Every once in a while, I stop to contemplate the unique place blogs have in
our lives. One such reflection is contained in the post Balance from
late last year. I am constantly amazed at the number of people who come to this
blog daily to read the off-the-wall rants and silly observations we make. When
I reflect on this phenomenon more deeply, I see that is exactly why people come
to blogs like this one.
Media outlets are like restaurants, newspapers are akin to the large chains,
and blogs are like the mom-and-pop restaurants of yesteryear. Large chain restaurants
have a consistent and bland menu of food in order not to offend anyone. If you
are looking for unique, tasty foods, you have to seek out the sole proprietor restaurants
where the cook might prepare something bold and special and offend some of the
general public. The sole proprietor does not need to please everyone to stay in
business. If they develop a loyal clientele that appreciates their food
quality, they will find a supportive niche.
Newspapers have become dumbed down to the point of lacking real news or
substantive analysis. Related to this phenomenon is the strict adherence to the
dictums of political correctness. A few feeble protests from some allegedly
aggrieved party are enough to cause newspapers to retract stories and censure
their output. Is it any wonder the truth has become so hard to find? Also,
newspapers are controlled by the dollars of their advertisers. I can tell the
truth about the housing debacle because I do not worry about the local realtors
pulling their ads from the blog. The fear of economic reprisal is another
factor obscuring the truth. People long for the truth. People want to know what
is really going on and why it is happening — even if this truth offends
someone or is not aligned with a powerful group’s economic interests. Blogs
have become popular because they provide this Truth. Blogs provide a unique
perspective unavailable from traditional publishing outlets.
To change the subject a bit, this week saw a large amount of really bad
news. The stock
market sold off hard, oil
is topping $140 a barrel, consumer
sentiment is at its lowest levels since 1980, the
credit markets are in turmoil, new
home sales are at their lowest levels ever, existing
home sales are at very low levels, and 75%
of the country blames Bush for these problems. When all the news is that
bad, the contrarian in me thinks it might be time to short oil and buy US
equities. It is always darkest before the dawn, and right now, it is pretty
dark. The housing market will continue to decline, and the financials and
homebuilding stocks will likely continue to decline as well, but I can’t help
but wonder if the broader market is near a medium-term bottom and the economy
is near the bottom of our unofficial recession. This isn’t investment advice,
just an observation on the historic relationship between sentiment and market
activity. If our economic woes continue, the sentiment might be right; however
at some point, sentiment will reach a bearish peak, and that will be when
everything improves.
In today’s market conditions, there are 4 types of market participants: 1. Renters, 2. Owners who bought before 2002 and did not abuse home equity lines of credit (HELOCs.) 3. Owners who bought after 2002, and 4. Owners who abused HELOCs. Obviously, when prices drop precipitously as they have over the last year, renters are the happiest of the group. Owners who bought before 2002 and did not abuse home equity lines of credit may be bummed that their illusory wealth is disappearing, but they will go on with life much as before. They have no particular reason to be stressed. Owners that bought after 2002 will probably go underwater, and the closer the purchase was to 2006, the further underwater they will fall. Owners who abused HELOCS have put themselves in the same situation as late buyers by increasing their mortgage balances mostly through foolish consumer spending. These last two groups will experience a great deal of stress once the veneer of
denial is stripped from them by the continuing decline in prices.
Stop for a moment and contemplate how large a group of people it is that purchased after 2002 and/or abused HELOCs. Given the degree of kool aid intoxication we all witnessed during the Great Housing Bubble, it is obvious that this describes many, many homeowners. The numerous posts I have done on HELOC abuse are a testament to the scope and scale of the problem. The behavior of these people is not the exception, it is the rule. How many of you know friends or family that fall in this group? Or perhaps the question should be how many of you do not know friends or family that fall into this group? I hope they are preparing themselves financially and emotionally for what is to come. It will not be a good time.
But there’s one thing I know The blues they send to meet me won’t defeat me It won’t be long till happiness steps up to greet me
Today’s featured property is a high-end Irvine property rolling back below its 2004 purchase price.
EXCELLENT Corner Location**Largest Manchester Model Rarely Available**
Open Floor Plan*Travertine Flooring*Highly Upgraded Kitchen
W/Stainless, Granite, Euro-Cabinetry, Large Breakfast Bar/Island*Main
Floor Bedroom W/Full Bath*Family Room W/Media Niche, Gas
Fireplace*Upstairs Desk/Computer Area with Built-In Cabinets*Spacious
Master with Retreat/Dressing Area, Built-In Vanity, Master Bath Has
Seperate Sinks, Tub and Shower, Large Walk-In Closet*Large Upstairs
Laundry Room*Upgraded Backyard with Built-In BBQ & Bar Seating,
Fireplace and Water Fountain. *Resort Style Amenities with Low Tax
& HOA*Tustin Unified School District*
When did asterisks become periods? Is there something wrong with periods? Is the asterisk supposed to catch my attention in a positive way? I think it just makes realtors look stupid.
Why Is Every Word Capitalized? I suppose it is easier to read than ALL CAPS, but it is just as unnecessary.
There is an interesting subplot to this property. The current owner purchased the property from someone who paid $638,000 on 8/12/2002. In two years, that owner made $562,000. It is a good thing the greater fool came along because he was abusing his HELOC before the sale. I followed this owner to a property in Woodbury where he opened a HELOC for $100,000 shortly after buying a new house with a small downpayment. I don’t know what he did with the $562,000 he made, but it isn’t serving as equity in the new property. HELOC abuse is everywhere. There are so many people who are so screwed…
When this property was purchased in summer of 2004, the borrower put $60,000 down on a $1,200,000 purchase. In the summer of 2006, the borrower took out a HELOC for $90,000 and drained all his equity. The total debt on the property is $1,230,000. If this property sells for its asking price and a 6% commission is paid, the total loss on the property will be $149,000. The borrower will make $30,000 while the lender loses $149,000, assuming of course that the house sells for its asking price.
There has been much speculation about the apparent resiliency of the high end. If any of you have been going to Piggington.com, you have seen what has been going on in San Diego.
It hasn’t been pretty. I have forecast a 40% decline in prices here in
Irvine. The low end of San Diego’s market is almost there already. Ours
is not far behind. The low end of the market leads prices higher or
lower (see The Plankton Theory Meets Minsky.)
When prices are rising at the low end, sellers are flush with cash from
the sale of their property and use this money as downpayments on larger
homes which push those prices higher and so on through the housing
market. When prices are falling at the low end, sellers do not have
significant (or any) equity to move up to a larger property. This
depresses prices up the housing scale in the same way higher prices
boost them. The sharp decline of prices at the low end of the market
will act like an anvil weighing down all prices. Part of the greater resiliency of the high end is that subprime loans were not concentrated there. The Alt-A and Prime borrowers still used toxic financing, and their loans will blow up, but many will have greater holding power after their mortgage explodes, and they are not scheduled to explode until 2009-2011. In short, the high end
will fall, it will just take a bit longer.
Thus concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
😉
.
Raindrops keep fallin’ on my head And just like the guy whose feet are too big for his bed Nothin’ seems to fit Those raindrops are fallin’ on my head, they keep fallin’
So I just did me some talkin’ to the sun And I said I didn’t like the way he got things done Sleepin’ on the job Those raindrops are fallin’ on my head, they keep fallin’
But there’s one thing I know The blues they send to meet me won’t defeat me It won’t be long till happiness steps up to greet me
Raindrops keep fallin’ on my head But that doesn’t mean my eyes will soon be turnin’ red Cryin’s not for me ‘Cause I’m never gonna stop the rain by complainin’ Because I’m free Nothin’s worryin’ me
I get surprisingly little hate mail. Some of the pieces I have received came after HELOC abuse posts. On one of them, I had several women from a support group relay a sob story to me attempting to justify the serial HELOC abuse of their friend. I replied that a group pity-party that enabled and justified their friend’s behavior was not doing her any favors. They were not impressed. So today’s featured song is dedicated to me — it comes from all the realtors, HELOC abusers, disgruntled homeowners, and anyone else who does not fully appreciate the public service we are providing here at the Irvine Housing Blog.
Today’s featured property is another pretender who made themselves look rich by spending the equity from their home in a spiral of ever-increasing debt. I wonder how much HELOC money is under that tree?
This is Gorgeous home in great location!Rebuilt in 2004.Elegant dining
and living area. Fireplace is in Family room. Two masters bedrooms.
Short Sale.
Rebuilt in 2004? I suppose that is where the half million dollars went… not.
This is a classic HELOC abuse story requiring the bullet-point recap:
The house was purchased on 5/1/2001 for $326,000. The buyer put 20% down ($65,200) and borrowed $260,800
On 10/10/2001 they opened their first HELOC for $50,000.
On 1/29/2003 they refinanced with a $310,000 first mortgage.
On 4/17/2003 they opened two HELOCs for $38,000 and $82,000 respectively.
On 2/25/2004 they opened another HELOC for $107,000.
On 11/29/2004 they refinanced with a $650,000 first mortgage.
On 2/14/2005 they opened two HELOCs for $66,000 and $125,000 respectively.
On 2/15/2007 they refinanced into an Option ARM with a 1% teaser rate for $744,000
On 4/3/2007 they opened two HELOCs for $93,000 and $57,000 respectively.
Total debt on the property is $894,000.
Total Mortgage Equity withdrawal of $633,200 including their original downpayment.
If this property sells for its asking price and a 6% commission is paid, the total loss on the property will be $189,000. Wells Fargo will be absorbing most of that loss with its two HELOCs. Express Capital Lending originated the first mortgage and may be liable for some of the remainder.
Question of the day: Who was acting more foolishly, the lender or the borrower?
.
You were just a waste of sperm They way you look Makes my stomach turn The way you think Is no way at all
God you really think you have balls
I hate you aint it true I hate you and everything you do
You walk around like a f@#$ing dick And everytime youre near You know I get real sick
Youre so stupid Theres nothing in your head God how I wish that you were dead
I hate you aint it true I hate you and everything you do I Hate You — Slayer
If you are renting and waiting for prices to drop further, properties like this one light up your life. Of course, if you are trying to sell and get what little equity you have left out of the property, it doesn’t feel quite the same. Today’s featured property is a rollback on a 2004 purchase, and after 243 days on the market, it probably hasn’t rolled back enough.
This property is part of the market segment that will totally collapse
next. The low end of the market has already been obliterated and is
beginning its slow decline to the bottom. The owners of properties over $500,000 are
still clinging to the hope that the jumbo loan market will come back
and allow buyers to finance the sums necessary to purchase them. It
isn’t going to happen. Most properties requiring a loan in excess of
$417,000 plus a downpayment are sitting on the market. There are few
buyers who can either obtain the financing or truly afford it. The lenders
are requiring people to prove they make enough to afford the payments.
Most can’t.
Fantastic detached home with secluded cul-de-sac location, shows like a
model with granite counters in kitchen, designer colors thru out, maple
floors and volume ceilings. Nice size backyard for entertaining, large
master area with great bath, the other 2 bedrooms have a large
connecting bath. Walk to wonderfull shopping and dining and community
pool.
Nice size backyard for entertaining? If you like to entertain on a tiny patio.
What makes a bath a “great bath?”
When this property was purchased in the summer of 2004, the owners put 10% or $61,000 down. They did not refinance or otherwise extract equity from the property. Right now, they probably wish they had. They behaved responsibly, and they will probably end up with the same credit problems as the irresponsible who got to spend all that free money. If this sells for its asking price, the total loss on the property will be $74,200. The owners will lose their $61,000 downpayment, and the lender will be out $13,200. If these people are as responsible as their history suggests, they may pay the lender off. Morality has a cost. How much would you pay?
.
So many nights I sit by my window Waiting for someone to sing me his song So many dreams I kept deep inside me Alone in the dark but now You’ve come along
You light up my life You give me hope To carry on You light up my days and fill my nights with song
Rollin’ at sea, adrift on the water Could it be finally I’m turning for home? Finally, a chance to say hey, I love You Never again to be all alone
You light up my life You give me hope To carry on You light up my days and fill my nights with song
You light up my life You give me hope To carry on You light up my days and fill my nights with song
It can’t be wrong When it feels so right ‘Cause You You light up my life
When I first moved to Irvine, I lived in Oak Creek. It is still one of my favorite neighborhoods. My wife has given me her parameters for what she desires in a home, and today’s featured property perfectly fits her description (now if I could just afford it…) It is in Oak Creek near the elementary school, it has a large yard, it is an open plan, the wood is a medium tone, and the surfaces are a medium tone granite, there is a downstairs den/bedroom, and the home itself is spacious. When prices get to the affordability range, this is the kind of property I will be bidding on.
Today’s featured property is a story of of the Ponzi Scheme / Musical Chairs aspect of the real estate bubble coming to an end. The owner of this property is the one without a chair. I suspect she wishes the music would not have stopped playing.
Gorgeously upgraded home located at end of cul-de-sac on extra large
lot in Oak Creek Village in Irvine. Gated Community w/ 3 pools,
clubhouse, parks, and neighborhood elementary school. 3 spacious
bedrooms, including large master suite w/ great walk-in closet and
bathroom. Bonus room upstairs. Large den downstairs as well as living
and dining room, and family room w/ fireplace. Plantation shutters, new
hardwood floors and custom moding on entire first floor….vaulted
ceilings….upgraded carpet. Spacious and functional kitchen w/ kitchen
nook, double ovens, large island, built in refrigerator, granite
counter tops, and stainless steel appliances. Wrought iron staircase,
crown molding, decorator paint, and a 3 car garage. Very close to
Spectrum Center in Irvine. Easy to access I-5 and I-405
moding?
Check out the sales history of this property:
Date
Price
Appreciation
Jul 08, 1999
$551,500
—
Mar 30, 2004
$1,035,000
14.2%/yr
Apr 18, 2005
$1,194,000
14.6%/yr
The first owners doubled their money in 5 years. Now that is timing the market.
The second owners made $159,000 in less than one year of ownership. Great trade!
The third owner… well, she didn’t get quite so lucky. She purchased the property in 2005 with a $955,200 first mortgage, a $119,400 second and she put 10% down. She managed to refinance into an Option ARM for $1,088,000 just before the credit crunch in early August 2007. Brilliant move, refinancing into an Option ARM — not. I suspect her plan was to lower her payments and wait out this “minor correction.” Unfortunately, the music is not going to play again, and she either cannot make the payments, or she has realized it is hopeless, and she is getting out of the transaction. Either way the $119,400 she has in the property is gone, and this is going to be a short sale, so her credit is gone too. If this property sells for its asking price, the total loss on the property will be $254,000. I guess the distress in the market is not just at the low end.
Another day, another quarter million dollar loss.
.
Please don’t stop the music, music, music, music, music, music. Please don’t stop the music, music, music, music, music, music.
It’s gettin late I’m making my way over to my favorite place I gotta get my body moving shake the stress away I wasn’t looking for nobody when you looked my way Possible candidate (yeah) Who knew That you’d be up in here lookin like you do You’re makin’ stayin’ over here impossible Baby I must say your aura is incredible If you don’t have to go don’t
Do you know what you started I just came here to party But now we’re rockin on the dance floor Acting naughty Your hands around my waist Just let the music play We’re hand in hand Chest to chest And now we’re face to face
I wanna take you away Lets escape into the music DJ let it play I just can’t refuse it Like the way you do this Keep on rockin to it Please don’t stop the Please don’t stop the music
New Listing (24 hours)
Raindrops keep fallin’ on my head
You were just a waste of sperm
Unsold in 90+ days
So many nights I sit by my window
It’s gettin late