Irvine Housing Blog

IHB News 11-21-2009

2009-11-21T10:30:47+00:00

I hope you are enjoying your weekend. Today we have another Woodbridge bubble equity seller.

Irvine Home Address ... 15 BAYSIDE Irvine, CA 92604
Resale Home Price ...... $998,000

You got me running going out of my mind
You got me thinking me that I'm wasting my time

Don't bring me down
No, no, no, no, no, ooh ooh
I'll tell you once more before I get off the floor
Don't bring me down

Don't Bring Me Down -- Electric Light Orchestra

The truth of the market brings homeowners down. The illusion painted in the MSM is all about green shoots and the recession is over. It isn't in Southern California land development.

If residential investment is going to lead us out of recession as it has in past recessions, the properties need to be released by the lenders. As long as we keep these non-performing assets under bank control, nobody is going to spend any money to do anything with these properties; that means no development activity.

I am a land planner. I am the lead of any new land development. I am not aware of more than a handful of private land development projects being planning in the last 18 months. After we chew through the remaining finished and partially finished lots, there will be demand for more tentative tract maps and other planning products. The lead times are long, and nobody is doing this work right now.

It will be interesting to see if the inventory of tentative tract maps approved during the bubble will serve us in two or three years. With the dramatic change in the market, it may not be feasible to build out Riverside County with McMansions on lots over 6,000 SF, which is mostly what is left over from the bubble.

The building industry in Southern California will never be like it was in 2003-2005. With a 90% or more decline in sales, and a commensurate reduction in permits for new construction, there are not very many people left working in the homebuilding industry. Those related industries have suffered to the degree they were dependent upon homebuilding. It will improve from here. If volume increases to half of what it was in 2005, it will represent a 500% increase in sales and construction volume from today's levels. That will be a feel-good economic story of 2011 or 2012 -- 2010 will be better but tough.

Housing Bubble News from Patrick.net

SoCal rent costs fall, 1st dip in 14 years (lansner.freedomblogging.com)
Prime Borrowers Are Latest "Victims" Of Their Own Borrowing (huffingtonpost.com)
Mortgage delinquencies hit record high (msnbc.msn.com)
One in 7 U.S. mortgages foreclosing or delinquent (reuters.com)
MBA Forecasts Foreclosures to Peak in 2011 (calculatedriskblog.com)
Walking Away from Mortgage More Common Among Twenty-Somethings (blogs.wsj.com)
Foreclosure, delinquency rates spike amid growing unemployment (washingtonpost.com)
Housing Starts "Green Shoots" Wither On Vine (Mish)
Banks start foreclosure on 2,100 mortgages (mortgage.freedomblogging.com)

FHA-Backed Lending Is a Train Wreck (bloomberg.com)
Cheaper Prices Motivating House Buyers, Not Tax Gift (usnews.com)

Fed May Not Increase Rates Until 2012 (bloomberg.com)
FDIC Real Estate for Sale (fdic.gov)

California Pension Reform - Fun Numbers (californiapensionreform.com)
South Orange County cities see distressed inventory swell (freedomblogging.com)

Irvine condo's price plunges 50% in three years (irvinehomes.freedomblogging.com)
Housing Bust Next Chapter: 2010, 2011 Face Big Resets In Alt-A, Option ARM (dailymarkets.com)

Irvine Home Address ... 15 BAYSIDE Irvine, CA 92604

Resale Home Price ... $998,000

Income Requirement ....... $184,942
Downpayment Needed ... $199,600

Home Purchase Price ... $575,000
Home Purchase Date .... 7/28/2000

Net Gain (Loss) .......... $363,120
Percent Change .......... 73.6%
Annual Appreciation ... 5.7%

Mortgage Interest Rate .......... 5.06%
Monthly Mortgage Payment ... $4,315
Monthly Cash Outlays ............ $5,340
Monthly Cost of Ownership ... $3,940

Property Details for 15 BAYSIDE Irvine, CA 92604

Beds 5
Baths 3 baths
Size 2,967 sq ft
($354 / sq ft)
Lot Size 5,230 sq ft
Year Built 1987
Days on Market 5
Listing Updated 11/9/2009
MLS Number S595398
Property Type Single Family, Residential
Community Woodbridge
Tract Bs

'PRICED TO SELL'. Beautiful bright and spacious 5 Bedrooms 3 full baths home in Woodbridge area. No Mello Roos. One bedroom downstairs. Tile and laminated hardwood floor throughout downstairs. Newly painted and custom window treatments. Vaulted ceiling in Living and formal dining rooms. Huge bonus/office room upstairs, it can be converted to a Big bedroom. Gourmet Kitchen with brand new BOSCH dishwasher, cooktop and seperated eating area. Great location. Walking distance to award-winning Woodbridge High, Woodbridge Community Park and South lake. Must see to appreciate the great and convenient Woodbridge community.

The property was purchased in 2000 for $575,000. The owner consistently paid down the mortgage, and it appears there was a change of family status and the first mortgage was lowered to less than $300,000. In short, these owners have plenty of equity. Good for them.

It’s a Peach

2009-11-20T10:30:06+00:00

I am out playing golf today, so I thought I would share with you my favorite golf movie set to residential real estate.

Irvine Home Address ... 17296 PEACH Irvine, CA 92612
Resale Home Price ...... $479,000

Do what you like,
Doing it nat'rally
But if it's too easy
They're gonna disagree

It's your life
And isn't it a mystery
If it's nobody's bus'ness
It's everybody's game

I'm All Right -- Kenny Loggins

I will not be able to participate in the astute observations today. I am playing golf in the 1st Annual Charity Golf Tournament sponsored by Pardee Homes to benefit the Boys and Girls Clubs of San Gorgonio Pass. I will be enjoying East Valley Golf Course, home of the PGA of Southern California. I don't know which of the 18s I am playing, but they are both great golf courses. I don't need much of a reason to play golf.

There is a scene in Caddyshack where a very old couple is playing golf. After the woman hits a horrible shot into the water the old man exclaims, "It's a peach, Hon." It got me thinking....

I want to leave you with something interesting to consider today, so I thought I would bring you the Caddyshack homebuying experience. Enjoy.

Irvine Home Address ... 17296 PEACH Irvine, CA 92612

Resale Home Price ... $479,000

Income Requirement ....... $88,765
Downpayment Needed ... $95,800

Home Purchase Price ... $210,000
Home Purchase Date .... 12/17/1999

Net Gain (Loss) .......... $240,260
Percent Change .......... 128.1%
Annual Appreciation ... 8.6%

Mortgage Interest Rate .......... 5.06%
Monthly Mortgage Payment ... $2,071
Monthly Cash Outlays ............ $2,760
Monthly Cost of Ownership ... $2,090

Property Details for 17296 PEACH Irvine, CA 92612

Beds 2
Baths 2 baths
Size 1,224 sq ft
($391 / sq ft)
Lot Size 3,500 sq ft
Year Built 1974
Days on Market 6
Listing Updated 11/9/2009
MLS Number U9004859
Property Type Single Family, Residential
Community University Park
Tract Tr

LOVELY 2 BED PLUS LOFT 2 FULL BATHS PATIO HOME IN UNIVERSITY PARK CLOSE TO UCI,FASHION ISLAND, SHOPPING, THEATERS,& RESTAURANTS plus easy access to 405 Frwy. Fabulous LOFT serves as office is professionally done but not permitted. New carpet in LR, Newer tile roof, windows, garage door and other upgrades. Well cared for home with inviting sunny back yard with lush vegetation and lots of privacy. Cathedral ceilings, gas fireplace. Lg master with walk in closet. Second bedroom has own full bath. Private courtyard entry with flowers and plants. Award winning schools. Most sought after floorplan. Property surrounded with lovely greenbelts and many trees inside tract location. STANDARD SALE NO BANKS TO DEAL WITH. YOUR OFFER WILL BE HEARD IMMEDIATELY AND RESPONDED TO IN A TIMELY MANNER. LISTING AGENT RELATED TO SELLER.

This owner is an equity seller. They have increased their debt like everyone else did, but they didn't go crazy. If they can get their asking price, they will have more than doubled their money in 10 years. Bubbles are great if you time them right.

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since September 2006.

Have a great weekend,

Irvine Renter

High and Going Higher

2009-11-19T10:30:49+00:00

Do high-end properties appreciate at a faster rate than low-end properties? Today's featured property has appreciated at an 8.3% annual rate since 1973.

Irvine Home Address ... 19196 SIERRA ISABELLE Rd Irvine, CA 92603
Resale Home Price ...... $1,048,888

Diamond Girl - you sure do shine
Glad I found you - glad you're mine
Oh my love you're like a precious stone
Part of earth where heaven has rained on
Makes no difference where you are
Day or nighttime you're like a shinin' star

Diamond Girl -- Seals and Croft

The long-term average appreciation for Irvine is just over 4%, and yet there are homes like this one that have appreciated at 8% for a very long time. How is that?

It is still hugely inflated pricing.

Trees cannot grow to the sky, and it is not possible to continue with a large disparity between appreciation rates at the low end and at the high end. Remember our property from Monday 275 STREAMWOOD Irvine, CA 92620? It went from $56,000 in 1988 to $126,140 now -- which is near the historic norm of 4% appreciation in Irvine.

If the foundation of the market -- entry-level properties -- have only appreciated at 4%, how can high-end properties appreciate at 8%? Ten years from now when that condo is going for $200,000, will properties like today's be selling for $2,000,000? Isn't that a bit of a price stretch?

There is nothing but air holding up prices at the high end. I still believe these properties are going to get clobbered.

Irvine Home Address ... 19196 SIERRA ISABELLE Rd Irvine, CA 92603

Resale Home Price ... $1,048,888

Income Requirement ....... $194,372
Downpayment Needed ... $209,778

Home Purchase Price ... $54,000
Home Purchase Date .... 3/15/1973

Net Gain (Loss) .......... $931,955
Percent Change .......... 1842.4%
Annual Appreciation ... 8.3%

Mortgage Interest Rate .......... 5.06%
Monthly Mortgage Payment ... $4,535
Monthly Cash Outlays ............ $6,060
Monthly Cost of Ownership ... $4,590

Property Details for 19196 SIERRA ISABELLE Rd Irvine, CA 92603

Beds 4
Baths 1 full 2 part baths
Size 2,516 sq ft
($417 / sq ft)
Lot Size 5,200 sq ft
Year Built 1972
Days on Market 6
Listing Updated 11/10/2009
MLS Number U9004860
Property Type Single Family, Residential
Community Turtle Rock
Tract Bm

Largest model in the tract - quiet, 'inside' location directly facing the big association park, pool & BBQ - 4 bedrooms plus bonus room - recent, tasteful upgrades include lavish use of tiles in baths and kitchen, brand new stall shower & tub, granite kitchen counters, new stovetop, dishwasher & microwave, new neutral carpet & interior paint, textured ceilings, light fixtures, roll-up garage doors and picturesque landscaping (to mention just a few) - viewing deck, newer roof - close to top schools, public parks & tennis -low associaion dues and no Mello-Roos. This turnkey home enjoys the best location in the tract and is ready to move into and enjoy - don't hesitate on this choice property - for the most discriminating! The home is light,bright, sunny, cheery and super clean - great view of the park, pool and hills from the bonus room! This home has true pride of ownership - a 'creampuff'!

The property records show no debt on this property, so it is likely owned outright. Not a bad retirement nestegg for somebody....

California Kool Aid

2009-11-18T10:30:44+00:00

The belief in rapid home price appreciation is deeply held in California. Now with HELOCs to give access to this pot of gold, California Kool Aid has never tasted better.

Irvine Home Address ... 108 TIMBERWOOD Irvine, CA 92620
Resale Home Price ...... $399,000

Now you know it's a meaningless question
To ask if those stories are right
'Cause what matters most is the feeling
You get when you're hypnotized

Seems like a dream
(They) got me hypnotized

Hypnotized -- Fleetwood Mac

The belief in endless rapid appreciation took hold in the 1970s, and like a persistent disease of faith, it hypnotizes its victims with dreams of limitless wealth and spending power. Will the cycle ever end? Or will a few months of rising prices make kool aid as tasty again?

During the bubble, people borrowed their appreciation and spent it. The lenders and investors in mortgage-backed securities have absorbed most of these losses; therefore, we have a large population that was hugely rewarded when prices went up that has been spared the consequences of their stupidity. In my opinion, this moral hazard has made California Kool Aid more addicting. What incentive does our current system have in favor of prudence and responsibility?

Irvine Home Address ... 108 TIMBERWOOD Irvine, CA 92620

Resale Home Price ... $399,000

Income Requirement ....... $73,940
Downpayment Needed ... $79,800

Home Purchase Price ... $585,000
Home Purchase Date .... 2/14/2006

Net Gain (Loss) .......... $(209,940)
Percent Change .......... -31.8%
Annual Appreciation ... -10.1%

Mortgage Interest Rate .......... 5.06%
Monthly Mortgage Payment ... $1,725
Monthly Cash Outlays ............ $2,430
Monthly Cost of Ownership ... $1,870

Property Details for 108 TIMBERWOOD Irvine, CA 92620

Beds 2
Baths 2 full 1 part baths
Size 1,442 sq ft
($277 / sq ft)
Lot Size n/a
Year Built 2001
Days on Market 4
Listing Updated 11/9/2009
MLS Number S595565
Property Type Condominium, Residential
Community Northwood
Tract Coll

According to the listing agent, this listing is a bank owned (foreclosed) property.

Corner unit 2 bedroom, 2.5 bath townhome across from award winning elementary and high schools. Direct two car garage access. Wrap around front patio. HOA includes two swimming poools, tennis courts, volleyball, built in BBQs and hiking trails.

What is a poool?

This REO was originally purchased for $585,000 on 2/14/2006. The owners used a $468,000 first mortgage. The information on any second mortgages has been wiped out. Late last year, they quit paying:

Foreclosure Record
Recording Date: 07/09/2009
Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Foreclosure Record
Recording Date: 04/02/2009
Document Type: Notice of Default

The property is for sale at 31.8% off its 2006 purchase price. Ready to restart the cycle?

Down the Drain

2009-11-17T10:30:28+00:00

This flipper rode the equity wave then left the bank holding the note as values went down the drain.

Irvine Home Address ... 14492 GUAMA Ave Irvine, CA 92606
Resale Home Price ...... $615,000

City penthouse
The kitchen living
A country home
It's a kitch living
...

Photos waiting
Blood and glass
Three points of rain
Carpet lining
Seats reclining
Clever words on smooth tongue talking
Shove it brother
Just keep walking

Just Keep Walking -- INXS

Today's featured property was purchased by a flipper in 2006 for $555,000. The original financing information is gone, but he did manage to refinance for $564,000 with an Option ARM with a 1.25% teaser rate. Despite buying very near the peak, through consistent HELOC withdrawal, this flipper did manage to pull out $9,000 before walking away.

Foreclosure Record
Recording Date: 10/29/2009
Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Foreclosure Record
Recording Date: 07/24/2009
Document Type: Notice of Default

When pundits discuss the phenomenon of walking away from a mortgage debt, they assume that people really planned on paying back that money when they got it. This erroneous assumption fails to recognize that most Californians never plan to repay the loan out of their wage income. If they could incidentally pay it back when they sold the property, that was OK, but most borrowers never think they will actually pay back the large sums they are borrowing; repayment is the house's responsibility.

I don't think lenders fully understand there is a segment of the borrowing population that lives from one infusion of borrowed cash to the next (or maybe they do know and don't care). These people will ride the next wave of appreciation and spend it until they implode again. When the lenders lose a few trillion next time, I won't feel sorry for them.

Irvine Home Address ... 14492 GUAMA Ave Irvine, CA 92606

Resale Home Price ... $615,000

Income Requirement ....... $115,784
Downpayment Needed ... $123,000

Home Purchase Price ... $486,000
Home Purchase Date .... 5/29/2003

Net Gain (Loss) .......... $92,100
Percent Change .......... 26.5%
Annual Appreciation ... 3.6%

Mortgage Interest Rate .......... 5.20%
Monthly Mortgage Payment ... $2,702
Monthly Cash Outlays ............ $3,330
Monthly Cost of Ownership ... $2,480

Property Details for 14492 GUAMA Ave Irvine, CA 92606

Beds 4
Baths 1 full 2 part baths
Size 1,897 sq ft
($324 / sq ft)
Lot Size 5,130 sq ft
Year Built 1971
Days on Market 3
Listing Updated 11/11/2009
MLS Number S595717
Property Type Single Family, Residential
Community Walnut
Tract Cp

According to the listing agent, this listing may be a pre-foreclosure or short sale.

Great Home in College Park! Located in cul-d-sac, steps away from award-winning elementary school. Scraped ceilings, upgraded kitchen, remodeled bathrooms, new windows throughout, hardwood flooring, etc.

Redfin shows the 2003 purchase but not the 2006 one. i have used the 2003 figures above to provide some context. Apparently, this property has managed to appreciate at 3.6% per year since 2003. Does that seem right to you?

Low-End Payment Affordability

2009-11-16T10:30:20+00:00

The payment affordability at the low end the market is so good that a wage earner making $12.50 per hour can now afford to buy in Irvine.

Irvine Home Address ... 275 STREAMWOOD Irvine, CA 92620
Resale Home Price ...... $126,140

I've been sitting here 'bout half the night.
Oh, mama, fill my cup up.
Said I came to waste some time.
I think I'm gonna jump up.
I'm singin', I'm dancin' most every night.
And I want to do that with you babe.
Let's do this bottle right.
Oh, oh, baby, bottoms up.

Bottoms Up -- Van Halen

"PRICES HAVE BOTTOMED!!!" said Kool aid man in his new condo, "Are you ready to PARTY!!! BOTTOMS UP!!!" I'll spare you the "bottoms up" photo... you can still see it, can't you?

Is this a bottom in pricing? That depends on interest rates, but I feel confident that I can call the bottom on payment affordability. It will never be less expensive on a payment basis for a relatively low-income wage earner to buy property at market prices.

Over my years of working in the land development industry, I have worked on a number of low-income affordable projects. I worked on my first one in my mid 20s, and I felt noble about helping working families get good housing. Without going into a treatise on affordability programs, I will tell you they all rely on some form of market price controls to ensure properties stay affordable.

Low-income units are in high demand, and the demand often fails to meet the supply. It is very unusual in California when market priced homes compete with low-income subsidized housing. When it does, the activity is great for the community and for the low end of the housing market. Those who seemingly had been "priced out forever" can finally afford homes -- assuming some flipper doesn't crowd them out.

Payment Affordability

From today's listing, "WHY RENT WHEN YOU CAN OWN?"

Income Requirement ....... $23,481
Mortgage Interest Rate .......... 5.10%
Monthly Mortgage Payment ... $548
Monthly Cash Outlays ............ $900
Monthly Cost of Ownership ... $720

It seems to me that we do not need to subsidize low-income housing when open-market condos go for prices that allow people to live there who make $24,000 a year ($12.50 per hour wage). Payment affordability is extraordinary at these interest rates. It is not surprising that anything below the $500,000 price level in Orange County gets snapped up by 20 eager bidders.

The myriad of government distortions to the market has created a shortage of supply in price ranges where the GSEs and the FHA underwrite, and almost nothing at other prices. Armageddon awaits the non-GSE supported markets; they do not enjoy government price support.

There is no guarantee the Government will continue price supports in the face of political or financial market forces. It is likely they will maintain some level of backstop support as long as necessary to prevent a national catastrophe -- possibly worse than the current recession. Sometimes the Least Bad Scenario is the correct path to chose. Since this path is also bad, it will endlessly be second guessed.

Both the Government and the lenders are crossing their fingers and hoping they can absorb the upcoming foreclosures without causing the cascading defaults that really crush prices (think Las Vegas). We will almost certainly see pockets of this throughout Orange County, and the substitution effect will create ripples in price and volume that will create unusual (unsustainable) price spreads between neighborhoods.

Selling homes at the last market bottom

Back in September of 2007, an astute observer known as Bubblegum sent me some images of marketing materials produced in 1997 -- the last market bottom time. I originally posted them in The Market Bottom:

I followed that image with this line, "Since I began writing on this blog, I have stated I will buy when the cost of ownership equals the cost of rental. An advertisement like this -- when it reflects reality -- would motivate me to buy. How about you?" Well, as you can tell from my statement, I had no clue that the Federal Reserve and the GSEs would increase affordability artificially lowering interest rates.

The equation has changed for me. With payment affordability, I believe a window is open, but only if you really are going to be a long-term homeowner. Unfortunately, most people who buy plan on staying long term, but life intervenes, and sometimes they need to move. Statistics show home ownership lasts about 7 years. Between Government manipulation and the inflation that is likely to follow, it does not make sense on an inflation adjusted basis to buy today and have the same amount of a devalued currency later, but on a nominal basis, the numbers may look right.

Sometimes all the deflation and inflation talk does my head in, but they are important concepts, and they can have a big impact on your financial life.

BTW, today's featured property is not a one-off: 338 STREAMWOOD Irvine, CA 92620.

Irvine Home Address ... 275 STREAMWOOD Irvine, CA 92620

Resale Home Price ... $126,140

Income Requirement ....... $23,481
Downpayment Needed ... $25,228

Home Purchase Price ... $61,000
Home Purchase Date .... 12/12/1994

Net Gain (Loss) .......... $57,572
Percent Change .......... 106.8%
Annual Appreciation ... 5.0%

Mortgage Interest Rate .......... 5.10%
Monthly Mortgage Payment ... $548
Monthly Cash Outlays ............ $900
Monthly Cost of Ownership ... $720

Property Details for 275 STREAMWOOD Irvine, CA 92620

Beds n/a
Baths 1 bath
Size 415 sq ft
($304 / sq ft)
Lot Size n/a
Year Built 1977
Days on Market 2
Listing Updated 11/11/2009
MLS Number U9004904
Property Type Condominium, Residential
Community Northwood
Tract Othr

According to the listing agent, this listing is a bank owned (foreclosed) property.

WHY RENT WHEN YOU CAN OWN? WELCOME HOME TO THE CITY OF IRVINE, ONE OF THE VERY BEST CITIES IN ORANGE COUNTY. THIS PROPERTY IS JUST THE RIGHT SIZE FOR YOUR ACTIVE LIFESTYLE. THE UNIT IS A ONE BATHROOM STUDIO, THAT LIVES LARGER THAN YOU CAN IMAGINE, WITH CLOSE TO 415 SQUARE FEET OF INTERIOR LIVING SPACE, AND A PRIVATE PATIO, YOU WILL BE ENJOYING THIS INTIMATE RESIDENCE UPON MOVING IN. THE PROPERTY IS PART OF AN ASSOCIATION THAT PROVIDES A POOL, A SPA, AND COMMON AREAS THAT HELP TO CREATE THE FEELING OF LIVING IN A RESORT. YOUR LOCATION IS FANTASTIC, YOU ARE CLOSE TO ALL THE GOOD THINGS IN IRVINE; SCHOOLS, PARKS, RECREATION, SHOPPING AND TRANSPORTATION. SO COME HOME TO IRVINE AND START TO LIVE THE BEST OF TTHE ORANGE COUNTY LIFESTYLE TODAY... BUYER SHOULD INSPECT THE PROPERTY WITH A PROFESSIONAL INSPECTOR.

Just to illustrate the impact of interest rates on pricing, take a look at today's property which as originally purchased in conditions very similar to ours in 1994; in fact, I would go as far as to say 2009 is most similar to 1994 as things play out. When this property was purchased in December of 1994, the contract mortgage interest rate was 9.2% -- very near the 40-year average of 9%.

Let's calculate the owners income based on a the affordable payment based on an 80% loan, a 9.2% interest rate and a 31% DTI... the payment is $400... HOAs were lower then, but the monthly out-of-pocket would still be $550... so, $550 / 0.31 = $1,775 monthly gross income or $21,300 per year. If you inflation adjust this number forward to allow for local income growth since 1994, you get $31,311 in today's income dollars. Back in 1994, this was not as payment affordable as it is today.

The Government controlled housing markets enjoy payment affordability, but price ranges outside the conforming loan limit are subject to market forces, and price and supply pressures will build at higher price ranges, but as long as the interest rates stay low, prices will remain high relative to historic measures.