Silently Craving — Michael Kiske
The Second Noble Truth of the Buddha is that all suffering is caused by craving. People who took out HELOCs to fuel consumer spending gave in to craving, and they are about to endure a period of extreme suffering in their lives. People crave for just about everything they believe money can buy: cars, boats, vacations, status, lovers, self-esteem, and many other things or states of mind. HELOCs enabled people to obtain things that would have been denied to them under ordinary circumstances. When people obtain objects of their desire, it leads to a temporary state of satiation followed by an even more intense wanting. It is like drinking salt water: you think it helps, but drinking it makes you even more dehydrated and causes you to crave water even more. Those that drank the kool aid of the Great Housing Bubble took out HELOCS and tried to satisfy the craving beast inside. It didn’t work. What is worse for them is that they are now accustomed to feeding this craving beast a steady diet of whatever it wants. Once this beast learns to feed regularly, it causes even more suffering when it is not fed. The HELOCs which bought the food to feed the craving beast are drying up. The housing ATM is broken.
It is my hope that profiling these stories of HELOC abuse does more than satisfy the beast of schadenfreude within all of us (that leads to suffering through separateness.) I hope these stories serve as a lasting lesson to people. It is common for people to react with envy to the rampant consumer spending these stories contain, but take a moment to consider the pain the hangover must be causing. These HELOC abusers are losing their houses, their lifestyles, their illusions of wealth, and their real money. Each of us must struggle between the unskillful desire to revel in their pain and skillful practice of feeling empathy for their plight. I know I do. It is important to move beyond schadenfreude lest we become trapped in the same feedback loop always needing another fix of someone else’s pain to make us feel whole and happy.
In the meantime, enjoy today’s post about another HELOC abuser who took out $600,000 over a 4 year period. Where do you think they will be finding that $150,000 a year supplemental income in this recession? 😉
Asking Price: $715,000
Income Requirement: $178,750
Downpayment Needed: $143,000
Monthly Equity Burn: $5,958
Purchase Price: $312,000
Purchase Date: 4/9/2002
Address: 1 Spring Buck, Irvine, CA 92614
| Beds: | 5 |
| Baths: | 5 |
| Sq. Ft.: | 2,200 |
| $/Sq. Ft.: | $325 |
| Lot Size: | 3,024
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Traditional |
| Year Built: | 1980 |
| Stories: | 2 Levels |
| Area: | Woodbridge |
| County: | Orange |
| MLS#: | S509664 |
| Status: | Active |
| On Redfin: | 194 days |
 Unsold in 90+ days
|
|
APPROVED SHORT SALE!!!! This deal can close in just one WEEK!! HURRY…
This won’t last much longer! No more waiting for bank processing and
approval! Bank wants it sold as soon as possible. Lowest price 5
Bedrooms & 5 Baths in Woodbridge! Downstairs has 2 Beds, 2 Baths.
Vaulted Ceilings, Gourmet Kitchen w/Granite Counter Tops, Custom
Kitchen Cabinets, Stainless Appliances. Upgrades even in the bathrooms.
Upstairs has 3 Spacious Suites. Inside Laundry and Den. Enjoy all the
Woodbridge Amenities including Pools, Parks, Lakes, & Tennis Courts
with Low Association Fees & no Mello Roos Tax.
Gourmet Kitchen with pergraniteel.
.
.
These homeowners did particularly well during the bubble rally. The bought the house in April 2002 for $312,000 putting a paltry $15,600 down. In March of 2005, they refinanced with a $446,200 first mortgage and a $100,000 second. This pulled out their initial $15,600 “investment” and put an additional $234,800 in their pocket. Then in October of 2005, they refinanced again and got a $711,200 loan pulling out an additional $165,000. Then, as if that wasn’t enough, they opened a HELOC for $150,000 in November of 2005. This was a hard working house, but it wasn’t done quite yet. In November of 2006, they took out a stand-alone second mortgage for $200,000 and probably paid off the HELOC. That is a total of $599,800 in mortgage equity withdrawal in 4 1/2 years. They put in $15,600 and took out $599,800. That is a good return on your investment, and it would have been if they had sold it at the peak. Of course, they probably thought the house would go on providing them with an additional $150,000 a year in income for perpetuity, and there was no sense in firing such a stellar performer. Since they didn’t sell and only “put” it to the lender, they will now have to deal with bad credit and the loss of that $150,000 a year income.
The Law of Karma states, “For every event that occurs, there will follow another event
whose existence was caused by the first, and this second event will be
pleasant or unpleasant according as its cause was skillful or
unskillful.” Taking out all that HELOC money might have been fun, but it wasn’t particularly skillful. If the Law of Karma holds true, these people will experience unpleasant times ahead. Personally, when the knowledge of their suffering only makes me feel sad, I will know I will have moved beyond my suffering caused by my own, unskillful reaction to the Great Housing Bubble. I am not there yet.
.
The biggest fires are burning
And I will try to get back, I’m returning
You keep your head down singing
And all you get is over-pressure-craving
Let me try a word once known
Let me try a different tone
Touch me; do not drift with the flow
Silently it’s creeping in
Silently with no warning
Suddenly we meet the other shore
As if we were not in there
We do forget all hell we had and sail on
But that might get us nowhere
Let’s breathe it in
And turn it into nothing wrong
Let me try a word once known
Let me try a different tone
Touch me; do not drift with the flow
Silently it’s creeping in
Silently with no warning
Suddenly we meet the other shore
And there’s no more
And occasionally she sings
She forgets all the things
She’s fighting to forget
Twisting in her head
But whatever we may do
We only will see through
Dissolving all those fears
Raising hells, build all those years
The biggest fires are burning
And I will try to get back, I’m returning
You keep your head down singing
And all you get is over-pressure-craving
Let me try a word once known
Let me try a different tone
Touch me; do not drift with the flow
Silently it’s creeping in
Silently with no warning
Suddenly we meet the other shore
And there’s no more – to try!
Silently Craving — Michael Kiske
For 312k in 2002 this house probably didn’t have all the upgrades shown in the listing pictures. So the only question is how much of the HELOC went to improving the property versus pure wasteful spending. Obviously the investment in crown molding, recessed lighting, granite and stainless steel didn’t pay off.
I almost spit my drink out when I saw this graphic- now that’s funny, no matter what state you live in!
This is an awesome awesome awesom picture.
…how much of the HELOC went to improving…
I dunno … maybe $150 sq/ft to build it, maybe more? Tax bills says the shack is worth $171k.
Lot size 3024? Buahahaha!!
Isn’t that a standard white fridge in the kitchen photo? Shouldn’t the description read “some” stainless appliances? And isn’t the mixture of stainless (the oven) and white (the fridge) a little tacky? Plus that doesn’t look like a gourmet quality stove to me. The place looks a little underfurnished, too, so I guess they didn’t spend the HELOC on furniture or appliances (but they did put that ugly flat screen over the mantle).
I think it’s a mirror over the FP – you can see the lamp reflected in it. Doesn’t make it much better, but…
Yeah, as the first poster pointed out, they put a lot of the HELOC money into “upgrading” the house. Too bad no one in their right mind needs granite tiled walls in the exterior portion of a bathroom. Guess they didn’t get the memo that home improvements only return 60-80% of the investment you put in, and then only if someone else actually wants them…
They did not spend 400K in upgrades.
“Upgrades even in the bathrooms. ”
Yes, they do look pretty over done.
The MLS mentions 5 bedrooms and three of them are “spacious suites” ( does that mean they have their own bathrooms?). Two of the bedrooms are downstairs and this is a plus because it is considered a feature of “Universal Housing” designs – meaning that the house still remains accessible to members of the family even when they get older or if there is a temporary or permanant disability – the person still has access and use of a bedroom/bath downstairs.
Well, where are they in the photos? It just seems like common sense that the person putting together the description would at least attempt to get photos of the “features” that make the listing stand out.
I have a coworker who put $250k into “upgrades” in a home in woodbridge. They’ll NEVER see that recoup of spending in this lifetime. They are very close to retirement age. They were totally into all the fancy building materials and upgrades. The cost overruns of what they thought they were going to spend, vs what they wound up spending was nearly double. They sorta got carried away.
Is this featured property located on the inside or outside loop of woodbridge?
Inside the loop, next to Woodbridge HS.
…The MLS mentions 5 bedrooms and three of them are “spacious suites” ( does that mean they have their own bathrooms?)….
Nothing is spacious in a 2200 sqft stucco box.
That was my first thought too but a well designed house would feel very spacious even with 5b in 2200 sq ft. Many houses have wasted space in formal dining areas and formal living rooms. Frankly, for my style of living, a great big area that has the kitchen feeding into a dining area and family room is more than enough. The rest of the house could be used for bedrooms etc. Think about it this way: if the listing said 3b/2b in 2200 sq ft with formal living room and dining room, you wouldnt think much of it. I am guessing some of that unused space was converted into bedrooms.
Ok, after reading more posts from people who actually saw the inside, it looks like these guys did a terrible job at remodeling and the house doesnt feel spacious at all. Looks like they forced a new story onto this house and it doesnt really flow well.
Yeah, I’m wondering, given that it says two stories, if the entire second house in the left was built as an addition. It’s possible. Though, I’m not sure that any of the individual refi’s or HELOC’s would cover that… I mean they may have built the new main house, and stripped all the old walls out of the first 1-story house and redone it as the giant living room kitchen that’s pictured. Not that this was a Zen thing to do either…
5 bed 5 bath in 2200 sf? Maybe the owner can rent a room and a bath for $1000 a month – that is $5000/month. GRM 160 makes it $800k.
This listing is way under asking. It should get a bidding war right away.
I don’t think you looked at the listing price history. This property has been on the market forever, and it has been listed at $736,000 since last November.
I have the feeling that g8 was joking.
rkp,
Thanks. Yes, I was joking. In fact, I do believe in what Jim Klinge’s proposed one month listing if owner wants to sell in this market:
Sign a one-month listing.
If both the sellers and agents operated like they had to find a buyer in 30 days, they wouldn’t be so casual about price, about inquiries, and about offers & repairs.
Extend the listing beyond the one month if you have to, but only under these terms:
A price reduction of 5% if there had been offers, or a price reduction of 10% if there were no offers tendered during the first 30 days.
Because of the internet, the listings are distributed to all waiting buyers within seconds, and literally by the next day everyone knows your house is for sale. After a home is one the market for two weeks, the traffic dies down considerably – don’t think it is going to get better after 2-4 more months, it isn’t.
http://www.bubbleinfo.com/
That is sillyness. Do you know how hard it is to rent out 5 single rooms in a 5 bd house? Homes are rented to families NOT 5 single dudes. Five single dudes.
You are right, it is hard and it works in some way like long term motel. Most major cities around the world, you will find affordable housing like this.
But, I think this is outlawed in Irvine. Yet, someone might be doing it out there anyhow.
Rooms are not going for $1000. More like $450-600.
Some of the money probably went towards the 1,000 sq ft, 2nd story addition. This home was originally a 1,200 sq ft, single story floor plan. The addition has it’s own private entrance and does include 3 full bedroom/bathroom suites. It was clearly designed to have one or more tenants per suite. The day I saw it, there was a family living in one of the suites. There is also controversy over this addition, as to whether it fits within the R-1 zoning. I’m not sure if that has be resolved, yet.
I live in Woodbridge and I’ve seen some notices lately from the Homeowners Association stating that these “multi family” remodels (essentially building a duplex out of a sigle family home) are not kosher and that they are being investigated. So, any potential buyer would want to make sure they didn’t buy this home and then have to redo the house to bring it in to compliance. This isn’t a bad neighborhood, and it is “inside the loop”, but it sure seems like a lot of bedrooms crammed in to a small space (with a small yard) to me……
You also have to worry about the lender approving the addition, if it wasn’t permitted and approved by the HOA….good luck getting approved for financing, and if the lender was willing to accept, it would be at a really low LTV. This house would be a pain in the :> to get financed.
The HOA may not be able to do much except tag it during escrow and maybe resolved by paying a fine if the CC&Rs;and ByLaws provide for some such mechanism.
In California, the Davis Stirling Law severely restricts what an HOA can do.
So long as these structures were built in accordance with the City of Irvine, with due permits signed off and so, the homes are generally kosher and it very, very unlikely that the structure would have to be demolished.
Here is a church in Irvine for sale. The head pastor, Morey, seems to be quite controversial. Anyways, for 10 million you can have a church of your own:
http://www.californiachurchesforsale.com/list3.shtml
I’ve been reading this blog for a while now, and like everyone else enjoyed the stories of the the real estate abuser’s schadenfreude, felt sorry for some owners, and just shook my head in disgust and most of the stories. But still, I don’t think I really “got it” until this post. I’ve read all the stories here, saw the six-figure losses being posted, but still it didn’t click until I read this post this morning.
My wife and I live in Kentcuky. We bought our house a year and a month after the sale date on this property. We moved in on our first anniversary to a nice, newly built 1,200 sq ft. 3BR/2BA house with a one car garage. Really a typical “starter house” for this area befitting young newlyweds. We paid $96,900 for it.
Later this year we’ll be moving closer to family and will be selling the house. Based on local neighborhood comparables my rough guess is it will sell around $110,000, give or take. Throw in our $10,0000 in equity we’ve built up over these past few years and that’s a decent price appreciation and a nice sum of money we can use toward our next home (which will need to be a bit bigger thanks to a baby).
Then I look at this house. While our home was seeing a roughly 13% rise in value over the years we owned it, this one more than doubled. Doubled!
I realize part of this is different markets, but still. I’m trying to imagine what I would be thinking right now if instead of expecting around a $110K sale price I was instead looking at seeing it sold for $200,000. After signing all of the paperwork transferring the property to the new owner we would walk away from that table with a check that was bigger than what we originally paid for our home five years ago.
Nuts!
I get it now. I understand how crazy real estate had become, and how it still has so far to fall. This isn’t pretty, and it’s only going to get worse…
Wouldn’t it be awesome if everyone did nothing but buy and sell houses to each other?
I could stop working, hang out by the association pool all day, watch ‘Flip This House’,
Who Wants To Be a Millionaire’, ‘Puff The Magic Dragon’, etc.
When money gets tight, just call up the house owner (bank) and have them send money.
Then just move into a bigger house after a few years and make even more money.
It has become a standard way of life in some parts of the country.
But Califronia is different.
Smog levels still high, group says
Irvine Renter mentions “empathy”. Per the dictionary ~ empathy the intellectual identification with or vicarious experiencing of the feelings, thoughts, or attitudes of another.
Okay … I get it! I have empathy in these reckless borrowers journey to cheat the system, and live a lifestyle beyond their capability.
Now that I said that … Let Them Eat Cake!
I almost went blind on the bathroom photo! Why not just take a picture of the flash in the mirror. I think I need to go and taser myself now to make the pain go away.
IR –
We have a lot of prognostications here regarding where pricing will go – 2003, 2001, I think I recall even 1998 estimates are being thrown around. I’m not going to take the bait on guessing. Instead, I’d like to know your take on a different “what if” scenario.
Your consistent premise has been that while the cost of ownership is greater than the alternative cost of renting. I’m with you on that. But what if (a big what if) at the end of this downward trend, those two still don’t quite meet. If there was a clear point of inflection and the home pricing curve began to rise in the future, how close would it have to be to your nirvana of rental parity to pick up a sensible home?
Second, what if the cost to own pushed down below rental costs (as it has in the past) but still had a strong negative slope? What then?
Your thoughts…
It is unlikely the first scenario will come to pass. Perhaps some properties in some neighborhoods may not fall to rental parity, but unless irrational exuberance aided by crazy lending is revived, prices will fall until ownership makes sense on a monthly cashflow basis minus the fantasies of appreciation. So far we have not had a bear rally to see if people get frightened by the possibility of “being priced out forever.” Some people will succumb to this fear and buy too early if we get a bear rally. In fact, this is what causes most bear rallies.
The second scenario is much more likely, and it is already the case in many South OC neighborhoods. At that point, I would still buy, but I would take my time doing it. If prices are below rental parity and falling, there is no urgency to buy, and buyers can wait and find the property they want to live in long term.
I’m not insinuating anything about the nonsensical “priced out forever” fear and predatory selling tactics, (a.k.a. hit-and-run real estate). I am simply asking if you could conceivably pay a premium, however small, to lock in some stability and buy a mortgage when it is more expensive to own than rent?
This may be where we have our fundamental differences, because I would absolutely pay a premium for that luxury. Not a $200K premium, mind you, but a premium nonetheless.
I have explored those issues in these posts:
https://www.irvinehousingblog.com/blog/comments/investment-value-of-residential-real-estate/
https://www.irvinehousingblog.com/blog/comments/rent-versus-own/
I might pay a premium, but I doubt I will have to. The conditions facing this market going forward are as bad as they can possibly be. Whatever GRM the market bottoms at will probably be the lowest we will ever see.
Ture IR…
And, not only will we likely see an ‘overshoot’ to the downside below rental parity there will likely be no ‘bounce back’.
We are facing many years (maybe a decade or more) of rising interest rates as the global economy begins to produce inflation from global syncronous growth instead of deflation which was produced by cheap foreign labor. The dollar is declining and foreign currencies appreciating. This simply means that the US won’t be able to import disinflation in the future and will likely have rising rates for the forseeable future. Couple this with our current housing issue and you have an “L” shaped housing market not a “U” shaped. There will be no ‘bounce back’.
JMHO but, please make the case that money / rates will get cheaper or that lending practices will loosen in the next decacde.
BD
… the nonsensical “priced out forever”
I am starting to think that the opposite is true: the never-coming-back-prices of the bubble peak years. Look at the Nasdaq. Look at Japan. Lots of bubbles die — forever.
> …the nonsensical “priced out forever” fear…
Yeah, try saying that when you live in San Francisco.
But yeah, we’re special. The problem is, as the dollar falls and as the price of real estate falls (somewhat), more and more rich people from overseas buy a home in San Francisco. And then leave them empty all but two weeks out of the year.
And that doesn’t just impact high-end housing. Year on year average prices for condos in San Francisco is not just up 1.4% from last month, it’s also up 7.1% year on year, to a new record high of $914,187. Median price is also up year-on-year, to $765,575. And it’s even true in the low end of the market. If the ration of rent to mortgage ever drops below 2.5 for me, I’ll be shocked… right now, for me, it’s very nearly 3. (Admittedly, I got a good deal, rental-wise.)
If prices in the rest of the country drops 50%, San Francisco might start to decline. A little. I wouldn’t expect more than a total of 10%. I am resigned to renting for the rest of my life, or at least that portion of it where I still want to live in San Francisco (and still have a job). My wages might go up slightly faster than inflation (though I’m not betting on that either, starting now) but they certainly won’t go up enough to live here.
-fred
The cost to own could very well push down below the cost to rent for various reasons:
1) Steep down payments required as lenders are tired to getting houses “put” to them;
2) Buyer expectations of continued price declines;
3) Excess inventory that makes it hard for investors to buy (cheaper) houses and then find tenants for them;
4) Market expectations that stocks, bonds or whatever will provide a superior return than housing, thus drawing investors away from housing;
5) Large numbers of former homedebtors that can’t secure mortgages due to crappy credit, thus depleting the potential buyer pool.
And these are just some of the very plausible scenarios. There are many, many more possible scenarios that aren’t as plausible.
Add following to the list:
6) Recession caused job loses.
7) Job loses caused foreclosures and short sales
8) Hyper inflation and stagflation with no income growth.
Only way the priecs can perk up is if we have income growth which seems to be working the other way around. People are actually losing jobs and are winding up taking job that pays lower wage then the job tht was lost. This is push median income lower, thereby causing downward pressure on home values and affordability.
Then add…
9) Boomers start moving out of homes into assisted living facilities. More houses on the market anyone?
sorry, should read: Your consistent premise has been that while the cost of ownership is greater than the alternative cost of renting, it makes sense to continue to rent.
IrvineRealtor,
I believe that IR is off by a lot. I believe that it has to be a lot cheaper to own than rent before the home market picks up again……cheaper by 10 to 20 per cent. I believe this for a few reasons:
a) Banks are requiring a down payment. The savings rate in the united states in now less than 1 %, entry level buyers do not have money to buy.
b) The risks associated with owning a home are now being fully understood. For most buying a home is a highly leveraged transaction, that can destroy your life if the market goes in the wrong direction.
c) I believe you will see a decrease in rents by about 10 – 20 % over the next two years. This is because there is capacity coming on line from large complexes, and private home owners.
And yes, I am a bear.
I couldn’t quite tell :smirk:
People in this country (perhaps in general) are conditioned (or perhaps it is innate) to prefer owning over renting. Every time you see some young couple on TV or hear some hard luck story the common refrain is “we are saving money to buy a place of our own”. The feeling is that the place you live is not a home unless you OWN it.
The home buying decision is totally unlike any other financial decision. You don’t live in your S&P500;value fund, you don’t imagine how much fun your going to have tossing you Saving Bonds around with your kids, and when you imagine you other investments are a means while your home is the ends.
This whole attitude imbues the home buying decision with a huge does of irrationality (or at least behaviourly biased), as the decision is not purely financial. This is all the more interesting considering homes are the largest financial commitment in everyones’ lives. Homes are also an absolute necessity (at least until mutants are born with snail shells, everyone will need a place to live).
I have documenented the contributors to the premium value assigned to home ownership versus renting in prior posts. It is clear, even to the uninformed that assuming rental parity with purchase costs, that the benefits of home ownership far outweigh the “costs” (illiquidity, leverage, etc.).
IMO given the emotional biases, and actual benefits, that is unlikely that home prices will reflect a price discount on a rental parity basis.
That said, the bottom of the market is going to be dictated by liquidity in the availability of credit, which seem unlikely to improve over the near (9-12 months).
I agree with everything you said. The problem of course is that people bought homes for pure speculation purposes. This skewed the market for the normal homeowner.
IR, I’ve enjoyed the blog and the schadenfreude is just fine, but I have to wonder about the metaphysical tone of your post here. I can just as well postulate that Buddha is trying to teach everyone that life is not a race, you live, you die, and unfortunately if you have not reached nirvana before you die you get reborn and start the karmic cycle again. In Buddha’s world, life is not a race – and there are no winners – so the HELOC abusers are not losers. So what if they took out a huge chunk of change – they probably had a good time with it. So what if they turn the house back to the bank – is that a bad thing? Even if they end up living in the street – life is just an ephermal illusion of pain anyways – No Big Deal. I hope you see where I’m going with this. In the real world, we don’t think this way. In the real world, this is a sad situation brought on by people who lost control of their lifes. I’d rather stick with the real world.
From what I have learned, Buddhists do not spend much energy on judging good and evil, but they do examine behaviors and patterns of thought to determine skillful and unskillful. Skillful patterns lead to a deep state of happiness unfettered by life’s circumstances. Unskillful behaviors lead to suffering.
The pain and suffering of HELOC abusers is going to be very real, and it is a result of their unskillful behavior. They are not losers, and their is no judgement of good or bad in what they have done, just an observation of their behavior and the results thereof. I am not making moral judgments. This isn’t a competition for moral superiority.
The unskillful behavior of HELOC abuse leading to suffering is clear, and the lessons from this behavior is very much in the “real world.”
HELOC – The way to become a preta without dying.
Interesting stuff this from Wikipedia re: preta-
“Pretas are believed to have been jealous or greedy people in a previous life. As a result of their karma, they are afflicted with an insatiable hunger for a particular substance or object. Traditionally, this is something repugnant or humiliating, such as human corpses or feces, though in more recent stories, it can be anything, however bizarre (like HELOC – LOL! Now I get it!)” 😆
I have seen this house. It is a prime example of how not to renovate a house. The staircase is a nightmare. The owner/renter went in the master bedroom and locked the door, so we could not see it.
The next to the kitchen there is a bedroom with no windows. I would suggest people see this house from inside. This house will never sell.
Everything sells, it’s just a matter of price… If they want to get that place sold, it’ll sell, just got to drop to a price the market will bear.
There are houses that have sold OVER list price within the last month or two. Those smart sellers dropped list to a comp-killing level, probably got multiple offers, and countered them up eventually over list.
Escrow activity in Irvine has been brisk of late. With only 914 units on the market and a bunch in escrow, Irvine could soon have less than six months inventory on the market. If that is the case, look for the pace of price declines to slow measurably and even places like this one starting to move…
I agree with you 🙂
I did get an email from my realtor mentioning that the general feeling is that we have reached the bottom in irvine for detached homes. I am amazed by the escrow activity in general and the offers being made on certain houses.
(i feel) One thing is for sure, people in Irvine have the money to buy and have been waiting on the sidelines. It would be really interesting to see the downpayments on the purchases for the last 2-3 months. Most would be in the range of 10-15%, which is a substantial amount.
I planned to buy, but i have set an intrinsic value on a house based on the average of the 2002/3 median on zillow and trulia + a 2-5% emotional premium on any house that i like. Sellers and realtors think i am nuts, so i skipped plans to buy. renewed my lease this month, btw IAC has increased the lease break to 3500-3800.
Mike… Agree with you. I just moved in to IAC Quail-something and the lease-break was $3500 a week ago (higher now).
Bloggers are underestimating the impact of even a 10% down payment. $50K-down “ain’t peanuts”. The lease office yesterday was packed, vacancy-here near-zero.
Disagree with your arbitrary buy-point. “2002/3 Zillow median”. The market-is-what-it-is.
I hope this blog is still operating in 6 months, then I can compare IAC-renting (awesome so far, compared to Marina del Rey) to maybe-buying (again).
CA can’t change property-tax, but *can* add a “transfer fee” which I see happening…
Just had two Irvine condos close over the past two days, both were mid 2004 rollback prices.
http://www.ipoplaya.com/iposhiller.pdf
One of them, in West Irvine, was on the market for one day before it got into escrow…
I think it would be really interesting to look at the sitex data on the recent escrows for an average property type. That is, take all the SFHs that closed in the last 2 months and look at the mortgage docs and share it on the blog. Not looking to see any particular houses financial situation but interested in seeing the average.
The common theme here is that no one has $150K ready for a down payment which I have been disagreeing with from the beginning. There are people who do save and people who do make a good living. I think taking the average of the sitex data on all the recent escrows will highlight this.
If I had access rkp, I’d do it.
Holy crap, someone had enough money to pay $427 per sf for a Turtle Ridge condo on Lonetree. Just saw the closing number…
Purchased in later 2003 for $426K. So much for rolling back to 2003 in TRidge.
This could be a head fake. If real estate bear markets are anything like equity bear markets, then you have to live through very convincing rallies before you have a horrific capitulation sell off and hit bottom. Could this be the first big bear market rally? I have no idea, and a very small down payment.
Don’t look at me when you write that!
Just refresh your memory with the ARM reset chart.
Isn’t the room next to the kitchen without windows called a pantry?
🙂 the house has a strange plan there is a small lobby next followed by two bedrooms one of which is one i talk about. Who wouldn’t like a 10×10 pantry to sleep in
Good God! Bedrooms with no windows?
Does this mean you guys don’t have building codes for egress windows? What do you do if the house is on fire and it’s right outside your bedroom door?
By code, a bedroom must have TWO points of egress. Also, I don’t know if this is code, but appraisers require a closet for a room to be a bedroom.
I own a 2100 square foot, 4 bedroom 2.5 bath townhome in Woodbridge, and the bedrooms are average size.
This listing is 2200 w/5br/5ba. How do you fit 2.5 more bathrooms and 1 more bedroom into 100 square feet?
I suspect they illegally made the garage into 2 bedrooms.
Maybe the closets in this home are really big like in the show Futurama and that’s where they get all the extra bedrooms and bathrooms from?
http://tinyurl.com/5jw26g
“…Bender tells him that there is a window in the closet, and opens a hidden door which reveals a complete living suite more than large enough for Fry to live comfortably. Bender is confused that Fry would want to live in his closet, and remarks that humans are eccentric.”
My home has an enormous walk-in closet with 10 foot ceilings that is almost as big as my old living room in Irvine. But I draw the line at calling it a bedroom.
Of course I was also probably one of the few people upset with the latest Case-Shiller data. I live in Charlotte. 🙄
http://tinyurl.com/4ffo2k
I own a 2100 square foot, 4 bedroom 2.5 bath townhome in Woodbridge, and the bedrooms are average size.
This listing is 2200 w/5br/5ba. How do you fit 2.5 more bathrooms and 1 more bedroom into 100 square feet?
What is the difference between The Parade of Homes and The Parade of Foreclosures. About 60 days.
Naive question here, and it’s probably been addressed before or is so elementary that no one thinks about it…but I’m very unclear on this:
What happens to the HELOC money that has been borrowed and spent when the owners walk away from the house and it reverts back to the lender?
I assume the HELOC amount has been added to the mortgage total owed, but does the lender treat it as a separate “transaction” and do they try and recover it? Or is it just one more “loss” for the lender (assuming the house doesn’t sell for anything close to what is owed), and the happy borrower has $500,000 in walking around money to ease the pain of his ruined credit (using today’s example)?
If that’s the way it works, I’d say a lot of our schadenfreude is misplaced :gulp:
I’d like to know this, too . . . because from postings I’ve seen on other sites, it is sounding like no one goes after these people to pay back the HELOC.
Some loans are non-recourse and some aren’t. Typically, a bank can go after what is owed on a HELOC and try to get it from other assets or sources. However, the reality is that the banks are understaffed and don’t have the ability to do this.
Also, on the property profiled today, all the HELOCs were rolled into 2 mortgages. I believe both are non-recourse but someone like lendingmaestro can provide more insight on this subject.
The simple answer, most walk away with the money.
The banks may be understaffed now, but where there is potential money, there is a way.
I’m guessing that there will be an industry built up in the coming years to chase down the people that are just “walking away” from non-recourse obligations. I know very little about this, but I’ll bet the statute of limitations is 7 years (or a significant amount of time) by which the lenders can take action. The Bush administration keenly (and dare I say presciently?) changed the bankruptcy laws so that people will not be able to take the BK route too easily.
What will happen is these folks will get their paychecks docked for the rest of their lives. It may not happen today or tomorrow, but when the “equity stripper bounty hunter” industry gets up and running, these folks will receive a legal notice in the mail and thus will begin their new lives of paying “child support” back to their lenders.
Don’t kid yourself if you don’t think nothing will happen.
My guess is that a HELOC is not a purchase loan, so they would come after the walker.
Pardon my ignorance, I just have a question about HELOCs. What is/was the appeal of HELOCs? Don’t you eventually have to pay back whatever you borrowed? How were these people expecting to pay back borrowing 150k plus a year on a HELOC?
Basically, they were not expecting to pay it back. They were eventually going to sell the house for more than the total they borrowed, so the house was going to pay it back.
Ouch. Ok, I see now. Thank-you.
A great way I say this phased..
A debt is a loan from your future self to your present self. Before you take on debt you have to decide if future self will be better off than present self and so be in a position to pay the loan to present self off. These people counted on their homes apprecaiting in value so that the money future self owes would be paid for by the house. Now the reality is that when present future self becomes present self, the loan was not paid back and the house can’t pay it back so that present self is now left high and dry.
Got it.
it might even have worked out had they sold it in Nov 2006 instead of taking out that last HELOC OR selling it immediately after taking it out.
As usually happens to losers in Vegas, they didn’t know when to walk away from the table.
Thanks for your writing about schadenfreude. Those of us who understood the perils of the HELOC craze, tend to get too smug about these matters. We all like to think we would never be as foolish as these people were, but we’re all human, occasionally we do stupid things despite our better judgement, and we all should endeavor not to mount our high horses so quickly, lest we find ourselves in a similar situation someday.
Of course, all the sympathy in the world is not going to do a thing to help bail these people out of their HELOC hell…
But they’re not in HELOC hell if there are no consequences . . . it sounds like these people just get to walk away and no one comes after them for the HELOC. No one reports on any consequences.
Where is IRS and Fed now! I am sure if the authorities want, they can find the roots to the cash that was HELLOC the hell out of this house and is probably parked somewhere. It makes me sick workig my butt off day in and out and take that paycheck every month and live of it while others like this Owner simply walked away with tonnes of cash. Why is IRS forgiving this debt. Does anyone know is someone took HELLOC out and now sold short or went into foreclosure, will his debt be forgiven?
HELOC debt is recourse debt, so the bank is under no obligation to forgive it. It may, however, be difficult to collect…
There is some bad information out there on the Mortgage Debt Relief Act. The act only applies to debt used to buy or improve your property. If it is forgiven, it reduces the basis of your property.
if you are curious, you can always go to the irs website:
http://www.irs.gov/individuals/article/0,,id=179414,00.html
So you have to show that the money (other than purchase money) was used to improve the house. Even then, it also reduces the basis of the house, so when you sell, you have a potentially larger tax bill (not that it matters with 500K cap gain being tax free).
I hope the IRS goes after all this abuse.
BTW, the old rule was that the loan needed to be recourse and you had to sell the house (e.g. back to the bank). So the major change is with respect to the timing of selling the house.
Agreed. From your IRS FAQ link:
“Does the Mortgage Forgiveness Debt Relief Act of 2007 apply to all forgiven or cancelled debts?
No, the Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.”
However, the IRS filing for debt forgiveness on Form 982 relies on *the taxpayer’s representation that the debt met this criteria. This can only be validated upon an IRS audit which the said taxpayer must pray never happens (otherwise the taxpayer might have to invent a justification that the BMW 7-series parked in the driveway was actually a home adornment that added to the value of the property!).
%-P
I knew this gent. He was a graveyard shuttle driver for an airport service. I was in envy of how he could afford all those nice toys. He had the largest plasma screen I had ever seen, purchased shortly after he moved in. It blasted out Al Jazeera all night while he waited for a fare. He converted his nice cottage into a dorm. His plan was to rent to college students. Hence, 5bd 5ba. The HOA caught wind of his plans, and that was that.
I’ve been watching this disaster unfold on this and other real estate blogs for quite a while now and I still can’t wrap my head around it all. The prices paid for some of these houses is just comical in my book and as a result, I just don’t feel too much pity for these people. I know that most people in California don’t want to live in the flyover, but we’ve escaped this mess and things are pretty good here.
My neighbor put her house up for sale on a Friday and it sold on Monday for more than her asking price. We never saw the bubble here, just a steady 5% or so increase a year and nothing has changed. Yeah, our weather might not be as nice and maybe it’s not as cool to live here, but it sure is a better quality of life and certainly a lot cheaper.
There’s no mystery to any of this disaster.
1) The same mentality that allowed CMGI to sell for $150 a share (eventually $1 or less) and JDSU for whatever 100’s down to $1, was at work here.
Same greedy imbeciles.
Couple that with greedy , mercenary RE brokers and banks, and there you have it.
Anyone with an ounce of sense could have predicted the bad ending.
Pity, the real criminals will probably get away with it. And the taxpayer foots the bill for the Ponzi scheme.
Oh, and savers get reamed by the FED having to lower rates to 1/3 the inflation rate.
Another thought.
All these lemmings made it impossible for decent, sensible people to buy a home at a fair price for YEARS.
Even now , the tags are too high. It’s only a house, not a gateway to heaven.
So anyone who wasn’t willing to be a sucker, is was also a victim, and continues to be so,
A shame we can’t let the values collapse to what they are REALLY worth.
I just ran some numbers in ING loan app, they want 65% LTV for a condo loan. 35% downpayment required!
As I mentioned a few days ago, banks now are doing conservative loans where you need a large down payment. 20% is no longer the safe bet.
Well, can’t blame them. They predict another 20% drop in the future and so that’s the partial down payment right there.