You can see the mornin', but I can see the light Try, Try, Try, to let it ride
Speculating in an inflated market is much like shooting craps. In the game of craps, if your number comes up, you can choose to let your winnings ride in the hopes that your number will come up again. At some point, you need to take your chips off the table because if you don't, you will lose it all when a 7 is rolled. Many people during the bubble took the equity from one property and bought more. Many would-be Donald Trumps built substantial financial empires. They were playing monopoly with real properties and funny money being given out by the banks as if the borrowers were passing "go". With money that was easy to come by and properties appreciating at double-digit rates, it is obvious why so many people played this little game. Unfortunately, not many of them took their chips off the table in time.
Today's featured property is a typical 100% financing walkaway, but the real story is with the previous owners. They were HELOCing themselves into a great lifestyle and multiple properties right at the peak of the bubble. I imagine they are somewhere between fear and denial as their empire falls apart.
No-one you see, is smarter than he, And we know Flipper, lives in a world full of wonder,
Do you remember the extreme arrogance and smugness of flippers and other kool-aid intoxicated people during the bubble? Isn't everyone who buys in a bull market a genius? They were all so sure the market could only go up, and every property was a gold mine. They were all living in their private wonderland.
And we know Flipper, lives in a world full of wonder, Flying there-under, under the sea!
And of course, now they are under water, drowning in debt and sinking to the bottom. When it comes to flippers, my schadenfreude overfloweth...
Today's featured property has been profiled before. It has been on and off the market for about a year and a half. This is the third listing we have documented here. It takes a great deal of courage to flip a $2,000,000 property. Either that or a great deal of ignorance and kool aid.
Isn't that the reason everyone panders to their sense of entitlement and buys too much home? We all know that emotional longing to live well and have the very best. I am certainly not immune. Like many in my industry, I have had to live with a reduction in my income during the housing crash (I am lucky to have a job at all). The place I rent now used to be easily affordable, but now I am stretched to maintain my standard of living. Am I entitled to the life I had during the bubble? I certainly do not want to downsize and lower the quality of the place I live because I enjoy it. I am over my head, but it sure feels nice.
Everyone feels these desires to have more. Some people have less discipline than others when it comes to resisting these urges. During the bubble, lenders removed all external resistance, and the most irresponsible among us were given access to as much money as they wanted to buy a home. It shouldn't be terribly surprising that we are having a lot of foreclosures now.
Of course, the assurances of realtors like Suzanne convince people they deserve it and they can do it. Well, sometimes they don't deserve it, and they can't do it. If you don't fully understand what "pandering to a sense of entitlement" means, watch the Suzanne Researched This video above. It demonstrates the concept better than I could explain it.
Today's featured property was owned by someone who overbought and simply could not afford the place they had. The property was purchased in 2004 with an Option ARM and a significant downpayment. The Option ARM consumed much of their equity, and the market took the rest. Now the bank owns it, and they are asking 15% off the 2004 purchase price.
It has been a year-and-a-half of foreplay here on the Irvine Housing Blog. It has been a long time coming, but the book, The Great Housing Bubble, is finally here.
I am pleased to announce we will be having an Irvine Housing Blog party and book signing at 6:30 on Wednesday, November 12, 2008, at JT Schmids at the District. This is your chance to meet the people behind the screen names.
You have plenty of time to order and receive a copy of the book from Amazon. I will also have a large but limited number of books available at the signing. These will be available for a $15 "donation" to the IHB. You are under no pressure or obligation to buy a book or have it signed. All who wish to be a part of the IHB community and meet others in the community are encouraged to attend.
I hope to see you all there.
Its been such a long time I think I should be goin, yeah And time doesnt wait for me, it keeps on rollin Sail on, on a distant highway Ive got to keep on chasin a dream Ive gotta be on my way Wish there was something I could say.
Well Im takin my time, Im just movin on Youll forget about me after Ive been gone And I take what I find, I dont want no more Its just outside of your front door.
Its been such a long time. its been such a long time. Foreplay/Long Time -- Boston
BTW, We have a private room, and although this is publically announced, it is a private party. Agitators will be asked to leave.
Seems like a touch, touch too much You know it's much too much, much too much
I have written much on the Fundamental Valuation of Houses and the concept of rental parity. It has been my supposition from the beginning that prices were greatly detached from their fundamental valuations and were due for a crash. My prediction is for a 40% decline in Irvine's median by 2012. Today's featured property is a great case study in just how ridiculous the asking prices still are here in Irvine.
And now that we've come to the end of our rainbow There's something I must say out loud...
WHERE THE HELL IS MY POT OF GOLD?!
There was supposed to be a pot of gold here. At least that is what our third flipper thought. I have written on other occasions about the phenomenon of trading stucco boxes (Houses and Commodities Trading, and Houses Should Not Be a Commodity). People were buying properties, often not even living in them, waiting for a short time, and then selling them to another speculator who would do the same thing. It was a classic Ponzi Scheme dependent upon greater and greater levels of debt to perpetuate higher and higher prices. Today's property is probably the finest example of this phenomenon I have encountered here in Irvine. Let's take a closer look.
distractions from the ordinary real life just not good enough explanations hard to come by
Is it so bad to live an ordinary life? We have it pretty good in Southern California. The weather is great, there are lots of activities, and with the wages being higher than the national average, it is not too difficult to support a family. I guess for many, a real life, a life of living within one's means, is just not good enough. It takes HELOC dependency to fuel a better-than-average life for ordinary citizens. Why do we all have to live that way? Explanations are hard to come by. Have we have all becomes slaves to the pavement, or perhaps, slaves to our payments.
i wish i could safely say all the right decisions were always made
Based on the unprecedented drop in prices and the equally unprecedented debt levels many homeowners took on, it is safe to say that all the right decisions were not made. When you reflect on what happened, and think about all the debt people took on, you come to one inescapable conclusion: nobody thought they would ever have to pay it back, certainly not from their wage income. In fact, many of them are not. Some sold their properties and transferred the debt to someone else, and some simply walked away from their properties and let the bank take their debt back. There has been a lot of conjecture on the walkaway phenomenon. Is it real? Will it get worse? Judging from what we see here everyday, it is easy to believe it will get much worse. People don't want to pay the money back. It is that simple. If they can't pass this burden on to someone else, they will default. People don't go from wildly irresponsible to miserly and responsible overnight, if they ever change at all. I speculate that many, many more people will walk once they accept that prices are not coming back. When denial turns to fear and acceptance, the burden of the debt will become very real, and the crushing burden will be too much to bear. Until then, most will carry on with the fleeting hope that prices will recover in a couple of years and the titanic debts on their shoulders will be transferred to a greater fool when they sell their properties. The walkaway phenomenon is already observable in markets wiped out by subprime defaults. When the Alt-A and prime ARMs reset and the Option ARMs explode, Irvine will be no different.
Today's featured property is another HELOC abuser who refinanced himself out of his family home. Faced with the prospect of paying back a debt that had more than doubled in 6 years, he chose to walk. He will not be alone.
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You can see the mornin', but I can see the light
