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The OC Register Says California had no real estate bubble

Posted: 09 Mar 2011 02:30 AM PST

The Orange County Register actually released a news story boldly stating that California had no real estate bubble. Brace yourselves for a kool aid overdose.


Irvine Home Address ... 2110 TIMBERWOOD Irvine, CA 92620
Resale Home Price ...... $405,000 


as you peel back the skin from an orange
remember how you got all this
well all this
well it's never ever coming true

theres nothing you can do to change it
you don't have to do the crime
to do the time
its just guilt by association

Louis XIV -- Guilt By Association

Really biased and misleading crap is common on realtor blogs, which is why nobody reads them. When realtors are allowed to post their bluster as news on the OC Register, many people take it as information rather than indoctrination. It soils the OC Register when they permit this.

Published: March 7, 2011
Updated: 5:25 p.m.

California had no real estate bubble


Nearly everyone accepts as fact the perception that California real estate prices "skyrocketed" into the stratosphere from the mid-1990s to the mid-2000s, creating a "bubble." But historical data easily disproves this.

This guy has an interesting way of setting up his argument. He makes a bold and easily disprovable statement as if it were fact, and he proceeds to base his diatribe on this ridiculous statement.

There is also widespread belief that rapid growth in home prices must inevitably lead to rapid decline. The "bubble" must eventually "burst." What goes up must come down. But this is also demonstrably not true – at least in California.


People tend to take these two notions for granted because they forget the facts of history, they mistake the current dramatic real estate correction as typical, and these misconceptions have not been well-investigated by the news media.

California home prices did not spiral out of control from 1996 to 2007. And rapid appreciation in home prices does not automatically lead to rapid depreciation. Let's examine history.

In 1970, according to data published by the California Association of Realtors, California's single-family home median price was $24,640. By 1983, the median had climbed to $114,370. This was a very rapid almost fivefold increase in market value in 13 years. The actual annual appreciation rate over that period was 12.5 percent. The inflationary '70s were very good for real estate prices. But I don't remember at the time any talk of impending doom for the housing market – that what goes up must come down, that this bubble had to burst.

Of course, 1970s inflation hit interest rates, too, and by 1983, mortgage rates were above 18 percent. The market slowed for one year only – California home prices went flat in 1984.

But no inevitable massive "correction" occurred after this rapid run-up. In fact, from 1984 to 1991, the home median price rose still higher, from $114,260 to $200,600. The annual appreciation rate was 8.4 percent.

Finally, after 21 years of price appreciation, a strong recession hit California and the housing market steadily corrected between 1991 and 1996. Military bases and aerospace companies closed. The home median price slowly declined from $200,660 to $177,270 – an annual depreciation rate of 2.4 percent. This was a tough time for those with slim equity. But most California homeowners muddled through. No one can claim that this was a burst bubble, but simply a gradual and expected adjustment after at least a generation of great times. The clouds lasted five years.


Let's pause here. People who take for granted the idea that home prices then skyrocketed after 1996 have little understanding of California's housing history.

It's true that California's home market took off again. And this time, the good times lasted 11 years. But this was no bubble that was destined to burst.

The facts: Climbing from a median price of $177,270 in 1996 to $560,270 in 2007, the annual appreciation rate for this 11-year growth period came in at a good but unspectacular 11 percent. I say unspectacular because the previous growth period from 1970 to 1983 was stronger at 12.5 percent annually and lasted two years longer.

This guy has based his entire reality on the two anomalous periods where kool aid intoxication took over. He genuinely believes house prices can go up faster than wages and faster than inflation. The magic appreciation fairies must sprinkle it like pixie dust.

In fact, an argument can be made that, had the appreciation rally starting in 1996 been more "typical" of those in the past 40 years, the home median price wouldn't have stopped at $560,270 in 2007 but would have risen an additional $100,000 or $200,000 before fizzling out.

Trees really do grow to the sky, right?

At any rate, the current correction began in 2007, with California's home median price dropping from $560,270 to $274,960 in 2009. I estimate 2010's median price will come in at a flat $275,000. Should that estimate hold, the correction we're ending just now will have brought an annual depreciation rate of about 21 percent. That's pretty severe in historical terms.

So why did the most recent 11-year rally fail to achieve expected heights, and more importantly, why has the subsequent correction been so severe?

Because it was a massive housing bubble that never should have been allowed to push so high to begin with. The fact is that the severe correction isn't complete yet, and when it is finally done, don't expect rapid appreciation any time soon.

Perhaps more than just real estate issues were involved in the truncated rally and subsequent market correction. Esoteric AAA-rated mortgage derivatives and credit default swaps may have set the stage for an extraordinary ruination of the real estate market.

According to The New York Times, commenting on conclusions issued by the Federal Financial Crisis Inquiry Commission, "The 2008 financial crisis was an 'avoidable' disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street."

Contact the writer: Mike Cotter has been a California real estate broker since 1981 and is currently a Realtor and broker-associate with Century 21 OMA, 229 Avenida Del Mar, San Clemente. His website is Contact him at or 949-322-6009.

Mr. Cotter worked hard writing that piece, and he deserves attribution, so his contact information is presented here as a courtesy. Please don't call or email him with inflammatory comments. If you like that perspective on the market from a broker, please go work with him. Reality is not for you. Mr. Cotter may stop by and defend himself in the astute observations. Wouldn't that be fun?

Why the OC Register print this kind of garbage? I found this in my Google news feed, so this is being passed off as news -- an unbiased representation of fact. Is this the version of reality we are to embrace? Should trees grow to the sky?

The slow death of the OC Register has been painful to watch, and each time they run a realtor puff piece as news, they take their credibility down one more notch. I know they want content, and I wouldn't be surprised if this guy either paid for the content or advertises a lot with them. It can't be good for the OC Register when readers have to be mindful of bullshit.

It's supposed to go up more than 10% a year

The speculator who bought today's featured property is trying to get her money back out. Six years after the peak, and we are still grinding along the bottom making new lows. Rather than going up 10% a year as the realtor above suggested, this woman has owned for two years, and she isn't going to sell for enough to cover the commission.

The bubble owner paid $375,000 in 2003, and in 2005 refinanced with an Option ARM with a 1% teaser rate. After $145,000 in mortgage equity withdrawal, the property had $480,000 in debt and went into foreclosure. 

A flipper bought the property at auction on 4/14/2009 for $341,200 and resells it a month later for $399,000. That was a great flip.

The current buyer paid $399,000. As far as I can tell, she paid all cash. She is taking a haircut.


Irvine Home Address ... 2110 TIMBERWOOD Irvine, CA 92620     

Resale Home Price ... $405,000

Home Purchase Price … $399,000
Home Purchase Date .... 5/14/09

Net Gain (Loss) .......... $(18,300)
Percent Change .......... -4.6%
Annual Appreciation … 0.8%

Cost of Ownership
$405,000 .......... Asking Price
$14,175 .......... 3.5% Down FHA Financing
4.85% ............... Mortgage Interest Rate
$390,825 .......... 30-Year Mortgage
$82,433 .......... Income Requirement

$2,062 .......... Monthly Mortgage Payment

$351 .......... Property Tax
$111 .......... Special Taxes and Levies (Mello Roos)
$68 .......... Homeowners Insurance
$302 .......... Homeowners Association Fees
$2,894 .......... Monthly Cash Outlays

-$338 .......... Tax Savings (% of Interest and Property Tax)
-$483 .......... Equity Hidden in Payment
$26 .......... Lost Income to Down Payment (net of taxes)
$5063 .......... Maintenance and Replacement Reserves
$7,162 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$4,050 .......... Furnishing and Move In @1%
$4,050 .......... Closing Costs @1%
$3,908 ............ Interest Points @1% of Loan
$14,175 .......... Down Payment
$26,183 .......... Total Cash Costs
$109,700 ............ Emergency Cash Reserves
$135,883 .......... Total Savings Needed

Property Details for 2110 TIMBERWOOD Irvine, CA 92620  
Beds: 2
Baths: 3
Sq. Ft.: 1270
Lot Size: -
Property Type: Residential, Condominium
Style: Split-Level, Modern
Year Built: 2000
Community: Northwood
County: Orange
MLS#: S648735
Source: SoCalMLS
Status: ActiveThis listing is for sale and the sellers are accepting offers.
On Redfin: 10 days


real estate home sales

Predatory lending moves from subprime to high end

Posted: 08 Mar 2011 02:29 AM PST

Predatory lending happens across the financial spectrum. Subprime lending has long been associated, but today we have a case at the very top of the market.

Irvine Home Address ... 8153 SCHOLARSHIP Irvine, CA 92612
Resale Home Price ...... $998,000

Such a feelin's comin' over me
There is wonder in most everything I see
Not a cloud in the sky
Got the sun in my eyes
And I won't be surprised if it's a dream

The Carpenters -- Top of the World

The top of the world must be a lonely place. But with so many looking up in envy, people strive for a lifetime to reach the pinnacle. Today we have tales of high end property distress in Newport Beach and in Irvine.

Predatory Lending

According to Wikipedia predatory lending is described as follows: "Predatory lending typically occurs on loans backed by some kind of collateral, such as a car or house, so that if the borrower defaults on the loan, the lender can repossess or foreclose and profit by selling the repossessed or foreclosed property." It certainly looks as if the highest of high-end homes may be a target of predatory lending. After reviewing the following article, I will let you decide.

I want to start by saying I don't know John McMonigle. I have no ax to grind with him, nor do I have reason to take his side. I know nothing specific about this case other than what is in the OC Register article.

High-profile agent's headquarters in default

March 1, 2011

Lenders have filed a default notice against the Newport Beach headquarters of luxury-home agent John McMonigle.

McMonigle confirmed that the default notice was filed and said his firm also has been sued as part of an ongoing dispute with a bank that cut off construction funding to McMonigle's signature Villa del Lago development in Newport Coast.

"We're intent on restructuring the debt here, and letting it work its way through the courts," McMonigle said late Tuesday. "We're on it, and I don't think (our building) is at risk."

McMonigle maintains that the dispute, not financial difficulties, are the reason for lenders moving against his 20,000-square-foot building at 1000 Newport Center Dr., near the Fashion Island mall.

The problem with stories like these where the property owners are specifically named (something I never do here at the IHB) is that their reputations are smeared by implication rather than fact. If McMonigle is delinqent on his loan and his properties are going into foreclosure, the implication is that he is experiencing major financial distress. The facts may or may not bear that out. Mr. McMonigle maintains he is merely reacting to the bank's bad behavior, and his statements may be accurate, and his actions may be justified.

Circle Family Trust, which provided McMonigle Group with a $1 million second loan on the building, filed a notice of default against McMonigle Residential Group Inc., shows.

McMonigle maintains that the Circle Family Trust default notice was triggered by his firm's decision to halt mortgage payments to the building's first lien holder, OneWest Bank of Pasadena.

OneWest had issued a first loan on the building for $9.4 million, according to County Records

McMonigle said his firm since paid that debt down to $6.8 million, but stopped making payments in retaliation for OneWest's decisions to withhold just under $2 million from a construction loan and to deny the firm access to $4.25 million in cash collateral that it has on deposit with OneWest.

If this accusation is true, and if the building in question is worth more than the current loan balance, the lender is engaging in predatory lending with regards to his Villa del Lago project, and this property is being drawn into the broader dispute.

It is likely the debt on the office building was paid down from $9.4M to $6.8M due to the loss of value on the property. The lender will want to maintain a safe loan-to-value ratio, and if the property value falls, the loan balance must fall with it. The lender may have the contractual right to compel the borrower (McMonigle) to maintain a certain LTV which required him to  pay it down.

The predatory lending is the bank's decision to stop funding the construction loan on Villa del Lago. Whatever that property is worth, it is worth significantly more if it is completed and can be marketed appropriately to high-end clients. If it goes to auction, it will fetch the lowest possible sales price.

Look at this from the bank's perspective. They already have $20,000,000 into the property, and if they add $$2,000,000 more, it makes the house worth $30,000,000. As it sits unfinished, it is probably worth $12,000,000 at auction, maybe less. The bank can buy the property for the amount of their note, finish it themselves, and they can make $8,000,000.

By forcing a stop to construction, the lender can foreclose and step into Mr. McMonigles shoes and take his equity. No competing bidders will step forward at that price point, and even if they did, the bank would probably be relieved to get their principal back on a property that is not complete after the housing bust.

In short, if what Mr. McMonigle alleges is true, this looks like predatory lending.

OneWest filed suit in recent weeks seeking, among other things, missed loan payments on the headquarters building, McMonigle said. His firm is in the process of preparing a counter suit.

"They're playing hardball, and we're at a stalemate with them," McMonigle said. "They're trying to bring closure to (Villa del Lago). We are, too, and it'll find its way through the courts."

At the heart of the dispute is a $20.6 million construction loan issued by the failed La Jolla Bank for the construction of the $37 million Villa del Lago project, a sprawling Newport Coast estate with a 17,500-square-foot mansion, private lake, tennis court and stables. The property is the priciest house now for sale in Orange County.

OneWest Bank decided to cut off the loan after taking over La Jolla Bank, McMonigle has said. The project is at least 90 percent complete, but the cutoff in financing means that McMonigle and his partners are unable to complete construction.

McMonigle said that he and his partners also have $4.25 million on deposit with OneWest as cash collateral for the construction loan.

"They will not let us tap (it)," he said. "We did not breach (on the headquarters loan) until long after they did."

A OneWest spokesman could not be reached for comment late Tuesday.

So he has millions on deposit with this bank, but they won't release his money or the loan money for him to complete the project. It doesn't look good for the bank.

The other side

Perhaps the lender is merely protecting itself because the various loans Mr. McMonigle has are underwater? The lender has a right to protect itself by keeping the loan-to-value to a reasonable level, and despite the delusions of high-end owners, prices have fallen.

Further, the lender has a broader look at Mr. McMonigle's financial status. Perhaps he really is distressed. The real estate commissions aren't what they were five years ago. I have no idea, but there may be very legitimate reasons the bank is acting to protect itself and not give this borrower more money.

If the facts bear out the bank's case, everything Mr. McMonigle contends is public relations spin, and I have completely fallen for it.

Is predatory lending real?

If you think predatory lending sounds fartetched, I have seen another lender act in a predatory manner on a project I am familiar with. After nearly a decade in the entitlement process, the developer had four or five million into the project, and the lender had nearly ten million in debt applied. If the project gains entitlement, it's worth $80,000,000. If it sits as raw land, its value is a few million at most. 

On that project, I watched the lender start putting the screws to the developer, and with the final vote within sight, the lender triggers some contractual provisions which put a chain of events in motion which lead to the developer defaulting to compel the lender to continue funding and the lender chosing to foreclose instead.

In that instance, the representative for the lender clearly saw the value in the property and figured they could take it back and get the value. In the end, the bank failed to recognize that the developer had "cultivated" the political relationships to get the final vote. The new guy in town had none of this political cloout, so the vote went against the bank and the project was denied.

The developer lost his entire investment, and the bank lost more than 80% of theirs due to greed, stupidity and predatory lending.

That's a BIG loss

I don't have the property records, but the details of who lost what aren't really that important. What matters is that this property lost $884,880! OMG! That is so much money! He buys this place in the summer of 2007 when rumors of a collapsing housing bubble abounded. But he knew better, right?

He tried to sell it for $1,950,000 back in early 2009. Clearly, this owner was a delusionall fool.

At least he isn't the biggest loser in Irvine....

Irvine Home Address ... 8153 SCHOLARSHIP Irvine, CA 92612   

Resale Home Price ... $998,000

Home Purchase Price … $1,823,000
Home Purchase Date .... 8/3/07

Net Gain (Loss) .......... $(884,880)
Percent Change .......... -48.5%
Annual Appreciation … -16.3%

Cost of Ownership
$998,000 .......... Asking Price
$199,600 .......... 20% Down Conventional
4.85% ............... Mortgage Interest Rate
$798,400 .......... 30-Year Mortgage
$203,131 .......... Income Requirement

$4,213 .......... Monthly Mortgage Payment

$865 .......... Property Tax
$0 .......... Special Taxes and Levies (Mello Roos)
$166 .......... Homeowners Insurance
$1124 .......... Homeowners Association Fees
$6,368 .......... Monthly Cash Outlays

-$1023 .......... Tax Savings (% of Interest and Property Tax)
-$986 .......... Equity Hidden in Payment
$371 .......... Lost Income to Down Payment (net of taxes)
$125 .......... Maintenance and Replacement Reserves
$4,855 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$9,980 .......... Furnishing and Move In @1%
$9,980 .......... Closing Costs @1%
$7,984 ............ Interest Points @1% of Loan
$199,600 .......... Down Payment
$227,544 .......... Total Cash Costs
$74,400 ............ Emergency Cash Reserves
$301,944 .......... Total Savings Needed

Property Details for 8153 SCHOLARSHIP Irvine, CA 92612
Beds: 2
Baths: 3
Sq. Ft.: 2000
Lot Size: -
Property Type: Residential, Condominium
Style: Two Level, Modern
View: yes
Year Built: 2007
Community: Airport Area
County: Orange
MLS#: S649539
Source: SoCalMLS
Status: Active

Expansive views of the nature preserve, mountains and twinkling city lights from this highly upgraded Penthouse (1). Two bedrooms plus den/office, 2.5 baths poised on the 15th and 16th floors of the magnificent Plaza Irvine. Live and entertain in grand style from the gourmet kitchen with Viking appliances, custom countertop with backsplash. Enjoy the custom hardwood flooring, handsome fireplaces both in the master suite and living room, surround sound and PLasma TV in HD. First class service and top of the line amenities. Experience an urban lifestyle that is second to none!

real estate home sales

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