The Immunity Syndrome

When people believe an neighborhood is immune to price declines, they bid up prices to truly remarkable levels. The high end is due for a big fall.

42 Gingerwood Irvine, CA 92603 inside

Asking Price: $635,000

Address: 42 Gingerwood Irvine, CA 92603


I can speed in my car down the road.
I don’t have to follow the highway code.
The laws which bind you don’t bother me.
I’ve got diplomatic immunity.

I’m really free.
They can’t touch me.
I’ve got sanctuary.
Diplomatic immunity.

Diplomatic Immunity
— G.B.H.

One of the most important “big picture” lessons of The Great Housing Bubble is that when people believe they have no risk, they behave in very foolish ways. One of the most destabilizing impacts on our financial system was the development and widespread use of credit default swaps that convinced lenders and investors that they had no risk in large financial transactions. The people originating and pricing these instruments did not property analyse and price the risks they were taking on, and the resulting collapse destabilized our entire financial system and created the financial debacle we are enduring today.

This foolish belief that there is such a thing as a no-risk financial transaction filtered down to individual buyers of residential real estate. With the easy money being supplied by the fools on Wall Street, the greater fools on Main Street were able to bid prices up on residential real estate to mind-boggling levels. There is an important concept to note with regard to this phenomenon:

The degree to which people believed neighborhoods were immune to price drops is the degree to which these neighborhood prices became inflated.

There is a direct correlation to the acceptance of the price immunity idea and the degree of price inflation; therefore, there is a direct correlation between the price immunity idea and the degree to which prices will collapse. I want to share three anecdotes with you today as indirect evidence of this phenomenon.

  1. In early 2008, I remember looking at properties in Newport Beach that were both for rent and for sale. I saw one property that was a small 3/2 ranch that needed updating. It was for rent at $2,700, and it was for sale at $1,400,000. WTF? A GRM of 518? One of our astute observers at the time was Surfing in Newport, and he said he had been researching properties like this for quite some time, and GRMs over 400 were the norm. That really opened my eyes. Best case scenario for these neighborhoods is that prices only cut in half.
  2. Back in 2007, we had a guy come into our forums and ask about
    properties in Newport Beach across the 73 from Turtle Ridge. When we
    suggested to him that these properties may decline significantly in
    value, he was incredulous. He said, “But this is practically in Corona
    Del Mar?” The implication of his statement was that there is some place
    on the planet where prices cannot go down, and this property is very
    close to it. Do you see the mentality? This is what drove prices so
  3. At the OC Register Blog, there is one of the long time bulls who lives near the water in Newport Beach. He has expounded his brilliant investment philosophy on a number of occasions; the gist of it is that you buy the most desirable properties in the most desirable neighborhoods because you will get the most appreciation, and your house values cannot go down. So far, this idea seems to be correct. That will change. Since this investing idea is not exactly unique or novel, many people acted on the same belief, and their actions drove prices up to unsustainable levels. I know a property owner in Corona Del Mar who purchased a home for $500,000 in 1995. That property appraised in 2007 (they were doing a renovation and needed to refinance) for $2,400,000. Does anyone think incomes have gone up nearly 500% since 1995? Realistically, the property is worth $800,000 at the bottom. Getting there from 2007 comps will require a 66% drop in prices; that is what’s coming.

Think how you would behave in a financial transaction if you really believed you had no risk of loss? Is there any price that is too high? I wrote a post in early 2007 titled How Sub-Prime Lending Created the Housing Bubble. The text of that post made it into the book. Below is an excerpt that may help you understand how the belief that there is no risk impacts a financial market:

Imagine a room with 100 people representing the pool of subprime borrowers. These are new entrants to the market. They were previously unable to buy due to bad credit, lack of savings, and other reasons. All of them are told they are going to bid on an asset that never goes down in value, [this is where the belief that there is no risk takes over] and they will be given the ability to borrow unlimited funds (stated-income “liar loans”) The only caveat is the borrowed money must be paid back when the asset is sold (not that they care, they already have bad credit). Imagine what happens?

People start to buy the asset, and prices rise. Others in the room seeing the rising prices come to believe that the value of the asset never declines, and they join in the bidding. As the bidding drives prices even higher, a manic quality takes over the bidding and people compete with each other, often bidding higher than the asking prices. Nobody wants to be left out. There are fortunes to be made. Greed drives prices upward at a staggering rate. As the last of the 100 people buy, prices are very high, everyone has made money, and it looks as if prices will continue to rise forever . . .

Then something strange happens: there is nobody left to make a purchase. (A key indication of the end of a speculative mania is a huge decline in sales, as was witnessed over 2006 and 2007). Transaction volume drops off dramatically, and prices stop their dizzying ascent. Nobody is particularly alarmed at first, but a few of the more cautious sell their assets to pay off their loans. Since there are no more new buyers, the first selling actually causes prices to drop. This is unprecedented: prices have never declined! Most ignore the problem and comfort themselves with the history of rising prices; however, a few are spooked by this unprecedented drop and sell the asset. This selling drives prices even lower. Now those who still own the asset become worried, some continue to deny that there is a problem, and some get angry about the price declines. Some of the late buyers actually owe more than they paid for the asset. They sell the asset at a loss. The lenders now lose some money and refuse to loan any more money to be secured against the asset. Now there are even fewer buyers and a large group of owners who all want to sell before prices drop any lower. Panic selling ensues. Everyone wants to sell at the same time, and there are no buyers to purchase the asset. Prices fall dramatically. This asset which was sought after at any price is now for sale at any price, and there are few takers. People in the market rightfully believe the asset will continue to decline. Owners of the asset have accepted the new reality; they are depressed and despondent.

In any group of people, there are always a few who do not believe the “prices always rise” narrative. Some recognize that asset prices cannot rise indefinitely and cannot stay detached from their fundamental valuations. These people witness the rally and the resulting crash without participating. They wait patiently for prices to drop back to fundamental values, and then these people buy. As these new buyers enter the market, prices stop their steep descent and market participants start to hope again. It takes a while to work off the inventory for sale in the market, so prices tend to flatten at the bottom for an extended period of time; however, just as spring follows winter, appreciation returns to the market in time, and the cycle begins all over again.

What is written above is true of any asset whether it be stocks, bonds, houses or tulips. In this case, it is the local housing market, and the room of new buyers represents subprime borrowers, but the concepts are universal. One phenomenon somewhat unique to the housing market is the forced sale due to foreclosure (stocks have margin calls). Even if the psychological factors at work during the panic could somehow be quelled, the forced sales from foreclosures would drive down prices anyway. True panic is not required to crash a housing market, only dropping prices and an inability to make payments. Subprime lending was one of the leading causes of the Great Housing Bubble, and its implosion exacerbated the market decline.

When you track the psychology of the market, you can see the low end is reaching capitulation. There is no more denial and fear, there is only acceptance of their fate. The mid- to high-end of the market is starting to feel fear, but their is no capitulation — yet. The very-high-end in the “immune” areas may never capitulate. Like some of the crazy bulls that come and go, they may maintain their denial in the face of the obvious. The next couple of years will be an interesting market train wreck; we will all be watching.

42 Gingerwood Irvine, CA 92603 inside

Asking Price: $635,000

Income Requirement: $158,750

Downpayment Needed: $127,000

Purchase Price: $636,500

Purchase Date: 6/10/2004

Address: 42 Gingerwood Irvine, CA 92603

Beds: 3
Baths: 2
Sq. Ft.: 1,787
$/Sq. Ft.: $355
Lot Size:
Property Type: Condominium
Style: Contemporary
Stories: 2
Floor: 1
Year Built: 2004
Community: Turtle Ridge
County: Orange
MLS#: P692995
Source: SoCalMLS
Status: Active
On Redfin: 1 day

3 bedroom 2 bath home. Many upgrades throughout. Kitchen with granite
counters, custom cabinets, pantry, and built in range. Master bedroom
with private balcony and walk in closet. 2 car attached garage. Living
room with fireplace. Property is missing carpet and some speakers etc,
great opportunity to customize!

The quintessential no-risk neighborhood in Irvine is Turtle Ridge. This neighborhood was overpriced from the beginning, and prices went into the stratosphere from there. Things are not as crazy there as they are in coastal areas, but prices at the peak were still very inflated. When you look at some of the WTF asking prices in this neighborhood, it is easy to imagine those numbers coming down by 60%. Rents in Turtle Ridge have gone up a great deal, so unless rents crash there as well, the carnage may be somewhat muted. As with other areas in Irvine, it is the low end that is seeing distress first.

Today’s featured property was purchased for $636,500 on 6/10/2004. It was originally purchased with a $508,850 first mortgage and a $127,650 downpayment. Not to worry though, the owner extracted all their equity in late 2006 with a $720,000 refinance.

Foreclosure Record
Recording Date: 12/08/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2008000564646

Foreclosure Record
Recording Date: 08/14/2008
Document Type: Notice of Default
Document #: 2008000388593

The property went back to the lender on 04/16/2009 about 11 months after the owner quit making payments. If this sells for its current asking price, and if a 6% commission is paid, the total loss on the property will be $123,100.

Turtle Ridge is not immune.

The Immunity Syndrome — Star Trek

86 thoughts on “The Immunity Syndrome

  1. MalibuRenter

    Many high end owners have enough financial capacity to make high payments for many years. However, a large number of their neighbors were either pretenders, or have lost their jobs.

    For a while, transaction volume drops way down. Then, everything from financial problems to death, divorce, and job relocation starts to take hold.

    In LA, the only reasonable defense to “it won’t happen here” is that prices at the high end didn’t rise as much as the low end. Thus, prices will drop, but not as much.

    1. Alan

      Or speculators, who want to cut their losses (carrying costs, if they didn’t put any money down) when they can’t make fast, easy money, and even if they could afford to hang on to the place for a while. They just have to come to the realization that the big profits won’t start reappearing in another couple of months.

  2. winstongator

    Shouldn’t you include the 11 months of non-payment in the loss? I was wondering what was wrong with the carpet and ceiling, but saw “Property is missing carpet and some speakers etc, great opportunity to customize!” It’s not that you need to pay for new carpet – it’s an opportunity!

    How would you calculate the loss if it took 10 years for the bank to sell, but they got their full loan value back? The bank has to have a bond or other debt backing this mortgage, that is paying 1 or 2 % less than the mortgage. Those carrying costs should be immediately booked as losses.

    1. Geotpf

      Also, looking at the second photo IR posted, there is what appears to be water damage on the ceiling. It appears to be a second floor room-so does this condo need a new roof already? It’s only five years old!

    1. dafox

      this article starts out crediting Mr Mortgage. I hope Mark’s going to continue his blog. When I emailed him at his email I got this response:
      Mark is no longer with Field Check Group. feel free to email him at [his pacbell email]

      A friend of mine moved to Tennessee and after a couple years bought a rental/investment property. I was very happy for him.
      Got to talking a month ago and he commented how it was a bad move. Apparently it wasnt cash flow positive, and never has been. I was rather shocked to find a number of other people I know renting out properties – NONE of them are cash flow positive. WTF kind of ‘investment’ is that?!

      1. Geotpf

        They probably were expecting the value of the properties to go up, so they didn’t really care about whether or not they were cashflow positive-they’d make money when they sold them.

        Or not.

        1. Nurgle

          I did this same move to TN in 2006. Bought my primary and 3 rentals. They were all cash flow positive,(though all were mortgage free) so that’s not saying much. Since then we sold off 2 of the 3 and kept the one that was the one that was easiest.

          Owning rentals in TN is just like any other state. The rental we kept had a GRM of 120, it’s probably gone up due to some modest appreciation but still below 160. But remember that the GRM is flexible at both ends, if the price increases the GRM drops, That’s what happened to one of the other 2 as the price increased its GRM made it not worth keeping as a rental.

          TN is like CA in the fact that there are many different areas (differences like Corona and Corona Del Mar). I live in the Nashville area (referred to as middle TN) which is doing significantly better than the rest of the state in terms of unemployment, properly values, etc. Middle TN has some pretty strong rents, low 1% property tax, mild maintenance conditions, in my opinion TN is a decent place to own a rental. However like any area it’s important to exercise due diligence in making the proper selection.

          1. Geotpf

            Absolutely right about Corona. Right now, the IE in general has great GRMs. The house I bought (to live in) in Riverside I could rent out for price that would give me a GRM of about 100.

  3. OC Progressive

    Another great post, with another detailed, insightful analysis of the problem with the type of anecdotal detail that fleshes out the detail.

    What truly fascinates me some days is that we have this level of incredible work coming from outsiders, and while the professional economists, banksters, and policy wonks still appear clueless about the origins and dimensions of our problems, much less what needs to be done to reset our economy.

    Thanks again, Irvine Renter.

    1. tazman

      I don’t think they are clueless, they are just so terrified about the house of cards that they are trying to sell the “big lie” that everything will “be ok!” 😛

  4. Surfing in Newport

    I almost feel obliged to comment.

    We have now moved into that Neighborhood across the 73 (Harbor View Homes). Renting from someone that believes the market will turn around in a year, or at least will be better. The house was for rent and on the market at the same time. They wanted the equivalent of a 370 GRM. That rental price was way out of our budget, so we offered 20% less and they accepted. That’s a GRM of 480! So, for 20% more than what we were paying in an IAC apartment last year we have 2x the square footage and a solar heated pool.

    There is almost nothing selling in the neighborhood and several houses are in the foreclosure process. A Port Wheeler house was purchased on the courtyard steps last month for 705K. These 3/2 ranch houses are always selling at lot value because they are too expensive for a starter home and really only have 2 bedrooms and a den. During the peak builders would pay over 1.5 million for one of these homes (lots).

    Don’t know how long we’ll be able to rent until the owners give up. But we did our research to make sure that they have significant skin in the game. So we figure by the time they give up, we’ll be able to actually afford to buy in the neighborhood.

    1. IrvineRenter

      You were the one who opened my eyes to the extreme overvaluation in the beach communities. The price/rent multiples are truly amazing, and it is almost entirely due to the immunity syndrome I describe today.

      I see from your comment that despite the falling prices, we are still a long way from any kind of reasonable valuation.

      Thanks for the update.

    2. Chuck

      We have been keeping an eye on homes in Harbor View and in the Port Streets due to the proximity to the coast, the Irvine-like “family” atmosphere (especially in the Port Streets), and the larger lots (compared to Irvine at least). But we don’t think the current premium to Irvine prices make sense, especially for non view properties. I also can’t believe that incomes will remain high enough to support these prices – it seems like the really rich people buy in other areas of Newport, not in these “family” areas. Do you have any predictions on what a basic 4 bedroom house in the Port Streets will go for in a few years?

      1. IrvineRenter

        “I also can’t believe that incomes will remain high enough to support these prices”

        Keep in mind that incomes never did support these prices. Any decline in incomes just lowers the fundamental valuation that much more.

      2. Surfing in Newport

        I think you’ll see all the original floor plans go for less than $1 million, probably less than 900K even for the largest floor plans. Part of it’s going to be related to the interest rate premium for conforming jumbo loans and whether or not they continue to offer conforming loans to $700K+.

        1. Chuck

          Thanks – I agree that incomes never did support these prices (unless, of course, you count the house as a second wage earner!), and I’ll keep watching the area hoping for sub $900K prices!

          1. Illuminatus

            Check or for the Port streets…there are lots of problems brewing there…if that’s where you’d like to be, just wait…it’s only going to get better for you!

  5. Lee in Irvine

    Who would have ever thought we’d see Irvine REO condos list for a discounted $635,000. If you would have asked me if this were possible 9 years ago, I would have said yes, BUT only if we had rapid wage inflation … only if the average HH income in Irvine were $175k/$190k a year. That didn’t happen … in fact, incomes in Irvine are on the decline (camel in the tent).

    Now we’re in a very difficult time … nope, scratch that (this ain’t no difficult time), we’re in an effing quagmire/quandary/snafu, were prices, despite the 25-35% haircut, are still too far detached from sustainable levels.

    1. mike


      I keep hearing on this blog echoing sentiments. Yet, prices are not returning to sustainable levels and contrary to that it appears thing are turning again to even more unsustainability. What do you think gives? Anyone please answer, the pressure on my side to jump off a cliif is becoming unsustainable as well.


      1. IrvineRenter

        Actually, they are returning, it just isn’t happening as fast as you would like. As for the momentary blip in prices, it is a bear rally. There will probably be others. Once we get more supply on the market, prices will resume their descent.

        1. mbear

          Actually its not a bear rally at all if you are referring to the recent rise in median home prices. Its simply a few more high priced homes selling and a few less low priced homes moving. Dataquick does a great job of explaining this. Their statement is that 50% of the decline in median at this point can be attributed to the demographics of homes being sold while 50% is actual home price declines. It always annoys me when they say housing is turning based on sales figures yet way at the end of said article they state “now if prices would just stop falling..”

      2. Lee in Irvine

        The last real estate decline took about 6 1/2 years. So far (depending on who you ask), we’re about 2 years into the present decline/debacle.

  6. IrvineRenter

    From Seeking Alpha:

    6 Reasons Housing Will Still Go Down

    “Reason 6: Market Psychology

    Bubbles don’t reflate until the next generation of suckers…

    If you take a historic look at investment bubbles, you will notice that prices in bubble assets, be it tulips or Microsoft (MSFT), never return to their highs in a generation. You can’t burn the same people twice on the same product.

    Remember when Microsoft, Disney (DIS) and Wal-Mart (WMT) were the “must-have” stocks to own? Have you looked at their ten-year charts?

    The very nature of a bubble is that at some point everyone who is going to buy, buys. Then it pops. There is no one else to drive it higher. No greater fool.

    The same will be true in real estate. At the top, more than 68% of families in the U.S. owned houses. Every one of them saw the value of their house plummet, at least on paper. Right now you have speculators on the sidelines waiting to buy housing on the cheap. They aren’t wading in because they don’t want to catch a falling knife. Many will play the inevitable sucker’s rally.

    But over the long term, market psychology is such that at the bottom four false rallies down the pipe from now, the common wisdom on Main Street will be that “it’s better to rent than it is to own.” When you start hearing that from your barber or taxi driver, you’ll know it’s time to start buying.”

    1. JP

      I remember playing a Board game, Boom or Bust, as a child in the 50’s. In it one quickly learned the danger of the greed syndrome psychology of purchasing more than one could afford, particularly when the market changed to Bust. I still remember that lesson today. Perhaps this game should be resurrected to be added to the other “play” in schools today. Valuable lesson.

    2. KO

      I agree with the above proposition for the purley rational actor, but housing caries an emotional factor as well, especially for women of young families. I am not trying to be sexist and I am sure I will get flamed for this, but I am speaking from experience. My wife and I are starting a young family, and to her renting is renting…doesn’t matter if it is a apartment, townhouse or single family home. The economics of the decision are only one factor. She is looking to set roots, create stability. While there can be instability with a owning home (ie job loss, foreclosure) it FEELS more stable and often probably is more stability than dealing with a bipolar landlord, which most seem to be. Houses are not like stocks where no one really cares about the actual piece of paper.

      1. IrvineRenter

        “it FEELS more stable and often probably is more stability than dealing with a bipolar landlord, which most seem to be.”

        I have not heard of many landlords evicting renters who paid their rent on time, have you?

        1. Illuminatus

          Maybe not, but our landlord in Newport (SFH) wanted to raise the rent on us, and that is just…ridiculous. The rent raise idea was b/c we are finishing a one-year lease, and by the standard lease terms, it rolls over to month-to-month…which is what we wanted to do. The owner said that he’s renting a place (probably nearby) and for a mo-to-mo arrangement it would be 200/mo. more, so he would pass that increase on to us. I said “no thanks” and we’ll be moving by the end of August – -into another SFH in our school district. So while they don’t evict you, I could argue that we have been “constructively evicted” by the specter of an increase in rent (which, by the way, isn’t horrible, but I was seriously contemplating asking the owner for a DECREASE in rent to stay another year). We have been model renters and it wasn’t appreciated, apparently.

      2. Kelja

        Yes, wives do complicate things. We rent in Carlsbad – a decent house in a nice neighborhood where a house like ours would sell for $650K and up. That’s down from about $850K. We even have a pretty nice view through a canyon.

        I sold 2 properties well before the property boom really took off. Back in 2001 and 2002 I thought the housing market was looking too frothy. Silly me! We’ve rented ever since.

        We’ve been renting the house we live in now for the last 4 years and have a pretty good deal for the rent. The landlord hasn’t raised it since we moved in. Of course, the trade-off is that it’s a rental and needs work – lots of it.

        Couple of months ago, the house was sold. The landlord bought it out of a partnership he was part of and became the sole owner. Records show the sale was $550K. Two of our neighbors noticed the sale online and asked if we bought it. My wife told them no and thought the purchase price was too low because of all the work the house would need. (Our opinion.)

        The neighbors were horrified.

        Anyway, back to the wife thing. My wife has really started on me about buying our own place. I would like to but see this market as having further to fall. I told her we’re waiting at least 6 months to a year. She isn’t liking that.

        It’s all emotional. When I tell her we have to apply some sort of rational matrix for figuring a proper price on a house, she gets upset.

        I figure this house could possibly rent for $2600 (we do better). With a GRM of 160 that would make this place worth approximately $416,000. Even if I tack on another 20% premium for place and view, you’d be looking at about $520K.

        And the place needs a complete update, new landscape, new kitchen, new bathroom, new windows …. on and on and on.

        Do I have my thinking cap on straight?

        1. IrvineRenter

          There is no premium on top of the GRM. All premiums will be reflected in the rent. With very low interest rates, the GRM is a bit higher, but not that much. Prices there will fall further.

        2. cara

          Well the reason she’s right not to trust you entirely is because you bailed out way to early when you sold back in 2001ish.

          You lost the pair of you a good chunk of money by not waiting to sell a bit longer.

          She would like to now ask a similar sacrifice on her behalf of switching out of renting (possibly) too soon. Her mistake sounds like about a $100k mistake, yours was what?

          I’m sorry, this just reminded me of an overheard conversation about a guy going on and on about the clothing and purse purchases of his ex-wife and then later in the conversation he brags about his 8 convertibles. I was like, whoa-buddy, I don’t see how she could possibly have bought 7 cars worth of clothing no matter where she shopped.

          This is probably an unfairly triggered response. But still, the fact that you feel your decision was based on math, (and yet still glaringly inaccurate) should clue you in to the possibility that you might, just might be wrong again, and that if you can afford it, then maybe you should allow her emotion to rule this time, rather than your fear.

        3. camsavem

          Similar story here. We sold in 2001 watched our house double in 3 years and have been renting the same house for 8 years……

          It’s not really the renting side for women, it’s the fact that they cant spend all day and night looking for ways to bankrupt you fixing up “the house”.

          We are now in a position to buy but I would like to wait a couple of years because I think the real carnage will start in about six months. We have money invested in bonds in financial institutions that pay over 6% interest but are also trading at 80% of par.

          By waiting two years we can accumulate the 24K per year in interest, hopefully earn the 20% (80K) back on the bonds and save a couple 100K on the price of a nice home.

          Personally it seems like lunacy to me to not wait, but try telling that to women who’s homeowner biological clock is ticking…

          What is it about paint, towels, and throw rugs?

          1. cara

            whatever, you chose who you married. If your wife really is that frivolous, you have no one but yourself to blame.

            You can’t pick and chose people’s attributes like a potato-head doll, so I’m guessing she had other qualities about her that made you fall in love in the first place.

            (and what exactly is stopping her from buying towels and throw-rugs now?)

          2. camsavem

            Ha ha ha…

            Never said I didnt love her, as a matter of fact we just shared our 20th anniversary….

            Not saying she is frivolous either, face it, women care more about decorating, color schemes, kitchens, rugs, drapes, etc. than men do.

            Guys care more about sports, cars, boats, bikes and TV’s.

            Lame that you don’t get that or need it explained to you….or perhaps you like to just nit pick.

          3. USCTrojanCPA

            You are not alone Camsavem, as a realtor I see the wives have a lot of influence in both the timing of the purchase and the selection of the home. I guess the old saying of “a happy wife translates into a happy husband.”

      3. Nancy

        If you can afford it and you buy for long-term, then you are doing nothing wrong, go for it and live happy! I wouldn’t lose sleep with the negative mentality here. There will never be a right time to buy if you tune in only here.

        Followers of IHB often don’t hear that:

        1. Cash money is flowing from abroad into Irvine neighborhoods (it’s heavy in my neigbhorhood) and that completely changes the equation. The housing recovery doesn’t need to depend on future generations, it need only depend on the globalized world of growing consumer classes in Asia.

        2. People trying to call market BOTTOMS have often been in some type of self-promoting business and have often missed the market bottoms. I waiting for Bob Brinker to call the equity market bottom and top, and guess what, he missed the biggest correction in his living history; but some estimate he makes $300 million from his newsletter subscriptions. So, I would encourage people not to be blind followers and always demand to know, what does this markettimer prophet have in it for himself. Generosity of heart?!

        3. Waiting for market bottom for a primary home is just plain stupid and stingy, if you can afford the home currently. In 5-7 years with a 15yr mtg, it really won’t matter what price you paid today, you’ll be ahead.

  7. Pwned

    In the last month or so I’m hearing more and more from peers and colleagues that “now is the time to buy” and that “prices are starting to go up.” I try to reason with them about the median being skewed, ARM resets, etc. but it’s hopeless. Sometimes it seems like the entire SoCal population is a bunch of addicts trying to justify their dependence on real estate. When will it end? Here you say prices may drop 66% from peak in some areas, but with all these people willing to jump in now after everything we’ve just witnessed, how long will it take?

    1. Eat that!

      You should remind them of the fact that nearly half of homes sales are a one off deal. That means that there’s no move up buyer in the mix. The move up home market hasn’t really been effected whole heartedly yet because of the foreclosure moritoriums and the relative newness of the economic downturn. What really concerns me as a first time buyer, would be what happens if I buy a town home, condo or small home with a high value, low interest rate loan and things actually start to get better in the economy? Interest rates go up, home values will actually come down because I’ll bet dollars to donuts that companies aren’t going to be raising salaries when unemployment is still in double digits.

    2. Nancy

      “When will it end?” Till the heavens fail to shine. And it shines 90% of days in CA.

      When is it a time to buy in CA? When you’ve got the money honey, and someone is selling your dream home. Really, it’s that simple.

      1. Eat that!

        My dream home? Really, so a 1300 sqft box, with neighbors five feet on either side, with a tiny yard that backs to a busy street, no drive way, crappy park, high HOA, mello-roos, over crowded, failing schools and $500K price tag. That’s my dream home? Sounds more like a nightmare, which is why I wouldn’t want to spend 10 years in it.

    1. Lee in Irvine

      That’s great, but what’s the punishment for Angelo Mozilo, Dick Fuld, etc, etc, etc. After all, the Ponzi Scheme they were running dwarfed Madoff’s.

      1. Illuminatus

        Those are just bit players, Lee. And so are Paulson, Bernanke, etc. They have “made” bazillions and they will take the hit when the time is right (but no jail time). The real villains are those Goldman pirates. Read Matt Taibbi’s article, “The Great American Bubble Machine” (16 pages long), if you want to see who should really take the hit here.

  8. Alan

    “With the easy money being supplied by the fools on Wall Street, the greater fools on Main Street were able to bid prices up on residential real estate to mind-boggling levels.”

    I wonder about the “fools on Wall Street” part, unless you mean it in an corporation/institutional sense. The actual, physical people, whether knowing what was coming or just by being there to take advantage of the situation, got quite rich indeed. Even if they subsequently lost 40% or more in the crash, they still have more than plenty. The companies have been taking big losses, but the money paid out is 50% or so still around.

  9. IrvineRenter

    Here is a show I would like to host:

    New HGTV show gives homeowners the cold truth

    “”Real Estate Intervention,” which premiered Thursday, offers tough love for people in denial – helping home sellers grasp what their place is really worth. Hint: It’s a lot less than they think.”

    I will have to watch this one. It may become the officially endorsed show of the IHB.

    1. HydroCabron

      This could be the beginning of the end for HGTV, and I will not mourn its passing.

      HGTV is the diet coke of television networks, intended to induce a faint buzz and satisfy a fixation, but not for people who pay close attention to what they’re imbibing. HGTV promulgated and preserved the big lie, it’s bound with a thick cable to that lie, and will be drawn into the abyss along with it.

      Anything more than a jokey allusion to the Kafkaesque reality of the housing market will puncture the golden womb of rosy light enveloping the viewers, leaving them shivering on their cold, dark, negative-equity couches. These viewers will pull their thumbs out of their mouths just long enough to flip to ‘Survivor: Tocatins’.

      In case it’s not clear, I hate HGTV with the intensity of many suns. It is the sort of information source which satirical movies have long ridiculed, yet it has escaped the scrutiny of a generation which prides itself on a cynical sophistication in processing information.

  10. Nancy

    OK, how does IR explain markets such as prime neighborhoods in Westside LA, an established market, where 80% of homeowners retain their homes over 30 years? Practically the only homes coming in the market there are trust sales from the elderly. This is NOT a liquid market where any of IR’s predictions have any bearing. It’s like this: these homeonwers bought a 15 year zero-coupon bond, retained it, regardless of what happened to the bond, went up, went down, stayed flat, they didn’t care, they didn’t sell. And their long-term investment paid their rent after maturing. Free rent/mortgage for life. Having bought in 2002, my interest cost is just $20/day for my 15-yr mortgage, and I couldn’t care less what happens to my home price. Many of my neighbors, likewise. Westside homeowners, the same story.

    Sooner or later, the irresponsible people who played the Irvine market hoping homes go up will be leaving the market, by force or volition. And the renters who had no capacity for money management will be short-selling their homes to responsible ones (sorry, banks don’t lend to deadbeats anymore). The fabric of the town will be healed and improved by these future inhabitants (mainly highly paid immigrant professionals), not the crazy ones who rode the housing wave the past few years. The fabric can ONLY become more healthy in good neighborhoods and will continue to struggle in less desirable ones.

    I continue to be amazed at the total black-and-white solid negative mentality of this blog; what is the vision of the author, to produce venting grounds for people who realize they’re priced out and what to understand why? In just 5-7 years, we’ll see how relevant solid pessimism was, at this time.

    The Irvine market is young, many neighborhoods still only 10-15 years old. I encourage pessimists to just wait and see. After all when a pessimist moves in your tract, he’s the first to sell his home on bad market news, below market price, at market bottom. I can do without a pessimist neighbor.

    1. camsavem

      Not feeling ya Nancy. Some neighborhoods are more transient than others, but all rely on comparable selling prices, except of course West Side LA.

      As far as people being priced out? Well based on the medium prices etc. of the last few years I would say that over 90% of the population has been priced out using typical benchmarks, we were the ones that KNEW we were priced out and have remained on the sidelines.

      At some point the prices will bottom out (except in West Side LA), then we will be home owners. So what is your point?

      1. Nancy

        Inventory is low in some neighborhoods so it must be that they’re ready to collapse, cause that’s how assets ready to collapse always work. This is a logic error; If p->q does NOT imply if q->p.

        My point is that West Side is not a unique case, it’s just older and more established. Buyers and homeowners don’t always buy homes hoping it goes up and sell in 5 years, some buy to pay it off – and die-hard market-timer sideliners can wait all they want to buy in those desirable neighborhoods, as there will never be a Right Time for them. Rent, baby, rent.

        The world of real-estate is not all black-and-white, and you are not being taught about the other shades here, you’re just being exposed to the color BLACK everywhere (not be facetious, but it reminds me of a song).

        1. Eat that!

          What would be your advice to a first time buyer, who actually wants to be able to move up in 3-5 years? Would it be better to buy a high priced asset with a low interest rate and low down payment in hopes that the market has finally turned or would it be better to rent cheaper, save money for larger down payment to avoid PMI and wait until all the foreclosures and shortsales have been shaken out of the market?

          1. Geotpf

            If one intends to be in their current residence for five years or less, my personal advice would almost always be to rent, unless the rent vs. own ratio favors owning by a significant amount, which has happened in the IE and some other marginal places but nowhere in Orange County or the core of LA County (that is, not counting Lancaster/Palmdale/etc.).

            In fact, if one wants to live within thirty miles of the ocean, I would recommend renting for now no matter how long you intend to be in the property. Coastal communities, as well as places like Irvine, favor renting by so much purchasing now would be completely foolish, IMHO.

          2. Nancy

            Great question. Three-to-five years is way too short for such an immense commitment to a house (or even a new car!).

            Your closing costs, moving costs, etc. only become reasonable if you keep the home for the long-term. Good homes are not investments prone to flipping anymore, anyone with that mentality is a few years behind in news. The only buyers of American mortgage debt is currently the US government and individual bond investors who still believe in our credit worthiness. China, Japan, Russia pulled out pretty much fully in 2008. There won’t be another housing bubble anytime soon, and the ongoing credit crunch (the new status quo) will continue to rationalize the cost of high-end homes in many areas.

            If I were to buy today, I buy to hold at least 10 years, ultimately with the intention to pay it off in 15. And if I cannot afford 800K or 1 million, I would buy **less home** for what is affordable **to me**. Don’t supersize it, America! I may have to just rent, that’s perfectly honorable. Don’t submit to shark loans in order to fulfill your ownership dreams.

            I would NOT rely on the bank to figure out what I’m comfortable to buy; I’d use a spreadsheet to assess my cashflow and disposable income, and include property taxes, Mella Roos, other assessments, incidentals, home insurance, repairs,…. I would ask the bank to qualify me based on a 15 year mortgage, not based on the MOST leverage (loan) I can get, and then I would use that as the absolute limit, not the guideline or suggested limit! I would never pay PMI or borrow my down payment.

            Great things come to those who wait, and industriously save, until you’re truly ready.

            Would you rather be a homeowner who loses sleep from financial stress, or a homeowner who pays down his mortgage rapidly with half his *first* payment going to his principle, so that in 5 years, he’s assured he’ll have enough equity that he would be ahead of renters even with the anomaly of a Depression-style home price devaluation? In 5 years, he has enough equity that he doesn’t care what home prices do?

            I would especially not count on home appreciation in order to afford moving up in such a short time. Those people got trapped with interest-only (or negative AMT) loans and are now the laughing stock of the neighborhood.

          3. Eat that!

            This is an Orange County, California blog, not Florida. So, although, I’d love the thought of buying something that doesn’t require every dollar of available cash, the reality is, is that right now that home doesn’t exist. I’ll move or rent until it does. I would really love to see your reality come to pass in Orange County but the kool-aid here is so strong that one can become intoxicated from it just by breathing the air.

    2. E


      If your interest on a 15 year mortgage is only $20/day, I can only imagine the craptastic 1BR you bought. Or is it a studio?

      1. Nancy

        No, I bought a 3BR SFR in prime location.

        Just imagine, in 7 years from now, what you can get buy for the median price of a SFR today – maybe just a few year’s rent?

        Rent, baby, rent.

    3. Dan in FL


      You should be applauded and chagrined, both at the same time. I applaud your continued hammering of the idea that people should only buy what they can pay for. Only too true (although your continued insistence on moving to a 15 year mortgage is out of touch with reality of today’s mortgage market). People who cannot afford the mortgage should not get a mortgage.

      But I’m still appalled that you still seem to think that any home (or neighborhood) holds on to its bubble price in this day and age. The fundamentals of home prices, no matter the location, have changed since 2006. Regardless of neighborhood.

      Homes are, first and foremost, a commodity. Actually, you can look at them as a bundle of commodities – the lot, the structure, the fixtures and the landscaping. Of those four commodities, only 1 has a variable price: the lot. The lot is variable because that’s the only thing that is unique about a home. A lot on the ocean is more desirable than a lot next to a garbage dump. The value of everything else in a home is the same. Notice the term – “value”. Not price.

      A seller can, at times, get lucky and find a buyer who is willing to ignore the underlying fundamental value on a home, and pay whatever price the seller asks for. That, however, does not mean that the fundamental value of the home was in line with what the buyer paid.

      Some people think their neighborhood is special, and they are probably right. The lot may be worth twice as much as a lot on the other side of town. However, the dishwasher is not twice as valuable just because the dishwasher is located on a lot the ocean.

      This is the situation that homeowners in the “special” neighborhoods find themselves in. They figure the value of their home is special. Not just the lot, but everything else as well. So they list the property at twice the price of its true underlying value. It’s not just the lot they think is special…they think the structure, the fixtures and the landscaping are special too. They aren’t. And the homes sit and wait, because essentially your asking people to pay WTF x as much to live in the “special” neighborhood, when the same house across town has a price = value, and your home has a price = WTF x value.

      To paraphrase the quote: “A waning tide lowers all ships.”

      1. Nancy

        “… although your continued insistence on moving to a 15 year mortgage is out of touch with reality of today’s mortgage market.” Well Dan, I have news for you, when I first bought my home in Irvine in the early phase of the bubble, I was ALSO out of touch with other buyers who maximized the home they could afford (or not afford). I didn’t – I bought smaller, but good location, and one heck of a kick-ass mortgage that makes me superbly proud of what I did. No snub intended. But what does it teach us? Don’t walk to other people’s drums. Do the math.

        You needn’t be appalled: I never claimed that “any home (or neighborhood) holds on to its bubble price in this day and age.” Please read my comments more closely.

        I do claim that there are neigborhoods which will emerge from this carnage stronger, healthier, and more apt to be gems in the long-run. The negative news paraded on this blog will likely not apply to the emerging WestSides of the OC, and those gray shades are not paraded here, lest the story teller runs out of stories and loses his royalty stream.

      2. Nancy

        “Homes are, first and foremost, a commodity.” – OK, homes are an asset class, a long-term asset. An investment in becoming DEBT-FREE in 15 years.

        Markets would love to see them as commodities. Especially when Mr Schiller introduced a Schiller Index for home prices on the Chicago Mercentile Exchange (but how much volume does it have? Not much, it’ may collapse just like the London counterpart did few years back).

        But mind you, a commodity that transacts once in 30 years (average home in Westside, and inevitably in some Irvine areas) is not a classic commodity. If homes go back to heavy transaction rates we saw in the early phase of the bubble, then commodity market rules will apply more aptly.

        Imagine how often the US navy builds carriers. A few every 30 years? Just imagine if the US DOD decided to wait for the market bottom for steel prices to build the next naval carrier. Stupid idealogy, eh?

        You buy a long-term investment in becoming debt-free, not a transact-able, liquid commodity, when you buy a home. You invest in your capacity for fiscal discipline and your tenet that debt kills early. Over and over again, that has been proven – life expectancy of people in wealthier neighborhoods is longer. You buy a home to live off passive income in 20 years. You don’t buy to sell soon and get rich.

        Homes are more aptly commodities only in the eyes of people who live off their transaction fees (agents, lenders…), not in the eyes of homeowners. Needless to say, there is a preponderance of those people in California. And I see that changing.

    4. CapitalismWorks

      Can I get a zip code for reference. Just my cursory analysis, and conversations with homeowning friends and relations in Manhattan Beach, Santa Monica, and Pasadena indicate that the LA experience is no different that everything happening here in OC.

      1. Nancy

        There is no entry-level market in Bel-Air, Brentwood, Westwood (90024/90049). Cheapest you can find there is $1.2 Million+, a total fixer upper where you need to invest another $300K to rebuild. It’s a total sellers’ market – at 80% of homes owned over 30 years, there are just not many sellers at all, no mater distressed sellers.

        Guess what the Westwood median income is…it’s 72K compare that to median income in my Irvine zipcode of $150K. And compare the home ownership rates. The future of the super-young Irvine seems a little brighter now, with those facts? My bets are … yes!!! Irvine comfort of living is FAR superior to Westside’s and is being discovered by the younger generation migrating OUT of Westside with no hopes of becoming homeowners where their parents owned.

  11. wincompetent

    IHB –

    What price range do you consisder to be
    mid market?

    What price range do you consisder to be the high-end of the market?

    1. IrvineRenter

      The mid market would be near the median, and the high end would be above that. If you want to tether it to today’s prices, the mid would be from about $400,000 to $800,000 and the high would be $800,000 and up. The middle of the market can still be financed with GSE or FHA insured loans, the high end cannot.

  12. Nancy

    Bubbles and the ensuing economic crisis happen when “EVERYONE IS IN IT.” The housing crisis in the US had much similarity to the Argentinian 2001 economic crisis that wiped out their middle class. Then as now, WallStreet was heavily involved, hot money poured into overvalued assets, defaults increased and the government got involved to keep the cycle going. They issued higher yield debt until the cost of debt service undermined their credit rating, and then the men with armored cars and suitcases started to funnel money out of the country overnight. Overnight, their currency devalued, people’s wealth became a fraction, became trivial. All that hot money couldn’t wait to leave the country. Did we raise the flags of WallStreet reform when that happened? No, we went on thinking… that’s Latin America, they’re a corrupt system, they’re a suitcase economy, businesses evading taxes, this can never happen here.

    We lay complacent, until these cronies brought their act to our backyards.

    There is one remedy to ensure this never happens again in the US. Directly and retroactively taxing the profiteers.

    REIT profiteers, Mortgage-backed CDO/CDS owners who got payouts from AIG/etc, shady Real Estate agents, shady brokers, banks who gave exotic loans, developers, land and managers, short-term flippers, everyone who actually played the game for short-term profit should shoulder the consequences. The payout burden should not be passed onto the middle class to avoid “moral hazard” and teach bubble profiteers an unforgettable lesson: Just because “EVERYONE WAS IN IT,” doesn’t make it OK. It doesn’t render you IMMUNE to the consequences.

  13. fencewalker

    IHB: “I know a property owner in Corona Del Mar who purchased a home for $500,000 in 1995. That property appraised in 2007 (they were doing a renovation and needed to refinance) for $2,400,000…Realistically, the property is worth $800,000 at the bottom. Getting there from 2007 comps will require a 66% drop in prices; that is what’s coming.

    Sure pal. I was in the bear camp for a long time, beginning in 2003, and have enjoyed and learned from your blog. But I must say, an additional 66% drop in CDM? THAT is wishful thinking.

    1. IrvineRenter

      Thank you. Your comment reinforces the point I was making in the post. BTW, the drop will be 66% peak-to-trough, not from today; although, so many people there believe prices did not drop that it may very well be 66% from today.

    2. Nancy

      Corona Del Mar? Geez. That’s where people who live off passive income… these people don’t *work* for living, they squander easy money for living. Probably inheritances, bonds, muni’s, and of course, rental income from their many properties.

      That said, I do not yearn their lifesyle or wish their homes decline. I’m content what what I have.

      1. Eat that!

        So with the stock market down and the economy set to sluggishly recover, who is going to be the next Rockefeller to buy up all the multimillion dollar homes for sale when all the baby boomers kick the bucket? Mortgage brokers? CEOs? Lawyers? Doctors? Sorry, there just aren’t enough of them to absorb that many over priced homes.

    3. fencewalker

      I think you all underestimate how much cash awaits on the sidelines, and how when the economy begins to recover and lending loosen, how creative lenders will become again. CDM is a highly desirable area, always has been. No I do not own there, but I wish I did. And IR, saying that I just “proved your point” is too easy of an out. I think many bloggers here have become too overly bearish. And this sentiment is not coming from a “bull.” I’ve been reading about this mess for years before many even believed it was coming.

  14. newbie2008

    Nancy, Westwood is very different from Irvine. Large tracts of the land is owned by govt entities, e.g., UCLA, VA. The land use is highly regulated for rebuilding, rentals, etc. People’s Republic of Santa Monica is a name well deserved and has created a non-free market where supply is strictly limited and min. entry price set by the govt. through limited building permits, extensive prebuilding studies, set asides, high permit fees, etc. PRSM is also located near UCLA, VA, huge hospital complexes, the beach, Hollywood, studio’s, valley and downtown LA. It’s quite a commune to LA from Irvine. No jobs with high crime and the price will go down.

    Remove the jobs and even PRSM prices will go down. People move away, die or must sale for other reasons. No jobs, no new buyers. It’s than simple. Inland NorCal tried highly restrictive building and high fees, that last until the job market dropped and housing prices tumbled. Check out Sacramento, Stockton, and other “long distance commuter” cities for the silicon valley of over 50% drops from the peak to 2008. Even closer cities too a hard hit of 30% – Union City, Concord, San Ramon…. The further away from the job centers, the quicker and harder the drop. Vacation spots along the coast are also not immune.

  15. surfing in Newport

    All neighborhoods are different. As Nancy points out, if people live in a place for 30 years, the median income will be much lower than expected. That also increases the GRM where you would be indifferent to renting vs. buying (because the selling costs are so much further in the future). Typically, we talk about a GRM based on living in the house for 10 years. Can’t remember where that number comes from. I guess before serial refinancing, you could assume the length that an average mortgage is held would be the same as the length of time you would own a home.

    Anyways, if you look at the case-shiller numbers for a metro area, you can figure out what the case-shiller numbers should have been without the bubble. Find the last year at the beginning of the bubble that had the same value. Use that year as your baseline. Then use redfin or some other source to pull up past sales. Look at what they were selling for during that year in that neighborhood. That gets rid of the impact of the bubble. Because the time period is short enough, you can probably assume the demographics haven’t changed significantly.

    For Orange County, the comp year for me is 2001. It’s probably the same for most of LA and Orange County. Could be a little different for San Diego as they went ballistic sooner. Over the past 8 years, ask yourself what has changed to justify higher prices. More People? Higher Wages? Lack of building? I just don’t see anything that suddenly changed. So for me the current target price is what things sold for in 2001 and that’s not taking into account the impact of a recession, so maybe they will go even lower.

  16. WaitingToBuyByAndBy

    Hi Nancy,

    I believe I have also posted this heretical idea that some neighborhoods that were not caught up in the hoopla may be more immune than others.

    If indeed the neighbors were uninterested in selling throughout the bubble and were also financially responsible (did not abuse the HELOC) it stands to reason the owners are financially secure and therefore the neighborhood should not be as distressed as areas with foreclosures and short sales.

    I believe prices will still fall, but it is the lack of distress that will maintain values in these areas. The truth is, when we say “everyone is in it” we can’t really say everyone. Not everyone particpated, just enough to totally mess things up for all of us. Also, you can’t really know if your neighbors HELOC’ed themselves into oblivion, only time will tell.

    I also appreciate your hearty recommendations for 15-year mortgages. Most people do not realize that when a 30-year fixed loan is finally paid off, the home owner will have spent slightly more than twice the original purchase price of the home. That is, the interest paid works out to slightly more than the sale price of the home itself whereas with a 15-year, the interest paid works out to about half the sale price. So, using a 15-year vs. 30-year can save half the sale price over the length of the loan.

    That said, I’m a little surprised nobody is hitting you with the “mortgage interest deduction over 30 years” argument or the “use a 30-year, but pay like it’s a 15-year” argument or the “use a 30-year for smaller payments then invest the difference for a greater return on your money” argument.

    Unfortunately, for me, using a 15-year mortgage would mean living somewhere more… affordable… like the Inland Empire. I believe there are very few software development firms in the IE.

    Still, I’m happy it worked out for you, but then, it sounds like you enjoyed all the benefits of the 15-year mortgage without all the pain. What I mean is, from your own statements, it appears your first 15-year mortgage was for a small place which would make your bigger payments affordable, and your second 15-year mortage was for less than half the sale price of your home which would also make your payments affordable.

    It appears you had equity from a previous sale that enabled you to move-up and enjoy your option to use a 15-year to quickly pay your debt. Good choice for you, but not exactly fair to us since you are suggesting the readers of the blog should do likewise when you yourself have acknowledged we are all renting (and therefore do not have sufficient equity to sufficiently buy down the mortgage at purchase).

    Please correct me if I have poorly done my math or made grossly incorrect assumptions.

    Also, you suggested 50% of the mortgage payment goes to principal from day one. I think it would be more fair to say approximately 50% of the mortgage payment goes to principal. The amortization schedule at shows a split of roughly 40/60 on the first payment, runs even at about 3.5 years and from then on you are paying more principal than interest (which of course is a very good thing).

    I appreciate your contrarian arguments. Please put on the appropriate armor when addressing the crowd.

    1. Nancy

      Actually my Irvine home was my first ever; I bought it with a 15% second loan, which I paid off rapidly in about 1-2 years upon converting it to a very low-interest HELOC (I suspect many did that). See, not all HELOC borrowers abused the system! And I actually put cash INTO the loan (paid off some principle) when I refinanced it for lower rates.

      My 15-year loan’s total “interest” cost is actually one-third of the principle. The daily interest cost was much more important when I first bought; that’s how I compared 15 vs 30 year loans and found what a good deal the 30 year loan was, for the Bank (not for me)!

      So, to emphasize, the total cost of the loan is fully dependent on the interest rate. For a 15 yr loan, it can be as little as 1/3rd the loan size, as in my case. But your estimates are roughly correct.

      I bought much less than what I could afford, because I’m an analytical thinker as you are and understand the ultimate tragedy of “living large.” The lack of stress from not living beyond one’s means is truly priceless.

      My home price is barely 10% off its 2007 peak; it’s been completely renovated to suite my taste and preferences. Inside, it’s no longer a tract home, it’s totally unique, nothing left contractor-grade. With high and vaulted ceilings and lots of windows, it feels much larger than it is. Can’t tire from the graces emanating from its artistic designs. Large and bland homes just don’t do it for me.

      However, I’d rather spend my time with family, self development/eduction, and world travel, than boasting my property or rotting within.

      I guess eventually Americans will have to live more like conservative Europeans with their “smart homes”, and quit the super-sizing mentality which has been falsely sold to them as superior.

      1. WaitingToBuyByAndBy

        Yes, I see that with say, a 4% interest rate, the interest cost does indeed work out to about 1/3 the purchase price.

        So were you incredibly lucky or did you pay points to get a lower rate?

        I’ve always considered the cost of points to equal the difference in the interest rate, but having never had a mortgage I have no experience to base that on.

        If it is a win to pay points up front to get a lower rate to save interest over the life of the loan, I would consider that valuable information for new homeowners looking to save money in the long run on a fixed rate mortgage.

  17. Nancy

    I would never buy in new, established developments because it attracted many show-offs leveraged up to their neck, and because their land locations are often not “prime” – they got whatever was left over and are desparately attracting buyers by metropalisade-style oversized homes. And in practice, there is no way for me to compete with them all the way into retirement. Those are NOT “keeper” homes. Nor is their lifestyle a game worth playing, with a healthy prospect and outcome for the kids or the parents. You can’t live in NewPortCoast’s gated communities and drive a Civic, it’s silly. Every aspect of your life becomes dominated by living FOR others, and caving into peer pressures. Where’s the happiness in that?

    Real wealth in this country doesn’t live gaudy. Most live very conservative lives, have humble zipcodes, and would rather RENT luxury items rather than buy them, since luxury depreciates. It’s for suckers. Let the owners of LUXURY products take the depreciation, don’t do it yourself. Needless to say, I’ll never cash-in my bonds to buy a new BMV or Benz, and if I get a sudden urge to be envied and despised by the have-nots, I would rent a luxury car for a weekend. That will cure the urge and absolve me of working to pay senseless debt obligations.

  18. cleanupyourmess

    Just remember IR does not contribute any meaningful production to our economy…developer…? So these RE guys want to clean up while times are good then become liberal Obamists when times are bad and collect the money on the back end (through our taxes).

    Of course now that times are tough in the RE business (including his) he wants all kinds of regulation of industries and financials.

    Don’t trust this kook, he is playing you.

    Think for yourself.

  19. Nancy

    Amen! Everyone who actually played the game for short-term profit should shoulder the tax burden to pay for the bailouts, retroactively. E.g., if banks who produced exotic loans are reaping in record profits in Q1, as they claim, TAX THEM, retroactively!!! If Enron was showing record profits by the same Mark-to-Market accounting tricks, we should have taxed them to pay for California’s Davis-era energy crisis they helped create! TAX the ones who profiteered from the MESS, retroactively! Write to your congressmen and demand it, don’t wait for the lobbyists to beat you to it. Don’t snooze on this one.

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