The Second Noble Truth of the Buddha is that all suffering is caused by craving. People who took out HELOCs to fuel consumer spending gave in to craving, and they are about to endure a period of extreme suffering in their lives. People crave for just about everything they believe money can buy: cars, boats, vacations, status, lovers, self-esteem, and many other things or states of mind. HELOCs enabled people to obtain things that would have been denied to them under ordinary circumstances. When people obtain objects of their desire, it leads to a temporary state of satiation followed by an even more intense wanting. It is like drinking salt water: you think it helps, but drinking it makes you even more dehydrated and causes you to crave water even more. Those that drank the kool aid of the Great Housing Bubble took out HELOCS and tried to satisfy the craving beast inside. It didn't work. What is worse for them is that they are now accustomed to feeding this craving beast a steady diet of whatever it wants. Once this beast learns to feed regularly, it causes even more suffering when it is not fed. The HELOCs which bought the food to feed the craving beast are drying up. The housing ATM is broken.
It is my hope that profiling these stories of HELOC abuse does more than satisfy the beast of schadenfreude within all of us (that leads to suffering through separateness.) I hope these stories serve as a lasting lesson to people. It is common for people to react with envy to the rampant consumer spending these stories contain, but take a moment to consider the pain the hangover must be causing. These HELOC abusers are losing their houses, their lifestyles, their illusions of wealth, and their real money. Each of us must struggle between the unskillful desire to revel in their pain and skillful practice of feeling empathy for their plight. I know I do. It is important to move beyond schadenfreude lest we become trapped in the same feedback loop always needing another fix of someone else's pain to make us feel whole and happy.
In the meantime, enjoy today's post about another HELOC abuser who took out $600,000 over a 4 year period. Where do you think they will be finding that $150,000 a year supplemental income in this recession?
Cheap is relative. Compared to pricing at the peak, the prices of houses in Irvine right now are cheap. Of course, they will get cheaper, but today's property caught my attention because I did not get an overwhelming feeling of revulsion at the high price. That is real progress. I am not sure what attracted me to this property. Perhaps it is like ZZ Top's Cheap Sunglasses.
We are the Irvine Housing Blog, and I rarely profile properties outside of Irvine, but today's property is in the Irvine school district, and although it is in Tustin, it is certainly Irvine adjacent.
Tear the roof off? Remember when Jim Cramer said we should plow under the Inland Empire? That might be a bit extreme, but these lazy houses need to be punished somehow, don't they? Houses used to provide a steady supplemental income, and now they don't. Think about all the people out there who became accustomed to the free money their houses were generating. If I were one of them, I would be pretty angry.
Today's featured property is another in our endless series on HELOC abuse. For any of you that thought this was not common, I hope all these posts are opening your eyes to the reality of the situation. HELOC abuse is everywhere, and these people are watching their supplemental income disappear which in turn is taking down our local economy. Are these cases the exception rather than the rule? It really doesn't matter, does it? There are enough of these properties to materially impact the market. These are properties that would not ordinarily be for sale. They are added market inventory, and when they become REOs, they will be sold at whatever price the market will bear. Market prices are set at the fringes. It doesn't matter if 95% of homeowners where responsible (they weren't) because all of those who were not responsible are going into foreclosure and causing the precipitous price declines we are currently witnessing. The vast majority of HELOC abusers are going to lose their homes, and the resulting REOs are going to continue to pummel the market for some time to come.
So what happened to today's sellers? They took out $726,500 and exercised their "put" option leaving the lender holding the bag.
Isn't that the most annoying song you have ever heard? Can you fathom a reason why someone would write and record it? In the same way, can you imagine why someone would buy this condo backing on the 5 for $699,000? Some things you look back on and go, WTF?
Actually, this does illustrate the mindset of the bubble rather well. Any property is a good property when prices are going up. Quality doesn't matter because the property's desirability comes from increasing prices, not from the characteristics of the property itself. This guy bought the tip; he purchased on the high tick of the market action. There was nowhere to go but down.
Would you like to get stranded on Alicante Isle? (I know it is spelled Aisle and it means something else, but just go with it.) People buying properties as flips during the down cycle are betting on the return of the market. There is no shortage of ignorant prognostications of the bottom, and if flippers are foolish enough to believe them, then they deserve to become bagholders. If flippers and lenders became the bagholders for the decline, Karma would be delivering its comeuppance. Flippers hope to get in and out of a property quickly, and like the passengers on the US Minnow who thought they were going on a 3 hour tour, getting off the island will likely take much longer than planned. They end up stranded in a condo searching desperately for a way to get out. The market will eventually rescue them. The castaways of Gilligan's Island were only trapped for 4 years until the series was mercifully cancelled. The flipper who gets trapped in today's featured property will likely be there much longer.
The Second Noble Truth of the Buddha is that all suffering is caused by craving. People who took out HELOCs to fuel consumer spending gave in to craving, and they are about to endure a period of extreme suffering in their lives. People crave for just about everything they believe money can buy: cars, boats, vacations, status, lovers, self-esteem, and many other things or states of mind. HELOCs enabled people to obtain things that would have been denied to them under ordinary circumstances. When people obtain objects of their desire, it leads to a temporary state of satiation followed by an even more intense wanting. It is like drinking salt water: you think it helps, but drinking it makes you even more dehydrated and causes you to crave water even more. Those that drank the kool aid of the Great Housing Bubble took out HELOCS and tried to satisfy the craving beast inside. It didn't work. What is worse for them is that they are now accustomed to feeding this craving beast a steady diet of whatever it wants. Once this beast learns to feed regularly, it causes even more suffering when it is not fed. The HELOCs which bought the food to feed the craving beast are drying up. The housing ATM is broken.
