer’s current obligations.
(iii) Presumption of compliance. A creditor is presumed to have complied with this paragraph (a)(4) with respect to a transaction if the creditor:
(A) Verifies the consumer’s repayment ability as provided in paragraph (a)(4)(ii);
(B) Determines the consumer’s repayment ability using the largest payment of principal and interest scheduled in the first seven years following consummation and taking into account current obligations and mortgage-related obligations as defined in paragraph (a)(4)(i); and
(C) Assesses the consumer’s repayment ability taking into account at least one of the following: The ratio of total debt obligations to income, or the income the consumer will have after paying debt obligations.
(iv) Exclusions from presumption of compliance. Notwithstanding the previous paragraph, no presumption of compliance is available for a transaction for which:
(A) The regular periodic payments for the first seven years would cause the principal balance to increase; or
(B) The term of the loan is less than seven years and the regular periodic payments when aggregated do not fully amortize the outstanding principal balance.
(v) Exemption. This paragraph (a)(4) does not apply to temporary or “bridge” loans with terms of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months. ”
http://www.fdic.gov/regulations/laws/rules/6500-1800.html#6500226.31
Excellent point, MalibuRenter: Obviously the existence of regs isn’t enough; they gotta be followed. Since there will be proffered any number of reasons/excuses for not doing so, we’re back to a couple of very simple rules that everybody knows that work in just about all these situations:
1. If it sounds too good to be true…
2. Do unto others…
Applying these would have worked equally well, probably better!
I think you have left off the one party we can blame over all others: the credit rating agencies. They are expected to render an unbiased, sophisticated opinion on the default risk of a security. Not slap AAA on something they can barely understand because some unregulated branch of an insurance company issued a CDS on the CDO.
These agencies were bought off and failed to provide useful ratings. If the MBS these loans were packaged into were properly rated, this housing mess would have been a run of the mill bubble. But then their fees would have been much smaller.
If they had been properly rated, there wouldn’t have been nearly as many of them.
Ken Dixon: Realtor By Day, The Man Whose Arms Exploded By Night.
Heh heh. I guess that’s one way to get rid of gluts of distressed properties — hire realtors that can twist your head off if you don’t agree to buy. 😉
I think Bernanke is media shy because that’s his personality. Bernanke did not cause the problems. It all happened under Greenspan’s watch and because of his “too easy credit for too long” policies as encouraged by politicians of all sorts. Fine-tuning the economy is fine and good; however, playing around with economics fundamentals is dangerous as we now know.
Well, perhaps, it’s unfair to blame it all on Greenspan; however, he and some Wall Street firms are the ones who controlled the spigot of money and set the “let’s have a party” tone for everybody else. Some chose to participate, some did not but we are all suffering from the hangover.
All I am learning from all of this is to be a big Ponzi scheme. Get really, really, really big. Make sure the whole financial industry is vested in you. Then do what ever you want.
I want to be AIG.
Wow, this place is one of the crappiest profiled to date. Is living in Irvine realy that great that you would want to own this. Now that speculators are gone, only investors and rent savers will touch this one. So the price is going to go down.
This place is really depressing. And $350 HOAs. DOH!
If a single guy buys this place to live in he’ll have a hard time getting girls over…unless he looks like Brad Pitt or something. LOL.
My mother owns one of these condos upstairs and rents it out for $900. One of things that bug me the most is the stairs up to the second floor. They are open to the sky. There is no cover from the rain while you run up the slick stairs.
Also, if I sweep the deck, the dirt goes down to the lower unit’s front door. I would never consider buying a lower unit there.
I may consider buying a upstairs unit, but with only a carport, I would have to keep my Riverside house for the garage.
It is all in the price and the HOA fees.
just wow… I think this house should go down to $200,000 and then it should be a fair price
Wasn’t another of these units profiled in the last couple of weeks? The other property had an update kitchen and was asking 299K. Is the newer kitchen worth 50K or did prices drop 50K?
Also, I have heard complaints about the expense of heating these units. It has coils in the floor and knobs in each room to control the temperature.
I think it has at least another 100K to drop.
The other property had an update kitchen and was asking 299K.
It can easily be explained here:
http://www.urbandictionary.com/define.php?term=the+granite+counter+fallacy
If the investor’s price is $180K, there is no reason to pay more, because this is a very commonplace suburban rental apartment, c.1975, one out of millions built across the country.
It’s a sow’s ear. There is no way to make this an attractive place to live. It looks sad and way past its time, which looks like 1975. Moreover, the grounds need work and the place is at the stage of its life where it needs a lot of work to be a good apartment.
One of the consequences of the many bouts of real estate hysteria we’ve experienced since 1978 is that many rental units intrinsically unsuitable for condo conversion were converted, and are now bad condos. Some conversions succeeded better than others, but there is still an excessive supply of ratty rental apartments masquarading as real condos. This means that these buildings revert to rental, as units are purchased on the cheap by investors, for whom the places are only rent farms and who don’t want to spend a dime over the minimum to improve and maintain the place. You also get lots of inexperienced amateur landlords who don’t screen tenants properly or maintain their units to any reasonable standard, and before you know it, the place is devolving to slumhood around you.
Any conversion that happened after 2003 is probably a financially toxic complex that will mostly likely never succeed as a condo association. If you bought into such a situation in search of a place you could make into a real home, you will very disappointed.
Buyer beware at any price.
And then you got war and lawyers.
For centuries Western Europe engaged in periodic warfare which weened out excessive laws and lawyers.
The winner killed off the governments, thereby disposing of about half the lawyers.
Then they changed the laws which effectively put out the rest of the attorneys out of business.
Since occupations typically lasted 20 to 30 years (or more) pretty much that put out a couple of generations of lawyers out of commission.
Hence, Western Europeans do not have the surfeit of useless and outdated laws and lawyers that we have in the US.
What we need here in the US is a war we can lose that will not destroy out property values. 😉
We were linked on a talk radio blog:
The forest for the trees
Congrats. Like the author of that post, I thought your forest fire control metaphor was apt.
http://www.linkedin.com/pub/5/a3a/223
http://www.dixonteamoc.com/
I like your analogy. I have wondered myself if we are doing more harm than good by putting out the fires.
A local radio guy used this analogy though:
If your neighbor is a really mean guy who does not take care of his yard and their are always a bunch of druggies over there and you would like him to move, then do you put out the fire in his house when it happens. On one hand, this may very well get rid of him, but his house is close to yours and if you do not put it out while you can, it may become too large and burn your home down in the process”.
I have thought about that a lot and wondered. Would I be willing to let the “small fires” go at the risk of myself being burned so that we avoid a really big fire such as we are expereinceing now?
oklahoma homes for sale
What part of the move up ladder is this unit suppose to be on? Seriously, this is the type of housing that you buy and live in for maybe two years after you graduate or move to a new area. The person that buys this unit at this price better realize that they need to move eventually unless they are retiring here. That’s my view of homes in the OC. Every home as had micro market share that is attracted to it. What’s the micro market share that is attracted to this one and how much are they willing to pay for it.
what is a 1/4 bath?
In this case 1/4 bath is a sink in the master bedroom with a door to the tub and toilet.
1088 sq ft apartment with $350 association fee. Fire it up!
what is a 1/4 bath?
A toilet that is not working. Maybe?
Or the sink’s blocked.
http://www.trulia.com/property/1076183945-10502-Boca-Woods-Ln-Boca-Raton-FL-33428
the problem with people from CA is they have no idea what it’s like to actually live in other states for example this is what you can buy in Boca Raton—a very similar place to OC–if not nicer in my opinion—
The key here new homes are prices as they are NEW–and older homes as such==
here in the OC a old falling apart house is consider 250k—insane–for a fixer upper–
and guess what guys the wages are not far behind–only problem is matching jobs-
take a look a what a million buys you—
Conclusion of today’s discussions (IMHO):
Regarding who is responsible for this mess.
1. AG is responsible for 70% of the mess.
2. Bush 20% – he requested AG to give he a ‘good’ economics so he can be re-elected and hence AG was re-nominated as Fed chair.
3. Wall St. – 9%.
4. Leveraged buyer – 1% (the true is maybe they are smarter than you).
Regarding the value of this property:
$247,900 is very good to buy even the prices may go down another 10% but if you don’t have good skills in investment and willing to spent some time to fix this house by yourself.
3. Bush’s 3rd term – Bernanke is just another AG and Obama is just anther Bush. While Obama keep bashing Wall St on bonuses, they are pouring more and more money to Wall St without really wanted to stop these thieves.
This is a home for fresh BA graduate or student housing but not close enough to a school. The medium HOUSEHOLD income was used, so a single fresh graduate is not likely able to afford this place, unless it engineering degree or nursing. $180,000 in a falling market with the $350 HOA (possible going up due to others walking away)and interest and taxes at 5.8% total. Insurance and repairs have not been calculated.
I used to think we would eventually stabilize at 1998 prices, but now with the states new taxes and harsh business climate, I think we will go lower.
I have a small 2bd/1bth rental in Perris that I bought in 1982 for $46K. They have been selling now for $40K. At the peak they were $250K. This bubble just amazes me.
The current dilemma given to us is Obama can give a lot of money and can only blister insurance giant AIG but he can’t block the recklessness greed of AIG.
This is 3rd grade made-up stories to me and I had heard is again and again. Had Obama stop Merrill Lynch a month ago, this won’t happened again.
The most horrible thing is Obama feel no shamefully that he and his team “can’t” stop this at all. If this is all he can do then he should just stop giving money away.
You’re analysis is partly correct. It was NOT low interest rates in and of themselves. It was:
1. Securitization of mortgages.
2. High leverage at Investment banks (i.e. 35:1)
3. Merging of traditional banks with investment banks.
4. lowering of standards for loans due to #1. Allowed banks to get free money.
5. Low interest rates (this might be 3 or 4 but NOT #1).
6. Internet allowed all this to happen at light speed.
Number 1 has a sub-point about credit agencies. If the Securitization instruments were not given Triple A ratings, then it would’ve stopped there. Instead, every bank/investment house had to put these things out there, since there’s always a buyer for Triple A securities.
Great post. I particularly enjoyed your detailed assessment of the roll the federal reserve plays in our economy. I also enjoyed the music video and classic SNL picture.
What part of the move up ladder is this unit suppose to be on? Seriously, this is the type of housing that you buy and live in for maybe two years after you graduate or move to a new area. The person that buys this unit at this price better realize that they need to move eventually unless they are retiring here. That’s my view of homes in the OC. Every home as had micro market share that is attracted to it. What’s the micro market share that is attracted to this one and how much are they willing to pay for it.