Irvine Housing Blog

WOT 5-17-2008

Joni Mitchell - My Secret Place

This is an open thread. There is no specific topic. The post which follows is merely intended to stimulate conversation.

You are forewarned that the images are a bit risqué.

$186 Per-Square-Foot in Irvine

This Ole House -- Stuart Hamblen

Today's property sets a new low standard in Irvine. This is the first property I have seen below $200/SF. Granted, it is a fixer-upper, but those properties will always be the low-price leader. I really did not think we would see price levels this low in 2008.

This is the kind of property that will interest me in a couple of years. If you find a house in need of major cosmetic surgery (but nothing structural), you can buy it with FHA financing and take what would have been your 20% downpayment and renovate the property to your taste. After the renovation, you can get the property reappraised, and hopefully, you will have added enough value to be able to stop paying private mortgage insurance. At that point, you are in a house finished the way you want it for equal to or less than a "normal" property in the community. Right now, it would just be a money pit, but when we are closer to the bottom...

FOR IMMEDIATE RELEASE

Monterey Cypress Publishing Signs Author, Lawrence Roberts, and Publishes Book, “The Great Housing Bubble”

Monterey Cypress Publishing, a small press specializing in real estate and personal finance related books, audio books, and video presentations, has signed an exclusive agreement to publish the works of Lawrence Roberts. His first book, The Great Housing Bubble, details the causes of this historic crisis.

Irvine, Calif., May. 15, 2008 – Lawrence Roberts, author of “The Great Housing Bubble,” joins with Monterey Cypress Publishing in a long-term agreement to publish a series of books on the housing crisis. “I am very excited about this opportunity to work with a great publisher,” says Roberts, “and I look forward a successful ongoing relationship.”

In his first book, “The Great Housing Bubble,” Roberts contends that a combination of loose lending standards and irrational exuberance on the part of borrowers created a “herd mentality” that drove prices beyond any reasonable valuation measure. He provides detailed information on the phenomenon of irrational exuberance, the mechanics of lending, the proper valuation of residential real estate, the role of psychology in housing markets, predictions for how the bubble will deflate and more. Roberts believes the pain and anguish caused by the foreclosures and bankruptcies resulting from the deflation of the housing bubble was an avoidable occurrence – if the housing bubble had not been permitted to inflate.

Roberts proposes a series of changes to our current system of appraisal, lending and sales of residential real estate. He suggests realtors be subject to oversight by the Securities and Exchange Commission regarding the false statements they routinely make concerning the investment potential of residential real estate.

About the Author and Publisher

Lawrence Roberts, author of “The Great Housing Bubble,” is known as the Housing Bubble Cassandra. He publicly predicted the housing price crash as the primary writer for the Irvine Housing Blog. From his unique vantage point in Irvine, Calif. – the center of the subprime universe – Roberts carefully documents in his book the conditions and practices that inflated the largest real estate bubble in history. He holds a Master of Science in Land Development from Texas A&M University, and he consultants to the land development industry.

Monterey Cypress Publishing is a small press specializing in real estate and personal finance related books, audio books, and video presentations.

Contact:

Lawrence Roberts

Monterey Cypress Publishing

(949) 599-1250

montereycypressllc@gmail.com

http://www.montereycypresspublishing.com/

http://www.thegreathousingbubble.com/

irvinerenter@gmail.com

http://www.irvinehousingblog.com/

###

Double Down

Two as One -- First to Last

When your playing blackjack and the dealer has given you great cards, you have the option of taking one more card and doubling your initial bet. When the odds are in your favor, it is a smart play. Since the real estate market was a "sure thing," and prices always go up, it makes sense that people would have doubled down in the real estate market. The more property you owned, the more money you made. Well, at least that was the idea after a few kool aids. If you made the mistake of drinking the kool aid in the summer of 2006 and buying two low-end properties right at the peak, your double-down bet was a short cut from first to last.

The Price of Being Wrong

Nantucket Sleighride -- Mountain

Don't cry little Robin-Marie 'cause you know you're losing your home...

It always makes me sad when I see these foreclosures and short sales with pictures from the children's rooms. The disruption to family life caused by the Great Housing Bubble has only one precedent in the United States: The Great Depression. Hopefully, this family will be able to move into a comfortable rental rather than a tent city or Hooverville, but they will have to move. Basically, anyone who bought late in the bubble rally is underwater, and these homedebtors will fall into one of two categories: 1. Those who are forced from their homes (or choose to leave), and 2. Those who are trapped in their homes. It is difficult to determine who is worse off. Those who are forced from their homes will have ruined credit and difficulty in obtaining a home in the future. Those who are trapped in their homes have a complete lack of mobility to take promotions and crushing debt service payments that prevent them from doing anything else. All of these problems boil down to one bad decision: they bought a house during a wild financial mania.

Equity Inferno

Disco Inferno -- The Trammps

The twin towers known as the Marquee at Park Place is a lasting symbol of everything wrong with the housing bubble (Two mass fires, yes! One hundred stories high.) These urban units were 30 years ahead of their time, and perhaps in 30 years, the buyers in these towers will be able to sell their units for what they paid for them. The obscenity of the prices there will be laid bare in today's post. I will run through the cost of ownership numbers as compared to the cost of a rental and demonstrate what these units are really worth to an owner occupant.

I must confess, I have been holding off profiling these towers. There is limited information available on these units in the data services I use, so my picture is somewhat incomplete; however, the main reason I have waited to post on these units is because in the very first post done on this unit back in early 2007, I lost it in the comments section. It is pretty rare that I lose my cool, but I did there. The exchange went as follows:

Middle Class HELOC Abuse

Country House -- Blur

The posts we do on over-the-top HELOC abuse are gripping because the dollar amounts are so large. However, focusing only on the extreme cases gives the impression of HELOC abuse is an unusual behavior of a few spectacular cases. HELOC abuse is not unusual or uncommon: it is widespread, and it is going to pummel the middle class.

What possesses people to borrow and spend so much money that they lose their homes? The simple answer is that they didn't think they would lose their homes. Most believed their house values would go up forever and their house would pay off all their debts. All they had to do was continually refinance with very low interest rates and service the debt will a little of their work income. It never occurred to them that they might actually be required to pay down this debt with their wage income. But even if people drank the kool aid and believed this pathological nonsense, why did they take the money out and spend it? Why not let it accumulate and build wealth? Our song today is about being caught up in the "rat race" and leaving it all behind for a house in the country. Many people who spent their equity were caught up in the rat race trying to "keep up with the Jones's." It is sad really.

I received an email from a reader some time ago telling the story of what happened to his group of friends during the bubble. A few of his buddies really drank the kool aid and began separating themselves from the rest of group. They were spending beyond their means acting rich and feeling superior to the members of their old clique. The remaining group that either rented or lived within their means remained friends and watched with amazement as their former friends spent lavishly entertaining the "in" crowd and worked to increase their social status. As you might imagine, the bills are now coming due and the housing ATM has been turned off. The illusion of wealth and status these people created is disappearing as well. Not surprisingly, the fiscally responsible members of the old circle of friends are responding with a mix of sadness and schadenfreude. Stories like this are more the rule than the exception.

Today's featured property is a typical, middle-class Irvine house. Perhaps a little above median, but certainly the kind of home a family making $125,000 a year (middle class in Irvine) should be able to afford. It is another sad and common story of HELOC abuse on a middle-class scale.