awgee Re:
"Inventory levels are declining "
Acutally they are for Irvine, in the very short term (http://www.altosresearch.com/research/CA/IRVINE) which I’d like to write off as a seasonal change (although I do worry about it, since I can’t find a longer term inventory graph showing the yearly cycles).
"People that buy million dollar homes don’t live paycheck to paycheck. lol."
Oh? Really?
There’s a whole lot of green dots on Redfin in the really expensive ($1 Million +) areas that were built 2004 and later ....
agwee, "People that buy million dollar homes don’t live paycheck to paycheck. lol."
Oh? Really?
Answer: Moved-up people (buyers). A brand new Tustin Ranch home built in 1997 (2600 sq. ft. SFS) was selling for about $275K. Interest rate were around 10%. In today depreciated same home would sell for about $900K. Salary would have been double in 2007 and interest rate has been lowered to 6.5%. You do the math for this potential Million dollar buyer.
There are many million dollar house owners who are living paycheck to paycheck. Many of them are drs, who are mostly really terrible with money. Lots comes in, but they can’t be bothered to budget it. It just pours thru their hands.
In the past, prior to the bubble, I believe it was true that million dollar homes were not purchased by people living paycheck to paycheck. However, during the bubble, when people could finance whatever they wanted to, ordinary working-class folk began to purchase these properties. Remember the post I did on Shady canyon recently where the owner used 90% financing on a $4,000,000 home. Who does that? It used to be people buying at those price ranges would put at least 50% down or even pay cash.
There is doubt that they are people who bought million dollar homes actually have no business of doing so. However, I don’t believe it is a trend. I know many people who have million dollar plus homes, and none of them live paycheck by paycheck.
Just because you finance something doesn’t mean you can’t afford it. There’s something called opportunity cost. When I didn’t have money I never understood it. Now that I have money I understand it. Rich people always finance things they can afford. The only difference in the past few years is poor people started financing things they can’t afford.
The few very wealthy people I know don’t carry personal debt. They often use debt as part of their investment strategies (which is something I see because the wealthy people I know invest in real estate), but they rarely if ever personally guarantee any of the debts they use in their investments. I know my boss uses his AMEX card, but he never carries over a balance month to month. To my experience, the use of personal debt to finance consumption is the exclusive purview of those who want to pretend their rich but really aren’t. The truly rich don’t need personal debt: they have cash.
I can’t contain myself…just HAVE to share. My ex and his wife closed on a $1.2 mil house in the slums of Coto earlier in the year. I’m sure that combined, they easily make well over 250k. Neither one is remotely associated with finance or real estate, either. However, I also know something about his interest in keeping up with the Joneses. They have three luxury cars, expensive hobbies, and I am quite certain they are struggling…or are going to be struggling very soon. I tried to warn them but backed off VERY quickly, as the ex is a big boy and never took my advice when we were together, anyway. And the last thing I want is to piss him off. I’d be enjoying the show, eating Neil’s popcorn, if I weren’t so concerned about the possible impact on my little boy if his father experiences financial problems.
So, you think there aren’t folks buying million dollar homes who are living paycheck to paycheck? Enter any million dollar zip in foreclosure.com and tell me again.
The sense of entitlement in that statement is both disturbing and amusing. Bankruptcy and living on $30,000 a year will be difficult for them to adjust to.
I am reminded of that commercial from a couple of years ago where a guy is sitting on his riding mower talking about his big house, multiple cars, etc. and then says "So how do I do it? I’m in debt up to my eyeballs."
I loved that commercial. How true it is.
Before you try keeping up with the Joneses, make sure they’re not trying to keep up with you.
I love that “debt up to my eyballs” commercial. It was done done!
Interesting that ISM mentioned someone she knew had multiple luxury cars, vacation homes, etc. Not sure if it is just me, my experiences have been that most of the folks in Irvine are not as superficial as those let’s say coto and ladera ranch. Currently, I Iive on a street with 10 homes ( all million plus single families), guess how many luxury cars we have on the street? TWO!
I do loans for people and I can tell you many, many people are living paycheck to paycheck. In fact they are spending more each month than they bring home!
Yes, there are people that have a lot of money, but they will put large down payments on properties. Not 80% to 100% financing. By and large Orange County is a county of middle to upper middle-class working families. The wealthy multi-national families, athletes, celebrities, and executives are few and far between. They are far outnumbered by the pretenders.
On Friday a 34 year old contractor from Dana Point was in my office. He has a 685k neg am and a 118k HELOC on his house now "worth" 900k. No chance of refinancing, FICO of 677 and LTV of 90%.
I walked to the door discretely to see what car he was driving…a seven series BMW. I went back to the credit report and sure enough he owed 59k still on it and his payments were 925 a month.
You see, this kind of situation is the norm. It is the rule, not the exception.
34 year old contractor from Dana Point to see what car he was driving…a seven series BMW.
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What kind of contractor? Construction, general contractor?
Who hires a contractor when they show up in a 7-Series?
He didn’t want to go see the banker in his 909 ghettocruiser - a diesel F350 with the 8” lift and 37” tires that he uses to haul his toy hauler full of quads and the new sand car out to Glamis twice a year.
Translation: Commerical "one-ton" pickup with lifted suspension, ginormous tires, used to tow a special RV trailer that can carry quadracycles (four-wheelers) and a dune buggy to a local off-road recreation area. Often found in "The 909" which is the original area code for the Inland Empire region of SoCal.
(Expensive stuff, in other words).
What are the tags for posting a picture or a link?
