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Chapman’s Adibi says Orange County prices to fall, recovery far off

Posted: 20 Jun 2011 03:30 AM PDT

Chapman University's Esmael Adibi is predicting continued weakness in the Orange County housing market.

Irvine Home Address ... 3981 CEDRON St Irvine, CA 92606
Resale Home Price ......  $530,000


Slide away, and give it all you've got
My today, fell in from the top

Now that you're mine
We'll find a way
Of chasing the sun

Oasis -- Slide Away

For the last couple of months, I have been commenting on the surprising collapse of local demand and the lack of a spring rally. Today, I am going to feature the comments of others noting the ominous signs for the Orange County and Irvine housing markets.

O.C. Home Prices to Continue Slide, Won't Recover Any Time Soon, Chapman Says

Large supply of distressed properties is blamed.

June 17, 2011

Home prices in Orange County will fall about 4 percent next year, Chapman University economists said Thursday, and will not recover any time soon.

The housing market is being buffeted by "countervailing forces'' of supply and demand, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman.

"We're not building many new homes, which is good news in terms of home prices, but we're still dealing with a large supply of distressed properties,'' Adibi said.

The fact that we are not building many new homes is one of the main drags on the economy. The unemployed and under-employed in homebuilding and real estate related industries are not buying homes, nor are they demanding other goods and services.

Adibi and Chapman President James Doti, who is also the Donald Bren Distinguished Chair of Business and Economics at the school, released their economic forecast to a gathering of business and community leaders in Costa Mesa.

Related: Sales Down Nearly 20% in O.C.

One "big drag'' on the local economy, the economists said, is the scaling down of government spending, which has led to layoffs.

You can't build a dynamic economy on government jobs. Government work does not add value. It is a cost to society paid by those who do add value.

Meanwhile, Orange County's 8.6 percent unemployment rate, which is already considerably better than the state's, will continue to improve, with job creation gaining momentum by year's end, Adibi said.

Job growth nationally could reach 1.4 percent, bringing the unemployment rate down to 7.5 by the end of 2012, Adibi said. Countywide job growth could reach 2.2 percent in 2012, he said.

Orange County should add 20,000 jobs this year and another 30,000 next year, Adibi said. Unemployment in Orange County fell from 9.1 percent in March to 8.6 percent in April, the latest figures available. California's unemployment rate is nearly 12 percent.

With such weak employment numbers, income growth won't be a driver of home prices. The only way prices can be sustained is super low interest rates -- which may be around until the economy picks up -- and continued withholding of supply by lenders who control most of it either directly as REO or indirectly as short sales requiring approval.

Most of the added jobs expected in Orange County will be white collar positions—attorneys, accountants, and computer programmers, Adibi said. Private education organizations also will do strong hiring "because people are retooling and going back to school,'' he said, and the healthcare industry will also grow as the population ages and demand increases.

If Adibi is right, the addition of high-paying jobs will help local home prices -- if enough of these jobs are created to absorb the inventory.

Adibi and Doti forecast better times for the leisure and hospitality industries.

"We believe tourism will improve, and partly because consumer spending will be relatively strong compared to last year,'' Adibi said.

Consumer spending will likely improve over last year's anemic levels, but without HELOC money, the consumer spending of the bubble is nowhere on the horizon.

Manufacturing will experience some recovery, particularly in high-tech as business invest more on equipment, Adibi said.

Among the wild cards will be oil and gas prices, he said. Political instability in the Middle East has driven up oil prices, but that should stabilize in the coming months, Adibi said, although "it's very hard to project gas prices.''

—City News Service

We have very low sales rates, high unemployment, weak job creation, and a huge overhang of housing supply. Prices should continue to slide, and they shouldn't recover any time soon.

Housing rescue still not on horizon


Like the castaways of television's "Lost," the Orange County housing market continues to search for a rescue that has yet to materialize.

DataQuick Information Systems reported that 2,664 home sales closed last month, making it the second slowest May in records dating back to 1988. Sales fell 18.2 percent from May 2010, the 11th straight month in which home sales were down on an annual basis.

Prices fell, too.

That doesn't leave much to be bullish about, does it?

The median price of an Orange County home – or price at the midpoint of all sales – fell 5.6 percent last month to $425,000. In May of 2010, the median price was $450,000, a post-slump pinnacle not repeated for 10 months.

It's called a bear rally. It's what you get when you provide artificial stimulants to demand then remove those stimulants.

DataQuick attributed the lingering malaise to the same bugaboos that have gripped the market since a home-buying tax incentive expired a year ago: High unemployment, tight lending standards and the lack of buyer confidence that both inspire.

"From a non-scientific basis, we can feel that," observed Westminster agent Dick Lobin of Century 21 Olympic Team. "Usually we get a seasonal pop in May, June, July and August. We don't feel it (this year). In fact, it's down."

Thank you Mr. Lobin. A realtor told the truth about the housing market. I hope he doesn't get in trouble.

Looking at 2011 as a whole, we've seen 11,596 residences sold – down 7 percent from 2010.

Compared to past years, 2011 had the fourth-lowest start. The only years with fewer sales as of May were 1995, 2008 and 2009.

In fact, sales this year so far were down 31 percent from the five month average of 16,725 since 1988.

"Here we sit in the market doldrums," said DataQuick President John Walsh. "The government stimulus is long gone, and some of the fundamental drivers of housing demand have yet to strengthen."

Like many other market watchers, I predicted the bear rally would falter when the stimulants were removed; although, I didn't think the market would be quite this bad. In my observation, the economy usually displays unexpected strength rather than unexpected weakness.

By housing type, DataQuick figures show:

  • Resale houses: 1,702 sold last month vs. 2,015 a year ago. That is a -15.5 percent change. The median price was $500,000 vs. $515,000 a year ago, or a 2.9 percent drop.
  • Resale condo: 764 sold last month vs. 942 a year ago. That's a 19 percent drop. The median price was $265,000 vs. $305,000 a year ago or a 13.1 percent decline.
  • New homes: 198 sold last month vs. 300 a year ago, a 34 percent plunge. The median price was $560,500 vs. $645,000 a year ago or a 13.1 percent decline.

O.C. home prices are down across the board.

Fifty-nine of Orange County's 83 ZIP codes had price drops, according to DataQuick. Sixty-one ZIP codes – 73 percent of the market -- had year-over-year sales declines.

That is ugly data. It can be summarized as down, down, down, down, down, and down.

The two-story house at 938 W. Oceanfront was one example of what sold in May. Although the home sits on the sand and features a whirlpool spa and waterfall, it took a year to sell, and the owner ended up taking a haircut of nearly $2 million, or almost a third off what he paid for it four years ago.

If there's any good news in last month's Balboa Peninsula home sale, it's this: The high end of the Orange County housing market is starting to see price drops as big percentage-wise as those seen in years past by the lower sectors of the market, several local agents say.

I guess the high end is not immune after all. Amend-extend-pretend has failed.

It could be the final chapter of the slump that needs to be written before the market can recover.

"The declines are starting to hit the high end, which they didn't for awhile," observed Brian Johnson, an agent with Hom Real Estate Group in Newport Beach.

Johnson noted that sales in some high-priced areas like the Balboa Peninsula are showing signs of bucking the county's sagging sales trend as wealthy buyers paying cash snatch up properties seen as undervalued.

"They realize that prime beachfront will run up in the long run," Johnson said.

In a select few neighborhoods this may be true. The rich have gotten much richer over the last decade or more. Unfortunately, this wealth is very concentrated in the hands of a few people. Certain neighborhoods may be spared the high-end crash, but properties that benefited from their proximity to wealth -- properties typically purchased with extreme leverage by posers -- these less desirable properties will be crushed just like the condos we see here in Irvine.

South Orange County agent Steve Thomas reported that a Google search of the term "housing double dip" turns up 782,000 hits since May 30. Although most indicators show that housing is down from a year ago, Thomas takes issue with the use of the term "double dip," at least when it comes to home prices.

The 4.6 percent price drop reported nationally is tiny compared to the 18.9 percent drop in the first few months of 2009, he said.

That's some pretty weak realtor spin.

Lobin, the Westminster agent, noted that investors paying cash also are dominating the housing market in central Orange County. Lobin said that about 60 percent of the sales in Little Saigon involve all-cash deals.

But even there, the market is hampered by the same factors that are dragging down housing as a whole: The slow economy, the loss of jobs, difficulty getting loans and a lack of confidence in the market.

Well, which is it? Are foreign all-cash buyers going to save the market or not? Since market prices are set on the margins, it doesn't seem likely than any core group can dictate pricing. They won't save Westminster, and they won't save Irvine either.

"There's no definitive direction that's been determined. Nobody knows what the future is," Lobin said. " ... It's a little disheartening. But let's see what June, July and August bring."

Contact the writer: 714-796-7734 or

Actually, there is a definitive direction that's been determined. The market is going down. While it's true that nobody knows what the future holds, do you think June, July and August will bring a surprise rally, or will it see more weakness? Weakness seems far more likely.

Has housing slump hit Irvine?

By JON LANSNER -- June 13, 2011

Has the bloom come off Irvine's home market?

State for the full month of May from DataQuick — prime homebuying season — show Irvine shopper less active than a year ago …

  • Citywide sales totaled 272 – that's down 40 purchases or 12.8% vs. a year ago. Countywide, sales were down 18.2% vs. a year earlier.
  • Irvine home sales were 10.2% of the countywide market in the latest period vs. 9.6% in the year-ago period.
  • Of Irvine's 8 ZIP codes, 3 had sales gains vs. a year ago while 2 had a gain in their median selling price vs. a year ago.
  • Medians within the city's ZIPs ran from $355,000 to $1,120,000 – while the price gap was $408,000 to $1,010,000 a year ago.
  • 3 of these 8 ZIP codes beat the -5.6% overall performance of the countywide median for the past year.
  • Below is a look at how the latest DataQuick report breaks down Irvine real estate deals by ZIPs; change is vs. a year ago!
  • Note: A year ago, there were significant tax breaks for shoppers and the Irvine Co.'s new-home push in North Irvine was just taking off.
Irvine ZIP Median price Yr. chg. Sales Yr. chg.
92602 $545,000 -13.4% 15 -59.5%
92603 $1,120,000 +10.9% 36 +16.1%
92604 $501,000 -5.5% 27 +8.0%
92606 $495,000 +21.3% 12 -42.9%
92612 $410,000 -10.4% 40 -4.8%
92614 $355,000 -36.3% 17 -29.2%
92618 $563,636 -10.6% 80 +2.6%
92620 $545,000 -31.0% 45 -16.7%
All OC $425,000 -5.6% 2,664 -18.2%











The belief in serial refinancing 

During the housing bubble, many loan owners convinced themselves they could always refinance into a larger mortgage with a lower payment. It was considered safe to use an Option ARM or other toxic form of mortgage refinancing with teaser rates and other terms guaranteed to have increasing future payments. Most people were told by their realtor and mortgage broker that when their payments were set to increase, they would be able to refinance into another mortgage with a teaser rate and low payment. This process was known as serial refinancing. It didn't work.

Serial refinancing didn't work because it is a Ponzi scheme. Every borrower who had a payment that didn't cover the interest on their mortgage was borrowing money to pay interest. Such a plan requires a lender to continually extend credit to make debt-service payments. When the time comes that no lender is willing to extend credit -- which it inevitably does -- the Ponzi scheme collapses in a painful credit crunch.

What was truly shocking during the housing bubble was how widespread Ponzi borrowing became. As I have shown with the hundreds of HELOC abuse cases in Irvine, ordinary citizens became caught up in the financial mania and borrowed themselves into foreclosure. The owners of today's featured property are an example of a prudent borrower going Ponzi in five short years.

  • The property below was purchased on 12/30/1988 for $285,000. I don't have their original loan information, but they likely put 20% down.
  • On 1/9/2002 they refinanced their first mortgage for $228,000 -- an amount $57,000 below their original purchase price. These were prudent mortgage managers up to this point.
  • On 6/4/2003 they refinanced again with a $228,000 first mortgage. They were undoubtedly given the opportunity to borrow more, and they chose not to.
  • On 12/16/2003 they went Ponzi with a $472,000 first mortgage.
  • On 2/25/2005 they refinanced again with a $544,000 first mortgage.
  • On 3/21/2007 they refinanced one last time with a $580,000 first mortgage.
  • Total mortgage equity withdrawal was $352,000.
  • They stopped paying the mortgage at least a year ago.

Foreclosure Record
Recording Date: 01/03/2011 
Document Type: Notice of Sale  

Foreclosure Record
Recording Date: 09/02/2010 
Document Type: Notice of Default

Twenty-three years after purchasing their house, they are going to be a short sale. Their plan to serial refinance didn't work as planned.

Irvine House Address ...  3981 CEDRON St Irvine, CA 92606    

Resale House Price ......  $530,000

House Purchase Price … $285,000
House Purchase Date .... 12/30/1988

Net Gain (Loss) .......... $213,200
Percent Change .......... 74.8%
Annual Appreciation … 2.7%

Cost of House Ownership
$530,000 .......... Asking Price
$106,000 .......... 20% Down Conventional
4.49% ............... Mortgage Interest Rate
$424,000 .......... 30-Year Mortgage
$91,964 .......... Income Requirement 

$2,146 .......... Monthly Mortgage Payment 
$459 .......... Property Tax (@1.04%)
$0 .......... Special Taxes and Levies (Mello Roos)
$110 .......... Homeowners Insurance (@ 0.25%)
$0 .......... Private Mortgage Insurance
$43 .......... Homeowners Association Fees
$2,759 .......... Monthly Cash Outlays

-$358 .......... Tax Savings (% of Interest and Property Tax)
-$559 .......... Equity Hidden in Payment (Amortization)
$176 .......... Lost Income to Down Payment (net of taxes)
$86 .......... Maintenance and Replacement Reserves
$2,104 .......... Monthly Cost of Ownership 

Cash Acquisition Demands
$5,300 .......... Furnishing and Move In @1%
$5,300 .......... Closing Costs @1%
$4,240 ............ Interest Points @1% of Loan
$106,000 .......... Down Payment
$120,840 .......... Total Cash Costs
$32,200 ............ Emergency Cash Reserves
$153,040 .......... Total Savings Needed

Property Details for 3981 CEDRON St Irvine, CA 92606

Beds:  4
Baths:  3
Sq. Ft.:  1897
Property Type: Residential, Single Family
Style: Two Level, Traditional
Year Built:  1972
Community:  0
County:  Orange
MLS#:  S662914
Source:  SoCalMLS
Status:  Active
Great starter home, boasts high vaulted ceilings, a spacious floor plan. The home sits on a large lot at the end of a Cul-de-sac, in a great quiet neighborhood. Recently upgraded windows and sliding back door. Walking distance to community parks. All of the best amenities Irvine has to offer, club house, community pools and spas, award winning schools and shopping. .. Beautifully landscaped front and back yards. This one won't last long. 

real estate home sales


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