It’s Over
Sad Eyes -- Robert John
It is my observation that people have not fully grasped the changes that will result from the deflation of The Great Housing Bubble. There are many historic parallels with the closest being The Great Depression. When the stock market bubble of the 1920s began to deflate in late 1929, few thought the boom times of the decade were over, and even fewer saw the disaster coming of The Great Depression. The recession we are entering now will not likely reach the severity of The Great Depression, but it will signal the end to the lifestyle to which so many in California have become accustomed.
Right now, there is still a great deal of denial in the general population. The conventional wisdom appears to be that prices will begin to recover once this recession is behind us in 6 months or so. In a normal real estate market experiencing a recession due to a problem in another part of the economy, this thinking might be true. House prices often stagnate when a certain industry is in contraction and resume appreciation when the industry recovers. This works in a healthy real estate market because prices are correlated with incomes. When incomes drop or stagnate, so do house prices, and when income growth picks up again, house prices go along for the ride. However, this recession and the response to it are different. This recession is caused by the collapse of the housing bubble and the disappearance of the mortgage equity withdrawal stimulus and the fearful contraction of lending generally. The general economy will recover, but home prices will not because house prices are not supported by incomes. Even when incomes begin to rise, house prices will still fall until they are in fundamental alignment with income again. This will take time. It will happen more quickly in the new home market because prices are not downwardly sticky when it comes to new homes. Builders lower prices until they find a market and generate sales volume. With sales volumes at historic lows and inventories dropping, new home sales volumes should bottom out over the next several months; however, volume will not recover quickly with all the competition from REOs and prices may decline further (particularly here in Irvine where the price cuts have not been as aggressive and sales volumes are nearly zero because the prices are too high.)
The major area of denial surrounding real estate that I see is the loss of the associated lifestyle. People seem to believe that prices will recover, and lenders will go back to supporting their lifestyles by providing HELOC money for every dollar of appreciation, and the party will go on much like before. This is not going to happen. We have discussed on this blog the short-term memory of institutions and investors and the general level of foolishness, but they are not that stupid. They are not going to lose a trillion dollars then go right back to the behaviors that cost them all that money. Without significant structural changes to our lending system, the practices of the bubble might return some day, but not for 10-20 years or longer. It certainly is not going back to the way it was in the next 6 months or 6 years for that matter. The party really is over, and people have not accepted that fact, nor have they adjusted to it. There are still difficulties ahead, and many sad eyes wet with tears from the losses they must endure.
Today's featured property is another example of the kind of behavior we saw during the bubble that is coming to an end. The buyer put 5% down, quickly withdrew the downpayment plus some spending money, and let the property go back to the lender.
Asking Price: $940,000
Income Requirement: $235,000
Downpayment Needed: $188,000
Monthly Equity Burn: $7,833
Purchase Price: $1,054,000
Purchase Date: 4/18/2005
Address: 61 Secret Garden, Irvine, CA 92620
| Beds: | 5 |
| Baths: | 4 |
| Sq. Ft.: | 3,165 |
| $/Sq. Ft.: | $297 |
| Lot Size: | 4,919 Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Spanish |
| Year Built: | 2005 |
| Stories: | 2 Levels |
| Area: | Northwood |
| County: | Orange |
| MLS#: | S540417 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 11 days |
seperate? successfull?
Going to foreclosure August 5, so beat the bid for this home. Yeah, that is going to happen. Why would I bother when I can get a better deal from the bank later?
agents need to adhere to private remarks to have successfull offers? Any guesses on what that is?
The owner of this property paid $1,054,000 on 4/18/2005. He used a $700,000 first mortgage, a $300,000 second, and he put $54,000 down. On 7/5/2006 he refinanced with a $984,000 first mortgage and a $246,000 stand-alone second. The total mortgage debt on the property is $1,230,000. The total mortgage equity withdrawal including his downpayment is $230,000. Not a bad take for 14 months ownership.
If this property sells for its asking price and a 6% commission is paid, Long Beach Mortgage Company stands to lose $346,400. That is a substantial loss for a two year old loan.
I don't think I need to mention how common HELOC abuse really is as the numerous examples on this blog show this clearly. Enabling that behavior is costing the lenders billions of dollars. Do you see why 100% financing on purchases and 100% refinancing and HELOCs are not coming back any time soon? The debt orgy is over, but it was a great party while it lasted 
.
Looks like it's over, you knew I couldn't stay
She's comin' home today
We had a good thing, I'll miss your sweet love
Why must you look at me that way
It's over
Sad eyes, turn the other way
I don't wanna see you cry
Sad eyes, you knew there'd come a day
When we would have to say 'goodbye'
Try to remember the magic that we shared
In time your broken heart will mend
I never used you, you knew I really cared
I hate to see it have to end
But it's over
Sad eyes, turn the other way
I don't wanna see you cry
Sad eyes, you knew there'd come a day
When we would have to say 'goodbye'
[Instrumental Interlude]
Sad eyes, you knew there'd come a day
When we would have to say 'goodbye'
Sad eyes, turn the other way (turn the other way)
I don't wanna see you cry (cry, cry, cry)
Sad eyes, you knew there'd come a day (he-e-e-ey)
When we would have to say 'goodbye'
Sad eyes
Sad Eyes -- Robert John
.
The photograph below was sent to me by a blog reader. What do you all think of it as a potential book cover?
IR, you do great work, but it is starting to seem to me that even you are not realizing the abyss we are staring into.
I like the analogy that Mish attributed elsewhere:
If this were a baseball game, we are still in the National Anthem of a game that is destined to go extra innings.
Although now that the bailout bill is a reality, perhaps the first pitch has been thrown.
But it missed the plate by a foot…
nope. that was just the fat lady hitting her high note.
That’s a real, not a doctored photograph? I like the composition, and if it’s real (and looks better in person than on this slightly lower-res version, then I love it for the book cover, especially if those apartments (oh sorry condos) are in Irvine.
Putting photos of property in Irvine on book cover will catch my attention.
I agree with George8, putting real photos of property in Irvine would catch the eye.
The current book cover just reminds me of a better version of AZDavid’s picture posts in the blog’s comments section.
But would photos of plain old Irvine houses catch the eyes of people not in Irvine - not so sure. I like this pix because the style is sort of generic - almost could imagine it anywhere.
To add a human element, have a young family packing there belongings in to a big fat HELOC Hummer in the otherwise empty parking lot.
What these families did makes me mad and sad at the same time.
how about an outline of the google map of irvine with a red “For Sale” rubber stamp for the cover
I like the picture - I didn’t even consider that it is real, but after Cara’s comment, I’m not so sure. Wow!
As a critique, the picture is a good one, but lose most of the parking spaces and increase the blue sky. I don’t like the color or font of the title - I wouldn’t take a book seriously if I saw in on a bookshelf. It looks too comical and the color is jarring, but not in a good way.
Just my 2 cents, of course. I do act as my wife’s editor on her corporate collateral material, so I have some experience giving notes.
Good luck!
IR, I like the cover too—but I’ll disagree with Mikee over dropping the parking spaces. I think you should keep them—the empty parking spaces reinforce the bleakness and vacancy of the situation.
Actually I like the whole composition—who ever took the time to do this did it right—even the housing units pictured look poorly planned (five garages per building for (6?) units per building ... the balconies overlooking the parking lot ... wow, I could go on and on….
I wonder if the banks are really going to drastically change their lending practices over the longer term. “The banks” are actually people, and the people towards the top were making huge salaries and incredible bonuses. There was and is no alternative way for so many people with no particular talent, skill or decades of experience to get such enormous sums of money in so little time and with so little effort or (personal) risk. They are missing those good times, and all of the ones attracted to the opportunity but not yet super-rich are looking for ways to get the ball rolling again to get theirs.
I think it could be argued that the HELOC abusers were just trying to get a little bit of what the banks and hedge fund managers were raking in, and in a similar way, i.e. pull cash out as fast as possible and leave the loans for some sucker to worry about.
While just perhaps a very, very few will eventually get called to account, there is no way they will ever work their way down to the hundreds who only got a few 10’s of millions or the thousands with a mere couple of millions. Out of the whole Enron scam, how many convictions? And Ken Lay’s wife/family gets to keep his money, and I doubt that Skilling will be poor when he gets out of executive prison. Those bank CEO’s are taking away $200 million severance packages plus all the salary and bonuses they “earned” during the good years. Where’s the dis-incentive? The dream to be the next Mozillo is so much a part of American culture now I don’t think it will so quickly be changed, when it’s just a corporation or some anonymous strangers or the US taxpayers who ultimately take the hit.
They should all go to jail!
The HELOC abusers, the enablers (bankers, loan brokers,....)
Why on earth should we condone this type of behavior?
To make the fundamental changes to the system is to change the people who run it.
Where’s accountability?
Why should we compensate the reckless investors, the irresponsible bankers, the HELOC abusers, and the &@#%!*@ parasites of our society out there?
If we don’t do anything to reenforce the concept of resposibility and accountability, they will be back at it again in no time.
Didn’t Charles Keating and the gangs go to prison after that 1980s S&L;debacle?
One of the Keating 5 is currently running for president…
Read and learn:
“The Senate Ethics Committee ruled that the involvement of Glenn in the scheme was minimal, and the charges against him were dropped.[15] He was only criticized by the Committee for “poor judgment.“[18]
The Ethics Committee ruled that the involvement of McCain in the scheme was also minimal, and he too was cleared of all charges against him.[16][15] McCain was criticized by the Committee for exercising “poor judgment” when he met with the federal regulators on Keating’s behalf.[6] The report also said that McCain’s “actions were not improper nor attended with gross negligence and did not reach the level of requiring institutional action against him….Senator McCain has violated no law of the United States or specific Rule of the United States Senate.“[12] On his Keating Five experience, McCain has said: “The appearance of it was wrong. It’s a wrong appearance when a group of senators appear in a meeting with a group of regulators, because it conveys the impression of undue and improper influence. And it was the wrong thing to do.“[6]
Several accounts of the controversy contend that McCain was included in the investigation primarily so that there would be at least one Republican target.[19][20][21][8] Glenn’s inclusion in the investigation has been attributed to Republicans who were angered by the inclusion of McCain, as well as committee members who thought that dropping Glenn (and McCain) would make it look bad for the remaining three Democratic Senators.[19][21] Democrat Robert S. Bennett, who was the special investigator during the scandal, suggested to the Senate Ethics Committee that it pursue charges against neither McCain nor Glenn, saying of McCain, “that there was no evidence against him.“[20] The Vice Chairman of the Ethics Committee, Senator Warren Rudman of New Hampshire, agreed with Bennett, but the Chairman, Senator Howell Heflin of Alabama, did not agree.[8]
Regardless of the level of their involvement, both senators were greatly affected by it. McCain would write in 2002 that attending the two April 1987 meetings was “the worst mistake of my life”.[22] Glenn has described the Senate Ethics Committee investigation as the low point of his life.[5]
Love the gym, I mean bedroom.
It looks like the place is empty, yet the bed is unmade and there is a hair dryer on the counter in the bathroom. Nice staging. Perhaps the Realtor spent the night so he could take advantage of the early morning light to get some great photos of the house for the listing?
So what are the private remarks for the successfull (sic) offers?
“Please bid the asking price and every other home owner on the street will kick you back $5K”
This neighborhood is in line for a world of hurt as home values plummet. I believe IR has pointed out previously, these homes are closer to Northwood than Woodbury for comps. And were built/sold at the height of bubble speculation. It should be interesting carnage.
Sorry folks, the photo is doctored. But not a bad one none the less.
IR, if you re still considering covers for your book, I’d like to offer my services. I’m a professional illustrator in Orange County.
I’m such a huge fan of your blog, I would love to submit some ideas.
Sorry folks, the photo is doctored. But not a bad one none the less.
IR, if you re still considering covers for your book, I’d like to offer my services. I’m a professional illustrator in Orange County.
I’m such a huge fan of your blog, I would love to submit some ideas.
I know comments like this are frowned upon by the locals, but those fans of this site from other states and/or housing markets have GOT to view the link to today’s house (in particular fool around with the Google street views)—almost a million bucks for a nice, but not fantastic house on a “nearly 5000 square foot lot.“ (The Realtor seems to think this is something special.) That’s, um, for those of us who measure lots sizes in “acres,“ ... a tad over 1/10 of an acre. With no trees to speak of.
What is the point of single family homes such as this? If land values are so dear in Irvine, wouldn’t condos be a better idea—sure, the open spaces would be communal, but at least they would exist. These houses sit on lots with almost zero usable yards—even the “front yard” provides little buffer from the street.
There are some older places in Irvine that have pretty good lot sizes. Funny thing is, they are in the “cheaper” areas, because they built 1,300sf homes on 5,000 - 6,000 sf lots. To me, these are far better deals than a McMansion squeezed into a smaller lot.
Let’s face it, one of the reasons we live here is for the weather. So does it not make sense to enjoy it in your backyard rather than sitting in the McMansion watching Idol? You can do that in Iowa and not pay So. Cal. prices.
I would suggest you work on the type a little more. To me these typefaces are unexciting. The shadow behind the title would be more appropriate on a fiction cover than a non-fiction title. Although the photograph is fine and good enough in it’s own right, I feel it makes the cover as a whole look busy. I also personally feel that while the photograph would makes sense to someone who is already familiar with the subject matter for someone who has not been following the ins and outs of the housing bubble they may not immediately make the connection between the title and the image. You want a simple strong image that encapsulates the main argument of the book. IMHO.
A 5000 square foot lot and they’re asking 940k? That’s ridiculous even by SoCal standards; take a trip a little ways south and you can get ocean-view property here in San Diego, on a lot that’s double the size, for the same price.
When I was growing up here, a long time ago, Irvine was nothing - just some farmland and some hicks. My, how times have changed.
I have to agree the cover has a cartoonish feel. Frankly, the bubble has enough bizarre behavior that you shouldn’t need to doctor and overstate anything. I like Matt P’s book cover. It conveys a sense of the book without overstating.
I don’t understand the pitch for why to buy the book - that should be reflected in the cover. For example, on Matt P’s cover, there is a chain of money (ie. follow the money cover up, chain implies power, imprisonment, etc) - it’s an emotionally laden image that says “buy this book to find out where the money leads - who set it up, who profited, which immoral Gordon Gekko dude made my downpayment disappear?) - I could see the impicit promise & why people would buy that book.
What is the hook that your book promises the reader? What emotional need does it fill for them? Then make a graphic accordingly that conveys that emotion.
Actually, I rather like that satiric image IHB featured awhile back with the dropping house hitting the ground and exploding while people flee - walking by that in a bookshop would get my attention with a “what is that?“ second look. Might even flip over the back to figure out what that picture was about.
I’m not feeling the cover either.
Instead of a bunch of empty condos.
You should go with a montage of shots from condos up to McMansion.
Show the full spectrum being effected.
LOL! Now the this has turned into an critic’s forum.
Regarding the book cover, I had expected single family homes.
How about a train of houses put onto a roller coaster? While not a book cover, there is a nice animation of historic house prices as a roller coaster ride at http://www.speculativebubble.com/videos/real-estate-roller-coaster.php
I was thinking more of the juxtaposition of the lines for opening day on Ladera Ranch with the Great Depression soup lines and Hoovervilles.
But that would be overstating. I hope.
further juxtaposed with the lines at IndyMac
Today’s most interesting finding to me on the redfin listing is the bottom where redfin lists asking prices for similar homes on the left and recent selling prices of comparable homes on the right.
Asking prices are all over $900k yet in the last six months, sale prices have been only $700-$800k and there have been no comparable sales since April, now ancient history.
Talk about a disconnect between wishing and market prices. In a normal market, those two columns should not be so discordant.
There is an interesting related set of points in allegedly immune Malibu.
“Single Family Home Sales from $1.5 M to $2.5 M
There were eleven (11) homes that sold between January 1, 2008 and May 15, 2008. None of them were mobile homes. The Average Sales Price was $2,060,227 while the Median Sales Price was $2,100,000. What is more interesting to note is percent decrease from the Original Sales Price to Actual Sold Price. The Average percent decrease was 17% and the Median decrease was 18%.“
Yes, the do have to say none of them were mobile homes. Malibu has had seven figure prices for mobile homes in the past.
Also interesting, “Single Family Home Average Value based on Sold Homes between $0 and $2.5 million have dropped between 17% and 20%
Single Family Home Average Value based on Sold Homes above $8 million have dropped 20%“
Even really expensive homes are feeling the same price pressure. http://activerain.com/blogsview/560303/Have-We-Bottomed-Out
http://online.wsj.com/public/article/SB121642367125066615-4K_l2jdjmxrSAZRs5Ii1mziroY8_20080818.html
Bloomberg has another sombering headline today:
IMF Says U.S. Housing Slump End `Not Visible,‘ Credit to Worsen
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a3LJHMF_2I0c
“Room over garage has seperate entrance, great rental or office”
Rental? Do people really buy a million dollar home thinking of renting out one of the rooms? Why doesn’t the realtor suggest renting the “HUGE TWO CAR GARAGE” out to another family? Or is that what he was thinking when he all-capped it?
My thought exactly. ‘We’re all subprime now,‘ even those in million dollar houses.
The book isn’t going to be published under the “Irvine Renter” acronym is it?
Sounds to me like you would need to come out of anonymity to publish this book - it would rather not look very credible if it wasn’t signed by a real name.
Income requirement of +200K a year? Wow! I don’t know anyone who makes over 200k a year. Maybe I’m hanging with the poor crowd. How do people in Irvine live? or are they all making 200k or over a year? Where can I find me a job in Irvine? I’d like to go there and make 200k a year.
I work a pretty run-of-the-mill IT management job in CA, and I make just over 100k. Marry me off to some woman (or man) making the same, and you have 200k. The housing market is priced for two+ income households, and has been priced that way for a long time.
that’s why there’s this statistic thing called “Household Income.“
As of 2006 census in Irvine, the median household income was $84,270. According to TIC, 26.4% of all households in Irvine exceed $200,000. Dunno about the breakdown, but I venture to guess a material chunk of those are closer to the coast than, say, Northpark.
Funny - I think 80+% of all Irvine listings expect $200k+ income.
I was being sarcastic because I see so many homes with 200k+ requirement in Irvine. But what Periol said also surprised me a bit. “I work a pretty run-of-the-mill IT management job in CA, and I make just over 100k.“ Clearly I am doing something wrong or need to get a job at Periol’s firm.
100k+ is quite common in IT in So Cal, esp if you have the right skills.
Go check the salary surveys put out by the major firms if you’re interested to know which skills provide that level of income.
Be forewarned, though: sometimes the curve swings (say from MS SQL to Oracle, or away from SAP) based on some major employers shifting demand.
My opinion on the cover is that it needs to be either more realistic (like a single run down house with a foreclosure sign) or less so (a picture of a tract housing street that stretches endlessly into the distance, with a sign on every lawn).
This cover looks sort of real, but if you look at it closely, its clearly doctored. Its not quite unreal enough to be satire, and not quite real enough to be straight.
Also, I think you might want to go for housing that is more common across the entire country (single family homes). I don’t think most people see that much super-dense condo development, so they won’t relate to it.
my 2 cents on the book cover illustration:
very generic and blah. Some banners should read, ‘FORECLOSURE’ or ‘SHORT SALE’.
Agreed re: above commenter who stated that it was like one of AZDavidPhx’s photo illustrations, only cleaner/more professional than his.
For the cover, how about a picture of an abandoned, half built new neighborhood. I find images of those skeletal ghost-towns to be the most striking.
what most disinterests me of newly built homes, is the small lot size of so-called SFR. I guess this home does not have any sizable yard. I think as time goes on, builder will have to use more lands for the same living space to attract new buyers. I read somewhere that homes built in RE down trend time have better quality than those built in bubble time.
about the book cover, IMO, it mostly conveys Apartment Bubble not Housing Bubble and i agree that some banners should read differently.
btw, Good Luck with Book IR
That cover is not Irvine. Too much color and variety.
I have a story about that neighborhood. I met a woman at the park once that had just moved in there. She was dripping in diamonds, driving a tricked out Land Rover, and told me that she had worked for Donald Bren’s son. The son is the CEO of California Pacific Homes, the builder of this tract. So she told me that her house had all the best upgrades, better than was offered to the other buyers, and she was so happy to be in the best house in the neighborhood!
It just makes me laugh now, and I sure hope Bren’s son GAVE her the house, because now she is the absolute FARTHEST underwater of anyone in that neighborhood.
Oh the schadenfreude! She was probably a sales assistant for Pacific Homes (by the way that builder has already tanked). 20 bucks says she pawns her diamonds and craigslists the Land Rover to pay her mortgage before taking up a drug habit and losing her house to foreclosure.
Do you recall if it was a Range Rover or Range Rover Sport?
What, I’m looking to pick one (Range Rover) up at a nice discount.