They Are All Distressed

Get Out of This House — Shawn Colvin

I got myself this house now and I can’t get out

According to recent reports, 50% of home resales are foreclosures. This statistic speaks volumes about the health of our housing market, but if you look at the overall inventory of distressed properties, the evidence is even more alarming. I look at a variety of property records every day to prepare to posts for this blog. It is very rare that I come across a property where the owner did not add to their mortgage. As a general rule, Irvine homeowners who are trying to sell their properties in today’s market have doubled their mortgages over the last several years. If you add together all the foreclosures, short sales, underwater homeowners, and those owners who have increased their mortgage debt to the point they can no longer handle the payments, and I estimate 90% of our market is distressed.

Well I never got home, but I did what I did
And I got myself this house and you can’t come in

There are very few properties available for sale by homeowners who either are not underwater or who did not add significantly to their mortgage. Homeowners in that category are not trying to sell. Why would they? Some owners have to move for a relocation, some owners must sell because they are unemployed, and some owners believe prices will drop further and they are going short (There are a few like that, but not very many). The remainder of the population of non-distressed homeowners are not trying to sell. Most believe this price drop is temporary and prices will rebound soon, and many simply do not care what happens to house prices because they are primarily interested in providing shelter for their families. All this means that non-distressed homeowners are not selling now. By the same reasoning, the homeowners who are selling now are, by definition, distressed.

Like many others, I have been thinking about all that I am thankful for with the holidays approaching. I have stresses about the economy like many others, but my worries are centered around what might happen. Many people who are financially distressed and waiting for their mortgages to blow up, they are worried about what is going to happen. Remember the Cold War when we all lived with the worry about a full-scale nuclear war between the superpowers? That was a worry about what might happen. Imagine if the news broadcast that the missiles had been launched. Then we would have been worrying about what was going to happen. Do you see the difference? Owners of most of the properties for sale today are financially distressed, and many of them are living with the worries about what is going to happen.

I spent eleven long years in a hot house zone
I spent twentynine more trying to get home

The saddest stories of the housing bubble have to be the long-term
homeowners who spent their houses. Some we have already profiled ended
up as short sales or foreclosures, and some who still have equity are
on their way there. With price falling and resets looming, most of
these people are doomed. These people are not going to be living in their homes in the future. Many will face credit problems. There is no telling how bad it will get for them, but there is a negative certainty about their future prospects. The stress levels of this group of people must be very high because they are worried about what is going to happen.

Today’s featured property is a long-term homeowner who over the course of the last 14 years managed to steadily and significantly increase their mortgage debt. It appears they have enough equity left to get out without being a short sale, but unless their income has more than doubled over the years, they are facing much more arduous mortgage payments if they do not sell, and even if they do sell, they will not get the cash their term of ownership could have provided.

16 Carver Kitchen

Asking Price: $749,990IrvineRenter

Income Requirement: $187,500

Downpayment Needed: $150,000

Monthly Equity Burn: $6,250

Purchase Price: $256,000?

Purchase Date: 9/27/1994

Address: 16 Carver, Irvine, CA 92620

Beds: 5
Baths: 3
Sq. Ft.: 2,950
$/Sq. Ft.: $254
Lot Size: 6,175

Sq. Ft.

Property Type: Single Family Residence
Style: Cape Cod
Year Built: 1980
Stories: 2
Area: Northwood
County: Orange
MLS#: S549907
Source: SoCalMLS
Status: Active
On Redfin: 50 days

remodeled pool home has an extra large lot, PLUS approx. 350 SF has
been added as a new family room off the remodeled kitchen. Original
family room has been converted to a 5th bedroom with free-standing
mirrored closet. Kitchen is remodeled with granite counters,newer oak
cabinets,and newer appliances. HUGE UPSTAIRS BONUS ROOM can be
converted into another bedroom! 3 fully remodeled bathrooms, newer
carpet, mirrored wardrobe doors, closet organizers in each room, and
lovely french doors and windows make this a wonderful family home!
Gorgeous, large brick and concrete covered patio leads to built in pool
and spa. NO HOA AND NO MELLO ROOS!!! This home is a must see!

ALL CAPS and 3 exclamation points. Typical realtorese.

Notice how everything in this house is “newer?” What does that mean? Is “newer” that category between “new” and “old,” or is it just meaningless bull$hit?

This property was purchased in 1994 for around $256,000 (the property records are not specific.) There was a first mortgage for $231,000, and based upon this figure and subsequent refinances, I am assuming there was a 10% downpayment to calculate the purchase price. If I am correct, the downpayment was $25,000.

  • On 4/10/1997 they refinanced with a $260,000 first mortgage.
  • On 2/20/1998 they opened a HELOC for $24,850.
  • On 9/15/1998 they refinanced with a $282,700 first mortgage.
  • On 10/23/1998 they opened a HELOC for $30,000.
  • On 7/25/2000 they opened a stand-alone second for $100,000.
  • On 1/3/2001 the opened a HELOC for $102,125.
  • On 4/27/2004 they refinanced with a $450,000 first mortgage.
  • On 8/16/2005 they opened a stand-alone second for $30,000.
  • On 3/12/2007 they opened a HELOC for $50,000.
  • Total mortgage debt is $530,000. Up 130% from where they started.
  • Total mortgage equity withdrawal is $299,000 including their downpayment.

If this property sells for its asking price, and if a 6% commission is paid, the owners stand to make about $450,000. Of course, since they have already spent most of this, they will end up with $175,000. They are not exactly being punished for the years of mortgage equity withdrawal. It makes you wonder if they will attempt to do it again…

At $254/SF, this is one of the lower prices in the area on a per-square-foot basis.


Shawn ColvinGo jump in the lake, go ride up the hill
Get out of this house
It’s a house of your making, it’s a house of ill will
Get out of this house

Go listen to Buddha, go listen to Joe
Get out of this house
If anyone asks, you tell them you don’t know
Get out of this house

I spent eleven long years in a hot house zone
I spent twentynine more trying to get home
Well I never got home, but I did what I did
And I got myself this house and you can’t come in

I’m the queen of my castle, I’m the king of my room
Get out of this house
I got more than I need, more than I ever could use
Get out of this house

I spent seventeen years trying to save my soul
I spent twentythree more down in the hole
Now my soul is alright but I might get found out
I got myself this house now and I can’t get out

Get Out of This House — Shawn Colvin

47 thoughts on “They Are All Distressed

  1. Forbear

    Perhaps some knife catcher might snatch this one up given it’s size and a pool. If I were them I’d drop the price another $100k and hope like hell it sells fast.

    1. buster

      I hope somebody likes living in a prison camp. Houses on the outer edge of a sharp curve get the Searchlights (oops, I mean headlights) panning through their windows all night long. I guess it’s not such a big deal if you (and your entire family) work nights.

      I’d ask for a $100,000 discount so I could “tastefully” board up all the front windows, maybe paint fake ones on the plywood. Oh, I’d need another $100,000 to erect a concrete and steel barrier to stop the speeding truck from ending up in my living room when they miss that curve.

  2. cara

    They paneled the refrigerator with the cabinet panels… OMG. I’ve seen this before, but not usually with the stark white ice-cube thingy standing out and all the white edges so obvious.

    At least from the renovations it sounds like they put some of this money back into the house. Hard to say how much. The former family room bedroom looks really depressing though.

    1. IrvineRenter

      To me, the pattern of borrowing looks like a series of credit card payoffs. The big jump in 2004 was probably to pay for some of the renovations. They were probably spending about $15,000 to $20,000 a year more than they were making and paying it off periodically. Many people who do not budget well fall behind $1,000 to $1,500 a month when unexpected bills come in. Of course, most people become more disciplined when they hit their credit limits. With the housing ATM, they never hit the credit limit, so they never needed to become financially disciplined. It looks like some bad habits are deeply ingrained. When their credit cards are cut off, and the housing ATM is tapped out, these people will need to make significant adjustments in their lifestyles and in the way they manage money. I hope they are prepared.

      1. Perspective

        A couple years from now I’d like to see many books written about this period’s effect on the families caught-up in the mania. I’m interested in what they were thinking and how much beyond their means the were living. I’m also interested in their struggle to adjust after the boom.

      2. Anton

        IrvineRenter did you have a look at this weeks business week front cover, “the subprime wolves are back” please read and let us know your thoughts, I cant imagine the government is letting this happen.

        1. Bitter Renter

          The story can also be read at:

          I would especially be interested on IR’s take on this statement:

          “The federal guarantee creates an incentive for banks to buy FHA loans and bundle them as securities to be sold to investors. This is happening as the securitization of subprime and conventional mortgages has largely ceased.”

          Cessation of securitization of subprime loans I understand, but in his plan for avoiding future bubbles, IR had characterized securitization of conventional mortgages as a necessary part of mortgage funding, so I’m curious if the above statement is true, and if so, how it squares with that.

    2. Bitter Renter

      The frontage of this house (including the hideous use of the green paint) shows an equal lack of aesthetic sense, IMHO.

  3. Larrygg

    I agree with Forbear, $750K is not chunk change. It takes a substantial down payment plus a pretty good income to take on this much burden. And in the volatility of these economic times, no one feels that certain about the future. People are still living in the past where homes like this were selling for upwards to a million bucks.(Remember the $100K asking price spreads? How absurd was that?) So $750K seems like a bargain price but it is still way overpriced for the average working class stiff. This market has a long, long, long way to go to get over that kind of thinking.

  4. dafox

    $256k in 1991 = $407,068.19 in 2008 according to the BLS. Add to that 1991 was still a relatively high point in the last housing boom.

    $410 – $82k down = $328k loan ~= $2500/mo
    Thats about the right PITI for a couple making $100-120k/yr – which I find pretty doable in a good area of OC.

    We still have quite a ways to go here folks.

    1. Hormiguero

      the purchase, according to the post, was 1994, not 1991. the cpi jumped about 10% in those three years.

      otherwise, agree with most everything else. CA was/is particularly dangerous just because the prices so badly outpaced the incomes. that’s not exactly a new insight or sentiment on this site, of course.

        1. Hormiguero

          big diff between 374K and 408K in terms of tapping median incomes.

          that’s probably an excellent guess for the range this bottoms at, though that may be as much as ten years away.

        2. AZDavidPhx

          I remember when a suggestion of 374K for a house like this would result in an instant blog-flogging and horse laughter from the bulls. How the times have changed.

        3. Bitter Renter

          Useful reference, that spreadsheet — thanks for that. I wonder how the 2007 numbers would compare.

  5. Transplant

    Is this really HELOC abuse? It appears at least some (maybe more than some) was actually put back in the house through additions and improvements. In theory, that’s what HELOCs and HELs are for. (You know: Bank lends you money based on value of house, you improve said house, house now worth money. Everyone happy.)

    I don’t know this neighborhood, but maybe the additions/changes actually added something to the house vis a vis the other houses in the neighborhood.

    Now whether they had enough income to actually pay all these loans is a big issue, and speaks to common sense, but I would much rather see a house with HELOCs that went to the house instead of their boat.

    1. IrvineRenter

      If they had taken out only one HELOC or done only one small refinancing, I might think this was only spent on the house. However, the pattern here suggests most of this money was spent on other things.

    2. trrenter

      Even if every last dime went back into the house it would still be abuse.

      If at the end of every month the owner could not afford the payment it was abuse.

      My parents bought in 1987 and their interest rate was in double digits. The only time they refinanced their home was when rates went down enough to make it worth their while.

      They eventually refinanced into a 15 year fixed because of rate drops.

      Every other repair or upgrade came out of “SAVINGS”. They added a whole new room without a HELOC. They saved and when they had enough they stated the addition.

      There is a difference between need and want. These people did not need a new kitchen or granite counter tops. They wanted them.

      To take on that much debt because you want something is abuse.

      1. tonyE

        You forgot that some people will do a HELOC to REBUILD their home instead of MOVING.

        Once the house is complete, then you refi the first and HELOC into a new first.

        The end result is that you get the tax savings of Prop 13 and a new house.

        This works for people who:

        (a) like their neighboorhood.
        (b) need/want a newer/bigger house.

    1. Gemina13

      And it still may not be enough. Meanwhile, Paulson’s making noises about returning to the trough for the rest of the money. I’m waiting to hear the sound of scaffolds, gallows, and guillotines being built on the Washington Mall.

  6. cara

    That’s awesome!!

    I see the WOT post has inspired you to greater heights of photoshop-art!
    (or shown off all your best work so you can’t repeat it…) The dice-man billboard was my previous favorite

  7. AZDavidPhx

    AZ’s Dictionary says

    newer? ?/nu, nyu/ Show Spelled Pronunciation [noo-er, nyoo-er] adjective

    –adjective 1. Used, etc.; having but lately come or been brought into being but too proud to say “used”.

    –adjective 2. Metaphoric Lipstick smeared onto a pig as to divert attention from an object’s state of usedness.

    -example 1.
    Tony: This house rocks! It has newer granite counter tops! I will totally pay an extra 100K for that alone!

    Bob: Wow Tony, do you really want to spend that much to buy a house that has used granite counter tops?

    Tony: They are not “USED”, Bob – they are “newer”.

    Bob: That’s B.S, Tony. Those counter-tops are “USED”. To say that they are “NEW” is just like taking a pig and smearing lipstick all over its mouth in order make you think it is pretty.

    Tony: Now you are just being ridiculous, Bob. I didn’t say “NEW”! I said “NEWER”. There is a difference!

    Bob: Yea, Tony! The difference is that one is “USED” and the other is “NOT USED”.

    Tony: Yea! But the newer is only slightly used!

    Bob: Then just keep it real and say “SLIGHTLY USED” rather than “NEWER”.

    Tony: Because I am too much of a snobby little prick to buy anything that is “USED”! The seller is entitled to a handsome profit on his countertops so I will conjure up an Orwellian device in my mind to forget that they are used and have no regrets about paying a bloated price to the seller for his used countertops!

    Bob: FINE, then don’t buy the house if you have a problem with used counter tops!

    Tony: FINE!

    Bob: FINE!

  8. LC

    Nice card, AZDave. This price is basically 2005 pricing. As we can see, we are in the midst of an economic collapse, not in the middle of the real estate boom of 2005. They managed to do some nice remodeling — it looks good, but cheap — a good value, but they probably paid top dollar. The holidays are not a good time to be selling a house. I don’t know when prices will drop, but it is sure taking a long time. People seem to have enough money to ride this out.

    1. AZDavidPhx

      Unfortunately, I think that the worst of the economic crisis is still in front of us.

      The masses have not been out of the denial stage for very long. The presidential election has also complicated matters and given false hopes to many. We are in a transition period at the moment. A calm before the storm.

      The real panic is not going to begin until our new president is in office and his policies fail to meet the instant-gratification expectations that have been placed on him.

      About the same time, many of these Option-ARMs are going to be coming home to roost (and nobody in the media is even talking about these yet).

      My prediction is that things get very bad toward the end of next year. So much money has been lost. Future generations are going to be paying for our granite countertops and our Escalades and even our Ipods now the Citi has been saved. And the vast majority of people do not care. It’s not very inspiring.

      The way out of the problem is to start paying off debt. Start putting out the anti-debt ads on TV. Make it “not cool” to live in debt.

      1. MalibuRenter

        I think people would care if they felt they could do something about it. Unfortunately, even if you make a lot of money, understand finance, and work at a major bank, you have pretty limited ability to change the course of events. You can save a few people, but being an aware observer on the Titanic doesn’t mean you can help everyone.

        1. DeathToSinan

          I agree–we’re all powerless to control macroeconomics and the stupid monetary policies the government has foisted on us. People care, but can’t do anything to protect themselves, beyond hoarding money–which will be inflated away anyway.

  9. Texas Triffid Ranch

    IrvineRenter, are you sure that the song you should have used wasn’t the Sex Pistols’ “Great Rock ‘n Roll Swindle”?

  10. mike in irvine

    Interesting property, the area you have profiled is actually nice but many of the old houses are jazzed up using heloc’s. The lots are large with sufficient room for additions. 22 carver was sold a couple of months back. it was beautifully upgraded overall, a sun room was added and the 1500+ sq ft property became 1800 sqft. Zillow priced it based on the new sq ft and it sold for 660 or 670k. The owners were lucky to get it sold within a couple of months of listing(i think).
    These days i have seen a couple of properties with inflated sq footage. houses that are actually 1600 sq ft are labelled as 1800 and Zillow automatically prices it higher…its not a scam but a nice way to get the these sites to increase the estimate of the house.

    1. Hormiguero

      there’s a 30% gap between zillow and cyberhomes in some cases in cowan heights at the moment. zillow has been drinking some serious cyberkoolaid. i wonder if this is a conspiracy between listing agents and county tax officials?

      1. AZDavidPhx

        Zillow is having a hard time chasing the market down. It’s obvious that the people who designed its value-approximation algorithm did not take declining market into the consideration.

        It’s most likely making all kinds of assumptions including market-stability and prices-never-go-down logic, and probably the magical wine-bottle 4% per year appreciation entitlement, etc, etc.

        They need to add in some adjustments to the 2000-2006 prices that apply corrections for the housing bubble. They also need to use income data to gauge the area.

        It looks like all they do is simple comp compares without adjusting for the boom. It would be quite a shocker to people if they changed the algorithm to use income data and made assumptions like only spending 25% of income on housing.

        Either way, their model is ridiculous and it does nothing but give sellers false-impressions of what their homes are worth.

  11. IrvineRenter

    It was nice meeting you too. And yes, it did surprise me to be recognized in public. That is the first time it has happened. I hope you have a great Thanksgiving too.

  12. idrnkurmlkshk

    Did anyone see that crazy stupid OC lady interview on Suze Orman’s show last night? They showed vidoe of her home, (looked like it was an over done, zeolous house in Quiall Hill. I mean she had plasma tv’s in the back yard. Right next yo her pond sized “swimming pool” LOL! I’m trying to find the video.

    This lady had upgraded her mcmansion to the hilt. Had maxed out everything. Not to mention having over 200k in credit card debt.

    Even though her husband’s income was 9k a month, they were still behind on their bills by 10k!

    When Suze told her that she “owns” nothing, the lady scoffed at her!

    1. SoCal78

      Ha! Love Suze Orman. I have this episode recorded on my DVR but haven’t watched it yet. I’m looking forward to checking it out tonight. Thanks for the head’s up!

    2. tlc8386

      I remember walking into one of those homes in Quail Hill back in 06′ just before the real hit to the market and the agent said don’t come in unless you are interested we are asking 1.45 nothing less.

      I laughed to myself and said you wish. Those high end homes with high mello roos and HOA’s are going to sit.

      Another one priced closed to 2 million was a mortgage broker spilling out all kind of deals he could get for us on his house because he was moving up. I thought sure you are–you are getting out.

    3. ignorantoutsider.

      2 out door plasma TVs, diamonds on the credit cards, monthly income $9,000, monthly debit $19,000. All this and no brain anywhere in sight. If she had been on SNL nobody would have laughed because NOBODY is that dumb. Great clip if you can find it!

  13. lawyerliz

    Hey, a couple of days ago, i think I saw an ad for your book on Calculated Risk. By the time I realized that I wanted to look at it, the ad was gone.

    1. IrvineRenter

      I have been running adwords ads for about 6 weeks now. Keep going back, and you will probably see it again.

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