Are you curious how people spent their HELOCs? I am. Let’s see if anyone will share their experiences.
Since this is turning into HELOC abuse week here at the IHB, I
thought I would share yet another one (They are not difficult to find). It is a high-end property in Turtle Ridge with a WTF asking price.
Asking Price: $1,250,000
Address: 53 Sweet Bay, Irvine, CA 92603
Sweet Surrender — Sarah McLachlan
It doesn’t mean much
it doesn’t mean anything at all
the life I’ve left behind me
is a cold room
I’ve crossed the last line
from where I can’t return
where every step I took in faith
betrayed me
and led me from my home
The lure of free money led many people astray. They all had faith in
the Gods of market pricing and credit availability. There was an
absolute certainty among most people that real estate could only go up,
and opportunities to serial refinance large debts would always be
there. Each refinancing added to their troubles until they reached a
point of no return where they could not possibly pay back the money
they borrowed. Every step they took down this road was met with
betrayal, and it led them away from their homes. Now these people sit
in their rental pondering the life they left behind wondering if they
will ever see that free-money lifestyle again. They won’t.
One of the great things about an anonymous blog is that people can
tell the truth if they want without fear of embarrassment. I would like
to take advantage of that today and ask people to admit to some of the
items they spent HELOC money on.
Earlier this week in the comments, I mentioned that I have been
contemplating writing another book. I am tentatively titling it House
Spenders: Mortgage Fraud, Predatory Borrowing, Refinance Abuse and
other Cautionary Tales from The Great Housing Bubble. I think the title
and tag line describes what I want to accomplish. I will recycle some
of the material from The Great Housing Bubble, but I plan to add a
discussion on the morality of walking away from debt, an analysis of
personal Ponzi Scheme financing, and up to 100 HELOC abuse posts from
the IHB (I feel I need a lot of them to people do not think it is a
rare and isolated occurrence).
I have been discussing my idea for my next book with my wife, and
she suggested that I get some interviews or comments from people who
really did spend money they got from their house. We speculate a lot on
the blog about what people spent it on, but we have few first-hand
accounts. With that preamble, I ask you,
On what did you spend your HELOC money?
You take me in
no questions asked
you strip away the ugliness
that surrounds me
(who are you?)
{book}
Since this is turning into HELOC abuse week here at the IHB, I
thought I would share yet another one (They are not difficult to find).
Asking Price: $1,250,000
Income Requirement: $312,500
Downpayment Needed: $250,000
Monthly Equity Burn: $10,416
Purchase Price: $1,025,000
Purchase Date: 8/27/2004
Address: 53 Sweet Bay, Irvine, CA 92603
| Beds: | 3 |
| Baths: | 2.5 |
| Sq. Ft.: | 2,500 |
| $/Sq. Ft.: | $500 |
| Lot Size: | 6,128
Sq. Ft. |
| Property Type: | Detached, Single Family Residence |
| Year Built: | 2004 |
| Stories: | 2 |
| View: | City Lights, Hills, Trees/Woods |
| Area: | Turtle Ridge |
| County: | Orange |
| MLS#: | S09010246 |
| Source: | MRMLS |
| Status: | Active |
| On Redfin: | 2 days |
Romantic, Tuscan villa with panoramic views. Over $500,000 in upgrades.
Best location on quiet cul-de-sac. Gourmet kitchen w. granite counters
and Viking appliances. Dramatic Cathedral beamed ceilings in entry and
formal living room. Master is large with gorgeous marble master bath.
Stunning back yard with more spectacular views, stone bar with BBQ,
refridge, side burner and sink. Great for outdoor entertaining.
Exclusive guard gated Turtle Ridge.
Note the feeble attempt to justify this asking price by pointing out the amount spent on upgrades. Upgrades from what? Did this woman spend over a million to buy the property and then spend $500,000 improving it? You could tear the house down and rebuild it for that.
- This property was purchased on 8/27/2004 for $1,025,000. (Does this look like a million dollar property to you?) The owner used a $575,648 first mortgage, a $346,000 second mortgage, and a $103,352 downpayment.
- On 12/7/2004, barely two months later, the property was refinanced with a $942,000 first mortgage pulling out about $20,000 of the downpayment money.
- On 1/31/2005, the owner opened a HELOC for $228,000. She did not take out much of it.
- On 8/24/2005, she refinanced with a $1,000,000 first mortgage.
- On 10/3/2006 she opened a HELOC for $440,000. She must have taken out a significant amount because this property is listed as a short sale.
- Total property debt is $1,440,000
- Total mortgage equity withdrawal is $518,352 including her $103,352 downpayment.
So now we have another Turtle Ridge dreamer thinking her house has appreciated by 10% since 2004. I guess Turtle Ridge is different because the rest of Irvine is at or below 2004 pricing. Wells Fargo is hoping that is the case. This “conservative” lender is the brilliant party behind the $440,000 HELOC on this property. If it sells for its asking price (not a chance), and if a 6% commission is paid, the total loss to Wells Fargo will be $265,000.
As a reminder, our question of the day is:
On what did you spend your HELOC money?
{book}
It doesn’t mean much
it doesn’t mean anything at all
the life I’ve left behind me
is a cold room
I’ve crossed the last line
from where I can’t return
where every step I took in faith
betrayed me
and led me from my home
And sweet surrender
is all that I have to give
You take me in
no questions asked
you strip away the ugliness
that surrounds me
(who are you?)
are you an angel?
am I already that gone?
I only hope
that I won’t disappoint you
when I’m down here
on my knees
(who are you?)
And sweet surrender
is all that I have to give
Sweet Surrender — Sarah McLachlan
HELOC money — bought my place with a 90/10/10 in 2003. Could have paid 20% down by taking my emergency fund down to four months income, but the option of preserving a seven-month fund (by paying about 1% above the savings yield) was too good. Paid down the HELOC to about 30% of its limit within six months.
About a year later, replaced windows using HELOC money. Left that balance constant (at about 60% of limit) until I sold in 2005.
(The profits were finally rolled into a new property in 2008, putting enough down for a $417K conforming mortgage. Contemplating a HELOC to pay for major remodel, but with savings paying very little it is just too costly.)
Try saving the money and paying cash.
“Over $500,000 in upgrades.”
It’d be very nice to actually see these magnificent upgrades, but alas no photos on the listing. Yet.
At least the listing up the street, #50, has some photos to glance at.
No photos because they are lying.
My wife is a good indicator of what we would have spent it on if we had the “free money”. She would gone straight to…
Fletcher Jones Motorcars
It’s all about status.
Umm.. dumbazz realtor? It’s not a Tuscan villa unless it is in Tuscany.
It may be a “Tuscan-style” villa.. Aargh.
No HELOC abuse here. Bought well below what we could afford in 2003 – 20% downpayment and have paid down the principal by 1/3.
No, no. It was in fact disassembled by hand in Tuscany and shipped to Irvine where it was reassembled in the prestigious Turtle Ridge. That is the $500,000 upgrade.
Sorry, no good stories. Bought in 1991 and still paying on that pesky $62,000 mortgage that remains. Did a complete 100k remodel last year but, since our payment is sub-$1,400, had saved enough cash over the past 17 years to pay for it without refinancing.
Let’s see — no consumer debt, little mortgage debt, easily afford the payments AND doing fun things. I’m really, really sorry I didn’t HELOC myself into a Hummer and a BMW that would sit like a status statues in my driveway. Because then the neighbors would be envious, and that’s what counts, right? I’m such a loser…….
Status in my opinion is having the power to pay cash. Not paying the bank interest for a depreciating liability.
Good job.
Wow, too many responsible people here reading IHB. Sorry IR, no good material for your book.
I am afraid of that. My writing probably is not going to attract many HELOC users…
IR,
I’m afraid that you have good reasons to be afraid. If I were a HELOC abuser, I’d not have hung around here to be abused daily:-)
I only want to abuse and not be abused.
HELOC money went into everything, and I mean everything.
The price of cars, the price of clothing, the cost of college tuition, the price of houses, our salaries, the size of our bonus, the market capitalization of the stock market… you can go on and on… some of it filtered down into large cash traunches sitting on the side lines.
The only place the HELOC money did not end up is in the calculation of the Consumer Price Index from 2001 to 2008.
Wouldn’t have all the HELOC spending you mentioned contribute to the rise in CPI in recent years?
I am mocking the spurios CPI number which purposefully did not include any of the hyper inflation that occured from 2001 – 2008. Just look at a historic chart of things like: commodities that go into all goods (copper, steel, wheat, rice, cotton, oil & gas, etc), college tuition, car prices, house prices, etc…. over the time period 2001 – 2008. Real inflation was MASSIVE over that time period while the CPI just chimed away at ~3%.
Alas I was brought up to think of a house as an expense not an investment so no HELOC stories.
I do think how people ended up in this situation will be an interesting and cautionary tale. I’m sure there are unrepetent abusers though I think IR will find some shamed by the experience who will want to tell their cautionary tales.
I doubt for example today’s buyer thought they would have $400k of income on the day they bought…I suspect it was a gradual $200 on this, $500 on that and before you knew it you were up to $15k in credit card debt. The gratification of spending seems to be as addictive as cigarettes/heroin and the more we think of it as a disease, rather than a moral failing, the better we can treat this.
I’m sure this has been addressed before, but the downside to all of these abusive HELOCs in 2004-2008 is that now it’s very difficult to get a “responsible” HELOC.
I’d like some cash to put a new deck on & replace the old wooden siding with vinyl. Alas, this is not to be, as many banks are wary of lending if you don’t have at least 80% LTV, regardless of what the improvements will do to the value of your home.
You asked, “Does this look like a million dollar property to you?”
Just by looking at the lot and house size, I would say, for Irvine, yes. I’m going to trust the Realtor when she says “stunning back yard with more spectacular views”. I could care less about the P0,000 in upgrades. All I want is a decent sized yard with a sense of space.
A 4 bedroom maybe but not a 3 bedroom, that should sell for around 600-700 in Irvine. Maybe 800 with a large lot.
And here’s where I point out that I bought my brand new house in Atlanta (intown, great school district) the same size at this one, slightly bigger lot, same ‘upgrades’, and a full basement that will be finished some day.
I paid just under 400K in 2004 (same timeframe as this buyer.)
Are intown Atlanta and Irvine THAT much different that this house went for a Million – 2.5X my house??
MY house appreciated and I could have sold last year for about 650K. This year, it’s probably more like 550K.
I just can’t get over the difference, and can’t imagine spending a Million on a house like that.
What’s wrong with this!
With our national debt, the whole USA is in HELOC since 2004.
After all, she maybe smart than us.
Although I haven’t personally abused a HELOC, I know someone who did and exactly what they did with it. Their property was actually mentioned on this blog or in the forums. The house is located in the Coto area. The homeowner bought his house in the late 90’s and therefore had serious equity appreciation. He had the house on the market for almost 2 years and wasn’t able to sell for what he wanted to get for it. During that time he refinanced with a liar loan just in his name, excluding his wife. He then walked away pocketing about $500k. He took that money and invested it 2x short the S&P and has doubled this money in about 1 year. He said the foreclosure was not a judicial one so he is off the hook for the $500k. Although his credit took a beating, his wife still has perfect credit so life goes on for them $1m richer. They are now renting, on the ocean, in one of the nicest areas of SoCal.
Wow. Your “someone” was indeed a genius, a perfect system cheater and get away with it. Additionally, he was a great trader of the market.
My hat is off for him and his wife. They deserve it – a good life on the SoCal ocean with $m in the bank.
It would be nice if you could invite him to come here and tell us how he did it first hand.
The general truth is somewhere in between this example, and the common perception on this blog that it was all spent on drunken sailor trips to the mall with no residual value in goods purchased.
I do know of someone who played their cards just like this massive arbitrage example.
I really don’t think that they “deserve” what they got. I do think that it is an illustration of so many things that are fundamentally and unsustainably wrong about our culture and our economic system, including your praise of his actions. He did nothing at all to earn any of that money, even the “investing” was done by an RIA for a fee. I think that the only true stock market investing is when an IPO is purchased, or possibly dividend paying stocks. The rest is just a Ponzi scheme dependent on the next, greater fool.
And why does anyone buy houses in places like Coto? You might as well be in Corona, same climate, almost the same distance from everything. It seems to be just status and ego that drives it. There are so many things in this story that are indicative of a sick society, take your pick.
The most disturbing thing in this for me is the role I played in it. A few years ago I left a career as a scientist in drug discovery to become a financial adviser because I needed to make more money to put my 3 kids through college. I’m his adviser. Unfortunately, now that I’ve helped wreck the economy, I can’t go back to science because there are no jobs.
I agree with you, I don’t really see anything great about Coto. Maybe I’m just not in that exclusive club to appreciate it…like you said, same climate as the IE…jesus, one summer I was up there and it was over a 100 degrees.
You know the economy’s bad when scientists from major firms are getting laid off…
I agree.
When people can easily make this kind of money working the system in this way, my PhD in Civil Engineering just seems… worthless.
A total waste of time.
I don’t think it’s over. I’m pretty sure these kinds of “opportunities” will be thick all the way to the bottom.
I’m curious how we propose to build an economy without people that are actually willing to “work.” (I’m not working anymore, temporarily retired.)
Was this guy in the mortgage business? Just curious…he played his cards too well.
Irvine Renter-
Do you think there will be a collapse of high end retailing in OC? I’m talking about German cars, jewelry, high end watches, etc. If HELOC money was a significant factor in retail spending I don’t see how the retailers of overpriced goods can keep the doors open if there are no buyers for their goods.
So far the retail damage appears to be focused on mid-range retailers.
You answered your own question. The HELOC valve has been shut off, just look at the results. Wealth disparity between the top 10% and the bottom 90% is at it’s greatest level due to the myriad of bubbles over the past 10 years. Some of the old top 10%er’s have dropped out going long, but new ones who anticpated this have taken their place and their wealth.
Here’s what I don’t understand about the HELOC lifestyle. It was only free money if you were willing to give up your house. To get your BMW and vacations for free, you had to sell your house and use all of the profits from appreciation to pay off your HELOCs. So then you have no home. You are no better off than when you started. All you have is memories of past fabulous lifestyle, and perhaps a car or two and some designer clothes. If you don’t sell and continue to live in the house, you just owe more and more money. Just because somebody lends you a million dollars doesn’t make you a millionaire. It makes you a guy with a fancy car, designer clothes, and a million dollars worth of debt.
So while the house is acting like an ATM, it’s like you are getting cash advances on your credit card rather than making a withdrawal with your bank card.
I agree with Jason. It’s not free – it’s a trade.
We thought about opening a heloc to build another bedroom to accommodate our new baby. We were young in our careers and family, and hadn’t had much time to build up savings. But since we always intended to pay the heloc back, we decided against it to avoid the monthly payments. So the kids share a room and, surprise, it works fine.
We know people that heloc’d to buy second (and third) properties, and to invest in the stock market. The former doesn’t seem to have gone very well (sold those properties for breakeven, or are looking ahead to holding on to them for a very, very long time), while the latter did work well (because they pulled out in late 2006).
..a trade (one of many) with the Devil.
How about all those crazy family murder stories in the news now? Families being slaughtered over lost money, jobs, and hedge funds. PATHETIC is all I have to say.
Jason,
I understand your confusion. You are missing one of the fundamental pillars of Southern California’s Cultural Pathology: Debt = Wealth.
People here truly believe that possession of an expensive object, even if financed entirely by debt, makes them wealthy. These people had no long-term plan, they only had the short-term gratification of their desires.
No HELOCs here.
Conforming 30 year fixed on a purchase in 2003. No refinance, DTI 8/9, Credit 810.
Whats up with everyone trashing people who own german cars as people who would abuse their mortgages and live lavish lifestyles. Helloooo…there are people who own these well engineered cars because they can afford them from the hard work that they do and also for the fact that German cars are so much better to drive than any other car (some Italians are good also) especially when compared to the crap that the people in Detroit make for this country…sorry to rant but don’t want the unnecessary abuse aimed at german car owners 🙂
I agree, the sub $50,000 segment is not high end. It’s the new upper middle class / well-to-do or drunken sailor debt money.
Lol. I completely agree. I used to be one of those german car owner bashers . . . until I made the mistake of test-driving a BMW :-). Once you drive german, it’s hard to go to any other type of car. And while some people did abuse their mortgages to purchase one, most of the BMW owners I know are successful, conservative in their overall spending and did not need their home equity to buy one.
Plus, buying a BMW is not enough to cause financial ruin like we are seeing. These HELOCs are for hundreds of thousands, a sweet CPO BMW can be had for $35,000 give or take. Also, if taken care of, they last and last reducing the over cost of ownership. Yes they cost more then the rust buckets we make, but the HELOC money must be getting blown in many more ways then buying a Bimmer.
I don’t know…if you drive a German car long enough the repair bills can send you to the poor house…
Nice driver’s cars though…
Cost to service our BMW have been running $1,000 – $1,500 a year. Not cheap, but not enough to burn up an Irvine HELOC.
I found a good, honest BMW shop. Just hope nothing happens to them or I will be doing more wrenching myself or the repair bills will most likely go up.
We paid off our mortgage before we were forty. And we did that while owning a German car–a volkswagen.
Sorry, we are conservative Irvine-ers. Bought 3/2 condo (with a HUGE yard) in 1993. Refinanced in 2005 to a 15 year mortgage. Took out some money to fix up the patio/yard, got new furnance/AC unit,new windows, some inside upgrades. No granite, stainless steel though. We are located near Meadow Park, South Lake schools and less than one mile to WHS. One story condo which is a best seller along with schools.
I bought an Irvine condo back in 2005 using a 80/10 loan with 10% down. I paid off the Heloc within 8 months because my intent was to pay off the property within 10 years and live there for a very long time. Circumstances changed and I had to relocate this year and list my home for sale. The only money I am losing is MY equity. What amazes me is that friends ask me why I chose to pay off my home equity loan? What was I thinking? My response is that it never occured to me to take out home equity for any reason other than the purchase. And although I had more than enough money in the bank to put 20% down at the time, I chose to wait to pay it off given that rates were extremely low and I wanted to make sure I had enough of a cushion in case anything happened. Sure, I am taking a significant loss, but in the long run, I am perfectly ok with my decision.
Do you have any regrets over losing your money knowing that you could have borrowed it all and left the lender holding the bag?
Not at all. Although many people may not agree with me, taking out a 100% purchase loan and intentionally walking away would be no different than walking into a bank and walking out with 100k. Sure, there may be some homeowners who had valid circumstances for not paying back their loan, but most of these people were placing a bet and willing to walk away if the bet went in the wrong direction. Regardless of how you position it, it’s still a form of theft. I am still amazed that no action has been taken against these consumers by the banks that lost so much money. I guess that’s what happens when the government gives bailouts.
The other reason I have no regrets is that at least I can walk away with no impact to my credit (which is priceless to me). I don’t think the people who have engaged in heloc abuse and walked away realize the impact it has to their life down the road. I work for a credit bureau and I can tell you these people are likely to feel the pain down the road. They may be ok for now, but what about when they go to get a job in the future, buy a car, rent a place? Most reputable employers include a credit check as part of the screening process. Ultimately they will be paying more for everything in the future as a result of their poor credit. I’m going to assume most of the people who took out helocs did not stash the money in a savings account for the bad times and have either spent what they netted or will be out of cash soon. So no cash and no credit available to them, then what?
If more borrowers had your sense of responsibility, our economy would be in a different place right now.
Lets hope the pain we are in now move people in your direction.
Thank you Walter 🙂
Hookers, blow and semi-automatics, baby! Partying like I’m Tony Montana!!!
Bought in 1999 with 10% down. Refi’d in 01 to eliminate the 2nd mortgage & pulled out $50K to buy a Porsche. Hubby changed mind & “fleeced” his car instead of buying. Used the $50K to buy Apple stock. Refi’d again in 03 to a 15 yr. fixed @5% (no cash out). For the past 3 years we have been attacking that principal balance & the house should be paid off in 2012, if we keep it up. The kicker is that hubby wanted to sell some of the Apple stock in January 08 to payoff the mortgage. I said no, because I didn’t want to pay the 15% in capital gains tax to payoff a 5% mortgage. Hubby doesn’t let me forget that financial mistake 😉
I have about $45k on a HELOC that I used to consolidate some other loans (college, car, etc.) and make some minor home improvements because the rates are so low. I’m hoping to pay it off in a couple of years.
Hope I’m not in the HELOC abuser category…
I saw one story of a HELOC abuser who paid off $240,000 in student loans. This was a brilliant financial move because he can walk away from a HELOC, but you can’t even bankrupt your way out of a student loan.
In the midst of one of the greatest housing and economic collapses of all time this bitch thinks she should make $225k off her 2004 purchase?! “$500k in upgrades” my ass. Only if there’s another house built under her shitty fake Tuscan. I hope this filthy animal ends up renting a box next to a pedophile-halfway house in Fontana. The only thing that could possibly aggravate me more is someone actually purchasing this place letting her continue living her li(f)e.
we were a little bit stupid. we refinanced to lose our PMI and get a better rate, and pulled out $40k. part of that went into a desperately needed and not extravagant kitchen remodel (the cabinets were 30 years old and falling apart). the rest stayed in the bank as an emergency fund, since buying the place wiped out our savings. it was early 2002, we were naiive and thought that if we didn’t buy then we’d be priced out forever. should have sold in 2006. we’ll be upside down by the end of the year. i think we’ll get through, but i am kicking myself just a bit.
Annie,
Thank you for sharing.
One thing I find interesting in your comment is the idea that the kitchen remodel was “desperately needed”. I suspect you had a fully-functional kitchen that you simply did not like because it was outdated (I could be wrong). The word “needed” should be “wanted”. It was a discretionary purchase that you convinced yourself you needed but in reality you only really wanted.
Perhaps I am reading too much into what your wrote, or perhaps it is revealing of the mindset of many borrower’s who made the same decision.
Thanks again for sharing. I hope you don’t take my observation as beating up on you or judging. I do not intend to do either.
The kitchen was falling apart – really. The particleboard frames started pulling apart, the pantry shelves were collapsing and we went three years with no doors on the cabinet under the sink – the frame was too water-damaged for the door hinges to stay bolted in. This was all stuff that our “inspector” conveniently missed. Some prior owner had put beige laminate over the faux-wood laminate cabinet faces (think 1979) and the laminate was beginning to peel off in some places. It was an extremely modest remodel, no pergo or stainless steel (we did use granite tile for the countertop – it was 1/4 the price of slab and we kept a tight budget), and we kept everything that we could from the original kitchen. We planned to own it 7 years and scrape together the money to get into an SFR (I see I failed to specify it is a townhouse).
We didn’t understand the bubble until it began to deflate – we knew there was something crazy going on, we wondered how everybody else was so rich, but we didn’t really “get it” until mid 2007. I kick myself for not selling, NOT for doing the kitchen remodel. We are still young and we’ll get through this. We rent the townhouse out now and cover the costs, while we rent a cheap house. As long as we can do that we’ll be OK – worst case we move back into it. We live cheap and have money in the bank and are waiting for prices in our market (Lake Forest) to really tank. If they never do, we’ll just go on paying $2k a month in rent and funneling all the leftover income into savings and investments.
From what you describe, the kitchen wasn’t livable, and your renovation was appropriate. I guess I assume to much after reading descriptions of $500,000 in upgrades and every house with a gourmet kitchen.
Your frugality will pay off for you in time. It is a shame that the bubble has caused you this financial damage. The market crash has hurt saints and sinners alike.
Purchased a condo in 2001, 30 yr mort, 80/10/10. Given that the condo is my home and not just an investment, I decided I wanted to live in it regardless of what housing prices did. However, in light of what we all knew was happening in the market, circa 2006 I opened a large HELOC to 80% of the value of the property (which nearly had doubled from 2001 to 2006). With that money, I took a chunk and bought an investment property in Austin, TX. This has been an extremely stable housing market relative to CA/FL, so a great way to hedge my bets. The other portion of the money I put into treasury funds. Not exactly a great investment, but I was worried about banks canceling HELOCs and pulling the money out was a great way to rob them of this option 🙂 I spent zero of the HELOC on consumable spending. Sorry, no exciting story here.
I hope many here are starting to see the residual value that still exist from the bubble. “Take the money and run” is a very appropriate song for this portion of bubble participants.
Irvine Renter –
Hi. I read your site every day. The other sites I read daily are Patrick’s (who I am friendly with), Housing Doom (who I am also friendly with), Calculated Risk and Roubini. I also go through all the videos on the CNBC web site and view the ones related to credit or housing.
I have been studying the housing/credit crisis as a full time job since March 06. The business part of the study involved buying put options on the builders and banks, focusing on builders with bubble housing area exposure and banks with toxic debt exposure.
My gut tells me Irvine is going to correlate like the upper end of San Diego – that is the big price drops are yet to come. As an aside I think (it is Toscano?) breaking San Diego down into lower, middle and upper tiers has excellent logic.
So what I would like to do and this is where I need your initial help to show me how I get the sales price, is to develop a database of all your homes for sale and then ultimately report back on the sales date and price sold. Once we have the data captured, ad-hoc reporting should not be that hard.
As you have my e-mail – please e-mail me.
If not – your site is great.
Michael
If IR2 reads this comment, hopefully he can respond. He has a complete database of every transaction in Irvine over the last year in an excel spreadsheet. Ipoplaya.com has also been tracking this information. Any analysis of this data you would like to do would be very interesting to me. Thanks.
Thanx for the direction.
This is all I need.
I would have not thought the market would have been that alive. Kind of consistant with the reaction of the stock futures market when the Case Shiller data is released at 9AM Eastern time on the last Tuesday of month. No matter how bad Case Shiller is (-2.2% for Oct/Sept and -2.2% for Nov/Oct) the stock market just ignores.
I guess buyers in Irvine are also basically ignoring and continuing to buy houses figuring the day they buy is market bottom.
Michael
We didn’t abuse a HELOC, but we did spend too much of the money we got from the bubble. We’re not in SoCal–I’m an LA native but I’ve been in NYC for 20 years. We bought for $250k in ’99, sold for $790k in ’06 in a fairly bad area in the outer boros.
Then we decided to see if we liked living in a fancier neighborhood enough to buy the small place we could afford; so we rented for 2.5 years. We walked away from the house sale, after the mortgage and student loans, with $390k.
In the 2.5 years, along with pushing the max into 401ks and IRAs ($80k, maybe), we managed to blow almost $200k on restaurant meals, parking tickets (I don’t miss NYC), rent, a country house, high-end pet food, etc. Then we moved to a cheaper city. We’ve got about $90k left, in addition to the retirement money, which will get us 20% down on a fairly nice house here. I wish we’d left after a year and still had another $100k, but you can’t change the past.
Hopefully some of the upscale friends my daughter made will serve as valuable power-elite contacts once she’s working–but since she’s only five, I don’t know how likely that is…
The biggest damage GWB bring to us is to lead people believe Obama can save the country.
IMHO, no one can ‘save’ us only we can save ourselves by save, and we need a leader combine with Jefferson’s humble and Buffett’s wisdom, not Kennedy’s prudent and Amin’s mission.
Irvine Renter,
I have an idea for a future post, if you’re interested. Check this out:
http://www.ufcamerica.com/files/Affluent_Brochure.pdf
It’s a long read, but I found it very interesting. Granted, it’s a sales pitch (as can be seen in the opening page with a cheesy “dream house” and the red section at the bottom of the last page). And, a bunch of it is the same kind of rhetoric that feuled the housing bubble initially. But, that aside, I’d be very interested to see if you feel there is validity to any of the arguments posed here. I feel some of them might hold real wisdom.
I’m sure it would take a good amount of time to truly read, dissect, and write on this material, but figured it might be of interest to the Blog readers especially given today’s topic.
To find out where the HELOC money was spent is not as simple asking people who took out HELOCs. (unless you are doing a psychology/human behavior study). Instead you have to look at the places where spending has dropped precipitously hand-in-hand with the cutting-off of this source of funds. Certainly the sales numbers at MB and BMW dealerships in South OC are very important data points. Personally my experience is that the wealth effect of home appreciation led people to spend more freely on their credit cards, When the balances grew too large they then would refinance to pay off the cards to start over again and build the balance back up etc. This is why I think the next big storm is coming in the form of credit card defaults. Already we are seeing stores that rely on credit card purchases (Circuit City et al) fall of a cliff.
In regards to the stories of people who took out their home equity and then made a perfectly timed bet on the stock market I am reminded of the elderly man who tells his doctor about the young woman he had relations with. There doesn’t seem to be anything wrong with the man so the doctor asks why he is telling him this. The man’s reply “I am not just telling you, I am telling everybody!”. First of all real investors don’t score and tell. Second of all, like other amateur gamblers, these investors tend to focus on their wins while rationalizing their losses off on any number of reasons that they could not control.
I called a bottom in the financial sector last week when Citi sank below $3/share. Does it make me smart now that the absurd ‘bad bank’ plan has caused a short term surge in the shares? Hardly.
I don’t have a problem with people bragging about their investment success.
What I do have a problem with is people complaining about and/or assuming that all frivolous losses just went into a black hole in which nobody benefited financially.
Calling a short term bottom in the financial sector does not make you smart, no more than understanding that there was a housing bubble. Placing the correct bets does not necessarily make you smart either, but it does make you rich. In high risk / high reward California-i-ay that seems to be all that matters. I don’t expect this to change, in fact I expect this to worsen as the financial bubbles get bigger and more prevalent.
Mav,
Right on . My point is that the worst thing that can happen to an amateur investor is to win big on a bet. It causes the person to think that he is or she is smarter than the market and inevitably leads to eventually making a similar sized losing bet. Of course they will talk to anyone who will listen about the winning bet, thus all of these stories floating around about ‘knowing someone’ who made the perfect investment.
Just because the investor won on an uncovered levered bearish bet on an index doesn’t me he now knows where it is going next. Just because I thought bank stocks would pop when Citi pierced the $3 support level doesn’t mean I know where they are going next.
I know some high powered traders and I know that if they have found a lucrative trade they are not going to tell all of their friends about it. This is the difference between amateurs and professionals.
New roof
New kitchen
New bathroom
New interior handrail (there wasn’t one – removed in a previous remodel – don’t ask why)
Fix exterior hand-rail
1 root canal
New dining room floor
However, I have paid in cash for a new interior and exterior door, tuck-pointing the exterior, painting the exterior, new fence.
I purchased my San Diego condo in 2005 for $340k with an $272 k first and a $68k HELOC 2nd. I refinanced a year later. My place appraised at $370k. I refinanced with a $296k first and a $44k HELOC 2nd.
I was offered a $70k HELOC. My husband and I seriously thought about taking it and pay off debts, some credit cards and student loans. We didn’t, because we didn’t want to gamble our house.
Well, fast forward 3 years, and I wish we’d gambled. We’re getting divorced and I’m losing the house anyway. The house is being considered my separate debt since it was purchased a year before marriage (even though we were living together, he was not on the loan or on title). Plus, I’m getting half of the community debt.
In retrospect, had we taken that and paid our bills, that would have put him on the hook as well, plus I’d have less other debt. My credit’s already trashed because of the foreclosure, at this point another $30k wouldn’t have made much of a difference.
However, if I knew at the time that this is where it would end up (foreclosure), I don’t know that I could have taken the money. I just wish with the information I’d had at the time I’d gone another way.
This house is a 3 bedroom for over a million dollars? They must be smoking crack! I can build that house as is for 300k with all the fluff. 500k in upgrades, why do they have to lie? They should have said 1 million might as well.
RE car dealers- they actually used to make a lot of money on the financing when liquidity was cheap – thus not too excited to sell a car to a ‘cash buyer’ who already borrowed from another source.
Not my story, but a cautionary tale none the less. I have a relative that HELOC’d his home and used the proceeds to buy an investment condo in northern California. Any excess HELOC was then used to reinvest into his own business. That was in late 2005.
Flash forward today and its not pretty. His business is down due to recession. His “investment” is underwater by about 40% to 50%. Rent can’t even come close to the cost of the mortgage. The kicker? Pick-a-Payment Option ARM loan. And I heard that he’s only paying the minimum.
You know those charts you post up about most ARM loans blowing up in 2010/2011? My relative a is a face to those faceless statistics.
One more thing that may anger your readers. He’s been in this exact situation in the late 80s. Invested in condos and houses. Borrowed money from somewhere. Lost them all, including his own house. I was too young back then to understand the details… but it looks eerily familiar to the scenario back in the 80’s.
The thing is that I believe if there’s another bubble in 2020… my relative will be in it.
The only saving grace was that my relative never caught the Southern California Consumer Materialitis Disease. He still drives an Honda, and lives a humble life. No BMWs/Mercs, no designer clothing, no frequent eating out. I question his business/financial skills, but never his choice of consumer goods.
Since housing involves a tangible item, it’s not a true Ponzi. It’s more of a created supply and demand creation and multi-level marketing.
HELOC as only a small part of the problem. It was the 0% or negative financing with non-recourse on the borrower and the folks that made commissions/bonus. Now US public are left holding the bag with the bailout.
How do you spend the money from your house? Buy a HELOC-Davidson, of course!
I have a friend who bought a *very* expensive (100k) car with her HELOC. Doesn’t that seem prudent?
Bought our Chateau in 87 for 200K. The place needed some love. In 88 it was worth 300K. We took a HELOC and fixed it up: paint, roof, etc, etc…
Refi’d in 90 to the mortgage from hell…. good APR but it was an option ARM. We never used it but it was not a good loan and a horrendous servicer in Florida.
Refi’d in mid 90s.
From 97 to 00 we rode the Dot Com. Put in a ton of money on the house. Rebuilt it: you name it, 1600 feet of Cat5, dual HVACs, new kitchen with custom cabinets (worth every penny), Viking…
Any how, in ’03 refi’d to a fixed 30 year. Low rate.
Now we’re thinking of refying into one of them 4.5% loans…
In the late 90s who needed HELOCs when you were sitting on a pile of CSCO? Unfortunately we were financial raped (and I mean raped) in taxes in 01.
So how much do you owe on the home now?
Around mid 400s. The rebuild cost a ton of money, plus the upkeep of the house ran about 5K per year.
So, no, we didn’t use the HELOC for fun stuff. We used our capital gains on the NASDAQ for our trips and toys… but that was money we earned via real investments.
So for 20 years, you gotta figure 100K to keep the house in tip top shape, plus a ton of money to rebuild it.
The upkeep is the part of people forget. A new range, new toilets, paint, carpet, roofs, fridge, etc, etc… in fact we redid the windows twice: once at the beginning and a second time when we rebuilt.
Truly, a home is not a great investment unless you bought in 02 and sold in 04. By and by it’s an expense. Even when your mortgage is paid, you still got to maintain the pad.
That sucks, you buy a place for 200k and 22 years later owe 450k. Talk about living in debt. I bout my place in 2000 for under 450k and paid it off in 7 years. In 2007 remodeled the place. Just got done with that, but I paid cash job by job. Thats how you do it.
Better recognize.
No it doesn’t suck
I started with a small house in a small lot that needed a lot of work ( it was a fixer upper)
Then as our needs grew, rather than move up and get a bigger tax bill we rebuilt our home into a much larger house with the bells and whistles that we needed (fully networked home, 300A service, dual HVAC, dual water heaters, etc..)
All in all we did a lot better than if we had gone out and bought another house.
And my real estate taxes are 3700 per year.
And I don’t mean REMODEL…. I mean REBUILD.
A very different think… you know, like leave only a few walls standing and rip the rest. Rip some slab, lay out new slab, pipes…
When most people “remodel” they do a very superficial job.
When you “rebuild” you’re almost doing from scratch.
“Unfortunately we were financial raped (and I mean raped) in taxes in 01.”
Paying a big tax bill seems to me a lot better than being raped.
I bought a 1939 bungalow in 1985. More recently, $30K of a $40K heloc plus $30K cash for a new foundation and some roof work – new facia boards, cantilevers for the eaves, gutters, downspouts, french drains, sump and pump. Wiring upgrade to grounded outlets. All for almost zero tangible benefit indoors – it’s still a dump inside.
Heloc balance now $7k and dropping $1k per month.
But then I’m not from Cali.
With the current economy, saving for new siding, windows and doors rather than tapping the heloc further.
:o)
We HELOCed twice – once to remodel and expand the house and once to pay off higher interest business debt. We’ve got about $30K left to pay off, but the rate is like 5% and it’s deductible so I haven’t made a real priority of it.
We bought in 1978 with 10% down and a 10% second carrried by the seller for three years. When that was up, we turned it into a HELOC. When interest rates turned a little more favorable, we refinanced into a 15 year loan, which we paid off a little early when we had some extra cash that was earning less than our interest rate.
We’re now part of the 35% of homeowners with no mortgage, no credit debt, and kids who graduated from college debt-free.
For a few years I never mentioned that we had no mortgage because the flippers would accuse me of letting my money sit in my house doing nothing for me when I could be borrowing and buying more houses.
Socal Dad,
That was the argument I had with numerous people during the bubble. The idea that your equity is just sitting there not working for you was the mantra for the new generation of real estate experts. There is peace of mind knowing you have little or no mortgage obligations. Ask the many people who will lose their houses due to taking out all the equity if they would do thing different next time around.
I think the myth of owning a home just to get the tax write off also needs to be busted. Paying the bank one dollar in interest so uncle sam can give you 30 cents back is a horrible deal. I truly think most people do not comprehend simple math and simple tax laws.
Enough ranting.
“I think the myth of owning a home just to get the tax write off also needs to be busted. Paying the bank one dollar in interest so uncle sam can give you 30 cents back is a horrible deal. I truly think most people do not comprehend simple math and simple tax laws.”
I rant on that one often myself. It crops up so often, I wonder if anyone gets what I am saying.
Money you don’t have to pay to somebody each month (i.e. the mortgage servicer) is money you get to keep. Equity in a house you own outright is not at all the same as say, money you have buried in a box out in the garden. Like a savings account that earns interest, the house payment I don’t make each month looks very much like an interest payment I in effect pay to myself each month. Then there’s the tax situation – the money I have saved in the bank originally came to me as income that I paid income tax on. The income I would have made the house payment with also came to me as taxed income. The interest money the bank pays me on my saving is also taxed as income. But the money I get to keep by not making a house payment is not taxed in that it’s not income in the sense that it has to be reported, unlike the interest I get from the bank. I view my equity as a form of tax-free savings. When I compare each year’s return as a percentage of my original investment, the return looks quite good, ~10%. And that’s without looking at what this house has gained in value since 1992, either.
I’m sorry, no interesting HELOC stories here, either. Frugality comes w/a bit of boredom…
Another responsible owner here. Bought a 3/2.5 in Woodbridge in 2002 for $475k with $225k down and a $250k fixed rate 30y mortgage. I am envious of others’ lovely remodels and new cars, but we shunned the idea of pulling out any “imaginary money,” which amounted to over half a million at the peak. Who knew that all these years later, our frugal lifestyle would be cool? Our P&I is only $1400/mo, we believe we can weather the poor economy.
(Sadly, we need new flooring as the old carpet is shabby, but we have to save up for it just like our parents did).
We bought in the 80’s and 1990 (including rentals). Heloc money of 3M+ are parking safely at the banks earning interest and waiting to buy more “rentals in Orange County”. It’s too bad we cannot walk away without recourse and thus making these heloc money truly “free”.
By the way, we cannot qualify for these loans anymore.
My wife and I were first time home buyers in early 2001. We got lucky. Purchased a 2100 sq. ft. 3/2.5 in Northpark for $400K with only 5% down. Financed the rest with a 80/15.
Around 2003 later we re-fi’d both mortgages to a single 30 year at 6 1/2%. By then the bubble was already inflating our home value. When the lender asked how much we wanted to “take out” my wife and I looked at each other and laughed. “nothing” we said. New home. No debt. Plenty of savings. Why would we?
By 2005 our home was worth over $800K thanks to the bubble. But we liked living here. So we re-fi’d to a 15 year at 5 1/2%. Again, we were asked how much we wanted to take out, and again my wife and I said “no.”
True, my mortgage is $3K/month. But I’ve already paid down over $100K of purchase price, and my home will be paid off in 11 more years, when I am 52 (should we stay that long).
I figure I am saving, literally, a couple hundred grand in interest over the life of my mortgage. THAT will be our fun money, when the house is paid off. No heloc required, thank-you-very-much.
Hmmm, the people who are sharing aren’t really walking on the edge. At the risk of getting a chorus of “you’re doomed, dumbass”…
$250K HELOC on my place in Turtle Rock, on top of the $350K primary balance. (I asked for $100K, Citi said “Why not $250K?” Well, sure, why not? Another round, barkeep!)
$100K went to rehabbing an investment house (now on the market) and $150K loaned to a friend to get his business up and going.
Probably sounds insane, at first glance. But the invest house is not in a bubble area, and the friend is responsible to the point of bleeding to repay the loan. We’ll see.
Now, as long I haven’t jinxed anything by putting this in “writing”…
Most people think they have freedom, but they really don’t, because the bank owns their ass, and their boss knows they need a job to pay all their debt!!!
You only have true freedom after you have paid off your house / vehicles / credit cards and have cash in the bank.
When I hold a job, I am a very hard worker, but I never worry about holding back my opinions and yes I would argue with the boss, because so what if you fire me, I don’t care, because I don’t have any debt!
When you don’t financially need a job, it really messes with a boss, because it is one thing they can’t hold over you like other employees.
I used about 75K in heloc money @5.5% interest into an investment I hoped would return at about 10% a year (essentially interest rate arbitrage).
Turned up making only about $600 a year on the rate spread – decided it wasnt worth the hassle so I paid it all back.
Boring but true…
I’ll fess up. I have used HELOC money for a wide range of things, some legitimate like landscape improvements and a patio, but the vast majority went to paying off credit card debt accumulated over a number of years. I never bought anything really extravagant, but unwisely used credit cards to supplement my income to buy clothes, vacations, electronic toys, household items, and other consumer goods.
I had to move because of work and managed to sell my house before the bubble burst, so I had no problem paying off the HELOC. I have promised myself not to do it again. I read this blog as a daily reminder of what can happen if I do not exercise discipline. Thank you for that!
I did it all – bought a Porsche, traveled the world, bought gold.
Rented the houses out when I stopped paying the mortgages.
Now the party’s over. Both houses are gone. Sigh…
My only penalty is bad credit in a world where a credit score is becoming increasingly meaningless.
Oh, and I was short for almost all of 2008. I assumed (rightly) that there were a lot of other people just like me out there and the banks would not get paid back. Hardly a genius call but that racked up over $100k in profit.
So, I’m glad that you all were responsible but someone had to be having some fun with all the free money and it was me.
We got a Heloc after a year in our new house and used it to pay for about half of major renovation, total cost about 1/3 of the original purchase price. We paid off the mortgage a couple of years later and the heloc about 6 months after that. We have been in the house for 10 years and it is worth about 30 percent over the original cost plus renovations.
I consider it a good way of paying for work we wanted to do for our enjoyment. We don’t intend to sell it until we move into independent living whenever we get too old for it.
Story 1:
I have first hand knowledge and watched a couple that had their house given to them by her parents with a zero mortgage balance back in 1995 go down the path of HELOC abuse. They were fine until the HELOC flood gates were opened in the following decade. They took out countless liar loans and spent the money on a swimming pool, motor homes, autos (for themselves and the kids), dining out, hosting parties (I went to a few of these), vacations, dirt bikes, clothes, and paying a portion of the monthly mortgage payments their salaries could not cover. Outside of the pool, they did very little to upgrade the house, other than the occasional purchase of a washer, dryer, or fridge that crapped the bed. Almost forgot, they did have a nice 100% stainless outdoor gas grill. Long story short, they lost the house early 2008 with a ~$400K mortgage balance. They’re renting now but still have their vehicles, motor home, dirt bikes, clothes, stainless grill, and picture collection from their trips and cruises. This couple was blue collar and over here in Rhode Island, you can’t float a $425K mortgage with low paying blue collar salaries. I ran into them recently and it doesn’t really seem to bother them that much.
Story 2
My sister and husband. They purchased a home on Cape Cod, MA. back around 1990. Like the couple in story 1 they made due with what they had and kept up with the mortgage payments. And, like the first couple, once the HELOC gates were opened, they took the cue and went for the brass ring. I don’t know for sure, but I’m guessing they too used liar loans. At first the money was used to upgrade the house (new kitchen, windows, and roof), landscaping, next they went for the cars. Not expensive ones (Hyundai & Ford Escort). Next was private High Schools for their two children. We all thought she was nuts because she was paying $25K year for one child and >$30K/yr for the other one. Add in misc. items like laptops for the kids, clothes, and spending money while they were living at school. Then it was college time but she claims they got breaks on tuition because of their private education and grades.
At the time the HELOC abuse was not very well known and we just thought she took out student loans. But after the crash, we learned the truth.
They lost the house in 2007. My sister simply walked away from the house and flew to Florida and now rents. Kids are out of college and she and her husband have very few bills and say they are enjoying themselves with part time jobs.
Go figure.