HELOC abusers really had a good time during the bubble. The economic stimulus they provide becomes apparent now that it is gone.
Today’s featured property is a small condo in Deerfield that was drained of all its equity by the owner. The ATM is now closed.
Asking Price: $349,900
Address: 329 Deerfield, Ave #15, Irvine, CA 92606
Free Money — Patti Smith
Find a ticket, win a lottery,
Scoop the pearls up from the sea
Cash them in and buy you all the things you need.
I had a moment of jealousy this weekend, albeit a bit delayed. Let me explain.
On Saturday, my family and I went to the entertainment center on
Crown Valley Parkway and the 5. We were going to have a family lunch
there, but when we went up to El Torrito Grill,
it was a vacant shell. The restaurant had closed its doors. I looked
across the promenade, and the Versace Italian Restaurant was reduced to
a ghostly imprint on the wall where its signage used to be. We walked
past a number of vacant stores on our way out. The signs of the
recession were unmistakable.
Gross Domestic Product with and without the effect of Mortgage Equity Withdrawal
On Sunday, we all went to South Coast Plaza. It was a ghost town. I
had to remind myself that it was a weekend. As I reflected on what I
had seen at these two commercial districts, I thought back to how
crowded these same venues were during the housing bubble. I also
thought about all the HELOC abuse posts I have done on the IHB. The
connection between the borrowed money these people were spending and
the reduced economic activity seemed more tangible. I was witnessing an
economy without mortgage equity withdrawal, and it was not very
vibrant. In fact it was dead.
As I contemplated the strength of the connection between borrowed
money and our local economic prosperity, I began to think about all the
HELOC abusers who got to spend this free money. They are not paying any
of this money back. They are all walking from their responsibilities or
praying they can pass them off to someone else. It really was a party
on free money: a party I missed because I did not buy a home during the
frenzy.
Something crept in to my awareness. Something dark that I held deep
inside. There was a little voice in me who was crying out, “I WANT MY
FREE MONEY!” At that moment I felt jealousy toward all the HELOC
abusing spenders I had seen during the bubble. It was something that I
did not feel (or did not acknowledge) when the bubble was inflating.
Perhaps it was my ignorance to where the money was coming from, perhaps
it was my own spiritual training to feel joy for another’s good
fortune, or perhaps I simply suppressed my feelings. No matter the
reason for my lack of jealousy at the time, in that one instant on
Sunday, I realized that some part of me wanted that free money too.
Mortgage Equity Withdrawal 1991-2007
The logical adult in me recognizes that this money was not free.
These people are paying with lowered credit scores, the emotional
fallout of losing their homes, and most difficult of all, the
adjustment to a lifestyle not fueled by free-money spending. I
certainly do not envy any of those circumstances, and anyone who took
out this free money and spent it has to deal with these realities.
However, the emotional child in me wants what he wants when he wants
it; he wants free money. I know because I heard this voice clearly on
Sunday.
I certainly have no regrets about not playing the free money game. I
would not trade places with any of those people who were spending
during the bubble who were conspicuously absent from the stores this
weekend. The hangover from their house party is quite debilitating.
{book}
One interesting phenomenon concerning people’s perception of real
estate is this ongoing connection to free money. In my opinion, there
is a widespread belief in our local culture that house prices are
temporarily depressed due to the economy, and as soon as the economy
recovers so will house prices. This is a faulty perception.
The reality is that house prices were temporarily inflated, and the
falling house prices are a return to value. True value was not the
pricing seen at the top of the bubble. We are not experiencing a
downward departure from value. When the economy recovers, it will serve
to stabilize prices at fundamental valuations, but the likelihood of a
quick rally back to bubble levels is pretty low — unless of course
lenders and investors want to give away a trillion dollars again.
That is exactly what people either want to have happen or believe
will happen: lenders and investors are going to give away more free
money.
Psychology does not change overnight. The crashing house prices have
changed the psychology somewhat, but there are still enough kool-aid
intoxicated people out there to absorb the current inventory and keep
prices elevated far above fundamentals. There is only one real reason
anyone is buying right now: they believe prices have bottomed, and they
do not want to miss their chance at ownership — they want to make sure
they get access to that free money coming in the future.
There are always some people who buy because they want to provide
shelter for their family, but these are not the people dominating the
market. The declining prices have kept away the buyers looking for
quick appreciation, but it has not kept away the kool aid intoxicated
with a somewhat longer timeframe for ownership.
The psychology of buyers will change slowly as prices continue to
fall, but the lure of free money is very strong. Until those lingering
memories fade away, people will continue to buy to obtain it. Will the
lenders be willing to give out this free money again? Will the
government allow them to? I believe the answer on both counts is “no”.
Our banking system is insolvent because of this practice, so they will
be hesitant to do the stupid things that lost them so much money, and
now that the US taxpayer is on the hook for much of the losses, it
seems likely that politicians will regulate many of these practices out
of existence.
I have no doubt that California buyers would create a new bubble
full of free money handouts if given the chance. Let’s hope the lenders
and our government prevents it — at least until I buy a house, and I
can get some of that free money…
Today’s featured property was this owner’s personal piggy bank. She
would raid it periodically, and now that the piggy bank is empty, she
is unloading the property.
Asking Price: $349,900
Income Requirement: $87,475
Downpayment Needed: $69,980
Monthly Equity Burn: $2,915
Purchase Price: $161,000
Purchase Date: 11/20/1989
Address: 329 Deerfield, Ave #15, Irvine, CA 92606
| Beds: | 2 |
| Baths: | 1 |
| Sq. Ft.: | 952 |
| $/Sq. Ft.: | $368 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Cape Cod |
| Year Built: | 1984 |
| Stories: | 1 |
| Floor: | 2 |
| Area: | Walnut |
| County: | Orange |
| MLS#: | P671994 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 9 days |
home as meticulously maintained and with as many upgrades as this home
-at this price!! Some of the upgrades done within the last two and half
years are: Paint and carpet, energy efficient plantation shutters,
porcelain tile in the kitchen and bathroom, dishwasher and faucet in
kitchen, sinks and faucets in the bathroom, ac/heat unit and 50 gal.
water heater. You’ll also be happy to have a garden window in the
kitchen, washer/dryer hookup in closet, ceiling fan in dining area,
smooth ceilings, professionally installed alarm and fire system and a
garage. Off the master bedroom you will find a separate sink and vanity
in addition to the one full bath. All this plus a ‘pet friendly’
community. Who could ask for anything more?
At least they didn’t call this a gourmet kitchen. It looks more like an airplane galley.
Notice the $900 greed indicator in the asking price.
Redfin calls this a short sale, but based on what I see in the property records it isn’t. After years of HELOC abuse, it is close, and it may yet be a short sale, but as of today, it doesn’t appear to be one.
- This property was purchased in the last bubble on 11/20/1989 for $161,000. The owner’s financing details on the original purchase are not available.
- On 11/9/1999, there was a first mortgage for $158,150. This was probably a refinance once the property was no longer underwater from the first bubble.
- On 4/8/2003, the first mortgage was refinanced for $216,000.
- On 8/27/2004, the first mortgage was refinanced for $235,000.
- On 8/2/2006, the first mortgage was refinanced for $280,000.
- On 12/27/2006, the first mortgage was refinanced for $314,500.
- On 1/22/2008, the first mortgage was refinanced for $317,500.
We can all speculate as to why this person needed the money or what she spent it on. Perhaps she developed a chronic illness as prices began to rise that required periodic visits to the housing ATM. Who knows? The fact is she took out the money because she could. It was made available to her, and she did not see any downside to spending it. Worst case scenario, she would just sell the property — which is what she is doing now. Hopefully, for her, someone will come along and pay her asking price and pay off her debts. It is too bad the ATM has shut off for her. I imagine her buyer thinks the ATM will start working for them soon enough.
{book}
Every night before I go to sleep
Find a ticket, win a lottery,
Scoop the pearls up from the sea
Cash them in and buy you all the things you need.
Every night before I rest my head
See those dollar bills go swirling ’round my bed.
I know they’re stolen, but I don’t feel bad.
I take that money, buy you things you never had.
Oh, baby, it would mean so much to me,
Oh, baby, to buy you all the things you need for free.
I’ll buy you a jet plane, baby,
Get you on a higher plane to a jet stream
And take you through the stratosphere
And check out the planets there and then take you down
Deep where it’s hot, hot in Arabia, babia, then cool, cold fields of snow
And we’ll roll, dream, roll, dream, roll, roll, dream, dream.
When we dream it, when we dream it, when we dream it,
We’ll dream it, dream it for free, free money,
Free money, free money, free money, free money, free money, free money.
Every night before I go to sleep
Find a ticket, win a lottery.
Every night before I rest my head
See those dollar bills go swirling ’round my bed.
Oh, baby, it would mean so much to me,
Baby, I know our troubles will be gone.
Oh, I know our troubles will be gone, goin’ gone
If we dream, dream, dream for free.
And when we dream it, when we dream it, when we dream it,
Let’s dream it, we’ll dream it for free, free money,
Free money, free money, free money,
Free money, free money, free money, free.
Free Money — Patti Smith
Would it be possible to set up a real-estate LLC that would buy/improve/heloc/flip the $h– out of properties? Would heloc debt run up & defaulted by an LLC impair the credit of the owner of the corp? Is the CEO of WCI have a terrible credit rating because WCI has gone bankrupt? I think this is an abuse of the idea of a corporation, but seems to be going on a lot – Merrill handing out bonuses before announcing $15B losses…
It is possible to set up a corporation or LLC to flip properties. The difficult part is finding a lender to give you a loan without signing a personal guarantee. Once you have personally guaranteed the loan, the entity you have formed does not matter.
When you think about the subprime industry, the entire industry was based on the idea you described. They wrote a bunch of loans, made a ton of money, and left the liability for losses in a compartmentalized shell corporation. In short, they took the money and ran.
I saw this pattern a few times in houses I looked at. Even more surprising was how often this occurred with raw land.
There were a pair of LLCs run by the same people who were trying to get permits and/or resell some large nondivisible plots. Most of them had nice views, would require long driveways and utility runs. They still wanted more than peak prices for them.
The prices dropped a little right before the bank took them. Like so many other land listings, the website and price for the land were still up months after the bank took the properties.
Despite their nice views, these plots might get quite close to zero in value. Nearby completed homes cost less than would be required to build new ones (const cost + land). Because of the grading, driveways, and utilities, if home prices drop much further, it might not make sense to build if that land was free.
another way people (esp realtors) made money was to pretend they lived in a home for 2 years so they could sell without paying capital gains. my mom lives in woodbridge and a realtor owned the home next door. she used to visit periodically to turn lights on and off so she could have a utility bill that “proved” she really lived there.
of course, this is illegal. it’s called tax evasion. i doubt she was ever caught. and i doubt it was an isolated incident. she later sold the property, of course, as the listing agent.
You can turn her in to the IRS and possibly collect a reward.
I believe the IRS offers (or at least used to offer) a bounty of x% of whatever amount is collected from tax cheats that are turned in.
Excellent chart indicating just how enormous the home ATM was in boosting the GDP. I’d like to see what the numbers are just for Orange County … that would be ultra-ugly.
I took my son to that same El Torrito Grill 3 weeks ago, and it was still open, but there were only about 4 tables occupied.
I for one, do not feel comfortable looking around Orange County and seeing all the damage from this Ponzi scheme. I for one will be glad when it’s over.
Strange, we went to the El Torito Grill near Fashion Island and it was packed! Maybe it was because of the Sunday champagne brunch but I expected it to be dead too.
Irvine Renter-
You are so right! I visit the OC often and I could never figure out how so many people could afford such expensive toys (fancy cars, fancy clothes, fancy restaurants, etc.). I live within my means and simply cannot afford some of those things. Also, I have saved some dough for hard times, which I am going through now. I had no idea that people who were buying all this stuff were simply pulling money out of their homes.
Someone should write a book about this…on the level of “The Great Gatsby” or “Brideshead Revisited” about the high living during this just ended gilded age.
Funny that you should mention that. I am no novelist, and a great novel could certainly be written about this era, but I am contemplating writing another book.
When I wrote The Great Housing Bubble, I did not put any IHB posts because I was concerned about copyright. I am no longer worried about that. I may (probably will) write a book titled House Spenders: Mortgage Fraud, HELOC Abuse, and other Cautionary Tales from The Great Housing Bubble. I would use the fraud and HELOC abuse posts as case studies on all the personal Ponzi Schemes that were hatched within the massive economic Ponzi Scheme.
IR,
Is 2nd edition of The Great Housing Bubble conceived yet?
If not, when might it be?
I will probably hold off until 2011 or 2012. I think the update would work best if it has the perspective of being written after the market bottoms.
Until it bottoms? You won’t be able to afford me by then for your art!! LOL.
I would be all over that book. I bought your first book, but my favorite part of this site is the fraud and HELOC abuse.
I noticed that as well last time I was in Southern California (this summer). For a humble person from flyover country, the price of the cars people drive is immediately recognizable.
“There is only one real reason anyone is buying right now”
You correct yourself soon after that, but still, you’re veering close to the CNBC practice of reading every market participants’ mind flawlessly on an instantaneous basis. Some folks have enough cash such that the couple hundred grand in prospective equity loss in a purchase isn’t that big a deal. Very rare these days, but they exist.
Don’t forget, it is a double whammy – not just the end of MEW, but the degree to which folks’ work incomes depended on real estate appreciation, especially in Irvine. I’m sure it isn’t a stretch to imagine that a good 250K people in south OC have seen a loss of a job (or a majority of hours) as a result of the softer RE market , and they’re the ones no longer dropping $100 bucks on a day trip to the mall and lovely chain restaurant therein.
“Some folks have enough cash such that the couple hundred grand in prospective equity loss in a purchase isn’t that big a deal.”
Exactly who are you talking about?
I know millionaires who became that way simply because of making the right business decisions, not the wrong ones. None of them would view a 6 figure loss as no big deal.
“Exactly who are you talking about?”
The 40 folks who bought in Santa Barbara in December, for starters.
“The logical adult in me recognizes that this money was not free. These people are paying with lowered credit scores, the emotional fallout of losing their homes, and most difficult of all, the adjustment to a lifestyle not fueled by free-money spending.”
IR, I think it depends on how people used their free money. Did they use it on their kids college education and now their kids have zero debt? Did they buy a car with 100% HELOCed cash, and now they do not have a car payment? The plastic consumerism of Orange County is dead, most abusers will feel that pain. We will all live through that pain on some level, in terms of quality of life. The credit bubble gave us all a false perception on what a house and average life style should look like.
The way I see it is there are 4 general types of bubble participants:
1. Those who participated and spent all the bubble equity.
2. Those who participated near the end and are holding the bag.
3. Those who participated, sold at or around the peak, and are cash wealthy.
4. Those who did not participate.
I would like to see a post on type # 3. This would likely include some flippers who might have been holding the bag at the end, but turned over so many properties they are still cash wealthy. Our GDP has been fueled by bubble cash for over 10 years now. The first half of your bar chart is the tech bubble. You could do a similar chart that illustrates what GDP would be without the Tech Bubble.
If the child got a degree in Medicine, Nursing, Engineering, or Computer Science, perhaps MEW is not a bad thing. But if the child got a degree and is now working at Starbucks, well…
You are right. But that child still had an advantage over the child working next to him/her at Starbucks with $50,000+ in student loans. The tuition bubble is/was one of the great ponzi schemes.
Ya, my brother in law went 130k into debt for a Psych degree from UCLA… OUCH.
WAY too many folks going to college these days.
Good point about the tuition bubble. Lately I’ve been thinking about going back to college for another degree. It’s a private university so I have thought maybe I can try negotiating tuition with them as you would negotiate any other big purchase. Hmm… maybe it’s worth a try.
5th type:
5. Bought before the high. Refinanced at the high to remove almost all equality or with negative amortization. Loss the house, but have lots of cash from the refin. Non-recourse loan without equality was used as a “stop loss” if price when down. Better than sell, if the price when up. Better stocks because the owner can loss any of his own money.
“Non-recourse loan without equality was used as a “stop loss” if price when down.”
But (I’m pretty sure that) refinances are recourse in most jurisdictions. Admittedly a judicial foreclosure is required to get a deficiency judgement but the bank will do it, if they think the judgement income will exceed the extra cost of getting the judgement.
Many of us remember after Sept 11, the surge in Orange County of new German Auto’s and large SUVs. Gosh, it was like everyone was hellbent on buying something very expensive. It was literally a week after 9-11 that ford announced 0% interest for 5 years (free money), with GM following a few days later. According to GW Bush, we had to get America spending again, and the way to accomplish is was securitized debt. Passing the buck from one to another, ultimately ending up in the lap of a bag holder, believing it’s AAA paper. 8)
What a sham!
The Jump-n-Jammin place is still hoppin’
Yes, I took my son there while my wife went to the mall across the road. It was a zoo. I guess people still have $10 to let their kids play…
You are right. The money is not free.
Many folks who understand say, “Our children will be paying for our greed.” And they are correct.
It is not some esoteric and nebulous concept. Our children will literally be paying for all the money that has been borrowed and is being borrowed at an even greater rate now. Yes, more is being borrowed faster than the last few years. Now it is being borrowed by the treasury and soon the Federal Reserve instead of the public, hedge funds, and public corporations.
But, one way on another, most likely by currency devaluation, our children will pay for our sins and our greed.
I’d like to modify that….”My children will be paying for someone else’s greed.” Which is infuriating. Thanks to our gutless politicians, as usual, somebody else gets stuck with the check and the irresponsible parties get off for free.
You know, Hank Paulson is pretty quiet these days. He really faded away into the shadows after he gave those billions to his Wall Street buddies. Wonder what his payback was.
Someone had to vote the gutless politicians into office. And my guess is that it is the same irresponsible people who think the government should be bailing them or anybody else out.
Why am I thinking that my children will also have to pay for many other people’s children?
Is this bubble intentionally been created? And who create this bubble? Who benefit this the most maybe is the answer.
With this bubble, GB will lose Ohio and won’t be re-elected and AG won’t re-nominated with his last term as Fed chair.
mav @ 7:51
Your first group, those that took the loot and spent it have to be the largest part of the pie.
Sure, some got out loaded with dough thanks to the false appreciation, but those were the lucky ones. Something prevented them from the ‘trade up’ syndrome; they just didn’t buy their next big lotto ticket before the whole scam started to unravel.
The first group has the largest part of the pie. I think it’s a mistake to discount type # 3 as inconsequential. Roughly half the people I know who participated in the bubble would fit into type # 3. None of them are flippers, just people with half a brain who happened to time the market. What percent of bubble purchases were purely speculative (where the purchaser never lived there, flipped quickly, or rented for a period). I believe this percentage is significant. I have seen 20-30% quoted in bubble markets. Each turnover was a cash arbitrage. The cash that accumulates after bubbles has a significant longer term impact.
Many of the people in that first group really thought they were “investing” when they bought a second home or put in granite countertops.
I had nothing to do with luck. Unless you are talking about the type of luck that is 95% planning, work, and guts.
“It” had nothing to …
edit
The mortgage equity withdrawal days are coming to an end. This madness couldn’t go on forever. I got into plenty of arguments with my ex-wife about how a big percentage of the wealth in OC is just a facade. It took a few years, but it looks like I was right.
I always asked myself how people in OC could afford these nice houses, luxury SUVs (with the fancy wheels), big families, the latest clothing and acessories. All this on one real estate related income. I guess we all know the answer now…it was all make believe.
I think the responsible people of this world will be rewarded in the next few years…I’m hoping.
“I think the responsible people of this world will be rewarded in the next few years…I’m hoping.”
This reminds me of Alexander Pope’s beatitude: “Happy is he who has no expectations, for he will never be disappointed!”
I’ve been working at a boring utility for 10 years saving $ and watched all these r/e-mortgage types make all this fast $ the past few years…but now they’re calling me looking for employment…and it kind of bugs me…
Two great examples:
My neighbor worked for some lender and moved to Vegas when they opened a new office…they shut down and now she’s back (unemployed) in her small condo with her new r/e investor husband who supposedly owns $1M condos in Miami. Whatever.
One mother at our daycare lost her job at some r/e company and talked to my wife to see if I could get her a job…blah blah blah…so to make the wife happy I take her call and I swear I couldn’t understand what in the hell she did at this place…claimed to be a project manager but sounded like she just shuffled loans thru their system…and she wanted some high-paying job like she had that took me 10 yrs to get here…whatever…maybe you should set the bar lower since you have no job skills…told her to go online and apply to something entry level. Anyway, and these people sounded like they were living it up in Turtle Rock…like I’m going to help you sustain your lifestyle there…
Do I sound too bitter? Maybe I need some therapy….lol
Drink another durty-kurty and all will be fine…
“I’ve been working at a boring utility for 10 years…”
And if you’re any kind of sensible, you’ll hope it stays boring.
Obviously this homeowner did not spend the money renovating that kitchen or those bathrooms. They likely look just like they did when the unit was built in 1984. After looking at the furniture they don’t look like someone spending money on fancy furniture or electronics.
I don’t know if that is a fair value for that place but for the asking price I think I would have expected a kitchen a little nicer. Not too much because it isn’t that type of property, but at least a little fresher.
They won’t get $350k for this place. You are right, those are the original cabinets.
I have felt the same envy up here in the SF area, even though we own a home. Over the last eight years, while my husband and I struggled with a bout of unemployment due to the tech bubble and outsourcing, we watched while everyone else appeared to be partying in high style. While we did boring things like pay our mortgage and give up vacations, we watched others living “Lifestyles of the rich and famous”. I said to my husband, “Where are they getting all this money? Is everyone getting paid more that us? Who can afford all these $1,000,000+ homes? Did we miss the memo?” Then, when I figure it out, I snarkily suggested that we could get that ocean front vacation home I’d always longed for for nothing down, and easily make a few millions just for enjoying it a few years.
Yes, some people did that. And yes, by not using our home as a personal ATM we often felt like complete suckers, and were at times envious. But just like you, we stuck to fundamentals, and reality. Now that the party is over we are in good shape. I am waiting to see who around us can say the same.
And that vacation property? I am watching the prices go down. All the high-rollers and flippers are trying to unload it now. Good luck with that, folks.
Love this blog, and read it every day! It helps me cope with lingering envy, and reconfirms the wisdom of how I have chosen to live my life. FWIW, my economic principles were instilled in me by my mom, whose family lost everything in the Great Depression by buying things on margin. Needless to say, I was taught a horror of leveraged debt, and the lesson that it can implode in a bubble. Very useful.
You know what is sad. Some of those people who bought stuff just to be buying stuff or to keep up with their neighbors and subsequently lost their houses quite possibly didn’t take everything when they were foreclosed on. They possibly left thousands of dollars of clothes, furniture, electronics, etc. behind because they couldn’t organize fast enough and could only fit so much in their car.
I’m not sure I get what’s so “sad” about that. The stuff they bought was with “free money” that isn’t really theirs, since they can’t and won’t repay it anyway.
People around here seem to be selling their stuff on Craigslist. There are so many top-of-the-line treadmills and gyms for sale it’s ridiculous.
What is sad to me is that so many people “bought stuff just to be buying stuff”, and ended up with nothing but cheap crap, out on the street.
As I said to my husband over and over, the smart folks got their money, and have it socked away in gold bars in Swiss bank accounts. If I were dishonest, that’s what I would have done, with actually no risk to me: take out the money, and walk away. But that’s me. I saw the opportunity, my husband and I both knew when the market was peaking, and decided to just stay in our home to raise our family. Besides, we have to live with ourselves. Sigh.
One reason I like this blog is that it’s really nice to read someone else who is living in exactly the same reality as me. There has been such a disconnect for years.
“Sinks and Faucets in the bathroom” – what a deal! “Dishwasher and faucet in the kitchen” – oh my! They forgot to mention “Roof over your head”…
This is still about $100,000 too high…
Dano
i work right off crown valley pkwy. i know what you are talking about. our company just cut 25% head count last week.
the only places you don’t see much signs of recession are asian shopping centers.
The new Asian-themed Diamond Jamboree shopping center in Irvine seems very popular…I want to check it out.
It really does seem like Asian shopping centers are not hurting. Maybe it’s the low cost shopping approach and buy only what you need and can afford mentally, coupled with saving for a rainy day.
I also noticed that the produce is fresher and low priced.
So what happens to lending when everyone has bad credit scores?
I fear subprime will come back, but with another name: Recovery lending.
Recovery lending will help those poor poor souls who lost everything to the bad bad wall street people, and their credit scores took the hit as a result.
The banks arent lending to enough people, and its stagnating the economy. We need to help these hundreds of thousands of people who have bad credit scores, so that lending can return to normalcy and bring back the economy!
I went to the District in Tustin. It was packed on weekdays and also on weekends. Is this because it is new ? Perhaps.
For whatever reason, the mall and 5 Fwy/Crown Valley has had trouble keeping tenents. The restaurants keeping changing. I think the parking is too tough at this mall and that has a lot to do with lack of traffic in the mall.
Also, when you see in the news 50K job cuts in one day, you hunker down and keep the cash. That’s another reason people aren’t spending. No one can be sure about keeping their job.
Trying to get in and out of there is awful. We live in South County and I will do just about anything to avoid the 5 / Crown Valley Pkwy mess.
We live near The District and it has stayed pretty busy even during these lean times. It might be because it’s new or that it has some decent entertainment venues.
I have noticed the Lowe’s has been pretty dead though. Went in there on a Saturday a couple weeks ago and it felt like I was the only human inside.
I noticed a couple weeks ago that The District suffered a casualty despite the apparent booming growth it’s experiencing. Near Whole Foods there used to be a high-end baby/toddler clothing store. That space is now empty.
Irvine Renter, I am a regular blog reader and I often see lots of speculation about how HELOC borrowers spend frivolously. From looking around at Fletcher Jones and the many mega malls here in the OC, there’s no doubt in my mind a lot of people did this. But… do we think there are many who borrowed from their HELOC and who didn’t spend or consume this money? I am one of those individuals. I borrowed from my HELOC to take on additional investments that have worked out quite well for me and I have no regrets on this. My net worth (assets – liabilities) has improved because of this, even though a glance at my HELOC would look like I sipped the kool aid. Do you think many others are like me? Am I a rare breed? Simply wanted to throw this out there as perhaps there are more responsible HELOC borrowers out there. (Granted, I’m a non-native SoCaler, so perhaps I bring different values with me.)
Mattman, I believe there are a significant group of people like you. I was not part of this group in the housing bubble, but I was part of this group in the multitude of other asset bubbles over the past 10 years. Ignoring this group is a mistake. It has a huge impact going forward in supporting certain premium market segments and is a driver for future asset bubbles or industrial bubbles.
I can’t imagine too many people borrowed against their homes to gamble with risky investments that pay better than the cost of the loan. Sure it payed off for you, but I can’t imagine this is considered a wise investment strategy.
I have a question for you: Do you plan to pay back your HELOC? Or did you borrow enough that you can just walk away, let ’em have your house, and still make out OK.
You are missing the point, it’s a win-win option. You don’t need to commit one way or the other. Either choice can be beneficial financially. You just need to spend the free resources wisely.
You make a good point about risk factor; I personally felt this was “cheap” money since interest paid borrowing from a HELOC often can be deducted on taxes thus making the effective interest rate not too high. In my personal situation, I do plan to repay the HELOC and absolutely have no plans of sticking it to the bank. Though, in general – I imagine others are not like me and do plan to stick it to the bank. Or, perhaps their original intention was to borrow and make a ton of money; then that plan failed, perhaps those people would choose to walk away from the home.
*Everything* that you do with the money is considered *risk*. Even buying non-discretionary items such as food with HELOC is considered risk. This is the problem facing America today: people don’t realize the risk they’re taking.
My first paragraph may sound stupid but if you think hard at the dollars that flow in and out of your family every single day, perform a statistical analysis of that flow, and you’ll see that, unless you’ve included as much potential risks as possible (i.e. getting hit by something such that you’re gonna be hospitalized for awhile), your net worth, current cash, DTE, LTV, whatever ratio is subject to risk in the future.
HELOC is just another tool to leverage. By doing that, you’re simply extending your balance sheet (increasing asset and liability at the same time). Right now we’re experiencing the greatest balance sheet reduction since the GD (perhaps I’m wrong in this sentence) but you’re gonna see this evidence further in the coming months and years. Count on it.
http://www.fbi.gov/hq/mortgage_fraud.htm
If you want to read about fraud I’ve been watching a much larger scale for a some time now–it’s all over as well.
I am sure many who took out Heloc’s thought their house would never fall in price they felt Rich. If they bought their house in 1997 or earlier they saw a typical 300k house go over 1 million. The entire middle class now felt rich–so they bought things that would make them feel good.
And everything went up in the wake–going out to eat here is expensive compare to many other states. When I go back to South Fla. I am amazed to see cheap drinks, food prices.
The main problem with Ca is very few who were born here have lived somewhere else because of prop. 9 they don’t move. So they do not understand that their is better quality of living, better life in other states. Even a warmer ocean in Fla.
I have lived all over and the quality of life here besides the weather I feel is really poor. How many real friends do people have here? How many have neighborhood parties? People are so obsessed with money but it does not produce happiness.
And the key to happiness for some of us is hard to find because we want that little home with the garden and yard big enough for a pool, a driveway where you can actually fit you car in, real plants and yard.
What we really want is not to be burden with our home and here in CA your house is your burden. It’s your chain around your leg because of the costs. It’s keeps you chained as well because if you want to move up you will pay more in taxes.
The bubble mentality of CA is not going to change no one learns from their mistakes and it takes years to see new behavior.
For those of us who played the right game we are paying for it with lower % in interest, higher taxes, and fear we somehow missed making big money.
For those who got caught they either have a pit in their stomach or do not allow it to bother them. But losing your credit will hurt at some point in time. I for one love my credit cards the freedom it gives me. I would not want to lose my credit.
All we can do now is hope and pray we do not lose our jobs, we pay down our debt, spend less, hope we can stay in our rentals/homes and hang onto our marriages (the stress can do much damage for some) and know Karma always gets you.
Trust me it does.
One of the big questions I have is:
What percentage of wealth that was extracted from the housing bubble went into shorting the entire equities market?
Perhaps in 10 years we will be able to see a bar chart from the fed that shows GDP with and without a “green” energy bubble.
Congratulations Mattman on your leverage success. I tend to think there are many more failures than successes at trying to leverage one’s home into other investments. My personal strategy is to only lever appreciating assets and never to lever depreciating assets.
The difference between you and other helco’s who borrowed money is that you used it to make money not spend in on asset with none to little real return.
And I am sure your intentions were to repay the loan.
Different animal that is all–but not rare breed.
When interest rates were higher than borrowing costs many did this along the time when we had a bull market. Rotation of money is what it is really called.
“but you will not find a home as meticulously maintained and with as many upgrades as this home -at this price!!”
Sorry but *meticulous* has no price in this economy (i.e. worthless).
so they cleaned the tile. Big deal. Looks good in that classic ’85 kitchen.
My question to everyone is, when is a good time to buy? I have wanted to to buy a home for two years now but decided not to given the inflated prices. Now that prices have come down by approximately 15%-20% in Irvine, I have been advised by many people that this year is the time to buy. However after reading this blog, I am torn. Have we not hit the bottom yet? Although I know I can afford buying a home right now, I am still worried that we have not hit the bottom and that my down payment will be lost. Any advice would be appreciated. Thanks!
I attended a BIA function last night. Chris Thornberg from Beacon Economics addressed the gathering. He is predicting a 32% decline from today’s prices in Orange County. It is not over yet.
Chris Thornberg is a raving lunatic optimist. %-P
Holy Sh#@!!!!
I am struggling with this question myself since we have another baby on the way and need more room. My conclusion from the data I look at (primarily from this blog) is that prices may have come down 15% to 20%, but this decline is from the artificially inflated peak…not from a realistic level that that represents what I consider a “fair” value. I’d like to see prices decline closer to their pre-bubble levels before I jump back in. I’m not sure if this will happen in the areas where I would like to live, but I am pretty sure that prices will not go UP for quite a while.
If we fall in love with a house and feel that the price is reasonable for us then we will probably buy since we plan to be long term owners and are less concerned with timing the bottom vs. finding a home that we will enjoy.
Irvine is a market below Laguna Beach, Corona Del Mar, Newport Coast, and Newport Beach. However it it’s premium status is above most other areas. Prices will drop but I believe it’s debatable as to how much. I would not apply a 32% blanket statement made on Orange County as a whole… that’s dangerous.
The best example I can give of a premium market where bubble prices will be maintained is in college tuition. I believe indisputably that tuition bubbles at institutions like Yale, Harvard, and Princeton will be maintained. They will be supported by wealth extracted from the myriad of bubbles over the past 10 years. Other less desirable institutions who benefited from a tuition bubble will likely see their tuition revenue decline.
Your “premium” college analogy makes a lot of sense! You could argue that the best “value” education is achieved somewhere other than these premium schools; however there is a percentage of the population that looks above “value” when making their decision.
In my opinion homes in Harbor View in Newport or homes in Turtle Rock in Irvine may continue to command a significant premium to other areas because they may be viewed as “premium” more desirable areas. I’d love to see these areas drop another 32% but I don’t think it is going to happen. Similar to the situation with expensive colleges, the wealthier folks may decide that these areas are where they want to spend their money….
For fools like me, the easiest and surest way to see the bottom is to look in the rear view mirror. In other words, wait until re prices are rising and you will know the bottom has passed. I am not being sarcastic. You do not need to buy at the absolute bottom. You just need to know that you will not lose another 20%.
when you no longer hear of layoffs, see interest rates start to go back up, inventory levels have been sold off, see new building activity, demand has returned with limited supply—that is when we have hit bottom–
I would say we have a long way to go—
Research firm RealtyTrac says 850,000 foreclosed homes are already on the market and expects this number to rise by another 1 million homes in 2009, with 2 million more homes entering the foreclosure process during the same period.
http://news.yahoo.com/s/nm/20090127/ts_nm/us_usa_fed_foreclosure
No, it’s the modern version of Street Car Named Desire.
“I have always depended on the kindness of strangers.”
I have some occasional envy for the HELOC abusers, but not much. My wife and I spent what we wanted to for the most part, and what we wanted to spend was within our means.
The emotion I do feel is some anger… We played it conservatively, lived in a modest house, paid off our mortgage, had diversified investments. But we still have gotten hit hard by the wankers in CA/NV/AZ/FL who partied like there was no tomorrow.
I guess some of my investment losses are just due to the market dropping back to what it should have been without the artificial HELOC boost to the economy. And we are well positioned to benefit when the economy eventually bounces back. But given the amount of damage OC and other similar areas have done to the economy, I think it is going to take a long time to recover.
That is exactly the point. Just because a property that last sold for $900k is now listed for $650k doesn’t mean it won’t go down to a fundamental-attached value such as $400k over the next few years. I will rent until the 3BR/3BA 2,200 sq ft home that I desire is available for $400k. When I said this at a focus group two years ago everyone in the room (and probably the folks behind the mirror as well) laughed at me uproariously. It is amazing how many of those people who have suffered so much over the last two years still don’t think that it is going to happen. In the meantime I wait and rent.
You might be waiting for a while. I’m no bull, but many “premium” places will never hit rental parity. Take Manhattan Beach for instance, that place has been overpriced for years, that’s why everyone rents.
HA! That Jumpin Jammin place is a zoo on acid. Perfect for my little monster, er, I mean princess.
I always knew that Kaleidoscope Mall would come crashing down. Every time I drove past there I couldn’t help but notice a couple stores: Versachee (correct spelling) and Ego Salon. Oh the hatred I have for the pompous assholes that came up with those names and even greater hatred for people that were fooled by it. Looks like not enough people were fooled.
My wife and I have had sushi lunch at Riptide a few times in the last month or so and it’s always dead as hell in there. She saw a painting at the gallery next door that was a “must have” (God help me) and I told her, “Just wait a few months. It’ll be 50% off.”
IR, fantastic call on The End yesterday. Honestly, that song has been going through my head everytime I read the daily posts.
Hey, thanks for posting this. Nice post! Good luck
Hey, thanks for posting this. Nice post! Good luck. A house is the largest asset you may ever own. LOL. One way to put more money in your pocket is to tap into the equity you’ve built in your home and do a “cash-out” refinancing.
How does “LOL” follow “A house is the largest asset you may ever own”? If that’s a typical attitude, I can see how we got into this mess. Nice spam! Good luck.
That’s interesting about the bogus Short Sale flag on Redfin. I wonder how that got there, if it’s not true. Almost all the affordable properties my searches have been turning up on Redfin (still none in desirable areas, alas) have been marked as Short Sales — I wonder how many actually aren’t.
Note that the map shows this townhouse in completely the wrong place — in the Culver Plaza shopping center, actually. None of the mapping services has ever bothered to properly calibrate the location of the addresses on Deerfield.
“…all the HELOC abusers who got to spend this free money.”
I remember the disbelief I had as I saw a billboard years ago that said, “There’s a boat in your bedroom”. I had trouble fathoming this but soon found out that nobody with a house had any trouble connecting the dots.
I agree with IR analysis and feeling except for the conclusion that the HELOC abuse is out of money. The good HELCO abuser took out all equity at the high, pocketed the money and still have the money in the bank and in toys. (Tax-free income)
The people that are paying are the working stiffs and the people who purchased at the high or near high with large down payments.
No need to get too upset because that life and the way things have been for thousands of years.
I missed out on the HELCO party, but I’m
health and able to sleep at night.
Did anyone see this article?
http://news.yahoo.com/s/nm/20090127/ts_nm/us_usa_fed_foreclosure
Is Barney Frank as big of an idiot as he seems?
Thought you all might want to know that the Bristol farms in the Kaleidoscope is closing down too. Heard one of the employees there talking about it last week. Looks like it is going to be a ghost center soon.
to make money in commercial real estate check out this site http://tinyurl.com/bhgzkz