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There are many ways to become a millionaire. You could find oil on your property like Jed Clampett from the Beverly Hillbillies, or you could have your property could go up in value $1,000,000 like today’s owners did. What would you do with $1,000,000? Some people would take the money and invest it and make even more money; some people who hit the lottery spend it all and are poor again in a few short years. Today’s sellers are in the latter category.
Asking Price: $1,299,000
Income Requirement: $324,750
Downpayment Needed: $259,000
Monthly Equity Burn: $10,825
Purchase Price: $265,000
Purchase Date: 5/28/1981
Address: 4 Rainstar, Irvine, CA 92614
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 3,170 |
| $/Sq. Ft.: | $410 |
| Lot Size: | 5,000 Sq. Ft. |
| Type: | Single Family Residence |
| Style: | Traditional |
| Year Built: | 1981 |
| Stories: | Two Levels |
| View(s): | Park or Green Belt |
| Area: | Woodbridge |
| County: | Orange |
| MLS#: | P625191 |
| Status: | Active |
| On Redfin: | 15 days |
Find your home in Woodbridge’s Landing tract with this entertainer’s dream home. Enjoy this home’s downstairs bedroom (currently used as office) and bath as well as a versatile upstairs bonus room, which can double as an oversized additional bedroom. The kitchen is a cook’s dream, with French noire cabinets and an expansive cookspace. The kitchen opens to a warm family room with coffered ceilings, a custom dual-fireplace and wet bar. A large living room with vaulted ceilings adjoins to the formal dining room. This model has a the perfect floorplan for entertaining, whether inside or in the expansive backyard with the built-in granite BBQ and custom-built patio coverings. The front walk, driveway and rear are paved with Bouquet Canyon stonework. Featuring award winning schools and community amenities. Finishing details such as custom crown moldings, plantation shutters and ceiling treatments complete the look. Just steps to South Lake, tennis, pools and spas.
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Just when I think I have seen the worst HELOC and refi abuse imaginable, I keep finding more (actually Brittney finds these — thank you, Brittney.)
Today’s sellers owe more than $1,214,500 on a house they purchased in 1981 for $265,000.
Can you believe that? After 27 years of ownership, they should have almost completely paid off a 30-year fixed rate mortgage and be looking forward to having a $1,000,000 for their retirement. Instead, they have nothing, nada, zero. They have refinanced themselves into oblivion; either that, or they are have exercised their mortgage “put” option.
Today’s sellers first step to the Dark Side came in 2002 when they refinanced for $450,000. Apparently, the lure of free money was too much for them so they refinanced again in 2006 for $1,175,000. Finally, their journey to the Dark Side was complete in 2007 when they took out an Option ARM for $1,000,000 and a stand-alone second for $214,500.
Even if these sellers get their sales price (this is borderline WTF,) they get $1,221,060 after a 6% commission. Anyone want to guess what the outstanding loan balances total up to? It sure looks like they will sell for a $1,000,000 gain, and they will not get a penny at the closing table. Amazing.
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Chart of the day:
Inflation adjusted projections based on S&P/Case-Shiller Indices for Los Angeles 1987-2013
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I’m not a bad person,
I don’t drink, and I don’t kill.
I got no evil habits, and I probably never will.
I don’t sing like Elvis Presley,
I can’t dance like Fred Astaire.
But there’s one thing in my favor,
I’m a millionaire!
CHORUS:
And I got more money,
Than a horse has hairs.
Cause my rich old uncle died,
And answered all my prayers!
Having all this money,
Is going to bring me down.
If you ain’t with me honey,
To help me spread it around!
I could get myself a nose job,
I could diet for a year.
But I’ll never be Robert Redford,
Cause I’m much to fond of beer.
Please don’t misunderstand me,
It’s not love I’m trying to buy.
It’s just I got all this here money,
And I’m a pretty ugly guy.
CHORUS
I don’t mind if you love me for my money,
If you love me for whatever else I got.
But ‘cept for all this stuff, I’m a lonely Fort Knox,
I don’t guess I’m doing all that hot.
CHORUS
Money, money, money, money…………….
The Millionaire — Dr. Hook
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That’s the chart I was looking for. It puts the “Great Bubble” into perspective. The last bubble pales in comparison. Anybody thinking of buying now should look at this chart long and hard.
I keep thinking that Hollywood should do a movie about these people. Baby boomers spend their “birthright” and now standing in line at WalMart. We should do a poll who should play the parts. I vote for Shelley Long and Ted Dansen.
—–
don’t forget the capital gains tax paid on the increase in price. 15% of everything above 500k so $75,000 owed to the tax man
IR:
Why did you say this asking price is just “this is borderline WTF,”?
For an old and dated 37 years old asking $410/sf, it is very much WTF prices, isn’t it?
These folks have been living in WTF land. The furnishings are really over the top.
The custom DUAL FIREPLACES -WTF? They are living in southern California, not in some Swiss castle that relies on woodburning heat for half the year. Absolutely unnecessary and put in purely to one-up the Jones.
Who wants to bother to even audition for the show, “Who wants to be a Millionaire”, when you can just refinance yourself into that status?
Those Woodbridge “Inside the Loop”ers have always convinced themselves that they are “special”. I know of a home there that was below 2k, square feet and they remodled the downstairs and kitchen area for $250k. Won’t get all that money back, should they decide to sell, you say? Well here is the secret…..It’s on a CUL DE SAC. That’s rare. That’s special too. Nearly unique and one of a kind, too. Expect to see that in CAPS if they need to sell soon.
😉
I would guess there tax liab on sale would probably be about half that. They have obviously done a remodel (and man that place is an eyesore!) or two on the place since they purchased, so I figure $150K or so added to their basis, maybe $200K.
With a basis of $450Kish, a $500K exclusion, taxable gain will be around $225-250K once they sell it for $1.175M.
Their price isn’t quite WTF considering recent sales in the area. It’s probably worth $1.1-1.2M… Large lot place on Emerald, just the other side of the Lake sold recently for over $1.2M at 2004 rollback price. Emerald was only 2400sf.
Someone paid over $500/sf for this one recently George:
http://www.ipoplaya.com/Listings/53%20Emerald,%20Irvine,%20CA%2092614%20%20$1,299,000%20%20Woodbridge%20Real%20Estate.mht
It’s just a little ways away from the featured home…
all these prices are WTF – this is in no way a millionaire dollar home.
and I am so sick of these cement back yards. And I don’t buy the Irvine public spaces line – having to haul your bbq stuff to the park to have a outside dinner party or having to protect your kids from being pushed down the slide by an older ADHD kid is NEVER the same as having your own dinner party in your backyard or allowing your kids to play uninterrupted by other kids.
I was just about ready to come to the seller’s defense. To tell you that in the last six months in my practice that on a few occasions I have seen naive elderly parents refi’ing at the behest of a greedy child to fund the child’s business start up, lifestyle, etc. But then I saw the pictures. It looks like a good chunk of the cash went to creating a faux French chateau in Irvine. All I can say is: when it comes to decorating, less is more.
I think IR is pulling our leg and this really is Jeb Clampett’s house. He just didn’t show us the cement pond. I am sure that is Ellie Mae’s room upstairs. The double fireplace is for Granny . She can make beans on one side and Bar-b-que on the other……
For IPOP. Do the sales prices really run that much higher than the assessed value of the homes? This one is assessed at $426k. You are saying that it would be reasonable to expect sale of more than double that price… I dunna know. (Maybe it’s a Prop 13 thang)
I think IR is pulling our leg and this really is Jeb Clampett’s house. He just didn’t show us the cement pond. I am sure that is Ellie Mae’s room upstairs. The double fireplace is for Granny . She can make beans on one side and Bar-b-que on the other……
For IPOP. Do the sales prices really run that much higher than the assessed value of the homes? This one is assessed at $426k. You are saying that it would be reasonable to expect sale of more than double that price… I dunna know. (Maybe it’s a Prop 13 thang)
What struck me the most is that, even with a very steep decline in prices, you are predicting over 3 years to unwind this mess. I don’t think the economy can take that. Either the government will step in to slow the decent to something the markets can absorb or the market will force the correction to happen faster. Because there is little the government can do that would be politically acceptable to slow the decent, I would bet for a steeper decline. This is not like other corrections, the number of distressed sales is already much higher than the last time and there will be significantly more people underwater with little sunk capital in the property
Everybody comes up with these wacky bailout plans, but eventually they go away. They go away because no matter what you do, if the homes are worth way less than the loan, the only way to fix the problem without kicking the homeowner out is to give money to somebody. Everything else is like putting lipstick on a pig.
The people I feel sorry for are those that choose to live within their means and bought either a lot less house than they needed or a lot further away. They will be underwater for decades but being the responsible types, they will probably continue to pay their mortgage. Perhaps the government should concentrate on helping them out.
Assessed value has nothing to do with market value, especially if a house hasn’t been sold recently…
“…looking forward to having a $1,000,000 for their retirement. Instead, they have nothing, nada, zero.”
They do have something and that is the money that they refinanced. If they walk away from this property, they still have the $1M+ they pulled out of it so in reality, they are looking forward to $1M for their retirement.
This scenario is much more prevalent that what you may think. Much more.
Lending,
I agree with your assertion, but don’t have any idea the size of the problem. When I lived in Northwood from 2001 to 2005 everyone was buying new cars, redecorating their homes, and buying new back yards. For the most part these people purchased homes in the mid 90’s and barely qualified for the loans at that time…..their jobs had not changed so I have to assume that they were making the same amount of money that they were when they purchased the homes. My guess is that all the “stuff” they bought came from equity extraction.
By next year at this time we should have a better view of the extent of this problem.
“The people I feel sorry for are those that choose to live within their means and bought either a lot less house than they needed or a lot further away. They will be underwater for decades but being the responsible types, they will probably continue to pay their mortgage. Perhaps the government should concentrate on helping them out.”
Bail “them” out with better infrastructure and public services: Surburban areas should be serviced by Bus, train, and decent roads that track growth. A exclusive car-based culture chews up money and energy needlessly.
As for being upside down, if “we” manage the economy to minimize job losses, then they can afford to hold on and keep the home. It still provides a service to the owner and retains residue value.
Lastly, I bet this particular home owner invested and lost their shirt. There’s been huge losses outside the home market. Investments can really tank: pets.com went belly up, all shareholders had was a sock puppet.
These upside down home owners have something.
This is absolutely a WTH price for landing 1. Emerald, landing 2, always fetched a lot more than landing 1. Emerald is newer, larger lots, and the neighborhood is much nicer.
Unless they added it, that is not a dual fireplace. Those houses have a wood box built in next to the fireplace.
While I agree that the home improvements and spending you saw were probably HELOC funded investments, I disagree about “flat” income. Salaries inflate.
A 90’s mortgage doesn’t inflate and a refi with lower fixed rates in early 00’s would decrease those payments even more. In 10-15+ years of 2-3% inflation eats into the mortgage and tax payments (in CA).
Those circumstances, would free up cash for consumer spending.
One of the advantages of long term home ownership is stable housing costs.
If they simply exercised their put option to the lender and they have invested this money, then they have gamed the system and funded their retirement. Of course this was unecessary because they could have just sold their home and banked the profits. The main reason people do this through equity extraction is to fuel consumer spending.
“This scenario is much more prevalent that what you may think. Much more.”
We don’t see it and make a point of discussing it until the house goes for sale. As a lender who sees borrower’s income and the loans they have taken out, you are privy to information most of us are not. I always wonder when I read your comments if people realize the implications of what you are saying and the information you have available to you.
I agree SIC with the landing 1 vs. landing 2 prices. Looking at some other sales in landing 1, I think the place is probably worth more like $1-1.1M. Some comparables sold in 2005 for $1.1-1.15M.
“even with a very steep decline in prices, you are predicting over 3 years to unwind this mess.”
Given the heights from which prices have to fall, it is hard to imagine it being resolved in 3 years. It would be better for the economy if this unwound quicker, and perhaps we will see capitulatory selling to resolve this quicker.
If they refinanced, didn’t they lose their non-recourse protection? The bank could go after whatever investment they did when they extracted the cash, if indeed they did something like that…
Are you crazy?
The Clampetts have class, no way they’d ever lower themselves and move into this place. It’s old, extremely dated, and not to mention amazingly overpriced.
Their crappy old cabin in Bug Tustle had more curb appeal than this place.
Take a look at the video IR posted.
See how excited and alive the Clampetts are driving around Beverly Hills.
Feels like when you’re the only guy in a room full of beautiful women.
They moved to a big, beautiful, and new home in Beverly Hills, something they can truly be proud of.
The Beverly Hillbillies is a great story about living in synch with your core values and following your bliss. Truly inspirational!
I’m sorry but IMO the “faux French chateau” decor in this house is hideous. There’s a saying that goes something like “The French copy no one! …and no one copies the French!”
Too bad the “owners” of this place didn’t listen to this advice…
15 Fairdawn is the same model and it was listed for $1.299 million and on the market for a very long time (200+ days) before finally going in to escrow recently. It is also in Landing 1 I beleive. It was very highly upgraded – a lot nicer looking than this house, in my opinion, but it still had a very small yard and the strange multi level layout that many Woodbridge homes have. We’ve watched a few of these larger Woodbridge houses sell lately for some pretty hig prices, which has surprised me. But this house a 4 Rainstar has such over-the-top crazy decorating that I doubt it will attract many people even though the location is nice, nust down the street from the lake. I predict it will be on the market for a long time unless they drop the prife another 10% at least.
Lendingmaestro’s comments are very telling as to why the entire nation’s home equity is less than what is owed for the first time in history. Abandon hope all ye future homebuyers!
Proposition 13 keeps a limit of 2% maximum increase annually for a property’s assessed value, so long as it is not transferred to another owner.
This was significant as properties were appreciating at 20% and more in sales price. The increase year-on-year would max out at 2% and save owners from being taxed at the full market value of the home.
FYI, if you have purchased in the last two years, the assessor’s office has continued to “auto-pilot” your 2% increases even though the real market value of your home may be significantly lower. Several of my clients have been successful in bringing a tabletop appraisal to show that their home is actually less valuable than their assessed value. By submitting an appeal, they pretty easily got a reduction in property taxes, saving a good chunk of change.
I don’t know anyone who took cash out of their homes and invested it prudently. I have seen neighbors with new boats, RVs, timeshares and some great pictures from lavish vacations. It looks like they put some of the money into a remodel. I suspect the rest of it is gone, baby, gone.
Thanks to blogs like yours, we sold our home last July. The closing agent commented that it had been a really long time since he’d seen anyone come to closing with that much equity.
Or very likely invested in another property…
You see a lot of the serial refinancers who HELOC themselves into oblivion in an cascading death spiral of more debt resulting in higher payments resulting in lower monthly cash flow resulting in another HELOC to get cash resulting in even more debt resulting in even lower cash flow, repeat, repeat, repeat until the house is gone.
But there are many, many responsible people for whom the opposite is true. We bought our 1970s Irvine tract home in 1991, never refi’d, resulting in low payments which generated excess cash which we invested which generated more excess cash, etc. So we were able to remodel last year and we didn’t need to take out a HELOC to do it. Payments are still sub $1,500/mo, resulting in excess cash flow, repeat, repeat.
Bottom line – there are right ways to do things and wrong ways. The right way takes patience and discipline. The wrong way caters to indulgence and immediate gratification. These people chose poorly.
Perhaps I don’t understand the S&P/CS Index, but is there anything magical about 100% that says prices will fall to that point? It seems to me like everything is just relative to the 1987 starting point, not that it represents some historical mean value to which prices will revert. If they had started in 1989, then your estimated increases/decreases would be different, right?
I openly welcome clarification if I’m wrong…
The video reminded me of an SNL parody I saw as a kid. It was called “The Bel-Arabs” The song was hilarious.
I think the home is an eyesore inside but that’s just my opinion. It’s possible that another buyer will like it. Possible but not likely. I think it’s much more likely that any potential buyer is going to see thousands of dollars of costs in getting rid of that crap. So, whatever any of us think the value might be, I think this particular property has a huge liability.
Finally, a trivial thing. Given the above I think the home is easily a WTF price wise but the thing that kills me is the “double fireplace”/ If indeed these people paid money to convert that single fireplace and woodbox to a double fireplace I have to ask WTF were they thinking? Is it supposed to be an appealing change? Is it a change that enhance the value? Or was it merely the result of free money and some convincing contractor with idea to suck a few more dollars out of idiot owners?
If you have a hard time grasping the above, then listen to this 😉
http://video.google.com/videoplay?docid=-726450075131909113
Hey, anybody see this over at Matthew Yglesias’ Weblog on Atlantic Monthly.
The Subprime Primer
My wife and I have a word for this type of dwelling: architorture.
Someone,
Are you renting now? You’re story would be interesting to hear.
which is why CA’s budget deficit will continue to grow and grow..
$16 billion and counting…
YNH,
If I understand IR’s graph, I think that 100% represents where “actual” home pricing = the price it would be if it followed inflation exactly.
I think that chart is of IHB T-Shirt sales. I’m no economic expert, but I’m guessing they have sold less than 50 of those rags.
If you have time, and the access to do it, spend a couple of hours researching public records. All you need is access to sitexdata.com or realquest.com.
You simply type in the address and boom, you have the property report. You can see information about the purchase, loans refinanced, etc. It even gives you the homeowners names (sometimes title is held in a trust.). Once you have the owner’s name, you can do a title search by their name to see if they owe anything on other properties.
I have been searching relentlessly for the past 3 weeks for a rental, but after the jaw-dropping revelations I’ve seen, I decided to stay with the IAC rentals. The amount of debt that the average person has is truly astounding. I urge you all to see for yourselves what am saying.
But saying that house prices will revert to 100% only makes sense if you presume that 1987 prices were ‘perfect’ – that prices would forever revert back to that inflation-adjusted value/floor. Who’s to say that 1987 prices were too low, or too high? Or that house values can only increase at the rate of overall inflation?
I think the point is that during the last correction housing prices declined to below 100. Since the graph is adjusted for inflation and under IR’s premise of housing prices tracking inflation, it would be reasonable to assume that housing prices will fall to below 100 again. If you believe the higher they go, the farther they fall, then you might even expect the over correction to be greater.
That one bathroom is amusing: should we go with 1980s Miami Vice glass brick, or 1990s Persian Palace decor? Oh let’s do both, why not?
I agree about that fugly double fireplace. It mystifies me. And not in a good way.
Also note in the same room as the weird fireplaces: they ran out of crown molding before they reached the corner of the room!
These photos could provide hours of entertainment.
I’ll take a look for myself, but I believe you. Your comments seem like they’re bold faced and in an extra large font. I look forward to hearing your future insights.
lawl
There’s a house in my neighborhood that I refer to as the “Ass House”, evoking Philip Johnson’s “Glass House”, but only in name.
20 quiet moon is a house for sale on the next street and it appears to have a dual fireplace as well in the photos.
Whoever decorated this place needs to uninstall their life.
I think it’s safe to assume there was a LOT of consumer spending that happened in the case of this house. It’s jam-packed with stuff. Even the mirror-door closet has stuff oozing out of it, they can’t close the door all the way. No doubt the garage is also full of stuff and the vehicles are parked outside.
The house was buying all this stuff! Poor little house, it just wanted to shop and shop so it wouldn’t feel so sad.
IR- speaking of investing and market psychology … last month’s PopSci magazine had an interesting article on a new hedge fund that I believe has started trading this very month. It’s called MarketPsy Capital, based here in California.
Weblink: http://www.marketpsy.com/
Haven’t had time to read-up on their site but the article on them detailing what sounds like some very good science behind their method. Maybe another bigger, better, shinier mousetrap. Who knows.
Enjoy.
WOW. This joint looks like Jacques Chirac puked all over the house! Yikes.
The saying goes, no accounting for taste. The new home-debtor will spend thousands just pulling the wallpaper down. No thanks.
On the subject of serial refi and HELOC oblivion, you had only to look around you at every intersection in Irvine the past 4 years to know something was amiss. I can’t believe I’m the only who noticed an explosion of Range Rover HSE’s, BMW 7 series’, MB S-Class and Lexus LS’s plying the local thoroughfares. Not to mention the 16 year olds tooling around in lifted F150’s and BMW M3’s along with the Subie and Mitsu tuners. Just doing a quick calc in the brain-case said something didn’t compute. A $750K home, $80K cars for Mom and Dad and $35K rig for junior adds up to a crap-load of loan/lease payments each month. You get the picture. (Side note: An acquaintance of mine works for BMW North America. They’re crapping their pants about sales projections. Turns out something like 30% of Bimmer’s sales in the US are purchased via HELOC or similar financing. Ouch.)
IMHO … it won’t just be Option ARM and Interest-Only REO’s driving this train off the tracks, it’s going to be the HELOC abuse to a much greater extent. Anecdotal evidence suggests this much. Two close friends have had their open HELOC lines trimmed by 50% or more and in another case, a friend has had his HELOC closed by the bank and the balance rolled into a 5 year payment plan. Fortunately their all fiscally responsible folks so there’s no real pain here other than it certainly limits their options going forward.
Chinese proverb: May you live in interesting times.
No kidding.
…IR’s premise of housing prices tracking inflation…
I guess I question that premise. Are you saying that regardless of population changes, construction booms/busts, home size increases, urban sprawl, baby booms, industry/regional trends, financing options, and a host of other factors that change the housing price/demand curve… that we will always revert back to a simple inflation track on an aggregate basis???
Seems overly simplistic.
1987 is probably not the best starting point, but this is where the Case-Shiller indices started. If they had data going back to 1984, it would be a better basis because that was the bottom on the cycle. If 1984 was used as a base point, the bottom in 1997 would have hit it exactly, and 2011 probably will as well. The starting point is important, but even more important is the assumption of appreciation. The price decline in 1997 down to the inflation adjusted level of 1984 prices strongly suggests the rate of inflation, or slightly above, is the core of fundamental values. This makes sense because inflation is tied to wages, and house prices are ultimately tied to wages through people’s ability to finance house purchases.
Thanks for the afternoon laugh!! That was classic!
The only item I really think is missing is the price of debt. In 1987, the average 30 year mortgage rate was 10.20%. The payment on $100k would be $892.39. That same payment today would get you about $152,918. Hence, you need to put in a little over 2% per year extra for a decrease in the cost of financing. I typically use a 6% figure. Of course, you may have the opposite effect going forward where the cost of money increases.
Would like to see how Crevier’s expansion project was financed. They may start taking away my “free” Dietrich’s Coffee.
Hmm.. maybe I know this “someone”. Are you in TR?
Mon Dieu, mes amis….. How can u complain about ze fine chateau.
Ez een La Woodbreedge, Oui?
Ze loooks like my Grandmotheer’s maison in La Isle de France.
Maybee I pay 300,000 euros. Zees ees like 1 milliohn dohllars today, Oui?
If the mortgage rate was higher, then people thought that inflation would be higher in the future (right or wrong). This drives people to try and buy more house than they would otherwise like to because they expect the hardship of being house poor not to last very long. So even though the cost of ownership at the time of purchase was higher, it gets balanced by the lower cost (relative to wages) in the future.
No kidding. 🙂
Worse still the Diedrich’s isn’t even Diedrich’s anymore. Starbucks bought ’em out last year.
That’s another sore subject.
By the by, completely off-topic but BOY do I LOVE COFFEE!
If you’re a fan of Diedrich’s and the Diedrich family. Martin opened a new independent coffeehouse in NB. If you’re in the area, stop by and get yourself an incomparable cuppa joe!!!
http://www.keancoffee.com/AboutUs.aspx
Support the local boy!
In regards to inventory-
It would also be interesting to find out how old the average buyer/seller is in Woodbridge. I wonder how many Boomers are/were looking to cash out and move to Naples, Florida?
Sorry to bother you good folks in SoCal but……
The wife just looked up the asking for a cute little house on a street near us, Palo Alto CA. We watched it being built and being sold several times over the last couple of years.
The house is 1040 sqft on 4000 sqft lot. They want 1.4million for it.
The big house just down the street is still asking $2000 per sqft. It has been on the market for a year. If it sells, wow wow wow! what comps to have if we ever sell our place. Some day reality is going to hit these people up side the head with a 6×6.
I only just now clicked through to the interior photos. damn, but that’s some ugly right there.
Our state government is in the red, the county governments almost certainly so; where is the money going to come from to improve “service by bus, train and decent roads that track growth”? Especially since providing those services to low-density suburbia wasn’t economically feasible even in the best of times.
I agree with your point of view, though.
Yes. Basically all assets regress to a long-term mean including housing. The long-term mean automatically includes the events you listed (changes in population growth, business cycles, etc.). The long-term mean “line” may change over time (increasing amounts of income spent on a given item like housing) but, activity always comes back to the long-term line (in housing usually 30 yrs.). Take for instance the price of oil… it seems to have risen dramatically in the last several years and it has in nominal terms but, when adjusted for inflation Americans are paying about the same as they always have for fuel. Housing has behaved no differently than any other asset class in a bubble cycle. In 2000 many people justified a $90 share of CSCO because “this time it was different”. Now, 8 years later CSCO (a great company with wonderful potential) sells at $25. Things just get ahead of themselves… In 10 or 20 years we will see housing prices at this level again but, it will be because the fundamentals (income and inflation) can justify the valuations.
Things just got way ahead of themselves. On Wallstreet people will just say “I was early” – meaning that prices will eventually come here but, it will be some time. This is the principal reason a house should not be looked at as an investment as much as a place to live.
What do you think?
BD
“These upside down home owners have something.”
Yeah, a monthly PITA payment in excess of $8000.
After reset on the option ARM, probably pushing $11,000/month.
Lendingmaestro, with the info on the option refi date and HELOC, can you guesstimate what their rate would have been with good credit and hence, their current potential Option-payment, full-am payment and what they’re facing and when for a reset?
I’m assuming they optioned ARM about a year ago and the HELOC was a gambit to get the Option ARM to qualify.
Thank you for the great new word! It describes a number of fugly buildings that went up here in Chicago during the Great Swindle that words like “crudstruction” and “schlockatecture” are inadequate to describe.
CNBC ran an interesting spot on the Japaneese RE boom. At the height of the boom a $2000 bill (if it existed) wouldn’t pay for the space it took up on the floor of a house in Tokyo. 21 yrs later they are not back to the same. Just a note… all of us lucky enough to have “made” money in RE appreciation over the last 8 years know that it really is rediculous. Most couldn’t afford to sell there own house to themselves.
Make a decision to either live and enjoy your home for the next 10 yrs regardless of prices or get out and avoid paying for a place that you don’t really like. It is truly a debtors prison. This is exactly why so many are angry. They have the choice of selling and loosing tens or hundreds of thousands of dollars or living in a debtor prison and paying money for 5 or ten+ years just to break even. What should you do?
BD
…just a quick note for all – we are all here trying to find our dream but, let me ask you all a question. When you see houses and their costs here and see the income requirements and down payment requirements do you feel like you can do that? I’m just interested in what people here and elsewhere really can truly afford?
Personally, I live with my brother in a condo we own and I save about $50K / yr and have many times that amount put away but, I don’t think I can afford what I need. I know that I earn more than the average guy and save much more but, I don’t feel like I can really afford anything at this time.
I’m just interested in what people are doing with their money. I figure that I need just North of $2M in todays dollars to retire. That would give me about $100K in bonds per year at retirement. Does the rest of the blog think about retirement? Do you believe that the house you are buying is going to pay for it?
BD
I’m a regular at Kean … Martin understands coffee like IR understands housing bubbles.
I live in one of the more expensive areas in the bay area, and even though my income has doubled in the last few years, I still could barely afford to buy the house I ‘own’ today. I was lucky enough to get in before prices really took off, and at a low rate – so I’ve turned 30k down plus payments into over $500k in equity. I pay the same amount I would otherwise pay in rent, before tax adjustments, so I figure buying was the right move. I’ve done really well using leverage.
Now – I don’t know. I’ve got 2 kids, so I’m looking for something a little bigger. But after real estate costs, increased taxes, and a higher interest rate, my payments would double to a number I’m not comfortable with. I could rent something better for much much less… but with a family, you think about wanting to settle someplace more permanent in a house that you can change to suit your needs.
Mainly I just think its crazy that I can make more than double my area’s average income, and still be priced out of much of the market. How does that happen? Who are all these buyers with all this money, and the willingness to spend 50% of their net on housing? My only hope is that, with the gravy train of easy cash ending, prices will come down, though that is a double edged sword for me.
The problem with that logic is that many people don’t want to move once they reach old age. So they end up with this huge asset, totally paid for, but no real way to ‘monetize’ it without doing a reverse mortgage or equity line or something. The only real way it works is if you sell someplace expensive and downsize to someplace cheap. But that means moving away from friends and family – so many don’t.
Testify brother! You are in the same boat that I am in…
How can you make between 2-300K and be priced out???
BD
I can tell you how…. the largest home and asset bubble on the face of the planet. No matter what the Gov. does to slow the decline we will have a large decline to fundamental support.
BD
This video summarizes it all.
It is best study of US freakonomics I’ve seen so far !
Unfortunatly, IR, your book doesn’t have much to say after this !
What happened with your guys today tising up the French like this?
But it is a very good point, which start to worry me:
1) in France, even outside Paris, house prices are definitly WTF when compared to wages, and rentals
2) French people usually borrow over 15y morgage, more and more 20, almost never 30.
3) The morgage creativity didnt exist in France. Bank are tough with poor Frenches (even Societe General – they have to compensate in case traders mistakes and cannot give away money to ‘fonctionaires’)
4) In France, if you cannot pay, the bank takes your house in most cases like in the US. Good news, you dont loose your credit score, as this credit history sh..t does not exist in France (yet…) …. the bad news is, you still have to pay whatever is left, in some cases till the rest of your life. (interesting, isn’t it)
5) If French poeple have a bad tendency to moke American stupid behavior (cf. new president – while he didnt pay 80k$ or the Bixxh but married her – wiser than NY governor), in general, they haven’t reach that low IQ level in terms of private debt management (yet !).
6) So WHY are RE market so crazy in France ?
– For sure it is partially the British’s fault (it is Britanny, Normandy and Luberon)
– Or the Russian mafia (it is in south east of France)
But this cannot explain everything.
So back to start, without getting 20$, why RE market in France and in any other countries which didnt use the stupid morgage system, are so high ?
If i get the answer, and it predicts a collapse, I’ll start a FHB (french housing blog) and become as famous as IR
having to haul your bbq stuff? What do you mean, you can’t fire up your grill and drink beer and cook meat or run your propane smoker on your own property? Wow, I complain about my home (spring, tx), but that is pathetic. btw, love the blog.
We were in the same boat. So we ended up tearing down the house and rebuilding.