Irvine Housing Blog

Low Watermarke

Water Runs Dry -- Boys II Men

Don't buy now. Just say no. Don't let your downpayment wash away with the declining market. As Boys II Men say "We'll make the biggest mistake of our lives. Don't do it baby"

Today's featured property is a major comp killer establishing a new low water mark in the Watermarke development. They developers of this property are geniuses. They started a high-end apartment complex just as the bubble was taking off, and being opportunistic, they decided to convert the properties to condos, and they made a fortune off the frenzied buying of the Great Housing Bubble. The property was purchased on May 18, 2005 for $367,500. It was flipped on July 3, 2006 for $435,000 right at the peak. The 2006 purchaser used 100% financing (big surprise,) with a $348,000 first and a $78,000 second. The property went REO on January 23, 2008 for $324,900. It appears as if the loans were originated by IndyMac. It was purchased by Deutsche Bank National Trust Company, and the Federal National Mortgage Association (Fannie Mae.) This is the first property I have seen where Fannie Mae has been on the hook. Fannie Mae is one of the Government Sponsored Entities (GSEs) that makes its money by insuring mortgages to facilitate transactions in the secondary mortgage market. Although the GSEs are explicitly not backed by the Federal Government, investors behave as if they are, and if they keep seeing huge losses like the one today, the Federal Government may step in to rescue these companies. If there is going to be a federal bailout, it will probably be caused by the collapse of one of the GSEs. Did you realize your tax dollars are implicitly backing the secondary mortgage market? They are...

Asking Price: $263,000

Income Requirement: $65,750

Downpayment Needed: $52,600

Monthly Equity Burn: $2,191

Purchase Price: $435,000

Purchase Date: 7/3/2006

Address: 3415 Watermarke Place, Irvine, CA 92612

Hurry, you don't want to miss your chance to be trapped in a 635 sqaure foot apartment for the next several years...

.

.

This unit is being offered for 40% off its peak purchase price. Let that sink in a moment... 40% off in Irvine... Who would have thought that was possible? Oh yeah, we would have...

I must admit, I did not think we would be seeing such large discounts so quickly, but then again, this property will probably fall further -- who wants to own a tiny, one-bedroom apartment? An investor might, but a cashflow investor would want to see a positive cashflow, and considering the $290 a month dues, this property probably needs to fall to $125,000 to be a true cashflow investment.

If this property sells for its asking price (some knife-catcher will think this is a bargain) the total loss will be $187,780. That is the lender loss on a 635 SF condo. When we start seeing losses that large on properties that small, what will the losses on the larger properties look like? I hope Fannie Mae has some significant loss provisions set aside, or we will end up paying for it in the bailout.

.

Wait
Don't wait for the water
Wait
Don't wait for the water

We don't even talk anymore
And we don't even know what we argue about
Don't even say I love you no more
'cause saying how we feel is no longer allowed
Some people will work things out
And some just don't know how to change

Chorus:
Let's don't wait till the water runs dry
We might watch our whole lives pass us by
Let's don't wait till the water runs dry
We'll make the biggest mistake of our lives
Don't do it baby

Now they can see the tears in our eyes
But we deny the pain that lies deep in our hearts
Well maybe that's a pain we can't hide
'cause everybody knows that we're both torn apart
Why do we hurt each other
Why do we push love away

Water Runs Dry -- Boys II Men