Generation — Simple Plan
Generation Y began buying starter homes in earnest during the Great Housing Bubble. Generation X is just now coming into their prime earning years, and many of them bought move-up homes at inflated bubble prices. The Baby Boomers took their equity and bought multiple properties during the bubble. They all have one thing in common: they are all part of Generation Pwned. Pwned has many definitions, but it generally refers to a state of being defeated and helpless. People who paid bubble prices or HELOCed themselves into a massive debt are pwned by their houses and the housing market. I first wrote about this in America’s Debtor Prisons. Unfortunately, I know several families who this describes. All are overburdened with debt, and they were counting on increasing income and increasing home prices to finance their lifestyles and their family’s future. It isn’t going to turn out well for them.
Even if these people get a workout that allows them to stay in their homes, the terms of the workout are not going to leave them much to live on. Any workouts are going to have the highest possible DTI the government thinks you can handle (currently 38%,) and to qualify for the workout, the homeowner must give up half their future appreciation — if there is any. Most would be better off walking away. Anyone paying 38% of their gross income (that is gross not net) to their housing costs, plus trying to finance car payments and credit card debt is going to find it very difficult. This is not going to be a short-term condition. Rapid house price appreciation leading to a HELOC dependant lifestyle is not going to happen any time soon — if ever. Many of us have had to tighten our belts during the recession, but these people will not see any improvement in their finances when conditions improve. They are truly pwned.
Those that participated in the housing bubble (bought late or borrowed much) will end up breaking down into two groups: those that are pwned, and those that lost their houses. The pwned group is facing a life of indentured servitude to massive debt obligations and little or no hope of financial recovery. Those that lost their houses will have to deal with bad credit and feelings of failure. I can’t decide which group I would rather be in. Neither alternative is very enticing. I am very thankful I was one who did not participate.
Today’s featured property is in the “borrowed much” category of housing bubble participants. These people did not make the mistake of buying at peak prices. In fact, they bought at the bottom of the last cycle. However, they too drank the kool aid, and now they have lost their home and their wealth. Another casualty of the Great Housing Bubble.
Income Requirement: $114,975
Downpayment Needed: $91,980
Monthly Equity Burn: $3,852
Purchase Price: $183,000
Purchase Date: 2/6/1998
Address: 131 Islington, Irvine, CA 92620
Beds: | 3 |
Baths: | 2 |
Sq. Ft.: | 2,000 |
$/Sq. Ft.: | $230 |
Lot Size: | 2,100
Sq. Ft. |
Property Type: | Condominium |
Style: | Contemporary |
Year Built: | 2000 |
Stories: | 2 Levels |
Floor: | 1 |
Area: | Northwood |
County: | Orange |
MLS#: | S548626 |
Source: | SoCalMLS |
Status: | Active |
On Redfin: | 1 day |
New Listing (24 hours)
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gated community. This one is priced to sell and will not last long,
submit your offer today!!
When we the taxpayers foot the bill for the excesses of the bubble, we are bailing out the lenders who enabled the behavior below:
- The house was purchased on 2/6/1998 for $183,000. There was a $173,500 first mortgage and a $9,500 downpayment.
- On 8/21/2002 they refinanced the first mortgage for $165,500. They actually paid down their debt.
- On 3/12/2003 they opened a HELOC for $50,000, just in case… Their first taste of kool aid.
- On 2/13/2004 they opened a HELOC for $226,000. The kool aid is flowing now.
- On 10/22/2004 they opened an Option ARM for $492,000.
- On 5/2/2005 they opened a HELOC for $75,100.
- On 10/21/2005 they opened a HELOC for $126,000.
- On 9/28/2006 they opened a HELOC for $150,000.
- Total debt on the property, $642,000 plus accumulated negative amortization.
- Total mortgage equity withdrawal, $468,500 including their tiny downpayment.
Basically, these people put $9,500 into the property and made $459,000 in 8 years.
Do you wonder if they realized they were pwned? I suspect they did not. Each refinance probably did not increase their payment, and although their HELOC debt was growing, they had plenty of cash to make the payments. They also probably believed their house value would increase forever and the debts would be paid off when they sold. Of course, they were pwned the moment they took out the Option ARM, just like everyone else. All Option ARM holders are pwned. Some of them know it, and some of them don’t, but they are all going to lose their homes eventually.
If this property sells for its asking price, and if a 6% commission is paid, the US taxpayer is going to lose $209,694.
Maybe we are the ones who are pwned…
.
I’m sick of all this waiting
And people telling me
what I should be
What if I’m not so crazy
Maybe you’re the one
that’s wrong, not me
So what you gonna do,
what you gonna say
When we’re standing on top
and do it our way
You say we got no future
You’re living in the past
So listen up, that’s my generation
(hey ho, let’s go!)
It’s going down tonight
(hey ho, let’s go!)
We’re gonna do it til we die
(hey ho, let’s go!)
‘Cause I, I, I got no
reason to apologize
That’s my generation
I don’t need to say I’m sorry
I do what everybody wants to do
It’s not so complicated
‘Cause I know you want
the same thing, too
So what you gonna do,
what you gonna say
When we’re standing on top
and do it our way
You say we got no future
You’re living in the past
So listen up, that’s my generation
Generation — Simple Plan