well written.

Perhaps it is my Midwestern upbringing, or perhaps it is just not growing up in a bubble market where such things are possible, but when I see the financial behavior of people during the bubble, I am simply astonished.

there are many people like you, brought up the same way, many of them are still like that, and sadly many are not having instead “gone to the dark side.“

they will return my young jedi master.  we will welcome them back as they return with their heads between their collective legs.

may the force be with you.
——-

Wow IR, crazy profiles. As I as reading, I was trying to see if I could make a case for this kind of spending. . . Was it a medical issue? Was it some other crisis? With those numbers, and that spending it just doesn’t add up. No one should be living in Northpark and spending like a rapper. Not even me.

The HELOC we took out ages ago was paid off after one year. We used it to purchase the ten acres next to our existing 12 acre farm in SE IN.  We paid $50K for the acreage and it is now worth closer to $100K. We don’t plan on ever selling it, but it is nice to know it is there.
We’ve taught our daughter the same frugality that we were taught as children. Sure you can treat yourself to something nice once on a while, but not every day and all the time. You drive your car until it can’t be driven any more, you don’t give a fig about what the Jones’s do, and you take care of those less fortunate than yourself.
These are not Midwestern values either, as both my husband and I were raised in Southern California (me Covina and he Pacific Palisades).

The H2 needed some chrome spinners.

Of course they would do it again.

In these people’s minds - THEY are victims.  They were not greedy morons.

House prices were supposed to go up forever.

Lenders were not supposed to hold money-throwing parades down streets of Gotham.

People were supposed to honor their social responsibilities and take out a larger loan than the guy before them.

Negative Nancy bloggers and media stories were not supposed to scare the masses and spoil the party.

If you were to ask these sellers if they had done anything wrong - they would certainly scapegoat out of it and make no mention of their greed and magical delusions getting the better of them.  They would play the “we were taken advantage of” card.

People just got used to real estate appreciation and counted on the unending equity appreciation to supplement their life styles.  I know many people who pulled money out of their homes to fund their children’s college on a regular basis. 
Remember there was a tech crash that left people in the computer industry without jobs from about 2000.  That particular job sector seems to be having some improvement in the computer and software industry in the last couple of years.  People might have pulled out equity to cover expenses then, too.
The stockmarket crash ended the bubble heads who used their stock “equity” to fund all sorts of lifestyle enhancers.
Vegas has had a major boom going on.
How many of those heloc’s mentioned on this thread went possibly to purchase other properties by self styled “real estate investor tycoons”?

There is absolutely no way that the government should bail anyone out of this mess.  People need to deal in reality.

G in Indiana,
Those are our values, too and we are calif. natives from covina/West covina area!

What part did you live in?

Ah! Well then I take it all back!

Dow futures down over 300 pts this morning.

This first house highlighted today is a cute little starter home that I would pay about 400k for if I had a bunch of very small children. 5 beds in 2000 sq ft???

The second prop I would never buy. They are not laid out properly. Look at the pic of the kitchen that shows the view to the outside. The neighbors house is used as the property border and their window looks right into your kitchen/dining area.

All that aside, I think we are really entering a new era where many potential buyers are going to be very afraid to take on debt. Lets also not forget that many home purchases are trade-ups. The low end housing market is where the most trouble is and they were the ones that were rolling their equity into more expensive houses. That party is over.

How many of you have plenty of money but are starting to spend less? I did something this weekend that I have never done in my life - I clipped coupons!

I highly doubt they will come back with the tail between the legs.

With so many unsavory characters involved in this mess, it is so easy for each party to finger-point and create their own “justification”.

Lenders point the finger at the buyers for purchasing more than they could afford; for not understanding the details of their loan.  A valid point.

Homedebtors point the finger at the lenders for allowing them to purchase more home than they could afford; for luring them in with “creative financing”.  A slightly valid point, but certainly not a valid excuse.

Realtors play the double-speak neutrality card; they were just doing a public service by supporting the huge demand for housing.  The fluffed appraisals and shill bidding wars in the chase for the 6% are swept under the rug. 

The Orwellian outcome:

All of the villains walk away with a clean conscience at the end of the day.  Each one with an accepted BELIEF that it is the OTHER guy’s fault.

If you haven’t seen this one already, I think you will enjoy it…

http://www.irvinehousingblog.com/2007/09/10/the-fb-plea/

My brother and his ex were masters at extracting equity from their OC home. Where did it go? It ended up used for limo’s, Nordstroms, cruise ships. Bimmers and private schools before their bankruptcy/divorce.

In 2006, he and his new wife tried it again with another house which promptly lost $150,000 in value ending their spree.

Those of us with parents who suffered through the Great Depression by shoving cardboard in their worn out shoes should have learned a lesson from them.

This is it!  The stock market is going to meltdown due to derivatives losses. They are in the trillions. We are going into a depression and the sad thing is even my wife does not beleive me. Real esate prices are going to crash in half or more from where they are right now. Real estate agents oughta no get out of LA LA land.

My home burned down in the last fires (Lake Arrowhead) so I am on the prowl for a new home.  When I talk to realtors they act like I am crazy when I tell them what I would pay for a 3700 sqaure foot home in Corona. They, for the most part, are downright rude. They sit and lie to everyone walking into any open house with statements like “investors are coming back to the market”. Or, “ this is a great time to buy”.  I am sorry, I can no longer hold back as I ask them if they can spell D-E-R-I-V-A-T-I-V-E-.  Of course they have never heard of the word.  The only question is what will the govts. due in the short term. There is no solution to the problem at present. Good luck as we are all going to need it.

I hope this purge will leave only honest realtors which I think is only about 10% of them.

Exactly.

The “social contract”.

I remember in 2006, I was driving from Tucson to Phoenix and was listening to Talk Radio.  A news brief came on in between programs and it was sensationalizing the ballooning house prices in CA.  “The median house price in CA has climbed to some newly unbelievable number”.

They then cut to interviews with “buyers” who were nervous about taking on these huge mortgages.  I will never forget it - this woman being interviewed said “well at least if it all comes crashing down; we won’t be the only ones in trouble”.  The “everyone else is doing it” justification.

The “social contract” at work.

REIT -  Real Estate Investment Trust

Panic selling shuts down REIT fund :  http://www.guardian.co.uk/money/2008/jan/18/property.moneyinvestments

One of Britain’s biggest property funds was forced to shut its doors to withdrawals yesterday after the slump in commercial prices triggered panic selling by small investors.

The move prompted fears of a Northern Rock-style run on billions of pounds invested in once high-flying funds which many savers have seen as a safe haven for their pensions.

Scottish Equitable said yesterday that 129,000 small investors in its £2bn property fund will not be able to access their money for up to a year, although payments relating to regular income already being paid, retirements and death claims will not be affected.

....................................................

REIT’s are taking a hit in US, too.

Morgan Stanley opened up a west coast office for commercial properties about a year and a half ago.  Commission-only based for the executives who moved out here from east coast to operate this office.

Now, they are not able to fund several projects, previously Okayed by the main branch.  No one sure if they will be paid and they have expensive multi-million dollar mortgages that need to be paid each month.

I have spoken with a lender during the boom that justified his “assistance” with getting borrowers qualified and through underwriting using his “special tactics”, ie loan falsification, by telling himself that so long as he believed the buyer could pay the loan back, everything was ok.

After all, he was getting the buyer into a home to live a high quality lifestyle, and since real estate was always going up, the buyer could always refinance into a traditional mortgage from their self destructing ARM.

Right…

“I think we are really entering a new era where many potential buyers are going to be very afraid to take on debt.“

I think this is very true.  If 28% DTI is the max conservative ratio in a normal environment, then what’s the DTI most rational people will be comfortable with in a declining market?  It killed me to take on 25% even though that’s really about 18% when adjusted for the tax consequences.

The markets are closed today, but they are trading some futures contracts. The volume is low, so there is no telling if today’s action is meaningful. However, as of 8:00 AM our time, the DOW futures are trading 450 points lower. Wow! This should be an interesting week.

“I would argue this was very widespread.“

I agree that HELOC-ing your way to a richer life was widespread in SoCal.  At least half of the homeowners I know cashed-out some equity.  But I don’t know a single person who went crazy like the examples here.

Last year my depression-era parents decided to reward themselves with a new car.  My elderly parents have >1 mil in retirement accounts, bonds, and cash, plus pensions and a paid-for house, in spite of a lifetime of lower income.  So what did they splurge on?  A mid-line Toyota Camry that they are so proud of…although my mom wishes my dad would have been willing to buy up to leather seats! 

They passed this value on thrift to their children.  We all live below our means.

Great points.

FYI clipping coupons is for the birds. It takes less time to make money than to save it scouring through newspaper ads.

Go to costco and pay $49 per year to save 10X your membership or more per year. No coupons needed

Vincent, Ipoop, IR

I still have some equites, not in financials.

I was hoping for a “dead cat bounce” tomorrow-wed before pulling them out.

Do you think there will be a dead cat bounce, rally in the morning or are we doomed to another free fall.

I can’t tell which way the wind will blow

Any thoughts?

My grandmother used to carry her lunch to school in newspaper during the depression, and she was considered well off compared to some of her friends. Now days if you sent your kid to school with a healthy lunch wrapped in a newspaper you’d have child services knocking on your door.

People forget where they came from and have to be reminded every once in a while.

Yes, indeed this will affect our local economy, among the things that my coworkers have bought or paid are: a $60K+ backyard pool, a new pick up for the brother in law, credit card debt, new gourmet kitchen, new outdoor kitchen, a home theater. 

All this consumption that has been pumping up the SoCal economy is now gone, well, where is going to come from now?

So far the job losses have been in the financial and real estate area, but the radio of this impact will keep increasing and increasing.

This is like economic atomic bomb detonation we’re seeing the mushroom cloud far in the distance but later the the impact wave will come obliterating everything in its path.

Iron Chief America had an English chief on (don’t ask me his name) and he wrapped his fish&chips in newspaper..  Still the traditional way to serve this dish.

I guess if the Judges were Irvantes they would mark him down in presentation.  Although, besides lining the cat box what is is the OC register good for?

Just what did these people spend their $342K on, I wonder.

They sure as hell didn’t spend it on that dowdy, ordinary house. I see white tile counters and cheap cabinets, and bottom-of-the-line white appliances. Is there a pool with a cabana? A tennis court?

I notice that, in listing every one of the houses you’ve featured, the seller highlights the kitchen. That must mean it’s the only decent-looking room in the house. So God knows what the rest of the place looks like.

I hope these folks enjoyed the cars and boats and vacations and overpriced clothes they hocked their house for, because I can’t imagine even CA buyers anteing up the price asked for this place.

People have HELOCed themselves to death allover the country. I noticed that in my mother’s formerly conservative old St. Louis suburb, that many nearby homes suddenly sported additions larger than the original house and that many overpoweringly large homes went up on tiny lots during the bubble years. $80K cars suddenly appeared in driveways where there had been 7 -year-old Honda Civics before- this is an affluent, but formerly very conservative place where understatement was the byword.  Ostentation in cars and clothing was frowned upon- it’s a place where 50-year-old women walked around in their old school uniforms from Mary Institute and most large, expensive homes had 30s-vintage kitchens. There were never foreclosures before, either, but now they are happening, and to owners of these same large, expensive houses. Nothing is selling, and asking prices are being dropped by large percentages.

At first I was overjoyed at the bursting of the bubble and the subsequent rolling back of prices because that means that I will be able to afford a nice place in keeping with my means, after sitting on the curb for 5 years watching in chagrin as the prices ratcheted rapidly upwards and out of my reach, driven by moonshine mortgages.

However, now I am filled with fear, because it is evident that our whole economy became dependent upon the continuance and rapid expansion of the bubble. In other words, our entire economy since 2001 has been fantasy, and the wealth “hallucinated”, to use the word of one pundit. Now that the whole skien of over-sized mortgages for 2, 3, or 4 times the value of the property, granted to people who never could pay for them, financed by institutions with no regard for risk, is unraveling rapidly and taking down a huge portion of the financial sector with it, we can see that it will means hundreds of thousands of lost jobs and incomes at every level not only in financial but in all industries dependent upon housing in any manner. There will be massive spillover into other, seemingly unrelated industries, as the entities they depend on for their business are decimated.

So my joy was very short-lived. I mean, it’s great that by 2010, I will be able to score a great place at a very reasonable price and in keeping with my means, but will I still have any means? Will anybody else?

Of all the recent innovations in home improvements, I can’t think of anything more inherently ridiculous and criminally wasteful than an outdoor kitchen.

There has been a big fad for these here in Chicago, in the more expensive suburbs, and to me, our financial decadence has reached the last, terminal stage when wealthy people who let their own communities rot around them because they don’t want to pay an extra dime of taxes, are willing to drop $60K to $100K for a state-of-the-art kitchen replete with Viking ranges, and dishwashers, and granite, to sit on the back lawn under a tarp and attract condensation and rust during Chicago’s wet, freezing winters.

Well, the foreclosures are hitting wealthy suburbs like Hinsdale and Bonnockburn, and all the rich folks who just had to pretend to be much richer and who borrowed against their $3MM houses for crap like this are ending up much poorer as a result. Tough luck for them, couldn’t happen to less deserving people, could it?

At some point, we will have a dead cat bounce because the markets are very oversold at this point. However, markets can stay oversold for a long time, and they can become even more deeply oversold before the bounce occurs.

The activity in the DOW futures market this morning is very troubling.  At 8:46 AM our time, the DOW futures are off over 520 points. That is huge. It is a low volume trading day because the broader markets are closed, but a 520 point drop is very unusual to say the least.

I would note this: when a market starts a major bear market, it is steady professional selling at first (which is what we have seen for the last month) followed by panic selling by the general public. It is usually only after the general public sells in a panic that the markets bounce. If your desire to sell is shared by the general public, we may get a huge drop followed by a strong bounce. So the question is, “Do you want to try to beat the panic selling and quite possibly participate in it? Or do you want to try to wait for the bounce to sell at a better price?“ If the DOW opens 400 points down tomorrow, it is probably already too late to beat the panic drop.

Fortunately Irvine is big enough that squatters will still need cars to get to and fro, which means they’ll still have to earn enough to pay for gas, and therefore may be less likely to light the house ablaze in a crack pipe incident.

Any information on how the local police are planning to ramp up their readiness when the class wars begin in earnest?

Some media from today:

[url=“http://www.washingtonpost.com/wp-dyn/content/article/2008/01/20/AR2008012002275_pf.html” rel=“nofollow”]

“The main reason you are sitting in traffic, [Secretary of Transportation Mary Peters] believes, is not that the purchasing power of Highway Trust Fund revenue has been dwindling for the past decade, not that population and freight traffic have been soaring with no government response—but that you are not being asked to pay enough to use the road you are on.“[/url]

OK, it’s off topic, but IHB commenters occasionally suggest that toll roads or congestion pricing might solve traffic congestion.

I’m part of the problem,  today… I willingly spent $4 in tolls, $16 in parking + about $3 in gas just because I didn’t feel like waiting for the train’s holiday schedule.

The reason I was holding out for this week was becuse Apple and Microsoft are both predicted to announce earnings that will blow thru expectations and I had assumed that this news would rally these equites, now I’m not sure anything can rally the market.

So, where do you draw the line.  Yes, I could live in a 750ft2 apartment and save a bunch of money.  I could drive a $9k Kia and run it into the ground.

What is the point of having a good job and making good money if you don’t enjoy it to a certain extent?  I save 15% in my 401k and put another 10% away in a taxable account.  I pay extra on my mortgage.  At what point is it o.k. to enjoy your wealth?  Is it a good thing to die with $3Million + in assets and leave it to your heirs?  I could see leaving it to a charity but other than that I think it is better to enjoy and die with minimal assets.

The housing bubble isn’t really going to hurt here (we are in DFW Texas and bought in the mid 90’s.)  What will hurt is the stock market.  Maybe I should try to time the market and liquidate but 1) I don’t want to pay the taxes on my gains and 2) I’m in long term so it should work out in the long run. 

Good luck to everyone out there.  It will be an interesting next few years.

fascinating reading the comments. I too am horrified thinking about what, exactly, all these people spent their HELOC money on. Vacations, dining out at fancy restaurants, boob jobs, expensive cars… pretty much every single rule of personal budgeting and financial management violated.

I am a very empathetic person but I have a hard time feeling much empathy for fools like these. There are some very simple rules to becoming wealthy virtually no matter what you make: live below your means. Never take out a loan whose duration is longer than the life of what you’re going to buy with the proceeds. Whenever you think of making a major or semi-major purchase, remember that you have to make twice the purchase price in order to pay for it (due to taxes… for instance, to pay for that $10,000 vacation, you really have to make $20,000). Pay yourself first. Whenever possible, pay off your credit cards in full. Remember that a car is a necessity in most places (particularly in western states), but it’s one of the worst things to spend money on; buy less car than you can afford if possible. Don’t buy a new car unless you can really, really, really afford it; let someone else take the ~40% depreciation hit which occurs in the first two years of ownership. You can eat at home for 10 or more days, for what it costs to eat out for one evening; so learn to cook and bag your lunches.

These are hard and fast rules, and no matter what anyone tells you, no matter what bubble is currently going on, you can’t fail to enrich yourself if you follow these rules. There’s no freedom that feels quite like living debt-free, or as nearly so as possible.

It warms my heart to know there are at least a few people around (like you commenters) who understand these basic rules. It gets pretty lonely sometimes, watching everyone else live like rock stars while I’m minding my P’s and Q’s. Thank goodness my self-esteem is high enough that I don’t really give a fig what others think of me, just because I’m not spending my future wealth in order to live an unrealistic lifestyle.

Hey priced_out, did you find office space?  If you didn’t, check your threads in the forums…

I *wish* I had the money-saving options available to me that were available to my parents.

They had full health insurance through their employer. Hell, my Rx copay just went up to $40 EACH.

We had excellent public schools all the way to college, and very good public universities. (UC is great, but just try to get in nowadays. It has hardly expanded in the last two decades)

Unemployment insurance? My dad was fortunately never laid off, but my wife’s father (we’re from the same small town) was a carpenter and work was seasonal. His unemployment benefits through the state and the union were very generous - it allowed him to be the sole breadwinner and put three kids through school. In fact, my wife once told him how low my Cal EDD unemployment check was—his response was “Oh my God!“  At the time, it wasn’t even enough for rent.

Retirement? No way that retirement benefits will be this generous when I retire. Today’s seniors are living a gold-plated life compared to what they are leaving for me.

I’m having a hard time believing the realtor’s comments regarding 5 Altezza being a “Former Model Home.” 
There isn’t a single upgrade in the entire place. 
Do mini-blinds qualify as “custom window coverings”?
This one’s a dog!

Another thought that occurred to me while reading about all these people cashing out imaginary wealth and spending it on keeping-up-with-the-Joneses:

It’s already expensive enough to live in the southland. I gotta think that all these people living well beyond their means, had to cause some sort of localized price inflation which affected everybody, including those who have been living and spending responsibly. If people are busting down the doors to drop $100 an evening on dining out, why not increase menu prices? If people are buying Bimmers and Escalades left and right, why not jack up prices a few grand? The market can bear it!

We haven’t even begun to see the real pain. My yardstick is the 80s S+L crash; I’ve been thinking all along that the market decline will equal that, more or less: 3 or 4 years of declines, followed by an essentially flat market for 5 to 7 years before a weak-to-normal appreciation in home prices begins. Now I’m wondering if it will be even worse than that. After all, it took Japan, what, 15 years to recover from their bubble, didn’t it?

When the twin towers were blown up, we were told to go out shopping.  Remember?  So the terrorists would not win, we had to have a good Chirstmas retail season.  I remember people running out to buy stocks to be patriotic, too.

And haven’t we been told to buy stuff to help combat terrorism?  I don’t think i am the only one who has seen that kind of talking point put out to the public during war time.

One of the biggest factors underlying all this dollar falling and heading into recession is this non-ending and expensive war.  This war is definitely a “luxury” and the expense is killing our economy.

I also remember the suggestions to go buy duct tape and plastic sheeting in case of nuclear incidents immediately following the terrorist attacks in NYC.  Gads, I guess they expect us to believe just anything.  And that is a big part of the problems.  No one is actually THINKING.  Everyone is out there hoping, praying, fantasizing… that everything will be okay if they just submit to a varity of authority figures and talking heads and spiritual leaders.

I would try a slightly more compassionate take.  They used helocs to pay budget shortfalls on a monthly basis for years at a time.

I’ve seen this with people.  A lot of the people who buy home are couples who are planning to start a family.  What happens when you start having kids?  More expenses, less income, medical expenses, etc.

Also, people transitioning from childless renters to home owning parents with no disposable income using helocs to maintain their lifestyle of eating out for lunch and dinner several times a week, clothing, stylish cars.

The ultimate problem though is that house debt was not seen as “real” debt.

I hope these people can sell their homes for at least a modest loss and start over.

Aren’t you generating a ton of commissions doing so much trading?

October 19, 1987 wasn’t the end of the world.

Of course you never know… in individual cases, maybe they wanted to pay their kid’s college fees, or their grandparents’ medical bills.  But, obviously, the widespread practice suggests that most people were just spending on stuff, hummers, trips, remodels, etc.

What the fuck would you do with all that spending money?  Maybe most of these people lost their jobs?  That’s the only other reason you need that much cash on hand…

I take your point. I am on the thrifty side myself. Sort of a fear of being broke which has been lifelong. Yes, I’ll die with money in the bank.
Guess it depends on what makes you happy. External things or internal things. One thing I know is that I don’t have stress over finances, only have to work one job, and will bring a lifetime habit of living below my means into retirement. So I will be able to continue my modest lifestyle.

I dunno, Joe - I’ve seen how people are in OC. If conspicuous consumption is a religion in the US, it’s a damned cult in OC. You’re *expected* to live it up, and if you don’t, there’s something wrong with you and you’re an outcast. I couldn’t stand that attitude and that’s why I moved away.

My mother and her husband recently came into inherited wealth. She still shops for her clothes at thrift stores (she’s damned good at it too; she doesn’t buy crap!). I’m proud of her for that. Paying full retail is for suckers.

The freefall in markets from asia to Britain is pretty scary, especially as those markets tend to follow the US markets.  I have seen days back in the tech implosion when futures were showing massive pre-open declines only to have the traders rally things to green shortly after the market opened… 

All depends on news and sentiment.  It doesn’t appear that the Bush plan made much impression on the markets.  I think the key for this weak will be trader reaction to BofA earnings and what happens with the bond insurers.  Catepillar reports this week as well, and if there overseas business is soft, that’ll help sour everyone on global markets vs. just the US. 

I’m still almost all cash/bonds, even having pulled out from my emerging market stuff last month, and won’t start to push back in until bearish sentiment becomes a bit stronger.  I’d be surprised if AAPL can rally the market.  Looks like traders have been reducing exposure to Apple since early January.  Most bets have been on an earnings disappointment…

One last comment… this makes me think of a guy I used to know quite well, he came into a $70,000 windfall ‘round about 1996 or so. Know what he did with it? He spent it all. In one year.

OTOH I had a little less than half that amount burning a hole in my pocket. I used half to make a down payment on a home which has appreciated spectacularly and which I could never afford nowadays, with a very manageable payment. The other half I used to start my retirement account, which has also grown spectacularly in that time. My ex-friend could have done something like that too; instead he’s living in a slightly undesirable part of town, living paycheck-to-paycheck, and I’m certain he still has no retirement savings.

It’s really not that hard to get wealthy or at least have some financial security… so long as you don’t spend everything you make, and use wisely any windfalls you might have the good fortune to come across.

No one is actually THINKING.

Indeed, a lot of problems/crises can be traced back to that unwillingness to think for one’s self. For instance, why we have the current fool as president.

I am trying to picture the process of actually going to the bank for HELOC after HOLEC over the space of 4 years.  Is it the same banker?  The same or relaxed credit rules? Is there any attempt at educating the client on the risks? 
The lending institution must be changing their rules as quickly as the market is advancing and in present day case as the market is retreating.  How does a lender, the actual person sitting across from the client, convey the payback agreement and rules of engagement?  How does the bank think they will get paid back, what is their sure fire etched in stone agreement.

coupons can be great - my Ralphs doubles $1.00 coupons - when I find them on things I normally buy that can be great savings!!!

clipping coupons is definitely not for the birds, if you do it intelligently. You’d be surprised how much stuff I get for free or nearly free. Especially if a coupon’d item also happens to be on sale that particular week. I regularly pay 33% to 40% of the ‘list price’ of groceries.

Costco’s prices are going up. Milk, eggs, butter. Staple items. Did you notice their eggs doubled in price compared to last year? $2.99 for 18 eggs?  Go to Trader Joe’s and get a dozen for $1.19. Two dozen for $2.38.  Spending a few minutes clipping coupon’s from Sunday’s paper is a smart idea, especially when you double the savings at places like Ralph’s.

I agree completely.

I have made over six figures for a decade now and my father in law cant understand why we struggle.  (well, as much as one can struggle making six figures in OC)

When he was our age you could work a minimum wage job and own a home, health insurance was paid by employers and most jobs had some sort of pension. Not to mention all the intangables that are part of today, cell phone, internet, cable TV etc.

$60,000 backyard pool? Jesus. I think pools are mostly a waste of money anyway; not for everybody, but how many people really use them all that much? And they really don’t add much value to a home, when you consider the cost of maintenance.

$60,000? Christ. That’s a lot of money to pay for ego gratification. You know what makes me feel smug and makes my dick bigger? Financial security.

I drive a Corolla. It will be paid off this time next year and I can’t wait. I plan on driving it another five years after that before I even begin to think about another car. I realize in OC this would make me a social outcast; women wouldn’t want to date me and I probably wouldn’t get many invites to parties or other social occasions. This is one of the reasons I moved away from there. I’d rather have money in the bank than be seen shopping at South Coast Plaza.

Thank you very much G in INdiana for pointing out that frugality and quiet but hardnosed common sense ARE NOT MIDWESTERN VALUES.  If I hear one more midwesterner praise themself on this and all the other things they endlessly priase themselves on, I just don’t know what ...  (I have three midwestern cousins and they are no paragons on any front.  But goddness me they went to church, as we were reminded often.)  It looks a lot like bragging about your moral superiority is a midwestern value.

OK that happily off my east coast raised,  first generation American on one side chest, I just escaped California after 10 yrs there of difficult renting while looking to buy.  Thank my east coast values, I never bit the bait.  But it seemed so easy to see what was going on, I could never understand why so many others did.  Weren’t they ever told not to accept candy from strangers?

I can tell you my friend, Dianna MacDavid (First Team in Irvine), is one of the 10%. This woman takes the code of ethics to heart.  A couple of years ago, she sold her client an FSBO home, even though she wouldn’t make any money on the transaction, but she knew this home is exactly what her client wanted.  She is sooo honest that she lost many potential clients to other realtors who made promises on what they said they could sell their house for, which was more than Dianna thought they were worth.

There’s been a lot of discussion of this on the other side. Many making the loans knew they were likely to be disasters. But they could get fired for something that (appeared to) temporarily reduce profits. So they just go with the herd over the cliff like a bunch of lemmings.

Costco has its own coupons, and they are generally pretty good. I redeemed one last week for $5 off a $17.99 purchase.

“believe” is the key word; enough blissful ignorance so that you can sleep at night.

I got my chance to know what it was like to feel rich after I got my hurricane Andrew check.  The house was re-done beautifully.  All my worthless paperback destroyed books turned into a saving account (the insurance paid replacement value).  They turned into very nice furniture.  Everything harmonized.  Everything was new all at the same time.  Granite (which I don’t like) wasn’t the thing in’93, so we got lovely corian knock-off counters in the kitchen.  Tiles replaced linoleum.  We still have the furniture, and since it was very good quality, it still looks good.

I had to replace clothes, etc.

It was an interesting experience.  And you-all know what.  I got shopped out.  I’ve been there done that.  And I’ve had more interesting experiences, in good and bad ways.  Giving birth.  Going to Europe.  Arguing before a mean or a too sympathethic judge.

It still, I suppose, would be nice to be richer, but not so nice that I feel any urge to kill myself to get there.  Now, what I’d want is maid service several times a week, all the plants I could plant, and maybe a gardening to help pull weeds.

And the hub and I have been eating out less; spending a bit less, so I guess the herding instinct takes hold for saving as well as spending.  This doesn’t bode well for restaurants. . .

And the first “other story” on that page is a similar event at a smaller firm:

Scottish Widows halts fund withdrawals
http://www.guardian.co.uk/money/2008/jan/21/investmentfunds.moneyinvestments

I don’t think there are many misers here. I agree money is a means, not an end. My attitude is to save for retirement, college, etc. and otherwise to spend just as I see fit. I just don’t spend money unless it’s “extra”.

Lets have a little perspective please. Time was a factory sewn shirt was a luxury—sure to get your neighbors gawking and gossiping during church on Sunday.

The problem is not wealth. Wealth is a good thing. The problem highlighted day by day here at IHB is people who spend like they are wealthy, but aren’t.

Overseas markets already tanked - often over 5%. The panic is already here. When was the last time we had an international day like this? I’m a mutual fund buy-and-hold investor so I don’t remember daily details.

Thanks for posting this IR. We have been renters in Woodbridge going on 6 years. Since we moved to Irvine my husband has been trying to figure out how all these people could afford to buy here. I am going to have him read this - I think it’s one of the answers. The others being they rent, inherited the house or bought a long time ago.

I’m a denizen of the Midwest and have lived in major cities in this part of the country my entire life, and I am here to tell you that values are just as skewed and people are just as greedy, pretentious, self-indulgent, and fantasy-prone, as they are anywhere else in the country.

If we Midwesterners are so upright and responsible, why do our cities, along with those of that other bastion of old-time religion and morality, the South, have the highest rates of violent crime in the country, and hence the developed world?

The only places in the Midwest that did not become bubblelicious are places that are permanently depressed and where you can’t make a living. I mean, prices for totally fabulous houses and condos in suburban Detroit and Cleveland looked really low until you consider that these places are hollowed-out ruins whose economies have been blasted away-thus, the horrifying foreclosure rate in these two locales.

I noticed also that prices in Cleveland increased 50% between 2003 and 2005 while what remained of Ohio manufacturing was rapidly relocating itself to Mexico and other slave-wage havens. What justified such a runup in prices while the city area was bleeding business and jobs?

St. Louis, Chicago, Milwaukee, Cleveland, Cincinnati, and even IndiaNOplace are laughably overpriced relative to their local fundamentals, and they are experiencing steeply elevated foreclosure rates due to the excessive use of HELOCs and option arms.

No part of the U.S. has a corner on pretension, delusional thinking, self- indulgence, or irresponsibility.

“...journey to the dark side…“ I love it! Thanks for another
great post, IR.

I follow the markets as closely as anyone here (weird what some people find entertaining).  But wow!  Are you discussing this because it’s interesting, or because you’re seriously trying to “time the market”? 

Timing the slow moving obviously over-valued real estate market is one thing, but timing equities?  Any gain from timing real estate will certainly be lost over the years timing equities.  But I wish you the best of luck.

There is plenty of blame to go around, but I think the buyers deserve the least of it.  Of course they were greedy and irresponsible, but they made lots of money (tax free!  they will only be taxed on the discharge of indebtedness income.  good luck to the IRS trying to collect THAT within the 10 year statute of limitations!).  They had a good ride and now they will have some rough years, but they probably knew that going in, at least at some level.

Same goes for the lenders and realtors (who will probably have an even rougher ride).  Greed and irresponsibility are human nature, and that’s why we have governments and laws and regulations.  But the constituency of greed and irresponsibliity is largely the modern Republican party.  Twenty years after Ronnie’s first financial fiasco (the S&L crisis), the full fruition of his deregulatory dream is nigh upon us.  If you voted for a Republican or a Republican enabler (that would be 50% or more of the Democratic party) in the last 30 years, I BLAME YOU!  Those regulations were put in place for good reasons - because all of this crap has happened before, if not on such a huge scale.  And you fell for the con men who told you government regulation was killing the economy.  Yeah, it was bad for the fraud based economy.  Now watch what deregulation has done to the whole economy.  This is only the start.  SUCKERS!

Happy MLK day!  Get ready for the stock market melt down wave that will have another day to build in Asia and Europe before it washes over Wall Street.

“I still have some equites, not in financials. I was hoping for a ‘dead cat bounce’ tomorrow-wed before pulling them out.“

How long have you held these stocks and why do you need to sell?

Just an FYI here cause I dont really know your situation: When I buy stocks I use risk capital only and hold onto these stocks until the reason I bought them has changed based on where I think the companies or societies direction is heading.

I may hold stocks from anywhere between 5 and 20 years.

I grew up in a business family and one thing I learnt from Dad to make an “independent” assessment of tha value of an object to yourself as a person before comparing that with the market’s valuation. Let me give you an example - the homes in woodbury. I never saw the value in dilapidated, 30-40 year old structures that massively over-priced. I would ask my realtor why these are so highly priced and he would talk about the area’s desirability which never made sense to me because as an individual I did not see the value of older parts of Irvine over some of the newly made areas or Tustin Ranch for that matter. But for a lot of knife catchers, they drank the kool aid propogated by the realtors or by their friends. Bottom line, look for the value, do you see it?? If you do not then there is no point buying into the poop the sales and marketing folks fling at you.

Sorry I meant woodbridge.

Bah.  If what you say is true Perspective, there would be no such thing as a professional trader.  If you are lucky and good, you can time equities to a degree and make out with gains at the end. 

Timing is relative.  I essentially “timed” the market by rebalancing my 401K into cash/bonds and by pulling out $50K via a loan over the summer.  I’ll push those dollars back into equities during the recession since equities will typically coming out of an economic downturn.  Long versions of “timing the market” are called asset reallocation/rebalancing or trend following.

The above being said, the most timing I would today is trend following, maybe some swing trading, which is basically what Alan refers to.  I lost way too much money in 2000 by attempting the ultimate market timing, day trading.

I was raised by depression era parents, so those early lessons of living below my means sunk in. The only reason to take equity out of a house was to do repairs/improvements to the house, since it increased/preserved the value, or to start a business, since that would increase your income to repay the loan. Nothing else.

Yes, these homeowners were foolish but so was every bank that lent to them. What the hell were they thinking? How did so many people lose their minds at the same time? Oh, wait. Greed is an equal opportunity bastard. As long as everyone thought they were making money, the usual rules didn’t apply. Too bad we’re all going to suffer the consequences.

Moosehall is paid for. It’s not too fancy, but it’s all mine, I guess. While I was always insecure whilst I had mortgage payments to make, They got made, and a lot over (my wife has a mortal dread of paying interest) and after the house was paid for my problem got worse. Now that I’m not making payments, I feel like a houseguest! I keep waiting for the real owners to get home and kick me out, and demand a huge amount to cover utilities. I can’t sleep, I can’t eat, I wander back and forth from room to room. Apparently, debt is addictive, and I’m jonesin’ bad! For God’s sake, readers, don’t end up like me! To owe nothing to no-one, no time, turns one into a complete nonentity in today’s consumer schema! You are what you owe!
So pity me, I beg you, for I am no-one. Credit card companies have a name for people like me, deadbeats, and I almost wish I was.

I’ve had them 7 years and I need the money soon to complete my buy in to a business.

I’ve said it before—I think a large part of the problem is the fact that most Americans graduate from high school, even college, financially and economically illiterate.  We’re dooming our children by not teaching them the fundamentals they will need to survive in the real world.  Don’t get me started on what we ARE teaching them…

I don’t recall seeing anyone say that you should not spend money on non-essentials.

The point (at least as I read it) was that you do not refinance your house into further debt to pay for non-essentials.

Your example of having a good job and putting away money, yet still having money left over for fluff is not the same thing as cashing phoney equity out of your house to pay for bling.

This article is a few months old, but it may help people understand what we are seeing now in the financial markets.

http://online.wsj.com/public/article/SB118736585456901047.html

At its core, the Minsky view was straightforward: When times are good, investors take on risk; the longer times stay good, the more risk they take on, until they’ve taken on too much. Eventually, they reach a point where the cash generated by their assets no longer is sufficient to pay off the mountains of debt they took on to acquire them. Losses on such speculative assets prompt lenders to call in their loans. “This is likely to lead to a collapse of asset values,“ Mr. Minsky wrote.

When investors are forced to sell even their less-speculative positions to make good on their loans, markets spiral lower and create a severe demand for cash. At that point, the Minsky moment has arrived.

I live in the Santa Clarita Valley where the lifestyle is similar to the OC (but without the ocean )

This type of funding is all too common here…you have the big SUV, the BMW, the boat, the RV, and the his n hers Harleys.  I’ve seen enough neighbors drink the koolaid, people I knew did not make as much money as my ex and I did, but HAD to show they were well off.  My girlfriend calls it “Afluenza”.  We have both BMW and Mercedes dealers here as well ast all the high end Japanese brands and a Hummer dealership.  Foreclosures are now becoming the dirty lil secret.

I think enjoyment in the US is driven by consumption.  Many people aspire to and assume that unless you drive a luxury car and live in a larger house and vacation overseas and dine out in fine restaurants you are not truly enjoying your life.  Perhaps a severe recession will help us redefine what constitutes enjoyment.

Laura,

I generally agree with your post, but I have to call you on one comment:  “wealthy people who let their own communities rot around them because they don’t want to pay an extra dime of taxes…“

Here in California, top marginal STATE income tax rates are in excess of 10%.  The “wealthy” (which is just about any professional dual-income household) pay way more than their fair share of taxes.  The problem is that the corrupt idiots in Sacramento waste that money.  They fund worthless pork projects and then threaten us with cuts in schools, fire and police to try to scare us into approving higher taxes.  Don’t fall for it.  There isn’t a government in this country that can’t pay for all of the essentials if it would prioritize.  Taxes at all levels—federal, state and local—are too high.  People deserve to spend as much of their own money as they can.  And if they want to spend it on outdoor kitchens, more power to them.

Now, if they are borrowing against their imaginary equity to do so, that’s another story.  But don’t make that into an argument to raise taxes.

Is it possible that, maybe not a majority, but a significant percentage of the equity taken out was reinvested in the stock market?  Do you have some sort of stats for that irvine housing blog person?  I know of more than a few people who did just that.

Call me old fashioned, but I keep money in a reserve savings account in case I lose my job.

You don’t need hundreds of thousands of dollars to support yourself while looking for a new job, either.

Good lord, the lefties are out in force today.  You’re right, Tim—those reliably Democratic areas that vote for higher taxes and government regulation at every opportunity are doing great.  Detroit.  New Orleans.  Washington, D.C.  Yep, 20 years of Democratic rule sure changes the results.

“I never saw the value in dilapidated, 30-40 year old structures”

Yeah I’m clipping without the ‘overpriced’ qualifier but this statement is illuminating. Americans see everything as disposable. If you assume being 30 years old makes something “dilapidated” then there’s really no point getting a mortgage, is there? (And how old are you…)

I’ve lived in a 110 year old home in a desirable, mature neighborhood you could never replicate in a new development.

My current home is 58 years old and structurally straight as an arrow—contractors who come visit <i>to a person</a> marvel at the now-extinct high quality old-growth framing that new homes just can’t get for any amount of money. I feel my home is a responsibility and it should last at least as long as the 110 year old one, and hopefully much longer.

[closes italics]

Woww..

It didn’t occur to me that my equity positions were at risk even thought they I wasn’t in the housing sector because some loosers in the housing sector had holdings in the same equities and would have to dump everything they had to cover their losses.

“Professional traders” are worthless overpaid monkeys who think they provide value. They are merely gamblers who lose other people’s money. And the WORST are the ‘technical analysis’ witchdoctors gibbering about “support levels” and crap.

Indexes beat traders, every time. The only exception you can find is if you slice the performance over a narrow enough period of time, but in time, they all do worse than an index.

There, I’m done saying my piece, file for future reference to throw in my face if you wish…

Try Yucaipa. Lots of square feet for low prices, within view of the mtns and close to hiking trails.

Check out this book.  It explores how people justify mistakes in their minds.  This “thinking” definitely applies here.
<a href=“http://www.amazon.com/gp/product/0151010986/ref=cm_rdp_product” title=“Mistakes Were Made (But Not by Me)“ rel=“nofollow”>

I tried to add the link, but obviously failed. :(

http://www.amazon.com/gp/product/0151010986/ref=cm_rdp_product

Thanks for the examples. I was feeling guilty, because I just spent $275 replacing a year old car stereo because I couldn’t directly conect my ipod to it.  My little extravigance seems like a pitance in comparison.

Three years ago I refinanced my duplex after a freind hounded me incessantly. She had just got into the business and was very gungho. I shaved a point off my rate and reduced my term by half, she thought I was nuts for not taking out equity. This thing will be paid off in 5 years and producing an income. She’s struggling to make her payments.

The intrinsic assumption you are making are that Woodbridge homes are well maintained. You are also assuming that my statement applies to all homes that are 30 plus years of age. None of these assumptions are true. I have looked at quite a few homes in Woodbridge, which the owners have no interest in maintaining i.e they use the same flooring and equipment that were installed back in the 70s. The wooden patios are termite infested with webs all over the place and the seller wants $600-700k for the house. Hope that makes sense. If you are upgrading the place and maintaing it the way you describe it, thats great but you should take a look at some of these homes.

I don’t know.  I reread the message and it looks like the poster was saying you should live below your means.  My point is to live within your means.  Get the leather seats if you can afford it (especially if you are retired with a nice nest egg).  I’m not taking out a HELOC but I am enjoying my life while saving for retirement, college, etc.

So other people living a lavish lifestyle on borrowed $ is the reason my retirement savings is going down the drain?  God, am I stupid.

G,

With all due respect… for the love of god and sanity, do not ever quote the “value” of something, especially something as illiquid as real estate, or you reveal your true insanity.  That acreage is worth exactly what someone else is going to pay for it when they are willing to buy it.  Acreage is notoriously illiquid… I know this through first-hand experience.  Let’s all just hope you’re not forced to actually find out how much it is worth.

With that said, there’s a reason you’re no longer in SoCal… you’d no longer fit in.

True story… I as speaking with a friend who called himself “frugal” to my face.  He proceed to justify this frugality with the statement that he had only extracted 200K of his house’s value.  He then proceeded to tell me that his real estate broker friend had told him that his zip code was the only one in all of California that had not lost any value in the current crash.

Uh… right.  You have to just listen and nod when stupid people talk, otherwise you waste too much of your own time trying to inform them of reality.  Not worth it.  G, i’m not saying you’re stupid, but if you quote the “value” of real estate, especially acreage in the midwest again, I’ll have to reevaluate that assumption.

Chuck Ponzi

The first picture on this listing gave me a good laugh:

http://www.homeseekers.com/Scripts/detail.asp?_org_id=casocal&_uid=5B21F26D-9AFA-4068-86E5-E080FC7F794B&_current=8&mls_property_id=M108864&_per_id=&_vp_cb=

Those REO realtors are the best…  NOT!

I’d take Bill Clinton over Bush 2 any day: welfare reform, more fiscal responsibility, not starting wars…seems like the good ol’ days.

All the republicans have done is given tax breaks to those that need it the least. You know, the flippers, the wall street private equity guys, the people that come up with the toxic financial products that we see now. Heaven forbid if you actually have to go out and earn a living.

Worse mistake I ever made was trying to start a business 10 years ago instead of buying real estate….we sure have priorities right as a nation to favor returns on non-productive assets vs. creating jobs.

I went to Covina elementary many years ago, there was a Mrs Leonard who taught there, very nice lady.