Right Place Wrong Time — Dr. John
Financial markets are fickle monsters. Whichever way the herd moves the market will go the other direction. I first described this phenomenon in the post How Subprime Lending Created the Housing Bubble, and I extrapolated on that idea in What is Past is Prologue. If you were not a reader of the site in early 2007, I suggest you click on those links and check them out.
During the bubble rally, prices were pushed up the herd mentality. As prices rose, more and more people were convinced prices would continue to rise, so the pool of buyers swelled. Credit standards dropped to qualify more buyers, and the party went on and on. When credit standards were basically eliminated in 2004 and downpayments were eliminated, the buyer pool saw one last burst of activity until everyone that could buy, did buy. The herd had all “gone long” on real estate. The problem came when the pool of available buyers was exhausted and there was nobody left to push prices any higher. Once the herd had all purchased, the only thing they were able to do was sell. When the entire herd became sellers and there were no more buyers available, sales volumes dropped off, inventories increased and prices began to fall.
The behavior of the herd can be illustrated through the behavior of the individual participants. Today’s featured property was purchased by a realtor in late 2003 for no money down. He pulled out a bunch of equity, and now he has listed the property at a price that will pay off the debt and get him out of the transaction. There are hundreds if not thousands of people out there just like today’s owner trying to get out of their properties. The collective term for this group is called “overhead supply.” It is overhead supply that will prevent any appreciation until the market clears them out. The way markets normally do this is through a process known as “capitulatory selling.” People resign to their fate and sell at a loss. Some will do it willingly, and some will do it through foreclosure, but the market will clear them all out eventually. The way it looks right now, the process of capitulatory selling is increasing, and it will likely continue to increase through 2009.
Asking Price: $789,000
Income Requirement: $197,250
Downpayment Needed: $157,800
Monthly Equity Burn: $6,575
Purchase Price: $594,000
Purchase Date: 9/30/2003
Address: 36 Canopy, Irvine, CA 92603
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,100 |
| $/Sq. Ft.: | $376 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Year Built: | 2004 |
| Stories: | 2 Levels |
| View: | Canyon |
| Area: | Quail Hill |
| County: | Orange |
| MLS#: | S535252 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 12 days |
FIREPLACES.NICE YARD AND MANY UPGRADES, ceramic and travertine
floors+Granite counter tops new Carpet and paint. LOTS OF ASSOCIATION
AMINITIES+GIM.
Fabulos? AMINITIES+GIM? What is a GIM?
I guess proper punctuation is optional. What IS the DEAL with INTERMITTENT caps LOCK?
I suppose the owner is responsible for this bad description because the realtor is the owner.
[adsense-ir}
The property was purchased on 9/30/2003 for $594,000 (ignore what Redfin says.) There was a $475,000 first mortgage, a $118,750 second and a $250 downpayment. On 11/19/2004 he refinanced with a $616,000 first mortgage and a $115,500 second pulling out $137,250 bringing the total debt up to $731,000. Thus we have an asking price of 789,000 — he needs to pay off the debt. It is hard to say what this property is worth as there have been no recent comparable sales. Somehow, I doubt he will get his asking price. After the debt service consumes him, this will be a foreclosure candidate.
.
I been in the right place but it must have been the wrong time
I’d have said the right thing but I must have used the wrong line
I been in the right trip but I must have used the wrong car
My head was in a bad place and I’m wondering what it’s good for
I been the right place but it must have been the wrong time
My head was in a bad place but I’m having such a good time
I been running trying to get hung up in my mind
Got to give myself a good talking-to this time
Just need a little brain salad surgery
Got to cure my insecurity
I been in the wrong place but it must have been the right time
I been in the right place but it must have been the wrong song
I been in the right vein but it seems like the wrong arm
I been in the right world but it seems wrong wrong wrong wrong wrong
Slipping dodging sneaking creeping hiding out down the street
See me life shaking with every ho’ I meet
Refried confusion is making itself clear
Wonder which way do I go to get on out of here
I been in the right place but it must have been the wrong time
I’d have said the right thing but I must have used the wrong line
I’d have took the right road but I must have took a wrong turn
I’d have took the right move but I made it at the wrong time
I been on the trip road but I must have used the wrong car
My head was in a good place and I wonder what it’s bad for.
Right Place Wrong Time — Dr. John
Don’t ya just love all those extra photos of the amenities. Like I don’t have the same at my IAC apartment, one block away from Tustin Sports Park?
http://www.crackthecode.us/images/bring_out_the_gim.jpg
LOLOLOLOL,
So classic… the market will strike this realtard with great vengance and furious anger for attempting to poison and destroy our comps.
Thank you, Jules
IR, How about a new reader for your blog?
“Dear Ms. Hossini,
One of your properties has been featured on today’s IHB https://www.irvinehousingblog.com/blog/comments/the-herd-is-usually-wrong/
Fyi”
😉
Aha!
http://www.simihossini.com/
2004 built Quail Hill should be under water by now. This puts it below $594k. GRM 160 at $3200/month comes to $512k.
So, some where in the low to mid $500 it will find buyer.
At the high high $700k, it will sit and rot.
You know, one of these days, I’d love to find out what these folks got for their huge HELOC loans. I mean, pergraniteel isn’t that expensive. Do you think they put it in the bank, they snorted it all off a 15-year-old hooker’s butt, or they thought that they could move the money into comic book investment and make a real fortune?
I imagine most of these HELOC abusers simply dribbled the money away on lifestyle expenses: fancy meals out, trips and vacations, lease payments on their BMWs, shopping sprees, etc. Most considered this money as either income or savings they could consume in any way they chose. It was free money.
” I’d love to find out what these folks got for their huge HELOC loans. I mean, pergraniteel isn’t that expensive. ”
Actually, during the bubble, it was that expensive. Frankly between 2003 and 2007, remodeling costs came in at 2-3X realistic costs. Materials were higher, contractors were too busy, etc. You couldn’t get a contractor to return call unless it sounded like a $20K plus deal.
To put it simply, the prices on remodeling simply inflated to absorb the easy money. Easy earned, easy spent.
I think during the bubble it was common that homeowners would run up their credit card balances, and then take out a loan so they could pay them off. Then the credit card bills would pile on again and the cycle would continue.
Yes, this is probably how it actually went down. Usually, people cannot get out of control with their credit cards for very long because eventually they reach their limit and they have to “pay the piper.” With HELOCs, the credit addicted could simply wipe out their credit card debt each year and start over. This process and reinforced some very bad habits that many, many consumers are going to find hard to break.
Peter Schiff brings up a great point for those of us against homeowner bailouts. These people sucked out all the equity to payyof credit cards and other consumer debt. This means a bailout is essentially forgiving people for irresponsible spending, not bad investment decisions.
Not a fan of Peter Shiff, but if your goal is to minimize the housing downturn, then you can’t reward the bad behavior; you need to incent good behavior. The simplest way is to offer a tax credit to first time buyers.
It’s really not that hard to blow through 6 figures. It certainly doesn’t take a coke habit or 15 year-old hookers.
Yeah, but some of us know how to have fun.
Interest charges on credit card debt. Sad.
Just steps from the beach, about 25000.
😆
It seems to me that property prices will continue dropping for at least another 2-3 years.
It might not be a good time to be buying for a short time speculation.
When you think about the thousands of speculators stuck on the wrong side of the trade, it doesn’t look promising. In a real estate market absent of speculators, none of these properties would be for sale. This is all added, must-sell inventory hurting the market.
” In a real estate market absent of speculators, none of these properties would be for sale. This is all added, must-sell inventory hurting the market. ”
Those speculators displaced homeowners that became temporary renters. That artificially created a rent bubble that will also unwind.
When the speculators get displaced, the homeowners will return when it is cheaper owning than renting. We they return, the rental occupancy rates are going to decrease driving rents down, which in turn will make it less appealing to own.
Your argument requires the assumption that the number of homes, apts, and citizens of Irvine is fixed for the period.
2-3 years is too short. Prices will continue to fall for at least another 10 years, if not more.
No one’s really getting burned yet. Sure there are a more than few foreclosures here and there setting records, but we’re going to see those records getting broken for many more years.
The party is just getting started, and the sky IS falling.
I represented a developer in Boston on various condo deals. The last one had an 80-20 ratio of broker buyers. Most of them promptly flipped (sometimes within a day) but I think a few of them are now circling the drain which makes me smile. After 17 years as a real estate attorney I don’t much like brokers.
At least their professional name tells you EXACTLY what they will do for you: MAKE YOU BROKE. 😛
IrvineRenter-
Great post. You say that most of the HELOC money was just spent on lifestyle junk – toys, clothes, jewelry, cars, etc. The flip side is that with the HELOC door CLOSED the luxury retailers in the OC have got to be hurting. I know the car dealers are hurting, but when I go by the malls they still seem pretty crowded, and I haven’t seen any jewelry stores going BK. Do you have any insights on this? It seems like the party is still going strong.
Patience
lot’s of people walking around doesn’t necessarily translate into increased or even level sales.
You can see the signs of a severe slowdown in the economy……small shops closing, less workers in the large retail stores. Most companies go into “lets hold our breath and hope” mode before they start to really cut expenses.
Given that the adjacent condo at 5 Ladypalm sold for $488,000, they will find it pretty tough to get $790,000 for theirs.
http://www.redfin.com/CA/Irvine/5-Ladypalm-92618/home/5887703
This has the making of a WTF post…
Surprisingly there are still suckers buying homes in Oak Creek at the asking price!
On an also ridiculous note, listen to the chief economist of National Association of Home Builders. Pay attention to his reasoning on why the government should step in to stop the decline in home prices. Wondering where he got his degree from. It’s amazing even people like him are still in denial. Government to them is the solution for every problem. He seems to forget what he learned in school, the law of ecomomics, supply vs. demand, affordability, natural process of price correction based on those economic principles.
Sad, Sad, Sad!
http://www.msnbc.msn.com/id/21134540/vp/25243564#25209994
In an irony that stuns even those of us who have thought we’ve seen it all, he’s a Republican.
Hey IR you going to profile ipoop’s listing when he puts his condo up for sale? Of course since he’s an IHBer, you should pull out the “soft” tools for him. LOL
Does anyone believe that because the run-up in this bubble was so steep and so large as compared to previous bubbles, that the resulting crash will be equally as steep with a return to fundamentals in a shorter time than we have seen before? I know there are a lot of resets looming well into the future which would tend to draw it out, and from reading here it seems most believe there is a long time until the bottom, its just that the price declines are looking very steep already and the number of foreclosures and short sales is accelerating. Thanks.
That is my opinion. The fundamentals (rising REO’s, increased tightening in lending, higher interest rates) continue to add more pressure – and faster than anyone expected. It’s too big for the US Gmnt. to stop.
I can’t see it slowing down. Going faster? I can see that.
President Bush is just flushing the liberals out of the market before he steps in to restore stability. It’s the same strategy he used in Iraq to great success.
Kirk- your posts always make me giggle.
Oh there’s plenty of carnage out there. Let not your Scadenfreude craving heart be troubled. Anything discretionary is getting tight. Guy who cuts my hair is hurting badly and the strip mall where his shop is feels like a ghost town (all services-based stuff in there).
I used to root on the economic pain like a catholic at a celtic game. Now I know so many people adversely affected by it that I’m having second thoughts about how awful I really want to see this all get. Don’t get me wrong, I’ll always have a special place in my colon for Heloc-abusing realtards, but lots of fairly honest hardworking folks are becoming collateral damage.
I’m focusing my Schadenfreude like a laser these days. Thanks again IR for giving me such a target-rich environment. : p
Mine’s spent. I’m just very sad these days. My heart goes out to these people. Honest.
That said, I’m not opposed to trading on somebody else’s misery, so long as I didn’t inflict it.
You guys are manufacturing unnecessary sadness in your hearts. Nobody’s getting burned that didn’t walk into a burning house with eyes wide open. I know a few FBs myself. Every one of them was warned.
Besides, ever hear of the expression “It’s just money.”?
I have had a motto for a long time: when considering a purchase, ask yourself if you can handle not ever being able to sell it. If you’re OK with that, then go buy it. If you know you will HAVE to sell it at some point, then be wary.
That goes for stocks, real estate, bonds, beanie babies, cars, boats, TVs, you name it. Think about it and it will make sense.
When people buy with an implicit or explicit intention to sell, then they’re speculators. There’s no entitlement for speculators. And don’t forget: nobody and I mean NOBODY was cryin’ for the “bitter renters” that refused to drink the Kool Aid.
Mine ebbs and flows. Every time some prick in a Mercedes or BMW cuts me off on the freeway, I picture them getting thrown out on their asses then having that precious little car taken in an episode of Repo on the Spanish station.
don’t forget when they fail to use their turn signal, either. idiots
I have no problem whatsoever capitalizing on other people’s complete ignorance or greedy mistakes.
“I DRINK YOUR MILK SHAKE! I DRINK IT UP!”
Burn baby burn…. :snake:
I’m always suspicious when there are no interior photos after the description hypes the upgrades, but even more so here as this is a realtor ™ “owned” property. What do you want to bet that it was a rental and is is really quite shabby inside, hence no pictures?
Pretty sad visual. The owner/realtor sneaking shots of the patio and front of the building, so as not to upset/tip off the slummy renters inside.
Two identical pics of the patio. Actually only 3 pictures out of the 13 posted were of the property, itself.
I’m with you. The lack of real pictures is a huge red caution flag to uncovered problems.
Too late — I’m mailing a copy of the listing to them today. Sorry, Realtard, but it’s not cool trying to sell somebody’s home out from under them without telling them first.
Bye bye rental cash flow……
Buster, you’re quite the pot-stirrer!
~Grin~
I’m pretty sure the Agent has been notified that this property is featured here today. Let’s see who can get to the mailbox first!
I read/post on occasion at this financial site.
There was a recent post about preforclosures, forclosures and BK in several counties in FL. The subsequent discussion was intersting b/c it talked about what choices people are faced with when the money runs out. Credit scores, keeping lines of credit open to face hard times, etc….
I think IR might be interested in looking at the thread. I know there are several other posters here who are credit savvy and may find the discussion of interest or maybe it will even affirm what is already afoot here.
http://boards.fool.com/Message.asp?mid=26735613&sort=whole#26738712
IR:
Could you possibly direct me to the website that gives such information on properties? (I have a few I would like to look up.) I’m not familiar with what sources can be used – I only know of redfin, zillow, and the like which have limited info. Thank you in advance.
The sites cost money to use. There is Sitex.com and http://www.titleprofile.com/ and some others. Do a Google search on Title Companies. There are the data sources.
IR,
I’m trying to figuer out if I should sell my house. 4Beds 3 Baths 2600 SFT I have about 500K in equity at current market price. Should I sell and rent for three years, and then get back in and “save” myself from loosing 250K of my 500K in equity?
You assume you have equity. Is grape or cherry your favorite flavor?
What do you mean “I assume?” Of course I do. I didn’t and don’t drink the kool-aide. Not_Ir, you’re a bit of an idiot. I owe 200K on the mortgage and I know I can sell it for 700K, do the basic math.(I know don’t look at fee’s etc) Just a general number of 500K. IR, could you please give me YOUR feedback?
The point was don’t assume until you list it and get an offer. Just list your property and see if you get any offers. Maybe someone will offer more than 700k. You don’t have to accept them.
IMO, anytime you can make half a mil you should go for it. the 500k will tax free if this is your primary residence and have lived there for 2 years.
“I’m trying to figuer out if I should sell my house. 4Beds 3 Baths 2600 SFT I have about 500K in equity at current market price. Should I sell and rent for three years, and then get back in and “save” myself from loosing 250K of my 500K in equity?
”
IMO, you’re already fucked. You should have been acting on that last year, rather than sitting on you ass thinking about it… Inventory is already sky high. And my guess is your “equity” is already gone.
You don’t know what your talking about. Just a a few weeks ago, a house down the stree sold for 799K SAME EXACT FLOOR PLAN. I can do it now still we are in the height of selling season. I should have sold in 2005 and gotten 900K, but hey, you are an idiot to think that I could only sell this house for 200K.
It’s certainly true that he “should have been acting on that last year, rather than sitting on you [sic] ass thinking about it.” But this isn’t very helpful, is it? I’ve got some advice for you: you should have bought dot-com stocks near the beginning of the dot-com bubble and then you should have sold them at the height of the bubble. Then you should gone into real estate, and then sold at the height of the real estate bubble. And you should also have gone into commodities. Maybe you did all of these things, maybe you didn’t – I don’t know anything about you except that you visit Irvine Housing Blog.
He already knows that he should have sold last year. The question is “what should he do now?”
My advice to him is to read through this:
https://www.irvinehousingblog.com/blog/comments/rent-versus-own/
Hydrogen,
Thanks for the input and yes, I read through the rent vs’ own about a month ago. Essentially I can’t find something comparable to rent for what I pay in my mortgage a month (1600.00). I would have to pay upwards of 2500.00 per month. But, I can downsize to something smaller for about 1800.00 a month plus storage fees b/c I couldn’t fit all my stuff in a smaller space. I’d be “loosing” the tax right off for my mortgage interest and my state property taxes. What do you think, is it worth doing this for 3 or 4 years?
Here’s my half-assed analysis (I say half-assed because I know I’m ignoring lots of stuff – taxes, maintenance costs, home price depreciation, commissions, value of time lost in moving, etc.):
If you sell the home and free up 500K, you could put the money into 3-year CDs with an average yield of 3.8%. This should give you about $1580 per month in interest. So, if your monthly housing expense increases by $900 per month ($2500 per month rent instead of a mortgage payment of $1800 per month), that’s fine. I would put 100K each into 3-year CDs with the following banks:
E-LOAN (4.31%)
Capital One (4.10%)
E*Trade Bank (4.05%)
Countrywide Bank (3.95%)
Allstate Bank (2.60%)
(average APY of 3.8%)
or would ladder the CDs with maturities ranging from 6 months to 3 years. Again, this does not present a complete picture because of all the stuff I’m ignoring, but I think you can estimate your taxes, maintenance costs, etc. better than I can. And then there’s the home price depreciation issue – I certainly don’t know how much home price depreciation we’re going to see in the next three years or whether prices will bottom out in three years, but you could try different scenarios and see how the economics of the decision change as you vary your estimates. If you want to fill in the rest of the details, I’d be interested in seeing how your analysis turns out.
Why don’t you put it one the market. If it sells, wait for the bottom to buy back in. If it does not, sit tight.
At the end of the day, it does not matter what anyone on the blog says, if your property sells for $700,000 great, if it does not, I guess it was not worth $700,000 in todays market.
It sounds like you can handle either scenario so you are in a good place.
Yeah, you are right I’m in a good place, but the only concern that I have, is if I sell now, when I get back in the market, an equivalent house to the one I own now should be selling for 500K or so. So, that is what I’m questioning, will a 4B 3B home 2600FT home bottom at 500K or lower? If it is I’m willing to do this.
One more time. Real estate is not an investment.
The only people who never lose in real estate are the ones who buy homes they can afford at rational prices and live in them, for a long time.
It would appear you’re playing the move up game. That music stopped playing awhile ago.
Of course IR can answer for himself, but if it were me I’d sell. Of course I would have sold 18-24 months ago (and I told my friends this as well). Some of my friends told me they wish they’d taken my advice.
Clearly, the correct answer will also depend on your personal and family details. If you anticipate wanting or needing to move within the next 5 years, that’s even more reason to sell now. Are you confident you can find a reasonable landlord at a reasonable rate for your needs? Do you have a ton of junk (I mean “stuff”) you’re going to have to haul around with you and store? Are you willing to give up your current low tax basis? Is there a chance you could be laid off or even want to quit from your current job?
Those are all considerations.
It’s hard for reasonable people to suggest such large financial choices to others, because they could be wrong. Therefore, you should understand that it’s not a suggestion, it’s just a statement on what I’d do in your situation. So, take this advice with the caveat that I COULD BE WRONG.
If you do sell and take a big profit, protect it properly, i.e. make sure to stay within FDIC limits etc.
JMHO
Thanks for your response. It helps to get input that I can use and really think about. Anyone else who has rational and logical suggestions, I’m all ears (or in this case eyes).
Thanks
Before you do anything, be sure to get advice or read up on the tax law. Housing is the only investment where you can sell and then buy without having to pay capital gains. But there are limits.
Also, consider the downside risk with your decision. Can you live with yourself if you sell and prices don’t fall and inflation picks up? You currently have a hedge against inflation. If you sell, that hedge is gone.
Surfing in Newport,
You are right I would have messed up in a big way if prices DON’T fall. That is what I’m trying to figuer out. Everything I read says (Including this blog) that prices are only heading lower and much, much lower. That is why I want to run with this opportunity that is sitting in my lap (if there truly is one). If prices in Irvine stay at about 300per/sqft then it’s over. I want to see if I can make some money and when it is at bottom, move up OR buy two homes (smaller homes) and build some wealth for me and my kids.
Waiting Game – I have a couple of suggestions.
You should consider a couple of more things like how much time is left on your current mortgage, your age and replacement costs.
If you have less than 10-15 years on your current mortgage, it might not make long term sense to reset that clock if you will. Assuming your mortgage is affordable and your financial situation is otherwise solid, it might make better sense to simply concentrate on paying off your mortgage especially since your payments now might be applying more toward principle than interest. Look up your amort schedule and consider where you are on that timeline.
One variable to this is your age. The younger you are the more the strategy I describe makes sense. If you are a little older 50* lets say and perhaps nearing retirement, it might make sense to grab the equity now and invest it accordingly, providing you can save money renting vs. your mortgage. There really is no more comforting thing than knowing you truly own your home. Once your home is clear of debt, you will always have a roof over your head and an asset if you ever require it.
Lastly, consider replacement costs. Sure you could potentially grab $500K, then again you might not. Presuming you sell, how much further ahead of the game could you get? How many years are you willing to wait? Then what? Pay cash for a house or have another 30 years of mortgage payments? However, using my example earlier, if you’re say 20 years into 30 year fixed, concentrate on paying off the mortgage because the advantages outweigh the downside. Sure your home might sink in potential value but remember that it’s not worth a nickel until you sell it. In 10 years time it might be still worth $500K so then you’ve really lost nothing and you kept your home, your sanity and a place to call your own.
Just my two cents/
While I enjoy expounding my views on finance, housing, economics, etc., please note that I *hate* giving financial advice. That said, I’d like to further describe my reasoning:
1) Economy is turning down in a pretty big way. Don’t buy this “it’s not a recession” stuff. It most definitely is.
2) The Kool Aid still flows. The regular WTF prices shown by IR are proof of that.
3) The mortgage/foreclosure crisis is still growing, and analysts don’t see a turnaround for a while.
4) Unemployment continues to grow and gas prices are skyrocketing. This is bad. Gas prices will likely be sticky downward even if oil prices fall.
5) Banks are getting killed. Lehman insiders want the company sold – that should say something. Even the FDIC is predicting a lot of banks are facing the tits-up scenario over the next few years.
6) Kool Aid flows in the credit markets as well. I know someone who purchased a bunch of mortgage bonds a couple months ago. Not a good move.
7) Credit markets are tightening and will continue to tighten for some time. I’d put that at 80-90% probability. The vast majority of home buyers are going to need ample access to credit to make their purchases.
There, I think that expresses the main reasons why I would sell in this market. And don’t think that I’m somehow a bitter renter that just wants homeowners to sell. I rent because I’m cheap and stingy, not because I can’t buy or feel priced out.
[quote]Even the FDIC is predicting a lot of banks are facing the tits-up scenario over the next few years[/quote]
Tits? 🙄
Tits-Up is a phrase of British origin.
More from: http://www.phrases.org.uk/meanings/385050.html
Meaning
Inoperative; broken. The term is also used to mean fallen over (on one’s back).
Origin
This is a 20th century phrase, probably of military origin. There’s certainly no mention of it in print prior to WWII. It has been suggested that the term derives from the behaviour of aeroplanes’ altitude indicators, which turn upside down when faulty and display an inverted ‘W’ resembling a pair of breasts. There’s no real evidence to support this speculation and it seems more likely that the phrase is just a vulgar alternative to the earlier ‘belly-up’, which has the same meaning.
‘Belly-up’ is an allusion to fish, which float that way when ‘dead in the water’. This expression was known in the USA by the 1920s, often related to bancruptcy or other commercial disasters.
WaitingGame,
zoiks answer was a good one. All the signs point to continued deterioration in prices. If you sold now and put the money in the bank, you could probably buy a similar house for cash in a few years.
I did exactly what you are describing. We were planning to move up in the next few years anyway, and so we accelerated our plans when it was obvious the market was going to continue tanking.
We sold our SF Bay Area house in April for a $500k profit (would have been $700k if we sold at the peak), and are now sitting on the cash while renting for the next year at least. Expect to be able to buy a much bigger house for essentially the same price as we sold.
btw, if we had waited another month, we’d have lost another $50-100k. Inventory stocks are growing like mad here.
Thanks to IHB and CR for the market insights!
Kis,
Are you renting something comparable to what you were living in? How are you protecting your 500K? Regular savings account? with FDIC? Is your rent more that your mortgage? The interest that your money is making, is that enough to cover your rent? How much are you going to pay in captial gains tax on the INTEREST the 500K is gerating for you. Thanks for your feedback!
I can see why you asked IR, because you really need to run the numbers, and this is sort of the inverse of the rent versus buy problem.
A quick and dirty way of doing this calculation properly is to go to the Ginnae Mae rent versus buy calculator (just google it) and put in your current mortgage, including the fact that you currently have like 70% equity (call that your downpayment) and compare it with the rent you’ve researched that would get you a place you’d want to live in. Assume 0% appreciation (because it doesn’t take negative numbers), and it will spit out how much more expensive it’s going to be to rent versus your current mortgage. That will give you what the “cost” of your current plan is. And thus you can compare this to the expected cost of how much your house may depreciate.
At 2600 Sqft, your estimate for your current house’s bottom price is pretty conservative, i.e. less than $180/sqft. So if that’s in Irvine, or somewhere similar you seem to already be running a worst case scenario in terms of your current place’s worth.
Dude, did you see the size of the pool this house has? And those tennis courts? This is a luxurious paradise! And Dude, it’s practically ocean front! Did you see the image of the craggy beaches? Man I just gotta have me this oceanfront condo!
And are they serious Quail Hill is in UHS’s district? Say what? That must be quite a morning bus trip LOL.
Yes, just what I would want — my green teenage driver using the 405 to get to/from school. Sure, I could insist they take Alton instead, but when time is of the essence…
IR–according to IPOPs website, a recent comp was 48 Canopy. It sold sold in May for $371/sqft, it had the same floor plan but had a much better location with direct mountain view. Not sure on the difference in upgrades. This place should sell for less.
(http://ipoplaya.com/Listings/48 Canopy, Irvine, CA 92603 $819,000 Quail Hill Real Estate.mht)
New policy suggestion.
I think it is only fair that the RE agent listing the featured properties are notified so that they can swoop in and add to the discussions here, should they choose.
It would be pretty easy to do. Most of them have a little form that you can click and fill in for them to contact you.
Can anyone see any downside to this?
Downside? Screaming, uninformed posts by realtors who can’t spell? Maybe you view that as some form of entertainment?
“Downside? Screaming, uninformed posts by realtors who can’t spell? Maybe you view that as some form of entertainment?
”
Damn straight! I view that as ENTERTAINMENT ! Why watch TV, when you have the Irvine Housing Blog !
snicker.
IR,
What a coincidence that you are writing about herd mentality right as I am reading the chapter in Robert Shiller’s Irrational Exuberance about Herd Behavior and Epidemics.
“…in everyday living we have learned that when a large group of people is unanimous in its judgment on a question of simple fact, the members of that group are almost certainly right.”
This helps explains Kool-Aid intoxication: most people think that everyone else can’t be wrong. If lots of people are making money flipping houses during a bubble, human psychology dictates that an individual’s judgment will most likely coincide with the herd, and they will join in. Once a majority begins believing that investing in a bubble market is full proof and the bubble doesn’t exist, the herd mentality only grows stronger and convinces more herd outliers.
The experiment that Shiller cites is one where a subject was placed into a group of 7 or more confederates (people who were told before hand to give incorrect responses to simple questions with obvious visual answers). One third of the subjects ended up caving in and giving obviously incorrect answers–not to peer pressure (the experiment was anonymous without face to face contact), but because they believed that if everyone else was reaching the same conclusion that everyone couldn’t possibly be wrong.
Shiller also points out a second psychological factor for herd behavior:
“…people are ready to believe the majority view or to believe authorities even when they plainly contradict matter-of-fact judgment.”
the reason for this being:
“Most people have had prior experiences of making errors when they contradicted the judgments of a larger group or of an authority figure, and they have learned from these experiences.”
So, when a broker, real estate agent, an article in the newspaper, the president of the NAR, or even your desperate neighbor trying to flip his McMansion tells you that real estate can never go down, or we’re just on a “permanently high plateau”, most people will stay in the herd and adopt the beliefs that the herd is expressing at the time (and fall off the cliff with the rest of the herd when the time comes).
:P:P:P:P:P:P:P:P:P:P:P:P
:P:P:P:P:P:P:P:P:P:P:P:P
:P:P:P:P:P:P:coolsmile: :P:P:P:P:P
:P:P:P:P:P:P:P:P:P:P:P:P
:P:P:P:P:P:P:P:P:P:P:P:P
:P:P:P:P:P:P:P:P:P:P:P:P
Of course, that same logic could apply to us. If the bears all sit around only talking to other bears, then they also run the risk of falling prey to groupthink on that end.
Which is why the herd will migrate into thinking real estate is a bad investment (as IR pointed out) and many will miss the bottom.
However, a lot of the individuals in IHB are independent thinkers, and independent thinkers tend not to get caught up in herd mentality.
Not that this is the best indicator of the economy, but may be interesting anyway. I was out shopping for an M3 at the BMW dealership the other day and instead of finding them marked up I found car salesmen offering to go well under msrp. This wouldn’t have happened 2 years ago. I may just have to pick one up; it’s been about 8 years since I bought my last car.
I’m also seeing SFRs pop up on redfin for well under $300/sqft. It will seem normal soon enough.
His question wasn’t rhetorical. See http://dictionary.reference.com/browse/rhetorical question?r=14
rhetorical question:
-a question asked solely to produce an effect or to make an assertion and not to elicit a reply, as “What is so rare as a day in June?”
-A question to which no answer is expected, often used for rhetorical effect.
This wasn’t a question where no answer was expected (“Should I sell and rent for three years, and then get back in and ‘save’ myself from loosing 250K of my 500K in equity?”).
Since he posted his question on this message board rather than sending a PM to IR, he was probably looking for a response from anyone who could shed light on the subject rather than IR specifically, even though his post starts with “IR.” If someone else might have some useful information or analysis pertaining to his question, why wouldn’t he be interested? (now, here is a rhetorical question)
He took issue with the responses he received, and I can see why – people are making assumptions about his situation and he is saying these assumptions are incorrect. Now, I don’t know whether he has 500K equity or not, but it’s certainly possible that he does. My guess is that we’ll never know for sure. If the remaining balance on his mortgage is 200K and a comparable home in a nearby location sold for 799K a few weeks ago, then 700K is probably a reasonable valuation, and he does have about 500K in equity.
He could be making this stuff up, of course. He knows the details of his situation and we don’t. Instead of making assumptions about the details, I’d say it would be better to ask him.
BTW,
Ocean View, REO in Newport Beach for < $1 million http://www.redfin.com/CA/Newport-Beach/2005-Yacht-Mischief-92660/home/4723992
I love the smell of REO in the morning 😉
Oh boy, $1.oo under a mil, such a deal. Hurry up iPop and pick up this puppy before it’s gone.
The buyers in 98 sure came up smelling like roses; bought for $575K and sold over $1.6 mil for a profit of over $1 mil for less than 10 years on their investment. Perfect market timing. I hope they are laughing at all the other idiots somewhere.
BTW, the port properties in Newport that you posted several weeks ago had 3 years supply for sale have an average sales price in June so far of 976k. That zip code hasnt been at lees than a million for several years. The average for the last few months is 1.3mm.
Actually January of 2004 was the last time this zip code had avg monthly sales under 1 mm.
Jan of 2004 saw 36 homes sell for avg price of $941,000.
For June of 2008 so far there are 8 sales with an avg price of $976,000.
This song is about the Right Place and the Right Time!
https://www.youtube.com/watch?v=WASt9E5slM0
“Private Eye” – Alkaline Trio
I dragged this lake looking for corpses
Dusted for prints, pried up the floorboards
Pieces of planes and black box recorders
Don’t lie
And I’ve been preoccupied with these sick, sick senses
That sense DNA on barbed wire fences
Maybe someday I’ll find me a suspect
That has no alibi
New Year’s Eve was as boring as heaven
I watched flies f** on channel 11
There was no one to kiss, there was nothing to drink
Except some old rotten milk someone left in the sink
And there’s no ring on the phone anymore
There’s no reason to call I passed out on the floor
Smoked myself stupid and drank my insides raisin dry
But at the right place at the right time
I’ll be dead wrong and you’ll be just fine
And I won’t have to quit doing f**** up sh**
For anyone but me
And at the right place at the right time
It will have been worth it to stand in line
And you won’t have to stop
Saying “I love cops” for anyone but me
Your private eye
Isn’t that most of life…right place right time!
Carl’s Caddy,
I really didn’t want any more feedback from Not_IR because he wasn’t making logical sense. I’m all eyes and ears to anybody who wants to make a sound and logical suggestion.
Thanks for your input. This is just tough call. There is an opportunity of a lifetime that I may be giving up here, if things continue to fall big time. On the other hand, I can play it nice and comfortable and safe by sitting tight. I just don’t know what to do.
I’m not a drama queen or alarmist, but I feel all hell is about to break loose. In my nhood, list prices need to drop another 50% to reach affordability levels closer to the istoric norm.
That may not be enough since post-bubble stds will be much tighter than pre-bubble.
Check out this link from Mr. Mortgage about a EU bank warning about a complete meltdown:
http://mrmortgage.ml-implode.com/2008/06/18/rbs-issues-global-stock-credit-crash-crash-alert-next-90-days/
I’m just someone that doesn’t have to overcompensate.
It seems pretty clear to me that he is actually looking for feedback from anyone who has something useful to contribute. He just asked me (scroll down a bit) “What do you think, is it worth doing this for 3 or 4 years?”
And then, responding to you, he wrote “I’m all eyes and ears to anybody who wants to make a sound and logical suggestion.”
So, it makes sense for this to be posted here, in the public eye. Plus, it’s a pretty generic question about a situation that could apply to many people.
Quail Hell. Just kidding. It’s a nice place, but the prices are WTF. When the Asians begin to bail…watch out below!
Wow. $700K for a 1500 sq.ft. condo and NO pergraniteel? WTF??? 🙂
On the chief economist of National Assoc. of Home Builders comments … classic bull$shit sense of entitlement. He’s thinking, “We’re entitled to massive profits and never ending sales streams at premium prices. This is America dammit!”
Privatize profits, socialize losses. I love these guys, classic hypocrites. Big Daddy Gubmint is bad, bad, bad … that is until they’ve jacked it up so badly that the only institution that can save them is the Federal Government. Curiously the tune changes and now it’s the Fed’s “duty” to step in and save ’em.
I propose we do absolutely nothing to save any home-debtor who bought in the last 5 years and had no skin in the game. AND they are precluded from entering the market for another 10 years. Instead we do what was previously suggested and provide relief (tax breaks, whatever) to first time homebuyers and qualified buyers who have not owned for at least 5 years.