Category Archives: Price Rollback

Rose

‘Tis but thy name that is my enemy;

Thou art thyself, though not a Montague.

What’s Montague? it is nor hand, nor foot,

Nor arm, nor face, nor any other part

Belonging to a man. O, be some other name!

What’s in a name? that which we call a rose

By any other name would smell as sweet;

So Romeo would, were he not Romeo call’d,

Retain that dear perfection which he owes

Without that title. Romeo, doff thy name,

And for that name which is no part of thee

Take all myself.

William Shakespeare — Romeo and Juliet, 1594

Turtle Ridge is a beautiful community, and although the houses are ridiculously overpriced, it does look like a nice place to live. I know one family who lives there, and they are exceptional people. There are undoubtedly others.

What is in a name? Does “Turtle Ridge” mean more than just a name. I suspect many who bought there believe the name carries prestige and the envy of the lower classes. Personally, I associate Turtle Ridge with pretense, nouveau riche conspicuous consumption, and the embodiment of all things housing bubble — granite tops, stainless steel appliances, Pergo floors, stone facades, gourmet kitchens, etcetera. Do you ever wonder if the residents have giant Roman banquets to impress the world with their wealth?

This may come as a foreign concept to some, but it is possible to feel contempt for conspicuous consumption without feeling envy. I would not feel envious of watching an ancient Roman citizen consume 10 pounds of meat in a single meal. The measure of a person’s character has nothing to do with the contents of their pocketbook, and being showy with money is revelatory of character — what it reveals does not impress me. There is nothing wrong with spending money and enjoying yourself. I do. It is spending money to impress other people that is an enormous waste, particularly when there are people like me on whom it has the opposite effect. I suspect some of the more pretentious residents would convince themselves everyone who claims not to be impressed is secretly envious. There are two types of people in their world, those who are envious, and those who pretend they are not envious. So be it.

So why is it so delightful when the vainglorious fall on hard times? Why is it so pleasing to see an REO in Turtle Ridge? Probably for the same reasons so many were contemptuous of the couple in the CNN article posted in the comments yesterday. You tell me…

Asking Price: $1,499,000

Income Requirement: $374,750

Downpayment Needed: $299,800

Monthly Equity Burn: $12,491

Purchase Price: $1,722,000

Purchase Date: 12/23/2005

Address: 30 Crimson Rose, Irvine, CA 92603

Beds:	4
Baths:	5
Sq. Ft.:	3,403
$/Sq. Ft.:	$440
Lot Size:	–
Type:	Single Family Residence
Style:	Tuscan
Year Built:	2005
Stories:	Two Levels
Area:	Turtle Ridge
County:	Orange
MLS#:	S523791
Status:	Active
On Redfin:	28 days

BANK OWNED !!! Stunning floorplan with a main floor master suite. Kitchen with center island, limestone flooring, stainless steel appliances, family room with wood flooring, media room, wine room plus a seperate Casita with private entrance and bath. Outdoor entertainment includes spa, built-in grill and a fantastic fireplace !

Does anyone remember the fun we had with this property last summer? It was one of our most widely read posts of the year.

It appears the high end is not immune, it is just late to the party. Interesting that it took the bank 8 months to ready this property for sale. I wonder how many other empty, bank-owned properties are sitting out there waiting to be sold or rented? I can’t tell for sure how much money the bank will lose on this one. The owner who was foreclosed on had a $1,000,000 first mortgage and a $935,000 HELOC on the property. You have to think the guy took out most of it, or the property would not have gone into foreclosure. If this borrower took out the full amount before walking, and if Countrywide can get their asking price and pay a 6% commission, the Countrywide stands to lose $525,940. That is a half a million dollar loss on one property in Irvine, California. Last night when I checked their REO website, they owned 4,505 properties in California.

Angelo Mozilo will take his golden parachute from Countrywide and end up on the Greek island of Lesbos having gluttonous orgies. Justice will not be served.

Are you ready for the new sensation?

Well, here’s the shot heard ’round the world.

All you backroom boys salute when her flag unfurls.

Well, guess who’s back in circulation?

Now, I don’t know what you may have heard

but what I need right now’s the original goodtime girl.

She’s a vision from coast to coast,

sea to shining sea.

Hey, sister, you’re perfect host.

Show me your bright lights and your city lights, all right.

I’m talkin’ ’bout the Yankee Rose.

Bright lights in your city lights, all right.

I’m talkin’ ’bout it.

Yankee Rose — David Lee Roth

Fool's Gold

In retrospect, it is easy to see how many people who bought late in the bubble were chasing fool’s gold. The rainbow lead to a pot of gold for many, but many others have been left chasing the rainbow and wondering where their pot of gold lies. The map was easy to follow: you took out a large loan, waited a few months, then sold the property to someone else — the greater fool. The fool who was also chasing their fool’s gold. Everyone is still weighing out their gold as the rest of us watch them sink. The gold is always just around the corner, but in reality a breakdown is just around the bend. We all know where the market is going — down, down, down.

I’m no clown I wont back down

I don’t need you to tell me whats going down

Down down down down da down down down

Down down down down da down down down

I’m standing alone

I’m watching you all

I’m seeing you sinking

I’m standing alone

You’re weighing the gold

I’m watching you sinking

Fools gold

These boots were made for walking

The marquis de sade don’t wear no boots like these

Golds just around the corner

Breakdowns coming up round the bend

Sometimes you have to try to get along dear

I know the truth and I know what you’re thinking

Down down down down da down down down

Fools gold — Stone Roses

Today’s property demonstrates the distress of Woodbury. This property has been on the market for over a year, and the owners have managed to lower the asking price about 25%, and they still haven’t sold it. We have profiled this street in Woodbury before: here, here, here and here. Today’s seller is not the only failed flipper around.

Asking Price: $449,900

Income Requirement: $124,975

Downpayment Needed: $99,980

Monthly Equity Burn: $4,165

Purchase Price: $532,500

Purchase Date: 12/16/2005

Address: 124 Chantilly, Irvine, CA 92620

Beds:	2
Baths:	3
Sq. Ft.:	1,355
$/Sq. Ft.:	$332
Lot Size:	–
Type:	Condominium
Style:	Mediterranean
Year Built:	2005
Stories:	Two Levels
Area:	Woodbury
County:	Orange
MLS#:	S477411
Status:	Active
On Redfin:	396 days
Unsold in 90+ days

‘Pride of Ownership’ shows from the moment you enter from your own private courtyard. Your first floor has a ‘Great Room’ feeling with a gourmet kitchen, casual eating area and spacious living room with fireplace. Master suite with walk-in closet, secondary bedroom plus laundry area complete the second floor. Two car tandem garage features extra storage and has direct access. Sliding ‘hidden’ front door screen, wood window shades, security system are just a few of the upgrades.

‘Pride of Ownership’ — I am sure they are proud of the $100,000 they lost.

Do you get the impression they would have been happier if they had bought a boat?

This is probably the only kitchen in Woodbury without granite counter tops, but yet, this is a gourmet kitchen. I guess if the”gourmet” only needs about 4 square feet of white tile countertop space…

“Two car tandem garage” Always love those.

Today’s sellers put $975 down on the property, so I think we can call it 100% financing. This property has been on the market since October of 2006, and the initial asking price was $579,500. If these sellers obtain their asking price today of $449,900, their lender stands to lose $108,619, and our sellers stand to lose their $975.

I bet the lender is looking for the pot of gold too.

Since this is April Fool’s Day, I thought I might share with you the best April Fool’s joke ever played on me.

When my son was a baby, my wife called to me from the other room and said she thought my son might be sick. I went into his room to see what I could do. When I got there, my wife and my mother-in-law (I think they thought this one up together) were standing over my son who was lying down on the changing table. My wife said, “Come look at this.” I walked over to see my son’s diaper filled with a thick, brown gelatinous mass. The first words out of my mouth were, “What did you feed him?” My wife looked at me, looked down at the gigantic glob of goo, stuck her finger in it, and put it in her mouth.

My mouth dropped open…

I couldn’t believe what just happened…

OMG! Are you crazy?

Then my wife and my mother-in-law started to laugh. I stood there dumbfounded trying to figure out what was going on. Then the truth was told…

While I was not paying attention, they had made a warm batch of chocolate pudding, cleaned up my son really well, then filled a clean diaper with the chocolate pudding and positioned him over it as if he had been wearing the diaper and filled it himself. We all had a big laugh, including my son who had no idea what was going on. I remember that joke every year on April Fool’s Day, and I probably will for the rest of my life.

Illin'

One of the unique phenomenons of the Great Housing Bubble was the intense speculative activity, particularly the purchase of multiple properties. When speculators who purchased multiple properties implode financially, they allow multiple properties to fall into foreclosure. One of the reason we have had such a dramatic spike in foreclosures even before the bulk of the adjustable rate mortgages begin to reset is because of the collapse of speculators.

Today’s properties are all owned by two men with the same last names. Some of the properties are owned jointly, and some are owned in the name of only one of the men. All of the properties are for sale for less than they paid and less than they owe on them. They can’t feel good about it. When they built their financial empire, they probably thought they would be spending their fortune hanging out chillin’; Instead, they be illin’…

Asking Price: $505,000

Income Requirement: $126,250

Downpayment Needed: $101,000

Monthly Equity Burn: $4,208

Purchase Price: $525,000

Purchase Date: 11/2/2004

Address: 5052 Apple Tree, Irvine, CA 92612

Beds:	3
Baths:	2
Sq. Ft.:	1,532
$/Sq. Ft.:	$330
Lot Size:	4,982 Sq. Ft.
Type:	Single Family Residence
Style:	Farm House
Year Built:	1974
Stories:	One Level
View(s):	Park or Green Belt
Area:	University Park
County:	Orange
MLS#:	S518530
Status:	Active
On Redfin:	68 days

Beautiful home located on cul-de-sac. Concrete tile roof. Inside laundry, built-in microwave, dishwasher and ceiling fan in kitchen. Association pool, spa and clubhouse very close. Close to university!! Lender Approved Short Sale!! Lowest price in the area!

Note the restrained use of exclamation points, he only used two instead of three to end his sentences.

This was our tycoons’s first property. It was purchased in November of 2004 for $525,000. The buyers put 5% down ($26,250) and took out two loans totaling $498,500. In March of 2005, they refinanced into a 1% adjustable. At that point, they still had their downpayment in the property. In October of 2005 they refinanced again with a $500,000 first and an $85,000 HELOC. It appears as if this HELOC money was used as the downpayment to acquire property #3 today as it was purchased 10 days after the refinance, and the downpayment was $65,000. The cash-out refinancing means that between this property and property #3, our tycoons have a total of $6,250 in equity invested between them. Aren’t Ponzi Schemes great?

If the sellers manage to get their current asking price, Countrywide stands to lose $110,300.

In April of 2005, just after their first refinance of property #1, our tycoons purchased property #2:

Asking Price: $390,000

Income Requirement: $97,500

Downpayment Needed: $78,000

Monthly Equity Burn: $3,250

Purchase Price: $485,000

Purchase Date: 5/11/2005

Address: 13 Deodar, Irvine, CA 92604

Beds:	3
Baths:	2
Sq. Ft.:	1,172
$/Sq. Ft.:	$333
Lot Size:	3,035 Sq. Ft.
Type:	Single Family Residence
Style:	Cottage
Year Built:	1976
Stories:	One Level
Area:	El Camino Real
County:	Orange
MLS#:	S518487
Status:	Active
On Redfin:	68 days

BEAUTIFUL HOME IN TURNKEY CONDITION!! 2 CAR ATTACHED GARAGE. BIG ENCLOSED PATIO, STEPS TO IRVINE BIKE TRAILS, END UNIT, MOTIVATED SELLER!!! CLOSE TO UNIVERSITY!

MOTIVATED SELLER!!! LOL! Why would this seller care? Their 5% down is long gone…

This property was first mentioned in the post Deodar of Destruction that came out on June 12, 2007. At the time, they were asking $565,000 for this property. A 30% drop in asking price is some first-class market chasing. If they manage to find a buyer at this price and pay a 6% commission, the total loss will be $118,400. The sellers will lose $48,500 plus their carrying costs, and Countrywide will lose $69,900, assuming the sellers are current on their payments. All three of today’s properties are soon to be owned by Countrywide. As if Countrywide didn’t own enough homes in California already…

Asking Price: $539,000

Income Requirement: $134,750

Downpayment Needed: $107,000

Monthly Equity Burn: $4,491

Purchase Price: $650,000

Purchase Date: 10/28/2005

Address: 4932 Seaford, Irvine, CA 92604

Beds:	4
Baths:	2
Sq. Ft.:	1,480
$/Sq. Ft.:	$364
Lot Size:	5,000 Sq. Ft.
Type:	Single Family Residence
Style:	Ranch
Year Built:	1971
Stories:	One Level
Area:	El Camino Real
County:	Orange
MLS#:	S519408
Status:	Active
On Redfin:	61 days

4 bedroom, 2 bath, plus bonus room den. Currently 5 renters, great rental income $2,700-$3,300. New kitchen is currently being installed. Great neighborhood and location. Lender approved Short Sale!!

Five renters! I guess that is one of the reasons you want an HOA so you can police this kind of thing (I don’t believe this neighborhood of El Camino Real has one). Do you think they get 5 cars in the driveway? I am guessing the circular grass dead spot in the back is remnant of a keg party, but I could be wrong. BTW, do you think these guys are current on all their payments to Countrywide, or are they skimming these people’s rent?

As I mentioned above, the downpayment for this property appears to have been financed with equity extraction from property #1. Plus the first mortgage is a 1.5% negative amortization loan. If it was a 2/28, it exploded in November of last year. If they manage to get their selling price on this property and pay a 6% commission, the total loss on the property will be $143,340. Since I accounted for the loss of the $65,000 downpayment on property #1, Countrywide will only lose $78,340 on this one.

Countrywide must have really liked doing business with these gentlemen. On property #1, they lost $110,300, on property #2 they lost $69,900, and on property #3, they lost $78,340 for a total loss of $258,540. Our tycoons did lose some of their own money. They lost $6,250 between properties 1 and 3, and they lost $48,500 on property number 2. Their total loss was $54,750.

Another day, another quarter-million dollar loss in Irvine.

I hope you have enjoyed this week at the Irvine Housing Blog. I wanted to return to our roots and profile properties without all the intense analysis. More analysis posts are coming, for those of you that look forward to them, but it was nice to take a break and just enjoy the schadenfreude for a while. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂

(One) day when I was chillin’ in Kentucky Fried Chicken

Just mindin’ my business, eatin’ food and finger lickin’

This dude walked in lookin’ strange and kind of funny

Went up to the front with a menu and his money

He didn’t walk straight, kind of side to side

He asked this old lady, “Yo, yo, um…is this Kentucky Fried?”

The lady said “Yeah”, smiled and he smiled back

He gave a quarter and his order, small fries, Big Mac!

You be illin’

You be illin’

You be illin’

You Be Illin’ — Run-D.M.C.

The Roxbury

Why spend just a Night at the Roxbury when you can live there? Look at this fantastic property. It comes complete with a hose on the roof, termite damage on the porch, broken concrete, a leaning sidewalk light, an empty milk bottle on the walk, and a pair of statues that looks like a man staring down a cow. At least the grass is green. You can’t beat this location. It is so close to the railroad tracks, the vibrations from the passing trains will shake the pictures off the wall, and the position at the end of a “T” intersection guarantees a strong flow of negative energy and enough flashing car lights to ensure you can’t sleep at night. As the realtor noted, it is “PERFECT FOR FIRST HOME BUYERS.” Yeah, perfect…

Asking Price: $545,000

Income Requirement: $136,250

Downpayment Needed: $109,000

Purchase Price: $555,000

Purchase Date: 1/19/2005

Address: 4712 West Roxbury, Irvine, CA

Beds:	4
Baths:	2
Sq. Ft.:	1,156
$/Sq. Ft.:	$471
Lot Size:	4,992 Sq. Ft.
Type:	Single Family Residence
Style:	Other
Year Built:	1971
Stories:	One Level
Area:	El Camino Real
County:	Orange
MLS#:	P619342
Status:	Active
On Redfin:	58 days

BEAUTIFUL HOUSE IN A NICE AREA. PERFECT FOR FIRST HOME BUYERS.

You can sense the enthusiasm the realtor has for this listing. I can’t blame her. How do you get too excited about an overpriced short sale that has almost no chance of earning a commission.

The seller of this property put 5% down when it was purchased, but they refinanced in 2006 and took out an Option ARM with a 1.8% teaser rate for $548,000 and a simultaneous HELOC for $64,000. They are exercising their “put” option, and the lender is going to eat another one. If this property sells for its asking price — which seems very unlikely — the total loss to the lender will be $99,700 assuming they maxed out the HELOC and pay a 6% commission.

Anyone want to live here? It is Irvine, and It’s a beautiful life, oh oh ooo…

You can do what you want just seize the day

What you’re doing tomorrow’s gonna come your way

Don’t you ever consider givin’ up, you will find, oooh

It’s a beautiful life, oh oh ooo

It’s a beautiful life, oh oh ooo

It’s a beautiful life, oh oh ooo

I just wanna be here beside you

stay until the break of dawn

Take a walk in the park when you feel down

There’s so many things there

that’s gonna lift you up

See the nature in bloom a laughing child

Such a dream, oooh

It’s a Beautiful Life — Ace of Base

That's Life Update

The list price on 78 Sorenson is down t0 $549,000, and the property is in escrow.

That's life (that's life), that's what all the people say

You're ridin' high in April, shot down in May

But I know I'm gonna change that tune

When I'm back on top, back on top in June

I said that's life (that's life), and as funny as it may seem

Some people get their kicks stompin' on a dream

But I don't let it, let it get me down

'cause this fine old world, it keeps spinnin' around

I've been a puppet, a pauper, a pirate, a poet, a pawn and a king

I've been up and down and over and out and I know one thing

Each time I find myself flat on my face

I pick myself up and get back in the race

That's Life — Frank Sinatra

Link To Music Video

This song speaks to our market on many levels. The first stanza speaks to the denial in the market. This years selling season was a bust, but come next June it will come roaring back — Not. One a deeper level the message of this song is wonderful. A great many people are going to get kicked in the teeth by the market. They are just going to have to get back up and carry on because that's life.

A reader emailed me this property.

Asking Price: $600,000

Income Requirement: $150,000

Downpayment Needed: $120,000

Purchase Price: $715,000

Purchase Date: 10/13/2005

Address: 78 Sorenson, Irvine, CA 92602

1st Loan $572,000

2nd Mtg. $143,000

Downpayment $0

Beds: 3

Baths: 2.5

Sq. Ft.: 1,622

$/Sq. Ft.: $370

Lot Size: –

Type: Condominium

Style: Contemporary/Modern

Year Built: 2001

Stories: Two Levels

Area: West Irvine

County: Orange

MLS#: S503062

Status: Active

On Redfin: 64 days

Act Fast! This great home is priced for a quick sale! Fantastic interior private location. Office/Den downstairs, 3-large bedrooms upstairs with spacious closet. Light & bright and spacious, durimar wood floors, blinds, recessed lighting. Close to Tustin Market Place and schools.

Act Fast! After only 60 days on the market, the bidding war will soon begin.

Can you imagine the conversations the couple selling this house must be having?

Honey, do you think the bank will come after us for the $151,000 they are going to lose on the mortgage?

I don't think they can in California.

Won't this hurt our credit?

So what? We could have made hundreds of thousands, and the worst we could lose is a temporary ding to our credit. I think it was worth it.

No stress, no big deal. They took a risk to their credit and passed the financial risk onto the bank. The bank is going to lose their entire second mortgage. In our forums someone told the story of their friend who was invested in a fund that provided second mortgages. How many loans like this does it take to wipe out a fund like that?

A poster from yesterday tipped me off to this property.

7 Chenile Kitchen

Asking Price: $819,000

Income Requirement: $204,750

Downpayment Needed: $163,800

Purchase Price: $885,000

Purchase Date: 4/27/2006

Address: 7 Chenile, Irvine, CA 92614

1st Loan $708,000

2nd Mtg. $88,500

Downpayment $88,500

Beds: 4

Baths: 2.5

Sq. Ft.: 2,201

$/Sq. Ft.: $372

Lot Size: 4,750 sq. ft.

Type: Single Family Residence

Style: Traditional

Year Built: 1985

Stories: Two Levels

Area: Woodbridge

County: Orange

MLS#: S493874

Status: Active

On Redfin: 129 days

Unsold in 90+ days

* * * This is a Short Sale! Great Interior Location in Woodbridge! Remodeled kitchen with granite counter tops, cabinets and appliances. This plan offers a large family room with ceiling to floor brick fireplace. Open floor plan with vaulted ceilings in living room and master bedroom. Great size Front and Back yard. Enjoy the Lakes, Swimming Pools, Spas, Tennis Courts, and many wonderful Woodbridge Amenities with a very Low Assocciations Dues!

If they get their asking price, and there is a 6% commission, the total loss on the property would be $115,140. The sellers would lose their entire $88,500 downpayment, and the bank would lose $26,640 on the second mortgage.

Let's take another look at the real problem here…

In the most recent UCLA Forecast for housing, this little gem appeared:

A more dramatic decline in prices is not forecast because inventory levels have not climbed that high and the fall-out from the subprime mortgage crisis will be less severe in Orange County than other areas of the state.

Some people still don't get it. It is not subprime mortgages that are creating the problem. It is 100% financing and exotic loan terms — two items which are common in OC. We have documented case after case of 100% financing deals going bad. This is the primary driver of lower prices in Irvine right now. As the multitude of exotic loans reset over the next few years, this will cause the next major wave of foreclosures and short sales.

Also, when you think about the financing picture, it is going to get worse before it gets any better. Credit is not going to magically get looser. Look at the losses to second mortgages we have been documenting day after day here in Irvine. Extrapolate that to every city in California, and you get a sense for how big this problem is for second mortgage holders. This will stop the origination of second mortgages, or it will make them so expensive as to render them useless.

Without second mortgages people will be required to make 20% downpayments. Look at these prices and the downpayment requirements. Who has that kind of cash saved up? Who do you know who is saving money from their salaries to make a downpayment? Where will the first time buyers come from?

Sales volume will not suddenly return to the market when very few people have the required 20% downpayment. The chain of move-ups will be disrupted until the entry level buyers save 20% downpayments and the entry level market pricing drops down to meet them.

The bulls in denial seem to believe credit conditions similar to the bubble rally will be returning soon. Lenders are experiencing unprecedented losses. Who is going to through their money into that abyss? Credit will continue to tighten until the lenders are safe. This means 20% downpayments, 28% DTI ratios, and good credit. If you don't meet those three requirements, you will not be buying a house. If you are facing a mortgage reset, and you don't meet these requirements — which, of course, nobody does — you will not get refinanced, and you will lose your house.

While I am on a rant, I would like to point out the most widespread delusion about financing workouts the suddenly generous lenders are promising: borrowers will not be able to keep their house and their lifestyle. The reality is that the bank will demand a dramatic reduction in personal spending and a change in lifestyle to keep a home.

A great many borrowers who are facing a reset believe they can go to the bank, and the bank will work with them to reduce the payment. True to a point, but the bank will analyze your financial situation, determine your bare minimum financial needs, and take everything else — just like a bankruptcy. They will also ding your credit for your efforts. Borrowers can keep their houses in exchange for a decade or more of financial servitude to a lender. Enjoy the Ramen noodles.

Perhaps someday, the mainstream media and our academicians will fully comprehend the nature and scope of the problem. Until then, we will continue with our message and continue to document the results.

I guess that's life…

Some closing words of advice and perspective from Frank Sinatra…

And now, the end is here

And so I face the final curtain

My friend, I'll say it clear

I'll state my case, of which I'm certain

I've lived a life that's full

I traveled each and ev'ry highway

And more, much more than this, I did it my way

Regrets, I've had a few

But then again, too few to mention

I did what I had to do and saw it through without exemption

I planned each charted course, each careful step along the byway

And more, much more than this, I did it my way

Yes, there were times, I'm sure you knew

When I bit off more than I could chew

But through it all, when there was doubt

I ate it up and spit it out

I faced it all and I stood tall and did it my way

My Way — Frank Sinatra

Link to Music Video