Let It Ride — Bachman-Turner Overdrive
You can see the mornin’, but I can see the light
Try, Try, Try, to let it ride
Speculating in an inflated market is much like shooting craps. In the game of craps, if your number comes up, you can choose to let your winnings ride in the hopes that your number will come up again. At some point, you need to take your chips off the table because if you don’t, you will lose it all when a 7 is rolled. Many people during the bubble took the equity from one property and bought more. Many would-be Donald Trumps built substantial financial empires. They were playing monopoly with real properties and funny money being given out by the banks as if the borrowers were passing “go”. With money that was easy to come by and properties appreciating at double-digit rates, it is obvious why so many people played this little game. Unfortunately, not many of them took their chips off the table in time.
Today’s featured property is a typical 100% financing walkaway, but the real story is with the previous owners. They were HELOCing themselves into a great lifestyle and multiple properties right at the peak of the bubble. I imagine they are somewhere between fear and denial as their empire falls apart.
Asking Price: $634,900
Income Requirement: $158,725
Downpayment Needed: $126,980
Monthly Equity Burn: $5,290
Purchase Price: $825,000
Purchase Date: 5/17/2007
Address: 11 Iroquois Ct., Irvine, CA 92602
| Beds: | 5 |
| Baths: | 3 |
| Sq. Ft.: | 2,268 |
| $/Sq. Ft.: | $280 |
| Lot Size: | 3,743
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary |
| Year Built: | 1998 |
| Stories: | 2 Levels |
| Area: | West Irvine |
| County: | Orange |
| MLS#: | S551556 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
bedroom & bath downstairs is perfect for a guest room. Second
bedroom upstairs could be used as a bonus/media room. Downstairs with
ceramic tile flooring throughout. All windows have plantation shutters.
Honey Maple cabinetry and Eat-in area in Kitchen. Huge back yard with
fire pit, beautiful landscape and rose garden. No Home Owner
Association. Close to Irvine and Tustin Market place shopping and
Entertainment.
The bagholder for the drop bought this property for $825,000 on 5/17/2007. The news of subprime’s implosion was a month old by then, but since they were still giving out 100% financing to people with decent credit, our bagholder bet on the subprime-containment theory and lost with the lender’s money. If this property sells for its asking price, the lender stands to lose $228,194 after a 6% commission.
As I mentioned in the prologue, the more interesting story here is with the previous owners.
- They purchased this property on 12/15/1998 for $290,000. They used a $232,000 first mortgage and a $58,000 downpayment.
- On 7/31/2001 they opened a HELOC for $77,000 and took out their downpayment.
- On 6/17/2003 they took out a stand-alone second for $40,000.
- On 9/12/2003 they refinanced for $405,000.
- On 10/6/2004 they took out a stand-alone second for $60,000.
- On 12/17/2004 they took out a stand-alone second for $120,000.
- On 6/16/2005 they refinanced with an Option ARM with a 1% teaser rate for $640,000.
- On 10/30/2006 they refinanced with a $660,000 first mortgage.
- Total property debt was $660,000
- Total mortgage equity withdrawal was $428,000 including their downpayment.
These people got away with it. They sold to our bagholder for $825,000 and actually made another $115,500 after a 6% commission. As you can see, this behavior was not punished, and in fact, it was reinforced by the market. Given that fact, do you think they might do it again?
While these people were milking this property, they were buying two others in Orange County:
- On 12/20/2004 they bought a property in Tustin for $650,500. According to the recent comp list, this property is worth somewhere around $500,000 today.
- On 6/13/2007, right after they sold today’s featured property, this couple bought another property in Irvine for $880,000. The borrowed $616,000 and put down $164,000 — most of which was the profit from the previous sale. According to the comps, this property is worth about $700,000 now.
These people likely spent most of the $428,000 they extracted from the first property. Some of the profits from the sale and some of the MEW went into buying two other properties which are now a combined $320,000 underwater… and still falling.
Some people who timed the market well undoubtedly reaped a windfall, and they are enjoying their gains. However, most people took what they did not spend and put it into another property, or multiple properties, and now they are underwater. Absent the mortgage equity withdrawal, these people would probably be OK, but since they spent so much of their appreciation, and since they “doubled down” with multiple properties, now they are going to crap out.
{book}
Good bye, I lied
Don’t cry, would you let it ride?
(repeat)
You can see the mornin’, but I can see the light
Try, Try, Try, to let it ride
While you’ve been out runnin’ I’ve been waitin’ half the night
Try, Try, Try, to let it ride
(Chorus)
And would you cry if I told you that I lied?
And would you say goodbye or would you let it ride?
Good bye, hard life, don’t cry, would you let it ride?
Babe, my life is not complete, I never see you smile
Try, Try, Try, to let it ride
Baby you want the forgivin’ kind, and that’s just not my style
Try, Try, Try, to let it ride
Chorus
I’ve been doin’ things worthwhile, and You’ve been bookin’ time
Try, Try, Try, to let it ride
Runnin’ with the crazy crowd, ooh, ain’t no friends o’ mine
Try, Try, Try, to let it ride
Let It Ride — Bachman-Turner Overdrive
pre-emptive Kirk post:
Obama islamofascist islamosocialist Rev. Wright Bill Ayers Rezko Barney Fag CRA Chris Dodd Clinton did it ooga booga
there, now that that is out of the way, please enjoy a comments thread full of truly astute observations.
Don’t forget ACORN!
ACORN indeed.
I would like to point out to r€nato that I have never used a vulgar term regarding homosexuality. There is no need for that type of language. It is offensive.
I don’t believe I’ve ever commented here about homosexuality at all, but it is interesting that California is one of the states suffering the worst housing decline. Perhaps this is the modern version of Soddom and Gomorah.
The Republicans have played the “It’s Bill Clinton’s fault” meme brilliantly with respect to the housing collapse.
Going in to this election, the Republicans knew that if they took the blame for the housing bubble and the collapse of the economy, it would be an election day disaster. By making up this BS about Clinton creating the problem, they preemptively attacked, and they have had the Democrats on the defense ever since. It is brilliant politics: aggressively blame your opponent for something you don’t want to be held responsible for and deflect all criticism of your own actions that way.
The fact is that the GSEs are not responsible for the housing bubble or its collapse. Neither Clinton or Bush is responsible for the housing bubble or collapse. In fact, the GSEs were steadily losing market share to private offerings during the bubble. They reacted to this phenomenon by aggressively going out and buying more mortgages right at the peak of the bubble. This is one of the main reasons they got into so much trouble. Also, the insurance they charged for their “swaps” was too low to cover the losses of a major price crash. It was these two factors that put them out of business. Neither issue did much to create the housing bubble.
The “smoking gun” information about Clinton administration officials pressuring the GSEs to better serve the poor and minorities is typical of the conversations every administration has had wit the GSEs since they went private 40 years ago. The charters of the GSEs mandate them to provide loans for low and middle income Americans. That is one of their primary functions.
If there is one thing the Republicans can be blamed for it is a lack of Congressional oversight of the banking industry. However, with Alan Greenspan forcefully opposing it, I doubt the Congress or the administration could have accomplished much even if they wanted to. I suppose they could have forced Greenspan out and got someone in there who wanted to see better oversight, but given the prosperity of the times and the Republican philosophy concerning regulation, it is very unlikely Greenspan would have been ousted.
The GSEs being allowed to buy subprime debt and assume HUGE leverage is certain one reason for this bubble and the taxpayer will be hundreds of billions in debt when this is all said and done.
And the GSEs are a Democrat tool…created, supported and maintained.
The government should not be subsidizing U.S. home prices.
Ummm, weren’t they Republican tools during the last 8 Bush years? Wasn’t it the Bush/Republican “ownership society” policy that they were pursuing, not to mention the Republican policy of top managers carrying off ever-larger “compensation” rewards based on inflated company earnings?
The GSE’s may have been a Democrat tool during the Clinton or Democratic-controlled Congress years, but that tool has been at the direction and command of the Republicans for a good long while, and we can see how they have used it and the results.
And as frequently noted, the GSE’s are hardly the root cause of the problems. Just typical Republican election strategy of point somewhere else and yell like hell to drown out any rational analysis and consideration.
I find it interesting that a response to a clear, concise and unbiased analysis of the situation would prompt a loyal Republican to post their talking points.
Did you even read the comment you were responding to?
I think the important thing now is to figure out a solution going forward. The GSE’s need to be put out to pasture. They are a failed experiment.
You don’t hear very many people blaming falling wages for the housing collapse, but many people blame the greedy for buying “too much house.” It was once a reasonable expectation, when buying a house, that your wages would be higher in five years’ time. Now, you are lucky to have the same job for five years. The real job of the Fed is to keep wages low, and the investment bankers made the offshoring of jobs possible. Put the blame where it belongs.
Wages are the other half of the equation for home affordability. As noted, they have stagnated, and one cannot depend on higher wages to “rescue” you from high mortgage payments over time. In addition, as housing prices climbed, more lending took place outside of “conforming” channels, resulting in larger percentages of your pay going to service the mortgage debt.
In the not too distant past, a family making the median wage could expect to buy a median priced home (or close to it). In too many markets today, that is wishful thinking.
“The government should not be subsidizing U.S. home prices.”
does this astute statement include the deductibility of mortgage interest? that is a huge subsidy, biased towards those who buy the most expensive house (the rich), of course!
So you are in favor of no more write-off?
Um, Fannie and Freddie aren’t to blame:
Private sector loans, not Fannie or Freddie, triggered crisis
Federal Reserve Board data show that:
* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.
Informative article — thanks for that.
IR
“I suppose they could have forced Greenspan out” …
No one could have forced Greenspan out. Back then he was God, a genius. He was untouchable. His comments to Congress were considered brilliant. Unfortunately, when God goes bad you are screwed.
More interesting, Paulson was on Charlie Rose last night. Some of his comments were fascinating. It wasn’t his decision to let Lehman fail, rather, it was a non decision because he had no authority to act in Lehman’s case. He said he and Bernake went before Dodd’s committee to get more authority after Bear Stears but Dodd told him no way at that time. He tried to engineer a sale of Lehman at the last minute but when that fell through he was out of options.
Your observation is right on. I only mentioned the possibility because that is what it would have taken to see any meaningful regulation of the shadow banking system. It wasn’t going to happen under Greenspan’s watch.
And there’s the problem with gambling. The entire gambling industry is based on the idea that, sooner or later, the house wins everything, and even the good gamblers get burned from time to time. Unfortunately for us all, real estate wasn’t intended to be a gambling venue, and like an incompetently run casino, the banks are now stuck with a lot of IOUs and confiscated luggage that they can’t sell for anywhere near what’s owed.
Texas,
You’ve mentioned something here that may be starting to change American’s view of wall street.
We learn at a young age that wall street is a great institution of capitalism. Companies can go there and raise money and every American gets to own a piece of the pie. We are told that the road to retirement security is a sure thing if we invest in stocks.
Now it seems that it is not a level playing field and the stock markets are a method for the ultra rich to siphon money away from the middle class.
I recently heard that there are about 2 trillion dollars in hedge funds, funds for the ultra wealthy. These hedge funds have returned between 10 and 20 % for the past ten years. This year the overall return is down 8% and the participants in the funds are really upset. So what is going on here is that these funds are essentially taking all of the profits out of the market for the ultra wealthy.
When Warren Buffet goes to buy stock in Goldman, he gets preferred stock….stock with substantial liquidation preferences. If I buy stock it is common and will disappear is something goes wrong with the company.
We hear of billions of dollars in compensation and bonuses for the workers and heads of wall street. Meanwhile the gains for this investment vehicle is next to nothing…..
So it seems…..the house(wall street) always wins. This is true as long as people are willing to show up and play. There is a chance that the American public is fed up with the house always winning and may not return to wall street with their hard earned savings.
You can also buy preferred stock in a company…that’s not just for Warren.
Robert,
You will not get the “Buffet” deal at GS:
10% dividend ($500mill a year) for his $5 billion stock purchase at levels he believed was a bargain. Or was the preferred stocks a bonus for his PR work? GS CEO said they did not need money, but their stock lagged and it is perceived everything Buffet touches turns into gold…
“…There is a chance that the American public is fed up with the house always winning and may not return to wall street with their hard earned savings…”
I think you’re right. I think a good portion, if not the majority, of Boomers will never return to equities. This is capital that will sit in FDIC-insured deposits and bonds.
I believe this is exactly what will happen. It’s a natural thing to happen anyway as people retire, regardless of any market conditions.
I believe it is happening right now in fact, and that the “market” is not likely to recover it’s October 2007 peak for quite a while. Maybe 10 years. Maybe longer.
All the activity in OC is apparently with respect to employment more or less holding steady. Wonder what house prices are going to look like at 9% unemployment?
Oh, you had to go and break out the dice didn’t you.
http://www.crackthecode.us/images/TheDiceMan.jpg
He is still rolling the dice over at
http://www.hughkice.com/
It looks like the “win a free mortgage payment” link has gone away. Bummer.
It looks like I need to add “Short Sales!” to his billboard.
http://www.hughkice.com/
Excellent article linked by Patrick.net this morning.
http://www.marketwatch.com/news/story/14-reasons-main-street-loses/story.aspx?guid={F63EC448-D9C1-4138-AC18-97BF0FE68EE3}
Back in the day we had separation of church and state……
So now maybe we need separation of wall street and state…….
I may be on the fringes, but I believe that everything being marketed now is a scam. If you notice, deception has become the primary marketing strategy for even the most “reputable” companies in America.
What used to be known as “boileroom” tactics or selling “snake oil” has become the norm in marketing your products or services.
It’s sad to see, the greed and lack of morals that has infected everyday life. Not sure how people sleep at night to tell you the truth.
Wall Street and bankers should strive to be as honest as the preverbial used car salesmean.
If the Irvine continues to hold as it has been, I think this house will sell for a good bit over list price and do so rather quickly…
Given the current market perception of value, you are probably right. I think this gets down to $500k to $550k before prices bottom.
IPO, you are right about the featured property- it has to go above asking price unless everyone with bags of money in Irvine lose it in Stock market.
What is your opinion on this: http://www.redfin.com/CA/Irvine/16-NIGHT-BLOOM-92602/home/16892505
Would it get full asking price? Comp went for 558 back in May. Another one is in Escrow now. I think 500k is the right price in this market- Let me know what you think.
CZ
Nope, it won’t get full asking.
Similar place but in Northpark’s San Simeon, just closed at $595K. I think the San Simeon is/was a bit bigger. That was 61 Meadow Valley.
This same model is in escrow (62 Night Bloom) on a list of $525K so $525-550K depending on upgrades is probably about right.
This property is in escrow already…
Yesterday’s property had some commenters saying that a 1/4 acre lot with a 4200sf house was way, way too small. I found that a little strange, since I live in a 4100sf house on 13,000 sf lot, and I am quite happy with the size of my yard. Today we have a 2268sf house on a 3743sf lot. Not even 1/11th of an acre! Now that’s what I call “too small”. And the Realtor’s description says it has a “Huge back yard”. I don’t think there’s enough wiggle room on this one. I think that’s an objectively false statement.
12% rent increases are being predicted for 2011, by then maybe it’ll be cheaper to buy.
http://lansner.freedomblogging.com/2008/10/22/which-2-oc-cities-will-see-rents-jump-12/4792/
Perhaps Lasner’s post is unclear; if the prediction company is predicting those increases OVER 2008 prices, then they might be sane (4% per year)
But, as I read it, those are supposed to be the year-over-year increases that will occur in 2011 vs 2010. Making predictions for year-over-year rent increases 3 years out in a situation of MASSIVE uncertainty right now is simply guessing.
The listing claims this is a corner lot. Does “corner lot” mean something different in Irvine than in the rest of the world? There’s another house between our featured structure and the nearest cross street (Tyler Place). And what kind of agent takes – much less posts – a bathroom picture with the lid of the crapper up? Does he/she know – contrary to ipop – that this is never going to sell even close to this price and so is unwilling to spend any effort on it?
Not to bring ya’ all down by talking about local real estate, but…
48 Cezanne, profiled a couple of weeks back, listed at the WTF price of 2,395,000. It had been on the market for 2 days at the time.
I just drove by and the realtor was doing a preview so I stopped in. The flier the realtor was handing out said $3,195,000.00.
I talked to another realtor on my way out and expressed my disbelief. She told me “things are tightening up. Shady’s going gangbusters and things are looser up here but it’s a good neighborhood. I tell my friends up here to just hold out.” She also said “You know, he turned down 2.7 last year” I said “Well, he was a jerk.” And she said, “yes but the market is different now…”
Is there some society that looks into mass hypnosis of realtors? Is there an intervention program? It’s scary to think these people all drive big heavy cars unsupervised.
I scanned the flier…wanna see it?
Yes. I do.
There is a lot of building in Shady Canyon now. And, as I keep saying, the market I’m looking in has very little available. Any approaching mid-$500’s for a starter home is snapped up. I’m going to watch through the winter and see if the recession and the supposed tighter lending standards will make a difference.
IR’s original post way back when explained that there is a normal level of inventory in a normal housing market. But only what absolutely had to be on the market was there this past summer, and so there was not much to choose from. Even foreclosures were relatively scarce and prices remained relatively high. I think all of this talk of foreclosures flooding the market and enormous price declines has caused potential sellers to stay put, but these conditions are not true everywhere. Consequently, neighborhoods where foreclosures are low have not seen prices decline too much. People are not selling otherwise unless they absolutely have to and that is keeping prices higher in those areas.
> It’s scary to think these people all drive big heavy cars unsupervised.
LOL!
“However, most people took what they did not spend and put it into another property, or multiple properties, and now they are underwater”
To which John McCain would reply,”Homeowners are the innocent bystanders in a drive-by shooting by Wall Street and Washington.”
The pandering is getting pretty thick.
Have you guys seen this advertisement posted on Lansner’s blog?
“Creating Urgency in a Non-Urgent Housing Market”
http://www.shoreselect.com/PDF/SevenPhases_of_Urgency.pdf
It really turns me off that they are that blatant in trying to stir up emotions to get you to buy something.
I find all this talk of buying right now, or what it should go for when… incredible. IMO it is best to wait at least until the dust settles, and see who is left with a job. It takes time for things to trickle down, and they will, it is estimated that the unemployment rate will see 9% before all this is over. I hope all these people going out right now and buying still have a job next year.
You know, every house you show on Irvine renter looks to me like a family with 1 to 4 kids might live there. How does it feel? One month, you are living in what looks to me to be one of the nicest areas in the US, with all the trimnmings. And then it goes to hell. And it can all happen so fast! There’s such a mountain of debt, that when it goes wrong, you go from everything to nothing in a short time, maybe a couple of months.
How does this effect family relationships? Marriages? WHAT THE HELL IS GOING TO HAPPEN THIS CHRISTMAS?
$280/sf.
$140/sf here we come.
I know, I know, that’s way too low for Irvine.
“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof;”
I don’t remember if somebody said that already, but this house is already in escrow, 2 days on the market. no wonder, at $280 per sq. ft., it is a very good price. I wish I saw it before the others…
“I wish I saw it before the others.”
Don’t worry, there will be far more opportunities at that price per square foot and lower.
We have not found a bottom in this market.
Positive affirmations will not change this.