People learned lifelong lessons about financial management from the Great Housing Bubble. Did they learn the right ones?
The owners of today's featured property learned how to squeeze every last penny from the walls, then they resorted to squatting for the last year and a half.
Irvine Home Address … 14952 GAINFORD Cir Irvine, CA 92604
Resale Home Price …… $460,000
{book1}
I’m marrying money, whose wanna say the best man?
I win on the honey moon and came home with the best tan.
There’s green all over me, in my pockets and left hand.
Green, you should know what I mean
Chamillionaire — Show Me The Money
Did those people who lost their homes during the Great Housing Bubble learn any important lessons? Did people learn that certain financial management techniques don't work very well? Or did people learn that building a Ponzi Scheme is a great way to manage their finances except during those unexpected economic downturns?
People can learn very valuable life's lessons from the mistakes of others. If I didn't believe that, I wouldn't keep writing. However, this blog is not likely to change the way millions of California borrowers live. As long as lenders enable foolishness, we will have fools who will step forward.
Best Protection Against Another Housing Bubble May be a Generation's Painful Lessons
The market value of your house is down 20 to 30 percent from its peak and could have further still to go. Jobs are scarce and the idea that home values will rise again seems remote. But this, too, shall pass (yes, your home value will eventually recover). And I can tell you exactly why — psychology.
The good news is that for all the economic pain and suffering, we've probably just bought ourselves, as a people, 50 years of immunity to economic depression. The bad news is that this immunity has nothing at all to do with house prices, public policy, Bernanke, Dodd, Geithner, or Obama, much less Paulson or Bush. It would have happened anyway.
The premise of this author's entire argument is that people endured the consequences of their decisions and they have been conditioned not to repeat the same mistakes. This is obviously wrong. The moral hazard of innumerable bailouts has insulated the population from the consequences of their mistakes.
The real lesson people have learned is that they can game the system for personal gain and pass the losses on to everyone else. Any real consequences will be avoided. We have guaranteed ourselves another housing bubble and even more massive bailout.
I'm reminded of a story about Sid Richardson. Back in the 1950s, Richardson, a Texas oilman, was arguably the richest man in the world — the bachelor uncle of today's ultra-rich Bass Brothers. (You though they made that money all by themselves?) Richardson made his fortune from West Texas crude and he owned a refinery in Midland, Texas. One day, a crane operator working on construction at the refinery swung the boom of his crane around and smashed into one of the catalytic cracking towers, knocking the tower clean over. There was a massive oil spill, the kind we'd really worry about today. But this was back in the days when DDT was good and oil spills didn't matter so much. Still, the accident did cause more than $1 million in damage, and since the refinery was self-insured, that million came straight from Sid Richardson's pocket. When the catalytic cracking tower was knocked over, everyone had to come have a look, including Richardson. And when they had all shaken their heads and pointed at the destruction, Richardson finally said it was time to get back to work and he sent the crane operator back up to the cab of his crane.
"You can't send him back to work on that crane!" the refinery manager shouted to Richardson. "The guy can't be trusted."
"Believe me," said Richardson, "he's not going to make that mistake again."
There is a lesson here for all of us, because — just like that crane operator — stressful experiences eventually teach the rest of us lessons, too. But unlike that crane operator, it usually takes us three times to figure things out.
That's what Professor Vernon L. Smith (now of George Mason University) learned decades ago in economics experiments conducted at the University of Arizona — experiments that earned him the 2006 Nobel Prize in Economics. Smith conducted real money experiments with groups of students. In their buying and selling of assets, the students inevitably created asset bubbles that eventually collapsed. Given another try, the same group created a second bubble that also collapsed. But given a third try, the same group consistently showed it had learned its lesson and no more bubbles were created.
… And so this three-strikes-and-you're-out (of danger) apparently works in real life. That explains why American savers and investors suffered through the Florida Land Bubble collapse of 1925 followed by the Wall Street stock bubble crash of 1929 and the consequent bank panic of 1933, before that same group assiduously avoided repeating any of those behaviors on a similar scale for the next 50+ years.
The cause and effect this author identifies is very weak. We have been inflating and deflating bubbles forever. You can pick any point in time and find three economic catastrophes preceding. The reason we had 50+ years of stability following the Great Depression is that we passed Glass-Steagall and other legislation to limit the ability of lenders to inflate Ponzi Schemes. It wasn't until we removed these protections in 1999 that problems began. The 50+ years of stability came from the legislation they passed not the personal lessons they learned. 
In that 50 years, we had bubbles and recessions, but we had no huge bubbles and no depressions.
The Great Depression turned Americans, who had not been savers in the 1920s, into savers for the rest of their lives. But what the Depression gave us, generational transitions and Reaganomics took away. Savings rates began to drop in the late 1980s just as the Gipper was on his way back to Santa Barbara.
What does this means for today? Well, our generation has experienced the 1990s dot-com bubble and its pop, the 2000's housing bubble and its pop, and now the Great Recession. We're in our third time and likely due our own bit of subsequent wisdom as a result.
If it were only true….
The irony here, of course, is that while we credit the SEC and FDIC and maybe World War II for saving us from the Great Depression, it may have been that we were simply fed-up. Similarly, whatever Bernanke, Dodd, Geithner, and Obama finally do to reform the current U.S. financial system may matter less to our future prosperity than the painful lessons we've been learning as a people.
It's us, not them.
This is not accurate. Since people and institutions that were bailed out learned the opposite lesson. The pain was not deep enough to create lifelong changes in patterns of behavior. Once the Siren's Song of unlimited consumption tempts a recession weary population, "Don't wait and save when you can have it now…." Have we really endured such hardship that a broad cross-section of society will say no?
Worse, people-learned-their-lesson is the kind of argument lobbyists for lenders will use to convince legislators not to regulate the industry. After all, we don't need legislative reform if people suddenly got smart and stop demanding unstable loan products. Don't hinder commerce.
We'll make the pols look good for a few decades until enough time passes and the cycle of boom and bust starts all over again, as it inevitably will.
But until then, like Sid Richardson's crane operator, our generation — and only our generation — has probably learned our lesson: we aren't going to do that again.
I would be both thrilled and amazed if Californian's choose to behave like Texan's and reject bidding up house prices to obtain mortgage equity withdrawal. I believe we haven't learned a thing. In fact, the more people know, the more foolish they feel for failing to join the party last time.
Show me the money!
The owner of today's featured property had to look no further than the walls of his house to find plenty of money. It is a judgement call between a D and an E for this owner. The periodic use of the housing ATM shows this was part of routine financial planning. The only real debate is whether or not this represents thoughtless spending, or if the owners maintained self delusion about spending their house faster than it could go up in value. In either case, it is foolish because now they are losing their house.
- The property was purchased on 9/22/2000 for $265,000. The owner used a $251,750 first mortgage and a $13,250 downpayment.
- On 4/12/2004 he becomes they, and they refinanced with a $315,000 first mortgage.
- On 9/16/2004 they refinanced with a $381,500 first mortgage.
- On 3/30/2005 they obtained a $50,000 stand-alone second.
-
On 1/5/2006 they refinanced the second and added a $20,000 HELOC.
- On 8/2/2006 they refinanced with a $119,100 stand-alone second.
- Total property debt is $500,600.
- Total mortgage equity withdrawal is $248,850.
Foreclosure Record
Recording Date: 06/25/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 03/20/2009
Document Type: Notice of Default
They got 18 months or more of squatting out of the deal too. They are likely still there.
Irvine Home Address … 14952 GAINFORD Cir Irvine, CA 92604 
Resale Home Price … $460,000
Home Purchase Price … $265,000
Home Purchase Date …. 9/22/2000
Net Gain (Loss) ………. $167,400
Percent Change ………. 73.6%
Annual Appreciation … 5.7%
Cost of Ownership
————————————————-
$460,000 ………. Asking Price
$16,100 ………. 3.5% Down FHA Financing
5.24% …………… Mortgage Interest Rate
$443,900 ………. 30-Year Mortgage
$97,867 ………. Income Requirement
$2,448 ………. Monthly Mortgage Payment
$399 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$38 ………. Homeowners Insurance
$0 ………. Homeowners Association Fees
============================================
$2,885 ………. Monthly Cash Outlays
-$409 ………. Tax Savings (% of Interest and Property Tax)
-$510 ………. Equity Hidden in Payment
$33 ………. Lost Income to Down Payment (net of taxes)
$58 ………. Maintenance and Replacement Reserves
============================================ 
$2,057 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,600 ………. Furnishing and Move In @1%
$4,600 ………. Closing Costs @1%
$4,439 ………… Interest Points @1% of Loan
$16,100 ………. Down Payment
============================================
$29,739 ………. Total Cash Costs
$31,500 ………… Emergency Cash Reserves
============================================
$61,239 ………. Total Savings Needed
Property Details for 14952 GAINFORD Cir Irvine, CA 92604
——————————————————————————
Beds: 3
Baths: 2 baths
Home size: 1,116 sq ft
($412 / sq ft)
Lot Size: 5,096 sq ft
Year Built: 1971
Days on Market: 186
MLS Number: S592003
Property Type: Single Family, Residential
Community: El Camino Real
Tract: Wl
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
This property is in backup or contingent offer status.
Beautiful single story detached home. Remodeled Kitchen with large dining area with breakfast counter and bar with granite. Bathrooms were also remodeled in 2005 with new cabinets with granite counters. Laminate flooring in front room with tile in kitchen. All ceilings are scraped and textured. Vaulted ceiling in the living room with a nice cozy fireplace. Crown molding in master bedroom. Garage attic storage w/hide a ladder. Over 5000 sq ft large lot with newer fence. Gas built in range. Newer roof. No Mello Roos or HOA's. Close to Heritage Park Library and community center.
Wow, I remember Robert X. Cringley. He was a controversial tech blogger during the the great Silicon Valley Tech Bubble. Having been in the middle of that, I remember him well…he narrated a pretty good documentary on the whole Apple vs. Microsoft thing back in 1996. I didn’t know he was still around.
Anyway, while I agree with your analysis of the impossibility of people learning in the face of such extrme examples of moral hazard, I do think that there is something to what Cringely is saying. It isn’t that deadbeats like the idiots who (still) live at 14852 Gainford Circle are going to learn any lessons, though. They, like the rest of the 20% or so of ‘homeowners’ who have gamed the system, have simply ripped the rest of us off – so they haven’t learned any lessons from this, that’s for sure, except to bellow about their own victimization by the banking institutions who were foolish enough to lend them money.
But, the past 10 years have been tough for a lot of people. We went through a period of a goldilocks economy, where simply investing your 401k in stocks would be enough to ensure a comfortable retirement due to the all-but-guaranteed 15% annual share market returns (of course, that wasn’t enough for some people in that gimme gimme gimme environment: hell, everyone wanted stock options and retirement at 30). Well, that dream went to hell, and the market hasn’t really fully recovered from its highs…lesson learned? Maybe.
The low interest rates intended to keep the economy from backsliding after 9/11 fueled the next bubble, the housing bubble. Yes folks, step right up, put $0 down, and watch your all-but-guaranteed 15% annual return power you into the economic stratosphere. Hey, a 15% return on a property that you put zero dollars into is an infinite rate of return! You can’t beat that.
Buy as we have seen, nothing is guranteed, and anything that is unsustainable will eventually stop.
Getting back to your and Cringley’s dueling arguments: no, the thieves and squatters haven’t learned anything. But they are unlikely to get the free money that powered their theivery for for another generation at least. I think Cringely’s right about that.
Furthermore, the generation that is now 0-20 years form retirement has had a lot of scales fall from their eyes. They are being forced to save more, and sooner, for retirement, cutting back on spending and increasing saving. This is good for them, for the economy, and for the country.
In 10 or 20 years, it is possible that the higher savings rates will straighten things out and the economy will be chugging along nicely again. We may even once again be told that we have a ‘goldilocks economy.’ If we are, well, watch out. Bubbles are an inevitable feature of stable capitalism, as that astute critic (and admirer) of capitalism, Karl Marx, noted.
How do you change the behavior of millions of California (and all American) borrowers? One borrower at a time.
If you raised the tax value with 1/0.8 = 1.25X total outstanding mortgage debt, the rising property tax bill would have to put a damper on some of the free heloc money. That is a reasonable approach to reducing the impact of that prop on tax incomes.
It is interesting that CA has prop 13 and is one of the most bubbly markets (though that doesn’t explain AZ/FL). It seems that prop 13 serves (all else equal) to limit supply i.e. if I bought my home 20 yrs ago and have low tax base it might cost me more money to move even if I am, say, an empty-nester looking to trade down. So I as the buyer have to may more essentially to incentize the seller to give up his prop 13 benefit.
I like the idea that if you borrow more than your original purchase price you should have a revaluation upward – I can’t see that being too controversial, it is a tax you tax you can avoid by simply not borrowing against your home. And it appears the Guvanator could use the extra money as well.
I am interested to see how controversial it would be. There is a whole wing of the Republican party that looks at any tax bill increase as a sacrilege. But what they need to acknowledge is that tax policy shapes behavior and distorts markets. Why that always translates to lower taxes creating good incentives defies logic.
I think this is one of the best ideas out there, and while anything to do with Prop 13 is virtually untouchable, this one has a slight chance because the homeowner has the control to keep Prop 13 on their property.
But try and get this past all the voters that still want their slice of the Cali HELOC dream.
The inverse is also true, no? That the Democratic Party looks at any tax increase as religion.
Oddly, enough. No.
Republicans may think Democrats are simply their converse, but it’s not the case. The entire framing of questions is different on both sides. That’s a large part of why they reach different answers. They’re not asking the same questions.
No, I don’t think the inverse is true.
Also, my proposal is not a generic tax increase. It serves to make property tax bills more fairly distributed. There are ways to make the tax code more fair that get painted as a tax increase, and opposed on that basis.
Let me see… we already pay the highest base sale tax in the nation. We already pay 9% in state income tax… the combination of those two puts many of us solidly in the AMT bracket.
Now you tell me that you want to increase my real estate taxes too?
You’re nuts.
You’re a rich californian. Of course you have lots of money. pay up sucka!
Chuck
Yes this is why I’m moving to Las Vegas. I’m sick of supporting a state government that does absolutely nothing to curb illegal immigration and would sooner legalize weed and raise your income taxes to pay for fat government union pensions. Arnold was my last hope, but he turned out to be a closet Dem, so bye bye bye Cali, thanks for the memories!
Wait, doesn’t being in AMT mean that you are in an overall federal tax bracket of just under 28%. That’s not peanuts, but it certainly is nothing to whine and cry about…..
“He becomes they.”
I love it.
Looks like sex after marriage costs ya!
LOTS!
There was a notable change in borrower behavior after the marriage. Did this occur because the money was there or because the new wife had entitlements? It is likely a bit of both.
I wonder what the ratios would be.
It would be interesting to see how often it was the other way around. You know…woman buys house, responsibly pays mortgage, gets married and then the HELOCs flow.
In my experience (not CA) it is a bit more of the opposite. I know my wife and a couple of friends wives are the ones pushing to prepay the mortgage not to have the debt overhang when we near retirement. I was a bit more willing to consider taking out a $25 HELOC to renovate the kitchen (our current LTV is about 25% so this is hardly stretching) but she wanted to wait until we had the cash in hand. I’ve had many a man of the house argue ‘borrow all you can it is the cheapest money you will get’ (said by a guy who then lost his job and now makes 40% less – not starving but has a big nut to pay on the 1st).
Having said the above I’d also add anectdotally that I think if you looked at Level of HELOC abuse as a function of (Husband Age-Wife Age) I think you’d see a positive correlation. Not saying that to be sexist just calling it like I see it.
Husband age – wife age. Yeah, that indeed seems like it would be well correlated because it says something about both halves of the couple. (not always of course). Women who marry older men are more likely to have been looking for someone to take care of them financially, and men who marry younger wives are more likely to be less mature for their age, and may suffer from a lack of impulse control.
It’s not universal, but nothing is. It would just be a good place to look for a correlation.
I should add in my case my age minus my wifes is actually negative. I also was smart enough to marry where my IQ minus her IQ is also negative.
OT Naked Capitalism has a good article on the Origins of the Next Crisis:
http://www.nakedcapitalism.com/2010/04/the-origins-of-the-next-crisis.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+NakedCapitalism+(naked+capitalism)
(sorry for the typed URL…I dunno how to hyperlink it unless someone can show me)
Listen to what Richard Koo has to say about this current “Balance Sheet Recession”.
Unless borrowers default and creditors take haircuts, we’re going to continue down this path of debt servicing such as what we’re witnessing in Irvine for those that have bought during the bubbles and are still servicing their debts in hopes that bubble price will come back. For those that are NOT servicing their debts, they’re going to continue to live rent-free until someone (TPTB) tells them that it’s time to pack up and get the hell outta here.
What you’re witnessing right now in Irvine is definitely NOT back to normal ’04-’07 pricing but rather a bump up in price due to an abysmal drop back in ’08. Any Irvine price that you’re seeing in comparison with ’06 price will NOT be moved (perhaps a few…) but rather be stuck in Redfin for quite awhile unless some knucklehead knifecatcher fell for the “ooh, the economy is back, let’s buy”.
The price has gone up relative to ’08 price primarily because 1) there are cash investors that are itching to buy up the properties through auction process, etc 2) inventory has been severely crushed thanks primarily to FASB’s mark-to-fantasy rule and 3) you are still gonna get some Irvine home buyers throughout the peaks and troughs of economic cycles.
However, this will not last because, as we all know, when prices continue to go up, there are less buyers, period.
Let’s see if the banks are smart enough to repair their balance sheets by bringing out those REOs that they’ve been holding for awhile. I’m not holding my breathe on this but, based on IR’s report on OREO’s prediction of massive foreclosure coming soon, we’ll see more inventories soon enough. Furthermore, since Irvine is out of the ’08 bottom on pricing, banks are probably eager to dump those holdings quickly.
A few observations during the last few weeks saw an increase in inventory count in more popular Irvine areas such as Oak Creek, Woodbridge, and Westpark.
Like I said a few days ago: patience is virtue. I would wait until more and more inventories are showed up. The key is inventory and, with low supply, of course you’re going to have high demand (as of now).
“Like I said a few days ago: patience is virtue.”
If you are intent on buying in Irvine you will have to be very, very, very patient indeed.
Basically potential Irvine buyers will wait for two things to happen:
1. The next wave of broad RE market drop we have been waiting for. The general feeling on this blog is the “second leg down” will take place sometimes in the next year or two, depending on the movement of a set of macro economic and political variables – interest rates, unemployment rate, personal income, and gov’t intervention. Timing could be tricky as the lesson we all learned from housing market correction Phase I is that you should never underestimate the market-manipulating power of our gov’t and Fed.
2. Once the broad market decline finally resumes its course, you will have to wait for local factors to play out. The consensus on this blog seems that Irvine is a more desirable location than its neighboring cities in OC (perhaps with the exception of Laguna/Newport Beach). Supply has been well managed by Irvine Company. In all likelihood Irvine market will become the last one to fall after the surrounding areas fall first. Your best bet is that the increasing price gap between Irvine and other places will eventually lure buyers away. In the other words, before you can expect Irvine market to drop to a more reasonable price level, you will have to wait until the substitution effect in OC to run its course.
Irvine is not Newport or Beverly Hills and does not provide the status symbol truly wealthy people are looking for. My guess is that most of current Irvine buyers are still working class folks – albeit with above average income and a higher overall propensity to save, who decide to buy in Irvine for very practical reasons – proximity to work, kids’ education, nice community, etc. These features demand for a price premium over less desirable areas. But this premium is not unlimited. Once price gap widens to certain degree people will look for alternatives.
What I am curious to see is a baseline price comparison between Irvine and some of its neighboring cities (Tustin, Costa Mesa, Lake Forest, Mission Viejo, Laguna Hills, Aliso Viejo) for comparable properties. As the next broad market downturn begins we can monitor the price gap and assess the time lag of Irvine market due to substitution.
Great observation.
We are building our own database of reports on properties all over Orange County. Irvine certainly does command a premium, and the drop in price to nearby communities is large. We have already had one family interested in Irvine choose Lake Forest because better properties are available for less money.
Irvine IS the Asian Beverly Hills.
It’s funny cuz it’s true.
Chris and avobserver, great posts. Trying to time anything when massive government intervention takes place is impossible. Who knows, this charade could go on for several more years. I think everybody agrees that the longer the meddling goes on, the worse things will end up. The MSM has lulled people to sleep again claiming good times are here again. There will be a catalyst (who knows what it will be) that leads to the next leg down. And this next leg down might be worse than the first one.
I literally wanted to jump through the TV and strangle Greenspan and big bank executives after denying responsibility for the housing bubble. They are all complicit in running this casino. Anybody who thinks this government has the best interests of its people should be locked up in loony bin. The powers that be and their collosal corruption have been exposed. One can only hope they don’t destroy what’s left of this country.
Texas may have been helped by the restrictions on mortgage equity withdrawal, however TX was certainly NOT immune from the effects of a massive bubble.
A friend of my wife bought a house on the outskirts of Houston in 2005 or 2006 for $110K because she needed a place to live and was tired of 10 years of apartment living. That same house is worth $70K today. She’s disgusted that it dropped so much; she wants to move, but can’t go without bringing some cash to the closing table. On the other hand her “monthly cash outlay” is under $900.
I spent a lot of time in Houston for my job, and I remember as far back as 2002 there was so much new housing construction going on. By 2005 it was just insane; everywhere you went there was some new housing development from some obscure homebuilder. Despite all the land available in TX, these greedy builders crammed as many homes as possible into their subdivisions. As a result, these developments are very crowded. I remember driving through several of them – when people parked on the street in front of their house, there was barely enough room for one car to squeeze down the street.
“when people parked on the street in front of their house, there was barely enough room for one car to squeeze down the street.”
That’s a common practice in Asia.
But this is in Texas, where there’s no shortage of land. In fact these developments where I’ve seen this are way on the outskirts of downtown Houston, well outside the beltway. You’ll see a cramped subdivision surrounded by nothing.
I don’t personally mind small compacted streets where it’s tricky for traffic to get by; the problem I have with this in TX is that these aren’t urban neighborhoods. Once you get out of your subdivision you’re in a very rural area with tons of open space, and a 40 minute drive to the city center (without traffic; factor in rush hour traffic and it’s much longer)
Clearly, people in those markets don’t value having lots of open land much. Otherwise, a second developer would build on larger lots with wider streets, charge more, and make bank. But people clearly prefer to be more crowded if the price is lower. This is an example of the marketplace at work, and it’s fine, IMHO.
“The reason we had 50+ years of stability following the Great Depression is that we passed Glass-Steagall and other legislation to limit the ability of lenders to inflate Ponzi Schemes. It wasn’t until we removed these protections in 1999 that problems began. The 50+ years of stability came from the legislation they passed not the personal lessons they learned”
As long as you think the above is correct, as long as you think that more legislation is the answer to bad legislation, ie. The Federal Reserve Act, you will learn nothing. You are just putting more lipstick on the pig.
Go to http://www.cotohousingblog.com/?p=10903 and read Ron Paul’s latest. He is right.
It doesn’t really matter what Ron Paul says-nobody with any power actually listens to him (in either party-or even powerful independents like Bloomberg). We are not returning to the gold standard.
The gold standard would necessarily cause prices to fall – a bad situation. That advocates don’t acknowledge this shows they haven’t fully thought out the issue.
Consider that the stock of gold is fixed. The supply of goods and services to be bought & sold worldwide is constantly increasing.
(Total money/total goods & services) – cost-per-unit will always get smaller.
“All that is necessary for the triumph of evil is that good men do nothing.”
Edmund Burke
Well, in a democracy, you need to convince 50% + 1 that what they are doing is, in fact, “evil”. Good luck with that.
“The reason we had 50+ years of stability following the Great Depression is that we passed Glass-Steagall and other legislation…”
IMHO, it is terribly wrong. The problem is spending. Consumption exceeds production. No legislation can fix it.
Ponzi schemes were required to maintain illusion of stability. There is no other way to finance everything-is-made-in-China economy.
“The urge to save humanity is almost always a false front for the urge to rule.”
H.L. Mencken
I apoligize for changing the subject. I just wanted to let you know what is happening in our neck of the woods. I’m sure it is happening in other places as well.
My husband and I have paid off our home, saved a bunch of money and are looking for a larger home now. This home will probably be the last home we ever buy. So, I have picked out approximately 12 homes here in our community we would like to buy. Recently, one of those homes came on the market so I called the realtor to schedule an appointment to see the home. I was told it is a drive by examination only. The people living in the home are refusing to let the realtor show the home and the only time the buyer can examine the home is just before escrow closes. How are buyers like myself suppose to examine floor plans to see if we want to purchase the last home we will ever buy? Hmm. Because this house is a short sale all we can do is make a bid.
I asked the realtor what her current highest and best bid is on the home and she replied $270,000. I would gladly pay $300,000 for this 3,300 sq. ft. home Built in 2009 on 1.25 acres if it has a floor plan I can live with but I will never know if it does. The conversation continued and I found out there are 3 cash bids from investors on the home. So, if the investors are buying up the houses that move up buyers are trying to buy how are we ever going to get a home we really want to purchase without giving all our money to the flippers.
The realtor told me to hold on because she did not think the flippers would get this house. The owners-squatters are using this as a staling tactic. She informed me she has tried to short sale 8 houses this year and what the squatters have done upon the closing of escrow is demand the bank pay them $10,000 to move out of the home. The banks refuse to do this so the deals fall apart and it takes another year to a year and a half to get the squatters out of the house via foreclosure proceedings.
After talking to this realtor my husband and I are trying to decide do we try to buy our house now and drive ourselves crazy with this pretend and extend tactic by the squatters or do we sit back and what for the investors to buy the homes we would consider purchasing and pay them double the price down the road. What do you think we should do in this situation? I’m sure there are dozen more people like us trying to buy a home and encountering the same discouraging experience.
I have been watching our area and San Diego county and the flippers are creating another “Housing Bubble”. When you look at median incomes and the prices of homes I can not understand how people can still be buying these over priced homes especially in San Diego county. It is very discouraging to be a person trying to do the right thing, namely be financially responsible.
What do you folks think?
Sad Buyer
You might be better off waiting. Wait until the flippers and cash investors get burned again. This the bubble echo we are experiencing. What we need to have happen is the investors get really burned on cash flow and resale values. This will happen when interest rates finally rise while rents are dropping. Everyone still remembers the heyday of the early 00’s are are anxious not to miss out again. IMHO, I believe we are headed for stagflation (high interest rates, low economic growth) in a few years.
On the otherhand, stay away from shortsales all together if you are intent on buying.
Thanks for confirming what I logically believe to be true. Sometimes it is just good to hear it from someone else. I figure we will just continue to save our money and by the time the investors get burned(hopefully, unless the government continues the absurd programs) we will have enough money to buy our home with cash. Or, survive when everything comes crashing down.
Thanks,
Sad Buyer
Stories like this one were why I completely ignored short sales when I was looking for a house about a year ago. I would guess around half of all short sales are completely fictional and will never sell prior to being foreclosed (for one reason or another)-and the ones that do sell frequently take many months to do so after an offer was submitted. So I just looked at REOs (bank owned houses) and found one that was more than I needed for a very good price. But that was back when there was an ample supply of REOs. Now, there is hardly any in most locations.
I think the best advice would be to wait six months to a year. By then, the tax credits will have expired and (in theory) things like the upcoming BoA foreclosure flood will have had time to process through the system, so there should be much more supply of non-short sales.
I think we probably need to wait until 2012 or later. We still have all of the option arms and alt-A foreclosures to hit the market yet. Not to mention the people that are upside down and finally looking at their homes as a business transaction that is destorying their family wealth. They are finally starting to walk away from their homes as well.
Besides, we all know if interest rates go up prices will have to come down. I would rather pay a higher interest rate which I can “effectively change” by apply more money to the principle on a monthly basis than a higher price which means higher taxes which I can not change.
Flippers in current market are interested in buying the property, fix it up, and sell it for $50k quick profit. Those who buy and hold the property as income property are investors like me and not “quick cash” flippers.
So… where is this 3300 sq ft home built in 2009 on 1.25 acres for only $270k?? I’m interested. @_@
15038 Le Gaye St LAKE ELSINORE CA 92530
Zillow does not have a picture of the home. It is a one story Mediterranean.
I have to decided to buy a lot and build the house I really want to own.
If you have the money, and this is going to be your last home, I highly recommend this route. Both my mom and mother-in-law took it. As long as you can get a good builder, you will be very happy this way. Get exactly what you want in a house, with none of what you don’t want.
It’s amazing the difference between a spec house and one an owner oversaw. The builders will do all kinds of stupid things (like huge front-facing windows in closets, closets that you have to walk through the bathroom to get to, one master and one teeny-tiny guest bedroom when two generous sized bedrooms will fit, no linen closet, kitchen vents that just vent into the room not outside…) whereas if an owner is overseeing the plans all these foolish decisions will get edited out.
I couldn’t find this property on redfin, but if the price looks too good to be true, it’s purposely set low to incite bidding war. I’ve seen properties in Chino Hills with asking price at $60k below market and the seller is expecting buyers to bid up the prices (like ebay).
If school district is important to you, it’s my understanding that Lake Elsinore’s school district is not that great. But if your kids are already grown, or if you home school your kids, then it’s not an issue.
I saw some great deals in Wildomar last year but passed on them.
try this site:
http://www.listingbook.com/propdetail?listing_select_mode=0&listing_view=0&mode=1&result_set=0&prop_class=0&mlno=96579215:SOCAL&defaults=1&untag;_specific=&wizard=0&client_id=1066575659&search_id=1066578403&cma;_id=&use_search_id=1&page=1&order=last_event_ts&hide_rejected=0
No worries about changing the topic here.
Is the property in California?
If so, please click on the link provided:
http://www.lawguru.com/legal-questions/california-real-estate/short-sale-eviction-house-filled-619392035/a
I always ALWAYS recommend a specialist in evictions simply because the laws regarding eviction can be a bit like crawling the infiltration course.
Its not that difficult to get these people out once you have an eviction order. Just have the sheriff hand-deliver the Eviction Order.
The Sheriff will also give them 1 hour to leave the premises – if necessary the officer will call in back-up – which you do not want to happen if you are a squatter.
More officers = more automatic weapons
Believe it or not, law enforcement carries weight and these people (squatters) will learn soon enough its best not to mess with the power structure.
Best to you.
~Misstrial
Wanted to add one of my favorite resources:
http://www.expressevictions.com/index.php
In coastal areas here in California, eviction packages run about $600-$750.
60 days or less.
~Misstrial
Misstrial,
This only works if the sellers have already signed all the paperwork agreeing to the short sale. If they haven’t put their John Hancock down on the final papers then I don’t think the bank can do anything but start the foreclosure procedure which in turn allows them to squat for possibly another year or so.
I say take the sellers out back and shoot them.
Thanks for the info. I learned a long time ago when I helped an elderly lady manage a property in Long Beach just hire the Marshall to deliver the paperwork and handle the evictions. You do not want to put yourself in harms way.
Sad Buyer,
With the overhang of delinquent borrowers, it is likely there will be much more supply on the market over the next several years. Patience is still your best course of action.
I know this is true but my husband and I are tired of not having any space for my sewing room and having to spend an hour clearing out the garage, setting up our wood working machines and then spending two hours cleaning up after we finish a project. I know we are just getting impatient. Thanks.
This is a tiny house in probably the oldest neighborhood in Irvine, north of University Park. At least the HELOC abusers actually spent some of the banks’ money on improving this nearly 40-year-old cracker box.
Why are all defaulters getting a free ride? These people purchased at the bottom, they should have built equity in the house. Instead they spend all the money, stay free at our expense and whine with sob stories about losing their homes.
Any idea about the number of squatters in the paradise called Irvine?
There are less than a dozen squatter households in Irvine, I’ll wager. These few examples are not true Irvine residents, but interlopers stealing the image of the real Irvine as a second skin to cover their own rotten presence.
This is more a matter of the right sort of people, than of economics. Irvine is, to begin with, upstanding and refined. Yet there is an intangible depth and moral probity to its citizenry that suggests that fabled game of honor, golf. The word of a golfing man is as good as any contract; so, too, is the heart of an Irvine man cast of pure gold.
Within every sturdy Irvine home sits a grounded and stable family, concerned with family matters, church, high savings rates, and good works in the community.
Any price decline in Irvine is impossible. All Irvine families have enough cash on hand to pay off any mortgage at a stroke. The few foreclosures among the impostors will be quickly purchased at a premium by move-up buyers from Hemet and Yucaipa.
:)..nice post..carefully chosen words, well written…dripping with scarcasm.
“Yet there is an intangible depth and moral probity to its citizenry that suggests that fabled game of honor, golf. The word of a golfing man is as good as any contract; so, too, is the heart of an Irvine man cast of pure gold.”
made my day, LMAO 🙂
you had me until Hemet
Nicely done!
You relate that they “resorted to squatting for the last year and a half”. My response is: that was their entitlement … as the lending institutions exercised their THREE entitlements:
First, the option to not foreclose;
Second, under FASB Entitlement, they valued the property at fantasy and not market; and in so doing preserved the stability of their balance sheet; and
Third, under Ben Bernake’s Quantative Easing Entitlement, for the last year, they traded out toxic debt for US Treasuries, this recapitalized the Lending Institutions: Revenue Shares Financial, RWW, gained 60% in value. The Federal Reserve expended 1.25 Trillion to salvage the Lending Institutions, and the lending executives were entitled to a bonus; they got $190 Billion. Those investors savy enough to catch on to what was going on, reaped the financial rewards by going long stocks, like I mentioned, 60% in Revenue Shares Financial, RWW; and 100% in metal manufacturing stocks, XME.
What I cannot understand is exactly who is the seller; the people or the financial institution; and why might the financial institution be foreclosing when debt is 500,600 and list price is 460,000. If I were the financial institution, I would attempt to rent the property out rather than incur a loss to my income statment; yes more extend and pretend, but at least I would get a few dollars of income rather than some loss.
I’m fairly new to the use of your rating system, but I would give an F as the property was purchased on 9/22/2000 for $265,000 and total property debt is $500,600 and total mortgage equity withdrawal is $248,850: they successfully withdrew just about all their investment — they got it all out!
You remark: “As long as lenders enable foolishness, we will have fools who will step forward.” Well, interest rates are going up, so this will help reduce the pool of fools, but the major thing that will cut off fools from stepping forward, is a soon coming economic crash which will likely come from a liquidity evaporation where people will not be able to obtain funds in money market accounts, mutual funds, brokerage accounts and the like due to a lack of buyers stepping forward to buy assets when prices are falling.
You relate a truth: “The reason we had 50+ years of stability following the Great Depression is that we passed Glass-Steagall and other legislation to limit the ability of lenders to inflate Ponzi Schemes. It wasn’t until we removed these protections in 1999 that problems began.” My respons is that the crash that is coming is going to install a “forever totalitarian” government; there will never, ever be another lending system.
I totally agree with IR. When you take away constraints against mortgage laws/rules you will get fraud in many forms. https://www.efanniemae.com/utility/legal/antifraudupdates.jsp
http://ml-implode.com/
I remember all those late night lenders touting their loans and where are those folks today?
They have got to put rules back in place because as we all can see people will just steal any way they can and call it any name they make up.
What do you think will happen when rates rise 1,2, or 5% worse case? You can’t run a government by printing dollars and buying mortgage securities. This will be the cause of an indefinite ‘grind lower’….
JMHO..
B
Here’s an interesting take on the Boomer bubble that underlay the 2000s housing bubble: Housing Headwinds and Baby Boom Demographics
By pricing houses in 2010 dollars you can see that folks who bought in 2002 have already taken a haircut.
Thanks for responding. My husband and I are talking more and more about this and with contractors being out of work we are hoping we can find a good one, have any recommendations?