I know you are a local blog to Irvine, but the Equtiy Kool-Aid is obviously not a local one. Recently in Atlanta, one of the Extreme Makeover houses went to foreclosure after the recipients took out all their equity after being given a free and clear home and an upkeep fund of $100k.
See the Url for the article.
“It’s aggravating. It just makes you mad. You do that much work, and they just squander it,“ Lake City Mayor Willie Oswalt, who helped vault a massive beam into place in the Harper’s living room, told The Atlanta Journal-Constitution.
Yes, I could see where that would be aggravating.
Posted by Sid on 07/29/08 at 05:21 AM
Considering that I still have horrible flashbacks to the winter of 1978-79, when that damn Bee Gees song first played, I don’t give the owner the benefit of the doubt by agreeing that s/he “drank the Kool-Aid”. You have to be freebasing Preparation H to be making financial decisions this stupid, and for this long.
Posted by Roberticus on 07/29/08 at 06:16 AM
Today’s story (of someone trying to resist but eventually swayed over to the dark side) makes me happy that I have 1) a father who is an ethical, small-time realtor—who is so against abusing credit that he got angry when he found out we paid for our groceries with a credit card (which we treat like a checkbook and always pay off every month)—to advise me on real estate; and 2) an above-board mortgage broker who always laid the options out in a truthful way and warned against any sketchy ideas (ex. “You should really only use the HELOC for home improvements” and “No ARMs!“).
If the situation had been the opposite (say my dad had been urging that we flip a house every 6 months and our banker was pushing the HELOC as ATM), I’m not sure I would have resisted the siren call of the Kool-Aid pitcher…
Posted by idrnkurmlkshk on 07/29/08 at 06:21 AM
The more and more I read these HELOC abuse stories,(especially that post about the Extreme Makeover House in Atlanta) I really have less and less sympathy for these people.
At this point , unless you have a terminal disease, and you are just buying yourself time, anyone who pulls(ed) out “Equity” and spends it deserves to lose their house. PERIOD.
Screw them.
Sure it might have been tempting. But as soon as you learn that the money is based on"speculative” assesments and it’s not even yours, (unless you own your house outright.) Who in their right mind would fall for this scheme?
I think we are a nation of DEBT addicts. We are so addicted to spending, thanks to years of social conditioning by the credit companies, advertising, and most of all our own Federal Government.
I mean seriously. When people start believing that getting to “write off” a purchase is seen as an opportunity or a gain people have completely lost it. It’s like the shop-aholic who buys crap purely because it was ON SALE. “But I saved money honey..it was on sale”.
Tell me how you SAVE money buy spending IT??!
Write offs are no different.
Posted by movingaround on 07/29/08 at 06:24 AM
Great post IR!
Roberticus - so true! I think it is always important to remember that ‘it could be me’ were it not for X and Y.
I know for us one incident that we did not see as positive at all at the time may have prevented us from buying in 05 - the worst time of all.
Posted by cara on 07/29/08 at 06:55 AM
Here, here.
I also can thank the fact that no one told me about 3% down FHA loans and that there was no maximum income requirement on them, or I too would have been sorely tempted back in 2004.
The only thing aggravating, IrvineRenter, is the fact that entrepreneurs like the man in the article are hated by liberals who destroy them with government regulation. Unlike the leeches of society that would simply accept the free house and get a job with a steady paycheck, this man decided to contribute something to society by mortgaging it off $450,000 and starting a construction company. What you and the drive-by media fail to report is that the man was very experienced with construction as he purchased his home with a septic tank that didn’t work, yet fixed that tank with zero cost to him or his family by having ABC build him a new house. This business model effectively gives the man an infinite profit margin. It would be idiotic not to try to expand this model and bring in some real money. It is a tragedy that this man was blocked from his dream. I hope ABC builds him a new and better house.
Posted by Lamb Cannon on 07/29/08 at 07:25 AM
I have to laff out loud when I read screeds like the one from the alleged human being, “Kirk.“
Yes, this is all the fault of the dam libruls and their never-ending regulation.
If we could all just steal from each other in unrequired bliss, all would be divine and we could anoint Dubya emperor for life.
All the discussions and misuse of the word ‘schadenfreude’ notwithstanding, it may be seeking in that while you feel good about not having made the mistakes the tragedy’s protagonist made, we are all going to get sucked down by this. Be smug and rent—hopefully you will have a job. Hopefully if you have a job it isn’t working for a complete nutcase like ‘Kirk.‘ One could argue that anyone paying any money for any reason to live in the state of Georgia is mentally unbalanced (whether you think Irvine is a dump or not, as I do).
Seriously though… have you yet used the song “Police and Thieves” for one of your themes? Guess there was no video tho… o well.
Wow. That’s some wicked third and fourth level thinking there Kirk. You put my head in a vice there for about twenty seconds.
Am I the only user here who also posts on 2+2 (thus depriving everyone else here context of the whole obscure ‘leveling’ comment by Kirk)?
Posted by George8 on 07/29/08 at 07:39 AM
>>At this point , unless you have a terminal disease, and you are just buying yourself time, anyone who pulls(ed) out “Equity” and spends it deserves to lose their house. PERIOD.
Screw them<<
Unfortunately, what the government is doing is “screw us” - the reponsible ones instead.
Lamb Canyon never did get it. Classic. Good job Kirk.
Posted by Woodbury Renter on 07/29/08 at 07:46 AM
Lamb, you have a long way to go to achieve Kirk’s nuanced level of sarcasm.
Posted by ConsiderAgain on 07/29/08 at 07:51 AM
How do I feel when I read these profiles?
Angry.
You touched on the crux of the matter with the statement that expectation were that someone else (Me!) would pay off the increasing debt from irresponsible decisions.
I just don’t buy the succumbing to temptation bit. This was an abandonment of personal responsibility. The kool aid drinkers had no plans for paying the money back from their personal efforts. Some other fool would come along and magically see the house was worth twice what it is simply because there is a ton of money borrowed against it.
This reminds me so much of the infuriating nut jobs that proclaim “Oh Well, its all in Fate’s hands now. Nothing I can do.” after screwing-up.
Screw them. Debt does not equal value.
Posted by Ambiepants on 07/29/08 at 07:57 AM
OMFG. Is it bad that that article makes me want to go on a killing spree??
Posted by MalibuRenter on 07/29/08 at 08:13 AM
I have noticed a pattern with many of the HELOC abusers. Up until 2003, many of them refinanced without increasing the principal value. That may be due to the declining interest rates until then. Refinancing a $300,000 loan from 8% to 6% is actually a responsible thing to do. It frees up about $300 a month aftertax for someone in the higher tax brackets. That’s almost enough to make payments on a modest car (~$15,000 loan, 5 years, 6%).
Then starting in 2003 or 2004, they keep refinancing into higher and higher principal. That’s where the trouble begins.
Posted by Laura Louzader on 07/29/08 at 08:15 AM
Is this house really worth more than $175 a sq ft?
This is not the lease bit a good home. It’s old by Irvine standards, and it was built in an era not known for quality construction. The style is really dated and unpopular from what I’m hearing from Irvine denizens who post here.
And it’s in wretched condition. Look at the front door, which looks dry-rotted and missing pieces in the photo.
I can sympathize with a couple of middle means who HELOCed their house to death to keep up with expenses, yes. Incomes were completely stagnant during the housing runup, and the runup in prices took everything else with it, the result being that people are paying on average at least twice as much for housing, including rental, as was the case in year 2000. I suppose that the people who did this just told themselves they’d find a way to pay it, just as so many other people do with credit cards.
On the other hand, nobody is this dumb. Everyone knows that this is debt and will have to be paid. And EVERYONE was tempted. I was tempted many times and almost did bite, but backed away out of sheer fear of not being able to pay. I am not the person who handles big debt loads well, and I don’t like having to live on a diet of raman noodles from Aldi’s.
Posted by BHC on 07/29/08 at 08:18 AM
maybe they couldn’t afford property tax after the house value increased.
Posted by skek on 07/29/08 at 08:33 AM
Indeed, today was one of Kirk’s better efforts.
Posted by Perspective on 07/29/08 at 08:36 AM
“...anyone who pulls(ed) out “Equity” and spends it deserves to lose their house…“
I don’t know if I’d use the word “deserve,“ but it certainly isn’t tragic. You can’t save everyone from their choices in life. And where’s the tragedy? These former homeowners IR profiles will simply rent for a few years. And with tighter credit standards and a horrible credit score, their balance sheets (and therefore lives) will be better in a few years.
Posted by scott on 07/29/08 at 08:38 AM
It is also hard to believe this guy was able to tap an extra $75k in April 2005, just six months after taking out the $400k in October the prior year. That is a nearly 20% increase in six months which seems insane.
The other problem is not just the sorry state these owners find themselves in but how many people were around making money on these deals. I’m not sure what fee the mortgage broker would get on a $475k deal like this but having a serial refinancier had to be very lucrative and these people now have no income. Value judgments aside on what they did, these people as well aren’t buying new cars and fancy clothes.
One other query, and I’m not in California, but I’ve seen references on some of the condo’s to ‘moo loos’, which I take is some type of community charge, I’ve not seen that term before and am not sure what it refers to.
Posted by buster on 07/29/08 at 08:46 AM
Kirk - Thanks for making me smile. I assume this was all a “tongue-in-cheek” spoof.
If not, please be sure to take your meds before mingling with the real people.
Mello-Roos is the common name for the Community Facilities District Act, enacted by the California Legislature in 1982.[1] The name comes from its co-authors, Senator Henry Mello of the Monterey area and Los Angeles assemblyman Mike Roos. Mello-Roos enabled “Community Facilities Districts” (CFDs) to be established by local government agencies as a means of obtaining community funding.
http://en.wikipedia.org/wiki/Mello-Roos
Posted by Huh? What? on 07/29/08 at 09:17 AM
Dood, you showed him.
I blame Bush.
Posted by freedomCM on 07/29/08 at 09:26 AM
I’m angry too.
It will raise my taxes, and has hurt my investments.
I hope the germans send some big guys to collect their money out of the hide of this debtor.
or at least the notes get sold to a collection agency, so that they get a few phone call per day for the rest of their life.
Posted by Priced_Out_IT_Guy on 07/29/08 at 09:29 AM
I don’t remember the philosopher but there is a concept about “unearned respect”—that man is doomed to failure if he doesn’t respect nature. It’s the same premise as those people who win the lottery and, because they have so much money, they start to think they actually “earned” the money and that there is something special about them. Like all those movie stars who think that what they have to say about anything is valuable just because they got lucky and made a hit film or two.
The truth is that our society has been falling off the moral bandwagon for decades. We are a consumer society in the worst sense: he who dies with the most “things” wins. What kind of crazy idea is that?
And I’m sure the homeowner who resisted pulling money out after each refinance was finally convinced that housing prices were going to go up forever, and with the media saturated “home improvement porn” was being told daily that NOT taking equity out of his home was the same as LOSING money.
And people are STILL drinking the Kool-Aid! There’s a lady on the myfico.com mortgages blog who has 9 recent unpaid collections and who has FICO scores in the high 580’s to low 600’s. She’s desperate to get into a house. She has $20,000 in savings, but she wants a 100% down (or at least a 3% down) loan. She is desperate to buy a “perfect” home in Michigan of all places: it’s a CONDO. According to her, it’s worth “$600,000” but the asking price is $330,000. There’s a small problem with the home: it’s in an unfinished subdivision and the developer isn’t going to finish out the subdivision. I tried to tell this lady that she and her children would be much better off saving her money, renting for a while, and then maybe—maybe—buying a home in a year or two after prices stabilized. You would have thought I was killing the American dream! I got clobbered by everybody: “How dare I spoil her dream of homeownership with doom-and-gloom facts. No, the economy is great! We’re the USA! We’ve faced tough times before and we always came back. This isn’t the Great Depression!“ My response: yeah, we’re not in the Great Depression II yet—that’s about 18-24 months away; right now we’re in the long slide down. We’re in 1929.
And by the way, is anyone else as angry as I am that the EXPERTS keep telling us that 2008 isn’t like 1933? That’s not the point! 2008 is a LOT like 1929—and 2010 will be a lot like 1933.
Again, just think that our values are all screwed up when a person’s self worth (and the esteem held by others for him) is valued in terms of what he owns, and not how he thinks and acts.
Posted by Priced_Out_IT_Guy on 07/29/08 at 09:40 AM
Am I the only one who finds it ludicrous that our government is focusing on stealing from tax payers instead of collecting debt from these debtors?
I guess its easier—lets just rob Peter to pay Paul instead of knocking on Paul’s door.
Where’s Mr. T when you need him?
[Mr. T]Gimme all yo money fool![/Mr. T]
Posted by EP on 07/29/08 at 09:50 AM
Yes, this definitely could have been me. Neither my husband or I have historically been very financially savvy. My parents never emphasized good money management, neither did his, and we never picked up good $$ skills on the way. For a while we used credit WAY too much, until we got in over our heads and had to stop. But we were very fortunate that in the years of the housing bubble inflation (2001-2005), we had a pretty low income (esp. for SoCal) and did not believe anyone would give us a loan. It is only now that I realize that hell yeah, they would’ve given us a loan, probably for way more than we could realistically afford, and I can totally see us falling for the option ARM or pick-a-payment mortgage options.
Now thanks to the housing blogs and some books I have checked out from the library, I feel a lot better equipped to make financial decisions, and would be able to resist the “kool aid” of “easy money” if it were offered me. But you know what? Hubby and I have graduate degrees and at least some amount of “street smarts” and I *know* we would have drank long and deeply of the Housing Kool Aid under the right circumstances. Truly, there but for the grace of God go I. I think financial education should be a mandatory component of a high school education. Maybe jr. high.
Posted by Anonymous on 07/29/08 at 09:53 AM
Actually, if you think about the Mozillo “housing for everyone” pitch that was backed by many well meaning liberals ... Kirk is half right. When loans are made on “what the world should be” instead of “what people can afford and is prudent”, this is what you get when you try to push home ownership to 100% and ignore payment realities…
Posted by NewToTheArea on 07/29/08 at 09:58 AM
So everybody is pissed off…..
What do we do about it. We can sit here and comment back and forth to one another all day, but what good does that really do?
Does anyone have any good ideas about how to get our message and a little truth out to those who don’t know about the blogs we all read? Most folks only see the mainstream media. How do folks like us who want to see our country begin to right the ship make a difference?
Should we start an Irvine or Orange County club for angry taxpayers who oppose bailouts?
Why don’t we put our thoughts and opinions into action?
Posted by Fnord on 07/29/08 at 10:03 AM
I’m a 2+2er as well.
Posted by ConsiderAgain on 07/29/08 at 10:11 AM
I think for the most part we are doing something significant, we aren’t paying the wishing prices.
This blog provides a venue to blow-off and inform which makes the action above slightly more endurable.
Posted by Anonymous on 07/29/08 at 10:13 AM
He’s busy filming Snickers commericals…
Mr. T`s Snickers Commercial Pulled as ``Homophobic``.
http://www.i-am-bored.com/bored_link.cfm?link_id=32136
Posted by Kelja on 07/29/08 at 10:27 AM
Proves the not-so-old saying,
“Resistance is Fulile!“
Also, I, like others on this board, is mad as hell over government over-reaching and attempting to bailout those who made bad decisions. But what is one to do? The bailout is a done deal. It will happen. It will make things worse in the longer run.
That is, unfortunately, how democracy works. A failing.
Posted by Kelja on 07/29/08 at 10:28 AM
Typo!
it should be: “Resistance is Futile”
Of course.
Posted by Law_Student on 07/29/08 at 11:16 AM
I just have to laugh when people call this a tragedy.
These people were living for today, enjoying their time, spending money, taking vacations, not working.
Now in the worst case they are back to where they started - renters with no home equity who have to work some lame job to pay to rent, just like most of the suckers in this world.
Oh Boo Hoo. The poor, poor people who enjoyed some life for a while.
Posted by heather on 07/29/08 at 11:36 AM
I think our voices should be heard. Unfortuneatly, people are lazy. I think there needs to be a canned email or letter that we all have access to with the necessary address already on it. This way all the lazy masses have to do is send the letter to our representatives/governor/president with their signature.
This idea may look like we are putting the minimal effort into the anti-bailout measures, but at least our voices AND numbers would be heard.
Posted by CapitalismWorks on 07/29/08 at 12:29 PM
If I had a time machine those two gentleman would be near the top of the hitlist (along with Hitler, Stalin, the guy who invented the neck-tie, and the first man to demand entry in the labor-and-delivery room)
Posted by Dawn on 07/29/08 at 12:35 PM
More of us than we yet realize have been living off the bank’s money. How much of our income came from people’s borrowed money in the last 8 years? That would be all of the employees of various retailers, restaurants, travel industry, etc. Plenty of people besides the homedebtors benefitted from this game. Think about that before you complain about the bail-out plans.
Posted by jml on 07/29/08 at 12:47 PM
When someone takes out a HELOC and then later the house goes into foreclosure, does the HELOC get wiped out by the foreclosure?
Posted by jerry1921 on 07/29/08 at 01:58 PM
I wrote both senators and my representative to say I opposed the homedebtor bailout. Guess what? They said they agreed with me and that they would SUPPORT saving homeowners. Great to know my 15 minutes was completely ignored and in fact probably found its way onto their stats for responding to concerned voters with supporting legislation. Unfortunately, I know politics well enough to know that long tenured bad senators are better than idealistic young senators with no sway at all.
I’ll keep going day by day, waiting for retirement and freedom from this government found at every level, of every party.
Posted by Sam on 07/29/08 at 02:48 PM
IR and others,
Do you guys think the housing bill is going to help the situation? I am seeing all these comments in news articles from “so called” industry experts that downturn is near and within 6-9 months we will see prices to start recovering. hard to believe looking the numbers posted on this site.
- Sam
Posted by Sam on 07/29/08 at 02:53 PM
Some people indeed managed it well and are enjoying the money they received from the lenders. few of my colleagues managed to sell at high and then took HELOC to pay off some old loans. they are managing to make payments with low interest and keep the homes, but enjoyed getting that extra dough with very low interest. not possible in any other situation. :o)
Posted by markh on 07/29/08 at 03:08 PM
It’s interesting to read comments that we are going through another great depression. I’ll guess we’ll know in a few years.
For my part, I consult with CEOs of 24 mid-sized companies (100-1000 employees). 2/3s of them are Western and 1/3 are in the Eastern half of the US. They are in an eclectic mix of industries. 22 of the 24 are producing record sales and profits this year and say “hiring great people” is their single biggest challenges. These companies are well run and were not picked randomly. But still, they are able to grow their businesses (some rapidly) in this environment.
The economy has certainly slowed down. It reminds me of the 70s with oil going through the roof. But in the gloom of today’s environment, unemployment numbers are still strong. And not many people are talking about the economic impact of the creation of a new gigantic middle class in Asia. Overall, this worldwide economic growth has much more lasting significance than 4 years of HELOC abuse.
This recession is playing out like the 70s. People have started to cut back on driving (and buying Hummers, thank God). The price of oil will return to reasonable levels, the HELOC abuses and foreclosures will work their way through the system, and things will gradually return to normal (pre-2004).
Affordability is often the banner of this blog. But Detroit has the best affordability in the country and San Francisco has one of the worst. Detroit prices have tanked and SF prices have held pretty well. There is a great deal of hidden, liquid wealth (inherited or saved from 20 years of 401Ks in a bull market) that a percentage of baby boomers are choosing to use to move to desirable areas like Aspen, Scottsdale, Park City, and yes, Irvine.. The 4/1 price to income ratio used by IR does not hold true in these desirable areas. If there is limited supply and it’s a desirable area, enough money will find it.
I know I’m a lone wolf crying in the wilderness on this blog. But when we watched housing prices soar through the roof, many people believed they would continue to rise. We may be guilty of similar behavior as we watch prices fall. I belive we are going through a reasonably contained recession similar to 2000-01 in tech but this time fueled by the housing bubble. There are two amazingly strong economic counterbalances to the gloom and doom - (1)rise of the middle class in Asia and (2) increasing productivity and output of knoweldge workers (a much longer subject).
It will be interesting to see how the seemingly contradictory nature of the inventory numbers play out. Even with huge numbers of new foreclosures, the inventory numbers are shrinking. I can buy the short term argument that there may be too many foreclosures to get on the market but this number has to correct at some point. If inventory really does drop over an extended period, we have to conclude that demand (invisible though it appears) is actually absorbing the foreclosures.
IR, you do a fantastic job with this blog and I agree with your basic premises. But I disagree slightly on the depth and duration of the carnage. But, we will all know in a few years!
The housing bill won’t do anything substantive. Plus, you will see a new round of bottom-callers every couple of months. They will be consistently wrong until we do reach the bottom, then they will be heralded as prophetic geniuses.
Thank you for the thoughtful comment. You may be correct, and the price drop may not get down to four-times income. If it follows the pattern of the last two housing recessions, it will, but I am always willing to entertain the idea that it will be different this time.
This whole mess has been interesting to watch because I have always tried to have a balanced view of markets in general. People can always construct a very bearish argument, and they are usually wrong. I have never seen a set of circumstances quite as bearish as the ones hanging over this market. I can’t see any bullish counteracting forces at this time which will have meaningful impact on Irvine’s resale market. Perhaps I am wrong, but until the next wave of resets has come and gone, I don’t see the pressure on prices abating.
Posted by Laura Louzader on 07/29/08 at 03:48 PM
Our politicians don’t care what we think and they don’t have to care. We need to understand that these people now mostly belong to a totally different class than most of us, and are completely insulated from the consequences of the messes they help create.
After all, the petition against the bailout was posted on numerous sites, and all of 58,000 signatures have been gathered. Where are the other 100 million or so signatures that ought to be here.
Maybe people have gotten apathetic because there is just too much to fight, at the local, state, and federal level. Maybe most folks are too busy making sure they still have a job, or are fighting their local alderman to keep yet another building from being turned into a slum by his slumlord contributors, or are fighting to keep a sewage reclamation plant from being built right over the town border 3 blocks away.
The only thing that works is to vote the bums out, yet it is very difficult to unseat a well-established incumbent no matter how destructive and incompetent he is. Oftentimes, it can only happen when s/he gets indicted.
We’re fighting massive inertia here.
Posted by Matt on 07/29/08 at 04:44 PM
Not for me.
Prop 13 simply ties the hands of local government officials. And, if you’re going to make a big huge development (requiring new sewer lines, streets, schools, etc.)...how is a city supposed to pay for all that? They can’t raise property taxes (and it hardly seems fair to make existing residents pay for new ones). Mello-Roos is a way to let cities build to accomodate newcomers (and to have the newcomers pay for it for a while).
Limiting property taxes is one of the contributors to CA’s housing bubbles, in my mind. Since property taxes are low in CA (relative to value), that’s a smaller expense for housing, making it so somebody can afford a larger mortgage payment. If property taxes were 1.5 percent, how much would that have tamped down the housing bubble? Add 100K to the price you’re trying to sell, and in addition to the additional mortgage costs, you’d be asking for an additional $40 a month, with no way for an ARM or anything else to get rid of that. Potential buyers would be less likely to pay that $100K.
At least, that’s how I see it.
(Oh, and CA MIGHT be able to keep sales taxes or income taxes lower while providing the same services….or even *gasp* have a rainy day fund)
Most of this is, of course, a lib-con debate, and we’re certainly not going to resolve it here. Just thought I’d add my $.02
Posted by ato on 07/29/08 at 04:55 PM
Regarding the expected reset wave, don’t you think the housing bill (people refinancing to a better loan) combined with those people who give up before the reset time may result in reduced foreclosures when the time comes ? Besides, a good part of the people may afford the new payments. I guess my question is that unlike the sub-prime meltdown, this one seems to be anticipated for a while and efforts being made by all parties to reduce its effect. So, it may come and go without us noticing much change in the market ?
Posted by lendingmaestro on 07/29/08 at 05:05 PM
assuming the 2000 price was not inflated and a good 3.5% appreciation rate, this dump is not worth 300k.
Posted by Matt on 07/29/08 at 05:16 PM
As a “glass is half empty” (on the economy) guy, I’ll say why I’m bearish.
I’m mostly bearish because I don’t see too many signs of this being a fundamentally strong economy. I think I heard that something like 50% of all jobs created in CA since 2000 (when the dot.com recession hit and Greenspan went nuts) were in real-estate-related professions: realtards, mortgage folks, and construction. Those high-paying jobs led to more spending, leading to retail hiring. With the housing crash, the lynchpin (in CA, at least) comes out and the house of cards comes down. You can see this in CA’s unemployment going up 1.3% in 4 months. With CA still reeling (and paying for) the budget problems of the late 90s/early 00s (with bonds), our state government is now forced to either raise taxes, cut spending, or both for some significant amount of time. That also hurts. Finally, the slaughter in housing is taking banking down with it. That’s a lot of sectors of the economy (real estate, construction, banking, government) all hurting at the same time…and it’ll hurt one of the true fundamental drivers of housing cost: jobs.
Finally, my thinking is that just as a boom mentality led to this, a bust mentality will lead to an “overshoot.“
I do agree that ‘desirability’ will play a big role here…this is why Irvine, to me, will never be as bad as Vegas will in it’s fall from lofty peaks. And, SF might be a special case; no growth possible, insane desirability, and rent control all keep prices high. This is why the pricier areas in CA have been the last to fall. But, when nobody can trade up, demand at the top end falls too.
Posted by ochomehunter on 07/29/08 at 06:19 PM
Irvinerenter, Question for you!
IRS is forgiving taxes on forgiven debt loses by banks. Does that count HELLOC as well? If someone took out say $100,000 and walked away from his home, what are his tax obligations and will he have to return the money to the bank? If he will have to pay taxes on HELLOC, than I say that is hell of a deal, cash out $100,000 and pay $50,000 in taxes to IRS, pocket 50% of HELLOC and smile.
Foreclosure may leave a mark on credit but short sellers may get away with tonnes of cash. I seriously believe this Administration has screwed all, they should penalize 100% of HELLOC money to the borrower/absuer via garnised wages until debt is cleared, this is the only way one will stay away from such wrong doings. What do you think?
Posted by Forbear on 07/29/08 at 06:27 PM
Well stated, your my new hero!!
Posted by FED1913 on 07/29/08 at 07:00 PM
“Resistance is Futile!”
That’s right, and ALL US sheep will BOW DOWN to the Federal Reserve, or ELSE !
I am not sure what the tax ramifications are for HELOC forgiveness. My guess would be it would be taxed because it was not a purchase-money mortgage. In my book, I am recommending the deductability of HELOCS be limited to improvement projects with loan documentation similar to what is required in construction loans. By transferring consumer debt to deductible housing debt, they are effectively getting around the deductibility limitation on credit card interest. This should be stopped. As for people getting away with HELOC money in a short sale, it is basically theft, but if the lenders were stupid enough to extend the credit, they are asking to be stolen from.
Posted by Former Irvine Renter on 07/29/08 at 07:31 PM
In this market, yes. Here’s an example.
Assuming you have a 1st loan @ 100K and a 2nd loan (HELOC) @ 50K. At the foreclosure sale, the house sells for 125K, then the 1st loan is 100%paid and the 2nd receives 25K. However, since the market is in the toilet, the house probably won’t have a buyer at the foreclosure auction and the 1st lien holder will get the house.
Posted by dick on 07/29/08 at 07:45 PM
Remember August 2007 Bush said:
“It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford”
Bush Aug. 2007
Gee, look what’s going on now…
Lesson to be learned: Watch what they DO, not what they SAY.
BTW, Im neither rethuglican, nor democrap.
IMO, BOTH parties SUCK. Throw ‘em ALL out of office and start all over.
Posted by dick on 07/29/08 at 08:06 PM
repost from the weekend, and probably one of the best Schiff’s videos EVER.
Here’s an awsome video of Peter Schiff giving
a presentation to the Mortgage Bankers back in Nov. 2006. It’s broke up into 8 parts, but it’s well worth the watch.
Part I
http://www.youtube.com/watch?v=6G3Qefbt0n4
Part II
http://www.youtube.com/watch?v=8hFmoTjljpw&feature=related
Part III
http://www.youtube.com/watch?v=qBk4PhdhCFQ&feature=related
Part IV
http://www.youtube.com/watch?v=xNKs8lBnd2U&feature=related
Part V
http://www.youtube.com/watch?v=MoSwkCog-Ro&feature=related
Part VI
http://www.youtube.com/watch?v=IrpPsOvHUU8&feature=related
Part VII
http://www.youtube.com/watch?v=DVtT6spfffI&feature=related
Part VIII
http://www.youtube.com/watch?v=xgRgGKxXbCw&feature=related
“Peter Schiff’s final prediction at the end of his speech (that has yet to come true).
Interest rates (in the US) are not going to the moon - they are going to Pluto… “
Posted by UnderConsumer on 07/29/08 at 08:29 PM
“Plenty of people besides the homedebtors benefitted from this game. Think about that before you complain about the bail-out plans.“
As a non debtor and financially prudent taxpayer, I am deeply offended by your flippant attitude toward the heavy burden that non-homedebtors are being asked, ahem FORCED, to bear. That’s right, FORCED. And you damn well better be sure the IRS will come a-knockin’ with guns in their hands if I don’t pay my due taxes.
Meanwhile, the worst homedebtors will continue to pay the LEAST taxes, while more bailout bills funded by the most prudent of citizens will continue to fund the greedy and slothful ways of the idiotic homedebtors.
That says nothing about the inflation currently raging whose purpose is simply to inflate away the indebted’s obligations, at great cost to those who toil and save.
Non debtors (and renters and the like) deserve a friggin medal, not a request for appreciation from the likes of you. Sadly, the medal is not what they’re going to get, as you here show.
What do I think? I think anyone who buys a $250K house and ends up owing $500K on it is nuts.
It’s not “making a mortgage equity withdrawal” of $250K, it’s BORROWING a quarter of a million dollars. (“Going deeper into debt” is another phrase that applies.)
hahahah ROFL!!!!! Gee, can you feel the negativity yet????
Posted by Artex on 07/30/08 at 01:37 AM
Priced out of it,
You’re just noticing that the gov’t is stealing our money??
The last 7 seven years have been nothing more than a money grab. There are Billions of dollars “unaccounted for” in the Iraq rabbit-hole, the new Homeland department, the federalization of the TSA, the Energy plan, the bailout, etc, etc.
All these things have been done to raid the treasury - or at least it was a top 5 reason for a lot of these “initiatives”.
The latest is the offshore drilling plan. Trying to wring out the last few dollars before the Dems take over.
Free market my ass - more like foxes in the henhouse.
Posted by Soapboxpolitico on 07/30/08 at 10:51 PM
Matt - Quick bit of info ... in many new developments in Irvine the property taxes + mello roos is at 1.8% ... well past the 1.5 you suggest. On a $650K house that adds almost $1200 per month to the mortgage payment. OUCH! Didn’t see to slow sales down at all until the whole ponzi scheme collapsed.
Posted by ato on 07/29/08 at 09:19 AM
Kirk, you are kidding right ? I bet ya that Rush Limbaugh will read this verbatim on his next show. Congrats !
Posted by cara on 07/29/08 at 04:21 AM
1,200 sq ft. 1977. Condo. Right on the 5 (if the redfin aerial is correct).
Whoever appraised this for $450,000 was on the crack flavored kool aid.
Posted by Scott on 07/29/08 at 04:24 AM
I know you are a local blog to Irvine, but the Equtiy Kool-Aid is obviously not a local one. Recently in Atlanta, one of the Extreme Makeover houses went to foreclosure after the recipients took out all their equity after being given a free and clear home and an upkeep fund of $100k.
See the Url for the article.
Posted by IrvineRenter on 07/29/08 at 05:19 AM
“It’s aggravating. It just makes you mad. You do that much work, and they just squander it,“ Lake City Mayor Willie Oswalt, who helped vault a massive beam into place in the Harper’s living room, told The Atlanta Journal-Constitution.
Yes, I could see where that would be aggravating.
Posted by Sid on 07/29/08 at 05:21 AM
Considering that I still have horrible flashbacks to the winter of 1978-79, when that damn Bee Gees song first played, I don’t give the owner the benefit of the doubt by agreeing that s/he “drank the Kool-Aid”. You have to be freebasing Preparation H to be making financial decisions this stupid, and for this long.
Posted by Roberticus on 07/29/08 at 06:16 AM
Today’s story (of someone trying to resist but eventually swayed over to the dark side) makes me happy that I have 1) a father who is an ethical, small-time realtor—who is so against abusing credit that he got angry when he found out we paid for our groceries with a credit card (which we treat like a checkbook and always pay off every month)—to advise me on real estate; and 2) an above-board mortgage broker who always laid the options out in a truthful way and warned against any sketchy ideas (ex. “You should really only use the HELOC for home improvements” and “No ARMs!“).
If the situation had been the opposite (say my dad had been urging that we flip a house every 6 months and our banker was pushing the HELOC as ATM), I’m not sure I would have resisted the siren call of the Kool-Aid pitcher…
Posted by idrnkurmlkshk on 07/29/08 at 06:21 AM
The more and more I read these HELOC abuse stories,(especially that post about the Extreme Makeover House in Atlanta) I really have less and less sympathy for these people.
At this point , unless you have a terminal disease, and you are just buying yourself time, anyone who pulls(ed) out “Equity” and spends it deserves to lose their house. PERIOD.
Screw them.
Sure it might have been tempting. But as soon as you learn that the money is based on"speculative” assesments and it’s not even yours, (unless you own your house outright.) Who in their right mind would fall for this scheme?
I think we are a nation of DEBT addicts. We are so addicted to spending, thanks to years of social conditioning by the credit companies, advertising, and most of all our own Federal Government.
I mean seriously. When people start believing that getting to “write off” a purchase is seen as an opportunity or a gain people have completely lost it. It’s like the shop-aholic who buys crap purely because it was ON SALE. “But I saved money honey..it was on sale”.
Tell me how you SAVE money buy spending IT??!
Write offs are no different.
Posted by movingaround on 07/29/08 at 06:24 AM
Great post IR!
Roberticus - so true! I think it is always important to remember that ‘it could be me’ were it not for X and Y.
I know for us one incident that we did not see as positive at all at the time may have prevented us from buying in 05 - the worst time of all.
Posted by cara on 07/29/08 at 06:55 AM
Here, here.
I also can thank the fact that no one told me about 3% down FHA loans and that there was no maximum income requirement on them, or I too would have been sorely tempted back in 2004.
Posted by Kirk on 07/29/08 at 07:16 AM
The only thing aggravating, IrvineRenter, is the fact that entrepreneurs like the man in the article are hated by liberals who destroy them with government regulation. Unlike the leeches of society that would simply accept the free house and get a job with a steady paycheck, this man decided to contribute something to society by mortgaging it off $450,000 and starting a construction company. What you and the drive-by media fail to report is that the man was very experienced with construction as he purchased his home with a septic tank that didn’t work, yet fixed that tank with zero cost to him or his family by having ABC build him a new house. This business model effectively gives the man an infinite profit margin. It would be idiotic not to try to expand this model and bring in some real money. It is a tragedy that this man was blocked from his dream. I hope ABC builds him a new and better house.
Posted by Lamb Cannon on 07/29/08 at 07:25 AM
I have to laff out loud when I read screeds like the one from the alleged human being, “Kirk.“
Yes, this is all the fault of the dam libruls and their never-ending regulation.
If we could all just steal from each other in unrequired bliss, all would be divine and we could anoint Dubya emperor for life.
All the discussions and misuse of the word ‘schadenfreude’ notwithstanding, it may be seeking in that while you feel good about not having made the mistakes the tragedy’s protagonist made, we are all going to get sucked down by this. Be smug and rent—hopefully you will have a job. Hopefully if you have a job it isn’t working for a complete nutcase like ‘Kirk.‘ One could argue that anyone paying any money for any reason to live in the state of Georgia is mentally unbalanced (whether you think Irvine is a dump or not, as I do).
Seriously though… have you yet used the song “Police and Thieves” for one of your themes? Guess there was no video tho… o well.
Posted by no_vaseline on 07/29/08 at 07:35 AM
Wow. That’s some wicked third and fourth level thinking there Kirk. You put my head in a vice there for about twenty seconds.
Am I the only user here who also posts on 2+2 (thus depriving everyone else here context of the whole obscure ‘leveling’ comment by Kirk)?
Posted by George8 on 07/29/08 at 07:39 AM
>>At this point , unless you have a terminal disease, and you are just buying yourself time, anyone who pulls(ed) out “Equity” and spends it deserves to lose their house. PERIOD.
Screw them<<
Unfortunately, what the government is doing is “screw us” - the reponsible ones instead.
Posted by no_vaseline on 07/29/08 at 07:40 AM
I stand corrected. It’s absolutely fourth level.
Lamb Canyon never did get it. Classic. Good job Kirk.
Posted by Woodbury Renter on 07/29/08 at 07:46 AM
Lamb, you have a long way to go to achieve Kirk’s nuanced level of sarcasm.
Posted by ConsiderAgain on 07/29/08 at 07:51 AM
How do I feel when I read these profiles?
Angry.
You touched on the crux of the matter with the statement that expectation were that someone else (Me!) would pay off the increasing debt from irresponsible decisions.
I just don’t buy the succumbing to temptation bit. This was an abandonment of personal responsibility. The kool aid drinkers had no plans for paying the money back from their personal efforts. Some other fool would come along and magically see the house was worth twice what it is simply because there is a ton of money borrowed against it.
This reminds me so much of the infuriating nut jobs that proclaim “Oh Well, its all in Fate’s hands now. Nothing I can do.” after screwing-up.
Screw them. Debt does not equal value.
Posted by Ambiepants on 07/29/08 at 07:57 AM
OMFG. Is it bad that that article makes me want to go on a killing spree??
Posted by MalibuRenter on 07/29/08 at 08:13 AM
I have noticed a pattern with many of the HELOC abusers. Up until 2003, many of them refinanced without increasing the principal value. That may be due to the declining interest rates until then. Refinancing a $300,000 loan from 8% to 6% is actually a responsible thing to do. It frees up about $300 a month aftertax for someone in the higher tax brackets. That’s almost enough to make payments on a modest car (~$15,000 loan, 5 years, 6%).
Then starting in 2003 or 2004, they keep refinancing into higher and higher principal. That’s where the trouble begins.
Posted by Laura Louzader on 07/29/08 at 08:15 AM
Is this house really worth more than $175 a sq ft?
This is not the lease bit a good home. It’s old by Irvine standards, and it was built in an era not known for quality construction. The style is really dated and unpopular from what I’m hearing from Irvine denizens who post here.
And it’s in wretched condition. Look at the front door, which looks dry-rotted and missing pieces in the photo.
I can sympathize with a couple of middle means who HELOCed their house to death to keep up with expenses, yes. Incomes were completely stagnant during the housing runup, and the runup in prices took everything else with it, the result being that people are paying on average at least twice as much for housing, including rental, as was the case in year 2000. I suppose that the people who did this just told themselves they’d find a way to pay it, just as so many other people do with credit cards.
On the other hand, nobody is this dumb. Everyone knows that this is debt and will have to be paid. And EVERYONE was tempted. I was tempted many times and almost did bite, but backed away out of sheer fear of not being able to pay. I am not the person who handles big debt loads well, and I don’t like having to live on a diet of raman noodles from Aldi’s.
Posted by BHC on 07/29/08 at 08:18 AM
maybe they couldn’t afford property tax after the house value increased.
Posted by skek on 07/29/08 at 08:33 AM
Indeed, today was one of Kirk’s better efforts.
Posted by Perspective on 07/29/08 at 08:36 AM
“...anyone who pulls(ed) out “Equity” and spends it deserves to lose their house…“
I don’t know if I’d use the word “deserve,“ but it certainly isn’t tragic. You can’t save everyone from their choices in life. And where’s the tragedy? These former homeowners IR profiles will simply rent for a few years. And with tighter credit standards and a horrible credit score, their balance sheets (and therefore lives) will be better in a few years.
Posted by scott on 07/29/08 at 08:38 AM
It is also hard to believe this guy was able to tap an extra $75k in April 2005, just six months after taking out the $400k in October the prior year. That is a nearly 20% increase in six months which seems insane.
The other problem is not just the sorry state these owners find themselves in but how many people were around making money on these deals. I’m not sure what fee the mortgage broker would get on a $475k deal like this but having a serial refinancier had to be very lucrative and these people now have no income. Value judgments aside on what they did, these people as well aren’t buying new cars and fancy clothes.
One other query, and I’m not in California, but I’ve seen references on some of the condo’s to ‘moo loos’, which I take is some type of community charge, I’ve not seen that term before and am not sure what it refers to.
Posted by buster on 07/29/08 at 08:46 AM
Kirk - Thanks for making me smile. I assume this was all a “tongue-in-cheek” spoof.
If not, please be sure to take your meds before mingling with the real people.
Posted by IrvineRenter on 07/29/08 at 08:49 AM
Mello-Roos is the common name for the Community Facilities District Act, enacted by the California Legislature in 1982.[1] The name comes from its co-authors, Senator Henry Mello of the Monterey area and Los Angeles assemblyman Mike Roos. Mello-Roos enabled “Community Facilities Districts” (CFDs) to be established by local government agencies as a means of obtaining community funding.
http://en.wikipedia.org/wiki/Mello-Roos
Posted by Huh? What? on 07/29/08 at 09:17 AM
Dood, you showed him.
I blame Bush.
Posted by freedomCM on 07/29/08 at 09:26 AM
I’m angry too.
It will raise my taxes, and has hurt my investments.
I hope the germans send some big guys to collect their money out of the hide of this debtor.
or at least the notes get sold to a collection agency, so that they get a few phone call per day for the rest of their life.
Posted by Priced_Out_IT_Guy on 07/29/08 at 09:29 AM
LMFAO
Posted by Uni on 07/29/08 at 09:36 AM
http://news.bbc.co.uk/2/hi/business/7529277.stm
Posted by Sally in Dallas on 07/29/08 at 09:37 AM
I don’t remember the philosopher but there is a concept about “unearned respect”—that man is doomed to failure if he doesn’t respect nature. It’s the same premise as those people who win the lottery and, because they have so much money, they start to think they actually “earned” the money and that there is something special about them. Like all those movie stars who think that what they have to say about anything is valuable just because they got lucky and made a hit film or two.
The truth is that our society has been falling off the moral bandwagon for decades. We are a consumer society in the worst sense: he who dies with the most “things” wins. What kind of crazy idea is that?
And I’m sure the homeowner who resisted pulling money out after each refinance was finally convinced that housing prices were going to go up forever, and with the media saturated “home improvement porn” was being told daily that NOT taking equity out of his home was the same as LOSING money.
And people are STILL drinking the Kool-Aid! There’s a lady on the myfico.com mortgages blog who has 9 recent unpaid collections and who has FICO scores in the high 580’s to low 600’s. She’s desperate to get into a house. She has $20,000 in savings, but she wants a 100% down (or at least a 3% down) loan. She is desperate to buy a “perfect” home in Michigan of all places: it’s a CONDO. According to her, it’s worth “$600,000” but the asking price is $330,000. There’s a small problem with the home: it’s in an unfinished subdivision and the developer isn’t going to finish out the subdivision. I tried to tell this lady that she and her children would be much better off saving her money, renting for a while, and then maybe—maybe—buying a home in a year or two after prices stabilized. You would have thought I was killing the American dream! I got clobbered by everybody: “How dare I spoil her dream of homeownership with doom-and-gloom facts. No, the economy is great! We’re the USA! We’ve faced tough times before and we always came back. This isn’t the Great Depression!“ My response: yeah, we’re not in the Great Depression II yet—that’s about 18-24 months away; right now we’re in the long slide down. We’re in 1929.
And by the way, is anyone else as angry as I am that the EXPERTS keep telling us that 2008 isn’t like 1933? That’s not the point! 2008 is a LOT like 1929—and 2010 will be a lot like 1933.
Again, just think that our values are all screwed up when a person’s self worth (and the esteem held by others for him) is valued in terms of what he owns, and not how he thinks and acts.
Posted by Priced_Out_IT_Guy on 07/29/08 at 09:40 AM
Am I the only one who finds it ludicrous that our government is focusing on stealing from tax payers instead of collecting debt from these debtors?
I guess its easier—lets just rob Peter to pay Paul instead of knocking on Paul’s door.
Where’s Mr. T when you need him?
[Mr. T]Gimme all yo money fool![/Mr. T]
Posted by EP on 07/29/08 at 09:50 AM
Yes, this definitely could have been me. Neither my husband or I have historically been very financially savvy. My parents never emphasized good money management, neither did his, and we never picked up good $$ skills on the way. For a while we used credit WAY too much, until we got in over our heads and had to stop. But we were very fortunate that in the years of the housing bubble inflation (2001-2005), we had a pretty low income (esp. for SoCal) and did not believe anyone would give us a loan. It is only now that I realize that hell yeah, they would’ve given us a loan, probably for way more than we could realistically afford, and I can totally see us falling for the option ARM or pick-a-payment mortgage options.
Now thanks to the housing blogs and some books I have checked out from the library, I feel a lot better equipped to make financial decisions, and would be able to resist the “kool aid” of “easy money” if it were offered me. But you know what? Hubby and I have graduate degrees and at least some amount of “street smarts” and I *know* we would have drank long and deeply of the Housing Kool Aid under the right circumstances. Truly, there but for the grace of God go I. I think financial education should be a mandatory component of a high school education. Maybe jr. high.
Posted by Anonymous on 07/29/08 at 09:53 AM
Actually, if you think about the Mozillo “housing for everyone” pitch that was backed by many well meaning liberals ... Kirk is half right. When loans are made on “what the world should be” instead of “what people can afford and is prudent”, this is what you get when you try to push home ownership to 100% and ignore payment realities…
Posted by NewToTheArea on 07/29/08 at 09:58 AM
So everybody is pissed off…..
What do we do about it. We can sit here and comment back and forth to one another all day, but what good does that really do?
Does anyone have any good ideas about how to get our message and a little truth out to those who don’t know about the blogs we all read? Most folks only see the mainstream media. How do folks like us who want to see our country begin to right the ship make a difference?
Should we start an Irvine or Orange County club for angry taxpayers who oppose bailouts?
Why don’t we put our thoughts and opinions into action?
Posted by Fnord on 07/29/08 at 10:03 AM
I’m a 2+2er as well.
Posted by ConsiderAgain on 07/29/08 at 10:11 AM
I think for the most part we are doing something significant, we aren’t paying the wishing prices.
This blog provides a venue to blow-off and inform which makes the action above slightly more endurable.
Posted by Anonymous on 07/29/08 at 10:13 AM
He’s busy filming Snickers commericals…
Mr. T`s Snickers Commercial Pulled as ``Homophobic``.
http://www.i-am-bored.com/bored_link.cfm?link_id=32136
Posted by Kelja on 07/29/08 at 10:27 AM
Proves the not-so-old saying,
“Resistance is Fulile!“
Also, I, like others on this board, is mad as hell over government over-reaching and attempting to bailout those who made bad decisions. But what is one to do? The bailout is a done deal. It will happen. It will make things worse in the longer run.
That is, unfortunately, how democracy works. A failing.
Posted by Kelja on 07/29/08 at 10:28 AM
Typo!
it should be: “Resistance is Futile”
Of course.
Posted by Law_Student on 07/29/08 at 11:16 AM
I just have to laugh when people call this a tragedy.
These people were living for today, enjoying their time, spending money, taking vacations, not working.
Now in the worst case they are back to where they started - renters with no home equity who have to work some lame job to pay to rent, just like most of the suckers in this world.
Oh Boo Hoo. The poor, poor people who enjoyed some life for a while.
Posted by heather on 07/29/08 at 11:36 AM
I think our voices should be heard. Unfortuneatly, people are lazy. I think there needs to be a canned email or letter that we all have access to with the necessary address already on it. This way all the lazy masses have to do is send the letter to our representatives/governor/president with their signature.
This idea may look like we are putting the minimal effort into the anti-bailout measures, but at least our voices AND numbers would be heard.
Posted by CapitalismWorks on 07/29/08 at 12:29 PM
If I had a time machine those two gentleman would be near the top of the hitlist (along with Hitler, Stalin, the guy who invented the neck-tie, and the first man to demand entry in the labor-and-delivery room)
Posted by Dawn on 07/29/08 at 12:35 PM
More of us than we yet realize have been living off the bank’s money. How much of our income came from people’s borrowed money in the last 8 years? That would be all of the employees of various retailers, restaurants, travel industry, etc. Plenty of people besides the homedebtors benefitted from this game. Think about that before you complain about the bail-out plans.
Posted by jml on 07/29/08 at 12:47 PM
When someone takes out a HELOC and then later the house goes into foreclosure, does the HELOC get wiped out by the foreclosure?
Posted by jerry1921 on 07/29/08 at 01:58 PM
I wrote both senators and my representative to say I opposed the homedebtor bailout. Guess what? They said they agreed with me and that they would SUPPORT saving homeowners. Great to know my 15 minutes was completely ignored and in fact probably found its way onto their stats for responding to concerned voters with supporting legislation. Unfortunately, I know politics well enough to know that long tenured bad senators are better than idealistic young senators with no sway at all.
I’ll keep going day by day, waiting for retirement and freedom from this government found at every level, of every party.
Posted by Sam on 07/29/08 at 02:48 PM
IR and others,
Do you guys think the housing bill is going to help the situation? I am seeing all these comments in news articles from “so called” industry experts that downturn is near and within 6-9 months we will see prices to start recovering. hard to believe looking the numbers posted on this site.
- Sam
Posted by Sam on 07/29/08 at 02:53 PM
Some people indeed managed it well and are enjoying the money they received from the lenders. few of my colleagues managed to sell at high and then took HELOC to pay off some old loans. they are managing to make payments with low interest and keep the homes, but enjoyed getting that extra dough with very low interest. not possible in any other situation. :o)
Posted by markh on 07/29/08 at 03:08 PM
It’s interesting to read comments that we are going through another great depression. I’ll guess we’ll know in a few years.
For my part, I consult with CEOs of 24 mid-sized companies (100-1000 employees). 2/3s of them are Western and 1/3 are in the Eastern half of the US. They are in an eclectic mix of industries. 22 of the 24 are producing record sales and profits this year and say “hiring great people” is their single biggest challenges. These companies are well run and were not picked randomly. But still, they are able to grow their businesses (some rapidly) in this environment.
The economy has certainly slowed down. It reminds me of the 70s with oil going through the roof. But in the gloom of today’s environment, unemployment numbers are still strong. And not many people are talking about the economic impact of the creation of a new gigantic middle class in Asia. Overall, this worldwide economic growth has much more lasting significance than 4 years of HELOC abuse.
This recession is playing out like the 70s. People have started to cut back on driving (and buying Hummers, thank God). The price of oil will return to reasonable levels, the HELOC abuses and foreclosures will work their way through the system, and things will gradually return to normal (pre-2004).
Affordability is often the banner of this blog. But Detroit has the best affordability in the country and San Francisco has one of the worst. Detroit prices have tanked and SF prices have held pretty well. There is a great deal of hidden, liquid wealth (inherited or saved from 20 years of 401Ks in a bull market) that a percentage of baby boomers are choosing to use to move to desirable areas like Aspen, Scottsdale, Park City, and yes, Irvine.. The 4/1 price to income ratio used by IR does not hold true in these desirable areas. If there is limited supply and it’s a desirable area, enough money will find it.
I know I’m a lone wolf crying in the wilderness on this blog. But when we watched housing prices soar through the roof, many people believed they would continue to rise. We may be guilty of similar behavior as we watch prices fall. I belive we are going through a reasonably contained recession similar to 2000-01 in tech but this time fueled by the housing bubble. There are two amazingly strong economic counterbalances to the gloom and doom - (1)rise of the middle class in Asia and (2) increasing productivity and output of knoweldge workers (a much longer subject).
It will be interesting to see how the seemingly contradictory nature of the inventory numbers play out. Even with huge numbers of new foreclosures, the inventory numbers are shrinking. I can buy the short term argument that there may be too many foreclosures to get on the market but this number has to correct at some point. If inventory really does drop over an extended period, we have to conclude that demand (invisible though it appears) is actually absorbing the foreclosures.
IR, you do a fantastic job with this blog and I agree with your basic premises. But I disagree slightly on the depth and duration of the carnage. But, we will all know in a few years!
Posted by IrvineRenter on 07/29/08 at 03:14 PM
The housing bill won’t do anything substantive. Plus, you will see a new round of bottom-callers every couple of months. They will be consistently wrong until we do reach the bottom, then they will be heralded as prophetic geniuses.
Posted by IrvineRenter on 07/29/08 at 03:25 PM
markh,
Thank you for the thoughtful comment. You may be correct, and the price drop may not get down to four-times income. If it follows the pattern of the last two housing recessions, it will, but I am always willing to entertain the idea that it will be different this time.
This whole mess has been interesting to watch because I have always tried to have a balanced view of markets in general. People can always construct a very bearish argument, and they are usually wrong. I have never seen a set of circumstances quite as bearish as the ones hanging over this market. I can’t see any bullish counteracting forces at this time which will have meaningful impact on Irvine’s resale market. Perhaps I am wrong, but until the next wave of resets has come and gone, I don’t see the pressure on prices abating.
Posted by Laura Louzader on 07/29/08 at 03:48 PM
Our politicians don’t care what we think and they don’t have to care. We need to understand that these people now mostly belong to a totally different class than most of us, and are completely insulated from the consequences of the messes they help create.
After all, the petition against the bailout was posted on numerous sites, and all of 58,000 signatures have been gathered. Where are the other 100 million or so signatures that ought to be here.
Maybe people have gotten apathetic because there is just too much to fight, at the local, state, and federal level. Maybe most folks are too busy making sure they still have a job, or are fighting their local alderman to keep yet another building from being turned into a slum by his slumlord contributors, or are fighting to keep a sewage reclamation plant from being built right over the town border 3 blocks away.
The only thing that works is to vote the bums out, yet it is very difficult to unseat a well-established incumbent no matter how destructive and incompetent he is. Oftentimes, it can only happen when s/he gets indicted.
We’re fighting massive inertia here.
Posted by Matt on 07/29/08 at 04:44 PM
Not for me.
Prop 13 simply ties the hands of local government officials. And, if you’re going to make a big huge development (requiring new sewer lines, streets, schools, etc.)...how is a city supposed to pay for all that? They can’t raise property taxes (and it hardly seems fair to make existing residents pay for new ones). Mello-Roos is a way to let cities build to accomodate newcomers (and to have the newcomers pay for it for a while).
Limiting property taxes is one of the contributors to CA’s housing bubbles, in my mind. Since property taxes are low in CA (relative to value), that’s a smaller expense for housing, making it so somebody can afford a larger mortgage payment. If property taxes were 1.5 percent, how much would that have tamped down the housing bubble? Add 100K to the price you’re trying to sell, and in addition to the additional mortgage costs, you’d be asking for an additional $40 a month, with no way for an ARM or anything else to get rid of that. Potential buyers would be less likely to pay that $100K.
At least, that’s how I see it.
(Oh, and CA MIGHT be able to keep sales taxes or income taxes lower while providing the same services….or even *gasp* have a rainy day fund)
Most of this is, of course, a lib-con debate, and we’re certainly not going to resolve it here. Just thought I’d add my $.02
Posted by ato on 07/29/08 at 04:55 PM
Regarding the expected reset wave, don’t you think the housing bill (people refinancing to a better loan) combined with those people who give up before the reset time may result in reduced foreclosures when the time comes ? Besides, a good part of the people may afford the new payments. I guess my question is that unlike the sub-prime meltdown, this one seems to be anticipated for a while and efforts being made by all parties to reduce its effect. So, it may come and go without us noticing much change in the market ?
Posted by lendingmaestro on 07/29/08 at 05:05 PM
assuming the 2000 price was not inflated and a good 3.5% appreciation rate, this dump is not worth 300k.
Posted by Matt on 07/29/08 at 05:16 PM
As a “glass is half empty” (on the economy) guy, I’ll say why I’m bearish.
I’m mostly bearish because I don’t see too many signs of this being a fundamentally strong economy. I think I heard that something like 50% of all jobs created in CA since 2000 (when the dot.com recession hit and Greenspan went nuts) were in real-estate-related professions: realtards, mortgage folks, and construction. Those high-paying jobs led to more spending, leading to retail hiring. With the housing crash, the lynchpin (in CA, at least) comes out and the house of cards comes down. You can see this in CA’s unemployment going up 1.3% in 4 months. With CA still reeling (and paying for) the budget problems of the late 90s/early 00s (with bonds), our state government is now forced to either raise taxes, cut spending, or both for some significant amount of time. That also hurts. Finally, the slaughter in housing is taking banking down with it. That’s a lot of sectors of the economy (real estate, construction, banking, government) all hurting at the same time…and it’ll hurt one of the true fundamental drivers of housing cost: jobs.
Finally, my thinking is that just as a boom mentality led to this, a bust mentality will lead to an “overshoot.“
I do agree that ‘desirability’ will play a big role here…this is why Irvine, to me, will never be as bad as Vegas will in it’s fall from lofty peaks. And, SF might be a special case; no growth possible, insane desirability, and rent control all keep prices high. This is why the pricier areas in CA have been the last to fall. But, when nobody can trade up, demand at the top end falls too.
Posted by ochomehunter on 07/29/08 at 06:19 PM
Irvinerenter, Question for you!
IRS is forgiving taxes on forgiven debt loses by banks. Does that count HELLOC as well? If someone took out say $100,000 and walked away from his home, what are his tax obligations and will he have to return the money to the bank? If he will have to pay taxes on HELLOC, than I say that is hell of a deal, cash out $100,000 and pay $50,000 in taxes to IRS, pocket 50% of HELLOC and smile.
Foreclosure may leave a mark on credit but short sellers may get away with tonnes of cash. I seriously believe this Administration has screwed all, they should penalize 100% of HELLOC money to the borrower/absuer via garnised wages until debt is cleared, this is the only way one will stay away from such wrong doings. What do you think?
Posted by Forbear on 07/29/08 at 06:27 PM
Well stated, your my new hero!!
Posted by FED1913 on 07/29/08 at 07:00 PM
“Resistance is Futile!”
That’s right, and ALL US sheep will BOW DOWN to the Federal Reserve, or ELSE !
Posted by IrvineRenter on 07/29/08 at 07:02 PM
I am not sure what the tax ramifications are for HELOC forgiveness. My guess would be it would be taxed because it was not a purchase-money mortgage. In my book, I am recommending the deductability of HELOCS be limited to improvement projects with loan documentation similar to what is required in construction loans. By transferring consumer debt to deductible housing debt, they are effectively getting around the deductibility limitation on credit card interest. This should be stopped. As for people getting away with HELOC money in a short sale, it is basically theft, but if the lenders were stupid enough to extend the credit, they are asking to be stolen from.
Posted by Former Irvine Renter on 07/29/08 at 07:31 PM
In this market, yes. Here’s an example.
Assuming you have a 1st loan @ 100K and a 2nd loan (HELOC) @ 50K. At the foreclosure sale, the house sells for 125K, then the 1st loan is 100%paid and the 2nd receives 25K. However, since the market is in the toilet, the house probably won’t have a buyer at the foreclosure auction and the 1st lien holder will get the house.
Posted by dick on 07/29/08 at 07:45 PM
Remember August 2007 Bush said:
“It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford”
Bush Aug. 2007
Gee, look what’s going on now…
Lesson to be learned: Watch what they DO, not what they SAY.
BTW, Im neither rethuglican, nor democrap.
IMO, BOTH parties SUCK. Throw ‘em ALL out of office and start all over.
Posted by dick on 07/29/08 at 08:06 PM
repost from the weekend, and probably one of the best Schiff’s videos EVER.
Here’s an awsome video of Peter Schiff giving
a presentation to the Mortgage Bankers back in Nov. 2006. It’s broke up into 8 parts, but it’s well worth the watch.
Part I
http://www.youtube.com/watch?v=6G3Qefbt0n4
Part II
http://www.youtube.com/watch?v=8hFmoTjljpw&feature=related
Part III
http://www.youtube.com/watch?v=qBk4PhdhCFQ&feature=related
Part IV
http://www.youtube.com/watch?v=xNKs8lBnd2U&feature=related
Part V
http://www.youtube.com/watch?v=MoSwkCog-Ro&feature=related
Part VI
http://www.youtube.com/watch?v=IrpPsOvHUU8&feature=related
Part VII
http://www.youtube.com/watch?v=DVtT6spfffI&feature=related
Part VIII
http://www.youtube.com/watch?v=xgRgGKxXbCw&feature=related
“Peter Schiff’s final prediction at the end of his speech (that has yet to come true).
Interest rates (in the US) are not going to the moon - they are going to Pluto… “
Posted by UnderConsumer on 07/29/08 at 08:29 PM
“Plenty of people besides the homedebtors benefitted from this game. Think about that before you complain about the bail-out plans.“
As a non debtor and financially prudent taxpayer, I am deeply offended by your flippant attitude toward the heavy burden that non-homedebtors are being asked, ahem FORCED, to bear. That’s right, FORCED. And you damn well better be sure the IRS will come a-knockin’ with guns in their hands if I don’t pay my due taxes.
Meanwhile, the worst homedebtors will continue to pay the LEAST taxes, while more bailout bills funded by the most prudent of citizens will continue to fund the greedy and slothful ways of the idiotic homedebtors.
That says nothing about the inflation currently raging whose purpose is simply to inflate away the indebted’s obligations, at great cost to those who toil and save.
Non debtors (and renters and the like) deserve a friggin medal, not a request for appreciation from the likes of you. Sadly, the medal is not what they’re going to get, as you here show.
Posted by dick on 07/29/08 at 08:49 PM
http://www.youtube.com/watch?v=Ubsd-tWYmZw&eurl=http://housingpanic.blogspot.com/
Suzanne, look what YOU’VE done !
You BITCH !
Posted by Craig on 07/29/08 at 09:21 PM
What do I think? I think anyone who buys a $250K house and ends up owing $500K on it is nuts.
It’s not “making a mortgage equity withdrawal” of $250K, it’s BORROWING a quarter of a million dollars. (“Going deeper into debt” is another phrase that applies.)
Posted by dick on 07/29/08 at 09:25 PM
The Angry Appraiser
http://www.youtube.com/watch?v=PwldcXUSHCQ&eurl=http://housingpanic.blogspot.com/search?updated-max=2008-06-29T00:19:00+01:00&max;-results=20
hahahah ROFL!!!!! Gee, can you feel the negativity yet????
Posted by Artex on 07/30/08 at 01:37 AM
Priced out of it,
You’re just noticing that the gov’t is stealing our money??
The last 7 seven years have been nothing more than a money grab. There are Billions of dollars “unaccounted for” in the Iraq rabbit-hole, the new Homeland department, the federalization of the TSA, the Energy plan, the bailout, etc, etc.
All these things have been done to raid the treasury - or at least it was a top 5 reason for a lot of these “initiatives”.
The latest is the offshore drilling plan. Trying to wring out the last few dollars before the Dems take over.
Free market my ass - more like foxes in the henhouse.
Posted by Soapboxpolitico on 07/30/08 at 10:51 PM
Matt - Quick bit of info ... in many new developments in Irvine the property taxes + mello roos is at 1.8% ... well past the 1.5 you suggest. On a $650K house that adds almost $1200 per month to the mortgage payment. OUCH! Didn’t see to slow sales down at all until the whole ponzi scheme collapsed.
Posted by lawyerliz on 08/01/08 at 06:25 PM
Kirk is a merry pranster. He gotcha.