Irvine Housing Blog

Here is how the banks work themselves out of their little mess.

Immediately up the APR’s of their money market checking accounts and CD’s to 7%.  All of a sudden, Americans are going to realize that putting money into the bank is a “great investment”.

The bank then turns around and rents that money out to the spenders for their ridiculous 19.55% on credit cards, etc maybe 12% for really good borrowers.  The depositors get their 7% and the bank makes a profit of 5% to 15% some of which they can use to pay back on their gambling debt.  Eventually the bank pays off all the bad mortgages they own.  A painful lession learned.

Of course they don’t want to do that because it will take them a long time to recover.  It’s a lot faster to go ahead and feign crisis and let the government step in with a tax payer hand out.

In the meantime, Cadillac is not going to sell as many Escalades because people are going to be saving all of their money and unable to afford the high interest rate on the fancy pants 60,000 cars.  The car company is going to have to find a way to produce a car for under 60,000 in order to survive.

Or we can be just like “Chris” and spread fear that the world will end if people have to start paying cash for their Cheese Doodles at the Qwiki Mart.

“Remove it quickly and it is more painful, but then it is over.”

Looks like what happened to real estate in Japan is going to happen here. I fail to see the wisdom in giving unchecked power to the Treasury. All the Chicken Littles will soon be asking themselves “If only we had taken the time to do it right”.

I heard Lehman Brothers put aside 2+ Billion Dollars for employee bonuses before filing for bankruptcy. If so, I think there is no better example of how some bankers are concerned for the “system” and honoring their contracts.
Maybe we can pay another CEO more than $17 million for 3 weeks “work” too.

Too funny.  I think CNN must watch this blog.

Last night I posted this:

and this morning I look at CNN.com and see:

Am I the only one who sees a Cliff Richard song being featured and automatically pictures the whole real estate mess as being an episode of the Britcom The Young Ones?  “Vyvian!  You utter bastard!  That was MY $700 billion bailout!”

“I thought you said it was your bailout.”

“No, I didn’t, Mike.  I said, ‘Let’s throw Rick’s $700 billion on the fire;  that’ll be good for a laugh.”

This is the type of place I would like to get if I was to buy in Irvine. It would have to be about $190k to be worth it, and honestly they way things are going I think it will get there.

While I’m not a big proponent of the bailout bill, just letting the “market forces” work isn’t a good idea.  One reason is because our economy is based on credit.  Businesses, cities, states, etc. need credit to do business.  Allowing the financial institutions to explode is a bad idea, because it would effectively stop our economy.  We’d all go down.

Another faulty assumption that I see frequently is that we have a free market system.  We actually do NOT have a free market system.  If there are companies that are “too big to fail,” then this isn’t a properly-regulated, free market economy.  There are structural problems with the system. 

One of the misconceptions I see here and elsewhere is that all regulation = bad.  The better way to look at it is that to ensure there is a properly functioning free market, *appropriate* regulations are needed.  You need some regulation to ensure contracts are enforced and that personal assets are protected.  This is well established in the economics literature. 

A good example is EBAY.  EBAY has to set up parameters (i.e. rules or regulations) for how business is conducted on their marketplace.  It requires this to protect both buyer and seller.  Information must be transparent.  In our financial system, information is NOT transparent.  We don’t know what is on the books, and companies were able to invest in credit default swaps in ways and in magnitude that took our financial system off the cliff.  That is not a free market.  No handful of entities should have the ability to destroy the entire system in a well-functioning free market system

The fix is for the gov’t to step in to this unfree market system and buy the bad loans, selling them over time (and make profit).  This deflates the bubble more slowly and adds capital to the system to keep the credit markets moving. 

The next step is to fix our market regulations so that we actually have a free market system.  Under regulation does not equal free markets, just as over regulation does not equal free markets.  We see the effects of under-regulation right here on this site (which I think is great by the way).  People who should not have been given loans were given loans.  Banks were not honest in their risk assessments, and short term profits (bonuses and commissions) created perverse incentives to do the wrong thing.

Well If you had a good down payment on it. say 100K you could pay the thing off also.In 15 yrs or 5 years. save a boat load on interest maybe its small but you could own it out right then bank your mortage money.

Trying to find a price.  Hmm, well I think that it would be safe to say that the only real way to find a price for these overblown homes is to do what Meredith Whitney, Oppenheimer suggests.  Take the average med home price from the mid 1990’s and increase price each year 4% (that is the avg % price homes have historically increased) I think we can also factor in the price that we are in a recession and demand is low.  So with this calculation, my guess is that this home should sell for around $450,000, maybe, maybe, $500,000, depends on affordability also.

Hmmm…just one more point to ponder:

If the government suddenly “owns” all these bad mortgages, and Mr.& Mrs. Homedebtor go crying that they can’t afford the mortgage on their no-doc, no-money down, teaser-rate adjustable, what’s the chance that the Democrats will say, “Aw, you deserve to stay in that McMansion.  Let’s write that mortgage down by 40% and call it a gift from the responsible owners and renters of America.” 

Hey renters - how do you like paying for somebody else’s house?  Too bad you can’t afford one because you’re paying off somebody elses.

You think that’s tiny, there are 2/1’s over in RSM that are 650 sq ft. The only thing more insane than that is that there were schmucks willing to pay over $300k for one during the boom.

http://www.redfin.com/CA/Rancho-Santa-Margarita/28-Via-Terrano-92688/home/5224364

MY MISTAKE!! I was referring to the million dollar listing. No by no means who this shack sell for that amount.

I have to comment on that tiny kitchen.  Note the fridge, dishwasher and range hood are almond (matching the counter top) while the stove is white.  Also, when dealing with such small space normally you put in an over the range microwave to free up counter space.  This seller (or renter) has a mini-microwave that hogs valuable counter space.  Over 300K and no built in microwave!

Just another 2 cents…