Deer, Wood You Spend The House, Please.

Money, Money, Money — ABBA

I find HELOC abuse stories fascinating in a train-wreck sort of way. I like to try to imagine the thought processes and belief system that would allow someone to do something so incredibly foolish. Spending your home equity is not a one-time event that could be the result of a single, rash decision, it is the cumulative effect of numerous bad decisions made over a long period of time. Each refinance or equity extraction was the result of a rational thought process with some deliberation. The fundamental belief must be that house prices always go up, therefore additional equity will always be available to spend. If you didn’t believe that, you might pull the money out to screw the lender, but you wouldn’t do it knowing it might cause you to lose your house. The second fundamental belief must be that interest rates and payments will always decline. When you take on more debt, you have to make larger payments to service it, unless of course, you continually refinance with an adjustable rate mortgage in a declining interest rate environment. It is possible some of these people believed their income would rise to make the larger payment as well, but the overriding belief had to have been that low interest rates and serial refinancing would always be available. All of these beliefs are wrong, and the market is driving this point home (literally) right now.

It is the end-game planning I can’t quite get my head around. When was this supposed to end? If people are perpetually spending their equity increases as income, when they finally sell the home, they have no equity. I suppose if you really believed house prices always go up, the house could serve as a perpetual breadwinner that would provide income for retirement and beyond. I guess it really doesn’t make much sense to rent when you can buy a house for no money down and live off the appreciation forever. Did people really believe that was possible? If you look at the behavior of HELOC abusers like today’s featured property owners, you would have to conclude they believed all of those absurd things, and so did a great many others in California as well.

7 deerwood outside 7 deerwood kitchen

Asking Price: $675,000IrvineRenter

Income Requirement: $158,750

Downpayment Needed: $135,000

Monthly Equity Burn: $5,625

Purchase Price: $465,000

Purchase Date: 1/8/2004

Address: 7 East Deerwood, Irvine, CA 92604

Short Sale

Beds: 4
Baths: 2
Sq. Ft.: 2,125
$/Sq. Ft.: $318
Lot Size: 5,400

Sq. Ft.

Property Type: Single Family Residence
Style: Farm House
Year Built: 1976
Stories: 1 Level
View: Trees/Woods
Area: El Camino Real
County: Orange
MLS#: S535656
Source: SoCalMLS
Status: Active
On Redfin: 30 days

Highly desirable one story single family home in great area of
Dierfield Park. Lots of upgrades including best quality new roof. New
tiles and baths with marble shower areas & glass doors, new
cabinets & granite tops. Top of the line kitchen appliances &
granite counters, recessed lighting. Marble family room fireplace. New
garage door, solid wood front door. Close to park, association pool
& play ground. You can enjoy 6 assoc pools, spas, tennis courts,
picnic areas & etc. No Mello Roos, low tax, and only $45
association dues. Walk distance to award winning schools. just a few
minutes to 5 & 405 freeways. It’s in the heart of Irvine, close to
shopping centers, movie theaters, restaurants, day care & schools.
You will enjoy this beatiful quiet area.

Dierfield? beatiful?

How do you like the staging of the photographs? You can just imagine the realtor showing up with some plants to try to hide the mess. Is it too much of a bother to clean up the place before taking pictures for the MLS?

This one requires the bullet-point recap:

  • On 1/8/2004 the property was purchased for $465,000 with a $372,000 first mortgage, a $46,500 second mortgage and a $46,500 downpayment.
  • On 3/11/2004 the owners opened a HELOC for $92,000 and withdrew all their downpayment plus another $45,500.
  • On 9/20/2004 they refinanced with a $552,000 first mortgage.
  • On 8/16/2005 they opened a HELOC for $38,000.
  • On 12/8/2005 they opened a HELOC for $150,000.
  • On 6/8/2006 they refinanced with an Option ARM for $650,000 and a second mortgage of $115,000.
  • Total property debt of $765,000.
  • Total mortgage equity withdrawal of $393,000 over a 2 1/2 year period.

Those owners were livin’ large for a few years there. I wonder how they are adjusting to life without free money…

For the record, if this place sells for its asking price (doubtful), the total loss on the property will be $130,500 after a 6% commission. One interesting note: the second mortgage being wiped out is listed as being insured by either Freddie Mac or Fannie Mae. No wonder there is talk about having to bail them out.


I work all night, I work all day, to pay the bills I have to pay
Aint it sad
And still there never seems to be a single penny left for me
Thats too bad
In my dreams I have a plan
If I got me a wealthy man
I wouldnt have to work at all, Id fool around and have a ball…

Money, money, money
Must be funny
In the rich mans world
Money, money, money
Always sunny
In the rich mans world
All the things I could do
If I had a little money
Its a rich mans world

A man like that is hard to find but I cant get him off my mind
Aint it sad
And if he happens to be free I bet he wouldnt fancy me
Thats too bad
So I must leave, Ill have to go
To las vegas or monaco
And win a fortune in a game, my life will never be the same…

Money, Money, Money

80 thoughts on “Deer, Wood You Spend The House, Please.

  1. jprice vincenz

    Hey! I got the first comment in! I bet most of you west coasters are still sleeping. In my town, there are 150-odd homes for sale, and 14 of them are foreclosures. We’re running way behind your coast, but the foreclosures are still drawing prices to the bottom faster than any other pressure.

    Thanks again, IR, for this great blog!


  2. Roman

    All these silly people just spent the money. Why not pull all the equity out of your home and buy one year GICs if the rate is better. Or, in a falling interest rate environment, buy foreign assets because you know the dollar will be worthless. If these people had bought Canadian dollars in 2002-04 they could have had money for nothing (but no chicks for free). Instead it was all microwave ovens and custom kitchens deliveries.

    1. Kirk

      GICs? I guess that’s okay for 2002-2004, but would you want that exposure to the insurance industry today? GICs fail truth in advertising. They should be called ICs since there is no guarantee that these things will pay off given that you are relying on the financial health of a beleaguered industry.

      1. camsavem

        I think its a typo, I think he meant CIG’s, as in cigaretts. The best stocks to buy in a depression are cigaretts, alcohol and of course Campbells soup. LOL

        People will give up their Lipitor before their Marlboros and Jack Daniels.

        1. Anonymous

          Dunno about that soup. Gosh the cans are expensive. Price of metal for the cans must be up …

  3. WaitingGame


    I’m sure you have each profiled property on this blog in a spreadsheet. Why not compare what each owner asked for and what it actually sold for. I think it would make for an interesting discussion all around!
    Thanks for a great blog!

    1. Genius

      There was a guy who used to hang around here named IpoPlaya who used to do that. I haven’t seen him around in a while though.

        1. Chris

          Fed will probably just let ’em die and create 2 new similar entities with new regulations. They’re not bounded by them, unlike Ginnie Mae.

        1. Shannon

          I just went to ipo’s site. When you click on his house that is in escrow it shows previous purchase price $838,500.00 on Oct 7 2003 but he lited it for sale for 600k. Am I missing something here???????

  4. Sid

    I’ve been noticing the same thing: I could understand HELOC loans if the owners wanted to make fundamental repairs or improvements to a property, or if they had sudden and major financial issues that required a lot of money in a very short period of time. However, with just about every case IrvineRenter’s bringing up, the HELOC money was spent on HD plasma screen televisions, bigger SUVs, and eating out every night.

    In many sad ways, I’m reminded of the dotcom era, where suddenly hipsters used to working at Starbucks were being offered more money than they’d ever received in their lives just because they knew how to turn on a computer and could figure their way around a Web browser. They also assumed that the gravy train would run forever, or that someone else would bail them out if things got bad, so they did wonders for keeping Pier One and Toys ‘R’ Us solvent. Boy, the looks on their faces when they discovered that having a complete set of Star Wars action figures wasn’t a backup financial plan…

  5. Jeff

    IF I put 10% of my TAKE HOME pay in a 6% intrest bearing account for 20 YEARS I would still have LESS THAN $393,000! And this person figured out how to effectively make that much in 2 1/2 years and stay out of jail? I feel like an idiot.

    1. IrvineRenter

      It also goes to show why kool aid intoxication is so strong. Real estate is the only asset that provides opportunities like this — or at least is did. I have to think lenders won’t repeat this mistake for at least another 20 years.

      1. No_Such_Reality

        Baloney, unless a bunch go out of business and the several of the banks are literally allowed to fail, the banks will repeat this nonsense in the next turnaround.

    2. lowrydr310

      During a foreclosure, do you have to pay back anything to the bank, or is the assumption is that your house is your only collateral?

      In cases of ‘normal’ real estate markets, I guess that’s no big deal because typically people put down some of their own money, and if values happen to decline that’s not a problem for the banks because the value is typically still more than the loan balance.

      What’s going to happen now? Things got out of control, and equity extraction looks more like THEFT. The only problem is the banks happily played the game during the good times. They were the ones advertising HELOCs and cash-out refinancings and eagerly encouraging people to participate.

      We’re going to see some major reforms in banking and lending, and it’s going to cripple real estate for quite some time. Or at least a few years until we all forget about this mess and the next housing bubble starts.

    3. Anthony

      I don’t understand. Our government is working hard bailing these immoral, cash-greedy individuals and their stupid bankers out?
      Why not making them pay back what they owe for the rest of their life?
      Why us the tax payers, having to pay for them?
      Where is our principle, the pursue of happiness, with liberty and JUSTICE for all?
      Where’s justice?
      Or maybe our congress is also made up of a bunch of corrupt people, having no principle, having no spine?
      I’m surprised the JUST people in this country have not been up in arms already about this BAILOUT absurdity.
      Or maybe the very last JUST individual in this country has just passed away…for the worst!

        1. Joseph

          Um, “no bail-out” McCain? Sorry, think again, bud:

          “Also: John McCain (pictured), campaigning in Michigan, says he’s open to a federal bailout of the big loan buyers: “Senator John McCain said here Thursday that he would be open to federal intervention to save the nation’s two most important mortgage companies, Fannie Mae and Freddie Mac, the New York Times reports, quoting McCain: “Those institutions, Fannie and Freddie, have been responsible for millions of Americans to be able to own their own homes, and they will not fail, we will not allow them to fail,””

      1. Iblis

        People who got themselves in trouble during the bubble vote, and they outnumber the kind of people who read this blog.

        No great mystery there.

        1. Genius

          If the ‘people who got themselves into trouble during the bubble’ you are referring to are home debtors, then I fail to see your logic as they will not benefit from any bail-out.

          If you were referring to bankers then yes, the bail out helps them. However, it isn’t due to any vote made with a ballot.

          Voting as the masses do is worthless anyway. If you want the power to make a change, amass some capital and try your hardest not to become an asshole along the way.

      2. Matt

        Congress is doing what it does best: responding reflexively after a crisis is over.
        You know why it does this? Becuase we have elections and voters who reward this behavior. Assume every member of Congress wants to do what their constituents want. Would policies to have let the air out of the bubble been popular in 2004? No. So, even IF some members saw this coming (and my guess is a couple might have), they are ELECTED officials, and as such, do what their constituents want.
        And don’t tell me to vote for McCain to avoid the bailout. The bailout is going to pass this year, before the elections (see reasons I just said). Honestly, Bush’s veto is the only thing standing in the bailout’s way, and he’s not going to do it. The bailout will pass, likely before the end of September, and Bush will sign it.
        Finally, there is a legitimate argument in favor of the bailout…the state of the economy affects all of us, even those of us who weren’t stupid. If the bailout helps the economy, it might be a good idea. Of course, that’s a VERY debatable proposition, but it is, at least, plausible.

        If you want to factor what future actions Obama or McCain will take into your vote, do so…that’s the essence of voting. But please don’t vote for them based on their positions on somethign that’s a fait accompli.

        1. Genius

          Regarding the economy, I for one would rather watch this country burn to the ground than watch thieves run off with money that isn’t theirs.

          Bush swore he would veto the bailout, but I have my doubts as to if he actually will. He may as well put the final nail in this country’s coffin before he leaves office.

      3. Soapboxpolitico

        It’s really just a case of squeeky wheel getting the grease. The “homeowners” are crying and wailing the loudest so they get the attention. The key problem is that us fiscally and financially responsible types apparently don’t bark loud enough. So, we get effectively shouted down by the irresponsible, idiotic thieves who’ve managed to raid the treasury while no one was looking … oh, yeah and the homedebtors did too.

      4. Ken

        I don’t understand. Our government is working hard bailing these immoral, cash-greedy individuals and their stupid bankers out?

        Ah, the Miracle Of Campaign Contributions…

  6. W

    Its called a GOP economy.

    Free Money (Cut Taxes)

    Blow the whole wad (Deficit Spend)

    The housing crisis is a window into our governments future.

    1. Schadendude

      Hey W,

      How does cutting taxes equate to free money ? Is someone is prevented from stealing the money that you earned, are you saying that money is ‘free’ ?

      And are you saying that Dems don’t like to spend ?

      Keep your nonsense to yourself Mr. Baggins.

      1. Chris

        A tax cut without any corresponding spending reductions, like those in 2001 and 2003, is “free money” in almost the same sense as a mortgage equity withdrawal. Someone — maybe not you personally, but someone — is going to have to pay it back eventually in higher taxes.

        You can’t withdraw money from the treasury indefinitely without consequences any more than you can withdraw it from your house indefinitely.

        1. Mikee

          C’mon Chris, it’s called ‘trickle-down Kool-Aid’.

          Take the money now and the economy in the US will always rise, and bail you out in the in future.

          Makes perfect sense to me. Now I’m off to lease my 2nd Hummer using the $600 I just got from Uncle Sam!! Maybe I’ll stop by Circuit City and see what new HD they have too.

      2. W


        Cutting taxes = free money when you BORROW money from CHINA and then convince uniformed voters that this is a tax cut. When a government SPENDS money it is A TAX. Your taxes have gone up substantially in the last 8 years. You are just to uninformed to notice.

        2/3 of our current deficit have been accumulated by the last 3 sitting Republican presidents. The only one that understood the insanity of tax cuts was Hebert Walker Bush. Unfortunately he was voted out of office for fiscal responsibility.

        1. r€nato

          Amen, brother. Want to make a Republican have an aneurysm? Tell him/her that Clinton and Carter were by FAR the two most fiscally responsible presidents of the last 30 years.

  7. been there

    I’ll share the psychology with you, since I have been far enough down the road to understand it, but managed to ocurse correct in time.

    Ins ome ways it is even worse than you think it is. The HELOCs were opened to pay off debt already accrued on credit cards. People used their homes to pay off debt they ran up years before they even bought the home. The HELOC is always lower interest than credit card debt, plus the interest is tax deductable. If you already have a lot of debt, it seems to make sense to shift it into a HELOC. That is why you often do not see any home improvements at all.

    Credit card debt is what has propped up the economy for years, and we are going to see some major changes as the escape hatch of HELOCs slams shut.

    1. Soapboxpolitico

      Let’s not forget that a few years ago the banking lobby managed to sneak tougher bankruptcy laws onto the books to protect themselves for just such a scenario. Now unsecured debt (like credit cards) will stand equal with secured debt in terms of repayment under bankruptcy judgement. Clever bastiges aren’t they?

      What amazes me is they were smart enough to pull that off but somehow so colossally stupid to allow “homedebtors” to rob them into oblivion. Some day this will all make sense.

      1. r€nato

        “a few years ago” = 3 years ago (April 2005), and it wasn’t exactly done with any sort of stealth, either.

        Guess who one of the biggest sponsors of that bill was? WaMu. And I am not so sure how ‘smart’ they were to pull that off – as others (like Tanta, I do believe) have noted, we are facing the incredible scenario whereby people are choosing to default on their mortgage but continue to make payments on their credit cards, which is 180 degrees opposite the historical pattern/expected behavior.

        Perhaps if credit card debt could still be discharged, there wouldn’t be quite so many foreclosures. Of course, that is a debatable point given that so many of these toxic mortgages were very, very bad deals in the first place. Still, for those who might be able to stay in their homes even if they are rather far upside-down, I would think that right about now the banks would vastly prefer to take the hit on credit card debt rather than on the RE.

    1. No_Such_Reality

      Shows the difference a PROFESSIONAL makes. IPO’s place was listed for 20% more on a per square foot basis, is a 3 bedroom instead of four and only 200 feet smaller, but went escrow in a weekend.

    2. MalibuRenter

      They don’t list their emails on the MLS because of the massive quantity of junk email directed at people in the real estate industry. Much of it used to come from mortgage brokers.

      Either that, or it’s because the MLS systems are fragmented across the US, and many of them are quite poorly programmed for the volume of users they have. I know agents who use Redfin because they like the interface better. Oh, the irony.

  8. NoWowway

    I really like the super-lived in appearance that appears in the photos. Tons of dishes in the sink. No one could be bothered to put away the self-coiling garden hose. Every personal hygiene product used during the morning routine is proudly displayed in a big jumble on the bathroom sink…..

    It just all screams Cozy!

    1. msv

      I think this perfectly displays another aspect of the bubble where every second person became either an RE agent or something to do with the mortgage industry. These people just don’t have a clue what they are doing. With IR’s posts, it is the norm and not the exception that the pictures are horrible (amazingly so) and the descriptions are a complete joke. Most of these people seem barely qualified to bag groceries or be a greeter at Walmart, but were able to make tons of money in RE during the bubble because buyers were so rabid that the RE agent didn’t even need to do anything at all to collect a hafty commission.

      1. abdul rahim

        That is something I noticed too. From the descriptions these people ‘write,’ most of them were in the bottom 10th of their HS classes. Presumably they are all back to tending bar, stripping, and flipping heart-killing fries.

        1. r€nato

          there are times when I feel like an idiot for having attended a major university and spending time developing myself and my career, when these idiots who were probably the kind of people who tried to cheat off me during exam-taking in high school, go and make incredibly ‘stupid money’ for a few years.

          I guess there are two things to console me: the first is that most of them were probably also too stupid to realize the gravy train seldom runs forever, and pissed away all that stupid money; the second is that I would sincerely rather be a smart middle-class guy rather than a rich idiot. Money really is not everything, and as a smart guy I have a chance of making myself rich; however, once an idiot, always an idiot.

  9. Dallas Attorney

    This house doesn’t have air conditioning? That can’t be the norm, can it?

    1. NoWowway

      Here’s my take: For the most part, you need air conditioning about 10 days out of the year, imo.

      However, the last couple of years it has been nearly 3 weeks per/year. This year, we’ve already had a couple of days around 100, so we already have run the ac for 4 days total. We only run it when I have to work and the temperatures are high in the morning ( i need to get my hair dry and get my make up on in a cool place so that I look professional).

      It is usually NOT humid here. Dry heat is much more bearable than humid. And the ocean breezes can take the temperatures down nicely in the evening.

      Our hottest months tend to be late August and into September. October can be hot, too. I remember one year at Halloween the temperatures were 100 degress in Moreno Valley – but that is quite a bit inland and in the “low desert” areas.

  10. movingaround

    Yeah for using ABBA – the best ever!!!

    I’m thinking that 20 years from now Irvinerenters book will be required (well, shall we say heavily bribed) reading for my children – hopefully they or perhaps their children can benefit from and avoid collapse the next time this cycle repeats itself.

  11. Dog

    IR, I think you are making a fundamental mistake in trying to understand the logic that went into these HELOC decisions. Because in truth, there was no logic. There was no forethought. There was no time devoted to imagining the endgame. I know, because I’ve seen friends who’ve made the same ridiculous choices. I call it ‘ostriching’ — they just take the money out, spend it on whatever they feel like buying, and duck their head into the sand and hope and pretend nothing bad will happen. I’ve seen amazing examples of this: people losing their jobs and immediately levering up to buy a new car, etc.

    You (and most readers of this board) try as hard as you can to be governed by logic and reason. That is why you have such a hard time understanding what these people were thinking. The truth is, they weren’t.

  12. RodeoBob

    My degree is in accounting, not psychology, but I can offer a few thoughts on the thought process and belief systems involved in HELOC abuse.

    For someone to steal from their employer or otherwise behave unethically, three factors have to be in place: pressure, opportunity, and rationalization. Once somone has all three, they’ll act. The same logic applies to the Kool-Aid game.

    It’s easy to recognize pressures, noble and otherwise. Medical bills, or an accident without insurance coverage are easy examples. Envy of the neighbors and the constant drum-beat of advertising coercing buyers to “live bigger & better” is another easy-to-understand pressure.

    Opportunity is also easy to get your head around in this scenario. Anyone that owned a home and didn’t know that their house could be refinanced at a lower rate and a higher value had to be deaf, dumb, and blind. (or at least living without a telephone or television, and not answering the door to strangers)

    So the real question is rationalization. (and with it, the question of the end-game strategy) Again, anyone that owned a home was deluged with rationalizations as to why the HELOC/re-fi game was a good idea. TV commercials, direct mailing, telemarketers, even banner ads on websites all pushed refi & heloc. Salesmanship is all about helping the customer find the right rationalization.

    As to the end game, I’m sorry to say it’s been shown over & over again that most people are extremely bad at evaluating short term concerns versus long-term concerns. Yes, I’m sure a few folks bought houses and withdrew all the money they could with the intention of renting for a few years after, but most people weren’t planning more than 6 months ahead, because most people generally don’t. Petty theft from employers usually starts with “I just need enough to get by until my next paycheck”, and escalates as every two weeks something new comes up, pushing that “just enough” farther & farther out.

    I think a lot of the folks who abused their HELOCs just kept thining “well, this will be nice, but in 6 months I’ll have to go back to living normally”.

    1. newby to site

      Good points all Rodeo Bob, but I guess my follow up question is why does this seem so much worse in Southern California…I see a lot of similar sites like this one for Southern CA, certainly Las Vegas/AZ/FL, but I don’t see (admittedly, yet) the same in many others where it didn’t get this out of control on the upside.

      1. Blueberry Pie

        I’m sure part of it is the thought that “everybody wants to live in So Cal, because it’s perfect and we are running out of land” so the constant appreciation in home prices can be rationalized. It’s much harder to do that in an Oklahoma town with a decreasing population.

      2. RodeoBob

        I don’t have a hard-and-fast explanation why SoCal is so much deeper into the Kool Aid, but a few things spring to mind:

        Population. The scale of any given Ponzi scheme is determined by the participating population. SoCal had the largest pool of players, so there were a lot more opportunities. Activity in the market drove appreciation, creating a positive feedback loop; the rate of appreciation was in part driven by the number of people buying & selling.

        Population statistics. If only one out of every 100 homeowners abuses HELOCs, and SoCal’s population is 50x larger than that of Las Vegas…

        I’ll credit SoCal consumer culture with part of it as well, but I say take it a step further and consider the insular nature of communities. Once more than 50% of the people you know are doing something, it seems like the ‘normal’ thing to do. Even if less than 50% of the general population is doing it. Just as the participants in the Stanford Prison Experiment lost objectivity due to an insular environment, I have no doubt that as the HELOC/ReFi behavior become more prevalant, it was percieved as more ‘normalized’.

        As you said, you’ve seen it elsewhere, but not “this out of control”. My best guess as to why is simply a matter of scale: there were enough people in SoCal to accellerate the market, and there were enough people participating in the market to normalize the behavior. Places like Las Vegas & Florida never reached that “tipping point”. (though 100% financing and real-estate-speculation-as-investment did become normalized)

        1. newby to site

          Thanks all – agree the scale game and some land scarcity which makes it worse there than Oklahoma or Vegas, though I’m in northern NJ ( but we have similar (perhaps even more) scarcity value of land (particularly with very restrictive zoning) though admittedly less population growth and while prices are weaker here it is nothing like what is shown on this site.

          May also be that in SoCal land is seen as a greater store of wealth than in other parts of country which had seen less growth over the years…SoCal probably was the best RE market for the couple decades before this really took off in 2001 or thereabouts…while RE in NJ didn’t go more than couple % p.a in the 1990’s. Finallly here and east coast generally Wall Street is bigger part of the economy so people may look at that for more source of wealth.

          These kool-aid stories irk me as seems they get off scot-free (I’d have some sympathy if, for example, the kool aid was for say medical bills for their children). While I didn’t drink the kool aid, I can look at my balance sheet and sleep soundly so I’m at all envious.

          1. dick


            I dont think you really know just how MANY people you have saved from losing their ass in this housing bust.

            Keep up the great work.

      3. movingaround

        Perhaps it has something to do with Hollywood being located here and with it so many people that have incredible wealth and fame which was primarily gained through luck or family getting them in to Hollywood.

  13. Kelja

    @Anthony – you wrote

    “Or maybe our congress is also made up of a bunch of corrupt people, having no principle, having no spine?”

    No Maybe about that statement!

  14. Kelja

    Someone, somewhere, made the astute observation that the one thing all humans have in common is that each one of us wake up each day and rationalize something. I think it’s what really separates us from animals. Haven’t know any chimps to rationalize.

    Kurt Vonnagut wrote in one of his books that humans were born with a fatal gene defect – a too-large brain.

    Can anyone here honestly say, given the right circumstances, they would NOT have been one of these hi-lighted kool-aid drinkers. I avoided the whole manic real estate false price spike, the mania, and I could chalk it up to superior intellect… but I always wonder, hmmm.

    Greed & Hope fed the delusion and it’s still out there. I know a couple that had been doing quite well during the bubble. They were mortgage brokers. Surprise. She actually was bringing down 500K a year, he about 200K. That’s all over. She’s out of work, he’s stepped down to working with a bank doing mortgages (all foreclosures). Much reduce income.

    During the fat days, they traded up to a home in lovely Del Mar. I think they paid about 2 Million for the pleasure. I have no idea what they put down, but their mortgage in in the vicinity of 11K a month.

    They had thought about selling & downsizing, but reverse course. The woman told me recently their plan was to hold it through this period of tough times because – undoubtedly – things would recover. She expects the property to be worth 10 million in just a few years.

    Strong Kool-aid!

    1. Kelja

      I was repeatedly offered opportunities to drink the ‘Kool-Aide’ over the years. One good one was when my roof (Austin TX) was destroyed by hail and Farmer’s denied the claim completely, and should I mention that the monsoon season was upon us at the time (didn’t just need shingles, either, needed new decking as well). Yet as I looked at the HELOC numbers it just wasn’t worth the trouble & risk, better to find another way to pay for the roof (which I did). But maybe it’s just that I prefer to pay cash & have done a good job staying out of debt these 52 years…

      (We do have a big new TV, it was the the wife & my present to each other. We paid cash)

    2. NoCal SC

      I don’t know — I’ve always equated HELOC spending as exactly the same as putting something on a credit card. The same way I wouldn’t charge new furniture to a credit card, I wouldn’t spend HELOC money on new furniture. You’re still spending more for the furniture because you’re paying interest in it whether you put it on VISA or on your home equity. Therefore, it’s unacceptable.

      I bought my house in the Bay Area in 1997. I have a boatload of equity (yes, even now). The only home equity loan (not LOC, regular loan) was to help redo my kitchen, and it was paid off and closed within 12 months. There’s no way I would borrow against my house for anything but home improvements.

      I don’t know why it changed from being taboo to borrow on your house to being the norm. I remember when having a ‘second mortgage’ meant you were in financial difficulty.

    3. Dave


      I have often been “broke,” that is, illiquid, but I have never been insolvent nor even in negative equity, outside of a very brief period when I was married and had a school loan.

      What these people did is so fundamentally wrong in my universe that I cannot conceive of ever doing it. Maybe if I had to pay medical bills for a sick child, but that’s about it.

    4. BHC

      Kelja, not sure what you mean by ‘given the right circumstances’, but I definitely was offered/harrassed constantly, day in day out, to refinance, to HELOC, etc. I also had a home that could’ve been valued such that I could have pulled out all my equity, plus an additional $100k in addition, at the peak.

      At one point, I was going to put solar panels up on the roof + replace the 20+ year old AC system, and would’ve used the $ from the HELOC to do so. (yeah, using the HELOC to put into the house seemed to have confused some lenders… “no, you don’t want to borrow just enough to do the upgrades, you want more because we can lend you more”)

      I guess the only part missing from ‘right circumstances’ was that I didn’t want to be further in debt in order to avoid high power bills every now and then. 🙂

  15. Surf4390

    IR stated….
    “I have to think lenders won’t repeat this mistake for at least another 20 years.”

    I would love to agree however, the perception is that real estate will always go up and it will soon be common place again because people want “values” to increase (self-fulfilling prophecy).

    I just hope lenders are more responsible in the future.
    Back to basics: 20% down, GRM’s that make sense, etc…

  16. SteveForReal

    Many here believe that thsi meltdown will put an end to speculation and that there will be no future bubbles. I must dissent. 1.6 trillion is the expected RE loss depending on your source.
    The meltdown was far worse and preceded this bubble.

    As one economist has predicted we are just going to go from bubble to bubble. Yes, many will be fianncially and/or emotionally maimed and not be able to participate in the next bubble.

    You are aware of One of the reasons for the increase price of oil and grain????

    China . . . supply. Yes, a bit. But many in the business attribute it mainly to specualtion in the markets.

    Oil is/was the next bubble. Of course, there were fewer participants.

    Most gamblers do not stop gambiling until they are tapped. This is just the beginnning of bubbles

    IMHO and, of coures, all speculative.

    1. Matt

      I agree, with one proviso.

      The bursting of this bubble doesn’t have a soft landing. You can see this in how banks simply won’t give out mortgages any more without 20% down and a good appraisal. This will just keep prices falling (I seen more than a few listings go “contingent” for a couple of weeks, then get reactivated with a lower price–tells me financing is falling through on offers). All of this pain in the banking sector will be remembered for a while. IMHO, bankers are generally a more conservative bunch than those in the market. My guess is the more aggressive types in the banks are on the leading edge of the firings. So, I expect banks to return to old school lending standards for a while. That, plus the fact that this economy has nothing really going for it, will tamp down exuberence (and credit!) for a few years.

      However, given 4-5 years to purge the memory of this from our minds, Americans will create another bubble cycle.

      1. bill

        remember part of the bubble was that our interest rates were kept articially low as China, Japan, were happy to buy US$ bonds to recycle their large exports…If they had not their currencies would have soared, hurting their exports. But, particularly in China, as their domestic market is surging, they can have domestic demand take up some slack and of course having been burned on their US$ holdings will be less likely to do this in the future. So all else equal this is a key plank that won’t be there.

      2. BHC

        “You can see this in how banks simply won’t give out mortgages any more without 20% down and a good appraisal.”

        not sure if that’s true. I know someone who is prequal’ed to 3% down and is almost closed escrow. They backed out because they think they can hold out for another year and buy something cheaper… otherwise, someone was about to lend them @3% down to buy a 500k+ home.

  17. NoCal SC

    Those photos are just astonishingly bad. 4 exterior shots showing basically the same thing, 3 shots of the same bathroom, and 2 shots of one wee corner of the kitchen. What kind of nitwit thinks those are the best means of promoting this house? If this bimbo was my realtor she’d be getting an earful from me the minute those photos appeared on the MLS.

  18. camsavem

    I believe most HELOC abuse comes from having a society of the haves and the have nots. Middle class does not exist anymore, nor is it portrayed as desirable.

    Does anyone realy want to work a factory job for 40 years and retire with a pension? Even if you wanted to, its not really possible for my generation.

    The Dot Com buble exploded and left people without free money. Oh sure, you may have dropped 20K into it and turned it into a 100K and then down to 10, but no one really took that money out and spent it because the capital gains tax was so high. Most opted to be suckers and be “long term investors”. (although people rang up credit card debt because they were rich on paper)

    This buble is different.

    People could withdraw their money and finaly get “their piece of the pie”. They were land owners, real estate “investors” who made a great decision on getting into real estate. Now they had the freedom to be one of the “haves” and eat nice dinners, take great vacations, drive nice cars and buy their kids everything imaginable.

    This line of reasoning was being thrown at them from every angle. The pressure to not participate was just too great for most. It was like trying not to buy tech stocks in 1999. Who wants to own Clorox when you can own JDSU?

    I dont think a real estate buble like this will ever happen again in my lifetime. It is going to take another decade before things get anywhere near back to normal. Unlike stocks, which cost about 10.00 to liquidate, homes are a fricken absolute albatross around everyones neck as a depreciating asset.

    No one wants to buy, no one wants to sell, no one wants to finance.

    We are in the 2nd inning of this game believe it or not. You can tell because people still think that 350K for a 2 bedroom condo is a good deal.

    Just 8 years ago you could buy a 5 bedroom pool home in a nice area for that…. and that was expensive at the time.

    My guess is that over half of all the properties in Orange County are now under water, imagine when prices drop anothe 20% this time next year.

      1. AZDavidPhx


        I can hardly believe my eyes when I see people on here talking about how “I’ll be buying this, I’ll be buying that when it drops down to 800K”.

  19. Mike West

    Interesting insights…being a REALTOR® and becoming licensed after the “bubble,” it’s crazy to hear the stories of things that people did. Debt and deficit spending is a big issue here in the United States; a very big problem! When you couple this with the fact that people were being given “free” money and able to purchase a home with no money down…you have “a recipe for disaster.” (I just noticed I’m using a lot of cliche statements lol) You can’t always blame people, but I understand most of the comments here that people made bad decisions…needless to say, the previous housing bubble has made Real Estate a hot topic…evident of the response that a great blog like this receives..I’ll be checking in and hopefully not making myself appear to be a “Realturd”..(nice one Caddy, I might have to use that!)

    Mike West, REALTOR®

  20. Austin Real Estate Broker

    Cool deal about everyone getting used to drinking cool aide. The best part is when they have to drink the cool aide made by Jim Jones to put them out of their misery. It’s just too bad the rest of us responsible folks will need to pay for their spending sprees.


Comments are closed.