Losing Your Downpayment
Losing Touch -- The Killers
I heard you found a wishing well
In the city
Console me in my darkest hour (in my darkest hour)
And you throw me down
On Wednesday, we looked at the impact of cash buyers in Irvine's market and asked, Will Zealots and Foreigners Support the Market? Are those with large downpayments smarter than the fools who used 100% financing? Surely someone who put a large downpayment into a transaction must know something more about the market than a no-risk gambler using 100% financing. Well, perhaps not.
Many of the properties I have profiled have been speculators using 100% financing who bought at the peak. These people were not risking any of their own money, so they had little to lose other than their credit score. These people are the first to give up when prices go south because they have the least incentive to continue pouring their own money into the abyss of ongoing debt service.
The people who have their own money in the transaction are a bit more reluctant to give up because they know their money will be gone forever. We first started seeing people who had 5% or even 10% down a few months ago. Today is one of the first I have seen that has put 20% down on a mid to high range property and decided to sell.
Console me in my darkest hour
Convince me that the truth is always grey
Personally, I think it is a bright move on this guy's part. He is getting out now before prices drop further and he either damages his credit or loses even more money. Very few in his circumstances would do the same. I admire his decision.
The closer people get to falling under water, the more they lapse into denial. Most of the market is simply hoping prices come back soon without any realistic chance of this occurring. Denial is paralyzing because it prevents you from taking action. The owner of today's featured property overcame his denial and is choosing to sell before it gets worse.
Asking Price: $685,000
Income Requirement: $171,250
Downpayment Needed: $137,000
Monthly Equity Burn: $5,708
Purchase Price: $814,500
Purchase Date: 7/29/2005
Address: 39 Hathaway, Irvine, CA 92620
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,300 |
| $/Sq. Ft.: | $298 |
| Lot Size: | 3,700 Sq. Ft. |
| Property Type: | Condominium |
| Style: | Mediterranean, Spanish |
| Year Built: | 2005 |
| Stories: | 2 |
| Floor: | 1 |
| View: | Mountain |
| Area: | Northwood |
| County: | Orange |
| MLS#: | S552931 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 67 days |
There must be "sales experts" out there teaching realtors to USE ALL CAPS, exclamation points, asterisks, and standard clichés like "steal of a deal," "gourmet kitchen," and "stunner". I have difficulty reading that description.
Today's featured property was purchased on 7/29/2005 for $814,500. The owner used a $650,000 first mortgage and a $164,500 downpayment. If the house sells for its asking price, and if a 6% commission is paid, the owner stands to lose $170,600. Hopefully, he has paid his mortgage down by $6,100, or this will be a short sale. I suspect if the amount is that small, the guy would write a check rather than ruin his credit for such a small amount.
Losing $170,600 of your own money must really suck. Day after day when I profile $250,000 bank losses the number seem surreal and impersonal. When you imagine a real person actually losing this money, the amount seems very tangible, very large and very personal -- at least to me...
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
:)
Console me in my darkest hour
Convince me that the truth is always grey
Caress me in your velvet chair
Conceal me from the ghost you cast away
I ain't in no hurry, you go on
And tell your friends I'm losing touch
Fill their heads with rumours of impending doom
It must be true
Console me in my darkest hour
And tell me that you always hear my cries
I wonder what you got conspired
I'm sure it was the consolation prize
I ain't in no hurry, you go on
And tell your friends I'm losing touch
Fill the night with stories, the legend grows
Of how you got lost
But you made your way back home
You sold your soul, like a roaming vagabond, yeah
I heard you found a wishing well
In the city
Console me in my darkest hour (in my darkest hour)
And you throw me down
Losing Touch -- The Killer
This must be an honest person, they didn’t HELOC every last penny.
Yes, and they are getting screwed for their honesty…
Maybe worse yet, considering the owner has dropped the asking by nearly $50k in two months.
Where will they find a buyer soon enough before the the all drag out short sale kicks in?
My husband and I are in a similar situation. We bought in early 2005 here in Irvine. We knew it was a temporary move when we bought. This home is not our “dream home” and we had always planned on putting the house on the market in 2009/2010 so we could “move-up” to a larger home. We knew we would have a guaranteed large increase in salary b/c of the professions we are in. We put 20% down on our house and now it is 4 years later and we want out to buy a larger, nicer home. We are not “distressed” at all but plan to probably put our house on the market this spring/summer. We figure we will lose some of our down (hopefully not all!) and then rent for a year or two and then buy our dream home in Turtle Ridge/Newport Beach when the prices come down. We know we are the minority but do not want to be stuck in this property for another 5-10 years!
It is sad that this crash is going to hurt you and/or cause you to change your plans. When prices are going up rapidly, I can understand becoming fearful that even with the increases in salary, you might be priced out in the future. A 4 or 5 year holding time is usually sufficient to recover your transaction costs, so even though you knew it was temporary, you weren’t flipping.
The economic distortions caused by these financial bubbles creates situations like yours. I imagine it is both irritating and very sad. Hopefully, we will find some good solutions to prevent these problems in the future. I wish you well.
Why not sell now? You will probably get at least 10% more than if you sell this summer.
I remember in the 9/11 Twin Tower attacks, my wife worked in the US Bank building in L.A. She was at work that morning and called me at 7:40 am to say they were sending everyone home at 8am since it was the tallest building in L.A. and they didn’t want to take any risks. I told her to leave immediately. I asked, “What’s waiting 20 minutes going to change?”
My point is why wait until spring/summer to sell the depreciating asset? It’s value will only be going down every day you wait. Call IR2. He’ll write a listing that is actually readable. And if you price it to the market, you’ll get the albatross off your neck. And you can surely find a comparable rental for possibly a lower monthly expenditure. Good luck.
This is great advice. I am in a similar situation wanting to move up and am considering listing my current home in FEB. I will just rent for 2 years and then buy.
Actually you can still sell and buy a move house at the same time. A friend is in exactly situation as your. He just sold a house bought in 2005 and takes $200K lose and move up to a much bigger one. He believes he has saved $300K if he brought the same new house in 2005.
Honestly, I don’t think that these realtors have sales agents telling them to write garbage descriptions like these. I suspect that the realtors read nothing but other listings, and they’re copying the worst aspects of those other listings because they’re not smart enough to know better. Back during the dotcom boom, I worked for several companies that spent considerable amounts of money on intranets and extranets, and those internal sites always looked terrible. You could always tell if the designer (always some Cat Piss Man in the server room who wanted to claim that he was a Web designer on his resume) spent his off-hours visiting Star Trek sites or porn sites. If the former, it was loaded with pilfered TV and movie photos without any concern about the company being sued for copyright infringement. If the latter, it was usually black backgrounds, white text, multiple fonts, and lots of goofy animated GIFs.
Or, to put it another way, take a look at eBay. Note all of the listings that include “L@@K!” in the description. Does putting “L@@K!” in the description do any good? Does it do anything other than impress upon the reader that the seller is anything other than the stereotype of the hillbilly eBayer selling broken junk to pay for his meth habit? Does it actually lead to someone clicking on the link other than to get a laugh? No, no, and no, but the seller sees every other idiot putting “L@@K!” in their descriptions, so they engage in a bit of magical thinking and figure “Maybe it’ll work for me.” Yeah, it might, but the Dallas Cowboys have a better chance of winning the World Series than a realtor peppering a property description with such lame cliches.
“Dallas Cowboys have a better chance of winning the World Series”
ROFL
Anybody know what this size place might rent for?
$3000/mo???
I am in a similar situation. I put a whopping 30% down on my property when I bought in 2005 (half of that was bubble money from the previous property I sold).
Sometimes life throws you curveballs…I got divorced last year and still have the house. I plan on putting it up for sale in the next few months. To me it is a purely financial decision. Now being single, renting an apartment for a few years will make the most sense. I agree with most people in here that we haven’t seen the bottom yet and things won’t improve for a long time (I’m guessing 2015).
I can proudly say that I never HELOC’d out a dime of equity. In hindsight, it would have been a smarter financial decison to put zero down and walk from my current house. The ruined credit score would have been a joke knowing you have hundereds of thousands of dollars in the bank.
Life is a constant learning lesson…
“Life is a constant learning lesson…”
Yes and that includes your divorce.
Absolutely correct. My ex and I bought the house thinking it would be a great place to raise a family.
The events from the past five years have really put a strain on people who are in that phase of life (getting married and starting a family). Most people I know were either priced out or bought at the wrong time and are now underwater in a big way.
My advice to anyone ever considering purchasing a home would be to plan on staying there at least 10 years to ride out any potential bad times. All bets are off when there is job loss, job transfer, health issues, divorce entered into the equation.
Good luck to everyone.
IR, when are you going to start the weekend profiling the properties that make sense as investments?
We are still looking for the right property. It probably won’t be ready this weekend, but perhaps next.
IR, I enjoyed meeting you briefly at the IHB gathering this week. I look forward to reading your book and seeing you again.
I am an investment manager who invested my personal money in a hedge fund in 2007/2008 that shorted the ABX indices with 10x leverage to profit from the declines in residential housing. The fund was up over 1000%, but is now closed.
Recently, I learned that Dr. Robert Shiller co-founded Macroshares.com and has registered with the SEC to open 2x leveraged short (DMM) and long (UMM) exchange traded funds (ETFs) that track changes in the Case/Shiller house price composite index.
This may be another way for IHB readers to bet and profit from further declines in housing prices to help grow their downpayments.
My husband would be interested in talking shop with you. He has been shorting financials since early 2007. 2008 was a very good year for us financially. We missed both IHB parties but hope to go to the next one.
Cramer and Obama’s peeps are already talking about outlawing leveraged ETFs due to the perceived volatility they foster.
Cramer is a buy and hold guy…I also find him incredibly annoying. If its outlawed, and I do believe it fosters volatility, then I am just glad we took advantage while we could. SKF will always have a special place in our hearts.
SRS has made me very happy… and very sad… :(
I was thinking about these recently, and they probably should be outlawed. Someone is going to put their entire retirement portfolio into these things and get wiped out in a market correction. Of course, then they will ask for a bailout because they did not know the risk they were taking on…
Bailouts…everyone gets a mulligan. What societal shift has occured that makes it socially acceptable to ask for a bailout for poor decision making? I was always taught that when you mess up, you own up to your mistakes and learn from it. It has been upsetting to watch these fools on TV saying that they were rushing around buying up property on their lunch hour, not reading the fine print before they signed, and now asking for a gimme. You f’ed up. Own it and move on.
It’s interesting to note that margin in a portfolio already cannot exceed 50% by law (you need $2 in assets for every $1 margin). Leveraged ETFs seem to be a loophole around that.
This is a condo on a lot smaller than many houses. Wake me up when it sells for $250,000.
Why not $150K, $50K, or free?
Yes, I will be wide awake if it hits $475,000.
Based on this prices, now, everyone brought this model lose money except phase 1st and 2nd buyers.
But there are a lot of lies and secrets in how the builder determines the priorities back to 2003-2004. If what I heard is true, you have to be IAC top executive’s friends/relatives or builder’s employees to qualify as top priorities.
This thing that definitely illegal is that at begin of the game the builder said the priority is first come-first-server (that’s why I wait in front of my computer and fill out the form at the time is open for registration) and then changes to finical strength at middle of the game and then changes the game at grand opening day say the priorities is by lottery. However, it seems only a few “selected” persons can be in that pool.
“Losing $170,600 of your own money must really suck. Day after day when I profile $250,000 bank losses the number seem surreal and impersonal. When you imagine a real person actually losing this money, the amount seems very tangible, very large and very personal—at least to me…”.
Well stated.
$170k is nothing. Why don’t we ask all the nice folks who truly believe the ANALysts who kept proclaiming the “buy and hold” mantra on stocks and stock MFs (including index funds).
Don’t tell me all of you folks who are commenting have an increase in your investment in 2008 because you were smart enough to be on CD/MM/Treasurys/GNMA at 100%.
Short selling Indy Mac, New Century and anything else that you could predict would tank, would lead to a healthy increase in your investment. Risky…might make you feel like vomiting sometimes…but my husband has got SOME cajones. Otherwise known as balls.
“...but my husband has got SOME cajones. Otherwise known as balls.”
You do too, since his loss would have been your loss. Right?
Correct. His loss would have been my loss. But to preserve my femininity, I will let him claim the balls.
Does your husband have laminated formica or solid wood cajones?
It’s COJONES!!
CAJONES are the drawers in your furniture.
;-D
Muchas gracias, tonyE. Perhaps I should not be commenting on my hubby’s balls (or his drawers for that matter) on a blog.
No increase - but I moved every dime out of stocks and into money market accounts in November of 2007. I haven’t made money; but I haven’t lost any, either.
Buy and hold is an idiotic strategy.
A sad day on the IHB when there’s no schaudenfreude to be had….
I’m getting a little of it out of the thought that Chris, who wants us to think he is so rich that “170k is nothing” and likes to rub divorced peoples’ face in it, appears to have lost big bucks in the stock market. Ahhhh yeah, there it is….
I’m talking about 170k loss, mind you, and not what I have in net worth. There are a lot more folks who lost more than 170k on their 401k/IRA/brokerage paying attention to the Updegraves and Bogles who are telling them to “buy and hold”...yeah look at 1987, yeah look at 2002, yadi, yadi, yada.
Nope, as a matter of fact, I didn’t lose on stocks and stock MF because I stopped believing those ANALysts back in ‘02 and never looked back. Of course, I lost some on other more conservative investments but my percentage loss would make most people blush with envy.
Of course, I don’t have the cajones that irvinemommy’s hubby has as I don’t believe in shorting and buying puts.
Your performance should be judged at the end of your lifetime. Big risk bets look good when they pay off, but it only takes one of those going wrong to destroy you. If anyone’s going to brag about investment performance they should lay out their whole history with buys, sells and rationale so that we can tell whether they’re smart or just lucky. I think most people just brag about their wins and don’t tell the whole story. If, on the other hand, you’re into investing and not gambling, widely diversified, low cost porfolios will outperform increasing percentages of actively managed accounts over longer time periods. Will there still be some small number of people at the end of 30 years who’ve beat the intelligent, patient buy-and-hold strategy? Yes, but there will have been no way for anyone to tell ahead of time who this would have been. And, those people will be standing in a wasteland of failed actively managed accounts. I’ll take a 100% chance of doing well over 10% chance of doing better and 90% chance of doing worse any day of the week.
Just to be clear. I am not suggesting to be so aggressive with every investment account. Our retirement accounts were slashed like everyone else’s but we are young. Young enough to live through decades of more change in the market. We put into retirement each paycheck. We are financially conservative when it calls for it. Our good fortune came with accounts that aren’t involved with our downpayment for a house or retirement. You always have to know what you can afford to risk. And even then, hard earned money, in any amount, isn’t easy to stomach losing. The volatility got to us eventually (not in our account balance, but our anxiety levels) and we decided to quit while we were ahead. Gamblers would be more reckless.
People are putting big downpayments (even greater than 20%) now a days because otherwise they would not be able to afford the monthly expenses. A sign that homes are still very expensive.
Or perhaps a sign that there are many people (not IHB readers, of course) who have money and have determined that considering everything, an Irvine home at current prices is a better place to spend their money than the alternatives.
people put down 20% down just because banks require that. The banks require that since
they know it is gonna drop another 20% in Southern California
I spoke with a friend yesterday who has had his home for a while and was interested in a refi out of his 10 year ARM (which has about 5 years left before reset).
The lender wanted no more than a 60% ltv. This guy is prime credit, lots of income.
With rates close to 0% and CD/MM making less than 2% (unless you go for the long term route on CD), there’s really no point in borrowing 5% for your house since your investment won’t have a 5% return if all the naysayers are correct (and if you have the cajones to short). You might as well cash out whatever you have save for 401k and traditional/rollover IRAs and simply pay into a home if your family so desires a home rather a rental at this point.
If I were that guy, I’d cut that LTV to less than 50% which is what I did back in ‘06 with my townhouse (which I gladly sold back in ‘07 with a few grand loss).
It’s great to have new data points on the “I’m going to sell because I know prices are going down further” bandwagon.
Otherwise called capitulation.
This property has almost $200 association fee (not sure if mello roos is separate or not). So I doubt this is going to sell for the listed price. I feel sorry for the guy loosing all that down payment.
As others said those that abused or gamed the lending system could walk away with money in their pocket and free rent for 1/2 to 2/3 of a year.
The system rewards those who gamed the non-recourse and 100% or more financing. They have no financing risk, fee rent and cash back. Too bad those that didn’t default—those paying on time and those that didn’t borrow, i.,e., renters, are paying for the party.
Remember: Your tax dollars at work and only in America
All of you little people that pass judgment on all of the masses that went with the flow, can kiss my ass. Ilove how your loser audiance likes to leave ther comments about how smart they are. (funny they congrigate here Douche bags that won’t act until mommy says it’s o.k.)If one more of you start talking shit about the market it only proves my point.Irvine guy get a life, you can’t have a job. Great book {not}
You must be a realtor, because that was awfully hard to read and comprehend.
@ Mark
Many of us have been frequenting blogs like this one long before it was en vogue. So tough $hit if you’re just pissed that you screwed yourself over while ‘going with the flow’
Having gone through this ourselves… if you can handle the loss… I would think about selling as soon as you can. The low rates right now help out prospective buyers but I don’t think waiting until spring/summer is going to net you a better selling price.
Rental parity is still skewed in Irvine and we are currently renting a house we would probably have to pay $2000 more per month if we tried to buy it. Instead of move-up buying… we move up rented… for less.