Back in September of 2007, I asked the question in a post Is Fear Gripping the Market? Fast-forward to 2009, and I think it is safe to say that fear rules the day.

Today’s featured property is REO that recently sold at auction for 36% off its peak purchase price.

Asking Price: $593,900

Address: 3562 Myrtle, Irvine, CA 92606

{book6}

The Fear — Lily Allen

Life’s about film stars and less about mothers
It’s all about fast cars concussing each other
But it doesn’t matter cause I’m packing plastic
and that’s what makes my life so f#@$ing fantastic

Remember the good ol’ days of mindless consumerism when houses used to replenish plastic purchasing power faster than pretentious pricks could piss it away. Back then it was trendy to lease your car and own your house; a brilliant way to lose both in a financial downturn.

The people who lived the good life are facing the end of the lifestyles to which they have become accustomed. The reality of this truth is becoming apparent as they release their denial and face their fears…

OMG! NO!

NO! NO! NO!

I want to be rich and I want lots of money

MAKE HOUSE PRICES GO BACK UP! (bargaining)

[silence]

ISN’T THE GOVERNMENT OR THE FED GOING TO SAVE US? (bargaining and recalling past denial)

[silence]

THAT SUCKS! (acceptance)

[silence and a moment of peace]

The psychology of a market is the aggregate of all its participants. Most at the low end have already passed through denial, bargaining, and fear; they have capitulated and reached acceptance. Many at the high end are still in denial, but with the struggling economy, the lack of high-end sales volume and REOs popping up on every street, fear is quickly becoming the new reality.

Asking Price: $593,900

Income Requirement: $148,475

Downpayment Needed: $118,780

Monthly Equity Burn: $4,949

Purchase Price: $830,000

Purchase Date: 2/27/2006

Address: 3562 Myrtle, Irvine, CA 92606

Beds:	4
Baths:	3
Sq. Ft.:	2,300
$/Sq. Ft.:	$258
Lot Size:	5,200 Sq. Ft.
Property Type:	Single Family Residence
Style:	Craftsman
Year Built:	1973
Stories:	2
Area:	Walnut
County:	Orange
MLS#:	S567905
Source:	SoCalMLS
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

This property looks updated inside based on the photos. It is one of the less prestigious neighborhoods in Irvine, but the house is large as are the others on this street. It also has a decent sized yard by Irvine standards. It is a solid $425,000-$450,000 property.

This property was purchased on 2/27/2006 for $830,000. The owner used a $663,920 first mortgage, an $82,990 second mortgage, and an $83,090 downpayment.

The owner’s let the property go at a foreclosure auction, and the lender purchased it for $539,597–an amount almost 20% less than the outstanding amount of the first mortgage. This is revealing of where loss mitigation procedures are today. The lender was willing to take a 20% loss at the courthouse steps, and nobody stepped up to buy the property probably because it is still overpriced.

The lender has marked it up hoping to find a knife catcher. If this property sells for its asking price, the total loss on the property will be $271,734 after a 6% commission.

When do you think it will all become clear?
‘Cuz I’m being taken over by The Fear

One more item before you leave. This video was in the comments yesterday. It gives a wonderful explanation of how the Geithner plan is a complex shell game intended to steal taxpayer money. It is not a video of some raving lunatic, but rather a calm explanation of exactly how the process works. I highly recommend watching all 12:28 of it, but if you already understand the basics of the banking problem, you can skip ahead to the 6:30 mark to see how the banks will game the system.

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.

🙂

{book7}

I want to be rich and I want lots of money
I don’t care about clever I don’t care about funny
I want loads of clothes and fuckloads of diamonds
I heard people die while they are trying to find them

[Chorus]
I don’t know what’s right and what’s real anymore
I don’t know how I’m meant to feel anymore
When do you think it will all become clear?
‘Cuz I’m being taken over by The Fear

And I am a weapon of massive consumption
and its not my fault it’s how I’m programmed to function
I’ll look at the sun and I’ll look in the mirror
I’m on the right track yeah we’re on to a winner

The Fear — Lily Allen

We have become so accustomed to inflation that it is difficult to remember a past when prices were more expensive. Welcome to the age of deflation.

Todays featured property is a 35% rollback that will probably drop further.

Asking Price: $325,900

Address: 61 Costero Aisle #242, Irvine, CA 92614

{book4}

Insanity — Oingo Boingo

Madness hiding everywhere
Such a curiosity
Here it comes to set us free
Plenty left for you and me
Say hello insanity

After you live in California for a while the insanity of house prices
becomes the reality of life. You accept it, and you learn to live with
it. However, after prices crash there is at least a brief period of time when sanity rules. Houses in California are still expensive by national standards even after a bust, but at least they are affordable relative to local incomes.

Usually when people yearn for the prices of yesteryear, they
remember nickel sodas, or fifty-cent gas (I can remember that). But do you
remember when 2/2 condos went for $500,000? Homeowners certainly do. Many of them are still trying to live in a bubble fantasy world where these prices are still the market. Despite the pockets of denial, most are adjusting to the new reality of lower house prices.

When gas prices went from $4.50 a gallon back to $2.25 a gallon people made the emotional adjustment quickly. Few outside the oil industry benefit from $4.50 gas, so people are eager to accept price declines. When house prices cut in half, the emotional reactions are different. Those living the HELOC lifestyle need ever-increasing prices to fuel their Ponzi Scheme living. Besides the addiction to spending the free money, these people are attached to their illusions of wealth. The collapse of house prices robs them of both their spending power and their fantasies of riches. In such circumstances, lingering memories of past prices and past price increases are clung to with religious fervor.

It was pointed out recently in the comments that past prices paid during the bubble are being used as a selling point by realtors. A $550,000 property is being touted as a bargain because it “previously sold for $1,000,000!!!” Someday, I hope a realtor says this to me; I will comment on the inconceivable ignorance of people during the housing bubble because even $550,000 is overpriced (that should quickly deflate the “bargain” sales tactic).

Today’s featured property went for $500,000 at the peak. It will likely decline in price by more than 50%. When it does, it will not be perceived as a bargain because it will not be one. The debt service payments will be just as high, but the loan terms will be much different as the exotic financing will be replaced by 30-year conventional financing. The conservative loan terms will lower the amounts borrowed and thereby lower resale prices. Most people do not realize how much their perception of prices of financed purchases is dependent upon financing terms.

I have toured this apartment condo complex a couple of times. These are apartments. They are no different than any apartment complex in Irvine; in fact, is is not as nice as most of them. There are few garages; the residents park in unassigned parking or under carports. IMO, this REO is a POS (I couldn’t resist the acronyms).

This particular apartment would probably rent for $1,750 if the Irvine Company ran the complex. A private owner would have to settle for $1,600-$1,650. That puts rental parity at about $264,000. But who wants to live there? To work as a rental, this needs to fall to $180,000 or less which puts it back at late 90s pricing.

Asking Price: $325,900

Income Requirement: $81,475

Downpayment Needed: $65,180

Monthly Equity Burn: $2,715

Purchase Price: $500,000

Purchase Date: 4/25/2006

Address: 61 Costero Aisle #242, Irvine, CA 92614

The master bathroom
has laminate & sheet vinyl? Is that a plus?

It offers a one car detached garage
and an assigned carport as well. It must be the luxury unit.

This property was purchased on 4/25/2006 for $500,000. In a rather unusual transaction, this property was financed with a $500,000 Option ARM first mortgage. There was no second mortgage, and no downpayment.

It isn’t surprising that the borrower walked from the debt. The lender paid $471,115 at auction. I imagine the professional flippers in the crowd must have chuckled when they heard that bid.

If it sells for its current asking price–it probably won’t–the total loss to the lender will be $193,654 plus negative amortization and missed payments. The carnage continues…

The video above is true insanity.

{book5}

All around the world now
Like a big bright cherry cloud
Traveling from home to home
Tv sets and telephones
Here it comes just like a storm
Bathe in it and be reborn
Time to let the world know
Welcome madness, say hello
Like a wave we cannot see
Washing over you and me
Hiding here and hiding there
Madness hiding everywhere
Such a curiosity
Here it comes to set us free
Plenty left for you and me
Say hello insanity

Insanity — Oingo Boingo

I wasn’t sure how to title this post. It could have been “Why You Don’t Want to Catch a Falling Knife” or “10% Off a 2003 Price.” There are many stories to tell.

Today’s property is below its 2003 purchase price hovering at 2002 price levels.

Asking Price: $299,900

Address: 8 Eastmont #46, Irvine, CA 92604

We are scheduled to have another IHB Block Party on Monday, March 9, 2009, at J.T. Schmids at the District. Everyone is invited.

Knife Fight — Lemon Demon

But wait, are we not civilized gentlemen here?
I challenge you to a battle of knifes!

If this property looks familiar, it is because I have profiled it before in the post Option ARM Hell. In that post from July of 2008, this property was a short sale asking $389,900. How would you have liked to have been the knife catcher that paid that much? If you would have, you would be $90,000 underwater right now. My equity burn calculation said this property would only lose $3,241 a month in value. The asking price has declined $90,000 in 9 months for an equity burn of nearly $10,000 a month.

Price declines like this on low-end properties are nearing their conclusion. Price declines like this on mid- to high-end properties are yet to come. All those high end short sales I have been profiling lately will be REOs sporting 20%-30% reductions 9 months from now.

Asking Price: $299,900

Income Requirement: $75,000

Downpayment Needed: $60,000

Monthly Equity Burn: $2,500

Purchase Price: $443,000

Purchase Date: 4/26/2006

Address: 8 Eastmont #46, Irvine, CA 92604

REMODELED 3 BEDROOM , 2 BATH CONDO, BANK OWNED, in WOODBRIDGE WITH GRANITE COUNTERS AND UPGRADED FLOORING.

That description is ALL CAPS except the word “in.” Why?

Check out this listing and sales price history. The asking price is 10% below its 2003 purchase price. I think we could call it 2002 prices.

This property is really causing some pain to a young family (I think). This property was purchased on 5/19/2006 for $443,000. The owners used a $354,400 Option ARM with a 1% teaser rate for a first mortgage, and a $88,600 downpayment. Looking at this place, it doesn’t seem like a move-up where this $88,600 was equity from a previous sale. I am guessing this was either savings or a gift from relatives. In either case, it is gone now.

If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $161,094. The owners are covering half, and the lenders are eating the rest. Neither party is going to be happy about it, but I feel worse for the borrower. Not just did they lose their substantial downpayment, they have ruined their credit: very sad.

{book1}

I tire of your mind games.
I’m sick of playing Don’t Wake Daddy.
Good sir, no more Rock, Paper, Scissors for me.
But wait, are we not civilized gentlemen here?
I challenge you to a battle of knifes!

KNIFE!
FIGHT!
CUT!
STAB!
KNIFE!
OW!
POKE!
KNIFE!

Knife Fight — Lemon Demon