Lipstick and Leather — Y&T
Today’s featured property demonstrates the living-off-your-house mindset in action. Apparently, all you had to do was buy a house, any house, and start extracting money from it. It didn’t require any money of your own to invest, and if things go bad, well… it’s not your problem. This house was purchased on 2/10/2006 for $705,000. The owner used a $564,000 first mortgage, a $141,000 second mortgage, and a $0 downpayment. On 9/29/2006, a mere 7 months later, the property was refinanced using a $632,000 first mortgage and a $158,000 second. This netted the owners $85,000 in mortgage equity withdrawal. That is the median income in Irvine, and these people got it simply for owning a house for 7 months! Actually, it is better than that because if you earned $85,000, you would have to pay taxes and have withholdings. To net $85,000, you would need to be making more like $120,000. Further, to get this in 7 months, you would need to be making $205,000 per year. That is one hard working house!
I profile these day after day. Are you starting to get a sense how common this was? Look at how much money these people got to spend for doing absolutely nothing. Is it any wonder houses were such a popular investment? Was it logical to think this could go on forever?
As a society during the real estate bubble, we put enormous sums of money into assets that produce nothing. This isn’t like investing in a factory or machinery or infrastructure of some other sort of productive use. These are houses. They only have consumptive value. There is no production here. Is this where society’s resources should be diverted?
How can a society thrive when it ties up all its resources in non-productive assets? I joke about hard-working houses because the whole idea is so absurd. Imagine if we took every resource in our economy and put it into house production. For a time, everything would be OK because everyone would be working in construction, they would be making money, and we would all have houses, but what happens once we were done? Houses can’t produce anything else. Once the boom was over, the entire economy would collapse because there are no productive assets.
This is basically what we did since the collapse of the NASDAQ stock market bubble. Our manufacturing base never did recover from the recession of 2001. When liquidity was added to the financial system, this money poured into mortgage loans rather than business infrastructure. It is a misappropriation of resources that will likely haunt us for quite some time.
Asking Price: $570,000
Income Requirement: $142,500
Downpayment Needed: $114,000
Monthly Equity Burn: $4,750
Purchase Price: $705,000
Purchase Date: 2/10/2006
Address: 7 Leatherwood, Irvine, CA 92612
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,000 |
| $/Sq. Ft.: | $285 |
| Lot Size: | 3,256
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Townhouse |
| Year Built: | 1968 |
| Stories: | 2 Levels |
| Area: | University Park |
| County: | Orange |
| MLS#: | P656242 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 2 days |
This bank owned property offers nice cherry wood floors through outbottom level.All 4 bedrooms upstairs with 2 balconys.Located in a nice
neighborhood with desirable schools near by. This property is being
sold as is with no warranties expressed or implied.
Look at that picture of the stairway. Does it look like an optical illusion to you? It plays tricks on my eyes.
Do you think the cherry wood floors are real?
Is putting expensive flooring in a 40 year old condo putting lipstick on a pig?
If this property sells for its asking price, and if a 6% commission is paid, the total loss to whoever purchased Wholesale Capital’s toxic loans will be $254,200.
.
I’ve been kicked
I’ve been hit
I’ve been scratched
I’ve been bit
I’ve been pushed around
Shoved around
Had it rough
But it ain’t enough
‘Cause I never knew an angel could be so wild
I never felt love ’till I tried your style
Lipstick and Leather
Black and red, oh yeah!
Lipstick and Leather
Rock and roll baby made a mess of my head
I’ve been slapped
I’ve been blamed
I’ve been attacked
And I’ve been chained
Yeah you put me down
Slapped me round
Long enough
But love is tough
‘Cause you’re ready, willing, able to please
Somebody tell me why I’m down on my knees, I said
This must be love or I’m goin’ insane
There’s such a thin, thin line between pleasure and pain
Lipstick and Leather
Black and red, oh yeah!
Lipstick and Leather
Black and red…
Lipstick and Leather — Y&T
Lipstick on a pig
I am OUTRAGED by this sexist insult!!!!! and I demand an apology!
</wingnut>
Once the boom was over, the entire economy would collapse because there are no productive assets.
You know, funny you mention that…
<soapbox>I would like to suggest that this also applies to a nation which keeps pouring money into a massive military-industrial complex. Bullets, bombs, gold-plated weapons systems and rapacious military contractors do not produce wealth either, unless they are used to steal resources from another country. We seem to have made a botch of that as well, for better or for worse.
Is it really necessary for the US to spend a half-trillion dollars every single year (and climbing, always, always climbing) on national defense? That’s not even counting the considerable cost of the Iraq war. Would we really be at risk of invasion by the Mexicans and Canadians if we only spent $400 billion? If we stopped or even reversed the growth of our military spending?
The government has taken on some considerable obligations during this economic crisis. We might be better able to handle those demands on our Treasury if the current ‘fiscally conservative’ administration had not already racked up trillions in present and future obligations, in just 8 years. The world will not continue to lend money to the US indefinitely (at least, not at sustainable interest rates) if we continue to run our economy on national Ponzi schemes and uncontrolled government spending accompanied by endless promises of tax cuts.
</soapbox>
http://www.crackthecode.us/images/happy-pig-lipstick.jpg
You can consider about 80% of what we spend on defense to be the national oil and auto subsidy….for oil has been what most of our wars for the past 80 years have really been all about.
Most people do not realize what it takes to keep us supplied here, to safeguard all those pipelines allover the world that go through or close to unfriendly countries.
And our leaders have known since the 1930s that our domestic supplies would be in steep depletion by 2000, if not earlier, which is why we started stretching our tentacles into the middle east at about that time, with Roosevelt conducting a secret meeting with King Ibn Saud in 1944 two months before the former’s death.
It would have been nice if our leaders had practiced transparency and told us in no mincing words the real reason for most of our military involvements since that time. We might have been more supportive of wars that seem dubious and frivolous to most people now, and we might have insisted on a more effacacious prosecution thereof. Most of all, we might have developed a culture of conservation and minimal car use, instead of building out millions of square miles of suburban sprawl.
“Would we really be at risk of invasion by the Mexicans and Canadians if we only spent $400 billion?”
The half trillion isn’t keeping the Mexicans out.
Yesterday we had the follow astute comment:
Astute Observation by It All Happens on the Margin
2008-09-17 12:16 PM
You clearly have no understanding of the Irvine area; many households have more than 2 earners living on the property.
It all makes sense now after today’s post. Thank you for educating my ignorance.
Yes, you cannot forget the house itself. In many cases, it was the primary wage earner because it netted households yearly sums in excess of the wage earner’s take-home pay.
The context of this is simple: we were discussing the household income of a target buyer for homes in Irvine.
In looking at rentals in a dozen or more Irvine villages, I have been utterly shocked at how many families live in these stucco boxes. These aren’t poor families by any stretch, just a cultural thing to have a few generations living in the same home.
AZ reads the median income numbers and thinks he’s got it all figured out.
By that logic, a home in Chino Hills would be more expensive than Beverly Hills.
You are making a straw man argument.
The median income vs median house price of Beverly Hills is highly suspicious, indicating that it is in a huge bubble of its own that is destined to deflate.
By all measures of affordability, the majority of people living in Beverly Hills cannot afford to buy their own houses. Just ask Ed McMahon.
All your argument shows is that Beverly Hills is more bubbly than Chino Hills. Are you surprised by this given all of the glory paid to Beverly Hills by the media? I’m not.
Your comment confirms my statement that you are reading WAY too much into median income and not enough into pure affordability.
Say there’s 5 guys in a town, making 20k, 30k, 40k, 50k, 60k.
Median is 40k.
Next town has a big disparity in income:
20k, 25k, 30k, 120k, 150k
Median is 30k.
What should homes be priced in the respective towns?
I don’t know. Depends on how many homes, right? Yes, but it also depends on how many housing units too.
There are far more millionaires per capita in BH than there are in Chino Hills. The income disparity is what plays here (as evidenced by a particular candidate’s ability to raise record contributions at $28,500 per plate in BH). Notwithstanding Mr. McMahon’s foreclosure, there’s plenty ‘o cash in BH.
I’ll stipulate there’s a ton more air left in the tires (including homes on the westside), but by your definition Beverly Hills has been “bubbly” for about 80+ years.
The median income is based on “traditional” measures of affordability.
A family bringing home 90K per year will not qualify for a traditional loan to by a 1 million dollar house in Beverly Hills.
Your example of Beverly Hills just tells me that lenders are still making available “creative financing” to the people living in that area which does not change affordability, it creates an “illusion” of affordability.
You are hopeless. Need I spell this out?
Read my description again. BH is like town #2, where there is a huge disparity of wealth.
OMG! AZDavid FINALLY GOT IT!!!!!
Let’s prop open a champagne 🙂
It’s too bad though that the 3rd wage earner is now totally unemployed 🙁
You clearly have no understanding of the Irvine area; many households have more than 2 earners living on the property.
well somehow I doubt that your average Irvine resident is renting out rooms in their home in order to make the monthly mortgage nut; however during my time in San Diego County and OC, I was really struck by how many people were doing exactly that.
Funny you should point that out – my neighbor, who’s under financial pressure, is converting a couple of rooms in his house into a very small efficiency apartment. He put up a noise reducing wall, some appliances and made a private entrance through a patio door (the only source of natural light. Of course, the renter will have to park outside on the street (no room in the garage). Amenities include a small backyard ringed by neighbor houses.
He thinks he’ll get $900 to $1000 for what really feels like a jail cell. This is in Carlsbad, but I think he might be smoking something!
Is it legal in Cbad to do that?
If you’re going to do a structural alteration like that you need to get permits for it – I don’t think it’s illegal as such. I could be wrong.
It’s against my homeowner regs for the development I live in, not that those regulations have stopped anyone from doing it – desperate people don’t pay much attention to rules.
“balconys” – somebody send this Realtard back to high school, please.
Kelja, I’m seeing this happening a lot in Encinitas, too – and oddly enough, it seems to be more with established residents than with new buyers. I get the feeling a lot of people have HELOC’d themselves to the ragged edge of affordability.
Agree with you on ‘balconys’.
But can you explain why the word ‘Treasurys’ in US Treasurys?
Hmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
It is just mind boggling to see property after property in this financial mess. I mean figure out how many homes have changed hands in the last 5 years and figure a good percentage of them are going to cost investors a cool quarter million bucks at least. And then we watch the news and see politicians acting all outraged over what has transpired. Face it, when you lend someone making $100K a year (if they are lucky) $790K for a property that was probably only really worth $350K plus don’t require them to take any equity position, you are playing with fire. And unfortunately that fire is and will burn us all.
I love the notice about how the house is being sold “as is”, with no warranties being offered or implied. So…black mold, dry rot, or termites? And is the damage extensive enough to require demolition of the whole overpriced mess six months after the purchase is final?
My understanding is slapping “as-is” on a listing in California really does not mean much. The agent is still on the hook to disclose any defects that or known to them, or any that a competent inspection should revel.
That is not to say they will not find a buyer that does not know the law, and that this place will most likely be a better deal in 6 months or a year.
As I understand it, if it’s bank owned,then no disclosures. That’s one of the pitfalls of purchasing a foreclosure. Anyone out there know this for certain?
Great Post IR.
Before I became a bubblehead I too had a strong sense that as a nation we seemed to be focusing a disproportionate sum on RE purchases and improvements. Seemed like every home debtor I knew was extracting equity to remodel and otherwise ‘improve’ their living space. I was one of the few who payed attention to my HS economics teacher during the ‘shovels and corn’ section. It’s been a long time since we’ve made any shovels, but we’re sure moving corn around. Now here we are with this overgrown distribution network for chinese made products but our factors of production are generally in disrepair and the foreigners are on the eve of figuring out that our main trade good in return is inflation. Methinks soon they will decide that American’s have had enough corn for a few years.
The USA is about to get a replay of that HS economic lesson that most of us ignored.
Time to start making shovels again.
Do you think the US has enough infrastructure these days to ‘make shovels again’ ?
Although he was kind of a corn ball, Ross Perot was right. It always boggles my mind how people keep thinking it has been good for our economy to whore out all of our strength (manufacturing) in return for cheap, disposable products from Asia and Mexico.
What you have seen the last decade is one Ponzi scheme after another, Wall Street, Energy, Real Estate, Oil, now precious metals, with 401K’s and mutual funds on deck.
The same financial institutions have been behind every single one of these scams, but now there is no one left to steal from.
To hell with mortgages and tryng to save that fiasco, put the money to work BUILDING SOMETHING before its too late.
I agree cam. All of my free trade friends will hate this, but we need tarifs to maintain our wages, industries and ultimately our standard of living. The temporary boost we get from the ability to buy cheap goods is no substitute for having very little to trade in return, and for the growing inability for us to be self-sustaining in times of geo-political turmoil.
Kat, I think we can rebuild our manufacturing infrastructure, but not without great national sacrifice. Our infrastructure is designed for distribution of imported goods. The tremendous (and continued) weakness that the dollar will experience in the coming decade means that imports like oil will continue to be more expensive. We’re absolutely going to have to find alternative and domestic sources of energy, and soon. Powering a manufacturing economy is extremely energy intensive. Moreso even than our relatively wasteful ‘just in time’ service economy infrastructure.
Sorry guys, but the U.S. is still the world’s biggest manufacturer. China is a close 2nd and will probably surpass us in a few years, but the idea that our manufacturing base is gone and we have nothing to trade is beyond absurd. And besides, there is plenty besides manufactured goods to trade (services, software, food, etc).
The reason we have a huge trade deficit and are sellings ourselves out in the long run has nothing to do with our free trade policies and our service economy. It has everything to do with our dependance on foreign oil and a set of goverment policies and cultural norms that do not encourage enough saving.
Oh I see. As long as we save the money we make selling hamburgers and hair cuts to each other our dollar will remain strong in the world markets. Sorry but software development is steadily going overseas and most of our ‘services’ sector is consumed domestically rather than exported. It’s not that we don’t manufacture anything, it’s that we manufacture less than we consume and that trend is growing each year.
I agree with you about our energy dependence and lack of domestic savings.
“software development is steadily going overseas”
ROFL
Please tell that to the recruiters so that they’ll leave my friends and I alone.
I agree with the rest, other than where you were being sarcastic.
You must have missed the steadily part.
Nuance guys, nuance.
Come on, any freaking person can develop software code with simple compiler, buncha libraries, and voila! Why the hell do you think we have Linux libraries and open source codes?
The software development that you’re talking about that are moving overseas are primarily maintenance code that would cost too much here to maintain. New project developments are still being developed here in US.
Thank you.
I agree with many of the things you say Schadendude, but you’re way off on your statement about software development. If you’re concerned about nuances then I advise against making blanket statements.
Engineers are a fiery bunch, aren’t we?
I’ve been working in electronics manufacturing/engineering since 1972 & until I was laid off May 2008, I’ve always been able to find a decent-paying job (Austin, TX). This time, however? Not a damned thing these last five months. & FWIW, there is someone right this moment being paid to design the exact same equipment I was designing over the last eight years for the exact same customer, too. Problem is this person is now in Bangalore, India. Thanx, GW!
Love that crown molding on the stairs – I guess they had a few extra pieces and didn’t want them to go to waste…I wonder if the owneer did that himself while he was drunk….
Dano
Yeah, it’s cheesy. Sometimes this is done to hide the mistakes made by the floor installer – where the floorboards were not cut properly and don’t quite meet the wall. If they would have had a decent installer, they may not have had to do this. We managed to get an installer who did a perfect job on our stairs.
FYI “sold as is” this is a term that the banks must use when a foreclosure is listed for sale. Its hard to grip the ideal that homes are now an asset/commodity. Back in the day homes were purchase to live in and raise families in. In realistic terms when you buy a home now, it really isn’t an asset from an accounting view, it is a liability. Anything that you have to dump money into but does not generate money for you is a liability. So unless you plan to rent out or “flip” When you buy a home you are taking on a hugh liability. This is for “Happens in the Margin” First would like to know your age, second I would not put too much stock in what The Wall Street Journal pumps out, (MarketWatch). They are pimps for Wall Street. When you read something, first you must ask yourself “Who is publishing this?” eg. where does the money come from? If you would like to read from experience professionals about what is happening to our country and economy: John Williams, Shadow Statistics, Jim Rogers, Nouriel Roubini and Shiller of the Case-Shiller Index. I am guessing that (1) you work as a trader, (2) you are a hobby/trader. In any case read from experienced voices that disengage themselves from the herd.
Does anyone have any experience with the local elementary school – University Park? It doesn’t rate as well as the other Irvine schools in terms of test scores, etc., but what is the local scoop on this school?
Wow! Thanks for the article. Really helps me open my eyes. Hard to believe lenders would allow people to borrow so much money, esp if they don’t have the income to back it up and no built up equity in the house! I don’t think there is anything wrong with getting a downpayment to move into the house, but lenders giving the seconds should have really thought about that one!!
I just don’t understand what the lenders were thinking. For years, bankers practically wanted your first-born before they’d lend you the money for a house. What changed?
What changed is that mortgages were no longer held by the institution which originated them… mortgages themselves just became another commodity. So the originator didn’t care about the mortgage being paid off, only whether the mortgage could be sold to someone else. (See IR’s many blog entries on this!)
OOOHHHHH…..