A String of Pearls — Glenn Miller
Pearl Harbor Day was Sunday, December 7. One of the enduring images of “A date which will live in infamy” is the wreckage of the USS Arizona. One thousand one hundred and seventy-seven crewmen died aboard the USS Arizona that day. The sunken hull sits quietly submerged beneath the waves.
Americans were not prepared for World War II. Peacetime isolationism and lingering problems from the Great Depression left us ill prepared for the challenges our nation faced. We ultimately prevailed, and the peacetime that followed ushered in a new era of prosperity in the United States. We are only now getting a taste of the economic upheaval of the Great Depression, and as a society, we are equally unprepared for the consequences. We will survive, and hopefully we will begin a new era of prosperity. However, some of the images of The Great Housing Bubble will also endure (I hope).
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Some historians have argued that the military made a critical error
having so many ships in port at Pearl Harbor. We did not anticipate the
attack, and we were not prepared for it. Like the USS Arizona, many homedebtors today are underwater. Their lack of preparation for this catastrophe has left them deeply in debt with little hope of recovery. For those who became dependent upon a lifestyle of mortgage equity withdrawal, this is the end of times. Many are hoping our new President will be a messiah. They cling to false hopes for a bailout that will allow them to go back to living the good life of Ponzi Scheme financing. That isn’t going to happen.
Today’s featured property is another HELOC abuser who lives on Arizona and is just as underwater as the ship.
Asking Price: $848,900
Income Requirement: $212,225
Downpayment Needed: $169,780
Monthly Equity Burn: $7,074
Purchase Price: $538,500
Purchase Date: 1/28/1999
Address: 22 Arizona, Irvine, CA 92606
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 2,950 |
| $/Sq. Ft.: | $288 |
| Lot Size: | 8,000
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Traditional |
| Year Built: | 1999 |
| Stories: | 2 |
| Area: | Walnut |
| County: | Orange |
| MLS#: | S556326 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 3 days |
Floorplan With Formal Living Room & Dining Room. Kitchen Includes
Granite Counters, Breakfast Nook & Opens To Large Family Room With
Stone Fireplace. Large Bonus/Game Room. Master Suite Includes
Fireplace, Jacuzzi Tub & Large Walk-In-Closet. Entertainers Yard
With Stone Hardscape, Built-In-BBQ/Bar, Outdoor Fireplace & Pool
Sized Lot! 3 Car Garage With Storage Cabinets. Close To Central Park,
Pool, Sports Court & Tot Lot.
Why Is Every Word Capitalized?
- This property was purchased on 1/29/1999 for $538,500. The owner used a $430,530 first mortgage, a $53,800 second mortgage, and a $54,170 downpayment.
- On 6/26/2000 he opened a HELOC for $50,000.
- On 10/18/2002 he refinanced with a $503,235 first mortgage.
- On 11/15/2002 he opened a stand-alone second for $62,000.
- On 12/28/2005 he refinanced with a $848,000 first mortgage.
- On 7/13/2006 he refinanced with a $928,000 first mortgage.
- On 2/13/2007 he opened a HELOC for $205,000.
- Total property debt is $1,133,000
- Total mortgage equity withdrawal is $648,670.
If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $335,034 despite the property selling for more than $300,000 over its original purchase price.
All these people using mortgages as options seem to be making out quite well during this price crash. What will you be doing during the next cycle when lenders lose their minds again?
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Great another HELOC addict, when are they going to start having support groups for these recovering abusers? I can see the headlines now, “Poor Johnny, only 16 and has his Lamborghini repossessed, how is Johnny going to face his classmates?” “Who will help Johnny’s parents maintain their lavish lifestyle?”
Answer: Us
What you’re going to see is even more denial. I remember the aftermath of the big oil bust of 1986, when everyone realized how much of the luxury throughout Texas was based on the price of oil continuing to shoot upwards. When the price crashed, suddenly the hopheads had to give up their Hill Country vineyards and their 10,000-sf houses, but they kept spending because they didn’t want people to think they were poor. (I remember when a big pawn shop in Houston put in a drive-through window, so that bigshots could pawn off jewelry without having to get out of the limo and be seen by their equally too-rich-to-be-broke neighbors.)
The next stage is going to be where the worst offenders in the bubble are going to claim that they’re just one of us, especially after the vocal entitlement brats get pelted with cat crap in public. “Oh, I’m not rich. I only have three cars.” Keep an eye open for that within the next three to six months: that’s about the time that Johnny decides that he’ll be taken more seriously as a hipster junkie living in some warehouse space than as a suburban junkie having to dodge Mommy and Daddy’s creditors.
How about another link to the Real Estate Downfall.
https://www.youtube.com/watch?v=bNmcf4Y3lGM
That was so funny.
Bankruptcy and foreclosure are good things.
The government trying to artificially prevent bankrutpcies and foreclosures is a very bad thing.
I agree. Why dose the public have to pay for the stupidity of businesses? Banks are businesses as well as GM. If they do a bad job, then they are out. Simple as that.
Because we all pay no matter what–job losses effect the entire market as deflation continues onward. Greed and fraud brought us all down even those of us not involved we have lost in our 401k’s, the valuation in our homes, future jobs, higher taxes. This massive white collar fraud I call it Enron on steriods has hurt everyone. Obviously going to church these last 8 years has only taught those involved to cheat and steal. All for me and none for you—LOL—Great society we have here!!!
As a stockholder you are involved for not holding the board accountable. That’s the whole problem with stocks. You are part owner of a company. Would you give cash to a relative to start a company and not bother to see if the business plan will work?
“Obviously going to church these last 8 years has only taught those involved to cheat and steal”
How did you get church attendance in here? All the churches I have attended in the past 35 years teach hard work, honest living, being generous, paying back debt and against excessive debt, cheating, greed. Sure there have been been some crooks in churches, but I think there are more outside.
As the song goes ” image a world without religion …” I don’t have to image: Look at world history — 20th century, 100 million murdered by Communist states.
http://skeptoid.com/episodes/4076
You can check this out–
I would blame media for this rather than the church.
As a society, we are obsessed by the amount of physical goods / resources a person has and not how content s/he is. This is aggravated as a result of main-stream media presenting to us the rich and famous / infamous as success stories worthy of being emulated.
You don’t want to be the next Trump / Bill Gates / Rupert Murdoch / millionaire – ah, then you’re a loser. Even serial killers like Ted Bundy get more TV time than you or me. Children watch this stuff and learn. The educational nature of media has no value for the businesses that run them, and so we get 500 channels of junk.
http://www.thenation.com/doc/20070618/reynolds
just one area where church and money intermix
And I really should not have brought this up this is not the place but when you look at those who have cheated the tax payer don’t think the church had nothing to do with it. Preaching politics in church is one example of a society gone wrong. The amount of theft is so widespread it’s hitting every race and sector so the desire to get rich has been propagated in many venues maybe not all but many. Preaching do unto others as you would have done to you is totally lost in today’s mortgage fraud, just take a look at the FBI files new ones everyday.
Not a bad house… I’d like to see this in the $225 per sqft range. Of course, this is Irvine and that may never happen.
I’ve noticed many similar houses in Orange and Anaheim Hills heading more towards affordability in the low 600’s and even breaking 6. Wondering how long it will be until we see Irvine homes like this one in that range.
long time lurker…first post…
based on IR’s analyses posts it seems home prices should be based on rental parity,etc as IR has indicated… but what does everyone think Irvine’s “fair market” $/square foot should be?
thanks IR for all your analyses, it saved my family lots of money.
I think $225/SF is a reasonable aggregate figure. Some neighborhoods will be higher, and some will be lower.
Thank you for the kind words, and thank you for posting. It is always good to hear from the lurkers.
Seeing as my target price is $350K (or less…I don’t mind saving money) for a 1500 sf detached, I’m hoping you’re right. If the downpayment fund and the market intersect at the right time, it’d be nice.
Irvine Renter is an optimist…
If the SHTF in a spectacular fashion (and I do), you will be amazed at what prices these homes will fetch.
Fortunately there is no need to attempt to catch a falling knife. Home prices will not suddenly shoot upwards when a bottom is reached.
Wait for it…
I agree.
I’m thinking $140/sf by the time the dust settles and the smoke clears.
You guys are funny… Closing prices for December are up 8% over November for Irvine. Probably an aberration due to small sample size, but surely not indicative of any downward pressure on prices.
Oh yeah?
You can already pick up nice new homes in North SD county county built in ’03 with 2500-3000 sq ft for $155-165/sq ft in nice areas next to a golf course.
Last time I checked the weather isn’t any nicer in OC to get a $130/sq ft premium.
Like lunatic said, wait for it…
I imagine golf courses homes in Montana can be had for $50/sf. Does that mean Irvine will fall to that price level?
Real estate is local. Last time I checked, north SD was not a major metro center so to compare home values there with OC just because the temperature the same is just plain silly.
Oh yeah, one month of data of course means that everything is hunky dory. My bad…
One month of data? I have been charting Irvine closing prices since early this year… Prices have been flat.
http://www.ipoplaya.com
I like the irony in these realtor descriptions. We had a “rap around yard” yesterday, today we get a lot that is the size of a swimming pool. I suppose it could be the size of an olympic-sized pool which would still be small for a property costing $850k.
The housing bubble was an asset bubble bordering on a pyramid scheme. The housing bubble had the particular twist that the moneymakers were get commissions and fees on each transaction, rather than owning principal investments.
There is a good analogy in the Albanian pyramid schemes of the 1990s. A good description is from the IMF, http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm
Here is an excerpt:
Effect on the economy
Few studies have been done on the macroeconomic effect of pyramid schemes on the scale of those in Albania, which, fortunately, are extremely rare. The closest analogy to such schemes is the asset bubble, whose economic impact is due to changes in perceived wealth. As a bubble expands, people believe themselves to be better off than they actually are, and their demand for goods and money increases, leading to a deterioration in a country’s external current account as well as increased output or accelerated inflation or both. If the bubble attracts foreign investors, capital inflows might be sufficient to fund the current account deficit. After the bubble bursts, perceived wealth falls dramatically. Demand for goods and money, as well as output and inflation rates, can be expected to decrease, while the current account balance is likely to improve.
Some of these effects were observed in Albania but appear to have been limited and short lived. Although the current account of the balance of payments (excluding official transfers) deteriorated by about 2 percent of GDP in 1996, to 9.1 percent of GDP, because of a 35 percent increase in imports, this consumption boom seems not to have been the main factor driving inflation. The impact of the schemes’ rise on output, which grew at nearly the same rate—9 percent—in 1996 as in the previous three years, is also unclear.
The collapse of the schemes seems to have had a major short-term economic impact, but the most damaging effects came from the civil disorder it precipitated. Output fell by about 7 percent in 1997, with most of the decline being due to interruptions in production during the civil disorder. The increase in the inflation rate to more than 40 percent in 1997 can be attributed almost entirely to the depreciation of the lek and the sharp rise in the fiscal deficit caused by the loss of government revenues during the period of civil disorder. Recorded imports fell by more than 25 percent, reflecting not only the loss of savings but also the disruptions in trade and increased smuggling. Capital inflows declined but did not turn into net outflows.
The long-term effects of the pyramid scheme phenomenon are likely to be limited, reflecting not only the resilience of the Albanian economy but also—and, perhaps, most important—the government’s adjustment efforts and its refusal to bail out depositors. Prices and wages are extremely flexible in Albania; as a result, the government was able to cut real public sector wages substantially in 1997 (by leaving nominal wages unchanged), and the economy suffered no loss of competitiveness when the lek appreciated. The new government’s willingness to tackle the budget deficit and undertake long-overdue structural reforms was also crucial. However, the social effects were profound. In addition to the loss of life, thousands of people were impoverished either by their unwise investments in the pyramid schemes or by the destruction of their property in the ensuing violence. Less tangible, but also significant, are the effects on confidence in Albania. The resilience of the Albanian people is considerable and has been more severely tested in the past. But the pyramid scheme phenomenon was a sobering setback.
I remember reading similar accounts of the Dutch economy entering a depression after the collapse of the Tulip trade in 1637.
http://www.amazon.com/Extraordinary-Popular-Delusions-Madness-Crowds/dp/9562919919/lewrockwell/
When the tulip bubble popped, all the Tulip-flipping investors mobbed the Dutch courts and started suing each other. All of them wanted complete protection from their creditors while demanding every penny and pound of flesh they were owed themselves.
The Dutch courts wisely refused to hear any of the lawsuits, effectively saying “Settle this among yourselves; we want no part of it!”
All the former Tulip tycoons then looked around at each other and settled for pennies on the dollar, coming and going.
I expect something similar to happen here, but with a different ending. Our courts won’t keep their hands off, and a lot of lawyers will get very very rich.
This house went for $725K (hat tip to graph) at auction last week. Apparently a flipper owns it now as they re-listed with a new realtor right after the auction.
While I have never met the owners of this house, I have friends that live down the street who know them pretty well and some other friends that know them from church. These people did not spend lavishly. The pumped some money into the house (Viking BBQ in the backyard and decently done landscaping) but most of the funds evidently went into the owners ailing business. I think they also adopted a child and apparently that process was quite costly.
I toured this house but the upstairs layout has some issues. Not a very efficient use of space… The lot is nice though. Hard to find that kind of lot size in Irvine that doesn’t back or side to a street. The owners left a wood Tuff Shed there which is probably worth $2500 or so too.
Where do auctions of Irvine homes occur? I’ve been trying to figure that out on-line, but still haven’t. Can just anyone attend?
You’ll have more luck with foreclosures. In good neighborhoods auctions are rare.
http://www.ocregister.com/articles/auction-bid-anaheim-2070586-redc-realty
Let me clarify. This house sold at foreclosure auction, not one of those REDC scams. At the ole courthouse ya know…
I think anyone can attend a foreclosure as far as I know. If you are really curious, head to the forums and read up. There is a wealth of info on the foreclosure process, auctions included, to be had.
Also, buying at auction (TDS) can be very risky. You are not guaranteed clear title. Unless you know what you are doing, stick with REO.
And don’t forget Stick-it-to-The-Man People’s Housing, aka Squatting. There are actually how-to-do-it Squatters’ Rights sites on the Web.
Yeah I’ve heard that adopting a kid can cost up to $500,000-$600,000 in court fees. Then again, serially HELOC-ing your house over an 8 year period is also a good idea if your business continues to fail year after year for 8 years.
Give me a break. This owner didn’t live lavishly? LMAO
Adoptions usually cost <$20k. You can spend much more, but it is unusual and quite unnecessary.
I’ve been in the house (nice but they didn’t go crazy), seen the owners, seen their cars (not a Benz/Rover/Hummer/Escalade family), etc.
If they did live lavishly, it wasn’t in the traditional showy OC way.
I just googled the owners name and found his business. Full service auto transport services… You know, the trucks that take new cars from point A to point B. Yikes, no wonder they were hurting financially.
Read the blog daily and found an interesting paper by the Center for Economic and Policy Research that goes very well with IrvineRenter’s analysis on the real cost of ownership and the multiples of rent school of house pricing.
http://www.cepr.net/documents/publications/Changing_Prospects_for_Building_Home_Equity_2008_10.pdf
Nice paper — thanks for that. And yeah, definitely supports IR’s thinking. Interesting to see their figures on the improving but still quite negative equity prospects in LA/LB/OC. I was also kind of amazed by the fact that “over most of the 20th century – from 1895 to 1995 – there was virtually no change in real [i.e. inflation-adjusted] home prices”, showing just out-of-whack we’ve been since ’95.
The funny thing about renting is your neighbors assume you must of either sold your home and made money but more likely you abused your home and lost it.
Even though I said no not really the issue for us (we were transplants)–and then I go on to tell them I am a stock trader and the market is over priced. They still don’t believe because a woman who does this? Anyway I am used to the double standard living in the OC. If you don’t live the life of fraud obviously something else is going on.
Moving day the landlord ask my daughter do you owe a lot to college. And she looked at him like Hell no–it’s been paid. Not many like me–I am alone in this world of fake everything except some here in this group–wish I had found you guys years ago than some of my sanity might have been saved–LOL
I sold my house in the Bay area in 05′ taking a new job down here. Once doing the housing tours realized the fraud (straw buyers) ect. ect. ect.
Irvine has a long way to go before it bottoms job losses have just started. This area and surrounding areas will be the last to drop. What you are seeing now is just the beginning. All of Irvine is white collar jobs and they will be dwindling downward.
It’s going to take a long time because it took 10 years to get here–5 should do it and we are in year 2 of the downturn. Many will stay in denial and won’t sell. Better to rent and live below the radar. Easier to find real people this way if any do exist in Irvine–LOL
I have found that people who don’t know us assume that we are living off of our profits from our house sale and had to rent because we couldn’t afford anything. It is crazy to me how clueless people are even now, about the economy. It is baffling really. And when I say that house prices are going to go down more, they think I am dreaming.
Very few people are into economics if you want to call this mess this—lol—
After the tech bubble I was very aware of what can go on–
You can tell friends and family till you are blue in the face–but I think this month some have finally realized something is going on.
This tells us as a society how many of us really live in our own bubble life.
TLC: I feel the same way you do, even more so. I’ve been living below the radar in the East Bay for a decade.
Some of us are NOT responsible — in any way — for this currently unfolding mess.
Well we are a rare breed that does not live in debt. I used to think it was the generation after me–those yuppy types that went nuts with money. But you realize it’s many more than just one generation. All I know is it’s hurting a hell of a lot of people. Ever since Enron those guys laughed at us here in CA while they stole from us. What kind of people have we become? Even today the Gov. of Ill. what is he thinking selling a senator’s seat. And so open about it? What are people thinking? No consequences for actions? I don’t get it.
There is no reason why two or even three very nice rental units can’t be made out of this house. If local regs permit. And they will sooner or later. Took me a long time to realise that many of the flats I rented in SF were built originally as single-family dwellings.
“If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $335,034 despite the property selling for more than $300,000 over its original purchase price.”
I see the sale as a profit of over $300,000. Nothing says a refinancing must have been spent and not invested in something else. In other words, what happened to the 648,670? Spent on improving the house or mostly to a saving account or other investment? Anybody know? Does the bank even care with the bail out?
1 sovente
Irvine, CA 92606
1 of 10Zoom In
Beds: 5 On Redfin: 184 days
Baths: 4 Year Built: 1996
Sq.Ft.: 3,100 Lot Size: –
$/Sq.Ft.: $371 MLS#: S535742
Status:
Last Sale: $588,000 (03/14/2000)
Listing: Great USA Investment
this one looks suspicious