Responsible Homeowners are NOT Losing Their Homes

One of the biggest myths of the real estate bubble is that responsible homeowners are losing their homes; they are not.

Today’s featured property is owned by HELOC abusers who already took out almost $900,000, and now they want $400,000 more.

6326 Sierra Elena Rd kitchen

Asking Price: $1,629,000

Address: 6326 Sierra Elena Road, Irvine, CA 92603

{book1}

Right Round — Flo Rida

I’m spendin my money
I’m out of control
Somebody help me

You spin my head right round, right round
When you go down, when you go down down

Interesting song about oral sex HELOC abuse and falling house prices.

Many of the sob stories in the mainstream media have been focused on what are characterized as “responsible homeowners” who are in danger of losing their homes. Several articles of this type have been posted here, and many commenters have noted the extravagances and poor decisions that often make these homeowners look less than completely responsible. Let’s be clear about one thing:

Responsible homeowners are NOT losing their homes.

To see the truth in this statement, one needs to have a clear definition of “responsible homeowner.”

A “responsible homeowner” is a buyer who, if they utilized financing, did not stray from the conservative parameters set forth by lenders (prior to the bubble) and financial planners. This includes using a maximum 28% debt-to-income ratio on the mortgage, at least a 20% downpayment and fixed-rate conventionally amortizing financing.

Few who fit this definition are going to lose their homes; although, some of them may chose to walk away from the debt because they are hopelessly underwater. The only ones who fit the above definition who are in danger of losing their homes are those who lose jobs; they are the truly sad casualties of the housing bubble. Unfortunately, this is becoming more common due to the financial crisis caused by all the homeowners who borrowed irresponsibly.

Responsible borrowers are not the ones defaulting on their mortgages; irresponsible homeowners are.

If “responsible homeowner” is defined as a buyer who believed they could manage their monthly payment and did so until the loan terms changed, then by this definition, many responsible homeowners are going to lose their homes.

Almost everyone who signed up for a toxic loan thought they could make the payment; most did for a while. Many were convinced they could make the payments by a predatory lender out to make a few bucks on the origination. Many more believed they could supplement their incomes with the rapid appreciation they would enjoy as their house values rose to infinity. Does ignorance to their inability to sustain their housing payments make them responsible?

In the political debate surrounding foreclosure moratoriums and homeowner bailouts, the politicians are using the latter definition of “responsible homeowner.” The ignorant and those who knowingly took excessive risk are being rewarded with a government bailout. The prudent are the ones paying the bill.

{adsense-ir}

To see the truth in the importance of these definitions, we need to look no further than the astute observations on this blog. One of our frequent commenters is a responsible homeowner. He purchased near the peak, but he did so with terms that his family can afford. He meets the parameters in the first definition. He is in no danger of losing his house in foreclosure. Yes, he is annoyed that the values have dropped–who wouldn’t be–but he is not going to become a foreclosure statistic.

If you want to know what the lenders really worry about it is that guys like him may chose to go into foreclosure and walk away from the debt. There are already enough irresponsible homeowners on their way to the meat grinder. A wave of walkaways would make sausage of the entire banking industry.

The reality is responsible homeowners are not losing their homes; some may lose their houses because of a job loss, and some may chose to walk away, but very few truly responsible homeowners are endangered. The foreclosure crisis is caused by the irresponsible.

{book3}

Today’s featured property was emailed to me by a reader who was wondering about all the WTF prices in Turtle Rock and Turtle Ridge. This reader sent me an email asking about four properties including the one I featured today. The others I looked at had the following results:

19125 Sierra Majorca, Irvine, CA 92603
Asking: $1,526,827
Paid $1,000,000 in 2003 — No HELOC abuse, but they have a $700,000 mortgage, and a $100,000 HELOC.

11 Bethany, Irvine, CA 92603
Asking: $1,359,000
Paid $645,000 in 2004 — $750,000 first mortgage and a $250,000 HELOC

17 Sunrise, Irvine, CA 92603
Asking: $1,548,000
Paid $675,000 in 1999 — $987,000 Option ARM with 1% teaser rate and a $250,000 HELOC

Of the four properties, three of them had significant HELOC abuse. I usually find a high percentage of for-sale properties have HELOC abuse, not a good sign for the market. When HELOC abusers have to go back to conventional financing, can they afford the payments?

I want you to contemplate how much trouble our market is in. I will use the analogy of drinking and partying and compare the Irvine experience to that of Minnetonka, Minnesota (from the post Southern California’s Cultural Pathology).

Let’s say you are a Minnetonka resident. You make just as much money as residents in Irvine, but your median house price at the peak was $305,000. This is higher than historic norms, but as far as kool-aid partying goes, you had only a few social drinks. If you take an aspirin and drink a big glass of water, you will feel fine in the morning. The Federal Reserve is providing the aspirin in the form of 4.5% mortgage interest rates and the guaranteed ability to refinance your conforming mortgage. You as a Minnetonka resident did not party too hard; your hangover is manageable.

Now imagine you are an Irvine resident. You make a decent living, but instead of paying $305,000 for a median home, you paid $723,000 (or borrowed that much on your HELOC). You had a great time: you bought cars, took vacations, and impressed all your friends and neighbors with how rich you are. You did more than take a few social drinks of kool-aid. You downed the bottle; when that wasn’t enough, you found a bigger bottle, and as the party went on, you finally went intravenous. You are now dependant upon kool-aid (HELOC money), and there is no amount of medicine that can save you from a wicked hangover, delerium termens, and the worst withdrawal pains possible. The Federal Reserve’s medicine is not going to help you; your mortgage is not conforming, and you not going to be allowed to refinance. You are screwed.

People bidding on Irvine real estate in the new financing environment simply cannot bid prices as high as they used to, and they are not going to be able to raise their bids for quite some time. It is very unlikely that prices will rise enough to bail out all the homeowners facing ARM resets. There are too many people who drank too much kool aid (see examples above). All of these overextended homedebtors must be flushed from the system. Based on available data, (1) we know that refinancing is not going to be possible, (2) we know these people cannot afford the payments, and (3) we know that their are not enough buyers who really do make that much money to take over these people’s debts and bail them out. There are no other viable alternatives.

I used to think that Turtle Rock would be spared the worst of the housing correction. Most residents are long-term owners, so there is relatively little toxic financing on purchases. The only thing that could flatten Turtle Rock–other than big declines in neighboring communities–is mortgage equity withdrawal. I didn’t think it could be that bad; perhaps I was wrong.

6326 Sierra Elena Rd kitchen

Asking Price: $1,629,000IrvineRenter

Income Requirement: $407,250

Downpayment Needed: $325,800

Monthly Equity Burn: $13,575

Purchase Price: $292,500

Purchase Date: 11/23/1994

Address: 6326 Sierra Elena Road, Irvine, CA 92603

Beds: 4
Baths: 4
Sq. Ft.: 3,400
$/Sq. Ft.: $479
Lot Size: 6,120

Sq. Ft.

Property Type: Single Family Residence
Style: Craftsman
Year Built: 1972
Stories: 2
View: Hills, Panoramic, Has View
Area: Turtle Rock
County: Orange
MLS#: P680677
Source: SoCalMLS
Status: Active
On Redfin: 4 days

This is the home for you’re family. Custom Craftsman style Beauty.
Exposed beams. Spacious open great room. Kitchen area features a custom
center Island, rich wood cabinetry, and views of surrounding hillside.
This home features custom built-ins throughout. Secluded Master Suite
on first floor. Each Bedroom is extra Large. Walk to Orange County
Register’s #1 rated elementary school Bonita Canyon Elementary.

This is the home for you’re family. This is the home for you are family. That makes sense…

Sentence fragments, random Capitalization.

{adsense-ir}

  • On 11/23/1994 this property was purchased for $292,500. The owners used a $263,200 first mortgage and a $29,300 downpayment. Keep in mind as you read the rest of this section that they only put $29,300 of their own money into the transaction.
  • On 7/16/1998 they refinanced with a $266,300 first mortgage.
  • On 11/12/1998 they opened a HELOC for $30,000.
  • On 11/4/2002 they opened a HELOC for $172,000.
  • On 11/4/2002 they refinanced with a $300,000 first mortgage. By 2002 they had already doubled their debt.
  • On 8/25/2004 they refinanced with a $630,000 first mortgage.
  • On 7/6/2005 they opened a HELOC for $250,000.
  • On 10/27/2005 they refinanced with a $900,000 first mortgage.
  • On 12/14/2005 they opened a HELOC for $155,000.
  • On 5/28/2008 they opened a HELOC for $250,000.
  • Total property debt is $1,150,000.
  • Total mortgage equity withdrawal is $886,800.

These people put $29,300 of their own money into a house in 1994, and they managed to take out $886,800 over the next 14 years. That averages $63,342 a year for 14 years. That is a hard working house. It explains why houses are so desirable, doesn’t it?

WTF

It gets better though, they still expect to make more when they sell it! OMG!

If this property sells for its asking price, these owners will still walk away with another $381,260. The total gain on the sale will be $1,238,760.

Does anyone think this is the way you are supposed to manage your financial life? Are you entitled to a million dollar payday just for owning California real estate? This is insane.

Does this strike you as a “responsible homeowner?”

Do you think we should bail him out? Well, perhaps we will not have to. Someone may buy this house and pay off his debt for him. After all, the house will be worth $3,000,000 15 years from now, right?

{book2}

I’m spendin my money
I’m out of control
Somebody help me
She’s takin my bank roll.
But I’m king of the club
And I’m wearin the crown
Poppin these bottles
Touching these models
Watchin they **** go down down
down down, down down [this line x4]

(Flo Rida)
You spin my head right round, right round
When you go down, when you go down down

Right Round — Flo Rida

63 thoughts on “Responsible Homeowners are NOT Losing Their Homes

    1. nowwaat

      Here is the pricing equation for this home: Turtle Rock is close to Turtle Ridge, and Turtle Ridge is close to Newport Coast which is close to the ocean; that means Turtle Rock is close to the Ocean, therefore, Crystal Cove asking price.

  1. MalibuRenter

    Well, at least they have a real chance of paying off the loans, if they drop the prices quickly.

  2. AZDavidPhx

    This is an example of pure WTF greed.

    These chumps put down 30K and now they expect the next guy to cough up 11x that amount. They must have a pretty warped perception of the normal rate of inflation.

    I wonder if these debtors could afford their own home now? Why do they think that they deserve a king’s ransom all of a sudden?

    Hopefully foreclosure and homelessness is around the corner for these fine capitalists.

      1. AZDavidPhx

        Let’s say it was remodeled – so what? It was all paid for with bubble money anyway and it doesn’t change the overall neighborhood demographic.

        Is some movie star going to move into the neighborhood now because Tom Dick debtor put in some new granite counters and a stainless steel refrigerator?

        Whom do the sellers expect to move into their house and all of its newly remodeled lavishness? A teacher? A Fireman? These kinds of people are not going to have 330K to bring to the table.

        Did these debtors put up their 30K down payment on something that they considered to be a fixer-upper? Doubt it.

        Why should a buyer of today have to pony up 330K for the down payment alone just because these sellers decided to maintain their house?

        We all know why house remodeling recreation was all the rage during the bubble – because everyone was speculating that easy profits were to be had by doing simple “upgrades”. It was completely greed driven.

        So I suppose the answer is that I could not care less if HELOC money was pumped into “upgrading” the house – that’s what you are supposed to do. It’s not supposed to be a windfall for the seller.

        1. .

          I don’t know how or why, but perhaps California really is different.

          Let’s say you have two different sets of grandparents who bought a house in the S.F. Bay area after WWII for $20K. They have lived there for say fifty years. One set of grandparents has no other grandchildren other than yourself and the other set of grandparents only has three grandchildren.

          Your parents also bought homes in West Los Angeles the mid ’80s for $100K and have lived there ever since with no heloc abuse and you are the only child. You also have an unmarried great aunt who owned a home Marin, and you are the only male heir.

          You yourself work as a high school teacher but suddenly you find yourself inheriting millions of dollars even though your parents and grandparents were only blue collar factory workers.

          You decide to buy a house in Irvine because you heard it has the best public schools in all of Southern California. You don’t care that you are paying two million dollars for a tiny home where you can look in a window and see what your neighbors are making for dinner. All that matters is that your children attend the best performing schools.

          1. IrvineRenter

            “I don’t know how or why, but perhaps California really is different.”

            It is different because people believe it is different, and they act on these beliefs. The collective effect is huge price rallies and unsustainable housing bubbles. The key word there is “unsustainable.” Kool aid intoxication cannot overcome financing availability.

          2. .

            I think the key word is “immigration”. Without the influx of highly educated immigrants to Irvine, I doubt the school district would continue to perform as well as it has.

            As for the rest of California, I believe the reason why housing prices rose higher than other states in the last fifty years has absolutely nothing to do with the warm sunny weather in February and everything to do with basic economics – supply & demand. Look at your neighbors (and maybe even yourself) and ask yourself how many of them where born in the state (not to mention this country).

          3. AlixKhan11

            Company moved me to OC in 1998 from an overseas operation. We arrive here and everyone tell us that Irvine has the besat school. So wife declares that we are staying in Irvine. Then it is discovered that there exists a difference amongst schools as well. At gatherings, women talk about how Plaza Vista is better than College Park. How University High is the top dog!

            Can someone tell me if the schools are really that good? I have looked at the online score cards but they are just numbers. What do these numbers tell? If my kids go to school in, let’s say, Saddleback District vs IUSD, are they at a statstically significant disadvantage?

            My wife takes kids education very seriously. Follows up on their homework EVERY day. I sometimes try to explain to her that the kids will end up being OK not because they are in Irvine but because they have her for their mother. But it always ends up at “You try to give your kids every advantage in life, no matter how small”.

            Any comments?

          4. thrifty

            Check with the school administrations in the schools you’re interested in and find out what percentage of the senior class went on to college and where the graduates went to college. That will give you an excellent idea how competitive each school is.

          5. .

            Top scoring schools don’t mean the best school, but for a few select overseas demographics, that doesn’t mean much. People overpay hundreds of thousands of dollars for a home because they feel that is the only way their child can succeed in this world.

            I seriously doubt there is much difference between University High, Woodbridge High, Irvine High and Beckman High (not even in the Irvine School District).

            If your child is only “average”, he would probably fare better going to an above-average school rather than an excellent school so he could have a higher class ranking, thus have a better chance of getting accepted to a U.C. School (if that is his goal).

          6. Anonymous

            The Irvine schools are good. Better than any I’ve ever taught in outside CA. Good student population that is interested in academics. Excellent teachers mostly. And rigorous curriculum.
            The kids are learning stuff in school I learned two grades later than they did. I occasionally learn stuff from my 3rd graders homework that I never knew before, and I was a straight A student in high school. So yeah, the schools are good.

          7. Gindy

            I heartily agree. A school is only as good as the parents and staff who are involved in it. A good parent will do as your wife does and make sure school is the top priority (not dancing lessons or Wii).
            I did the same thing with my daughter in rural Indiana. She’s now a fast track junior at IU and is applying for her first real job in relation to her major. She’s 19.
            You don’t have to live in a postage stamp house to find a good school.

        2. tonyE

          Sorry man…. but the houses on Bethany and Sierra Elena are REBUILT, not just remodeled.

          In fact. both of them were done in the last few years when the cost of labor and parts was pretty high.

          In fact, since I live in the same tract and my house too was rebuilt, I figure that those folks spent about $350K each on their houses.

          And given the current state of things, $350 per square foot is what they can get for their homes.

          How do I know? The house right next to me, in good shape, 2000 square feet, 4b/2.5ba sold very recently for more than $420 per square foot. My own home, which hopefully we’ll fund the refi today, got appraised conservatively (lenders are extremely conservative these days) at $390 per square foot (bigger house is always cheaper per square foot regardless of condition). That put my 5b/5ba 2700 sq foot chateau at just about 1MIL.

          So, their prices are a bit off. I both homes might sell for $1.1MIL. The Sierras are more expensive than the Broadmoor, but the house on Bethany has five bedrooms.

          So, I don’t know about the HELOC abuse, but I definitely think quite a bit of that went into the rebuilding.

  3. wheresthebeef

    I rented a house in that neighborhood about 10 years ago. Great neighborhood with lots of positives…the only drawback is the price. If I could find a ~1600 sq ft 3bed/2bath detached home on a 6000 sq ft lot in Turtle Rock for about 550K, I would buy it in a heartbeat.

    The place profiled is completely WTF pricing. I doubt the seller would have gotten this price at the peak back in 05 or 06. It will be fun to watch this one.

  4. IrvineRenter

    For the record, I do think this is a beautiful house.

    Did anyone else notice the values Zillow, Cyberhomes and eAppraisal put to this house? The highest estimate of the group was $858,500.

    1. AZDavidPhx

      Yes, but Zillow is unable to take into account the specialness (also known as debt) on each house and we all know from social contract law that prices of houses are directly proportional to the outstanding debt that the “owner” has saddled himself.

      So Zillow says the house is worth 850K, big deal. Zillow doesn’t know that 500K was pumped into granite counters and stainless steel appliances to make this palace the best in the neighborhood – worthy of a KING. No sir, I am the seller and I know that my house is the greatest and the right buyer will be willing to pay the premium as long as he can find a shady bank and a nice liar loan.

      1. HydroCabron

        | Yes, but Zillow is unable to take into account
        | the specialness (also known as debt) on each
        | house

        Hee-hee! You jest, but I actually believe that this is the true — for houses not yet foreclosed, there is unanimous agreement among owners that debt is value-enhancing.

        And, yes, this is a beautiful house. So beautiful, that it’s certainly the nicest house on the block. And that’s not the house you want to own, unless you’re so wealthy that your home is an insignificant expenditure.

    2. ocresident

      I certainly don’t disagree with the notion that this is WTF pricing, but the Zillow, etc. estimates don’t seem to take into account the additional 1500 or so square feet of space added onto this house about 10 years ago. I grew up about 2 blocks from this house, and it is really nice and huge compared to the other tiny ranch style homes that haven’t been updated since 1971.

      1. Gindy

        It might be nice and huge but it is on a postage stamp and you still have to clean, heat and cool it.

    3. tonyE

      These homes were completely rebuilt and as such are custom homes.

      I have one such home in the same tract.

      Those automated appraisers use the county records. To them these are 1600 sq. foot, 3be/2ba homes (The original plans for these homes were Plan 1).

      Trust me, we just went through our refi. The banks go nuts with custom homes. They have no clue how to handle them.

      The reason why people choose my tract to do this is because we mostly have single story homes and it’s likely the only place in Irvine where you can knock down your 1800 sq foot and double it.

      And it is TR.

  5. brennaman

    Just FYI from a possible knife-catcher: Thinking strongly about getting ready to jump (in the South Bay region of Los Angeles). I’ve been vacillating between targeting a small condo with negligible costs (~$300K + HOA) or a “nice place” in the $400K range. So I was thinking Brookside Village-esque condos or townhouses at my higher end. Brookside Village is a large complex of condos in south Redondo Beach. Cramped but safe, and near my job location.

    I’m not (thinking I am) an investor; I started out by thinking about rental parity, and a $300K+HOA place is slightly cheaper than rental parity for me. But that’s because I’m living in a smallish apartment in a nice neighborhood. If I go up to $450K, such as a 2-bedroom condo in a nice school district, I’d be laying out more, but would still have enough left over to save/invest $500/month.

    Since I bought a condo in 1989 (the peak of that bubble) and lost my shirt in the eventual outcome, I want to assume that the place I might buy will not be worth what I pay for it for another eight to ten years. Coincidentally, eight years is how far away I am from my “magic 75″ date at which my small-but-stop-complaining-its-better-than-nothing pension pops up to about the same amount as Social Security would/might provide. So I’m only considering places where I won’t mind if I have to live there for another ten years.

    Thing is: with my downpayment, high FICO and many years of steadily-increasing (salaried) annual income, even a place sellinng for $450K puts me in about a 20% mortgage+HOA-to-gross-salary ratio. I would be able to afford this if I lost my job and got another at half my current salary. But … that implies that if I lose my job, I can find a replacement income within about six months.

    I was going to end up asking about the possible elimination of the mortgage interest deduction, which I oppose but will gladly take as long as it’s available, but really, I guess I’m just providing a snapshot into the thoughts of a possible knife catcher. As I said, I bought at a peak the last time, and have experience at watching my real estate value drop by 40%, so I don’t mind if I buy and lose, say, 25%, as long as it’s a place I really want to live in.

    1. IrvineRenter

      There are others like you; although, most knife catchers are speculators who think they are buying the bottom tick of the market move. If you are buying within the parameters of a “responsible homeowner” as I defined in this post, you probably will not lose your home. However, before you do this, you may want to read Timing Does Matter. Paying too much costs you in many more ways than most realize. You went through this once; do you really want to do it again?

    2. AZDavidPhx

      You better be very confident in your job. The last thing you want is for your company to go under 1 year from now and you are stuck with a housing albatross hanging from your neck that immobilizes you. Friend of a friend was just “unexpectedly” laid off last week after recently buying a house.

      Lots of companies are lying to their employees, claiming that all is well and will be OK and then a week later the CEO shows up at your office acting all surprised and crying crocodile tears “oh it turns out business is actually terrible and we are hemoraging money and have to fire you”.

      I am nearing the same point that you are. Some condos in my area have dropped near 150K range and have tempted me to start looking. However, I am not as confident in the job market at the moment and have opted to stay mobile and continue to save for the time being while the government drives us into a depression.

      Ultimately, you need to do what makes sense for you, but at least my perception is that people try to talk themselves into buying a house without objectively weighing the true costs ahead of time. I would opt to buy on the uptick when the environment stabilizes rather than try to buy at the absolute bottom. Prices are going to stagnate for a long time anyway – there should be no urgency to buy now before getting “priced out”.

      1. david

        Good point here about waiting for clear turnaround – this is real estate, not stocks, and unlikely to move up quickly without bubble financing. This could be a very tricky decision -IF pricing approaches fair value AND if excess inventory is drawn down – as government is providing short-term price support with supply restriction through massive mod plan with 2% (minimum) interest rates that will remove many potential foreclosures; and buy side stimulus through Fed-driven 4.5% rates along with first-time buyer tax credit. Add to this another wave of ARM resets ahead (I think IR’s chart showed 2010); and a horde of unrealistic sellers who will dig in further if the foreclosure pressures ever let up. All of this buttresses AZDavidPhx’s suggestion of a lengthy bottom that will be further extended by the ARM resets and as the mod home overhang unwinds (the 2% rate is only good for 5 years; and many will give up if prices don’t come back sooner or if they need to move for employment); and by the reversal of artificially low interest rates. Recall the last CA bottom in the 90s took years to play out. The flip side, and perhaps more difficult question, is whether to take price risk to lock in a 4.5% rate and the tax credit kicker. This has substantial value for a long-term holder; and especially so if the massive Fed pumping does cause a major inflationary overshoot (the Fed CLAIMS to be ready to reverse the pumping in time but will they succeed?), in which case the 4.5% rate would be golden and serious inflation would push up home construction costs and home prices as well.

        David

  6. irvinemommy

    Great post, IR. Another WTF house popped up recently:

    14 Cedar Ridge, Irvine, CA 92603
    $1.85M

    After your research on the four, I am sure this one has HELOC abuse as well.

    In regards to the Sunrise property, the realtor told us that her client is getting married and moving to Peru. Wonder if he plans to skip out on the option ARM with a 1% teaser rate million dollar mortgage????

    It is discouraging to see these homes listed so high. I know they will either creep down in price slowly, or take forever to be listed as an REO. But we will wait for the house we love and enjoy watching these people sweat it out.

    1. IrvineRenter

      Surprisingly, the owners at 14 Cedar Ridge did not abuse HELOCs. Their primary mortgage has been refinanced once back in the 90s for a lower amount than their original. They have an old HELOC from the 90s, but my guess is they haven’t used it, or they would have had more increases to its limit. This is what I expected to find in Turtle Rock, but based on these other listings, there is plenty of HELOC abuse there.

      1. went to university high

        It is funny to me that people thought that people in TR do not live by the same social contract that the rest of the county does. Some of the people at the very top of the hill are very rich, but so are people in Newport and Laguna. As you make it down the hill, it just becomes people who think they are rich because the guy with the fancy car drives by my home on the way to his mansion. Same stuff different place, it will crash just like everyone.

    2. JoonB

      Thanks Irvine Renter for this posting today. I’ve been wondering as well what is up with all these WTF prices in Turtle Rock. I was wondering about 14 Cedar Ridge as well- for that price someone has many options- and for me- it definitely wouldn’t be TRock. The Port Streets are getting “cheaper” than TRock.

      I wonder if this home (14 Cedar) will have a problem selling after learning about the number 4!

      I went to the open house on Majorica- It was a very nice home- but not for $1.5+million. Again- NB is offering imo some better values. What struck me as odd on Majorica was the problem of having the master bedroom and 1 kid’s room upstairs only. So, if you have 2+ kids- one of the kids has to be downstairs alone. I have noticed McMonigle is doing that 90-day selling gimmick on this house- so every week or so the price is decreased by $10K or so. I find this selling tactic odd.

      1. IrvineRenter

        Price adjustments need to be perceived as random to be effective. If you know there is going to be a $10K adjustment every week, your incentive is to wait for a lower price. This is particularly true in a buyer’s market where you are not concerned about competition from other buyers.

        1. ocresident

          What is with the weird asking price that McMonigle put on the Majorica house? Is this the exact amount the owners need to get, or is he just trying to attract attention with the weirdness?

          My parents (original owners with no mortgage) still live a few blocks from this place. My mom wanted us to buy that house when the last flipper offered it up in 2004 for an even $1 mil. She called me all excited on Saturday after going to the open house. I told her that we couldn’t afford it then, and we certainly can’t afford it at half a million more than they got it for about 4 years ago. Unfortunately, she still thinks she lives in a “million dollar neighborhood” because her exact model down the street sold for $1 mil at the peak. She hasn’t bothered to check Zillow as of late to see that her place is now in the $700,000’s

      2. irvinemommy

        JoonB, I second your comment…at these prices people have many other options in more desirable places. I watch the Port Streets as well. It seems like there are many distressed sellers there too. I bet a few of them tapped into HELOC money.

  7. Lee in Irvine

    The banks are not going to facilitate these purchases. Therefore, if you’re a seller and lucky enough to find a whale who actually chooses Irvine over Laguna Beach (WTF), consider yourself very lucky. However, that’s very unlikely. The buyers of these homes typically do require financing, and to qualify for a mortgage like this, you may need to offer your first born son as collateral.

    This price range of home, is dead in the water, future road kill, and just has almost NO CHANCE in an environment like this.

    1. AZDavidPhx

      I can tell you what the exact mindset of these types of sellers is. They are all exactly the same with their endless over-confidence and Pollyanna optimism.

      They believe that it is all a big game. Specifically, they believe that it is a zero-sum game where wealth just moves around and is never made-up or destroyed.

      They also believe that the economic downturn is temporary and that if they wait long enough, they will get their buyer.

      It’s a big gambler’s fallacy but it’s all the same with these people. If you know someone who includes the phrase “When the economy gets better…” in every bull**** phrase that leaves their hole then you know exactly the type I am talking about.

      They see economic recovery as just part of the game that naturally follows a downturn in perpetual motion controlled by God. Recovery is an entitlement, rather than something that has to be achieved via government policy changes and social re-engineering.

    2. mmg

      Lee–>”The banks are not going to facilitate these purchases”

      Since we dont have a crystal ball to predict future prices, all we can do is look to our neighbor in the south San Diego where there is a major bloodbath :lol:

      friend of mine in SD was telling me about a high end listing where price dropped in one day from 1 mil to 650 k (I guess that is the magic number. ouch :lol:

      San Diego is about one year ahead of us, coming soon to an IRVINE SPECIAL NEIGHBORHOOD near you :lol.:

  8. tlc8386

    I am always amazed at the WTF prices I see in the OC even in the Bay area I bought a house in 96′ it needed intense landscaping–sidewalks, French drains,sprinkler system, Patio, walkways, plants and retaining walls (three)–a lot of bucks and in 10 years I did get my money back with some decent appreciation–but many improvements later.

    When we sold the home it had new garage door opener, water heater and brand new exterior paint after a good steam cleaning. It was in perfect condition. I have yet to see one house in this kind of shape and not one priced as reasonable.

    The pricing here is insane compared to just about any other area in the country. I think people here have no idea how over priced this area really is.

    The sad part is we all have to pay for it with increased taxes.

  9. thrifty

    IR:
    Thanks for the link to “The Quiet Coup”. It is easily the best single article I’ve read that explains in layman’s language how we got into this mess. It can’t be too strongly recommended. Noteworthy is the observation that when the economies of countries went bad after financial “binges”, the downward slope was steep. I wonder if Irvine will see that; seems somewhat shallow to date. Any comments?
    Paraphrasing a headline on Yahoo! today “7 states see jobless rate top 10% eliminating buyers”. For those of us looking for sensible answers to this complex mess, that headline says a lot.
    I previously owned in San Clemente for 20 years and have an abiding affection for that beach town. Prices there seem to be holding up like Irvine. I suspect it may largely be due to the fact, as a departing marine observed, that most of the property is owned by old timers who leave it to their kids! I wonder if high unemployment will affect it? Any thoughts?

    1. IrvineRenter

      The pricing in all the desirable areas is just wishful thinking. It is like all the people who bought stock in the NASDAQ bubble holding out to sell at break even. Sometimes, prices do not come back. People do not realize that yet, and unless they have to sell, they sit there with their WTF asking price and hope some knife catcher gives them a lottery ticket.

      The Quiet Coup is a great article. I hope everyone reads it.

      In related news, the article, Six Bloggers of the Apocalypse was picked up by CNBC.

  10. OC Progressive

    All of these overextended homedebtors must be flushed from the system. Based on available data, (1) we know that refinancing is not going to be possible, (2) we know these people cannot afford the payments, and (3) we know that their are not enough buyers who really do make that much money to take over these people’s debts and bail them out. There are no other viable alternatives.

    I’m amazed at the number of people who don’t seem to grasp this concept, including the ones who continue to think that the securities based on the loans and financial institutions that supported these homedebtors have some greater value than the underlying value of the homes that were financed. And that underlying value is based on what people can finance with traditional financing.

    What’s even more frightening is that the incomes that support loans are dropping, evaporating, or not rising with inflation. For the last thirty years, most mortgages in my neighborhood in Fountain Valley have been based on two income families and/or some intergenerational wealth transfer. Running through my friends, relative, and acquaintances, I can’t think of a single family that hasn’t taken a significant hit to income and/or wealth.

    1. AZDavidPhx

      It’s because the average ignoramus thinks of “theh ekonuhmy” as a big magical black box where house values are some form of a stock index.

      Also, everybody has their own idea of what it means for “theh ekonuhmy” to “get better”.

      There are plenty of buttheads out there who think that liar loans and other forms of financial voodoo are right around the corner and soon to make a dramatic comeback.

      We just have to accept these misfits while they come down off of their high.

  11. Mitoman

    We should report all those inresponsible home buyers that crashed our economy, and hold them accountable for it. The government is doing exactly the opposite, reward those who screwed up and abuse the system, punish those who are responsible (by taxing them more)

    1. AZDavidPhx

      I think you have to look at who the real criminals are in this situation.

      It’s really easy to be mad at the homebuyer because the average person is such a stupid knob and never asks questions or challenges anything that they are told. I am all for the flogging of people for being stupid and naive, but that’s about all that can be expected.

      The homebuyers are just pawns in the game who have been sold out by the people whom they have foolishly elected and stupidly believed would look out for their interests.

      The banks are greedy. Their bread and butter is loaning money and handing out debt. We all get that. They are gonna pull out every trick in the book to enslave as many people as they can and god bless them.

      The real criminals are members of our government. They have been compromised and bought off by the financial industry. Our elected officials do not work for you and me. Their job is to work for big business and spin it in a way that makes it appear that they are working for you. That’s just the reality of our current situation. That is how things currently get done in this country.

      Just look at the AIG bonus smokescreen. Our politicians had a great time putting on their little dog and pony show the other week, crucifying the AIG CEO and grandstanding before the cameras. Of course the big white elephant sitting on the couch throughout the entire thing was the blessing that our government gave AIG from the beginning to hand out those bonuses.

      The righteous indignation by our politicians must have struck the AIG leadership as extremely two-faced. Not that I am defending AIG – I say hang them all, but certainly their partners in crime do not get a free pass.

    2. nowwaat

      IMHO, your sentiment is very prevalent though I think it all started with Wall Street Investment Houses’ easy loan money tactics that inflated housing and when the bubble popped, almost no one was immune. The more they inflated, the harder the fall.

  12. Alan

    “The ignorant and those who knowingly took excessive risk are being rewarded with a government bailout. The prudent are the ones paying the bill.”

    This may be true, but aren’t the ones like today’s post in TR on their own? They do not come anywhere near to meeting the bailout conditions, and the bailout wouldn’t save them anyway, just delay the foreclosure date?

    If the ones who can apply and benefit from the bailout are really middle class people who are living in their houses which are not totally inflated beyond belief, they are much less likely to be speculators, flippers or HELOC abusers. Guilty of poor judgement and following the herd mentality, but not complete scum of the earth:

  13. Perspective

    “…The reality is responsible homeowners are not losing their homes; some may lose their houses because of a job loss, and some may chose to walk away, but very few truly responsible homeowners are endangered…”

    If our income were cut in half, we’d still be able to pay our mortgage and student loans. And we have a year’s expenses saved (I wonder how reserves affect your eligibility for Obama’s “Making Home Affordable” plan, because on one income PITI would be above 40%?).

    Because we’re responsible, we have no intent to walk away, even though we owe 20% more than the home’s current value. In fact, we just dropped $7k on plantation shutters last week. How’s that for confidence… or stupidity? :-/

    1. IrvineRenter

      I was hoping you would stop by and comment today. I was thinking about you when I wrote this post (in case you couldn’t tell). You are the definition of a responsible homeowner, and you prove the argument that people like yourself are not in danger of losing their homes.

      1. Perspective

        Cool.

        I will say this for these homeowner bailout plans (that are helping irresponsible homeowners for the most part), they’ve provided me with some confidence of an additional safety net. For two years now we’ve been building reserves in fear of a severely extended income reduction. Knowing that there’s a program that could help us (for 5 years at least) reduce our PITI to 31% if it were needed, is comforting.

        This created enough confidence that we are spending $7k on shutters. So this Irvine franchisee is a direct beneficiary of the homeowner bailout. This is how these bailouts can encourage some economic activity to continue, even though it’s difficult to measure its direct impact.

    1. Barren_Irvine

      Hey,

      Better to be pissed off than pissed on. That’s what going to happen to these “responsible homeowners”. Nobody would even want to piss on that property let alone buy it.

  14. emilie

    This home is down in the “hollow”, backing up to Shady Canyon road, which is about as lowdown as you get in Turtle Rock. Absolutley no view. No view at all. No pool. No view. Unless you call a bank of landscaped grass a view.

    No way is this worth $1.6 mil. No way.

  15. Bitter Renter

    LOL! Nice metaphors today, IR (“irresponsible homeowners on their way to the meat grinder”, “make sausage of the entire banking industry”, “only a few social drinks”, “finally went intravenous”). :lol:

    (Note “tremens” is misspelled as “termens”, though.)

    1. irvinemommy

      People live there. The neighbors call it the Bellagio. It does not fit in with the neighborhood. It is an eye sore on the street.

  16. Theron

    Well, by that definition I’m not strictly responsible, because I bought with only about 3% down. However, I bought fixed rate, with a payment that, including tax and insurance, is about 28% of after tax take home pay. I’m single and make more money than I spend, so I can live with that. What amazed me at the time (2001) was that I figured I could afford about a $1K payment, which in my case meant buying in the $110Ks to low $120Ks, which is exactly what I bought. The supposedly nice normal bank I went to approved me for a lot more – $195K, based on borrowing the down payment on an interest only loan. I thought they were nuts. What the heck were they thinking? As it is, I was able to refinance with the run up in the supposed value of my home, and get out from paying the mortgage insurance my low down payment had saddled me with. The bubble effectively gave me my down payment – and as I’m in Nashville, not Irvine, neither the up or down swing has been quite so nuts. Assuming I keep my job, everything’s dandy. I still can’t understand why they thought it was a good idea for me to have a payment in excess of 40% of my take home.

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