Hung Upside Down

Look what’s happening to me,

I’m going blind, please help.

There I sat until three,

gettin’ further behind myself.


Someday I will be free,

and there’ll be times, you just wait.

I will come to you, see,

what I’ll bring you when I get straight,

Oh it’s too late.

And I’m hung upside down.

And I’m hung upside down.

Hung upside down, said I’m

hung upside down, c’mon, c’mon.

Hung upside down.

Hung Upside Down — Buffalo Springfield



This is the story of many homeowners now that the market has started its downward spiral — hung upside down. Trapped in a property they cannot sell and cannot afford, they count the days until their mortgage resets and they face foreclosure. It is a bit like death row when you think about it. You know your sentence, it has a feeling of dread and finality, and you know the date when judgment will be rendered. You have your false hopes for a government reprieve, but after a time you become resigned to your fate.

3 Carlina Front 3 Carlina Kitchen

Asking Price: $600,000IrvineRenter

Income Requirement: $150,000

Downpayment Needed: $120,000

Monthly Equity Burn: $5,000

Purchase Price: $610,000

Purchase Date: 6/30/2004

Address: 3 Carlina, Irvine, CA 92620Rollback

First Mortgage $495,000 – 1.5% teaser rate

HELOC $99,000

Beds: 3
Baths: 2
Sq. Ft.: 1,377
$/Sq. Ft.: $436
Lot Size: 4,420 Sq. Ft.
Type: Single Family Residence
Style: Cape Cod
Year Built: 1978
Stories: One Level
Area: Northwood
County: Orange
MLS#: S518479
Status: Active
On Redfin: 30 days

Seller super motivated. Make an offer, ANY offer on this Charming light and bright home located in a quite Cul-de-sac. Newer Kitchen cabinets and appliances. Large ceramic tiles in main areas. Above ground spa, Covered patio with skylight. Remodelled bathroom in master berdroom. Many nicely upgraded features thoughout this home. Interior and exterior painted a year ago. No mello roos or HOA. Low Property Taxes.

Bird Room

Make an offer, ANY offer. Do you smell blood in the water?

light and bright — This is nails on a chalkboard to me. Pet peeve, I guess.

Seller super motivated. If so, where are the obligatory three exclamation points?

berdroom? Is that like a birdroom?



This seller (or the lender if they maxed out the HELOC) is going to lose $46,000 after a 6% commission assuming they get their asking price. As you can see, we are moving past 2004 prices and heading downward.

These are the properties that are going to drive prices lower in Irvine. This isn’t subprime, this is just an ordinary buyer who bought too late, paid too much and cannot afford the home. There are many of these people in Irvine. We have profiled many here, and we will profile many more. The ones we have seen to date are the most distressed sellers with the shortest fuses on their time bomb loans, but there are many, many more of these people hoping and praying the market will come back to save them. Unfortunately, all the people with shorter fuses on their bombs are going to explode first and keep prices depressed in the process. This is the nature of “overhead supply,” and it is why a market needs capitulatory selling to clear it out before any appreciation can take place.



89 thoughts on “Hung Upside Down

  1. George8

    If the owner of 3 Carlina is serious about selling, the smarter thing to do is to reduce the asking price to at least below $549K. There are 348 competing listings in the vicinity on REDFIN with average asking price at $360 sf.

    $360 sf x 1377 = $495,720.

    The featured listing is asking 21% over this average asking price. Prayer and good luck may not help until the ultimate amenity – price- is made available.

  2. zornundo

    Hrm…going off the 1997 sales price, and adding some inflation, say 3% a year gives a sales price of $275,000. 4% gives $303,000. I’d say this is a wtf asking price and at least twice what the thing should be going for. This thing has a long way to fall.

    In another place other than Irvine, I’d say $140k, tops. At least they’re not claming it has a gourmet kitchen. At least it doesn’t have HOA or Mello Roos. Small miracles, that.

  3. CapitalismWorks

    This place is a dump, and tiny, and they way way way overpaid in 2004. I would guess that there weren’t many (if any other) units of this size and “quality” that sold in excess of $600K in 2004. I think this is a one-off, and not representative of the market.

  4. Larrygg

    I agree with George8, the property is at least 100 grand over valued. What were these people thinking when they paid $600k plus for a little stucco box like this? That it would be worth $800K in a few years?? Silly Silly people.

  5. mav

    Does anyone have data on wage increases for the upper half of the OC population?

    My guesstimate is that the upper half has seen roughly a 100% wage increase (total) since 1997.

    Does anyone have hard data?

  6. Beentheredonethat

    That bird picture is no longer on redfin…hmmm.
    Yeah, that house needs about 150K of work. Not a motivating option at that price.

  7. Kelja

    On your questionnaire, you could’ve added another possible response: Do you know anyone in danger of losing their house because of economic circumstances.

    I personally know two families that are on the edge. Both have very hi-end homes and are presently experiencing financial distress. Both couples have either lost jobs or are having problems with their jobs.

    Resets are not the only reason why some are struggling.

  8. IrvineRenter

    The bird room was not part of this house. I found the image based on the misspelled word in the listing.

  9. IrvineRenter

    This would be a place to start:

    I suppose we could start the debate again as to whether or not income growth has supported pricing, but since we all know it hasn’t, it is kind of a mute discussion. Price levels were created and supported by exotic financing and loose credit. If incomes were supporting prices, rents would also be supporting prices since rents are tied to incomes, and we would not be talking about a bubble.

  10. IrvineRenter

    More interesting data:

    Median Income Irvine Median Rent GRM
    2006 $ 83,891 $722,928 $ 2,500 289.17
    2005 $ 82,827 $635,675 $ 2,468 257.54
    2004 $ 80,520 $609,397 $ 2,400 253.96
    2003 $ 75,141 $461,888 $ 2,239 206.27
    2002 $ 72,289 $379,852 $ 2,154 176.33
    2001 $ 71,821 $334,741 $ 2,140 156.40
    2000 $ 72,057 $308,089 $ 2,147 143.47
    1999 $ 68,170 $278,148 $ 2,032 136.92
    1998 $ 63,959 $263,172 $ 1,906 138.07
    1997 $ 62,022 $245,437 $ 1,848 132.79

  11. IrvineRenter

    If someone were really ambitious, they could probably find the tabular breakdown for each past year back to 1997 to give the income growth by percentile. The info is somewhere on the census bureau site.

  12. awgee

    “Make an offer, ANY offer. Do you smell blood in the water?”
    Yes. Yes I do. And it has the same effect on me as the smell of fresh baked chocolate chip cookies. It makes me hungary and a little crazed, but I am still circling.
    In answer to your question, no one personally has told me that they are having a rate reset. That would be a mistake in my neighborhood as there are many sharks.

  13. Surfing in Newport

    You can also go the chapman university website. Look for the Dec 2007 forecast press release from the business school.

    With respect to your question, I quote from the press release:

    “Over the 2001-06 period when home prices
    appreciated annually at double-digit rates, we
    argued vigorously that the economic
    fundamentals (i.e. income, job growth, and
    mortgage rates) did not justify the historically
    high levels of housing demand and home
    price appreciation. Since 2001, Orange
    County created about 119,000 payroll jobs.
    With the exception of 2003, however, most of
    the new jobs were in below-average salary
    sectors while the jobs lost in 2002 were in
    higher-paying sectors.”

    There is also data that indicates during this time that job growth was a little less than 2%/year while housing permits were a little over 1%/year. So it’s not like there was a large imbalance created over these years in supply and demand caused simply by job growth vs. housing growth.

    With respect to IR’s numbers. Note how the median rental price accurately tracks the median income.

  14. mav

    I was only able to find 1989:

    Less than $5,000……………………………………………. 382
    $5,000 to $9,999……………………………………………. 321
    $10,000 to $14,999………………………………………….. 558
    $15,000 to $24,999………………………………………….. 1,611
    $25,000 to $34,999………………………………………….. 2,303
    $35,000 to $49,999………………………………………….. 4,301
    $50,000 to $74,999………………………………………….. 7,153
    $75,000 to $99,999………………………………………….. 4,934
    $100,000 to $149,999………………………………………… 4,215
    $150,000 or more……………………………………………. 2,194
    Median family income (dollars)……………………………….. 64,717

  15. IrvineRenter

    “If the GRM in the late 90’s was 130-140, why do you think 160 is a reasonable GRM now?”

    The 160 GRM is the breakeven point where the cost of rental matches the cost of ownership. In the mid to late 90s, prices fell below breakeven to where it was less expensive to own than to rent. I found it interesting in yesterday’s poll that almost half of the respondents did not believe prices would even get back to breakeven much less resume its historic pattern of falling below breakeven.

  16. mav

    are you going to keep track of the sentiment polls as a key metric…. or do we have to buy your book to see that?

  17. IrvineRenter

    Robert Shiller has done a great deal of work with sentiment polls and tracking them over time. Now if I just had a staff of graduate students…

  18. Lost Cause

    This type of house was $600k in Huntington Beach — a year and a half ago. Now they can be found for $450k.

  19. CapitalismWorks

    I just wanted the numbers to verify wage growth rate, which was 3.07% over the decade ending in 2007. Pretty meager.

    This also makes clear that the argument I made yesterday regarding permanently higher home prices by virture of demographic changes, does not apply to Irvine.

  20. Trooper

    Next poll should ask, “Do you know anyone who HELOC’d themselves into an upside-down position”.

    My answer: YES, several….to include a family member.

  21. tenmagnet

    That Bird room looks like it came straight from Buffalo Bill’s place in the Silence of the Lambs.

  22. ochomehunter

    I dont have data on income growth but my income has increased four fold since 1997. This is not because of inflation, but more due to personal growth with experience. But, this is not pertinent to income growth. One way to look at is how much does a green graduate out of college earn today as compared to 1997. I am in construction Industry and you are looking at about 15% more today as compsred to 1997 for fresh graduates. This doesnt even keep up with inflation.

  23. IrvineRenter


    Thank you. That guy is funny.


    There is some validity to the argument you were making yesterday. Irvine has experienced wage growth exceeding inflation for the most part, and certainly greater than California as a whole. It just isn’t enough to support today’s house prices.

  24. IrvineRenter

    That is a good point. When we first started blogging about the bubble, we contended there was no need for a recession or other forms of financial distress to cause a dramatic decline in house prices. Up until very recently everyone was in denial that the bursting bubble would cause a recession. The job losses and other forms of financial distress endemic to a recession are going to be an additive cause of problems for the market potentially depressing income and rents and thereby making for a lower bottom.

  25. waiting_to_buy

    I actually saw this place last week. its small, and the yard wasn’t that clean. If they actually took care of the place better and lower their price, they would be able to sell this.

  26. FairEconomist

    Possibly not even rents. I recall Lasner saying rents had gone up by 5% for the last 10 years (roughly). 2% annual increase over wage growth would back up the idea that rents are “too high”. OC has climbed the desirability ladder somewhat but I don’t see that much of an increase.

  27. FairEconomist

    2004 median 543,000. This house seems about a median house, so overpaid – but probably not way way way overpaid.

  28. mav

    To me the data is very sobering.

    When I look at my immediate circle of renter friends, it feels like wages have more than doubled since 1997….. for the type of people who would buy a nicer house. (not that the one in the post is that nice)

    Even at 100% wage growth (since 1997) home prices would still be currently too high…. the data suggest that wage growth has been much less.

  29. FairEconomist

    I can’t really answer your poll. I know two recent buyers who are obviously having financial trouble, but I don’t know if they’re facing a rate reset. Mortgage details are just not a part of normal conversation in my circle. One guy (not in financial trouble) bought 2 or 3 years ago and is planning to flip (uh-oh…) Most of the people I know, though, bought around 2000 and avoided the really nutso prices.

  30. lendingmaestro

    do waitresses and car detailers turned mortgage brokers and strippers turned realtors get considered into the income calculation?

  31. houseonlegs

    I know someone who bought just over 2 years ago with 100% financing on a 2 year ARM, but not subprime. Also in the mtg industry. Job was lost and rate set to reset. He called the lender and they made a deal with him to take 150k off the principle and give a 30 year fixed rate of 6%….rate was going to reset close to 9%. Part of the deal was that he had to qualify for the new terms as a full doc, show tax returns, assets, etc. He didn’t qualify though……he’s just living rent free in his house until the bank takes the property back.

  32. SDChad

    The median numbers posted above are very interesting in that between ’97 and ’06, wages grew 35.5% and median rent grew 35.3%. Now, if that isn’t an argument for fundamentals, I don’t know what is. It certainly proves that the market will only bear what the median earner can really afford and with the removal of toxic loan programs, home prices will return to fundamentals.

  33. resident

    I would bet that the “1.5% teaser rate” is actually a neg-am loan. My guess is that they owe closer to 650K on the place. Based on the amount of time they have had the loan, it’s probable the Neg is close to maxed out and the owners are looking at their payment jumping 75%. We’ll see this one on the NOD list shortly.

  34. weichi

    Wow, plot rents vs income and it’s a *straight* line. I mean *really* straight. Median income to median rent ratio didn’t budge from 33.55 by more than .05 – less than .2%!! I’m really surprised that rents are anchored so tightly to incomes.

    I’ve seen people (not sure if it was here or CR) where people argued that part of the GRM adjustment would come from rising rents (i.e., rents rising faster than incomes). Based on this data, that ain’t gonna happen.

    Would be nice to see this data going back to the late 80’s though.

  35. weichi

    SDChad beat me to it!!

    Another item. If prices hold steady, and you wait for rising incomes to get down to 160 GRM, we need to wait for 18 years (using wage increase from 1997-2006). 130 GRM would be 24 years.


  36. skek

    That is the crux of the problem — I’m sure they would reduce their price if they could, but assuming they tapped that HELOC, any further price reductions would require a short sale. I’ve seen a ton of these homes — begging for “any offer,” but not willing or able to reduce their price. Gridlock.

  37. Rocker

    Yes, I’d like to see that question on the main blog.

    Other question is, do you know people that upgraded many times in a short period of time?, like every summer from 2003 to 2005, and made the assumption that prices will keep increasing forever and they rolled up gained equity into the new house in turn but used exotic financing to buy a bigger house every time, with the idea of bigger house = bigger equity?

    I’ll answer both questions with a Yes, one for each of the couples that I know that di that and that currently they live in 92602.

  38. SDChad

    I’m still amazed at how many people I talk to think that prices will return in just a few years. Unless lending goes nuts again (unlikely in the foreseeable future, imo), we may never see these prices again or it could be decades.

    Sorry, weichi! I like your numbers though. Very illustrative of the ridiculous times we are still in.

  39. mav

    what I don’t really understand is how someone with a $83K salary can afford a $2500 / mo. rent….. what is going on?

  40. Rocker

    I live in West Irvine and every summer from 2003 to 2006 new neighbors came and old neighbors left.

    Each summer during those years, Movers were busy working close the end of each month moving people out or bringing people in, people were upgrading like crazy.

    People arriving came from cheaper places and people leaving were moving to more expensive places, everybody participated in this irrational exuberance.

  41. IrvineRenter

    Whoa everybody…

    The rent figures are extrapolations using a straight line relationship not hard data. The estimate for 2006 is based on field observations. A 33% of income was used for verification. The income information is hard data, the rent and thereby the actual GRM is not. I would note the relationship between income and rent has historically been very stable simply because you must pay rent from current income, so the straight line assumption is valid. I don’t want to mislead anyone into thinking the rent data comes from a verifiable outside data source.

  42. mark

    Ah yes, the OTS is now proposing refinancing borrowers on the taxpayers’ dime, and making the investors eat the loss (to be recouped at a later sale date should the home appreciate). This sounds like a reasonable “solution” if you agree there’s a “problem.”

    “A plan proposed by the Office of Thrift Supervision to minimize foreclosures would target borrowers who owe more than their dwellings are worth due to recent home-price declines that make it impossible for them to refinance their mortgages. Under the proposal, borrowers would refinance into an FHA-insured mortgage for the current value of the home; and the leftover amount would be given to lenders in the form of a “negative equity certificate.” The certificate would allow lenders to collect if the home is eventually sold for more than the amount of the mortgage; otherwise, they would be forced to assume the loss.”

  43. Matt

    If we allow 10 million immigrants from China and India to come over with suitcases full of money borrowed from United States, they could easily takeover the oversupply of homes in the market, and their 2.5 billion people would not even fill the dip in their populations. Americans are having too few children and abortions.

  44. Genius

    Echo that. I make substantially more than $83k and my $1800/mo. apartment seems like it’s bleeding me to death. Are people starting communes in their rentals?

  45. Mario

    Hey Ipo,

    Can we have a color coding list to your property listing so we can understand it better. It was easy when all you had we’re green and grey, but now I’m starting to get confused with all of the other colors.


  46. IrvineRenter

    I am curious about that too. I have not heard of any bank taking a write off of principal to do a loan workout.

  47. CK

    These meager salary growth rates seem suspect. I was a new hire for an close to entry finance role back in 1997 — at $35k annual. I remain friends with the guy who currently hires for that exact same role at the same company. He told me they are currently targeting $60k for new people into that role. That is a direct apples to apples comparison over a 11 year period — and yields 71% (more than 6% annual) growth or double the Irvine median growth. And let me remind you — this is a middle of the road finance role, not some career track that has experienced explosive salary growth in the last decade.

    I really have to wonder what are the numbers behind the numbers of these Irvine median incomes. I think that we have buried in there a large number of people who would never be homebuyers in Irvine, and dillute the median.

  48. CK

    Does anyone know if the Irvine median income rolls up all Irvine residents, regardless of age? Given the high % of families here — who might have teenage kids who work BS jobs like In N Out or something — does this surpress the numbers?

    Looking at my own SS statement each year, it certainly does capture the years when I was 16 and working 10 hours a week at Pizza Hut (3,xxx income in 1988 — woo hoo). Would all of these similarly “underemployed” folks who would not ever be considered in the homebuying pool be counted in the Irvine median?

  49. IrvineRenter

    The numbers come from the same government agency that has been collecting the same data in the same way for decades.

  50. NoCal SC

    God, you scared me with the ‘birdroom’ photo. That place (I know now that it’s not the listing hous) must stink so bad. Even if you keep the crap picked up birds stink.

  51. CK

    So IR, is that a yes, it counts every person with an Irvine address who gets a W2? So in all likelyhood, the wages of actual potential homebuyers is something north of a median of $83K? I’m not trying to be argumentative. It’s just that based on personal observations, only $83k median and only 3% annual wage growth in the last decade seems a bit low here. Or maybe I run in a much more elite crowd that I thought I did…

    Oh and yeah yeah — I know, everybody was using their house as an ATM for supplemental income….

  52. ipoplaya

    CK my boy, you have to remember that finance types like us experienced significant wage improvement, much more than the norm, during the Tech Bubble (IPO craze) and also between 2003-2006 as a result of SOX. New jobs were created in the accounting and finance at a pretty fast pace and that had a considerable trickle down effect on wages throughout the spectrum… When I changed companies in 2005, to essentially the same position at only a slightly larger company, my comp went up by almost 25%. That was during a peak in SOX-related hiring.

    The position I have today is paying perhaps 50-60% more than its ’97 equivlanet, but I can tell you that the average teacher in OC for example, is only making around 40% more than the decade ago equivalent.

  53. Alan

    There’s a reason the owlery at Hogwarts castle (even in fiction) was seperate from the general living area.

  54. skek

    Don’t forget UCI — one of my early W-2s was as editor of my college newspaper. That $2500 per semester would drag down median incomes…

  55. Alan

    Green … properties iPoop greatly desires

    Yellow.. properties iPoop would tolerate living in

    Red.. no way iPoop would consent to spend the night here

  56. Surfing in Newport

    ipoplaya’s comment is also back-up by overall OC statistics from Chapman university that show 2000-2006 job growth was higher in the below average wage areas. Also, I think that it’s been well documented that real incomes are not going up, with the exception of the very rich. Since we are talking median salaries, that would probably not impact the statistic. So inflation = salary growth would make sense…even for Irvine.

  57. sunnyview

    who said that is birds house? it was certainly an in house party for booming time, all birds were calling for move up Mac Mansion.

  58. Priced_Out_IT_Guy

    From my experience a green software engineer coming out of say, UCI in 1997 would probably make 40-45K, and now they would make 55-60K. Thats a max of 33% more 11 year later.

  59. jd

    In the mid 90s, newbie lawyers in the OC offices of top law firms were making $70-80k. This year, a first year associate will make well in excess of $150-160k. Some make close to $200k.

  60. Alan

    Strippers are supposed to report all their income-tips (yeah right) so best guess will not figure in these numbers, but then again stippers prefer to rent/lease closer to the beach e.g. NB, HB or CM.

  61. IrvineRenter


    I apologize for the snippy comment. It is an old argument the bulls have been making for a long time: everyone is rich, income supports prices, and any data showing otherwise is wrong.

  62. tony

    Hey…. do you think if I cash out my savings and don’t tell the bank about our 401K accounts and other investments I can get them to lop off $200K off my 6.1% 30 year fixed and lower the rate to 5%?

    Income wise we’ll qualify and we have LOTS of equity still….

    Damn…. I knew we should have thrown caution to the wind and moved to TRidge. Now I could cram it down the bank, get a nice loan and qualify because both of us have good jobs.

    Again, those of us who behaved responsibly keep getting the shaft.

  63. Alan

    Salaries don’t always go up. In case you missed it, in previous recessions when supply outstrips demand, companies will lower wages. I wouldn’t be supprised to see this happening in finance and law as middle managment downsizes with the tsunmai of losses and fresh meat starts to compete for fewer jobs.

  64. Kirk

    On a serious note: 401k accounts are protected assets. Anyone who takes money out of their 401k to pay the mortgage when they have no reasonable chance of avoiding foreclosure in the long run is making a huge mistake. The bank can’t go after your 401k. This is true for recourse and non-recourse loans. These people are just screwing themselves in the long run, but I’ve read about a lot of people that are doing just that. Why give up your retirement when you are going to lose the house anyway?

  65. NoWow!way

    Roughly it is equivalent to one extra house payment per year that goes towards infrastructure in the new development. This fee lasts for 30 years.

    Plus what ever is at the link provided 😉

  66. zaleriana

    Huh, when I mentioned something like that here a couple weeks ago, the only responses were “why should the banks get anything”. Although potentially a complicated mess, it is the sort of market-based solution that should be preferable to either the banks taking a hard line agst re-negotiation or a straight govt.-funded bailout.

  67. Eric U.

    that’s impressive, because a lot of higher paid people I knew were taking pay cuts in 2001-2002. Of course, that was not in Irvine.

  68. TurtleRidgeRenter

    I actually like this house. All one level, tiled living room/dining room floor, small courtyard instead of a backyard, and 2-car garage. I’m not very interested in cooking or kitchens, so this one looks fine. 1300 sq ft is the perfect amount of space for me and Mr. TurtleRidgeRenter. I would pay $550,000 for this house in 92660.

    Oh, it’s in 92620? East of the 5? Never mind.

  69. BD

    This is an under-discussed area on this blog. We are very likely in the early stages of a local recession and potentially a national recession.

    The question clearly becomes how bad this additional negative force on consumption impacts our local housing. We were clearly in for a significant reversal in housing prices without a recession. Now that we have one what will the impact be? The answer likely lies in how long and how deep the recession is… that said – as we have discussed before – the next force in the round two of “perfect storms” for housing is inflation. If we end up with serious inflation (all signs point to that now) the fed will have to quickly reverse course regardless of the impact on housing and our 40 yr low rates will rise for 5 to 10 years to stop embedded inflation. These potential events will radically impact housing long term IMHO. Prices could easily fall to 2000 or lower levels and STAY there for years as people grapple to pay 7, 8, 9 % annual rates.

  70. houseonlegs

    Yep, the lender was Freemont. They were willing to take down the principle and rate to a payment he thought he could afford….but he didn’t qualify. I guess it’s kind of like a short refi instead of a short sale.

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