Corona del Mar enters real estate correction – sub-$1 million short sale goes below 2003 sales price. $4 million of visible distressed real estate but $53 million in shadow inventory for tiny Corona del Mar.
Our new motto should be flip till you drop. With our state government still confronting a $26 billion deficit and our federal government on the verge of shutting down, some Californians still think that they will be partying as if it were 2005. TV shows like Selling New York are once again catering to the notion that all properties can be flipped with just a little TLC and a dash of eccentricity. This collective delusion was grounded in the bubble years with actual figures (as distorted as they were) but today home prices are going down yet people still believe in this feeling even though the facts are showing something very different. Over the last year I can say that the fence sitter group has definitely shrunk. The tax credits and housing bonanza sucked a large number of Californians last year into buying before round two of the housing correction took off. Prices are now steadily moving lower. Today we focus our attention to the prime area of Corona del Mar in Orange County.
Crown of the Sea
Corona del Mar is a wealthy area and part of Newport Beach. Most of the area is located on the seaward side of the San Joaquin Hills. This is a beautiful area and many a good weekend was spent in Corona del Mar enjoying the wonderful beaches. But alas the waves do not make mortgage payments, not even in California. Newport Beach has added 15,000 people over the last decade so growth has moved up. Corona del Mar itself has roughly 15,000 residents.
The 92625 zip code unlike Culver City or Pasadena, is largely an affluent market. The average gross income in 2007 was $315,000. This is why it was a surprise to see a short sale actually fall under the $1 million mark in this community:
2710 BAYSIDE DR, Corona Del Mar, CA 92625
List Price             $919,000
Listed   05/15/10
Beds     2
Full Baths            3
Partial Baths      0
Property Type  SFR
Sq. Ft.  1,542
$/Sq. Ft.              $596
Lot Size 3,539 Sq. Ft.
Year Built            1965
This is a smaller home in Corona del Mar and actually has a “pending†sale listed on the place. This home was listed as a short sale and the current sales price is much lower than what it sold for in 2005:
Here we have a perfect example of a home in a prime area where the average income actually might justify the price (3 times annual income). I’ll leave it up to you to judge whether the current price is worth it. This home is actually selling below the 2003 price so we may have a lost decade in Corona del Mar. No amount of toxic mortgages can support a home even in prime locations. Keep in mind the latest tax data is for 2007, before the economy went off the cliff. You can also see that $1.6 million tax assessment for 2010. The city is definitely going to lose some income here.
This kind of action in a prime Orange County location is indicative of the new shifts in the Southern California real estate market. Prices will and are coming down. People will buy as the market shifts lower. Corona del Mar has 180 MLS listings and 4 are foreclosures (2 condos, a manufactured home, and one actual single family home). But of course the real action occurs in the shadow inventory:
P = pre-foreclosure (NOD)
A = auction scheduled
B = banked owned
40 homes pop up here even though the public can only see 4. Since this area is small, we can actually quantify the data further. The 4 viewable homes add up to:
$4,781,600 worth of viewable distressed real estate in Corona del Mar (at current list price)
However, if we add up all the outstanding loan balances from the distressed properties we get:
$53,588,750 worth of invisible shadow inventory in CdM
Little by little the correction is hitting in all areas of Southern California including Beverly Hills and even Corona del Mar. Why don’t we have these $300,000 households bidding prices back up to their 2005 peak? I think the answer is rather obvious and people are slowly waking up from their real estate slumber.
Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information
Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.
Subscribe to feed
40 Responses to “Corona del Mar enters real estate correction – sub-$1 million short sale goes below 2003 sales price. $4 million of visible distressed real estate but $53 million in shadow inventory for tiny Corona del Mar.”
300k may be the median income, but is the subject home representative of the median home in Corona Del Mar or is it more of a “bottom 1/3” home?
WRT the shadow inventory, how should we account for the people who are presumably NOT paying their mortgages yet haven’t received a NOD or been acknowledged by the bank. Perhaps we need a new term in addition to “shadow inventory”. I nominate INVISIBLE FUTURE DISTRESSED INVENTORY or IFDI.
The Doctor noted it was $300K AVERAGE income – the Median for this zip code is a less impressive $100,080 (according to zipskinny: http://www.zipskinny.com/index.php?zip=92625 )
From the zipskinny web site: “Social and economic indicators based on 2000 Census sample data”
Your reference is about 11 years out of date but I do think that the mean income levels stated can’t possibly be higher than 130K.
I would add to your IFDI people who are paying their mortgage but when all is said and done will end up 3-4x their income underwater.
Bottom line – once you remove the fantasy or rolling speculation inflated ‘equity balances’ and a never ending supply of entry-level buyers to provide equity inflation…you come back to incomes. There are few entry level buyers left, most are carrying major bankruptcy protected student loan debt and if they already own, as many were pulled forward by loose credit standards, a good number are upside down and wiped out financially by buying at peak. Credit is also much tighter. This means no momentum for move-up buyers and no equity to roll. Pay checks and realistic equity (if any) must now cover digging you out of any current mess and buying your home. Employment is bad but even when it was good, the CA population could never buy their housing stock on income or fundamentals.
A shadow-to-listed ratio of 10:1 is at the low end of what I see in similar swanky areas of So-Fla (Miami-FtLaud-PalmBeach), where Duh Connected NAR Brokers still have their fingers very much in the McMansion (and real mansion) pie. In fact, it’s more like 20:1. Luckily our county tax collector and county court has online resources that make it possible to sift out the defaults… with a little work.
Even more shocking is the number of sheeple who believe “their” RealTard, and do a short-sale withOUT a lawyer on their side. Inevitably the price paid is too high, and the title often is not “clear”.
D’OH! Looks like I was TOO right! Despite having only 1/2 the population of CA, Florida’s shadow inventory almost TWICE Cali’s!!! (Tip of the hat to Patrick.net)
Florida’s Shadow Inventory No. 1 in USA… YAY! We’re #1! 🙄
http://www.miamiherald.com/2011/04/05/2152440/floridas-shadow-real-estate-inventory.html
This REALTARD would not dream of doing a short sale in this enviornment since I do think I am worth more than $5.00 an hour which is what you get paid after 6 months, 3 lost buyers, and a seller that finally gives up and walks away with a nasty taste in their mouth for us when it was the lender that did nothing for them. As for an LAWTARD I wold make the seller not only get one I would make them let me sit in on the first consultation so I knew they had a clue on SS otherwise….Run REALTOR…RUN!
Current “mile marker” in So-Fla Real Estate Decline:
The dumb (“Suzanne researched this!” LOL) money is paying 2003 prices.
The smart money is paying 1999 (or lower) prices.
Great post doc… adding another piece to the puzzle: RENTALS. CDM is a pretty active rental market here’s to examples to check rental parity:
3 bed / 2 bath (not as nice as your sample) for less than 2900/mo (http://orangecounty.craigslist.org/apa/2311648824.html) and a super-nice 3 bdroom with pool, yard and view for $6800/mo (http://orangecounty.craigslist.org/apa/2312248989.html)
Thoughts? Let the debate begin.
A couple of observations about CDM.
I have followed CDM closely for years with intent to purchase.
(I happen to like Harbor View Hills South) and believe I know
the market as well as any realtor.
Based on personal knowledge of friends who live in the area, I believe
the $315K gross income is highly skewed. I believe the reason the
value is so high is because there are a handful of *really* wealthy folks
with mega-million annual incomes (ie. Samueli of Broadcom) who live
adjacent to immediate coast.
The folks I know who live in the “poor” area of CDM don’t gross anywhere
near $315K a year. Additionally, many of the residents are original
owners from the late 1960’s which is when a lot of building on the
other side of PCH was done. My impression is that many are now
living on modest retirement incomes.
But, having said all that, the notion is that “it’s different here” hasn’t
gone away… As recently has last weekend, the asking prices for
1960’s properties in Harbor View Hills South are still up in the ozone layer.
I certainly agree with Dr. HBB that these prices have to come down.
After all, there are only so many mega-million CEO’s out there to buy all
that stuff.
The $315k average gross income probably has to do with PIMCO which has its world offices on Newport Center Drive across from FI. Ever heard of Bill Gross? He lives in NB down by the water. Bill G is the Founder and co-CIO. Mohammed El Elrien is the CEO and co-CIO.
PIMCO is the world’s largest bond fund company and they keep a very low profile because they most likely don’t want bond investors to know how much their traders are pulling down despite low bond yields for the hoi-polloi.
Most of PIMCO’s employees are transplants from the east coast/NYC/Boston areas where real estate prices are much higher, so to them, prices in CDM are a bargain.
Physicians and real estate agents just don’t make the income as they did during the run-up. PIMCO traders are the only other explanation.
~Misstrial
I go to CDM about once a month to walk along the beach between the channel and the bluffs. There is also a nice marine sanctuary on the other side of the bluffs. The homes are very nice.
I think that most of the properties that are in financial difficulty have been bought in the last 8 years or so. The old timers keep the property and can pass it down to their kid(s) or their partner. Some of these rich areas do not have much turnover, hence the prices remain high. But I have noticed a lot of for sale signs on PCH in the Malibu-Pt. Dume area.
Great post and good observations about CDM. There is no way your average Joe in that city takes home 300K plus. Like you mentioned, there is a strange mix of extremely wealthy individuals, people who have owned there for 50 years, new pretend rich, baby boomers who profitted from the many bubbles and your usual hair dressers and bar tenders.
CDM will always have a draw that commands a premium. It’s in a great location, beautiful beaches, great weather, neat walkable area with restaurants and bars. And don’t forget the best divorcee/cougar pickup spots in Orange County if not all of LA.
Back in the old days of 1998, I dated someone who lived in Cameo Highlands on the very south end of CDM. It’s a neat little neighborhood just north of PCH. We were flabberghasted that those homes sold for 600K back then. I would imagine those have doubled and then some. CDM definitely commands a premium, we’ll figure out in the next few years exactly what that premium is worth. Definitely a place I wouldn’t mind living…
Average income or median income, Dr HB? There could be a big difference.
The good doctor must have meant AVERAGE… because the median is a much less impressive $100,080 (according to zipskinny: http://www.zipskinny.com/index.php?zip=92625 )
From the zipskinney web site: “Social and economic indicators based on 2000 Census sample data”
From Doc’s post:
“Keep in mind the latest tax data is for 2007, before the economy went off the cliff. You can also see that $1.6 million tax assessment for 2010. The city is definitely going to lose some income here.”
Actually, no….the city isn’t going to lose a dime. If this sale closes at the $919,000 list price, it will be flagged by the county assessor as a “distress sale” rather than a true market sale, and the new owner will be assessed property tax at the prior $1,600,000 assessed value. Maybe if you are lucky, they’ll reduce the assessed value by 5 or 10 percent.
That’s the dirty little secret regarding property taxes in California during this downturn. County assessors have been instructed to ignore transaction prices significantly lower than the previously assessed value. You can get all the appraisals you want, unless you take the assessor to court, you are stuck with the old assessed value.
Thieves! I’ve always found local gov’t to be more corrupt that federal gov’t… But these days it seems like just a coin flip. (If the coin hadn’t already been taxed for TARP)
Thank you, JohnF, for highlighting that very important point.
Another thing to watch out for is appealing your propertys’ assessed value. Up here N. Cal., I’ve heard that at least one County will indeed lower your assessed value if you present evidence that it’s out of whack. BUT the catch is that you have to agree to give up your rights under Prop 13, so that future assessments aren’t limited to about 1% per year. Read the fine print in any agreement that you sign.
Many people aren’t aware of the fine print and are going to get screwed when hyperinflation finally hits (though that will be years from now).
Sure, you can take this to Court. But then you have to weight the costs of a Court case versus the tax payments. For many it may make sense. For others, it won’t. Do your own Due Diligence.
They’ve got this game rigged quite well. But then, their salaries depend on it.
This is insanity! I remember quite well that in 2003 the “housing bubble” in California was full steam ahead. So, this house, though not a bad one, should be selling for much less than it is. Much less! Let’s try matching its 1993 price.
By the way DHB, where did you get the statistic that the average gross income in Corona Del Mar was $315,000 in 1997? I doubt it dude. In fact, I call BS, as they say. Is that $315,000 average income in the upper tier drug dealing profession? Were talking AVERAGE here. I think your number is wrong. And obviously, the average income, whatever it may be, is obviously falling, as is reflected in this home’s falling price.
I think ChrisNSoCal has got the $315,000 deal figured out… Just to clarify the definition of Average and Median with the following dataset:
Data Set
(100K, 100K, 100K, 100K, 100K, 100K, 1500K)
Average = 300K
Median = 100K
As Chris pointed out, in the above data set you can see that most everyone is making 100K, while one person is making 1.5 Million throwing the average way up. This is the case per his research… which should result in massive correction to come.
$315K/yr is at the extreme upper percentiles of income in the US. Between globalization, immigration and deregulation, very few people have that kind of cash flow year after year.
Some guy was yammering on another thread about how a mortgage of 9x annual gross was worth it to live in the paradise of California. That is an effing joke. Anybody carrying that kind of mortgage is just rolling over credit debt. They are one week away from bankruptcy.
Here is what we are going to learn in the coming years:
–30 year mortgages make no sense
–2x annual income is the more appropriate limit
–mortgages for over $300K make no sense because houses are just durable consumer goods. If you can’t pay cash for your dream home/oceanfront, you’re not rich enough to live there.
But, but… SUZANNE “researched” this, LMAO! Seriously Anti-, you’re preaching to the level-headed choir here, but buy any RealTard a beer, and you’ll quickly learn that most real estate is purchased by women, guided by emotion… occasionally a single woman buys it herself, but most often she nags the p-whipped hubby. No way will Duh Nag “settle” for less than 4x income… her mother and Duh TV told he she “deserves” it. 🙄
Don’t forget the gays too. Throw something cute/trendy on the facade and they’ll empty their wallet.
http://www.youtube.com/watch?v=Ubsd-tWYmZw
This is what I’m seeing on the real estate shows on HGTV. Shows like Selling New York. And Selling Los Angeles is next, believe it or not.
What I would like to see are the financials for the buyer’s – you know, asset statements and cash on the table.
I want to see how people afford this sort of price range and even for the middle class ranges. I want to see the financials broken down on TV by a certified financial planner.
I’m seeing too much emotionally-based decision-making. I don’t care anymore that you want a window over the kitchen sink or that the bathrooms have marble.
I want to see that you can afford it!
~Misstrial
While I agree that the housing market experienced “irrational exubernace,” borrowing is beneficial when the return on the investment is positive. For example, a near destitute person can borrow money to attend school, and years later, as a result of the education and resulitng experience so gained, become a millionaire. Borrowing to fuel consumption can be a very bad idea, unless the things consumed lead to an increase in wealth. Of course, this is looking at things from a financial perspective. One cannot price the “irrational” joy that some experience by consuming.
There were a number of people being written mortgages around these parts (Chicago) for 9X and 10X their incomes, and even with the low ‘teaser’ rates and pay-option ARMs, these people could not afford their payments without shoplifting food from the supermarket. How can anyone think for one minute that this can work for anyone? Most of these people went into default immediately and squatted in the house until forcibly evicted.
Interesting that DocHB all of the sudden pulls average income out of his hat instead of median income. Tim over at Seattle Bubble did the same thing this week.
What gives?
Most of the articles in the media still talk about “collapsing” prices or refer to price drops as a bad thing. The Doctor is one of the few who explains that falling prices are good and rational.
All too often as well, the media uses charts and statistics going back five, ten or fifteen years to demonstrate that prices have gone down far enough or even too far. The origins of the major credit bubble are ignored as is the gutting of the economy starting in the early 90’s.
Once again, wake me up when the median US house price hits $130K.
Those of us who are comfortable with waiting another 3-6 years will be rewarded with the opportunity of a lifetime to own SFR in desirable areas. In fact, this may be one of the last cycles for 3-5 times income ratio’s in desirable areas before Manhattanization really starts taking hold in SoCal. Therefore…..
CHEERS! to state and federal RE tax programs that suckered in knife-catching newbies. CHEERS! to large and growing legions of FHA loan-holders whose 3.5% will soon be evaporated and therefore trapped in their $575k Westside shacks. CHEERS! to sub-5% interest rates to make the unaffordable artificially affordable for the impetuous. CHEERS! to all-cash investment buyers who are flipping to said FHA’ers. CHEERS! to the irresponsible 5-10x income toxic mortgage buyers of 2000-2008 who are adding to the shadow inventory and ruining their credit. CHEERS! to the drip, drip, drip of the Shadow Iventory spigot. CHEERS! to those buying into the leased BMW ego trap. CHEERS! to greedy banks who gladly take our $ at 0% and make billions in equities and commodities while leaving the mortgage market to gvmt incumbants willing to kick the proverbial can down the proverbial road just to get elected one more time. CHEERS! to the pro-inflationary policies of QE1 and QE2, which should lead to delicious 8-10% interest rates in the future
The “buy now or be left behind forever” psychology is receding like a slow-moving tide following the financial earthquake (based entirely on real estate speculation) of 2008-2009. What’s coming crashing back is a psychology never ever seen before…..that buying a home is a fool’s game. That Suzanne has finally left the building.
This post is really in response to the previous article. I posted it here because it is more timely.
Doctor, you say……….”These kind of loans also force home prices to stay inflated above real market levels. ”
I have been one of the biggest believers that ca. realestate would eventually correct to levels as if the bubble never occurred. But I have finally come to the realization that my opinions, theories or whatever you want to call it are based upon a life lived when certain monetary rules applied.
Rules like, you can’t make your payment, you lose your house and fairly quickly. Basically the dumb or victims of unfortunate circumstance lose their house and the prudent thrive. You make bad business decisions for your business, your business is liquidated and the smarter businesses thrive.
We are in a new era, one never seen before and impossible to analyze. Those making the poorest decisions are propped up at the expense of the prudent. The FED has shown its hand, it will do WHATEVER it takes to keep things inflated or propped up. I have no doubt that if the current economic recovery falters (it will) the FED will do something even more outlandish than today we think is possible.
Is a trillion dollars really a trillion dollars when it can be ordered into existeance to bail out bad choices…….a la TARP?
This is exactly why Gold and Silver have gone nuts. Is money really money if it can be created out of thin air? The answer is no.
still waiting for Sierra Madre to correct . . . (sigh)
Investing on the Gulf Coast:
There is no shortage of deals in Florida. The Census Bureau recently reported that 17 percent of the homes in Florida were vacant. Even though the figure includes vacation homes that were unoccupied at the time of the survey, the underlying rate within the state reflects a sustained downturn.
The median house price in Florida, meanwhile, had dropped to $121,900 in February, from $257,800 in June 2006, a decline of 53 percent, according to Metrostudy, a housing research firm. Indeed, some houses and condominiums in Florida are selling for roughly the price of a practical family sedan, new or used.
For instance, a two-bedroom house in Port Charlotte, just south of North Port on the gulf coast of the state, recently sold for $8,000, and listings for $25,000 homes are not uncommon. Many experts expect prices to drop even further.
—
Mr. Breen ended up buying two houses in North Port, one for $111,001 and another for $77,002.
Later that day, when Ms. Moore met the investors to change the locks and inspect the houses, they were pleasantly surprised. Both houses were in relatively good condition and would require only some paint and minor repairs.
“This is about as good as it gets,†Mr. Ide said, as he inspected the $111,001 house, a four-bedroom where some water damage around the Jacuzzi was the only apparent problem. But it did get better.
A week later, after $4,500 was spent on new appliances and repairs, an offer was made on the house for $152,000.
Ms. Moore, meanwhile, has plowed her earnings into her own deals, recently purchasing a second duplex for $30,000 in cash. “I’m getting $650 a side in rent, a lot better than the stock market,†she said.
“My plan is to buy up as much multifamily as I can while the market is down.â€
Living next to Cdm, I see what’s going on in this desirable area of Newport Beach
**More or less**, there’s 3 different demographics living in CdM….
1.) Grandma and Grandpa that have lived here since the 60/70’s and owe nothing
2.) The late 20’s to late 30’s year old renters
3.) The doctors/lawyer/captains of industry who have all purchased in the last 10yrs
Number 3 is important because it’s what cuased the run up in housing prices in this area. Most of these folks that buying $2.0m+ homes in Cdm are real estate investors, doctors, lawyers, and those folks who have plenty of money left over from this housing equity bubble in the last 10 years. There’s a very small pool of international buyers, not enough to be in the demographic 3.
Something else to keep in mind about group #3:
Generally speaking, doctors and lawyers are just cash-rich. Most professionals are servicing huge student loans and do not manage their money well. If they don’t make partner, can’t get a practice off the ground, become disabled, etc., then that jumbo mortgage sinks them like a millstone. Captains of industry are a fluid group as well. The Internet, globalization, immigration and other forces are flattening business models. You have to be doing something really special to get paid in the mid six-figures these days.
LifenexttoCDM,
You forgot one of the most important CDM/ Newport demographic.
The highly (over) paid real estate supported jobs. IE. Loan Brokers,
Developers, Comm. Real estate Brokers, Res. Real Estate Brokers…….
These are the people that drank the cool aid and in mass spent there 500K plus wages on over priced coastal real estate. These real estate pros are thick in CDM and Newport. Every street in Harbor view has at least five of this demographic, and CDM is much the same.
Riddle- what happens when you cut a $500K + salary by 50 to 70 percent?
The Savings are about gone, credit cards are maxed out, and the 401k has been drained. It isn’t different in wealthy areas, it just takes longer to see the pain.
What’s breaking down is the insulation between US and rest of world. For years we’ve had this arrogant notion that we can perform tasks better than anyone else in the world. Now our industrial base has collapsed because others can build things, put them on a boat, pay a tarriff, ship them across the US and still do it cheaper and sometimes better than we can.
The question is not if, but when this house of cards falls in. @Expat–when we see 130k, you won’t need a wakeup call. There will be plenty of noise.
This whole damn mess is taking too long to unravel. The banks are playing a win-win game. Whatever happens they make money. If you got to lend money to people over and over again to finance the same asset, you’re gonna make money no matter what the fluctuation in that assets price. They are playing us. Unless you got cash, you lose. Us 0 banks 1,000,000.00 They profit on the way up, and down.
@cc YOU forget one more way banks profit. If they have a loss, taxpayers are forced to bail them out.
Still recall the 1985 balloon inflating in the Bay Area: drove along Mission Blvd in Fremont to work, wondering who the heck could afford all those $300,000+ new homes being built in Mission San Jose, what jobs they had, etc. Hell, they built a new housing development behind me on old tile factory grounds, right next to RR track, and had Hong Kong residents picking out BARE LOTS to purchase…then the balloon started to deflate, and the place was littered with for sale signs…I sold in 1989.
Balloon fully popped in 1990…but the prices stood mostly firm, dropping just a little….because the fundamentals of getting a loan hadn’t been taken over by Wall Street con artists parading as “Bankers”. i.e.: buyers had skin in the game.
Expect to see prices hurdle downward for the next 18 months, at least: what economic miracles are we all expecting to happen to change things? Ain’t none, just fundamentals to be accepted.
California actually is in good position to “recover”: great weather to attract businesses, faces and trades with Asia, and a diverse population. Not to mention the country’s breadbasket. Those fundamentals will work in it’s favor…after the FALL. After prices, wages and commodities adjust to new realities.
September, 2008? Just a whiff, a brief quick glimpse, of the coming collapse. Be in assets you can convert quickly to cash….and buy yourself some CDM property when it comes…and wave “hello” to Pimco employee neighbors.
“Hiya Bill, great weather were having, ain’t it? Hope our NORML meeting doesn’t bother ya too much….weekly occurrence, ya know?. We’ll try to keep the Dead music below “instant deaf” point for ya….if the Harley riders dating my daughters let me….man their motorcycles are loud, ain’t they?”
The new reality: Comeuppance in spades. Hubris attracts it’s own demise.
Leave a Reply