Eat the Nouveau Riche

The Nouveau Riche are supposed to have money, aren’t they? In Southern California, debt is a useful substitute because looking rich is all the matters. Perhaps we are the land of the Nouveau Dette…

Our property du jour is a short-sale property in Quail hill telegraphing the collapse of the high end.

37 Fresco Inside

Asking Price: $1,800,000

Address: 37 Fresco, Irvine, CA 92603

{book4}

Eat the Rich — Aerosmith

Yeah, I hope you have some fun
And a don’t go burst the bubble
On rich folks who get rude

Am I too hard on HELOC abusers? Are these people decent, hard-working folk who made a few common mistakes that deserve a helping hand to get through this crisis? Should I be OK with my tax dollars going to help them sustain the lifestyles to which they have become accustomed? Should I be more compassionate to their plight?

No.

I have made mistakes in the past, and I paid the price for those mistakes. I learned from them. I live my life differently now.

When Jesus forgave people’s sins, he bade them “sin no more” (John 8:11). If the people who spent their houses learn from their mistakes and change their lives, then more power to them. Perhaps the IHB or even the US Government could sponsor a support group for recovering HELOC addicts. At least supporting that would be a wise use of tax dollars. If HELOC abusers whine and complain and beg for handouts to continue living a life they do not deserve and have not earned, well… that is different.

But there’s one good thing that happens
When you toss your pearls to swine
Their attitudes may taste like $hit
But go real good with wine

A reader recently emailed me this story. The names and circumstances have been altered to prevent revealing too much, but the gist of the story is accurate.

This reader went out with a friend who got caught up in the bubble. He is hopelessly underwater, facing a recast of his mortgages (he owns multiple properties), and he cannot borrow any more money to sustain his lifestyle. While they were out for drinks, this guy complained about having to sell his boat, and give up vacations, and generally cut back. He is still in denial about losing his properties, but it looks likely that he will lose everything. He has no savings.

During the conversation, the reader, who is buying on this night, had to excuse himself. When he got back, the friend who is having problems ordered a $100 bottle of wine. When the guy who is buying asked what was going on with the wine, the friend replied, “I can’t drink that cheap wine you order. I hope you don’t mind…”

Marie Antoinette said, “Let them eat cake.” Perhaps Aerosmith captured the sentiment best when they said:

Eat The Rich
There’s only one thing that they are good for

37 Fresco Inside

Asking Price: $1,800,000

IrvineRenter

Income Requirement: $450,000

Downpayment Needed: $360,000

Monthly Equity Burn: $15,000

Purchase Price: $2,337,000

Purchase Date: 7/28/2006

Address: 37 Fresco, Irvine, CA 92603

Beds: 5
Baths: 5
Sq. Ft.: 4,750
$/Sq. Ft.: $379
Lot Size: 7,225

Sq. Ft.

Property Type: Single Family Residence
Style: Contemporary
Year Built: 2006
Stories: 2
View: City Lights, City, Mountain
Area: Quail Hill
County: Orange
MLS#: P674831
Source: SoCalMLS
Status: Active
On Redfin: 1 day

Best Value at Quail Hill,Over $500,000 spent in Custom Upgrades.
Beautiful Trevertine and Exotic Hardwood Floors.Custum Built in Family
Room and Hallway & Kitchen. Central Vacuum & Clean Air
Purification System and Much More!!!!

Why do I care how much you spent on upgrades? Are you telling me how stupid you were when you bought the house? Since upgrades add between $0.50 and $0.70 for each dollar spent, you added $325,000 value to a property by spending $500,000. I am so impressed. Oh, BTW, you did that in a declining market, so you basically wasted all your money. Smart move.

This property was purchased on 7/28/2006 for $2,337,000. The owners used a $1,635,700 first mortgage, a $467,350 HELOC and a $233,950 downpayment. If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $645,000.

That is a $645,000 loss on one property in Irvine. Fortunately for the lender, this wasn’t a 100% financing deal, but it does give you an idea of the magnitude of losses lenders are going to take when the high end collapses. Subprime mortgages may default more often, but these were small amounts compared to these jumbo mortgages. Even if the default rates are significantly lower, since the amounts are so much larger, the default losses are going to be astronomical.

No wonder the FED is doing everything it can to save the housing market.

{book5}

Eat The Rich
There’s only one thing that they are good for
Eat The Rich
Take one bite now – come back for more
Eat The Rich
I gotta get this off my chest
Eat The Rich
Take one bite now – spit out the rest

So I called up my head shrinker
And I told him what I’d done
He said you best go on a diet
Yeah, I hope you have some fun
And a don’t go burst the bubble
On rich folks who get rude
‘Cause you won’t get in no trouble
When you eats that kinda food

Now they’re smokin’ up their junk bonds
And then they go get stiff
And they’re dancin’ in the yacht club
With Muff and uncle Biff
But there’s one good thing that happens
When you toss your pearls to swine
Their attitudes may taste like shit
But go real good with wine

Chorus

Believe in all the good things
That money just can’t buy
Then you won’t get no bellyache
From eatin’ humble pie
I believe in rags to riches
Your inheritance won’t last
So take your Gray poupon my friend
And shove it up your ass

Eat the Rich — Aerosmith

69 thoughts on “Eat the Nouveau Riche

  1. scott

    According to Redfin the washer and dryer aren’t included in the price. For 1.8 mill you’d think these would be included.

    On the losses it is also of note that most of 2nd liens used in peak bubble will be 100% write offs. When they talk of market prices for the securitization loans in the bailout plans it seems the bid for 2nd lien pools should be pretty close to zero. Out of curiosity what would have been the spread over LIBOR or Prime for a 2nd lien loan when this house was bought?

    1. Perspective

      The spread on the second in an 80/20 jumbo loan for a prime borrower around this time was about 250 bps above par on the first.

      e.g. The 30 year fixed first lien could’ve been around 6.5% while the second was 9%.

    2. Perspective

      Also, if the same borrower put down 5% the rate on the second would decline maybe as much as 25 bps; 10% down payment and the second could be down to 8.5; and so on…

    3. mav

      “On the losses it is also of note that most of 2nd liens used in peak bubble will be 100% write offs.”

      I wish the general media could understand and communicate this point.

      In addition just because a Neg Am / Option Arm is currently being paid doesn’t mean it has full value or anywhere near par value. I constantly hear the media discussion how these toxic assets are being serviced currently. So what, the underlying risk is so high that they will stop being serviced.

    4. chuckconners

      You know,in todays market your lucky if the FB doesn’t strip the house of everything,copper plumbing included.

  2. george8

    There is 99% chance this will be foreclosed in a few months. Owners are advised to stop all payments to live rent free and tax free for a few months. Do not worry too much about the bank’s extra loss, because the politicians in DC will bail the bank with taxpayers’ future debts. You have no more skin in this.

  3. Formerbanker

    For a $1.8 million house listing with ‘500,000 spent in Custom Upgrades’, the agent posts only a few pictures, one of which shows an unfinished backyard instead of something more meaningful, like the kitchen ? I’ve come to expect typos in the descriptions but seriously, ARE YOU KIDDING ME, is it that hard to spell travertine or custom (or built-in) if you supposedly sell real estate for a living? There’s this thing called proofreading, and it takes about a minute to check a few sentences. IR, I know you could post similar listings all day long…but it still blows me away how bad some of these agents are at their jobs…

      1. CK

        Do you have some inside information that renters don’t take care of their yards? That’s kind of a dumb post. I rent a house, and can see into the backyards of five adjoining houses from my 2nd floor (that’s another issue all together). Mine is the cleanest and best kept of all. I also have the nicest grill. 🙂

        Maybe these days its us renters who are NOT financially strapped brining UP the value of the neighborhood…The struggling owners are cutting corners on things like lawn care. When we dropped our rent check off this month, the landlord said that since we moved in the Zestimate for the house has increased by $25k (I guess they are watching). I’ll take full credit for that 😉

    1. mav

      I think they should allow you and I, and all tax payers to edit these listings for grammar. They could also let us take pictures and add them to the listing. At the end of the day it is you and I (and all tax payers) who are paying for these losses.

    2. thrifty

      Aren’t you being a little hard on the realtor? After all, 6% commission on 1.8m is only $108,000. If that’s split 50/50 between the listing and selling brokerages (and again between agent and broker), the poor agent will only get $27,000!
      Kidding, of course. In a more serious vein, I wonder if the huge losses suffered by note holders and tax payers will eventually result in reductions to a more realistic and lasting level of realtors commissions – 6% goes back to the 40s and 50s.

  4. Lee in Irvine

    This just conforms what most of us already know. Per Matt Padilla’s Blog:

    A new documentary on CNBC, “House of Cards,” analyzes the economic meltdown and points to Orange County as the birthplace of the subprime loans that infected the world financial system.

    The 90-minute program, which first airs Thursday, features locals such as Bill Dallas, founder of Ownit; Lou Pacific, a Mission Viejo real estate consultant; Daniel Sadek, founder of Quick Loan Funding — and a few clips of this reporter.

    It also connects the born-in-O.C. mortgages to Wall Street and to Narvik, Norway, where a town went broke investing in CDOs.

    Click on my ID for a short video clip.

    1. tonyE

      I better not travel anywhere near Navirk, Norway. If they see “Irvine” in my passport I’m hosed… 😛

  5. Texas Triffid Ranch

    IrvineRenter, I appreciated the story, because I saw too much of that during the Texas oil bust of the late Eighties and the tech bust. That’s the joy of utter denial: they keep living the way they are because they’re sure that the bust is going to correct itself. They shouldn’t be expected to give up any of their perks for fear of what the neighbors and the co-workers would think, and by the time things finally implode for them, it’s far, far too late to do anything other than hope that they don’t go to jail.

    (In the same shopping plaza as my local grocery store is a high-end clothing reseller with an impeccable reputation for giving customers the benefit of the doubt. Unlike a lot of clothing stores in Dallas, this one makes no judgments on incoming customers save when they try to pull a fast one. To this end, because nothing works so well as shame to convince scammers not to try it again, the owner makes copies of returned checks and puts them in the front window, with the customers’ addresses and phone numbers clearly visible. For a couple of years, the most prominent set were from one customer who took close to $3500 in dresses and paid for them with checks from a just-closed account. This account was closed just hours before she made the purchase, so this wasn’t accidental. When contacted by the police as to why she did so, her response was “Well, I didn’t have the money, and I needed to have outfits for the Dallas Opera.” Most sane people would first figure that an extravagance such as season tickets to the opera are too expensive when they’re unemployed, but this woman was willing to go to jail for check fraud rather than not be seen at her old functions. Multiply her by all of the other nouveau riche who simply can’t give up their luxuries, and you start to see the extent of the problem.)

      1. tonyE

        I don’t think so.

        Think Texas, think BIG TRUCK, BIG BELT BUCKLE… etc…

        Texans have huge egos too. IMHO and experience much bigger than Californians.

        1. Texas Triffid Ranch

          tonyE, I won’t disagree with you. I just wish that the first Texans most people meet weren’t the vermin coming out of Southern Methodist University. SMU brats are enough to make you want to nuke the entire state from orbit, just to make sure.

          1. Cheeto

            There is this thing called “google” try using it to answer your questions instead of demonstrating your lazyness.

          2. OCRefugee

            It means Rolling On The Floor Laughing (ROTFL), which took me less words for me to type than the poster who sent you to google rather than explain it himself.

    1. Irvine_Lurker

      $1.8 million for a tract house is outrageous. I don’t know what to say about the $2.3 million + paid in ’06.

  6. GavriloPrincip

    Vicara has had an unbelievable number of short sales and foreclosures in the last year, many of which have been chronicled on this blog or discussed in the forums. There has been at least one other massive loss on Fresco (19 Fresco?)–a property purchased for around $2.2m and sold last year for around $1.7m IIRC. One street down, 15 Balcony was a short sale last year with similar losses. 39 Balcony is scheduled for auction soon, as is 508 Luminous and 51 Momento (which looks vacant, with the landscaping going “back to nature” for the last several months). My personal favorite was 38 Silhouette, which was purchased for around $1.7m in 2005, supposedly had around $500k in truly gorgeous upgrades, was VACANT FOR THREE YEARS, and finally sold late last year for $1.7m. The flipper’s total loss, including mortgage payments and taxes for those three years, had to exceed $500k.

    I think there are only about 60-70 houses in the entire Vicara tract, and at least a dozen seem to have had foreclosure/short sale issues.

    What is it about Vicara? This has not been the case with the Sienna and Chantilly tracts, which were “lower end” than Vicara.

    1. irvine_home_owner

      << What is it about Vicara? This has not been the case with the Sienna and Chantilly tracts, which were “lower end” than Vicara. >>
      It’s a few issues.

      If I remember correctly, Vicara was the last developmont sold in QH and so they had a higher premium because the run-up of prices and their view locations. I think you’ll find more movement at the 1.7m to 2.2m range than the 1m to 1.5m range if not due to sheer percentages.

      And on top of that, the stable people who could afford 1m stayed there… whereas the Joneses stretched to the 1.5m and up range and are now suffering the consequences.

      Vicaras sold in ’04 while the others were more like ’02 and ’03… KoolAid was at high tide in 04.

  7. mav

    This type of multi-million dollar lending disturbs me far more than the typical small potatoes profiled on this blog. If you are purchasing a $2M home you should be putting down at least $1M. It’s insane that lenders allowed this. There is a large risk associated with someone making $500K per year or more. If they lose their job, it is very likely that their new job may only be paying $250K per year. There is far less risk associated with someone only making $100K per year.

    1. AZDavidPhx

      There is a large risk associated with someone making $500K per year or more

      Exactly, but from the perception of the sleazebag banker in the middle of a bubble – the risk is all on the borrower.

      When house values only go up and never go down, the bank is more than willing to buy back the foreclosed house at auction using their unlimited pots of gold and re-sell it on the market for even more of an inflated price and even more interest payments to some other shcmuck with a credit line trying to pose as a big timer wearing the daddy pants. As you would say, it is one big “circle jerk” which describes it perfectly.

      Unfortunately, the bottom dropped out and the decline in values turned their playing field upside down which is not going to be tolerated by the government servants who cater to the whims of the elite and fully understand that banks are the ones who do all of the screwing. The hoi polloi shall submit to bailouts and a lower standards of living and the banks will get back every penny they lost.

    2. Perspective

      That’s true about the income risk the higher the income is. Considering this, what are conservative DTIs for higher-earners? Is the 28%/33% historical standard sufficient?

      Because your income can fluctuate greatly the higher it is, I would say 25%/28% would be the limits I’d stick with.

  8. GeorgeO

    I thought HELOC’s were full “Recourse” loans? Can’t the bank go after other assets, at least for the 2nd mortgage?

    1. phil

      I want to know that too. Are these 2nd’s going to be pursued (as in the bank sells them to third party vultures)? Or perhaps there is a better tax write-off by just letting them go completely (worth $0)?

      If they are getting sold off it seems like many of these people who walk away aren’t out of the woods yet. I haven’t seen any news articles on this issue so it makes me think the 2nd’s are being wiped away 100%.

      1. mav

        Don’t start that fantasy…. they are going to get to walk away with their child’s college education fully paid and their $50K car.

    2. maliburenter

      Depends on whether the HELOC was used as a purchase money loan.

      However, banks aren’t generally pursuing recourse loans. That doesn’t prevent them from doing so in the future, much to the surprise of the foreclosed borrowers.

      1. phil

        Fwiw, someone I know who invested in numerous properties and ultimately let them all go is being hounded by collectors. Perhaps because he had more than one property is what made the difference for him.

        And before you ask or state the obvious, yes, I told him at the time it was foolish to do what he did. I was invited to participate but took no part. In the end, it cost him a fair amount of money so he isn’t walking away with cars or money in the bank. All told, he probably ate 1/3 – 1/4 of the total losses.

  9. AZDavidPhx

    Over $500,000 spent in Custom Upgrades

    This is classic bubble-speak. I am coining a new phrase today. I call it The granite counter fallacy. The working definition is:

    The granite counter fallacy argues that the monetary value of an object is directly proportional to the amount of money that is spent on it. The fallacy lies in the essence that previous monies spent are subject to highly subjective rationale which may not add any practical value to the object. The fallacy is typically deployed with an appeal to novelty (newer is better) fallacy in order to manipulate the audience using current “trends” or “fads” in popular culture where the subject is likely to accept the argument based upon what they believe is “popular” and implies a “higher demand (value)”.

    Example 1:
    Person A purchases a house and spends x amount of dollars replacing the tile kitchen countertops with granite countertops.

    Person A states that the value of the house has now increased because x dollars were spent replacing the tile counters with granite counters.

    Person B states that they do not really mind tile countertops and to them, a countertop is a countertop – whether it is made of granite or tile does not change its practical use and therefore adds no real value.

    Example 2:
    Person A purchases a small house with large backyard for x dollars.

    Person A demolishes the house and builds a much larger house with no backyard for y dollars.

    Person A claims that the value of the new house is x + y because x dollars were spent on the previous house and y dollars were spent on the new house.

    Person B says they prefer a house with a backyard and the lower electrical bills for cooling and heating, thus, the larger house’s added rooms add no real value from their point of view.

    The fallacy is in Person A’s assumption that people will assume that a house is worth more than another house because it is larger while failing to understand the practical value that people may see in a smaller home. Such an argument can only work in an environment where the majority of people participate in a trend that unquestionably accepts the notion that a bigger house is better than a smaller house.

    Example 3:
    Person A purchases a white table for x dollars and a can of black paint for y dollars.

    Person A uses all of the black paint to paint the entire table black.

    Person A claims that the value of the table has increased to A + B.

    The fallacy is in Person A’s failure to acknowledge that the table’s practical value remains unchanged. The reason for any increase in value is based upon the belief that black tables are more popular than white tables which is subject to change as fads come and go.

    1. mav

      Really? the bottom line is that person A is not going to get what they want, and person B is not going to get what they want.

      Person C will….. somewhere between person A’s and person B’s wishing prices.

      1. AZDavidPhx

        I am just pointing out the failure of reason on A’s behalf. It might look perfectly logical when in the middle of a mania – but once the boom goes bust, it all falls apart and the folly is exposed.

        Whether or not Person C (for Compromise)ever comes along is irrelevant.

        When the granite counter becomes unpopular and the owners are viewed as pariahs, the value will actually have a negative effect.

        1. mav

          every closed transaction is a person C, or a knife catcher, whatever you want to call them…. “cash rich”, I don’t care…

          1. AZDavidPhx

            The attack is on today’s featured listing which is making a granite counter argument in its sales pitch:

            Over $500,000 spent in Custom Upgrades

            The reason that this statement is included in the sales pitch is because the author is attempting to manipulate your common sense of “value” based upon how much money was spent on abstract entities referred to as “custom upgrades”.

            It’s nothing but a device employed to make you hesitant to question the asking price.

            What is a custom upgrade? Is it a toilet turned into a washlet? A purple granite counter turned into a green granite counter? A copper pipe turned into a platinum pipe with diamond studs? A coffee maker that says “Good morning” to you when you turn on the power?

            That is the point. Why do you care how much money the person before you spent? All you care about is its value to you which may differ greatly from what the person before you considered valuable.

    2. AZDavidPhx

      UrbanDictionary says YES. It’s a start.

      Urban Dictionary – The Granite Counter Fallacy was publishedWednesday, February 11, 2009 11:48 AM
      From: “info@urbandictionary.com”
      —–Inline Attachment Follows—–

      Thanks for your definition of The Granite Counter Fallacy!

      Editors reviewed your entry and have decided to publish it on urbandictionary.com.

      It should appear on this page in the next few days:
      http://www.urbandictionary.com/define.php?term=The Granite Counter Fallacy

      Urban Dictionary

      —–

        1. Major Schadenfreude

          You mean “washlet/taxpayer”.

          Perhaps we can update the Urban Dictionary to properly reflect our new status.

    3. newbie2008

      granite counter
      Aren’t some of them naturally radioactive?
      But I like them anyway until a dish get drop on it.
      What does the good book say about living within one’s means and keeping one’s word?

    1. Sezai the Arrogant

      Well, I guess if “don’t care” means the same thing as “passionately opposed to”, then I guess he’s right–we don’t care. I really don’t understand the alternate reality world that these politicians live in, and why they would falsely attribute various untrue sentiments to their own citizens. And why do these politicians care anymore if we pay taxes or not? If it’s so easy for them to just create trillions of money out of nothing, then why take it from people who worked their fingers to the bone and toil all day to make an honest buck?

    1. Bitter Renter

      Excellent article — thanks for the heads-up. I was particularly blown away by:

      “But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.”

  10. Frank Burly

    How many people need a house with 4750 square feet? On a relatively tiny lot? I just don’t understand this market at all.

    1. minnmedia

      Dude! This is Orange County! Asking why anyone needs something is the wrong question. No one NEEDS a Maserati or 42″ breasts, either.

      1. Perspective

        I think your answer cuts to the core of many daily comments here. Basic needs consume a very small portion of most our incomes. The rest? Well, the rest of our incomes must be subjectively apportioned between planning for tomorrow and enjoying today. Not one of us will agree on exactly parallel paths.

      2. SoOCOwner

        And some people want 14 children! It doesn’t matter if they can afford them or not, the taxpayers will pay for them!

        1. DeathToSinan

          Of course, she’s entitled to things she can’t pay for–if she weren’t so busy having kids, maybe she’d have HELOC’ed a house instead. Same loss for us taxpayers. And now she wants donations…what, our tax money ripped from our paychecks isn’t donation enough?

          http://latimesblogs.latimes.com/lanow/2009/02/nadya-suleman-t.html

          If this RE bubble has taught us anything, it’s that a belief in entitlement should trump common sense.

  11. idrnkurmlkshk

    Debtis a Burning Thing
    And It Makes A Fiery Ring
    Bound By Wild Desire
    I Fell Into A Ring Of Fire

    I Fell Into A Burning Ring Of Fire
    I Went Down, Down, Down
    And The Flames Went Higher

    And It Burns, Burns, Burns
    The Ring Of Fire.

  12. newbie2008

    When Jesus forgave people’s sins, he bade them “sin no more” (John 8:11). Sadly that has turned into “sin all the more” to many pseudo Christian and mislead Christians.

    As far as thinking paying more equals to being more valuable, what’s a diamond but an expensive rock. You can’t eat it, has no medicinal value, but the supply is limited by a cartel, demand by great inovatative marketing and some are willing to die and kill for them.
    California houses are limited by available land (zoning, cartels – city / developers / preservationist) and special interesst groups to kept the prices high to continue receiving a percentage off the sales prices (banks, realtors, government) and a willing public (house owners). However, houses do have an intrinsic value for shelter.

  13. LC

    I wonder how the prices are faring for condos in downtown Chicago? Just curious — to see if Irvine is higher. I have noticed that you can get a house in San Francisco cheaper than you can get a house in Huntington Beach. (And Irvine is higher than HB.)

  14. George Williams

    The high-end is definitely being affected: 39 South Sur, the plan 1 model at the new John Laing Luxury Seapoint development in Crystal Cove, is now being sold at auction, with a starting price of $4,950,000. Original listing price was $7,450,000 and the last asking price was $5,995,000. Oh, and for your $4,950,000, it’s fully furnished.

    And Shady Canyon: a few short sales coming, in addition to the foreclosure at 25 Blue Heron. Price per sq./ft. is also coming down fairly quickly as more Shady properties are coming on the market: wouldn’t be surprised to see one of the large custom homes priced in the $500/sq. ft. range in the next couple of months as owners and spec. builders tire of the cost/burn of the home.

    Yep, it’s going to be a very long year for some …

  15. BD

    On a different but, similiar note – I have been watching the really ‘high end’ homes in Coto and Newport and Laguna (3M+), and I’m seeing some amazing things! Most of the homes have been listed for hundreds of days and have reduced their asking prices by 1M to 10M!

    Now, they probably were inflated to begin with but, this does tell you something about the psychology at the ‘high end’. In case anyone has forgotten, wealthy people have much of their wealth in the stock market and 40% of that has been wiped out (irronically, due to housing related issues bank and market issues) over the last 12 months!

    The next massive leg down is the ‘high end’ and I mean 800K plus… wait and see…

    BD

  16. BD

    I should say that these may or may not transfer into huge bank losses but, it is going to put tremendous pressure on the homes below…

    And, I believe that we may be in for a decade or more of rapid inflation due to all the borrowing going on at the government level… imagine what pressure will be on housing if 30yr fixed rates for jumbos hits 10+ percent….

    ha!

    BD

  17. BD

    Debt is no substitute for wealth… SoCal get ready to try and pretend you are rick in the future… 🙂

    BD

  18. Kevin

    IR,

    After reading lots of your analysis, I’m now convinced the housing price should align the fundamental values in the long run even in Irvine. It’s hard to believe this. Maybe that’s because housing market’s cycle is so long and I’v never lost money in housing market(i’m a first time buyer actually)

    However, the goverment would play a more and more important role in shaping the future economy, financing sector and housing market.
    How effective are these different policies: subsidizing the interest, prinipal deduction, nationalization of banks, or the current solution by Geithner? What’s the possible impact
    in housing market eventually?

    I’m really looking forward to your comments.

    thanks,

    Kevin

  19. Kevin

    IR,

    How would you compare the current housing bubble with Japan’s recession in 1990s? Would we have a “lost decade”?

    thanks,

    Kevin

    1. IrvineRenter

      Kevin,

      There is not government policy that can or will make a difference. Prices went up because toxic financing allowed people to bid prices higher. Remove this ability, and prices must fall back to the level of bids in the market. Since toxic loan programs are not going to return (the default rates and default losses are too high), prices will fall down to levels of affordability based on traditional financing.

      We could have a lost decade if house prices are not allowed to fall naturally. If we continually provide artificial stimulants or special programs that temporarily increase affordability (think 4% interest rates), then we may slow the rate of decent. Prices still have to fall a long way. If we slow the rate of decent, we just prolong the agony. In short, we could create a lost decade. Realistically, I don’t see this happening. The price declines already have significant momentum, and with the flood of high-end foreclosures on the way with the ARM resets, prices will be pushed down to affordable levels sooner rather than later.

  20. damania

    “How would you compare the current housing bubble with Japan’s recession in 1990s? Would we have a “lost decade”?”

    I say we’ve already had the lost decade. People who spent the decade+ accumulating ‘investments’ (pensions, 401k’s, businesses built on bubble revenues, Madoff ponzi schemes, etc) have lost it all or a good portion of it.

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