Tip of the iceberg?

[cashman]

In a recent forum top titled “California dreamin” one posted cited:
“A post on Lansner’s blog in the OC Register today stated that 3 homes in Dove Canyon (nice South OC area with a private country club) , all over 3K sq ft, just went into escrow for the high 800’s. These are very nice homes in a very upscale area that just two years ago were going for $1.5M and up.”
First of all, I’d like to know if anyone has a link to this article for further details. If this is true, then it’s the first indication that I’ve read that shows a significant drop in prices here in So Cal. And possibly, the tip of the iceberg we’ve all been waiting for. I’m familiar with Dove Canyon, and it represents a good McMansion neighborhood. If prices were really slashed that much from asking on multiple properties, then that’s unbelievable and not consistant with what I’ve been seeing locally, which is a painfully slow erosion of prices.
Perhaps I need some education here, and this is slightly off the subject, but I’ve been told that prices come down when people need to sell. If that is true, then how do you explain in the last housing downturn of the nineties, when areas like Balboa Island, and Aspen, Colorado were hit hard, some properties were selling for fifty percent off? You would think that people in those areas don’t need to sell, as many paid cash for their multi-million dollar mansions. Yet, I remember well those days, and the largest discounts and best deals were found in those ritzy type of areas. Am I missing something? These Dove Canyon properities, while not in the same league as Balboa Island or Aspen, do represent a good sampling of an upper middle class neighborhood. If prices break there, then fasten your seatbelts!

[eikoph]

“…how do you explain in the last housing downturn of the nineties, when areas like Balboa Island, and Aspen, Colorado were hit hard, some properties were selling for fifty percent off? You would think that people in those areas don’t need to sell, as many paid cash for their multi-million dollar mansions.”

People have a tendency to live right up to the edge of (or slighty over) their income and asset levels. This is as true for rich people as it is for the poor or middle class. When they then hit some type of financial bump in the road and need some liquidity, the vacation home in Aspen or Balboa Island is what goes on the chopping block.

[BostonAndOC_RE_perspective]

Here is the post, from a 2/11 article on commercial vs residential markets:

“Speaking of nasty home prices…check out these 3 homes which closed escrow in January in Dove Canyon:
15 Glen Echo, 2900sq. ft. – $837,500 – $288 sq ft
6 Russet – 3525 sq.ft. – $875,000 – $248 sq. ft.
10 Golf Ridge – 3371 sq.ft. – $870K – $258 sq. ft.
The last one has a golf course view…hmmmm…prices coming down for the desperate seller??

Posted by: shouldasold at February 11, 2007 05:22 PM”

[sdcellar]

cashman– When you say you haven’t seen any examples of this, you mean in The OC, right? There are plenty of them down here in sunny San Diego, but I can’t speak to the Great Orange North.

[BostonAndOC_RE_perspective]

Those sales prices threw me for a loop. In my mind, they are the canary in the South OC market.

Cashman – I could have bought an SFR on 7K sq ft lot in Lido Sands (private community on the Balboa Peninsula) for $400K in 1995, but had no wherewithal at the time to pull off such a transaction. I think we’ll get another crack at these sorts of bargains (adjusted for inflation) in the next few years.

[PerryChase]

And 3000sf single-level houses on the golf course near the Ritz Carlton in Laguna Niguel were going for $550k-$600 in 1995.

[an]

If you take 5% yearly appreciation into account, that 550-600 would be 990k-1080k today.

[Anonymous]

“…how do you explain in the last housing downturn of the nineties, when areas like Balboa Island, and Aspen, Colorado were hit hard, some properties were selling for fifty percent off? You would think that people in those areas don’t need to sell, as many paid cash for their multi-million dollar mansions.”

I grew up in Newport Beach and my experience was that the ones who lived highest on the hog were often the deepest in debt. The cars and boats were leased, the credit cards maxed, the house(s) mortgaged to the hilt, etc. The need to impress others and their greed impaired their judgment.

Ironically, the ones who lived “modestly” were the ones who could afford to send their kids to a good college and they were likely still plugging away at their original 30 year mortgage on a nice but sensible house. They were doctors, lawyers and business owners. They perhaps had a boat in the harbor and a yacht club membership, but they didn’t flaunt it. They didn’t have a Bentley in the driveway and their house wasn’t a McMansion, but they were far, far from broke. If their house went down in value it wasn’t a huge deal because they weren’t upside down. They bought in years ago so they had equity regardless. The ones who paid top dollar for everything had no breathing room. They were the panicky types who unloaded for whatever they could get.

You’ll see that happening again this time too. Mark my words.

[PD]

ph90802, I think you’re right. I was talking to a lady who lives in Coronado a few weeks ago. Her husband’s income is going through a dry patch. It was clear that they were maxed out and already in trouble. A person who has very high mortgage, car payments and boat payments needs a LOT more money to see them through rough patches. Any cash they have will go fast and I think that many people just don’t have the cash. They are living on credit and putting up a good front.

[PerryChase]

I’ll be a little kinder and say that people don’t so much “put up fronts” as they live right up to their limits for psychological needs.

I think the vagaries of life cause peope to make decisions that aren’t too wise.

One businessman I know was an alcoholic, he’s goodlooking and married a pretty wife from a good Beverly Hills family (that means she was used to the good life) and they had 2 daughters. Things didn’t go too well and the marriage was on the rocks. But then in 1992 he gave up drinking and he got a big break and money came pouring in. He got a beautiful ocean view house in Laguna Niguel and spent 200k to decorate it. He bought nice cars and treated his wife to $50k European vacations as well as luxury weekends in LA — just because. Things were looking up for him and his family. Unfortunately, debts were pilling up as business contracted. He declared bankruptcy right as his oldest daughter was entering college. Had he not gotten so much personal and business debt, he would’ve been fine. The last I heard, in 2003, he was living in a rented condo in Dana Point — still better than most people.

This man was living up to his in-laws’ expectations. And that caused his downfall.

I’m afraid that we’ll see a lot of the same during this RE downturn.

[no_such_reality]

Those sales prices threw me for a loop. In my mind, they are the canary in the South OC market.

There all over the place, just not showing up on the comps decently yet. Give it a couple months, and the real comps, the low ones, will be readily apparent on the wish pricing and fraud activities.

[Author]

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