35 thoughts on “Down the Drain”

1. AZDavidPhx November 17, 2009 at 4:19 pm

   When pundits discuss the phenomenon of walking away from a mortgage debt, they assume that people really planned on paying back that money when they got it.

   most Californians never plan to repay the loan out of their wage income.

   but most borrowers never think they will actually pay back the large sums they are borrowing

   This is what it really fundamentally boils down to. Of course! Would you buy that 500K McMansion if you really believed that you would have to repay every penny +interest?

   The public has been manipulated and groomed through a very sophisticated system of incremental ism where at each step the borrower takes more and more than he could ever hope to repay, but is consistently bailed out by someone on the ladder below him.

   Like a game of musical chairs, when the house debtor wants to “move up”, he typically finds a chair to sit in as someone younger stands up to take his place.

   The system instills confidence at each level and everyone becomes comfortable and detached from the actual numbers. The only thing that matters at this point is being able to make the monthly payment long enough to move up again and this changes the game completely, allowing these banking hustlers to play games with payments and come up with new and improved payback schemes like interest only mortgages.

   It is easy to see why they work so hard to eliminate those pesky down payments as they only serve to reduce the number of chairs in the game available for existing debtors to sit in when they are ready to “move up”.

   And look at what the government is doing – using its tentacles to grab us and yank us into another round, throwing us chairs, and playing us some music while “borrowing” a bunch of money to pay for it all that is never going to be paid back.

   I am seeing a pattern here….
   1. Serenity Now November 17, 2009 at 8:05 pm

      the only way that your musical chair analogy works is if a huge majority of home buyers, legislators and economists are complete idiots. Do you expect us to believe …….
      never mind.
   2. wheresthebeef November 17, 2009 at 9:15 pm

      That’s a great analogy of what is really going on. Here in southern California we have been programmed to believe that spending 500K for a house is not that much money. But when you break down the numbers…mortgage, property taxes, insurance, HOA, maintenance…you better hope and pray that you will have a high paying job for the next 30 years to pay that box off.

      It seems as if everything and anything will be done by the power that be to keep this ponzi scheme going…no matter what the cost.
   3. newbie2008 November 18, 2009 at 1:21 am

      “I don’t think lenders fully understand there is a segment of the borrowing population that lives from one infusion of borrowed cash to the next (or maybe they do know and don’t care).”

      I’ve never met a lender that couldn’t do math. I think it was more “…as long as I get my cut off the top.”

      AZDavePhz,
      Most in CA don’t live McMansions (only wish they did). Most CA debtors slave to keep a McCheeze burger size house (1600 sf).

      Why else would the FHA only require 3.5% down unless they expect you to walk away? It keeps the price up and makes own/walk-away cheaper than renting. More fuel for the Ponzi housing scheme.

      The money will be paid back — not by the borrowers but by the taxpayers.
2. IrvineRenter November 17, 2009 at 6:10 pm

   Real estate roundup: U.S. foreclosures slow, California new home sales dip

   “California had the second-highest rate, after Nevada, with one in every 156 housing units receiving a foreclosure filing in October.”

   We all know the foreclosure filing rate lags well behind the actual rate at which borrowers have stopped paying.

   Just to give you a sense of how bad things are for my industry, there were about 35,000 building permits issued in Riverside County alone in 2005:

   “The report shows that sales in new-home communities of 10 units or more were 11% below September 2008, with only 2,310 new homes and condominiums sold, compared to 2,580 in September 2008.”

   That is a 95% reduction in permit and construction activity. This is a very difficult time in homebuilding and real estate development.
   1. AZDavidPhx November 17, 2009 at 6:35 pm

      The tough pill to swallow is that the industry is at over capacity and many of the players are going to have to go find something else to do. My industry experienced this back in 2001 when DotCom imploded. Business and finance then became the flavor of the decade, and now we are steering the masses into Nursing and various other medical fields, promising them rich and rewarding careers – the usual gamut of peddled lies. I expect the next boom/bust will be in green technologies when the health insurance companies go bellyup and Nursing jobs are slashed.
      1. LongTime Reader November 17, 2009 at 8:58 pm

         Along with the promise of good jobs comes the cost of the education to get the job.

         I was talking to a respiratory therapist and he said it cost him 6K in the early nineties to get his certification, now it’s up to 40K.

         The government with it’s student loans are hurting the people they are suppose to help. Pretty soon there are going to be to many medical professionals like there was too many computer professionals.
         1. AZDavidPhx November 17, 2009 at 9:08 pm

            The major University here in Tempe is now billing its students an additional ‘Economic Recovery’ fee. Yes, this is the wording that shows up on the bill that is issued.

            I get a laugh out of the sheer hubris in it.

            Of course they are just figuring students will borrow it all anyway and nobody will care except for those cash paying hooligan tightwads like AZDavidPhx.

            It really is getting ridiculous seeing these educational institutions turned into government for-profit enterprises.
            1. Major Schadenfreude November 17, 2009 at 10:49 pm

               “It really is getting ridiculous seeing these educational institutions turned into government for-profit enterprises.”

               That will hopefully be another bubble that pops soon.

               The rule is that where there is credit expansion, there will be asset inflation in that sector. Credit per se is not evil, provided the FREE MARKET dictates its price. However, when the government interferes with the market, then trouble is afoot. Exhibit ‘B’ of our current mess is the price of education and the bloated government institution which facilitates the price inflation.

               Mish did an excellent blog post on this phenomenon and remarked that the financial industry really champions these student loans since they are backed by the government and can’t be discharged in bankruptcy.

               http://globaleconomicanalysis.blogspot.com/2009/10/remarkable-comparison-affordable.html
         2. Perspective November 17, 2009 at 9:13 pm

            If you want an example of tuition explosion, look to law schools. Just a decade ago, tuition at most private law schools was $15k-$25k or so; now it’s $35k-$45k, and that’s just for one of the required three years.
         3. No! November 17, 2009 at 10:44 pm

            Perhaps, there will be too many “low-end” professionals, but the AMA will not allow having too many doctors! AMA = NAR
      2. Alan November 17, 2009 at 11:52 pm

         Nursing and other medical-related jobs … the current holy grail of highly paid, safe employment! Even the spam has changed from Viagra and penis enlargement to nursing jobs.

         Seems to me that health costs are another thing that has been going up at inflation + 3-5% for the past many years. Just like house prices, that can go on forever right? It is going to end so well. 🙂
         1. norcal November 18, 2009 at 3:40 am

            You have the insurance industry to thank for increasing health care costs. 25 years ago they paid out about 91% of their premium intake for patients; now it’s something like 80%. And as you observe, the premiums have hardly held steady – they’ve increased wildly.
   2. Major Schadenfreude November 17, 2009 at 10:23 pm

      “This is a very difficult time in homebuilding and real estate development.”

      Not to worry, we will just refund the homebuilders $33 BILLION in tax cuts:

      http://www.nytimes.com/2009/11/15/business/economy/15gret.html

      “ON Nov. 6, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009 into law, extending unemployment benefits by 20 weeks and renewing the first-time homebuyer tax credit until next April.

      “But tucked inside the law was another prize: a tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004. The tax cuts will generate corporate refunds or relief worth about $33 billion, according to an administration estimate.

      Read the article for more details…
      1. AZDavidPhx November 17, 2009 at 10:31 pm

         Change we can believe in!
         ‘Yes, we can!’
         1. GoldWatch November 18, 2009 at 4:19 am

            “Jobless recovery is recovery” this is button line Obama needed for 2012.

            Be it debt-driven, bubble-driven, or asset-driven, spending-driven, negative-interest-rates-driven, as long as economic bubble is growing, that all Wall St teach Obama.
3. pianist November 17, 2009 at 6:33 pm

   That work truck in the driveway is a first. I thought that only happened in the IE.
   1. Perspective November 17, 2009 at 9:17 pm

      Too funny – I thought the same thing.

      I thought buying a home in Irvine insured I wouldn’t live near a home with a lowered dually (truck) and two Harleys, but it didn’t. :shut:
4. dirk November 17, 2009 at 6:50 pm

   So, the borrower/homeowner owes less than $600K and the bank is selling the home for >$600K. Am I getting this wrong?
   1. IrvineRenter November 18, 2009 at 12:12 am

      The bank now owns this property. It isn’t the 2003 buyer who defaulted and went into foreclosure, it is the 2006 buyer who doesn’t show up on Redfins sales data.
5. AZDavidPhx November 17, 2009 at 9:23 pm

   I genuinely felt badly for a property virgin the other day.

   A 20 year old female who lived frugally at home with parents for a couple years and saved up 40K for a down payment on a new condo in the Florida area.

   The disappointment on her face when the hag who hosts the show informed that the condos in her area start at one million dollars and then steered her into a dump priced at 250K oh and of course assume a 30 year mortgage to minimize the monthly payment because we all know she will be wanting to keep the condo for 30 years and will never want to move again.

   The hag said that she would someday make it into the million dollar condo – Just not today.

   A perfect example of how young new buyers are groomed by these sharks.
   1. Chris M November 17, 2009 at 11:00 pm

      “the condos in her area start at one million dollars”

      Because there’s a shortage of condos in Florida, right? WTF!? Realtors have earned every last bit of scorn that they get.
   2. DML November 18, 2009 at 2:11 am

      Not sure I get what is horrible about this, regardless of the hagitude of the agent. I thought 10% down was supposed to be what people should be doing. Did the 20 yr old think she was going to get more than a 250k condo? I’m sure she can find a very nice place in FL for that price.
      1. DML November 18, 2009 at 2:12 am

         Never mind – I’m apparently a math virgin.
      2. AZDavidPhx November 18, 2009 at 2:33 am

         The point was what she got for her 250K not what kind of a mortgage it was. She would have been better off keeping her 40K and renting. I would imagine all of her equity is gone by now.
6. LowRiderThreeOneO November 18, 2009 at 12:42 am

   I wonder what effect the housing bubble had on college tuition increases. “Mommy and Daddy are sitting on half a million of home equity – why not tap that to pay for Johnny’s college?”

   If I was smart I would have bought a home I couldn’t afford during the bubble, HELOCed the hell out of it, and used that cash to pay off my $50K in student loans and put the rest into a savings account, then walk away from the home. Who cares about good credit when you’re sitting with $100K+ cash in your savings account.

   Regarding the game of musical chairs, I have a good friend who ‘moved up the property ladder’ into a nice home, but he doesn’t take any credit for being smart and sophisticated, or for being a real-estate genius. He openly admits it was pure luck and very good timing. He got married and bought a small 2BR starter home for around $100K. They had two kids and decided to get a bigger place, so they sold original home for $300K, taking the $200K profit and using it as a down payment on a 4BR house for around $600K just before the peak of the bubble. Now they have a $400K mortgage they can afford and a nice house that they’re comfortable living in.
   1. newbie2008 November 18, 2009 at 6:00 am

      That’s nothing. In NB, purchased for 650k, refinanced first for 2.2 million, second unknown. Then walks away with non-judical FC, so one action rule may apply for the first. That’s 1.6 million in some account from the first! No info on any second that may come after them. With the 1.6 million from the walk-away, that can buy a nice house in most of the world.

      Our tax dollars at work.
7. IrvineRenter November 18, 2009 at 2:43 am

   The commercial bust is starting.

   Bank of America seeks to foreclose on Maguire property in Irvine

   “Still, the move to foreclose is significant in that it is among the first of a wave of defaults, write-downs and workouts anticipated as part of a long-awaited bottoming out of the commercial real estate market, industry observers say.”
   1. norcal November 18, 2009 at 3:44 am

      Sorry, but for those of us who live elsewhere, could you give a quick description of the Maguire property? It wouldn’t be the North Korea Towers, would it?
   2. newbie2008 November 18, 2009 at 6:11 am

      IrvineRenter,
      Your link is very telling.
      “…Two comparable buildings in Orange County recently traded for less than $200 per square foot.”

      Usually commerical property is much more expensive than residential property. When are we going to see $200 per square foot for residential property?
8. BacktoTop November 18, 2009 at 2:53 am

   The median price of a home sold OC in October was $436,500, a 1.7%, or $7,500, increase from September, according to DataQuick.
   1. newbie2008 November 18, 2009 at 6:06 am

      BacktoTop,
      Does the home come with wife, kids and memories?
      Don’t buy into buying a home, you will be buying a house and maybe some land (many parts of Irvine has land lease).

      It’s not a home, it’s a house.
      BTW are you a REA?
9. NewportCoastRenter November 18, 2009 at 3:05 am

   http://lansner.freedomblogging.com/2009/11/17/newport-beach-homes/43935/

   Most likely to cut home price? Try Newport!
   November 17th, 2009, 12:01 am · 26 Comments · posted by Marilyn Kalfus, real estate reporter

   The Balboa island and peninsula areas of Newport Beach this month emerge as the Orange County communities with the most home price reductions – each with 41% of the listings there reduced, according to Trulia.com.

   Another Newport area community — Corona del Mar — came in 4th, with 37% of asking prices cut. Of the top 5 places in the county with discounts, Irvine is the only inland one, with 36%.

   In Orange County overall, price reductions have slightly lessened in the past 6 months; As of Nov. 1, 25.1% of listings had price cuts, compared to 26.7% in Oct., 26.8% in September, 29% in August, 28.6 in July and 30.1% in June.

   Around the country, 25.6% of homes currently on the market as of Nov. 1 had at least 1 price cut during the past 12 months. The average discount for price-reduced homes continues to hold steady at 10% off of the original listing price, according to Trulia.

   Here’s how the ratio of price cuts in the regions shape up:

   Northeast: 29%
   Midwest: 28%
   West: 25%
   South: 24%
   Please note the list of Orange County price reductions, by town: Share of homes with cuts; average size of cut; average price after cut. If your favorite ZIP is not included, it’s because there were not enough listings to qualify for this report …

   Community ZIP % w cut Avg. cut Avg. price after cut
   Newport Beach 92662 41% 9% $2,094,750
   Newport Beach 92661 41% 15% $4,779,577
   Seal Beach 90740 38% 8% $486,841
   Corona Del Mar 92625 37% 12% $2,512,556
   Irvine 92618 36% 7% $739,484
   Midway City 92655 36% 19% $77,100
   Irvine 92603 36% 14% $2,487,327
   Newport Beach 92660 35% 11% $1,840,524
   Laguna Beach 92651 35% 15% $3,502,284
   Orange (Villa Park) 92861 34% 10% $1,324,064
   Dana Point 92629 34% 14% $1,790,702
   Trabuco Canyon 92679 34% 11% $1,270,638
   San Clemente 92673 34% 9% $954,851
   Huntington Beach 92648 34% 10% $863,977
   San Clemente 92672 33% 15% $1,077,155
   Dana Point 92624 33% 12% $1,379,466
   Newport Coast 92657 33% 11% $3,581,679
   Orange 92866 33% 12% $791,806
   Irvine 92604 32% 5% $595,993
   Santa Ana 92705 32% 11% $1,041,612
   Los Alamitos 90720 31% 8% $1,200,289
   Irvine 92606 31% 4% $518,437
   1. Tech Dude November 18, 2009 at 4:04 am

      Well, even with the HUGE price cuts in Newport I couldn’t afford it there even if they came down another 10% to “only” $1.8M. I

      Midway City is cheap. I’ve lived here for ten years and never heard of it.
   2. tonye November 18, 2009 at 5:52 am

      92603… Turtle Ridge is dropping folks.

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